Harleen Kaur Bhatia, Indore V. Pr. CIT-2, Indore

ITA 150/Ind/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0837 (ITAT-INDORE)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-07-2019
• Assessment Year: 2015-2016
• Appeal Filed On: 15-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S.S. MANTRY
• Keywords: Reopening of assessment; Gift; Business income; Revision of order; Business expenditure; Share purchase agreement; Opportunity of being heard; Period of limitation; Assessment record; Prejudicial to interest; TDS; Rule 8D; Set aside
• Section: 147; 37; 263; 11; 143(3); 142(1); 10(10D); 143(2); 44AB; 43; 48; 13; 119; 22; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.150/IND/2019 ASSESSMENT YEARS: 2015-16 ITA NO.151/IND/2019 ASSESSMENT YEARS: 2015-16 ASSESSEE BY S/SHRI SUMIT NEMA & SHRI GAGANTIWARI, ARS REVENUE BY SHRI S.S. MANTRY, CIT - DR DATE OF HEARING 1 5 . 1 0 .2019 DATE OF PRONOUNCEMENT 18 . 1 2 .2019 O R D E R PER MANISH BORAD, AM THE ABOVE CAPTIONED APPEALS FILED AT THE INSTANCE O F THE DIFFERENT ASSESSEE(S) PERTAINING TO ASSESSMENT YEAR 2015-16 ARE SMT. HARLEEN KAUR BHATIA 144, PIPLIYARAO, NEAR VISHNUPURI COLONY, A.B. ROAD, INDORE VS. PR. CIT - 2 INDORE (APPELLANT) (RESPONDENT ) PAN NO.AMGPB3531P SMT . GURVINDER KAUR BHATIA 13-14, ADITYA NAGAR, NEAR VISHNUPURI COLONY, A.B. ROAD, INDORE VS. PR. CIT - 2 INDORE (APPELLANT) (RESPONDENT ) PAN NO.AGJPB0037B HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 2 DIRECTED AGAINST THE ORDERS OF PR.COMMISSIONER OF I NCOME TAX-2 (IN SHORT PR.CIT] INDORE DATED 21.12.2018 & 24.12.201 8 PASSED U/S 263 OF THE INCOME TAX ACT 1961(IN SHORT THE ACT). 2. ASSESSEE(S) HAVERAISED FOLLOWING GROUNDS OF APPE ALS; ITA NO.150/IND/2019 IN CASE OF SMT. HARLEENKAUR BHA TIA 1(A) THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED PR. CIT GROSSLY ERRED IN INVOKING THE PROVI SIONS OF SECTION 263 OF THE INCOME-TAX ACT, 1961 IN THE APPE LLANT'S CASE WITHOUT CONSIDERING THE MATERIAL FACT THAT THE ASSE SSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. L(B) THAT, THE LEARNED PRO CIT GROSSLY ERRED, BOT H ON FACTS AND IN LAW, IN ASSUMING THE JURISDICTION U/S. 263 OF THE INCOME-TAX ACT, 1961 WITHOUT CONSIDERING THE MATERIAL FACT THA T DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE APPELLANT HAD BROUGHT ON RECORD ALL THE MATERIALS AND EVIDENCES R ELATING TO THE CONCERNING ISSUE AND THE SAME WERE DULY VERIFIED BY THE AO AFTER PROPER APPLICATION OF HIS MIND. 2. THAT, WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED P R.CIT HAS GROSSLY ERRED IN GIVING A DIRECTION TO THE AO TO AS SESS THE INCOME IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF M ATURITY RECEIPTS OF THE KEYMAN INSURANCE POLICY AMOUNTING T O RS.6,49,45,7101- AND AS ALSO, TO EXAMINE THE TREATM ENT OF THE INSURANCE PREMIUMS PAID BY SHRI AMANDEEP SINGH BHAT IA, ON BEHALF OF THE APPELLANT, AFTER THE ASSIGNMENT OF TH E POLICY TO THE APPELLANT. 3.THAT, THE LEARNED PR. CIT GROSSLY ERRED IN ASSUMI NG THE JURISDICTION UNDER S.263 OF THE ACT WITHOUT CONSIDE RING AND APPRECIATING THE MATERIAL FACT THAT DURING THE COUR SE OF THE ASSESSMENT PROCEEDINGS, THE APPELLANT HAD DULY FURN ISHED THE NECESSARY PARTICULARS AND EXPLANATION IN RESPECT OF THE SUBJECT ISSUE BY WAY OF A NOTE WHILE FILING HER RETURN OF I NCOME FOR THE RELEVANT ASSESSMENT YEAR WHICH WAS DULY EXAMINED AN D HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 3 VERIFIED BY THE LEARNED AO BEFORE PASSING THE ASSES SMENT ORDER IN THE CASE OF THE APPELLANT. 4. THAT, LD. PR. CIT GROSSLY ERRED IN INVOKING PROV ISIONS OF SECTION 263 BASED MERELY ON 'CHANGE IN OPINION' 5. THAT, THE APPELLANT FURTHER CRAVES LEAVE TO ADD, ALTER AND/OR AMEND ANY OF THE FOREGOING GROUNDS OF APPEAL AS AND WHEN CONSIDERED NECESSARY ITA NO.151/IND/2019 IN CASE OF SMT. GURVINDERKAUR B HATIA 1(A) THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED PR. CIT GROSSLY ERRED IN INVOKING THE PROVI SIONS OF SECTION 263 OF THE INCOME-TAX ACT, 1961 IN THE APPE LLANT'S CASE WITHOUT CONSIDERING THE MATERIAL FACT THAT THE ASSE SSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. L(B) THAT, THE LEARNED PRO CIT GROSSLY ERRED, BOT H ON FACTS AND IN LAW, IN ASSUMING THE JURISDICTION U/S. 263 OF THE INCOME-TAX ACT, 1961 WITHOUT CONSIDERING THE MATERIAL FACT THA T DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE APPELLANT HAD BROUGHT ON RECORD ALL THE MATERIALS AND EVIDENCES R ELATING TO THE CONCERNING ISSUE AND THE SAME WERE DULY VERIFIED BY THE AO AFTER PROPER APPLICATION OF HIS MIND. 2. THAT, WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED P R.CIT HAS GROSSLY ERRED IN GIVING A DIRECTION TO THE AO TO AS SESS THE INCOME IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF M ATURITY RECEIPTS OF THE KEYMAN INSURANCE POLICY AMOUNTING T O RS.7,29,49,460/- AND AS ALSO, TO EXAMINE THE TREATM ENT OF THE INSURANCE PREMIUMS PAID BY SHRI AMANDEEP SINGH BHAT IA, ON BEHALF OF THE APPELLANT, AFTER THE ASSIGNMENT OF TH E POLICY TO THE APPELLANT. 3.THAT, THE LEARNED PR. CIT GROSSLY ERRED IN ASSUMI NG THE JURISDICTION UNDER S.263 OF THE ACT WITHOUT CONSIDE RING AND APPRECIATING THE MATERIAL FACT THAT DURING THE COUR SE OF THE ASSESSMENT PROCEEDINGS, THE APPELLANT HAD DULY FURN ISHED THE NECESSARY PARTICULARS AND EXPLANATION IN RESPECT OF THE SUBJECT ISSUE BY WAY OF A NOTE WHILE FILING HER RETURN OF I NCOME FOR THE HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 4 RELEVANT ASSESSMENT YEAR WHICH WAS DULY EXAMINED AN D VERIFIED BY THE LEARNED AO BEFORE PASSING THE ASSES SMENT ORDER IN THE CASE OF THE APPELLANT. 4. THAT, LD. PR. CIT GROSSLY ERRED IN INVOKING PROV ISIONS OF SECTION 263 BASED MERELY ON 'CHANGE IN OPINION' 5. THAT, THE APPELLANT FURTHER CRAVES LEAVE TO ADD, ALTER AND/OR AMEND ANY OF THE FOREGOING GROUNDS OF APPEAL AS AND WHEN CONSIDERED NECESSARY 3. AS THE ISSUES RAISED IN BOTH THESE APPEALS ARE C OMMON, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY T HIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. FOR ADJUDICATION PURPOSE WE WILL TAKE UP THE FACTS OF THE ASSESSEE N AMELY HARLEEN KAUR BHATIA AND OUR DECISION IN THE CASE OF HARLEEN KAUR BHATIA ITA NO.150/IND/2019 SHALL APPLY MUTATIS MUTANDIS IN THE CASE OF GURVINDER KAUR BHAITA IN ITANO.151/IND/2019. 4. BRIEF FACTS AS CULLED OUT FROM THE RECORDS ARE T HAT THE ASSESSEE IS AN INDIVIDUAL. SHE FILED E-RETURN OF INCOME ON 31.0 3.2016 DECLARING TOTAL INCOME OF RS.78,390/-. CASE WAS SELECTED FOR SCRUTINY THROUGH CASS FOLLOWED BY SERVING OF NOTICES U/S 143(2) & 14 2(1) OF THE ACT. THE ASSESSEE DULY REPLIED TO THE QUESTIONNAIRE ISSU ED BY THE LD. AO. ON REQUISITE COMPLIANCE, WRITTEN SUBMISSIONS FILED BY THE ASSESSEE AND AFTER PERUSAL OF RECORDS, BOOKS OF ACCOUNTS AND OTHER DOCUMENTS RETURNED INCOME WAS ACCEPTED AS ASSESSED INCOME. SUBSEQUENTLY, LD. PR. CIT WITHIN THE POWERS CONFERR ED TO HIM U/S 263 OF THE ACT, OBSERVED FROM THE ASSESSMENT RECORD S THAT ASSESSEE RECEIVED MATURITY AMOUNT OF INSURANCE POLICY AT RS. 6,49,45,710/-. HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 5 THIS POLICY WAS ORIGINALLY ISSUED IN THE YEAR 2005 AS KEYMAN INSURANCE POLICY WITH AN ASSURED RETURN OF 5 CRORES TO BHATIA INTERNATIONAL LTD. FOR ITS KEYMAN I.E. DIRECTOR OF THE COMPANY MR. AMARJEET SINGH BHATIA. BHATIA INTERNATIONAL COMPANY (BIC)PAID REGULAR PREMIUM TILL ASSIGNMENT AND ALSO CLAIMED DE DUCTION U/S 37 OF THE ACT AS EXPENDITURE DURING THE TERMS OF PAYME NT. THE KEYMAN INSURANCE POLICY WAS ASSIGNED BY THE COMPANY TO ITS KEYMAN I.E. MR. A.S. BHATIA (DIRECTOR). SURRENDER VALUE ON THE DATE OF ASSIGNMENT WAS OFFERED TO TAX BY THE COMPANY DURING FY 2011-12. AFTER THE ASSIGNMENT THE POLICY CONTINUED AS NORMAL LIFE INSURANCE POLICY AND PREMIUM WAS PAID. MR. A.S. BHATIA FURTHE R ASSIGNED THE POLICY TO HIS WIFE I.E. THE ASSESSEE ON 30.01.2013 AND THE ASSIGNMENT WAS DULY RECORDED BY LIFE INSURANCE CORP ORATION OF INDIA. THIS POLICY WAS PREMATURED IN FEBRUARY 2015 AND THE AMOUNT WAS RECEIVED FROM LIC OF INDIA. ASSESSEE CLA IMED IT AS AN EXEMPTED RECEIPT. ASSESSEES CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND LD. ASSESSING OFFICER AFTER CONDUCTI NG NECESSARY ENQUIRY ACCEPTED THE CLAIM OF ASSESSEE. SUBSEQUENTL Y LD. PR. CIT ON EXAMINING THE TRANSACTION IN LIGHT OF THE AMENDMENT BROUGHT IN BY FINANCE ACT 2013 EFFECTIVE FROM 01.04.2014 IN EXPLA NATION 1 TO SECTION 10(10D) OF THE ACT WAS OF THE VIEW THAT THI S AMENDMENT IS CLARIFICATORY IN NATURE AND THE ENTIRE AMOUNT RECEI VED ON MATURITY IS LIABLE TO TAX. LD. PR. CIT, ISSUED SHOW CAUSE NO TICE U/S 263 OF THE ACT CALLING UPON THE ASSESSEE AS TO WHY ASSESSMENT ORDER SHOULD NOT BE REVISED AND THE MATURITY AMOUNT OF INSURANCE POLICY REFERRED ABOVE BE SUBJECTED TO TAX. IN RESPONSE TO THE NOTIC E ASSESSEE FILED A HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 6 DETAILED SUBMISSIONS PLACING RELIANCE ON VARIOUS JU DGMENTS BUT THE SAME WAS NOT FOUND ACCEPTABLE. LD. PR. CIT. AFTER R ECORDING DETAILED FINDING, DISCUSSING THE ISSUES ON MERITS AS WELL AS THE LEGAL ASPECT DECIDED TO SET ASIDE THE ASSESSMENT ORDER AND DIR ECTED THE AO TO MAKE AFRESH ASSESSMENT ORDER IN ACCORDANCE WITH LAW . 5. AGGRIEVED BY THIS THE ASSESSEE IS IN APPEAL BEFO RE THE TRIBUNAL RAISING VARIOUS GROUNDS OF APPEAL CHALLENGING THE A SSUMING OF JURISDICTION U/S.263 OF THE ACT AND LEGALITY OF THE ORDER PASSED U/S 263 OF THE ACT. 6. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBM ISSIONS AND VARIOUS REPLIES GIVEN BEFORE THE PR. CIT BUT THE CR UX OF THE ARGUMENT WERE THAT THE KEYMAN INSURANCE POLICY ISSU ED TO THE COMPANY NAMELY BIC WAS ASSIGNED TO THE ASSESSEES H USBAND AND THEREAFTER TO THE ASSESSEE. AS A RESULT THE NATURE OF POLICY CHANGED FROM KEYMAN INSURANCE POLICY TO LIFE INSURANCE POLI CY. SURRENDER VALUE ON THE DATE OF ASSIGNMENT WAS DULY OFFERED TO TAX BY THE COMPANY NAMELY BIL. SINCE THE POLICY POST ASSIGNM ENT GOT CONVERTED TO LIFE INSURANCE POLICY, DEDUCTION U/S 8 0C OF THE ACT WAS CLAIMED BY THE ASSESSEE. HE SUBMITTED THAT THE PROCEEDS ON THE PREMATURITY OF THE POLICY ARE EXEMPT IN VIEW OF VAR IOUS JUDGMENTS WHEREIN IT IS HELD THAT KEYMAN INSURANCE POLICIES S UBSEQUENT TO THEIR ASSIGNMENT IN FAVOR OF KEYMAN OR OTHER PERSON IS CONVERTED INTO A SIMPLE LIFE INSURANCE POLICY AND THE PROCEED S ON IT MATURITY OR PRE-MATURITY ARE EXEMPTED U/S.10(10D) OF THE ACT . REFERRING TO HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 7 OTHER JUDGEMENTS IT WAS SUBMITTED THAT SINCE THE AM ENDMENT BROUGHT IN BY FINANCE ACT 2013 IN EXPLANATION 1 TO SECTION 10(10D) OF THE ACT INCREASES THE SCOPE OF TAXABILITY FOR TH E ASSESSEE, THEY ARE TO BE TREATED AS PROSPECTIVE IN NATURE AND BY NO C ANNON CAN BE TREATED AS RETROSPECTIVE OR CLARIFICATORY IN NATURE . 7. LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE ISSUE OF ALLEGED INSURANCE POLICY MATURITY RECEIPTS BEING EX EMPT STANDS SQUARELY COVERED BY THE JUDGMENT OF HON'BLE HIGH CO URT OF BOMBAY IN THE CASE OF CIT VS. PRASHANT J. AGARWALIN ITANO.465 OF 2014 DATED 26.09.2016 WHEREIN AFTER CONSIDERING THE JUDG MENT OF HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. RAJAN NANDA(2012) 18 TAXMANN.COM 98 DELHI AND CIT VS. RAJAN NANDA (2013) 37 TAXMAN.COM 335 (DELHI TRIBUNAL.) IT WAS HELD THAT ONCE THERE IS ASSIGNMENT OF THE EMPLOYER IN FAVOR OF INDIVIDUAL , THE CHARACTER OF THE INSURANCE POLICY CHANGES AND IT GETS CONVERTED INTO AN ORDINARY POLICY AND THE SUM RECEIVED THEREUNDER WOULD NOT BE SUBJECT TO TAX. HE ALSO SUBMITTED THAT THE AMENDMENT BROUGHT IN EX PLANATION (1)TO SECTION 10(10D) OF THE ACT W.E.F. 01.04.2014 WOULD NOT APPLY ON THE AMOUNT RECEIVED SINCE THE KEYMAN INSURANCE P OLICY WAS ASSIGNED PRIOR TO ASSESSMENT YEAR 2014-15. LD. COUN SEL FOR THE ASSESSEE ALSO SUBMITTED THAT LD. PR. CIT WRONGLY AS SUMED THE JURISDICTION U/S 263 OF THE ACT EVEN WHEN DETAILED INQUIRY WAS CONDUCTED BY THE LD. AO FOR THE ISSUE RAISED IN THE SHOW CAUSE NOTICE ISSUED BY THE LD. PR. CIT AND ORDER U/S 263 OF THE ACT DESERVES TO BE QUASHED. RELIANCE PLACE ON FOLLOWING JUDGMENTS: HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 8 1. MALABAR INDUSTRIAL CO. LTD. VS. CIT, 243 ITR 83 (SC ) 2. ABHISHAN ENTEREPRISES VS CIT (2016) 28 ITJ 139 ( TRIB.-INDORE) 3. M/S GUPTA SPINNING MILLS VS. CIT IN ITANO.3398/ DEL/2010 4. CIT VS. MAX INDIA LTD. 295 ITR 282 (SC) 5. CIT VS. GABRIEL INDIA LTD. (1993) 203 ITR 108(BO M) 6.CIT VS. R.K. CONSTRUCTION CO. 313 ITR 65 (GUJARAT ) 7. CIT VS. ARVIND JEWELLERS (2003) 259 ITR 502(GUJA RAT) 8.CIT VS. SUNBEAM AUTO LTD. (20100 189 TAXMAN 436 ( DEL) 8. WITH REGARD TO THE CONTENTION THAT THE AMENDMENT BROUGHT IN FINANCE ACT 2013 IN EXPLANATION (1) TO SECTION 10(1 0D) IS PROSPECTIVE IN NATURE, ASSESSEE RELIED FOLLOWING JU DGMENTS: 1. NIRMAL TEXTILES (1997) 224 ITR 378 (GUJARAT HIGH CO RUT) 2. CIT VS. ESSAR TELEHOLDING LTD. (2018) 3 SCC 253 3. CIT VS. M/S SHAH SADIQ AND SONS (1987) 3 SCC 516 4. CIT VS. VATIKA TOWNSHIP PRIVATE LTD. (2015) 1SCC 1 5. CIT VS. SARKAR BUILDERS (2015) 7 SCC 579 9. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE(DR) V EHEMENTLY ARGUED STRONGLY SUPPORTING THE DETAILED FINDING OF LD. PR. CIT. 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US AND CAREFULLY GONE THROUGH THE JUDGMENTS REFERRED AND RELIED BY THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS THE JUDGMENTS REFERRED IN THE IMPUGNED ORDER PASSED BY THE LD. PR . CIT. BEFORE DECIDING THE ISSUE WHETHER THE ORDER PASSED BY THE LD. PR. CIT IS HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 9 VALID AND IN ACCORDANCE WITH LAW LAID DOWN U/S 263 OF THE ACT, IT IS NECESSARY FOR US TO DISCUSS THE PROVISIONS OF SECTI ON 263 OF THE ACT WHICH EMPOWERS THE PR. CIT/CIT TO REVISE THE ASSESS MENT ORDER: 263. (1) THE PRINCIPAL COMMISSIONER OR COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN B Y THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS P REJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUS ING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, I NCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CAN CELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. EXPLANATION 1.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION, (A) AN ORDER PASSED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988 BY THE ASSESSING OFFICER SHALL INCLUDE (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMISSIONER OR DEPUTY COMMISSIONER OR THE INCOME- TAX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED B Y THE JOINT COMMISSIONER UNDER SECTION 144A ; (II) AN ORDER MADE BY THE JOINT COMMISSIONER IN EXERCISE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTIONS OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISS UED BY THE BOARD OR BY THE PRINCIPAL CHIEF COMMISSIONER OR CHIEF COMMISSIONER OR PRINCIPAL DIRECTOR GENERAL OR DIRECTOR GENERAL OR PRINCIPAL COMMISSIONER OR COMMISSIONER AUTHORISED BY THE BOARD IN THIS BEHALF UNDER SECTION 120 ; (B) 'RECORD' SHALL INCLUDE AND SHALL BE DEEMED ALW AYS TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDIN G UNDER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY TH E PRINCIPAL COMMISSIONER OR COMMISSIONER; HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 10 (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTIO N AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJEC T MATTER OF ANY APPEAL FILED ON OR BEFORE OR AFTER TH E 1ST DAY OF JUNE, 1988, THE POWERS OF THE PRINCIPAL COMMISSI ONER OR] COMMISSIONER UNDER THIS SUB-SECTION SHALL EXTEN D AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MAT TERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPE AL. EXPLANATION 2.FOR THE PURPOSES OF THIS SECTION, IT IS HEREBY DECLARED THAT AN ORDER PASSED BY THE ASSESSING OFFI CER SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICI AL TO THE INTERESTS OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER, (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES O R VERIFICATION WHICH SHOULD HAVE BEEN MADE; (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOU T INQUIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119 ; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE WI TH ANY DECISION WHICH IS PREJUDICIAL TO THE ASSESSEE, REND ERED BY THE JURISDICTIONAL HIGH COURT OR SUPREME COURT IN T HE CASE OF THE ASSESSEE OR ANY OTHER PERSON. (2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) AF TER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY TIME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CO NSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING OR DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE TRIBUNAL, NATIONAL TAX TRIBU NAL, THE HIGH COURT OR THE SUPREME COURT. EXPLANATION.IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB-SECTION (2), THE TIME TAKEN IN GIVI NG AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEEDING HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 11 UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCT ION OF ANY COURT SHALL BE EXCLUDED. 11. FROM PERUSAL OF THE AFORESAID SECTION, IT IS AP PARENT THAT THERE ARE MAINLY FOUR FEATURES OF THE POWER FOR REVISION TO BE EXERCISED U/S 263 OF THE ACT BY THE PR. CIT. I. THE PR. CIT MAY CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDINGS UNDER THE ACT AND FOR THIS PURPOSE HE/S HE NEED NOT TO SHOW ANY REASON OR RECORD ANY REASON TO BELI EF AS IT IS REQUIRED U/S 147 OR 148(2) OF THE ACT. II. HE/SHE MAY CONSIDER ANY ORDER PASSED BY THE ASS ESSING OFFICER AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THIS IS EXERCISED BY CALLING FOR AND EXAMI NING THE RECORD AVAILABLE AT THIS STAGE. III. IF AFTER CALLING FOR AND EXAMINING THE RECORDS THE COMMISSIONER CONSIDERS THAT THE ORDER OF THE ASSESS ING OFFICER IS ERRONEOUS IS SO FAR IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE, HE IS BOUND TO GIVE AN OPPORTUNITY TO THE ASSESSEE OF BEING HEARD AND AFTER THAT AS HE/SHE MAY DEEM FIT, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE MAY JUSTIFY INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSES SMENT OR CANCELLING ASSESSMENT AND DIRECTING A FRESH ASSESSM ENT OR MAKE SUCH ENQUIRIES AS HE DEEMS NECESSARY. IV. UNDER THE PROVISIONS OF SECTION 263 OF THE ACT PR. CIT/CIT CAN ENHANCE OR MODIFY THE ASSESSMENT AS A RESULT OF INQUIRY CONDUCTED AND HEARING OF THE ASSESSEE. HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 12 12. IT IS WELL SETTLED LAW THAT FOR INVOKING THE PR OVISIONS OF SECTION 263 OF THE ACT BOTH THE CONDITIONS THAT THE ORDER M UST BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE NEEDS TO BE SATISFIED. THIS RATIO STANDS LAID DOWN BY VARIOUS HON'BLE COURTS. 13. HON'BLE JURISDICTIONAL HIGH COURT OF MADHYA PRA DESH IN THE CASE OF H.H. MAHARAJA RAJA POWER DEWAS (1983) 15 TAXMAN 363 IN PARA 10 OF THIS ORDER HELD THAT HOWEVER, THE FIRST ARGUMENT, VIZ., THAT AN ASSESSMENT ORDER WITHOUT CO MPLIANCE WITH THE PROCEDURE LAID DOWN IN SECTION 144B IS ERRONEOU S BUT NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE CONFERR ING REVISIONAL JURISDICTION ON THE COMMISSIONER UNDER SECTION 263( 1), HAS FORCE. UNDER SECTION 263(1) TWO PRE-REQUISITES MUST BE PRE SENT BEFORE THE COMMISSIONER CAN EXERCISE THE REVISIONAL JURISDICTI ON CONFERRED ON HIM. FIRST IS THAT THE ORDER PASSED BY THE ITO MUST BE ERRONEOUS. SECOND IS THAT THE ERROR MUST BE SUCH THAT IT IS PR EJUDICIAL TO THE INTERESTS OF THE REVENUE. IF THE ORDER IS ERRONEOUS BUT IT IS NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE CO MMISSIONER CAN NOT EXERCISE THE REVISIONAL JURISDICTION UNDER SECTION 263(1)..THERE CANNOT BE ANY PREJUDICE TO THE REVENUE ON ACCOUNT OF THE ITO'S FAILURE TO FOLLOW THE PROCEDUR E PRESCRIBED UNDER SECTION 144B, AND UNLESS THE PREJUDICE TO THE INTER ESTS OF THE REVENUE IS SHOWN, THE JURISDICTION UNDER SECTION 263(1) CAN NOT BE EXERCISED BY THE COMMISSIONER, EVEN THOUGH THE ORDER IS ERRONEOU S. THE ARGUMENT THAT SUCH AN ORDER MAY POSSIBLY BE CHALLENGED IN AP PEAL BY THE ASSESSEE, AND FOR THIS REASON IT IS PREJUDICIAL TO THE INTERESTS OF THE HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 13 REVENUE, HAS NO MERIT. SECTION 263(1) CLEARLY CONTE MPLATES THAT THE ORDER OF ASSESSMENT ITSELF SHOULD BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND THIS PREJUDICE HAS TO BE PROVED BY REFE RENCE TO THE ASSESSMENT ORDER ONLY. IT CANNOT BE ARGUED THAT THE RE IS SOME POSSIBILITY OF THE ASSESSMENT ORDER BEING CHALLENGE D OR REVISED IN APPEAL AND, THEREFORE, ON ACCOUNT OF THIS CONTINGEN CY, THE ORDER BECOMES PREJUDICIAL TO THE INTERESTS OF THE REVENUE . [EMPHASIS SUPPLIED] 14. HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. [2000] 243 ITR 83 ORDER PRONOUNCED ON 10.02.2000 HEAD NOTE 'SECTION 263 OF THE INCOME-TAX ACT, 1961 - REVISION - OF ORDERS PREJUDICIAL TO INTERESTS OF REVENUE - ASSESSMENT YE AR 1983-84 - WHETHER IN ORDER TO INVOKE SECTION 263 ASSESSING OF FICER'S ORDER MUST BE ERRONEOUS AND ALSO PREJUDICIAL TO REVENUE AND IF ONE OF THEM IS ABSENT, I.E., IF ORDER OF INCOME-TAX OFFICER IS ERR ONEOUS BUT IS NOT PREJUDICIAL TO REVENUE OR IF IT IS NOT ERRONEOUS BU T IS PREJUDICIAL TO REVENUE, RECOURSE CANNOT BE HAD TO SECTION 263(1) - HELD, YES - WHETHER IF DUE TO AN ERRONEOUS ORDER OF ITO, REVENU E IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO INTERESTS