L.H SUGAR FACTORIES LTD.,PILIBHIT V. DY. COMMISSIONER OF INCOME TAX, BAREILLY

ITA 194/LKW/2020

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The case involves L. H. Sugar Factories Ltd., the appellant, contesting the reassessment proceedings initiated by the Deputy Commissioner of Income Tax, Circle-II, Bareilly, the respondent. The primary contention was regarding the validity of the reassessment under sections 147 and 148 of the Income Tax Act, 1961, and the subsequent addition of Rs.73,00,052/- to the assessee's income, which was the notional surrender value of Keyman Insurance Policies that had not matured during the assessment year 2012-13. The Tribunal examined the grounds of reassessment and the merits of the addition, ultimately finding in favor of the assessee on the grounds of both procedural impropriety in the reassessment and substantive merit regarding the taxation of notional income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 779811 (ITAT-LUCKNOW)
• Duration Of Justice: 5 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 06-05-2020
• Other Referred Cases: Vodafone West Ltd. vs ACIT354 ITR 520 (Guj), Cadila Healthcare Ltd. vs. ACIT 335 ITR 393 (Guj), Jagat Jayantilal Parikh vs. Dy.CIT 355 ITR 400 (Guj), CIT vs. Kelvinator of India Ltd. 228 CTR 488 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PUNIT KUMAR
• Assessee Lawyers: AKSHAY GUPTA
• Keywords: Difference of opinion; Change of opinion; Reassessment proceedings; Reopening of assessment; Audit objection; Competent authority; Reason to believe
• Section: 147; 148; 143(3)

