Page 230 - India Insurance Report 2023- BIMTECH

218 India Insurance Report - Series II

amenable only for adjustments expressly sanctioned by mandate of clauses (a) and (c) of rule 5, for
computing total income. Accordingly, the Department may argue that deductions claimed by the assessee
under sections 32, 40(a)(ia), 35DD etc. over and above those debited to the Profit and Loss account are
not permissible. Only the additions can be made with regards to amounts disallowable u/s 30 to 43B as
provided by Rule 5 of the First Schedule.

Recently, the Mumbai Tribunal in the case of Tata AIG General Insurance Company Ltd. v. Deputy
Commissioner of Income-tax [2022] 141 taxmann.com 70 (Mumbai - Trib.) has allowed the deductions
under sections 32, 40(a), 35DD, profit on sale of fixed assets, reversal of expenses, etc. over and above that
debited the Profit and Loss account so that there is no double disallowance or double addition to income.

5. Allowability of Claims IBNR and claims IBNER

IBNR (incurred but not reported) and IBNER (incurred but not enough reported) are the provisions
created in respect of liabilities that may have incurred during the financial year but either not reported
or not enough reported. The said provisions are created on the basis of actuarial valuations.

Mumbai ITAT vide order dated 8 March 2022 in the case of Tata AIG General Insurance Company
Limited (ITA No. 14/Mum/2021) held that the provisions made for the IBNER and IBNR claims on
scientific basis and also certified by the valuer with respect to the methodology adopted in making such
provisions satisfies the entire ingredient for its allowance u/s 37 (1) of the Act and hence there is no
infirmity in the order of the CIT (A) in allowing the claim under section 37(1) of the Act.

6. Application of Section 14A of the Act

As per the provisions of section 14A of the Act, expenditure incurred to earn exempt income should not
be allowable while computing the Company’s total income. In the case of a general insurance company, since
the income is computed as per section 44 of the Act read with Rule 5 of the First Schedule to the Act, whether
the provisions of section 14A apply and would there be a disallowance for such expenditure, if any, incurred.

The Hon’ble Delhi High Court, in the case of Pr. CIT New Delhi Vs. Oriental Insurance Co. Ltd.
(2020) 118 Taxmann.com. 248) (Del) has held that the applicability of section 14A of the Act is excluded
in relation to the computation of income of an Insurance Company in view of section 44 of the Act read
with First Schedule. The Hon’ble High Court further held that sec. 44 of the Act begins with a non-
obstante clause and overrides the other provisions of the Act as mentioned therein including section
14A of the Act. This decision has been followed in subsequent judicial precedents.

However, the Finance Act 2022 has amended the provisions of section 14A of the Act, which now
starts with a non-obstante clause that reads as, “Notwithstanding anything to the contrary contained in
this Act, for the purposes of computing the total income under this Chapter, no deduction shall be
allowed in respect of expenditure incurred by the assessee in relation to income which does not form
part of the total income under this Act.”

So, would general insurance companies now be covered by the section 14A disallowances?