OF REVENUE - HELD, YES - ASSESSEE-COMPANY ENTERED INTO AGREEMENT FOR SALE OF ESTATE OF RUBBER PLANTATION - AS PURCHASER COULD NOT PAY INSTALLMENTS AS SCHEDULED IN AGREEMENT, EXT ENSION OF TIME FOR PAYMENT OF INSTALLMENTS WAS GIVEN ON CONDITION OF V ENDEE PAYING DAMAGES FOR LOSS OF AGRICULTURAL INCOME AND ASSESSE E PASSED RESOLUTION TO THAT EFFECT - ASSESSEE SHOWED THIS RE CEIPT AS AGRICULTURAL HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 14 INCOME - RESOLUTION PASSED BY ASSESSEE WAS NOT PLAC ED BEFORE ASSESSING OFFICER - ASSESSING OFFICER ACCEPTED ENTR Y IN STATEMENT OF ACCOUNT FILED BY ASSESSEE AND ACCEPTED SAME - COMMI SSIONER UNDER SECTION 263 HELD THAT SAID AMOUNT WAS NOT CONNECTED WITH AGRICULTURAL ACTIVITIES AND WAS LIABLE TO BE TAXED UNDER HEAD 'INCOME FROM OTHER SOURCES' - WHETHER, WHERE ASSESSING OFFI CER HAD ACCEPTED ENTRY IN STATEMENT OF ACCOUNT FILED BY ASSESSEE, IN ABSENCE OF ANY SUPPORTING MATERIAL WITHOUT MAKING ANY ENQUIRY, EXE RCISE OF JURISDICTION BY COMMISSIONER UNDER SECTION 263(1) W AS JUSTIFIED - HELD, YES 15. HONBLE GUJARAT HIGH COURT IN THE CASE OF SMT. MINALBEN S. PARIKH [1995] 215 ITR 81 ORDER PRONOUNCED ON 17 .10.1994 PARA 12 FROM THE AFORESAID, IT CAN WELL BE SAID THAT THE WELL-SETTLED PRINCIPLE IN CONSIDERING THE QUESTION AS TO WHETHER AN ORDER IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE OR NOT IS TO ADDRESS ONESELF TO THE QUESTION WHETHER THE LEGITIMATE REVENUE DUE TO THE EXCHEQUER HAS BEEN REALISED OR NOT OR CAN BE REALISED OR NOT IF HIS ORDERS UNDER CONSIDERATION ARE ALLOWED TO STAND. FOR ARRIVING AT THIS CONCLUSION, IT BECOMES NECESSARY AND RELEVANT TO CONSIDER WHETHER THE INCOME IN RESPECT OF WHICH TAX IS TO BE REALISED, HAS BEEN SU BJECTED TO TAX OR NOT OR IF IT IS SUBJECTED TO TAX, WHETHER IT HAS BEEN S UBJECTED TO TAX AT A RATE AT WHICH IT COULD YIELD THE MAXIMUM REVENUE IN ACCORDANCE WITH LAW OR NOT. IF INCOME IN QUESTION HAS BEEN TAXED AN D LEGITIMATE REVENUE DUE IN RESPECT OF THAT INCOME HAD BEEN REAL ISED, THOUGH AS A RESULT OF ERRONEOUS ORDER HAVING BEEN MADE IN THAT RESPECT, IN OUR HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 15 OPINION, THE COMMISSIONER CANNOT EXERCISE POWERS FO R REVISING THE ORDER UNDER SECTION 263 MERELY ON THE BASIS THAT TH E ORDER UNDER CONSIDERATION IS ERRONEOUS. IF THE MATERIAL IN THAT REGARD IS AVAILABLE ON THE RECORD OF THE ASSESSEE CONCERNED, THE COMMIS SIONER CANNOT EXERCISE HIS POWERS BY IGNORING THAT MATERIAL WHICH LINKS THE INCOME CONCERNED WITH THE TAX REALIZATION MADE THEREON. TH E TWO QUESTIONS ARE INTER-LINKED AND THE AUTHORITY EXERCISING POWER S UNDER SECTION 263 IS UNDER AN OBLIGATION TO CONSIDER THE ENTIRE M ATERIAL ABOUT THE EXISTENCE OF INCOME AND THE TAX WHICH IS REALIZABLE IN ACCORDANCE WITH LAW AND FURTHER WHAT TAX HAS IN FACT BEEN REAL ISED UNDER THE ALLEGED ASSESSMENT ORDERS.[EMPHASIS SUPPLIED] 16. HONBLE KARNATAKA HIGH COURT IN THE CASE OF V. G. KRISHNAMURTHY [1985] 20 TAXMAN 65 ORDER PRONOUN CED ON 19.03.1984 PARA 10 SECTION 263 CAN BE INVOKED BY THE COMMISSIONER ONLY WHEN HE PRIMA FACIE FINDS THAT TH E ORDER MADE BY THE ITO WAS ERRONEOUS AND WAS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BOTH THESE FACTORS MUST SIMULTANEOUSLY EXI ST. AN ORDER THAT IS ERRONEOUS MUST ALSO HAVE RESULTED IN LOSS OF REV ENUE OR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. UNLESS BOTH THESE FACTORS CO-EXIST OR EXIST SIMULTANEOUSLY, THE COMMISSIONER CANNOT INVOK E OR RESORT TO SECTION 263. IT CANNOT BE EXERCISED TO CORRECT EVER Y CONCEIVABLE ERROR COMMITTED BY AN ITO. BEFORE THE SUOMOTO POWER OF RE VISION CAN BE EXERCISED, THE COMMISSIONER MUST AT LEAST PRIMA FAC IE FIND BOTH THE REQUIREMENTS OF SECTION 263, NAMELY, THAT THE ORDER SOUGHT TO BE REVISED IS PRIMA FACIEERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 16 REVENUE. IF ONE OF THE OTHER FACTOR WAS ABSENT, THE COMMISSIONER CANNOT EXERCISE THE SUOMOTO POWER OF REVISION UNDER SECTION 263. [EMPHASIS SUPPLIED] 17. NOW WE PROCEED TO EXAMINE THE FACTS OF THE INST ANT CASE IN THE LIGHT OF THE RATIO LAID DOWN BY HON'BLE COURTS SO A S TO EXAMINE FIRSTLY WHETHER THE ASSESSMENT ORDER PASSED BY THE LD. AO IS ERRONEOUS IN NATURE AND SECONDLY WHETHER IT IS PREJ UDICIAL TO THE INTEREST OF REVENUE. 18. FIRSTLY, IN ORDER TO EXAMINE THAT WHETHER THE A SSESSMENT ORDER IS ERRONEOUS, WE OBSERVE THAT LD. PR. CIT WITHIN TH E POWERS PROVIDED IN SECTION 263 OF THE ACT ISSUED FOLLOWING SHOW CAUSE NOTICE TO THE ASSESSEE. PLEASE REFER TO THE ASSESSMENT ORDER DATED 15.12.2 017 FOR A.Y. 2015-16 IN YOUR CASE. ON PERUSAL OF CASE RECORD IN YOUR CASE FOR THE A.Y. 2015-16 IT IS NOTED THAT YOU HAVE FURNISHE D YOUR RETURN OF INCOME DECLARING TOTAL INCOME AT RS.78,390/- ON 31.03.2016. ASSESSMENT IN YOUR CASE U/S 143(3) OF I.T. ACT 1961 WAS COMPLETED BY THE ITO-5(3), INDORE VIDE ORDER DATED 15.12.2017 ASSESSING TOTAL INCOME AT RS.78,390/-. THE ENTIRE RECORDS WERE GONE THROUGH BY ME AND ON P ERUSAL AND EXAMINATION OF RECORDS IT APPEARS THAT THE ORDER DA TED 15.12.2017 FOR A.Y. 2015-16 IS ERRONEOUS AS ALSO PR EJUDICIAL TO THE INTEREST OF REVENUE ON ACCOUNT OF PASSING OF TH E ORDER WITHOUT MAKING PROPER ENQUIRIES/INVESTIGATIONS. AS PER THE INFORMATION AVAILABLE ON RECORDS IT IS N OTED THAT YOU HAVE RECEIVED MATURITY AMOUNT OF INSURANCE POLICY T O THE EXTENT OF RS.6,49,45,710/-. THE COMPANY BHATIA INTERNATION AL LTD. IN WHICH YOUR HUSBAND WAS A DIRECTOR, HAD PURCHASED IN SURANCE POLICY NAMED AS JEEVANANAND FROM LIC OF INDIA IN AP RIL 2005 OF THE LIFE OF YOUR HUSBAND, WITH A SUM ASSURANCE OF R S.5 CRORES. HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 17 PREMIUM THEREON WAS PAID BY THE COMPANY UPTO OCT, 2 010 AND CLAIMED DEDUCTION THEREOF, U/S 37 OF THE ACT FROM I TS COMPUTATION OF INCOME. YOU HAVE GOT THE ORDINARY LIFE INSURANCE POLICY TH ROUGH ASSIGNMENT FROM YOUR HUSBAND SUB-SEQUENT TO THE PAY MENT OF SURRENDER VALUE ALREADY PAID TO THE COMPANY BHATIA INTERNATIONAL LTD. FOR RS.1,72,32,045/- DATED 31.03 .2012 BY THE HUSBAND, AS THIS WAS A KEYMAN POLICY IN HIS NAME BE ING THE DIRECTOR OF M/S BHATIA INTERNATIONAL LTD. THE SOURC E OF PREMIUM & SURRENDER VALUE PAID IN YOUR HAND HAVE BEEN SHOW AS GIFT RECEIVED FROM THE HUSBAND, THE ASSIGNMENT IS COMPLE TED IN YOUR FAVOUR ON 31.03.2013 I.E. BEFORE THE AMENDMENT OF S ECTION 10(10D) OF THE I.T. ACT LIC HAS DEDUCTED TDS @ 2% U NDER SECTION 194DA ON MATURITY VALUE AND YOU HAVE RECEIV ED PREMATURE MATURITY VALUE IN FEB, 2015 WHEREAS THE A CTUAL DATE OF MATURITY IS 28.04.2015. IN VIEW OF AMENDMENT PRO VISIONS OF EXPLANATION (1) OF SECTION 10(10D) OF THE ACT, THE RECEIPT ARE TAXABLE IN THE HANDS OF ASSIGNEE I.E. ASSESSEE EVEN IF THEY ARE ASSIGNED BEFORE THE DATE OF SAID AMENDMENT. ALTHOUG H THE ASSIGNMENT HAS BEEN COMPLETED BEFORE THE AMENDMENT DATE I.E. 31.03.2013, BUT THE SAME DOES NOT CHANGE THE NATURE AND CHARACTER OF THE RECEIPT, WHICH HAVE BEEN RECEIVED AFTER THE AMENDMENT. IT APPEARS THAT EVEN AMENDED SECTION. 10 (10D) DOES NOT MAKE THE AFORESAID POLICY EXEMPT FROM TAXA TION ON ITS MATURITY/PREMATURITY RECEIPTS. THE RECEIPTS HAVE TA KEN PLACE SUBSEQUENT TO SUCH AMENDMENT, THEREFORE, THE SAME S HOULD HAVE BEEN TAXED EITHER IN THE HANDS OF KEYMAN (THE ASSESSEEES HUSBAND) OR IN THE HANDS OF THE ASSESSEE (THE KEYMA NS ASSIGNED) BUT IN THE PRESENT CASE BOTH HAVE ESCAPED TAXATION ON THE SAID AMOUNT CREATING DETRIMENT TO THE REVENUE. HENCE THIS FACT SHOULD HAVE BEEN EXAMINED. THE AO HAS NOT EXAMINED THIS FACTOR AND NO ENQUIRY/INVESTIGATION HAS BEEN MADE. THEREFORE, THE ASSESSMENT ORDER PASSED BY THE AO APPEARS TO BE ERR ONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. YOU ARE, THEREFORE THE REQUIRED TO SHOW CAUSE WHY PROVISION OF SECTION 263 BE NOT INVOKED IN YOUR CASE FOR THE REASONS MEN TIONED ABOVE. HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 18 19. IN RESPONSE TO THE ABOVE NOTICE THE SOLE ISSUE WAS WITH REGARD TO THE MATURITY AMOUNT RECEIVED ON THE INSURANCE POLIC Y BY THE ASSESSEE WHICH WAS ORIGINALLY TAKEN AS A KEYMAN INS URANCE POLICY BY BHATIA INTERNATIONAL LTD BUT SUBSEQUENTLY ASSIGN ED TO THE KEYMAN I.E. DIRECTOR, AMANDEEP SINGH BHATIA ON 23.0 2.2012 AND FURTHER MR. AMANDEEP SINGH BHATIA ASSIGNED POLICY T O HIS WIFE SMT. HARLEEN KAUR BHATIA ON 30.01.2013. FOREMOST IT IS T O BE SEEN THAT WHETHER THIS ISSUE OF TAXABILITY OF MATURITY PROCEE DS OF THE INSURANCE POLICY CAME UP BEFORE THE LD. AO AND WHET HER HE CONDUCTED SUFFICIENT ENQUIRY WITH REGARD TO THIS IS SUE. 20. RECORDS SHOW THAT WITH THE COMPUTATION OF INCOM E FILED ALONG WITH RETURN OF INCOME ON 31.03.2016 ASSESSEE GAVE A DETAILED NOTE ABOUT THE AMOUNT RECEIVED FROM MATURITY OF INSURANC E POLICY WHICH WAS ORIGINALLY TAKEN AS A KEMAN INSURANCE POLICY WH ICH READS AS FOLLOWS: DURING THE RELEVANT PERIOD ASSESSEE RECEIVED MATURI TY AMOUNT OF INSURANCE POLICY OF RS.6,49,45,710/- AND ON WHICH A SSESSEE HAS PAID ASSIGNMENT VALUE OF RS.1,72,32,045/- AND A FTER ASSIGNMENT PREMIUM OF RS.1,61,65,193/- I.E. TOTAL A MOUNT OF RS.3,33,97,238/-. DURING THE RELEVANT PERIOD ASSESSEE RECEIVED MATURI TY AMOUNT OF INSURANCE POLICY OF RS.6,49,45,710/-. THE COMPANY B HATIA INTERNATIONAL LTD. IN WHICH THE ASSESSEES HUSBAND WAS A DIRECTOR, HAD PURCHASED INSURANCE POLICY NAMED AS JEEVANANAND FROM LIC OF INDIA IN APRIL 2005, ON T HE LIFE OF THE ASSESSEEES HUSBAND WITH A SUM ASSURANCE OF RS.5.00 CR. PREMIUM THEREON WAS PAID BY THE COMPANY UPTO OCT. 2 010 AND CLAIMED DEDUCTION THEREOF, U/S 37 FROM ITS COMPUTAT ION OF INCOME (IE. IN P/L ACCOUNT). HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 19 ASSESSE HAS GOT THE ORDINARY LIFE INSURANCE POLICY THROUGH ASSIGNMENT FROM HER HUSBAND ON THE PAYMENT OF SURRE NDER VALUE PAID TO THE COMPANY BHATIA INTERNATIONAL LTD. FOR RS.1,72,32,045/- DATED 31.03.2012 AS THIS IS A KEYM AN POLICY IN THE NAME OF BHATIA INTERNATIONAL LTD. (KEYMANASS ESSEES HUSBAND) AND 07 YEARS PREMIUM PAID BY THE COMPANY(I E FROM APRIL 2005 TO MARCH 2012). COMPANY HAD ASSIGNED THI S POLICY TO THE KEYMAN ON SURRENDER VALUE & FOR REMAINING TENUR E PREMIUM IS PAID BY THE ASSESSEE. THE SOURCE OF PREMIUM & SURRENDER VALUE PAID IN THE HAND OF ASSESSEE IS GIFT RECEIVED FROM THE HUSBAND, THE ASS IGNMENT IS COMPLETED IN FAVOUR OF ASSESSEE ON 30.01.2013 BEFOR E THE AMENDMENT W.E.F 01.04.2014 U/S 10(10D). THESE AMEND MENT IS PROSPECTIVE NOT RETROSPECTIVE THEREFORE MATURITY VA LUE IS FULLY EXEMPT IN THE HAND OF ASSESSEE BECAUSE THESE IS AN ORDINARY POLICY. ONLY DUE TO THESE AMENDMENT ASSESSEE HAS PA ID SELF ASSESSMENTCHALLAN, IN FACT AMENDMENT IS PROSPECTIVE AND NO TAX IS PAYABLE THEREFORE REFUND IS GENERATED. HENCE SUM OF RS.6,49,45,710/- RECEIVED FROM LIC IS CLAIMED AS EX EMPT. LIC HAS DEDUCTED TDS @ 2% UNDER SECTION 194DA ON MA TURITY VALUE AND ASSESSEE HAS RECEIVED PRE MATURE MATURITY VALUE IN FEB. 2015 WHERE ACTUAL DATE OF MATURITY VALUE IS 28 .04.2015. 