DCIT, CC 6(2), MUMBAI, MUMBAI vs. HDFC ERGO GENERAL INSURANCE COMPANY LIMITED, MUMBAI

The revenue has taken following grounds: “i. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the AO u/s 14A of the Act without appreciating the fact that if HDFC ERGO General Insurance Company Ltd. section 14A is not applicable to insurance companies by virtue of falling u/s. 44 of Income Tax Act, then, it cannot take selective benefit of section 10 also?" ii. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the AO u/s 14A of the Act without appreciating the fact that the arrangement given in section 44 is only applicable on insurance company being a non-obstate clause and has an over-riding effect on other sections and the assessee cannot take the benefit of section 10 as well as section 44; and if the assessee takes benefit of section 10 then provisions of section 14A is also applicable in the case of assessee?" iii. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition.”

The revenue has filed the appeal with delay for 8days. The Ld. AR had not made any objection related to delay of revenue. We condone the marginal delay of revenue for 8days. The appeal is taken for adjudication.

Both the appeals have emanated from the single appellate order. Both the appeals are taken together, heard together and disposed by a common order. The appeals of the assessee and revenue are adjudicated separately by a common order.

Brief facts of the case are that the assessee is a resident of corporate entity engaged in the business of providing general insurance. The assessee offers general insurance in the sector of motor, health, travel, home and personal accident in the retail space and customized products like property. During the impugned assessment year the Ld. AO had observed as per material available in the record. The Director General of Central Excise Intelligence, Chennai Zone (DGCEI) had carried out investigation in respect of certain dealers of motor vehicles, their intermediaries and their head office. In course of such investigation

In the past, assessment / reassessment proceedings were initiated based on the show cause Notice issued by the Additional Director General under the service tax law. Vide letter dated 15 March 2016 the Directorate of Income Tax (Investigation), Chennai forwarded the report of Directorate General of Central Excise Intelligence (DGCEI), Chennai Zonal Unit stating that the intermediaries i.e. AMA & TFSL have not rendered the services agreed upon in the agreement whereas the CENVAT credit on the same has been availed. The show cause focuses on the availment of service tax input credit in absence of any services being rendered.”

The Ld. AR contended that the same fact is already dealt by the Coordinate Bench of ITAT, Mumbai in the case of in assessee’s own case bearing to 2841/Mum/2025 date of pronouncement 30.07.2025 wherein the relevant observations of Coordinate bench is reproduced as below: “19. Thus, it could be seen from the above observations, while deciding identical nature of dispute, the CESTAT has discarded all the allegations of the Central Excise Authorities and reversed their decision declining CENVAT credit to the Insurance Companies. Notably, though, the decision of the CESTAT were furnished before learned First Appellate Authority by the assessee, however, instead of taking note of the decisions of higher appellate authorities, learned CIT(A) has thought it appropriate to rely upon the report of DGCEI and the order of Central Excise Department, which virtually have become inconsequential as a result of the decisions rendered by the CESTAT in identical nature of dispute. Therefore, in our view, the disallowance of deduction claimed by the assessee purely based on the report of the Central Excise Authorities is unsustainable. 20 Having held so, it is now necessary to advert to the issue as to whether, the payment can at all be disallowed by invoking Explanation-1 to Section 37(1) of the Act. On a reading of Explanation-1 to Section 37(1) of the Act it becomes clear that any expenditure incurred by assessee for any purpose, which is an offence or is prohibited by law shall not be regarded as HDFC ERGO General Insurance Company Ltd. expenditure incurred for the purpose of business, hence, no deduction can be allowed. So the exceptions are, the expenditure incurred must not be for any purpose whichis an offence, secondly which is prohibited by law. As far as the first limb of Explanation-I is concerned, it cannot be said that the expenditure incurred by the assessee is in the nature of an offence. At least there is nothing on record to suggest that any prosecution has been launched against the assessee to try any offence committed under the Insurance Act or the assessee has been held guilty for committing any offence. Second limb of the explanation is for expenditure prohibited by law. The relevant law in the present case is the Insurance Act. The AO has alleged that the assessee has violated the provision of Sections 40(1) and 40(2A) of the Insurance Act and IRDAI guidelines. In this context, the allegation of the Departmental Authorities is the assessee has paid commission in excess of what is authorized under the Insurance Act. Per contra, assessee has claimed that it has paid agency commission for motor insurance purely in accordance with the provisions of Insurance Act, which is 10% of the premium value. It is the case of the assessee that the alleged excess payment made is not insurance commission but payment made towards services rendered in relation to non-core activities such as policy servicing and related activities.

