Relief to Kotak Mahindra Life Insurance: ITAT Confirms Deletion of Negative Reserve Addition in Insurance Business [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) in the Kotak Mahindra Insurance case upheld the deletion of negative reserve addition in the insurance business.

The revenue has appealed against the order of the Commissioner of Income Tax Appeals [CIT(A)] for the assessment year 2021-22.

Coming to the present issue, the Assessing Officer (AO) added Rs. 399.05 crores to the taxable surplus, contending that negative reserves implied the absence of provisions and should be treated as an asset.

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Before the ITAT, the assessee’s counsel vehemently contended that all the 3 grounds that were raised in the assessee’s appeal were already covered in favor of the assessee by a previous order by the Mumbai ITAT. It was also contended by the counsel that the same issues were consistently ruled in the appellant's favor from AY 2007-08 onwards. Copies of ITAT orders, including the latest for AY 2020-21 (ITA No. 2352/Mum/2024), were also submitted.

To the dissatisfaction of the department, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, relying on several judgements. The revenue, who was aggrieved by the order of the CIT(A) that favoured the assessee, appealed before the ITAT for relief.

In its ruling, the ITAT referred to its earlier decisions in similar cases, including ICICI Prudential Insurance Co. Ltd. vs. ACIT (ITA No. 6854/Mum/2010) and HDFC Standard Life Insurance Co. Ltd. vs. DCIT (ITA No. 2203/Mum/2013).

 The Tribunal reiterated that negative reserves do not constitute a distributable surplus and, therefore, cannot be added to the taxable income of insurance companies.

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The operative portion of the ITAT order, which was reproduced from the assessee's own case, stated: "We find that the Tribunal in ICICI Prudential Insurance Co. Ltd. has concluded that such negative reserves do not give rise to distributable surplus. Respectfully following the settled position, we are inclined to dismiss this ground of revenue's appeal."

In conclusion, the Mumbai bench of the ITAT, comprising Kavitha Rajagopal (Judicial Member) and Omkareshwar Chidara (Accountant Member), dismissed the revenue’s appeal.

To Read the full text of the Order CLICK HERE

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