21. WE FURTHER OBSERVE THAT LD. PR. CIT AFTER CONSI DERING THE SUBMISSIONS, DOCUMENTS AND OTHER RELEVANT DETAILS F ILED BY THE ASSESSEE AS WELL AS THE CORRESPONDENCE BETWEEN THE ASSESSEE AND THE LD. ASSESSING OFFICER WAS NOT CONVINCED AND WEN T AHEAD TO HOLD THAT THE MATURITY RECEIPTS OF THE KEYMAN INSURANCE POLICY ARE TAXABLE IN THE HANDS OF ASSESSEE AND DIRECTED THE L D. ASSESSING OFFICER TO REASSESS THE ASSESSEES INCOME OBSERVING AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT RECORDS AND THE WRITTEN SUBMISSION GIVEN BY THE ASSESSEE. IT IS NOTED THAT THE CASE WAS SELECTED FO R COMPLETE HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 20 SCRUTINY THROUGH CASS AND THE REASON FOR SELECTION WERE MENTIONED AS HIGH RATIO OF REFUND TO TDS, DELAYED P AYMENT OF TAX AND ITR FILED LATE AND LARGE REFUND CLAIMED OUT OF THE SELF- ASSESSMENT TAX. THE RECORDS SHOW THAT THE ASSESSEE HAS RECEIVED PAYMENT ON ACCOUNT OF MATURITY OF AN INSUR ANCE POLICY ON WHICH THE TAX HAS BEEN DEDUCTED BY THE INSURANCE COMPANY AT THE TIME OF PAYMENT OF MATURITY PROCEEDS. THE PO LICY WAS A KEYMAN INSURANCE POLICY WHICH AS ASSIGNED TO THE HU SBAND OF THE ASSESSEE NAMELY SHRIAMANDEEP BHATIA BY THE EMPL OYER NAMELY BHATIA INTERNATIONAL LTD. IN THE MONTH OF MA RCH, 2012. SHRIAMANDEEP SINGH BHATIA LATER ON ASSIGNED THE POL ICY TO THE ASSESSEE ON 30.01.2013. THE POLICY WAS ENCASHED BEF ORE MATURITY IN THE MONTH OF FEBRUARY 2015 WHEREAS THE ACTUAL DATE OF MATURITY WAS 28.04.2015. THE ASSESSING OFFICER ISSUED THREE NOTICES U/S 142( 1) DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE FIRST NOTICE WAS ISSUED ON 19.05.2017 IN WHICH GENERAL DETAILS WERE ASKED. IN THE SECOND NOTICE WHICH AS ISSUED ON 11.08.2017, THE AS SESSING OFFICER ASKED SOME MORE QUESTIONS SUCH AS MISMATCH THE AMOUNT PAID TO RELATED PERSONS, COPY OF BANK ACCOUN T, BILL VOUCHERS OF SALE OF JEWELLERY ETC. ANOTHER NOTICE W AS ISSUED ON 13.11.2017 THERE ALSO SOME SUNDRY QUESTION LIKE PUR CHASE OF SHARE AND SOURCE THEREOF WAS ASKED. IN NONE OF THE NOTICE THE ASSESSING OFFICER ASKED ABOUT THE MATURITY OF THE I NSURANCE POLICY AND ITS TREATMENT THEREOF. HE DID NOT EVEN A SKE THE ASSESSEE AS TO WHAT IS THE REASON FOR HIGH REFUND O R REFUND OUT OF SELF-ASSESSMENT TAX PAID. THE ORDER SHEET ENTERE D ALSO DO NOT SHOW ANY QUESTIONOR QUERY REGARDING THE RECEIPTS OF MATURITY AMOUNT FROM LIC. THE OFFICER HAS RECORDED SOME KIND OF FINDING ON THE ORDER SHEET TOWARDS THE END OF THE PROCEEDIN GS IN WHICH HE HAS REPRODUCED THE SEQUENCE OF EVENTS NARRATED B Y THE ASSESSEE IN THE SUBMISSIONS RELATED TO THE RECEIPT OF MATURITY AMOUNT OF INSURANCE POLICY. HE HAS ACCEPTED THE VER SION GIVEN BY THE ASSESSEE WITHOUT ANY ENQUIRY REGARDING THE S OURCES OF PAYMENT OF INSURANCE PREMIUM, THE UTILIZATION OF TH E POLICY MATURITY RECEIPTS ETC. THE CASE LAWS WHICH HAS BEEN RELIED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER SUCH AS R AJAN NANDA 18 TAXMAN.COM 98 AND PRASHAN J. AGARWAL 243 TAXMAN 119 IS HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 21 NO MORE APPLICABLE AS THE PROVISION OF SECTION 10(1 0D) OF THE INCOME TAX ACT HAS BEEN AMENDED W.E.F. 01.04.2014 I N WHICH THE LOOPHOLE REGARDING ASSIGNMENT OF KEYMAN INSURAN CE POLICY HAS BEEN PLUGGED. THE ASSESSING OFFICER DID NOT MAK E ANY ATTEMPT TO MAKE ANY ENQUIRY ON THE ISSUE. THE SEQUE NCE OF EVENT AS NARRATED BY THE ASSESSEE BEFORE THE ASSESS ING OFFICER CLEARLY SHOW THAT THE POLICY WAS ASSIGNED TO MR. BH ATIA BY BHATIA INTERNATIONAL LTD. ON THE SURRENDERED VALUE OF 1.72 CRORES ON 23.02.2012. SUBSEQUENTLY, MR. BHATIA ASSI GNED THIS POLICY TO HIS WIFE AS A GIFT ON 30.01.2012. THE POL ICY WAS FINALLY TERMINATED PREMATURELY IN FEB, 2015. THESE DATES CL EARLY SHOW THAT THE DATE OF MATURITY IS AFTER 01.04.2014, THE DATE FROM WHICH THE AMENDMENT IN SECTION 10(10D) CAME INTO EF FECT. THE ASSESSING OFFICER SHOULD HAVE EXAMINED THE WHOLE SE QUENCE OF EVENT AND MUST HAVE ENQUIRED ABOUT THE MOTIVE OF TH E ASSESSEE FOR SHOWING A GIFT OF THE POLICY THE RECEIPT OF WHI CH WAS TAXABLE. THE ASSESSING OFFICER THEREFORE COMMITTED AN ERROR BY NOT PURSUING THE ENQUIRIES REGARDING THE POLICY MATURIT Y AND ACCEPTING THE VERSION OF THE ASSESSEE WITHOUT APPLI CATION OF MIND. HE DID NOT GO THROUGH THE PROVISION OF SECTIO N 10(10D) PROPERLY AND WRONGLY ACCEPTED THE CLAIM OF THE ASSE SSEE. THE POLICY WAS MATURED AFTER 01.04.2014 AND THE RECEIPT WAS CLEARLY TAXABLE AS PER PROVISION OF SECTION 10(10D) . THERE IS NO QUESTION OF ANY OTHER VIEW EXCEPT BRINGING THE AMOU NT TO TAX. THE ASSESSING OFFICER THEREFORE, WRONGLY APPLIED TH E PROVISIONS OF LAW. THE ASSESSEE RELIED ON THE JUDGMENT OF BOMB AY HIGH COURT IN THE CASE OF PRASHANT J. AGARWAL 243 TAXMAN 119 AND THE SAME WAS ACCEPTED BY THE ASSESSING OFFICER WHIC H WAS INCORRECT. IN THE JUDGMENT THE ASSESSEE HAD RECEIVE D THE MATURITY AMOUNT DURING FINANCIAL YEAR 2009-10 RELEV ANT TO ASSESSMENT YEAR 2010-11. THE ASSESSMENT WAS PASSED BY THE ASSESSING OFFICER AFTER THE AMENDMENT WAS BROUGHT I N THE ACT. THE COURT HAS HELD THAT ANY RECEIPT OF MATURITY AMO UNT PRIOR 01.04.2014 WOULD NOT BE ACCEPTED BY THE AMENDED DEF INITION. IN THE PRESENT CASE THE AMOUNT HAS BEEN RECEIVED ON MATURITY IN MARCH 2015 WHICH IS CLEARLY AFTER THE DATE FROM WHI CH THE AMENDMENT WAS MADE EFFECTIVE. DURING THE COURSE OF PROCEEDINGS U/S 263 THIS OFFIC ER MADE HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 22 ENQUIRIES WITH THE LIC OF INDIA AS WELL AS FROM THE ASSESSEE REGARDING VARIOUS ASPECT RELATED TO POLICY. IT WAS FOUND THAT THOUGHT THE POLICY HAS BEEN PURPORTEDLY ASSIGNED TO THE ASSESSEE BY HER HUSBAND,THE LIFE ASSURED REMAINS TH E SAME. THE RISK OF LIFE REMAINED THAT OF THE HUSBAND OF TH E ASSESSEE. FURTHER THE ENQUIRIES ALSO REVEALED THAT THE INSURA NCE PREMIUM OF THE POLICY, AFTER PURPORTED ASSIGNMENT TO THE AS SESSEE, WAS PAID BY MR. BHATIA TO WHOM THE POLICY WAS ASSIGNED BY THE COMPANY. THE ASSESSING OFFICER DID NOT MAKE ANY ENQ UIRY ABOUT THESE ASPECTS. HAD HE MADE THESE ENQUIRIES HE WOULD HAVE COME TO KNOW ABOUT THE CORRECT POSITION OF THE REASONS OF THE PURPORTED ASSIGNMENT. THE MOST IMPORTANT POINT HERE IS THAT MR. BHATIA, W HO HAD PURCHASED THE KEYMAN INSURANCE POLICY FROM THE COMP ANY BHATIA INTERNATIONAL LTD. BY PAYING THE RESIDUARY/S URRENDER VALUE OF THE POLICY, WAS STILL THE PERSON ASSURED A ND HE HAD ASSIGNED ONLY THE RECEIPTS OF THE POLICY TO HIS WIF E I.E. THE ASSESSEE. THE GIFT IS OF THE MATURITY PROCEEDS OF T HE POLICY AND NOT THAT OF THE POLICY ITSELF. THERE IS THE DIFFERE NCE BETWEEN ASSIGNMENT OF THE KEYMAN INSURANCE POLICY BY THE CO MPANY TO ITS KEYMANMR. BHATIA AND SUBSEQUENT ASSIGNMENT BY M R. BHATIA TO HIS WIFE. IN THE FIRST ASSIGNMENT IE. BY THE COMPANY TO THEKEYMAN WAS FOR A CONSIDERATION WHICH WAS EQUAL T O THE RESIDUAL VALUE OF THE POLICY AT THAT TIME. THE CHAR ACTER OF THE POLICY ALSO CHANGED AT THAT TIME AND IT BECAME AN A SSIGNED KEYMAN INSURANCE POLICY THE RECEIPTS OF WHICH WERE TAXABLE ON MATURITY AFTER 01.04.2014. THE SECOND ASSIGNMENT I. E FROM MR. BHATIA (KEYMAN OF BHATIA INTERNATIONAL LTD.) TO HIS WIFE I.E. THE ASSESSEE IS AN ASSIGNMENT JUST TO CREATE A CAMOUFLA GE TO AVOID THE TAXABILITY OF THE MATURITY PROCEEDS. THERE IS N O REAL PURPOSE OF ASSIGNING THE POLICY AS THE ANNUAL PREMIUM WAS S TILL BEING PAID BY MR. BHATIA (KEYMAN OF BHATIA INTERNATIONAL LTD. ), THE ASSESSEE TOOK TO LOAN WHICH WAS AGAIN INVESTED IN T HE BUSINESS OF THE BHATIA GROUP AND THE LIFE ASSURED OR INSURED REMAINED THE SAME I.E. MR. BHATIA. THEREFORE, THE WHOLE PRET ENTION OF ASSIGNING OF THE POLICY IS MERELY TO AVOID THE TAXA BILITY OF THE MATURITY PROCEEDS. HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 23 IT WOULD NOT BE OUT OF PLACE TO REPRODUCE THE EXPLA NATION 1 TO SECTION 10(10D) OF THE INCOME TAX ACT WHICH READ AS UNDER: EXPLANATION 1. FOR THE PURPOSE OF THIS CLAUSE, KEY MAN INSURANCE POLICY MEANS A LIFE INSURANCE POLICY TAK EN BY A PERSON ON THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOYEE OF THE FIRST MENTIONED PERSON OR IS OR WAS CONNECTE D IN ANY MANNER WHATSOEVER WITH THE BUSINESS OF THE FIRST ME NTIONED PERSONA AND INCLUDED SUCH POLICY WHICH HAS BEEN ASS IGNED TO A PERSON, AT ANY TIME DURING THE TERM OF THE POLICY, WITH OR WITHOUT ANY CONSIDERATION EMPHASIS SUPPLIED) THE PHRASE AND INCLUDED SUCH POLICY HAS BEEN INT RODUCED BY THE FINANCE ACT 2013 AND EFFECTIVE FROM 01.04.20 14. HERE, IT WOULD ALSO BE USEFUL TO REPRODUCE THE RELEVANT EXTR ACT OF THE EXPLANATORY NOTES TO THE FINANCE ACT 2015:- 5. KEYMAN INSURANCE POLICY 5.1 THE PROVISION OF CLAUSE 10(D) OF SECTION 10 OF THE INCOME TAX ACT, 1961 BEFORE AMENDMENT BY THE ACT, INTER ALIA, EXEMPT ANY SUM RECEIVED UNDER A LIFE INSURANCE POLICY OTHER TH AN A KEYMAN INSURANCE POLICY. EXPLANATION 1 TO THE SAID CLAUSE (10D) DEFINES A KEYMAN INSURANCE POLICY TO MEAN A LIFE INSURANCE POLICY TAKEN BY A PERSON ON THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOYEE OF THE FIRST MENTIONED PERSON OR IS OR WAS CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINESS OF THE FIRS T MENTIONED PERSON. 5.2 IT HAS BEEN NOTICED THAT THE POLICIES TAKEN A K EYMAN INSURANCE POLICY ARE BEING ASSIGNED TO THE KEYMAN B EFORE ITS MATURITY. THE KEYMAN PAYS THE REMAINING PREMIUM ON THE POLICY AND CLAIMS THE ENTIRE SUM RECEIVED UNDER SUC H POLICY AS EXEMPT ON THE GROUND THAT THE POLICY IS NO LONGER A KEYMAN INSURANCE POLICY. 