Disallowance of Insurance Expenses Set Aside Because IRDA Limits Do Not Automatically Bar Tax Deduction

National Insurance Company Limited Vs DCIT (ITAT Kolkata)

The appeals before the Income Tax Appellate Tribunal (ITAT), Kolkata concerned four matters relating to Assessment Years (AYs) 2018-19, 2022-23 and 2023-24. These appeals challenged orders passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi under section 250 of the Income-tax Act, 1961. As the issues involved were common or related, the Tribunal heard all the appeals together and disposed of them through a common order.

The assessee, a company engaged in the insurance business, filed its return of income for AY 2018-19 declaring a total loss. The case was selected for scrutiny under the Computer Assisted Scrutiny Selection (CASS) system. During assessment proceedings under section 143(3), the Assessing Officer made several additions and disallowances, including disallowance of expenditure incurred in excess of limits prescribed under section 40C of the Insurance Act, 1938 read with the regulations issued by the Insurance Regulatory and Development Authority of India (IRDAI). An amount of ₹16,64,44,000 was disallowed on this basis. The Assessing Officer also made other additions, including disallowances under section 14A and on account of amortisation of premium on investments, and assessed the total income accordingly. Penalty proceedings were initiated and a penalty under section 270A amounting to ₹11,52,05,880 was levied in relation to the disallowance of excess management expenses.