Though, the Departmental Authorities have not accepted the aforesaid claim of the assessee, however, there is no material on record to demonstrate that any action has been taken by the competent authorities under the Insurance Act. As per our understanding. Sections 102, 103, 104, 105, 105A and 105B contain provisions to impose penalty for default in complying with or acting in contravention of any provisions of the Act. Whereas, Section 105A deals with offences by company and awarding of punishment in case a company is found to be guilty of any offence. No material has been brought on record by the Department to demonstrate that the competent authority under the Insurance Act or the IRDAI has taken any punitive or penal action against the assessee for violation or contravention of any of the provisions of Insurance Act, as alleged by the AO. Thus, whenthe assessee has not been declared to be guilty of any offence nor there is any penal action initiated against the assessee for violation of the provisions of the Insurance Act or IRDAI guidelines, in our humble opinion, the exceptions provided under Explanation-I to Section 37(1) of the Act would not apply. In this context, we respectfully agree with the observations made by the coordinate Bench in case of Milestone Real Estate Fund (Supra). Pertinently, in case of M/s Cholamandalam MS General Insurance Co. Ltd. [2025] 174 taxmann.com 603 (Mad.), identical issue of disallowance of payment made to motor vehicle dealers u/s. 37(1) of the Act came up for consideration. While deciding the issue, the Hon'ble Court upheld the decision of the Tribunal restoring the issue to the AO to decide afresh. Keeping in view the order of CESTAT in case of the same party. The decision taken by the Tribunal to restore the issue was for the fact that the CESTAT decision was not available before the Departmental Authorities. However, in the facts of the present appeal,

The Ld. DR argued and stands in favor of the order of the revenue authorities.

We have heard the rival submissions and carefully perused the material available on record. The Ld. AO disallowed the assessee’s claim of deduction under section 37(1) of the Act amounting to Rs.38,40,23,228/-, being commission paid to facilitators, particularly Ashar Mehta and Associates (AMA) and other entities acting as aggregators of various service providers. We note that the very same issue has already been examined and adjudicated by the Coordinate Bench of the ITAT, Mumbai, in the assessee’s own case (supra). The Ld. DR was unable to place on record any contrary judicial precedent to rebut the findings of the Coordinate Bench rendered in the assessee’s case. Respectfully following the principles of judicial discipline and consistency, we are inclined to follow the decision of the Coordinate Bench. Accordingly, Ground Nos. 2 and 3 raised by the assessee stand allowed.

Ground No.4 to 5. The issue is related to the non-deduction of TDS on payment of reinsurance commission to nonresident & resident insurers. The assessee has not deducted the TDS related payment of reinsurance commission to non-resident amounting to Rs.99,10,219/-. The expenses is disallowed as per

The Ld. DR argued and stands in favor of the order of revenue authorities.

We heard the rival submission and considered the documents available in the record. We find that the said issue is squarely covered by the order of Hon'ble Bombay High Court in case of DCIT vs. TATA AIG General Insurance Company Ltd. (2019) 111 taxmann.com 92(Bom) date of order 19/08/2019,where no tax is deductable U/s 194D in respect of payment of reinsurance commission. The same view was taken by the Coordinate Bench of ITAT in assessee’s own case (supra). The Ld. DR was unable to place on record any contrary judicial precedent to rebut the findings of the Coordinate Bench rendered in the assessee’s case. Respectfully following the principles of judicial discipline and consistency, we are inclined to follow the decision of the Hon’ble Jurisdictional High Court &Coordinate Bench. The disallowances U/s 40(a)(i) & 40(a)(ia) of the Act are quashed. So the Ground No.4 and 5 of the assessee’s appeal stands allowed.

