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2019 (12) TMI 1037 - AT - Income TaxRevision u/s 263 - claim of exemption u/s 10(10D) - income in the hands of the assessee on account of maturity receipts of the Keyman Insurance Policy - HELD THAT - The amendment 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 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 been no loss to revenue as the company had huge losses much above the maturity proceeds during the Assessment Year 2015-16. Though Ld. Pr. CIT in the impugned order has referred to various judgments on merits as well as legality of the case but in our considered view they are not squarely applicable on the facts of the instant case and thus have no applicability on the issues raised before us. Action of the Ld. Pr. CIT invoking the provision of section 263 can be tested on twin conditions having been satisfied 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 the interest of revenue on the ground that by virtue of the amendment 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 well on the basis that such explanation is clarificatory in nature. The issue related to taxability of such Keyman Insurance policies assigned 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 2014 (1) TMI 249 - ITAT DELHI holding them to be exempted u/s.10(10D). In view of this binding precedence we do not find any fault with the assessment order as the assessing officer has taken a view expressed by the Hon'ble Delhi High Court which was law of the land. Pertaining to the assessment year under appeal no view was expressed by any of the authority or the court that the clarification was introduced by the amending Act would be retrospective in nature. Therefore, it cannot be inferred that the assessment order is erroneous. Even no such clarification by the CBDT was available at the time of passing of assessment order. Thus the view expressed by the Ld. CIT(A) is not supported by any of the binding precedence. The assessment 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 erroneous in nature since the assessing officer has conducted adequate enquiry relating to the issue of proceeds from prematurity of LIC policy claimed to be exempted by the assessee after providing detailed information in the computation of income and various replied to the satisfaction of the assessing officer during the course of assessment proceedings. Assessee has given detailed replies on numerous occasions which have been duly considered by the Ld. AO. We are also of the view that the assessment order dated 13.12.2017 is also not prejudicial to the interest of revenue since proceeds are on prematurity of the life insurance policies which was noted by LIC of India on its assignment changing the characteristic from Keyman Insurance Policy to Life insurance policy and no expenditure has been claimed post its assignment and also in our view as the Amendment brought in by Finance Act 2013 explanation 1 to section 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 policy in favour of the keyman Mr. A.S. Bhatia was in October 2010 and thereafter assignment recorded by the LIC in favour of the assessee on 30.01.2013 were much before the amendment brought in the Explanation 1 to section 10(10D) of the Act effective from 01.04.2014 and thus Ld. Assessing officer was justified in accepting the claim of the alleged receipts as exempted income u/s 10(10D) of the Act. Therefore, since twin conditions which are mandatorily required to be fulfilled by Ld. Pr. CIT before passing the order u/s 263 remains unfulfilled as the order of the Ld. AO is neither erroneous nor prejudicial to the interest of Revenue. 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. - Decided in favour of assessee.
Issues Involved:
1. Invocation of Section 263 of the Income Tax Act, 1961. 2. Taxability of maturity proceeds of Keyman Insurance Policy. 3. Validity of the assessment order passed by the Assessing Officer. 4. Nature of the amendment brought by Finance Act 2013 in Explanation 1 to Section 10(10D). Issue-Wise Detailed Analysis: 1. Invocation of Section 263 of the Income Tax Act, 1961: The primary issue was whether the Pr. Commissioner of Income Tax (Pr. CIT) was justified in invoking the provisions of Section 263 of the Income Tax Act, 1961. The Tribunal noted that for invoking Section 263, the order passed by the Assessing Officer (AO) must be both erroneous and prejudicial to the interests of the revenue. The Tribunal emphasized that the Pr. CIT must provide an opportunity for the assessee to be heard and conduct necessary inquiries before passing an order. The Tribunal referred to various judgments, including Malabar Industrial Co. Ltd. vs. CIT and CIT vs. Max India Ltd., to establish that both conditions must be satisfied for Section 263 to be invoked. 2. Taxability of Maturity Proceeds of Keyman Insurance Policy: The Tribunal examined whether the maturity proceeds of the Keyman Insurance Policy received by the assessees were taxable. The Pr. CIT contended that the amendment brought by Finance Act 2013 in Explanation 1 to Section 10(10D) was clarificatory and retrospective, thus making the maturity proceeds taxable. The assessees argued that the policy, after being assigned, changed its nature from Keyman Insurance Policy to a normal Life Insurance Policy, and therefore, the proceeds were exempt under Section 10(10D). The Tribunal agreed with the assessees, citing judgments like CIT vs. Rajan Nanda and CIT vs. Prashant J. Agarwal, which held that once a Keyman Insurance Policy is assigned, it becomes an ordinary policy, and the proceeds are exempt. 3. Validity of the Assessment Order Passed by the Assessing Officer: The Tribunal scrutinized whether the AO had conducted adequate inquiries before accepting the assessee's claim of exemption on the maturity proceeds of the insurance policy. It was found that the AO had issued multiple notices and received detailed submissions from the assessee, which included documentary evidence and legal precedents supporting their claim. The Tribunal concluded that the AO had conducted sufficient and adequate inquiries, and thus, the assessment order was neither erroneous nor prejudicial to the interests of the revenue. 4. Nature of the Amendment Brought by Finance Act 2013 in Explanation 1 to Section 10(10D): The Tribunal analyzed whether the amendment introduced by Finance Act 2013 in Explanation 1 to Section 10(10D) was prospective or retrospective. The Tribunal referred to several judicial pronouncements, including CIT vs. Essar Teleholding Ltd., which established that unless explicitly stated, amendments are presumed to be prospective. The Tribunal concluded that the amendment was prospective and applicable only to policies assigned after 01.04.2014. Since the policies in question were assigned before this date, the amendment did not apply, and the proceeds were exempt. Conclusion: The Tribunal quashed the orders passed by the Pr. CIT under Section 263, restoring the assessment orders passed by the AO. It held that the AO had conducted adequate inquiries, and the assessment orders were neither erroneous nor prejudicial to the interests of the revenue. The Tribunal also concluded that the amendment brought by Finance Act 2013 in Explanation 1 to Section 10(10D) was prospective and did not apply to the assessees' cases. Therefore, the maturity proceeds of the insurance policies were exempt from tax.
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