5.3 THE EXEMPTION UNDER SECTION 10(10D) IS CLAIMED FOR POLICIES WHICH WERE ORIGINALLY KEYMAN INSURANCE POLICIES BUT DURING THE TERM THESE WERE ASSIGNED TO SOME OTHER PERSON. THE COURTS HAVE ALSO NOTICED THIS LOOPHOLE IN LAW. HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 24 5.4 WITH A VIEW TO PLUG THE LOOPHOLE AND CHECK SUCH PRACTICES TO AVOID PAYMENT OF TAXES, THE PROVISIONS OF CLAUSE (1 0D) OF SECTION 10 OF THE INCOME TAX ACT, 1961 HAVE BEEN AMENDED TO PROVIDE THAT A KEYMAN INSURANCE POLICY WHICH HAS BEEN ASSIG NED TO ANY PERSON DURING ITS TERM, WITH OR WITHOUT CONSIDE RATION, SHALL CONTINUE TO BE TREATED AS A KEYMAN INSURANCE POLICY AND CONSEQUENTLY WOULD NOT BE ELIGIBLE FOR ANY EXEMPTIO N UNDER SECTION 10(10D) OF THE INCOME TAX ACT. THE WORDING OF THE EXPLANATION ALSO CLEARLY SAY THA T IF THE KEYMAN INSURANCE POLICY IS ASSIGNED TO A PERSON A NYTIME DURING THE TERM OF THE POLICY WITH OR WITHOUT CONSI DERATION THE POLICY WOULD BE CONSIDERED AS KEYMAN INSURANCE POLI CY. THE LEGISLATURE HAS NOT USE THE WORK THE WHICH WOULD HAVE SIGNIFIED A LIMITED MEANING TO THE ASSIGNEE. THE TE RM USED IS A A PERSON WHICH SIGNIFY OR MEANS ANY PERSON WHICH MAY BE OTHER THAN THE KEYMAN PERSON. THEREFORE, THE POLICY RECEIPTS ARE CLEARLY TAXABLE AS THE ASSIGNMENT HAS NOT CHANGED T HE CHARACTER OF RECEIPT. IT REMAINS THE RECEIPT FROM A KEYMAN INSURANCE POLICY AS PER THE DEFINITION GIVEN IN EXP LANATION 1 TO SECTION 10(10D) OF THE INCOME TAX ACT. THE ASSIGNME NT OF THE POLICY FOR THE SECOND TIME DOES NOT CHANGE THE BASI C CHARACTER OF THE POLICY AS PER THE PROVISIONS OF INCOME TAX A CT. 22. THEREAFTER, IN THE IMPUGNED ORDER LD. PR. CIT R EBUTTED THE ASSESSEES SUBMISSIONS WHICH WERE RUNNING FROM PAGE 16 TO PARA 19 OF THE IMPUGNED ORDER . THEREAFTER, THE LD. PR. CIT TREATED THE AMENDMENT IN EXPLANATION (1) SECTION 10(10D) OF THE ACT AS CURATIVE AND MERELY DECLARATORY IN NATURE, PLACING RELIANCE ON FOLLOWING JUDGMENT: 1. GOLD COIN HEALTH FOOD (P). LTD. 304 ITR 308 (SC) 2. RELIANCE JUTE & INDUSTRIES LTD. (1979) 120 ITR 931 (SC) 3. PODDAR CEMENT P. LTD. (1997) 5 SCC 482 HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 25 4. ANUJJAYENDRA SHAH, VS. PCIT-35, MUMBAI (67 TAXMAN.C OM 38 ) 23. LD. PR. CIT ALSO DISCUSSED THE LEGAL POSITION O F POWER OF COMMISSION FOR REVISION U/S 263 OF THE ACT REFERRIN G TO THE JUDGMENT OF KOLKATA TRIBUNAL IN THE CASE OF SUBHLAK SHMI VINIJYA(P.) LTD. 172 TTJ 721(KOL).THEREAFTER THE PR. CIT PLACED RELIANCE ON THE FOLLOWING JUDGMENTS: 1. CIT VS. AMITABH BACHCHAN (2016) 384 ITR 200 (HON 'BLE SUPREME COURT) 2. TOYOTA MOTOR CORPN. (2008) 174 TAXMAN 395 (DELHI ) AFFIRMED IN (2008) 173 TAXMAN 458 (SC) 3. JAGDISH KUMAR GULTAI (2204) 139 TAXMAN 369 (ALL. ) 4. MALABAR INDUSTRIAL CO. LTD. (2000) 109 TAXMAN 66 (SC) 5. CROMPTON GREAVES LTD. (2017) 82 TAXMANN.COM 246 (MUMBAI- I.T.A.T., BENCH C) 6. CIT VS. VALLABHDAS VITHALDAS GUJARAT HIGH COURT (2002) 253 ITR 543 24. NOW IN ORDER TO EXAMINE THAT WHETHER THE ASSESS MENT ORDER PASSED BY THE LD. ASSESSING OFFICER IS ERRONEOUS OR NOT, WE NEED TO EXAMINE THE FACT THAT WHETHER ADEQUATE ENQUIRY WAS CONDUCTED. WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDIN GS QUESTIONNAIRE U/S 142(1) OF THE ACT WAS ISSUED WHER EIN THE LD. AO ASKED THE ASSESSEE TO FURNISH VARIOUS DETAILS ABOUT THE INSURANCE POLICY FOR WHICH THE HUGE MATURITY RECEIPTS WERE RE CEIVED AND CLAIMED AS EXEMPTED. THE ASSESSEE MADE VARIOUS SUBM ISSIONS DATED 15.06.2017, 09.10.2017, 23.10.2017 & 17.11.20 17. THE HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 26 CONTENTS OF THE SUBMISSIONS MADE BY THE ASSESSEE IN VARIOUS DATES ARE REPRODUCED BELOW: LETTER DATED JUNE 15, 2017(ANNEXURE A/6 OF PAPER BOOK FILED ON 07.05.2019) 01] THE ASSESSEE HAS ELECTRONICALLY FILED HIS RETUR N OF TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION ON 31.03.2016 VIDE ACK. NO. 143045360310316. COPY OF ACKNOWLEDGEMENT OF SAID RE TURN ALONG WITH COMPUTATION OF TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION ARE ENCLOSED. ENEL.NO. 01 TO 06. 02] ASSESSEE ACCOUNTS ARE NOT AUDITED U/S 44AB BECAUSE ASSESSE IS NOT HAVING ANY BUSINESS INCOME AND SHE I S NOT FALL IN ANY CATEGORY OF SECTION 44AB. 03] ASSESSEE IS AN INDIVIDUAL, COPY OF STATEMENT O F AFFAIRS & CAPITAL ACCOUNT FOR LAST 3 YEARS I.E.AY. 2015-16, 2 014-15 & 2013-14 ARE ENCLOSED HEREWITH. ENCL. NO.07 TO 13. 04] YOUR HONOUR IS ASKED TO SUBMIT THE ,EVIDENCE OF PAYMENT OF TAXES. 04.1] IN THIS REGARD WE ARE ENCLOSING HERE WITH COP Y OF FORM NO. 26AS SHOWING PAYMENT OF TAXES IS ENCLOSED HEREWITH. ENCL. NO.14 TO17. 05] ASSESSEE HAS CLAIMED DEDUCTION UNDER CHAPTER V IA FOR PAYMENT OF PPF OF RS. 150000/- COPY OF THE PASS BO OK IS ENCLOSED HEREWITH FOR YOUR READY REFERENCE. ELCL. N O.18 TO 19 LETTER DATED 09.10.2017 (ANNEXURE A/7 OF PAPER BOOK FILED ON 07.05.2019) 1. COPY OF ALL BANK STATEMENTS MAINTAINED BY THE AS SESSEE ALONG WITH RECONCILIATION STATEMENTS WHERE EVER APPLICABLE ARE ENCLOSED HEREWITH FOR YOUR READY REFERENCE. ENCL. NO.20 TO 27 HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 27 2. YOUR HONOUR IS ASKED TO SUBMIT THE POLICY COPY D ULY SHOWS ASSIGNMENT CLAUSE. 2.1. WHERE ARE ENCLOSING HERE WITH POLICY COPY ALON G WITH ASSIGNMENT CLAUSE AS REQUIRED BY YOU. ENCL. NO.28 TO 31 2.2 WE ARE ALSO ENCLOSING HERE WITH ASSIGNMENT LETT ER ISSUED BY THE LIFE INSURANCE CORPORATION OF INDIA IN FAVOUR OF AS SESSEE. ENCL. NO.32 TO 32 LETTER DATED 23.10.2017( ANNEXURE A/8 OF PAPER BOOK FILED ON 07.05.2019) 01] THIS IS IN CONTINUATION TO OUR EXEMPTION CLAIM IN THE RETURN FILE FOR THE ABOVE RELEVANT YEAR. AS THE RETURN IS NOT C OMPRISED OF ALL THE RELEVANT EVIDENTRY DOCUMENTS AT THE TIME OF FILING O F REGULAR RETURN THEREFORE FOR FACILITATE SCRUTINY PROCEEDINGS. WE A RE ENCLOSING HERE WITH COPY OF COMPUTATION OF TOTAL INCOME , ACKNOWLE DGEMENT ALONG WITH ALL NECESSARY EVIDENTRY DOCUMENT IN SUPPORT OF O UR EXEMPTION CLAIM U/S 10(1OD). ENCL. NO. 33 TO 35. 02] YOU HONOUR IS ASKED TO SUBMIT THE COMPLETE DETA ILS OF LIC ASSIGNMENT IN FAVOR OF BENEFICIARIES AS WELL AS ALS O ASKED TO SUBMIT RELEVANT DOCUMENTS. 2.1 WE ARE ENCLOSING HERE WITH ASSIGNMENT LETTER IS SUED BY THE LIFE INSURANCE CORPORATION OF INDIA IN FAVOR OF BEN EFICIARY ALONG WITH RELATED DOCUMENTS FOR YOUR READY REFERENCE. EN EL. NO. 36 TO 42 2.2 WE ARE ALSO ENCLOSING HERE WITH CERTIFICATE IS SUED BY THE LIC FOR PAYMENT OF GUARANTEED SURRENDER VALUE ALONG COP Y OF LEDGER ACCOUNT OF PAYMENT OF SURRENDER VALUE PAID BY THE B ENEFICIARY. ENCL. NO. 43TO 43A. 03J COPY OF ASSIGNMENT LETTER ISSUED BY THE LIFE INSURA NCE CORPORATION OF INDIA IN FAVOR OF ASSESSEE IS ALSO E NCLOSED HERE WITH. ENCL. NO. 44 HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 28 3.1] WE ARE ALSO ENCLOSING HERE WITH CAPITAL ACCOUNT OF SHRI A.S. BHATIA SHOWS GIFT GIVEN TO SMT. HARLEEN KAUR BHATIA (WIFE) OF LIC POLICY ALONG WITH GIFT DEED & ASSESSEE'S CAPITAL ACCOUNT FOR GIFT RECEIVED. ENCL. NO. 45 TO 56 3.2] WE RELIED ON CASE LAW OF HIGH COURT OF MUMBAI DATED 26.09.2016 ITA NO. 46/2014 COMMISSIONER OF INCOME TAX V S PRASHANT J AGARWAL. COPY OF THE SAME IS ENCLOSED HERE WITH .ENEL. NO. 57 TO 60. LETTER DATED 17.11.2017 (ANNEXURE A/9 OF PAPER BOOK FILED ON 07.05.2019) 1 . BHATIA INTERNATIONAL LTD. 'BIL'( EMPLOYER) HAS TAKE N A KEYMEN INSURANCE POLICY FROM LIC OF INDIA NAMED AS 'JEEVAN ANAND' ON LIFE ASSURANCE OF DIRECTOR AMANDEEP S. BHATIA IN THE YEA R 2005 (APRIL 2005) WITH A SUM ASSURANCE OF RS. 5 CRORES. 2. BHATIA INTERNATIONAL LTD. HAS REGULARLY PAID PREMIU M ON ABOVE PLAN AND CLAIMED IN PROFIT & LOSS ACCOUNT UP TO OCT. 2010 & THEREAFTER ABOVE PLAN ASSIGN TO MR. AMANDEEP S. BHA TIA ON SURRENDERED VALUE OF RS. 1.72 CRORES AS PER CERTIFI CATE DATED 23.02.2012. COPY OF CERTIFICATE ISSUED BY THE LIC O F INDIA FOR SURRENDER VALUE IS ENCLOSED HERE WITH. ENCL. NO . 3. THAT ABOVE SURRENDER VALUE IS DULY OFFERED BY TH E COMPANY ' BHATIA INTERNATIONAL LTD.' IN BOOKS OF ACCOUNTS AS INCOME . COPY OF THE LEDGER ACCOUNT, PROFIT & LOSS ACCOUNT ALONG WITH ORDER PASSED BY THE ITSC ARE ENCLOSED. ENEL.NO. 4. FURTHER MR. A.S.BHATIA HAS ASSIGN POLICY TO HIS WIFE SMT. HARLEEN K. BHATIA ON 30.01.2013. YOUR HONOUR PLEASE NOTE THAT AT THE TIME WHEN THE P OLICIES WERE TAKEN, THE NATURE OF THE POLICIES WERE 'KEYMAN INSU RANCE POLICIES' AS DEFINED IN SECTION .JO(LOD). THE PERSONS ON WHOSE LIFE POLICIES WERE TAKEN WERE DIRECTORS. THEY WERE KEYMAN AS EXPLAINED IN BOARDS CIRCULAR NO. 762, DATED FEBRUARY 18, 1998 (SUPRA). WHEN THE POLICIES WERE ASSIGNED TO THEM IN APRIL 2012, BY BIL , THEY HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 29 GOT CONVERTED INTO ORDINARY POLICY AS ASSIGNMENT WA S ACCEPTED BY LIC. FOR THIS PROPOSITION WE MAY DERIVE SUPPORT FRO M THE DECISION OF HON'BLE DELHI HIGH COURT IN CIT VS. RAJAN NANDA [2012] 18 TAXMANN.COM 98 (DELHI)) . LATER DATED 17.11.2017 (ANNEXURE A/10 OF PAPER BOOK FILED ON 07.05.2019) 01] YOUR HONOUR IS ASKED TO SUBMIT THE DETAILS OF S HARE PURCHASE DURING THE YEAR ALONG WITH SOURCE OF INVES TMENTS. 1.1] STATEMENT GIVING DETAILS OF THE SHARES PURCHAS E ALONG WITH SOURCE OF INVESTMENT IS ENCLOSED. ENCL NO.61 1.2] COPY OF RELEVANT PAGES OF BANK STATEMENT OF AS SESSEE DULY HIGHLIGHTING THE PAYMENT OF SHARES PURCHASE IS ENCL OSED. ENCL NO.62 TO 63. 1.3] COPY OF SHARE CERTIFICATE IS ENCLOSED. ENCL. N O.64. 25. THE VARIOUS REPLIES SUBMITTED BY THE ASSESSEE D URING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT MEN TIONED ABOVE DULY SUPPORTED BY DOCUMENTARY EVIDENCES WERE INTEND ED TO CONVINCE THE LD. ASSESSING OFFICER THAT THE KEYMAN INSURANCE POLICY TAKEN BY THE COMPANY NAMELY BIC WERE ASSIG NED TO THE MR.A.S. BHATIA THEREBY THE COMPANY OFFERED SURRENDE R VALUE OF THE POLICY AS INCOME IN FY 2011-12. THIS POLICY WAS SUB SEQUENTLY GIFTED TO ASSESSEE BY HER HUSBAND IN JANUARY 2013. ON THIS ASSIGNMENT THE CHARACTERISTIC OF THE POLICY CHANGED FROM KEYMA N INSURANCE POLICY TO NORMAL LIFE INSURANCE POLICY THE TOTAL FO RMALITY OF THE ASSIGNMENT OF INSURANCE POLICY IS DULY RECORDED BY LIFE INSURANCE CORPORATION OF INDIA AND IT WAS BEFORE 1.4.2014 WHI CH WAS THE EFFECTIVE DATE OF THE AMENDMENT BROUGHT IN EXPLANA TION (1) OF HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 30 SECTION 10(10D) OF THE ACT BY FINANCE ACT 2013 AND THIS AMENDMENT WAS CLAIMED TO BE PROSPECTIVE IN NATURE PLACING RELIANCE ON VARIOUS JUDGEMENTS .THESE SUBMISSIONS O F THE ASSESSEE WERE FOUND TO ACCEPTABLE BY THE LD. ASSESSING OFFIC ER AND HE TOOK ONE OF THE PERMISSIBLE VIEW PROVIDED IN THE LAW AND IN THE LIGHT OF THE JUDICIAL PRONOUNCEMENTS ACCEPTED THE ASSESSEES CLAIM OF THE MATURITY PROCEEDS OF LIC POLICY (ORIGINALLY TAKEN A S KEYMAN INSURANCE POLICY) AS EXEMPTED INCOME. 