I think there is something wrong with your version of excel.
i am using Office 2010 prof 64bit. your file is working fine in there.
I inserted column and added data, everything reflecting in sheet1
automatically.
tell me what version your are using? office 2003?
just repair your office. that's better.
When you do the insert rows on sheet2 the formula on sheet1 recognises that the cells have moved and change the formula accordingly because the formula is a direct link to the cell.
If you need the link to stay absolute rather than dynamic, use the INDIRECT suggestion by nutsch.
Or after insertion, go back to sheet1 and copy the formula from A1 down to the right number of cells. Quick way is to double click the bottom right hand corner and this will fill down to existing area. New formula might be needed on the bottom to accommodate the new entries on sheet2.
Microsoft Excel topics include formulas, formatting, VBA macros and user-defined functions, and everything else related to the spreadsheet user interface, including error messages.