Facts of the Case

The appellant/assessee, engaged in the business of life insurance, filed its return for AY 2014-15. The Assessing Officer (AO) made four disallowances:

  1. Disallowance of amortization of investment
  2. Disallowance of interest on TDS
  3. Disallowance of unpaid bonus
  4. Disallowance of unpaid leave encashment

The Commissioner of Income Tax (Appeals) deleted all disallowances. However, on appeal by the Revenue, the ITAT upheld deletion of amortization but restored disallowances relating to:

  • Interest on TDS
  • Bonus unpaid
  • Leave encashment unpaid

Aggrieved, the assessee filed an appeal before the Delhi High Court.

Issues Involved

  • Whether profits and gains of a life insurance business must be computed strictly under Section 44 read with the First Schedule, excluding general provisions like Sections 40(a) and 43B?
  • Whether the ITAT erred in applying general disallowance provisions despite the special computation mechanism under Section 44?

 Petitioner’s Arguments (Assessee)

  • Section 44 is a special provision governing computation of income for insurance companies.
  • It overrides all other computation provisions, including Sections 28 to 43B.
  • Therefore, disallowances under Section 40(a) and Section 43B cannot be applied.
  • Relied on judicial precedents:
    • General Insurance Corporation of India vs CIT (SC)
    • PCIT vs Oriental Insurance Company Ltd. (Delhi HC)

Respondent’s Arguments (Revenue)

  • Supported the findings of the ITAT.
  • Argued that disallowances under Sections 40(a) and 43B were valid and correctly applied.

Court Findings / Judgment

  • The Delhi High Court held that Section 44 contains a non-obstante clause, which overrides other provisions relating to computation of income.
  • It provides a complete code for computing profits of insurance business.
  • The Court observed:
    • Sections 28 to 43B are specifically excluded.
    • Computation must be strictly as per the First Schedule.
  • The Tribunal erred in applying Sections 40(a) and 43B.
  • The Court allowed the appeal and set aside the ITAT order.
  • The issue was decided in favour of the assessee.

Important Clarification by the Court

  • Section 44 creates a separate computation regime for insurance companies.
  • In case of conflict, First Schedule rules prevail over general provisions.
  • Even statutory disallowances like unpaid expenses under Section 43B are not applicable to insurance business.
  • The Court also relied on its earlier decision in:
    • PCIT vs Sahara India Life Insurance Co. Ltd. (2021) 432 ITR 84 (Delhi)

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS22022023ITA2852022_171449.pdf

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