26. IT UNDOUBTEDLY PROVES THAT THE ASSESSEE HAD FU LLY DEMONSTRATED THROUGH VARIOUS DOCUMENTARY EVIDENCES AS CAN BE SEE N ABOVE THAT BHATIA INTERNATIONAL LTD. ( EMPLOYER) HAD TAKEN A KEYMAN INSURANCE POLICY FROM LIC OF INDIA NAMED AS JEE VANANAND ON LIFE ASSURANCE OF DIRECTOR MR. A.S. BHATIA IN THE YEAR 2005 (APRIL 2005) WITH A SUM ASSURANCE OF RS. 5 CRORES. PREMIUM PAYMENT TENURE WAS 10 YEARS I.E. LAST PAYMENT COMES ON 01.0 1.2015.THE DATE OF MATURITY IS 28TH APRIL 2015. THE DUE DATE O F PREMIUM PAYMENT IS QUARTERLY FOR RS. 14.69 LACS YEARLY TOTA LLING TO RS. 58.76 LACS. BHATIA INTERNATIONAL LTD. HAD REGULARLY PAID PREMIUM ON ABOVE PLAN AND CLAIMED IN PROFIT & LOSS ACCOUNT & T HEREAFTER ABOVE PLAN WAS ASSIGNED TO MR. A.S. BHATIA ON SURRENDERED VALUE OF RS. 1.72 CRORES WHICH HAS BEEN OFFERED TO TAX BY THE CO MPANY BHATIA INTERNATIONAL LTD. IN THE PROFIT AND LOSS ACCOUNT ( PB. 184 OF THE PAPER BOOK DATED 07.05.2019).MR. A.S. BHATIA HAD TH EN ASSIGNED POLICY TO HIS WIFE SMT. H.K. BHATIA ON 30.01.2013.A SSIGNEE SMT. H.K. BHATIA HAD TAKEN SURRENDER VALUE DURING THE MO NTH OF HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 31 FEBRUARY 2015 JUST BEFORE THE 2 MONTH OF MATURITY D ATE AS MATURITY DATE OF THE POLICY WAS APRIL 2015. SURRENDER VALUE RECEIVED IN THE HANDS OF SMT. H.K. BHATIA WAS RS. 6.49 CRORES AFTER DEDUCTING TDS @ 2% U/S 194DA OF INCOME TAX ACT. AFTER VERIFYING T HE CLAIM OF THE ASSESSEE THROUGH VARIOUS DOCUMENTARY EVIDENCES PROD UCED BY THE ASSESSE AND COMPUTATION OF INCOME, REPLIES DATED 15 .06.2017, 09.10.2017, 23.10.2017 AND 17.11.2017 AND VARIOUS J UDICIAL PRONOUNCEMENTS LD. AO FORMED THE OPINION THAT THE S AID CLAIM OF THE ASSESSEE IS BONAFIDE. THUS, LOOKING TO THE FACT S OF THE CASE WE ARE OF THE VIEW THAT SUFFICIENT AND ADEQUATE ENQUIR Y WAS CONDUCTED BY THE LD. AO BEFORE ACCEPTING THAT THE PROCEEDS F ROM PREMATURITY OF ALLEGED LIFE INSURANCE POLICY ARE EXEMPT FROM T AX AND THUS THE ASSESSMENT ORDER PASSED U/S. 143(3) OF THE ACT, BY NO STRETCH CAN BE HELD TO BE ERRONEOUS IN NATURE. 27. NOW WE MOVE ON TO EXAMINE AS TO WHETHER THE ASS ESSMENT ORDER IS PREJUDICIAL TO THE INTEREST OF REVENUE. ISSUE RE LATES TO TAXABILITY OF PROCEEDS OF A LIC POLICY WHICH BEFORE ASSIGNMENT WA S ORIGINALLY A KEYMAN INSURANCE POLICY. 28. KEY MAN INSURANCE POLICIES ARE LIFE INSURANCE P OLICIES TAKEN BY A COMPANY ON THE LIFE OF SOME OF ITS KEYPERSON. AS PER PARAGRAPH 14 OF EXPLANATORY NOTES TO THE FINANCE (NO. 2) ACT, 1996 ISSUED BY CENTRAL BOARD OF DIRECT TAXES (CIRCULAR NO. 762, DA TED FEBRUARY 18, 1998 ([1998] 230 ITR (ST.) 12)) AKEYMAN INSURANCE POLICY OF THE LIC OF INDIA MEANS AN INSURANCE POLICY TAKEN BY A BUSIN ESS ORGANISATION ON THE LIFE OF AN EMPLOYEE, IN ORDER T O PROTECT THE HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 32 BUSINESS AGAINST THE FINANCIAL LOSS, WHICH MAY OCCU R FROM THE EMPLOYEE'S PREMATURE DEATH. THE 'KEYMAN' IS DEFINED IN THE CIRCULAR AS 'AN EMPLOYEE OR A DIRECTOR, WHOSE SERVICES ARE P ERCEIVED TO HAVE A SIGNIFICANT EFFECT ON THE PROFITABILITY OF THE BUSI NESS'. THE PREMIUM PAID BY THE EMPLOYER ON SUCH POLICY IS TO BE ALLOWE D AS BUSINESS EXPENDITURE. IN CASE OF KEYMAN POLICY THERE ARE TWO CONTRACTING PARTIES, ONE IS THE PAYER ORGANISATION AND OTHER IS THE LIC (OR INSURANCE COMPANY), AND THERE ARE THREE AFFECTED PA RTIES, THE TWO BEING THE CONTRACTING PARTIES AND THE THIRD ONE IS THE PERSON ON WHOSE LIFE THE INSURANCE POLICY IS TAKEN. THUS IN K EYMAN INSURANCE POLICY WHICH IS ACCEPTED AS SUCH BY LIC, THE PAYER OF THE PREMIUM IS THE ORGANISATION AND LIFE INSURED IS THE KEYMAN. 29. SECTION 10(10D) OF ACT PROVIDES THAT ANY SUM R ECEIVED UNDER LIFE INSURANCE POLICY INCLUDING SUM ALLOCATED BY W AY OF BONUS ON SUCH POLICY WILL BE EXEMPT EXCEPT IN CERTAIN CASES. ONE OF THE EXCEPTIONS IS THAT THE SUM RECEIVED UNDER KEYMAN IN SURANCE POLICY WILL NOT GET EXEMPTION. EXPLANATION TO THAT SECTION PROVIDES THE DEFINITION OF KEYMAN INSURANCE POLICY, WHICH MEAN S A LIFE INSURANCE POLICY TAKEN BY A PERSON ON THE LIFE OF A NOTHER PERSON WHO IS, OR WAS HIS, EMPLOYEE, OR IS OR WAS, CONNECT ED IN ANY MANNER WHAT SO EVER WITH THE BUSINESS OF THE FIRST MENTION PERSON. EXPENDITURE INCURRED BY THE ORGANISATION BY WAY OF PREMIUM ON KEYMAN INSURANCE POLICIES WILL BE ALLOWED AS DEDUCT ION U/S 37 IN ITS HANDS.[RE: CIT V. B.N. EXPORTS [2010] 190 TAXMA N 325 (BOM.)]. IN CIT V. RAJAN NANDA [2012] 18 TAXMANN.COM 98 (DEL HI)] REGARDING HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 33 SUM RECEIVED ON MATURITY OF KEYMAN INSURANCE POLICI ES, IT WAS HELD THAT THE ACT LAYS DOWN THAT SUCH WILL BE TAXED U/S 28 AS BUSINESS PROFITS IN ITS HANDS OR WHERE PAYMENT OF PREMIUM IS NOT PART OF BUSINESS EXPENDITURE THEN SUM RECEIVED ON MATURITY WILL BE TAXED U/S 56. THUS WHEN THERE IS NO ASSIGNMENT, SECTION 37 AND SECTION 28 OR SECTION 56 OF THE ACT OPERATE IN THE CASE OF EMPLOYER. NOW IN CASE THERE IS ASSIGNMENT OF THE KEYMAN INSUR ANCE POLICY 30. A POLICY INITIALLY TAKEN ON THE LIFE OF THE KEY MAN OF THE ORGANISATION MAY BE ASSIGNED TO THAT PERSON OR TO S OME OTHER PERSON. THE PREMIUM THEREAFTER HAS TO BE PAID BY TH AT PERSON. NO DEDUCTION IS ALLOWED AS BUSINESS EXPENDITURE IN THE HANDS OF THE ORGANISATION IN RESPECT OF PREMIUM PAID AFTER ASSIG NMENT. WHEN THE POLICIES IS ASSIGNED TO THE EMPLOYEE THEN SURRE NDER VALUE RECEIVED FROM THE ASSIGNEE I.E. EMPLOYEE WILL BE TA XED IN THE HANDS OF THE EMPLOYER U/S 10(10D)(B) OF THE ACT. THEREFOR E, AT THE TIME OF ASSIGNMENT IF THE SURRENDER VALUE OF THE POLICY IS MUCH LESS AS COMPARED TO THE TOTAL AMOUNT OF PREMIUM PAID BY THE ORGANISATION, THEN THE SURRENDER VALUE RECEIVED FROM THE INDIVIDU AL (KEYMAN) WILL BE TAXABLE IN THE HANDS OF THE ORGANIZATION AS HELD IN THE CASE OF ( DR. NARESHTREHAN V. DCIT [2014] 48 TAXMANN.COM 21 (DELHI - TRIB.)) 31. IN CASE OF OTHER PERSONS TO WHOM POLICIES ARE A SSIGNED, WHICH IS ACTUALLY THE CASE WE ARE DEALING IN THE INSTANT APP EAL, THE ORGANISATION WILL BE TAXED ON THE SURRENDER VALUE R ECEIVED FROM THAT ASSIGNEE (EVEN THOUGH IT MAY BE LESS THAN THE PREMI UM PAID BY THE HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 34 ORGANISATION) WHICH IN THIS CASE HAS BEEN DONE BY BIL OFFERING THE SURRENDER VALUE OF POLICIES ON THE DATE OF ASSIGNME NT TO TAX . 32. IN THE INSTANT CASE AT THE TIME WHEN THE POLICI ES WERE TAKEN, THE NATURE OF THE POLICIES WERE KEYMAN INSURANCE POLIC IES AS DEFINED IN SECTION 10(10D). THE PERSONS ON WHOSE LIFE POLIC Y WAS TAKEN WAS DIRECTOR AND WAS KEYMAN AS EXPLAINED IN BOARDS CIRC ULAR NO. 762, DATED FEBRUARY 18, 1998 (SUPRA). WHEN THE POLICY WA S ASSIGNED TO HIM BY BIL AND LATER ON BY THE KEYMAN TO HIS WIFE , IT APPARENTLY GOT CONVERTED INTO ORDINARY LIFE INSURANCE POLICY A S ASSIGNMENT WAS ACCEPTED BY LIC ON 30.01.2013. FOR THIS PROPOSITION WE MAY DERIVE SUPPORT FROM THE DECISION OF HONBLE DELHI HIGH COU RT IN CIT VS. RAJAN NANDA [2012] 18 TAXMANN.COM 98 (DELHI) WHEREIN IT WAS OBSERVED AS UNDER: 52. THUS, THE ISSUE DEPENDS ON THE QUESTION AS TO WHET HER ON ASSIGNMENT OF THE INSURANCE POLICY TO THE ASSESSEE, IT CHANGES ITS CHARACTER FROM KEYMAN INSURANCE ALSO TO AN ORDI NARY POLICY. IT IS BECAUSE OF THE REASON THAT IF IT REMAINS KEYM AN INSURANCE POLICY, THEN THE MATURITY VALUE RECEIVED IS SUBJECT ED TO TAX AS PER SECTION 10(10D) OF THE ACT. ON THE OTHER HAND, IF IT HAD BECOME ORDINARY POLICY, THE PREMIUM RECEIVED UNDER THIS POLICY, IN VIEW OF THE AFORESAID SECTION 10(10D) ITSELF, TH E SAME WOULD NOT BE SUBJECTED TO TAX. 53. ONCE THERE IS NO ASSIGNMENT OF COMPANY/EMPLOYER IN FAVOUR OF THE INDIVIDUAL, THE CHARACTER OF THE INSU RANCE POLICY CHANGES AND IT GETS CONVERTED INTO AN ORDINARY POLI CY. CONTRACTING PARTIES ALSO CHANGE INASMUCH AS AFTER T HE ASSIGNMENT WHICH IS ACCEPTED BY THE INSURANCE, THE CONTRACT IS NOW BETWEEN THE INSURANCE COMPANY AND THE INDIVIDUA L AND NOT THE COMPANY/EMPLOYER WHICH INITIALLY TOOK THE P OLICY. SUCH COMPANY/EMPLOYER NO MORE REMAINS THE CONTRACTING PA RTIES. WE HAVE TO BEAR IN MIND THAT LAW PERMITS SUCH AN ASSIG NMENT EVEN HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 35 LIC ACCEPTED THE ASSIGNMENT AND THE SAME IS PERMISS IBLE. THERE IS NO PROHIBITION AS TO THE ASSIGNMENT OR CON VERSION UNDER THE ACT. ONCE THERE IS AN ASSIGNMENT, IT LEADS TO C ONVERSION AND THE CHARACTER OF POLICY CHANGES. THE INSURANCE COMP ANY HAS ITSELF CLARIFIED THAT ON ASSIGNMENT, IT DOES NOT RE MAIN A KEYMAN POLICY AND GETS CONVERTED INTO AN ORDINARY POLICY. IN THESE CIRCUMSTANCES, IT IS NOT OPEN TO THE REVENUE TO STI LL ALLEGE THAT THE POLICY IN QUESTION IS KEYMAN POLICY AND WHEN IT MATURES, THE ADVANTAGE DRAWN THERE FROM IS TAXABLE. ONE HAS TO KEEP IN MIND ON MATURITY, IT DOES NOT THE COMPANY BUT WHO I S AN INDIVIDUAL GETTING THE MATURED VALUE OF THE INSURAN CE. 33. FOLLOWING THIS DECISION THE ITAT IN DCIT V. RAJAN NANDA [2013] 37 TAXMANN.COM 335 (DELHI - TRIB.) HELD AS UNDER: 9. THUS, THE HON'BLE HIGH COURT HAS EFFECTIVELY HELD IN FAVOUR OF THE ASSESSEE TO THE EFFECT THAT ONCE THERE IS AS SIGNMENT OF THE EMPLOYER IN FAVOUR OF THE INDIVIDUAL, THE CHARACTER OF THE INSURANCE POLICY CHANGES AND IT GETS CONVERTED INTO AN ORDINARY POLICY; THAT SUCH ASSIGNMENT IS DULY PERMITTED BY L AW; THAT EVEN THE LIC ACCEPTED THE ASSIGNMENT, ITSELF CLARIFYING THAT ON ASSIGNMENT, THE POLICY NO LONGER REMAINS A KEYMAN P OLICY AND GETS CONVERTED INTO AN ORDINARY POLICY; THAT AS SUC H, IT IS NOT OPEN TO THE DEPARTMENT TO STILL ALLEGE THAT THE POL ICY IS A KEYMAN POLICY AND WHEN IT MATURES, THE ADVANTAGE DR AWN THERE FROM IS TAXABLE; THAT ON MATURITY OF THE POLI CY, IT IS NOT THE EMPLOYER, BUT THE INDIVIDUAL, WHO IS GETTING THE MA TURITY VALUE OF THE INSURANCE; THAT NO DOUBT, THE EMPLOYER AS WE LL AS THE INDIVIDUAL TAKE HUGE BENEFIT BY SUCH ASSIGNMENT, BU T IT CANNOT BE TREATED AS A CASE OF TAX EVASION, RATHER IT IS A CASE OF ARRANGING THE AFFAIRS IN SUCH A MANNER AS TO AVAIL THE STATE EXEMPTION AS PROVIDED IN SECTION 10 (10D) OF THE AC T; THAT BENEFIT INURED OWING TO THE COMBINED EFFECT OF A PR UDENT INVESTMENT AND THE STATUTORY EXEMPTION PROVIDED U/S 10 (10D) OF THE ACT DOES NOT CALL FOR ANY BIFURCATION IN THE AMOUNT RECEIVED ON MATURITY ON ANY BASIS WHATSOEVER; AND T HAT NOTHING CAN BE READ INTO SECTION 10 (10D) OF THE ACT, IF IT IS NOT SPECIFICALLY PROVIDED THEREIN, SINCE ANY SUCH ATTEM PT WOULD HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 36 TANTAMOUNT TO LEGISLATION AND NOT INTERPRETATION. I T IS ON THE BASIS OF THE ABOVE ENUNCIATION OF LAW BY THE HON'BL E HIGH COURT IN THE ASSESSEE'S OWN CASE, THAT THE LD. CIT (A) HA S HELD AND, IN OUR CONSIDERED OPINION, RIGHTLY SO, THAT AFTER ASSI GNMENT OF THE POLICY IN FAVOUR OF THE ASSESSEE, IT CHANGES ITS CH ARACTER FROM THAT OF A KEYMAN INSURANCE POLICY TO THAT OF AN ORD INARY POLICY AND THAT ONCE IT HAS BECOME AN ORDINARY POLICY, THE PROCEEDS RECEIVED THERE UNDER WOULD NOT BE SUBJECT TO TAX IN VIEW OF SECTION 10 (10D) OF THE ACT, DUE TO WHICH NOTHING I S TAXABLE OUT OF THE MATURITY VALUE RECEIVED FROM THE INSURANCE P OLICY 34. THUS AFTER THE ASSIGNMENT THE POLICIES CHANGED THE CHARACTER TO ORDINARY LIFE INSURANCE POLICY AND THE SUM RECEIVED BY THE ASSIGNEES ON MATURITY SHOULD NOT HAVE BEEN TAXED IN THEIR HAN D AS THESE WERE EXEMPT U/S 10(10D) OF THE ACT. IF FOR THE SAKE OF A RGUMENT THE AMENDMENT BROUGHT IN EXPLANATION 1 TO SECTION 10(10 D) OF THE ACT BY FINANCE ACT 2013 IS TREATED AS PROSPECTIVE IN NA TURE AS HAS BEEN ACCEPTED BY LD. AO THEN THE ASSESSMENT ORDER IN QUE STION WILL NOT BE PREJUDICIAL TO THE INTEREST OF REVENUE AS THE LD . AO ADOPTED ONE OF THE PERMISSIBLE VIEW PROVIDED IN LAW AFTER CONSI DERING THE JUDGEMENTS, AS HAS BEEN HELD BY HON'BLE APEX COURT IN THE CASE OF CIT VS.MAX INDIA LTD (295 ITR 282) . 