Judgement Text

"I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH ‘B’, LUCKNOW BEFORE SHRI KUL BHARAT, VICE PRESIDENT AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER I.T.A. No.194/Lkw/2020 Assessment Year: 2012-13 L. H. Sugar Factories Ltd., Civil Lines, Pilibhit-262001 PAN:AAACL4597L Vs. Dy.C.I.T., Circle-II, Bareilly. (Appellant) (Respondent) O R D E R PER ANADEE NATH MISSHRA:A.M. (A) This appeal vide I.T.A. No.194/Lkw/2020 has been filed by the assessee for assessment year 2012-13 against impugned appellate order dated 26/02/2020 of Commissioner of Income Tax (Appeals) [“CIT(A)” for short]. The assessee has raised the following grounds: “1. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the assumption of jurisdiction by the learned AO u/s 147 read with section 148 of the income Tax act, 1961: Appellant by Shri Akshay Gupta, C.A. Respondent by Shri Punit Kumar, CIT (D.R.) Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 2 a. Because the issues raised in the reasons recorded were already considered and adjudicated during the assessment proceedings u/s 143 (3) of the Act and reasons recorded are mere change of opinion. b. Because the reason to believe recorded by the learned AO are not the view of the AO himself but based on the view of the revenue audit party. c. Because the sanction of the competent authority, i.e. JCIT was not obtained as prescribed in section 151 of the Income Tax Act, 1961. 2. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the assessment proceedings and assessment order without appreciating that the learned AO did not dispose the objections raised by the assessee against the proceeding u/s 147/148 of the Act by a speaking order. 3. The learned Commissioner of Income tax (Appeals) has erred in law and on facts in confirming the addition of Rs.73,00,052/- on account of revaluation of Keyman Insurance Policies without appreciating the fact that the amount was neither received nor receivable during the year.” (B) In this case the original assessment order was filed by the assessee on 19/09/2012 declaring total income of Rs.15,66,11,220/-. Original assessment order was completed u/s 143(3) of the Act on 23/03/2015 at an assessed income of Rs.19,83,58,004/-. Subsequently, reassessment proceedings u/s 147 of the Act were initiated by the Assessing Officer by issuing notice dated 29/03/2016 u/s 148 of the Act. Before issuing the aforesaid notice u/s 148, the Assessing Officer had recorded reasons. One of the reasons behind the reopening of the assessment u/s 147 read with section 148 related to Keyman Insurance Policies taken by the assessee. The relevant portion of the reasons recorded by the Assessing Officer befire issue of notice u/s 148 is as under: Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 3 (B.1) Assessment order was passed u/s 143(3)/147 of the Act wherein an addition of Rs.73,00,052/- was made by the Assessing Officer on account of surrender value of Keyman Insurance Policies. The relevant portion of the order of the Assessing Officer is reproduced as under: Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 4 (C) The assessee filed appeal in the office of the learned CIT(A) which was disposed of vide impugned appellate order dated 26/02/2020 of the learned CIT(A). The learned CIT(A) confirmed the aforesaid addition of Rs.73,00,052/- in the aforesaid impugned appellate order. The present appeal has been filed by the assessee against the aforesaid impugned order dated 26/02/2020 of the learned CIT(A). (D) In the course of appellate proceedings in Income Tax Appellate Tribunal, following particulars were filed from the assessee’s side: 18 Copy of order of Hon'ble ITAT in the own case of assessee for AY 2011-12 adjudicated on similar ground of AY 2012-13 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 5 (D.1) At the time of hearing before us, learned A.R. for the assessee contended that reopening of the assessment vide aforesaid notice dated 29/03/2016 u/s 148 of the Act was unjustified and invalid. He further contended that the aforesaid assessment order u/s 143(3)/147 of the Act, which was passed in consequent upon reassessment proceedings, which were invalid, should be annulled. In this regard he placed reliance on order dated 28/08/2017 of Coordinate Bench of ITAT, Lucknow in assessee’s own case vide I.T.A. No.119/Lkw/2017, for assessment year 2009-10, relevant portion of which is reproduced as under:- Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 6 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 7 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 8 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 9 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 10 (D.2) Learned A.R. for the assessee submitted that identical view was taken by Coordinate Bench of the ITAT, Lucknow in assessee’s own case for assessment year 2010-11 also in order dated 28/08/2017 in I.T.A. No.120/Lkw/2017. The learned A.R. for the assessee also took support of Vodafone West Ltd. vs ACIT354 ITR 520 (Guj) and Cadila Healthcare Ltd. vs. ACIT 335 ITR 393 (Guj) for the proposition that reopening of assessment proceedings beyond a period of four years from the end of the relevant assessment year was invalid when there was full and true disclosure on the part of the assessee. The learned A.R. for the assessee also placed reliance on Jagat Jayantilal Parikh vs. Dy.CIT 355 ITR 400 (Guj) for the proposition Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 11 that the assessment proceedings based on audit objection without independent application of mind and without absence of satisfaction of the Assessing Officer leading to independent belief of the Assessing Officer; were invalid. The learned A.R. for the assessee also drew support from CIT vs. Kelvinator of India Ltd. 228 CTR 488 (SC) for the proposition that reassessment proceedings based on “change of opinion” were invalid and that reasons recorded must have a live link with the formation of belief. (D.3) On merits, learned A.R. for the assessee submitted that the addition has been made on the basis of lack of understanding of Keyman Insurance Policies. Under this policy, some key persons of the assessee are insured by the assessee company, and such insurance has a specified surrender value. The surrender value is received at the time of maturity of the insurance policy. The assessee received money against surrender value of such Keyman Insurance Policies, which matured during the year; and accounted for it in computation of income of the assessee. The learned A.R. for the assessee drew our attention to computation of income (placed at page 24 of the paper book) wherein receipt of Rs.10,80,70,726/- is included as assessee’s income on account of receipts against surrender value of Keyman Insurance Policies which matured during the year. The learned A.R. for the assessee also submitted that this has been consistent method adopted by the assessee which was accepted by Department in earlier years as well as in later years. When the assessee offers the receipts against surrender value of Keyman Insurance Policies for tax at the time of maturity, the surrender value of Keyman Insurance Policies that have not matured could not be separately taxed, the learned A.R. for the assessee submitted. The learned A.R. for the assessee submitted that the addition of Rs.73,00,052/- being surrender value of Keyman Insurance Policies was totally unjustified and against law as it pertained to surrender value of policies which have not yet Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 12 matured during the year; when the assessee has already offered Rs.10,80,70,726/- as income on account of receipts against surrender value of Keyman Insurance Policies, which matured during the year. In this regard, he also drew our attention to submissions made before the Assessing Officer during assessment proceedings, which are reproduced below for the ease of reference: Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 13 (D.4) The learned A.R. for the assessee also drew our attention to letter dated 17/06/2016, addressed to the Assessing Officer, containing preliminary objections to proceedings u/s 147/148 of the Act, which is reproduced as under: Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 14 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 15 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 16 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 17 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 18 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 19 (D.5) The learned A.R. for the assessee further drew our attention to written submissions filed during appellate proceedings in the office of the learned CIT(A), relevant portion of which is reproduced as under: Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 20 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 21 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 22 Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 23 (D.6) In view of the foregoing, learned A.R. for the assessee submitted that the addition of aforesaid amount of Rs.73,00,052/- is unjustified even on merits. (E) Learned Departmental Representative placed reliance on the assessment order and the impugned appellate order of learned CIT(A). (F) We have heard both sides. We have perused the materials on record. It is not in dispute that the assessee has included the aforesaid amount of Rs.10,80,70,726/- in taxable income being surrender value of Keyman Insurance Policies which matured during the year. Once the receipts against the Keyman Insurance Policies have been brought to tax by Revenue on the basis of surrender value of matured policies; the addition of aforesaid amount of Rs.73,00,052/- on account of surrender value of Keyman Insurance Policies which have not matured; is not justified. Further the surrender value of Keyman Insurance Policies, which would mature in future, has not yet accrued or arisen. Essentially it is a notional figure, and notional income cannot be brought to tax. What is liable to be taxed is the real income of the assessee and not the notional income. Therefore, we are in agreement with the submissions made by learned A.R. for the assessee that on merits the aforesaid addition of Rs.73,00,052/- (being surrender value of policies that are yet to mature) is unjustified, when the aforesaid amount of Rs.10,80,70,726/- has already been brought to tax on account of receipt of surrender value of Keyman Insurance Policies that matured during the year. We, therefore, direct the Assessing Officer to delete the aforesaid addition of Rs.73,00,052/-. Accordingly, ground No. 3 of appeal is allowed. (G) Ground No. 1 along with sub grounds (a), (b) and (c) are related to validity of the reassessment proceedings u/s 147 read with section 148 of the Act. Further, ground No. 2 of appeal is regarding the objection raised Printed from counselvise.com I.T.A. No.194/Lkw/2020 Assessment Year:2012-13 24 by the assessee against proceedings u/s 147/148 of the Act. These grounds are now merely academic in nature, in the light of our direction to the Assessing Officer in foregoing paragraph No. (F) of this order to delete the aforesaid addition of Rs.73,00,052/-. Being merely academic, these grounds are not decided. (H) In the result, the appeal is partly allowed for statistical purposes. (Order pronounced in the open court on 15/10/2025) Sd/. Sd/. (KUL BHARAT) (ANADEE NATH MISSHRA) Vice President Accountant Member Dated:15/10/2025 *Singh Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. Concerned CIT 4. D.R. ITAT, Lucknow Printed from counselvise.com "