Ground No.6. The assessee contended that it had claimed a refund of Rs.3,78,31,605/-, being the excess Dividend Distribution Tax (DDT) paid under section 115-O of the Act. The assessee had declared dividends in favour of a non- resident shareholder resident in Germany, and the applicable tax rate, as per the India–Germany DTAA, was 10%.The Tribunal, in the assessee’s own case, had already observed that the claim for refund of excess DDT does not arise out of the assessment order and, therefore, cannot be adjudicated in an appeal against the assessment order. It was further noted that such a claim is required to be pursued through a separate appeal.In compliance thereof, the assessee has already filed a separate appeal before the Tribunal in respect of the said refund claim. Accordingly, the present ground does not survive for adjudication in this appeal and has become infructuous. The Ld. DR accepted the contention of the Ld. AR. Consequently, Ground No. 6 raised by the assessee is dismissed as infructuous.

Ground No. 7 relates to the levy of interest under section 244A of the Act in connection with the refund pertaining to DDT. The levy of such interest is purely consequential and dependent upon the final outcome of the proceedings relating to the DDT refund. Accordingly, Ground No. 7 raised by the assessee is dismissed as consequential in nature.

Ground no.8 is related to the additional ground taken before the Ld. CIT(A) towards the provision for gratuity or leave encashment under section 43B of the Act which was added back in the computation of income. In the event of the deduction claimed in the successor company on account of reversal thereof which is not allowed in the assessment of the company was the amount of HDFC ERGO General Insurance Company Ltd. gratuity amount to Rs.36,43,557/- and amount of leave encashment Rs.39,84,219/-. The issue was not adjudicated by the Ld. CIT(A) which was raised by the assessee through additional ground. Accordingly, with the consent of both the parties we restore the alleged ground to the file of the Ld. CIT(A) and direct pass a speaking order by adjudicating this ground. Needless to say the assessee should get a reasonable opportunity of hearing in set aside the proceeding. In the result the assessee’s appeal Ground No.8 is allowed for statistical purpose.

The present appeal filed by the revenue is confined to the deletion of the disallowance made under section 14A read with Rule 8D of the Income-tax Rules, 1962, by the Ld. CIT(A).The Ld. AR relied upon and supported the findings recorded by the Ld. CIT(A). It was submitted that the Ld. CIT(A) had examined the issue in detail and adjudicated the same in favour of the assessee. The relevant portion of the findings and observations of the Ld. CIT(A), as relied upon, is reproduced hereunder: “7.3.1 The facts of the case of the appellant are that during the year the appellant earned the exempt interest income and dividend of Rs.10,32,52,169/-. The AO invoked of provisions of section 14A and made disallowance of Rs. 1,13,93,635/- as per Rule 8D.

The Ld. DR argued and stands in favour of the order of the Ld. AO.

We have heard the rival submissions and perused the material available on record. We find that the Ld. CIT(A) has examined the issue in detail and, after considering the settled legal position, has rightly held that in the case of an assessee engaged in the insurance business, income is required to be computed in accordance with the provisions of section 44 read with the First Schedule to the Act. Consequently, the provisions of section 14A of the Act are not applicable. The Ld. CIT(A) has followed a series of consistent decisions of the Coordinate Benches of the Tribunal holding that disallowance under section 14A cannot be made in the case of insurance companies. The revenue has not brought on record any contrary decision or material to controvert the findings of the Ld. CIT(A).In view of the above, we find no infirmity in the order of the Ld. CIT(A) in deleting the disallowance made under section 14A read with Rule 8D of the Rules. Accordingly, the Ground (i) to (iii) of revenue’s appeal are dismissed.