34A. HOWEVER, LD. PR. CIT WHILE SETTING ASIDE THE A SSESSMENT ORDER IN QUESTION TOOK A VIEW THAT THE AMENDMENT BROUGHT IN BY FINANCE ACT 2013 EXPLANATION 1 IS RETROSPECTIVE AND CLARIFI CATORY IN NATURE AND THUS THE ALLEGED MATURITY PROCEEDS ARE TAXABLE AS THEY WERE RECEIVED SUBSEQUENT TO THE AMENDMENT. IN ORDER TO A DJUDICATE THIS HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 37 ISSUE ,WE FIND THAT IN THE NOTES ON CLAUSES TO AMEN DMENT BY FINANCE ACT 2013 IT WAS OBSERVED THAT: 5.1 THE PROVISIONS OF CLAUSE (10D) OF SECTION 10 OF THE INCOME TAX ACT, 1961 BEFORE AMENDMENT BY ACT , INTER ALIA, EXEMPT ANY SUM RECEIVED UNDER A LIFE INSURANCE POLICY OTHER TH AN A KEYMAN INSURANCE POLICY. EXPLANATION 1 TO THE SAID CLAUSE (10D) DEFINES A KEYMAN INSURANCE POLICY TO MEAN A LIFE IN SURANCE POLICY TAKEN BY A PERSON ON THE LIFE OF ANOTHER PER SON WHO IS OR WAS THE EMPLOYEE OF THE FIRST-MENTIONED PERSON OR I S OR WAS CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINES S OF THE FIRST-MENTIONED PERSON. 5.2 IT HAS BEEN NOTICED THAT THE POLICIES TAKEN AS KEYM AN INSURANCE POLICY ARE BEING ASSIGNED TO THE KEYMAN B EFORE ITS MATURITY. THE KEYMAN PAYS THE REMAINING PREMIUM ON THE POLICY AND CLAIMS THE ENTIRE SUM RECEIVED UNDER SUC H POLICY AS EXEMPT ON THE GROUND THAT THE POLICY IS NO LONGER A KEYMAN INSURANCE POLICY. 5.3 THE EXEMPTION UNDER SECTION 10(10D) IS CLAIMED FOR POLICIES WHICH WERE ORIGINALLY KEYMAN INSURANCE POLICIES BUT DURING THE TERM THESE WERE ASSIGNED TO SOME OTHER PERSON. THE COURTS HAVE ALSO NOTICED THIS LOOPHOLE IN LAW. 5.4 WITH A VIEW TO PLUG THE LOOPHOLE AND CHECK SUCH PRA CTICES TO AVOID PAYMENT OF TAXES, THE PROVISIONS OF CLAUSE (10D) OF SECTION 10 OF THE INCOME TAX ACT, 1961 HAVE BEEN AM ENDED TO PROVIDE THAT A KEYMAN INSURANCE POLICY WHICH HAS BE EN ASSIGNED TO ANY PERSON DURING ITS TERM, WITH OR WIT HOUT CONSIDERATION, SHALL CONTINUE TO BE TREATED AS A KE YMAN INSURANCE POLICY AND CONSEQUENTLY WOULD NOT BE ELIG IBLE FOR ANY EXEMPTION UNDER SECTION 10(10D) OF THE INCOME TAX A CT, 1961 . 35. ACCORDINGLY EXISTING EXPLANATION TO SECTION 10( 10D) RENUMBERED AS EXPLANATION 1, WAS AMENDED AS UNDER: [EXPLANATION 1].FOR THE PURPOSES OF THIS CLAUSE, ' KEYMAN INSURANCE POLICY' MEANS A LIFE INSURANCE POLICY TAK EN BY A HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 38 PERSON ON THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOYEE OF THE FIRST-MENTIONED PERSON OR IS OR WAS CONNECTE D IN ANY MANNER WHATSOEVER WITH THE BUSINESS OF THE FIRST-ME NTIONED PERSON [AND INCLUDES SUCH POLICY WHICH HAS BEEN ASS IGNED TO A PERSON, AT ANY TIME DURING THE TERM OF THE POLICY, WITH OR WITHOUT ANY CONSIDERATION];] 36. THE FATE OF THE INSTANT APPEAL DEPEND A LOT ON THE NATURE OF AMENDMENT BROUGHT IN BY FINANCE ACT 2013 IN EXPLANA TION 1 TO SECTION 10(10D) OF THE ACT AS TO WHETHER IT IS PROS PECTIVE OR RETROSPECTIVE OR CLARIFICATORY IN NATURE AND THE SA ME NEEDS TO EXAMINED IN THE LIGHT OF JUDICIAL PRONOUNCEMENTS. 37. HON'BLE APEX COURT IN THE CASE OF CIT VS. ESSAR TELEHOLDING LTD. (2018) 3 SCC 253 WHILE ADJUDICATING THE ISSUE AS TO WHETHER THE APPLICABILITY OF RULE 8D AS INSERTED BY THE NOTIFIC ATION DATED 24.03.2008 IS ONLY PROSPECTIVE IN NATURE HELD AS FO LLOWS: IMPORTANT PRINCIPLES OF STATUTORY INTERPRETATION 23. THE LEGISLATURE HAS PLENARY POWER OF LEGISLATIO N WITHIN THE FIELDS ASSIGNED TO THEM, IT MAY LEGISLATE PROSPECTI VELY AS WELL AS RETROSPECTIVELY. IT IS A SETTLED PRINCIPLE OF STATU TORY CONSTRUCTION THAT EVERY STATUTE IS PRIMA FACIE PROSPECTIVE UNLES S IT IS EXPRESSLY OR BY NECESSARY IMPLICATIONS MADE TO HAVE RETROSPECTIVE OPERATIONS. LEGAL MAXIM NOVA CONSTITUTIOFUTURISFORMAMIMPONEREDEBET NON PRAETERIT IS, I.E. A NEW LAW OUGHT TO REGULATE WHAT IS TO FOLLOW, NOT TH E PAST, CONTAIN A PRINCIPLE OF PRESUMPTION OF PROSPECTIVELY OF A STATUTE. 24. JUSTICE G.P. SINGH IN PRINCIPLES OF STATUTORY INTERPRETATION (14TH EDITION, IN CHAPTER 6) WHILE DEALING WITH HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 39 OPERATION OF FISCAL STATUTE ELABORATES THE PRINCIPL ES OF STATUTORY INTERPRETATION IN THE FOLLOWING WORDS: FISCAL LEGI SLATION IMPOSING LIABILITY IS GENERALLY GOVERNED BY THE NOR MAL PRESUMPTION THAT IT IS NOT RETROSPECTIVE AND IT IS A CARDINAL PRINCIPLE OF THE TAX LAW THAT THE LAW TO BE APPLIED IS THAT IN FORCE IN THE ASSESSMENT YEAR UNLESS OTHERWISE PROVIDED EX PRESSLY OR BY NECESSARY IMPLICATION. THE ABOVE RULE APPLIES TO TH E CHARGING SECTION AND OTHER SUBSTANTIVE PROVISIONS SUCH AS A PROVISION IMPOSING PENALTY AND DOES NOT APPLY TO MACHINERY OR PROCEDURAL PROVISIONS OF A TAXING ACT WHICH ARE GEN ERALLY RETROSPECTIVE AND APPLY EVEN TO PENDING PROCEEDINGS . BUT A PROCEDURAL PROVISION, AS FAR AS POSSIBLE, WILL NOT BE SO CONSTRUED AS TO AFFECT FINALITY OF TAX ASSESSMENT OR TO OPEN UP LIABILITY WHICH HAD BECOME BARRED. ASSESSMENT CREATES A VESTE D RIGHT AND AN ASSESSEE CANNOT BE SUBJECTED TO REASSESSMENT UNLESS A PROVISION TO THAT EFFECT INSERTED BY AMENDMENT IS E ITHER IS EITHER EXPRESSLY OR BY NECESSARY IMPLICATION RETROSPECTIVE . A PROVISION WHICH IN TERMS IS RETROSPECTIVE AND HAS THE EFFECT OF OPENING UP LIABILITY WHICH HAD BECOME BARRED BY LAPSE OF TIME, WILL BE SUBJECT TO THE RULE OF STRICT CONSTRUCTION. IN THE ABSENCE OF A CLEAR IMPLICATION SUCH A LEGISLATION WILL NOT BE GIVEN A GREATER RETROSPECTIVITY THAN IS EXPRESSLY MENTIONED; NOR WI LL IT BE CONSTRUED TO AUTHORIZE THE INCOME TAX AUTHORITIES T O COMMENCE PROCEEDINGS WHICH, BEFORE THE NEW ACT CAME INTO FOR CE, HAD BY THE EXPIRY OF THE PERIOD THEN PROVIDED BECOME BARRE D. BUT UNAMBIGUOUS LANGUAGE MUST BE GIVEN EFFECT TO, EVEN IF IT RESULTS IN REOPENING OF ASSESSMENTS WHICH HAD BECOME FINAL AFTER EXPIRY OF THE PERIOD EARLIER PROVIDED FOR REOPENING THEM. THERE IS NO FIXED FORMULA FOR THE EXPRESSION OF LEGISLATIVE INTENT TO GIVE RETROSPECTIVELY TO A TAXATION ENACTMENT...... 11. NOW IT IS A WELL SETTLED RULE OF INTERPRETATION HAL LOWED BY TIME AND SANCTIFIED BY JUDICIAL DECISIONS THAT, UNL ESS THE TERMS OF A STATUTE EXPRESSLY SO PROVIDE OR NECESSARILY RE QUIRE IT, RETROSPECTIVE OPERATION SHOULD NOT BE GIVEN TO A ST ATUTE SO AS TO TAKE AWAY OR IMPAIR AN EXISTING RIGHT OR CREATE A N EW OBLIGATION OR IMPOSE A NEW LIABILITY OTHERWISE THAN AS REGARDS MATTERS OF PROCEDURE. THE GENERAL RULE AS STATED BY HALSBURY I N VOL. 36 OF THE LAWS OF ENGLAND (3 RD EDN.) AND REITERATED IN SEVERAL HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 40 DECISIONS OF THIS COURT AS WELL AS ENGLISH COURTS I S THAT ALL STATUTES OTHER THAN THOSE WHICH ARE MERELY DECLARAT ORY OR WHICH RELATE ONLY TO MATTERS OF PROCEDURE OR OF EVIDENCE ARE PRIMA FACIE PROSPECTIVE AND RETROSPECTIVE OPERATION SHOULD NOT BE GIVEN TO A STATUTE SO AS TO AFFECT, ALTER OR DESTROY AN EXIS TING RIGHT OR CREATE A NEW LIABILITY OR OBLIGATION UNLESS THAT EF FECT CANNOT BE AVOIDED WITHOUT DOING VIOLENCE TO THE LANGUAGE OF T HE ENACTMENT. IF THE ENACTMENT IS EXPRESSED IN LANGUAG E WHICH IS FAIRLY CAPABLE OF EITHER INTERPRETATION, IT OUGHT T O BE CONSTRUED AS PROSPECTIVE ONLY. 38. IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. AYODHYAKUMARI (MRS.) (1985) 154 ITR 604 (RAJ): IT WAS HELD THAT ALL PROVISIONS ARE CONSIDERED TO BE PROSPECTIVE EXCEPT WHEN MADE RETRO SPECTIVE BY EXPRESS WORDS OR BY NECESSARY INTENDMENT. IN CASE O F AMBIGUITY, THE PROVISIONS SHOULD BE CONSTRUED AS BEING PROSPEC TIVE. 39. IN THE CASE OF CONTROLLER OF ESTATE DUTY VS. MERCHANT (M.A.) (1989) 177 ITR 490 (SC) :HON'BLE COURT HELD THAT SUBSEQUENT LEGISLATION SHOULD NOT TO AFFECT VESTED RIGHTS, UNL ESS LEGISLATION IS MADE RETROSPECTIVE EXPRESSLY OR BY NECESSARY IMPLIC ATION. THERE IS A WELL-SETTLED PRINCIPLE AGAINST INTERFERENCE WITH VE STED RIGHTS BY SUBSEQUENT LEGISLATION UNLESS THE LEGISLATION HAS B EEN MADE RETROSPECTIVE EXPRESSLY OR BY NECESSARY IMPLICATION . 40. IN THE CASE OF RITZ LTD. VS. UNION OF INDIA (1990) 184 ITR 104 (BOMB.) : IRRESPECTIVE OF THE LANGUAGE IN WHICH AMENDING PROV ISIONS ARE COUCHED, AN AMENDMENT CANNOT BE RETROSPECTIVE W ITH EFFECT FROM A DATE EARLIER TO THE DATE ON WHICH THE PROVIS ION SOUGHT TO BE AMENDED ITSELF WAS BROUGHT ON THE STATUTE BOOK. HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 41 41. IN THE CASE OF SAURASTRA AGENCIES PVT. LTD. VS. UNION OF INDIA (1990) 186 ITR 634 (CAL) : RULE IS AGAINST RETROSPECTIVELY. UNLESS PROVIDED IN THE STATUTE, THE LAW IS ALWAYS PRESUMED TO BE PROSPECTIVE IN NATURE. THERE CANNOT BE ANY IMPLICIT INFERENCE OF ANY RETROSPECTIVE OPERATION OF LAW. THE RETROSPECTIVE O PERATION MUST BE CLEAR AND UNAMBIGUOUS. 42. THE EXPRESSION SUCH IN THE ADDED PORTION AND INCLUDES SUCH POLICY WHICH HAS BEEN ASSIGNED TO A PERSON, AT ANY TIME DURING THE TERM OF THE POLICY, WITH OR WITHOUT ANY CONSIDERATI ON IS SIGNIFICANT. THIS WORD INDICATES THOSE POLICIES WHICH WERE KEYMA N INSURANCE POLICIES AT THE TIME OF ASSIGNMENT. ANY POLICY WHIC H WAS ASSIGNED PRIOR TO 01-04-2014 WILL NO LONGER REMAIN KEYMAN IN SURANCE POLICIES AS IT HAS BECOME AN ORDINARY POLICY AFTER THE ASSIGNMENT IN VIEW OF RAJAN NANDAS CASE (SUPRA). THE AMENDMENT WILL ALTER THE CHARACTER OF ONLY THOSE ORDINARY POLICIES INTO KEYM AN POLICIES IF THEY WERE KEYMAN POLICIES BEFORE ASSIGNMENT. THE AMENDME NT WILL NOT ALTER THE CHARACTER OF ANY AND EVERY POLICY INTO KE YMAN INSURANCE POLICY. IN OTHER WORDS IF AN ORDINARY POLICY IS ASS IGNED TO SOMEONE THEN ITS CHARACTER WILL NOT BECOME KEYMAN POLICY BY THE FORCE OF AMENDMENT. IT MUST BE A KEYMAN INSURANCE POLICY AT THE TIME OF ASSIGNMENT ONLY THEN THE AMENDMENT WILL MAINTAIN A CONTINUITY IN ITS CHARACTER OF KEYMAN INSURANCE POLICY. 43. THUS THE EFFECT OF AMENDMENT ON THE FACTS OF TH E PRESENT CASE WOULD BE THAT WHEN THE FIRST ASSIGNMENT WAS DONE IN OCTOBER 2010, THE AMENDMENT BY FINANCE ACT 2013 IN SECTION 10(10D ) CANNOT HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 42 BRING BACK THE CHARACTER OF THE POLICY AS KEYMAN IN SURANCE POLICY AS THE AMENDMENT IS EFFECTIVE FROM 1-04-2014. THE A MENDMENT IS PROSPECTIVE IN CHARACTER AS POINTED OUT ABOVE. THER EFORE IF A POLICY IS AN ORDINARY POLICY BEFORE THE AMENDMENT EITHER B Y CONTRACT AB- INITIO OR BY OPERATION OF LAW, IT WILL NOT BE AFFECTED BY THE AMENDMENT. IN OTHER WORDS IF AN ASSIGNMENT IS DONE AFTER AMENDMENT I.E. AFTER 01-04-2014, ONLY THEN EFFECT O F ASSIGNMENT WILL BE NEUTRALIZED AND THE POLICY WILL CONTINUE TO HOLD THE CHARACTER OF KEYMAN INSURANCE POLICY. IN VIEW OF THIS, THE P OLICIES AFTER ASSIGNMENT IN OCTOBER 2010 WILL CONTINUE TO HOLD TH E CHARACTER OF ORDINARY POLICIES TILL FEBRUARY 2015. 