Case Number: ITA 5603/DEL/2019
Appellant: DCIT Circle-21(1), New Delhi
Respondent: Religare Health Insurance Co. Ltd., New Delhi
Assessment Year: 2015-16
Case Filed On: 2019-06-27
Order Type: Final Tribunal Order
Date of Order: 2023-05-10
Pronounced On: 2023-05-10
This case involves an appeal filed by the DCIT Circle-21(1), New Delhi against Religare Health Insurance Co. Ltd., New Delhi. The appeal was filed on 2019-06-27, and the order was pronounced on 2023-05-10. The primary issue in this case was related to the disallowance of claims provision for the assessment year 2015-16.
Religare Health Insurance Co. Ltd., the respondent, is a company incorporated under the Companies Act, 1956, and is registered with the Insurance Regulatory and Development Authority (IRDA). The company is engaged in the business of selling health insurance products to individuals and corporate entities.
The appellant challenged the assessment order before the Commissioner of Income Tax (Appeals) [CIT(A)] – 38, New Delhi. The CIT(A) allowed the appeal and deleted the disallowances made by the Assessing Officer (AO). The AO had made disallowances on account of provision for unsettled claims outstanding as on March 31st and provision for Incurred But Not Reported (IBNR) claims, treating them as contingent liabilities.
The case was presented before the Income Tax Appellate Tribunal (ITAT), Delhi ‘F’ Bench, New Delhi. The Tribunal noted the submissions of both parties and reviewed the orders of the authorities below.
The Tribunal observed that the AO had disallowed the provision for unsettled claims outstanding as on March 31st, considering it an ad-hoc provision made for contingent liabilities and not ascertained liabilities. The provision for IBNR claims was also disallowed on similar grounds.
The Tribunal referred to the case of Kerala Transport Co. vs. ACIT [1994] 50 TTJ 435 (Coch. ITAT) and CIT vs. Kerala Transport Co. [1999] 239 ITR 183 (Ker.), where it was held that incurrence of liability and its quantification are two separate aspects. Merely because some claims are rejected subsequently does not mean that the provision is ad-hoc in nature.
The Tribunal also cited the case of DCIT vs. National Insurance Co. Ltd. [2016] 72 taxmann.com 116 (Kol. Trib.), where it was held that provision for IBNR claims made as per IRDA regulations based on actuarial valuation are ascertained liabilities and therefore, allowable as expenditure under Section 37 of the Income Tax Act, 1961.
The Tribunal concluded that the AO had erred in holding the provision for unsettled claims as contingent liability and the provision for IBNR claims as disallowable. The Tribunal upheld the CIT(A)’s decision, which allowed the claims as they were based on ascertained liabilities and made in accordance with IRDA regulations.
In conclusion, the appeal filed by the DCIT Circle-21(1) was dismissed, and the order of the CIT(A) was upheld. The Tribunal emphasized that provisions for unsettled claims and IBNR claims, when made based on actual communication and actuarial valuation respectively, are considered ascertained liabilities and are allowable as expenditure under the Income Tax Act, 1961.
Order pronounced in the open court on 2023-05-10
Signed by:
(ANUBHAV SHARMA) JUDICIAL MEMBER
(SHAMIM YAHYA) ACCOUNTANT MEMBER
Date: 2023-05-10
Copy forwarded to:
Assistant Registrar, ITAT, New Delhi
DCIT Circle 21(1) vs Religare Health Insurance Co. Ltd. – Claims Provision Dispute
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