44. THUS, IF AN ORDINARY POLICY IS ASSIGNED TO OTHE R PERSON, IT WILL REMAIN AN ORDINARY POLICY AFTER ASSIGNMENT. THEREFO RE, THE ASSIGNED POLICIES IN THE HANDS OF SMT. H.K. BHATIA (ASSIGNED ON 30.01.2013) WILL CONTINUE TO BE ORDINARY POLICIES AND SUM RECEI VED BY THEM ON MATURITY WILL NOT BE TAXABLE EVEN BY AMENDED SECTIO N 10(10D). THE SAID AMENDMENT IN SECTION 10 (10D) IS PROSPECTIVE I N NATURE SINCE IT ENLARGES THE SCOPE OF TAXABILITY IN THE HANDS OF ASSESSEE AND ANY ACT OF ASSIGNMENT DONE BEFORE THE EFFECTIVE DATE OF AMENDMENT WILL NOT HAVE ANY IMPACT. 45. EVEN IN THE NOTES ON CLAUSE TOAMENDMENT IN FINA NCE ACT 2013 IN PARA 5.2 TAKES NOTE OF THE FACT THAT VARIOUS POL ICIES TAKEN AS KEYMAN INSURANCE POLICY ARE BEING ASSIGNED TO THE K EYMAN BEFORE ITS MATURITY AND THEREAFTER, MATURITY AMOUNT IS CLA IMED AS EXEMPT. HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 43 IN PARA 5.3 OF THE NOTES ALSO NOTICE THAT THIS IS L OOPHOLE IN LAW WHICH NEEDS TO BE REMOVED. THESE OBSERVATIONS CANNO TES THAT BEFORE THIS AMENDMENT VARIOUS ASSESSEES WERE CLAIMI NG EXEMPTION OF THE MATURITY PROCEEDS OF KEYMAN INSURANCE POLICY WHICH WERE ASSIGNED TO OTHER PERSON. SAME IS THE SITUATION IN THE CASE OF THE ASSESSEE IN THE INSTANT APPEAL WHEREIN THE POLICY W AS ASSIGNED IN HER FAVOUR ON 30.01.2013 FROM HER HUSBAND WHICH WAS ORIGINALLY TAKEN AS A KEYMAN INSURANCE POLICY BY BHATIA INTER NATIONAL COMPANY. SINCE THE ASSIGNMENT IN FAVOUR OF ASSESSEE DULY RECORDED BY LIC HAPPENED BEFORE THE EFFECTIVE DATE OF AMENDM ENT IN EXPLANATION 1 TO SECTION 10(10D) OF THE ACT THE SAM E WILL HAVE NO ADVERSE EFFECT ON THE ASSESSEE AND THE ALLEGED AMOU NT RECEIVED ON PREMATURITY OF INSURANCE POLICY WILL BE EXEMPTED. T HOUGH LD. PR. CIT HAS QUESTIONED ABOUT THE SOURCE OF PREMIUM PAID BY THE ASSESSEE FOR THE INSURANCE POLICY, IN OUR VIEW THER E IS HARDLY ANY EFFECT ON THE FATE OF THE CASE IF THE PREMIUM IS PA ID BY ASSESSEES HUSBAND AS A GIFT OR IT IS PAID BY ASSESSEE HERSELF . EVEN OTHERWISE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. RAJAN NANDA (SUPRA) HAS ALREADY ADJUDICATED THIS ISSUE IN DETAIL AND TH E SAME IS SQUARELY APPLICABLE ON THE FACTS OF THE ASSESSEE SO MUCH SO THAT THE POLICY ASSIGNED IN FAVOR OF ASSESEE WAS AN ORDINARY LIFE INSURANCE POLICY AND NOT A KEYMAN INSURANCE POLICY WHICH LOST IT CHARACTERISTIC AT THE TIME WHEN SURRENDER VALUE WAS OFFERED TO TAX BY THE COMPANY BIL. COORDINATE BENCH JAIPUR IN T HE CASE OF RAVI PODDAR V/S. CIT, ITA 130/JP/2016 DATED 24.3.2017 HA S HELD THAT :- HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 44 6.9 FURTHER, IT IS NOTED THAT THE LEGISLATURE HAS T AKEN NOTE OF THE SAID GAPING HOLES IN THE TAXING PROVISIONS AND HAS BROUG HT IN SUITABLE AMENDMENT BY WAY OF THE FINANCE ACT , 2013. IN THIS REGARD, USEFUL REFERENCE CAN BE DRWAN TO THE MEMORANDUM EXPLAINING THE FINANCE BILL 2013 WHICH READS AS UNDER: 'THE EXISTING PROVISIONS OF CLAUSE (10D) OF SECTION 10 , INTER ALIA, EXEMPT ANY SUM RECEIVED UNDER A LIFE INSURANCE POLICY OTHE R THAN A KEYMAN INSURANCE POLICY. EXPLANATION 1 TO THE SAID CLAUSE (10D) DEFINES A KEYMAN INSURANCE POLICY TO MEAN A LIFE INSURANCE POLICY TA KEN BY A PERSON ON THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOYEE O F THE FIRST-MENTIONED PERSON OR IS OR WAS CONNECTED IN ANY MANNER WHATSOE VER WITH THE BUSINESS OF THE FIRST-MENTIONED PERSON. IT HAS BEEN NOTICED THAT THE POLICIES TAKEN AS KEYM AN INSURANCE POLICY ARE BEING ASSIGNED TO THE KEYMAN BEFORE ITS MATURITY. T HE KEYMAN PAYS THE REMAINING PREMIUM ON THE POLICY AND CLAIMS THE SUM RECEIVED UNDER THE POLICY AS EXEMPT ON THE GROUND THAT THE POLICY IS N O LONGER A KEYMAN INSURANCE POLICY. THUS, THE EXEMPTION UNDER SECTION 10(10D) IS BEING CLAIMED FOR POLICIES WHICH WERE ORIGINALLY KEYMAN I NSURANCE POLICIES BUT DURING THE TERM THESE WERE ASSIGNED TO SOME OTHER P ERSON. THE COURTS HAVE ALSO NOTICED THIS LOOPHOLE IN LAW. WITH A VIEW TO PLUG THE LOOPHOLE AND CHECK SUCH PRA CTICES TO AVOID PAYMENT OF TAXES, IT IS PROPOSED TO AMEND THE PROVI SIONS OF CLAUSE (10D) OF SECTION 10 TO PROVIDE THAT A KEYMAN INSURANCE POLICY WHICH HA S BEEN ASSIGNED TO ANY PERSON DURING ITS TERM, WITH OR WIT HOUT CONSIDERATION, SHALL CONTINUE TO BE TREATED AS A KEYMAN INSURANCE POLICY. THE ABOVE AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL , 2014 AND WILL, ACCORDINGLY, APPLY IN RELATION TO ASSESSMENT YEAR 2 014-15 AND SUBSEQUENT ASSESSMENTS YEARS.' 46. WE, CAN THUS, SAFELY CONCLUDED THAT THE AMENDME NT BROUGHT IN BY FINANCE ACT 2013 IN EXPLANATION 1 TO SECTION 10(10D) OF THE ACT IS PROSPECTIVE IN NATURE AND BY NO STRETCH CAN BE TERMED AS RETROSPECTIVE OR CLARIFICATORY IN NATURE AND SHALL ONLY APPLY ON THE KEYMAN INSURANCE POLICY ASSIGNED AFTER 01.04.2014. EVEN OTHERWISE HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 45 IT HAS BEEN SUBMITTED BEFORE US THAT HAS THE POLICY BEEN NOT ASSIGNED BY THE COMPANY TO ITS KEYMAN AND MATURITY PROCEEDS OFFERED TO TAX BY THE COMPANY , THEIR WOULD HAVE BE EN NO LOSS TO REVENUE AS THE COMPANY HAD HUGE LOSSES MUCH ABOVE T HE MATURITY PROCEEDS DURING THE ASSESSMENT YEAR 2015-16. 47. THOUGH LD. PR. CIT IN THE IMPUGNED ORDER HAS RE FERRED TO VARIOUS JUDGMENTS ON MERITS AS WELL AS LEGALITY OF THE CASE BUT IN OUR CONSIDERED VIEW THEY ARE NOT SQUARELY APPLICABL E ON THE FACTS OF THE INSTANT CASE AND THUS HAVE NO APPLICABILITY ON THE ISSUES RAISED BEFORE US. 48. ACTION OF THE LD. PR. CIT INVOKING THE PROVISIO N OF SECTION 263 CAN BE TESTED ON TWIN CONDITIONS HAVING BEEN SATISF IED OR NOT AN ORDER SOUGHT TO BE REVISED SHOULD BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IN THE PRESENT CASE AS PER THE PR. CIT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF REVENUE ON THE GROUND THAT BY VIRTUE OF THE AMENDME NT INTRODUCED IN THE EXPLANATION 1 TO SECTION 10(10D) INSERTED W. E.F. 01.04.2014 WOULD ALSO BE APPLICABLE IN THE PRESENT CASE AS WEL L ON THE BASIS THAT SUCH EXPLANATION IS CLARIFICATORY IN NATURE. T HE ISSUE RELATED TO TAXABILITY OF SUCH KEYMAN INSURANCE POLICIES ASSIGN ED IN FAVOR OF KEYMAN OR OTHER INDIVIDUAL HAS BEEN EXAMINED HAS BEEN EXAMINED BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. RAJAN NANDA (2012) (SUPRA) HOLDING THEM TO BE EXEMPTED U/ S.10(10D) OF THE ACT . IN VIEW OF THIS BINDING PRECEDENCE WE DO NOT FIND ANY FAULT WITH THE ASSESSMENT ORDER AS THE ASSESSING OFFICER HAS TAKEN A VIEW HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 46 EXPRESSED BY THE HON'BLE DELHI HIGH COURT WHICH WAS LAW OF THE LAND. PERTAINING TO THE ASSESSMENT YEAR UNDER APPEA L NO VIEW WAS EXPRESSED BY ANY OF THE AUTHORITY OR THE COURT THAT THE CLARIFICATION WAS INTRODUCED BY THE AMENDING ACT WOULD BE RETROSP ECTIVE IN NATURE. THEREFORE, IT CANNOT BE INFERRED THAT THE A SSESSMENT ORDER IS ERRONEOUS. EVEN NO SUCH CLARIFICATION BY THE CBDT W AS AVAILABLE AT THE TIME OF PASSING OF ASSESSMENT ORDER. THUS THE V IEW EXPRESSED BY THE LD. CIT(A) IS NOT SUPPORTED BY ANY OF THE BI NDING PRECEDENCE. 49. WE, THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE RATIO LAID DOWN IN VARIOUS JUDGME NT REFERRED HEREINABOVE ARE OF THE CONSIDERED VIEW THAT THE ASS ESSMENT ORDER DATED 13.12.2017 WHICH HAS BEEN SET ASIDE BY THE LD. PR. CIT INVOKING THE POWERS U/S 263 OF THE ACT IS NOT ERRON EOUS IN NATURE SINCE THE ASSESSING OFFICER HAS CONDUCTED ADEQUATE ENQUIRY RELATING TO THE ISSUE OF PROCEEDS FROM PREMATURITY OF LIC PO LICY CLAIMED TO BE EXEMPTED BY THE ASSESSEE AFTER PROVIDING DETAILED I NFORMATION IN THE COMPUTATION OF INCOME AND VARIOUS REPLIED TO THE SA TISFACTION OF THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS. ASSESSEE HAS GIVEN DETAILED REPLIES ON NUMEROUS OCC ASIONS WHICH HAVE BEEN DULY CONSIDERED BY THE LD. AO. WE ARE ALS O OF THE VIEW THAT THE ASSESSMENT ORDER DATED 13.12.2017 IS ALSO NOT PREJUDICIAL TO THE INTEREST OF REVENUE SINCE PROCEEDS ARE ON PR EMATURITY OF THE LIFE INSURANCE POLICIES WHICH WAS NOTED BY LIC OF I NDIA ON ITS ASSIGNMENT CHANGING THE CHARACTERISTIC FROM KEYMAN INSURANCE POLICY TO LIFE INSURANCE POLICY AND NO EXPENDITURE HAS BEEN CLAIMED HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 47 POST ITS ASSIGNMENT AND ALSO IN OUR VIEW AS THE AME NDMENT BROUGHT IN BY FINANCE ACT 2013 EXPLANATION 1 TO SEC TION 10(10D) OF THE ACT W.E.F. 01.04.2014 IS PROSPECTIVE IN NATURE , SAME IS NOT APPLICABLE ON THE ASSESSEE SINCE ASSIGNMENT OF POLI CY IN FAVOUR OF THE KEYMAN MR. A.S. BHATIA WAS IN OCTOBER 2010 AND THEREAFTER ASSIGNMENT RECORDED BY THE LIC IN FAVOUR OF THE ASS ESSEE ON 30.01.2013 WERE MUCH BEFORE THE AMENDMENT BROUGHT I N THE EXPLANATION 1 TO SECTION 10(10D) OF THE ACT EFFECTI VE FROM 01.04.2014 AND THUS LD. ASSESSING OFFICER WAS JUSTI FIED IN ACCEPTING THE CLAIM OF THE ALLEGED RECEIPTS AS EXEMPTED INCOM E U/S 10(10D) OF THE ACT. 50. THEREFORE, SINCE TWIN CONDITIONS WHICH ARE MAND ATORILY REQUIRED TO BE FULFILLED BY LD. PR. CIT BEFORE PASSING THE O RDER U/S 263 OF THE ACT REMAINS UNFULFILLED AS THE ORDER OF THE LD. AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENU E. WE, THEREFORE, ARE OF THE VIEW THAT LD. PR. CIT WAS NOT CORRECT IN LAW IN EXERCISING THE JURISDICTION U/S 263 OF THE ACT AND CANCELLING THE ASSESSMENT. WE, ACCORDINGLY QUASH THE IMPUGNED ORDER PASSED U/S 263 OF THE ACT DATED 21.12.2018 AND RESTORE THE ASSESSMENT ORD ER PASSED U/S 143(3) OF THE ACT ON 13.12.2017. THUS, ALL GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE CASE OF HARLEENKAUR BHATIA I N ITANO.150/IND/2019 FOR A.Y. 2015-16 STANDS ALLOWED. NOW WE TAKE UP APPEAL FOR ANOTHER ASSESSEE NAMELY S MT. GURVINDER KAUR BHATIA IN ITANO.151/IND/2019 HARLEENKAUR BHATIA &GURVINDERKAUR BHATIA ITA NOS.150 & 151 /IND/19 48 51. SINCE THE FACTS AND ISSUES INVOLVE ARE SIMILAR TO THE FACTS AND ISSUES ADJUDICATED BY US IN THE CASE OF SMT. HARLEE N KAUR BHATIA IN ITANO.150/IND/2019,WE, THUS APPLY OUR DECISION MENT IONED ABOVE MUTATIS MUTANDIS IN THIS APPEAL ALSO AND ACCORDINGLY QUASH THE IMPUGNED ORDER U/S 263 PASSED BY THE LD. PR. CIT ON 24.12.2018 AND RESTORE THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT DATED 13.12.2017. THUS, ALL THE GROUNDS OF APPEAL R AISED IN THE CASE OF ASSESSEE NAMELY SMT. GURVINDER KAUR BHATIA IN ITANO.151/IND/2019 STANDS ALLOWED. 52. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE (S) IN ITANO.150 & 151/IND/2019 STANDS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 18 .12. 2019. SD/- SD/- ( KUL BHARAT) (MANISH BORAD ) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 18 TH DECEMBER, 2019 PATEL /PS COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER, ASSTT. REGISTRAR, I.T.A.T., INDORE