Income Tax Appellate Tribunal - Jaipur
Dilip Kumar Pachori,Pratapgarh vs Dcit (Circle) Intl.Tax, Jaipur on 27 January, 2025
vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,"B" JAIPUR
Jh jkBkSM+ deys'k t;UrHkkbZ] ys[kk lnL; ,o Jh ujsUnz dqekj] U;kf;d lnL; ds le{k
BEFORE: SHRI RATHOD KAMLESH JAYANTBHAI, AM & SHRI NARINDER KUMAR, JM
vk;dj vihy la-@IT (IT) A No. 04/JP/2023
fu/kZkj.k o"kZ@Assessment Year : 2016-17
Dilip Kumar Pachori cuke Dy Commissioner of Income
Village and Post - Parsola, Vs. Tax (Circle) International
Dhariyawad, Dist. Pratapgarh Taxation,
4th Floor, Jeevan Nidhi-2,
LIC Building, Ambedkar
Circle, Jaipur
LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: BBSPP 2607 L
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by : Sh. Rakesh Lodha, (Thr. V.C)
jktLo dh vksj ls@Revenue by: Sh. Anoop Singh, (Addl. CIT)
lquokbZ dh rkjh[k@Date of Hearing : 21/01/2025
mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 27/01/2025
vkns'k@ORDER
PER: RATHOD KAMLESH JAYANTBHAI, AM By way of the present appeal, the above named assessee challenges the order of Commissioner of Income Tax, Appeal, Delhi-42 [ for short 'CIT(A)' ] dated 28/12/2022 for assessment year 2016-17. The said order of the ld. CIT(A) happen, because the assessee challenged the order of 2 IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT assessment passed u/s. 147 r.w.s 144 of the Income Tax Act [ for short Act ] by DCIT, Circle, International Taxation, Jaipur [ for short AO ] before him.
2. The assessee while challenging the order of the ld. CIT(A) has raised the following grounds: -
"1. On the facts and circumstances of the case and in law the Ld. CIT(Appeals), Delhi-42 erred in holding validity of acquisition of valid jurisdiction for assessment, even issue of notice u/s 148 by the non-Jurisdictional Assessing Officer.
2. CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the assessment order passed by the learned AO is without following the mandatory issuance of statutory notice u/s 143(2) of the Act, even after sent to ITR V to CPC Bengaluru by speed post.
3. That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) ought not to have upheld in treating a principal repayment by the LIC as a taxable income, without appreciating the evidence for claim of investment.
4. The appellant craves leave to add, alter, amend, modify and/or delete all or any of the grounds of the appeal on or before the final hearing, if necessary."
3. Succinctly, the facts as culled out from the records are that the Income Tax Officer, Pratapgarh was having an information that for the year under consideration the assessee has not filed any Income Tax Return in spite of the fact that he received interest from Bank of Baroda for Rs.
1,31,583/-. from SBBJ of Rs. 93,404/- and Rs. 45,20,361/- received from Life Insurance Corporation of India. Based on that information Income Tax 3 IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT Officer, Pratapgarh issued a notice dated 18.03.2021 as per provision of section 148 of the Act after getting approval of Joint Commissioner of Income Tax, Range-2, Udaipur. In response to the notice that notice assessee filed his ITR on 31.07.2021 declaring total income at Rs.
1,04,550/- which was below the maximum amount not chargeable to tax but the assessee not E-verified that ITR.
On perusal of the submission made by the assessee and material available on record, the assessing officer noted that the assessee received Rs. 45,20,361/- on 20.08.2015 in his NRE bank account held with SBI from Life Insurance Corporation of India as maturity amount of old Policy which was originally purchased on 20.08.2005. The assessee had claimed this maturity amount as exempted amount and therefore not taxable. Therefore, ld. AO asked the assessee proposing the assessment as per provision of section 144 of the Act vide notice dated 26.03.2022 asking assessee to show cause as to why the amount of Rs. 45,20,361/- should not be added to his total income for the year under consideration.
In response to the said show cause notice, the assessee submitted the response dated 29.03.2022 wherein he submitted that "I have received 4520361/- on maturity of LIC. I have invested Rs. 2500000/- on 15.08.2005 & received 4520361/- on maturity which includes my principle investment Rs. 2500000/-, vested bonus 1770361/- and interim bonus 250000/-. Vested bonus and interim bonus is not taxable under income tax. In alternatively if 4 IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT we compute capital gain then realisation is 4520361/- However, cost of acquisition is 2500000*1081/497 i.e 5437625/-, Thus I am having long term capital loss also in this lic policy. I request you to kindly consider my reply. I am not liable to any tax on maturity of this lic policy. I have not earned any income from lic, however, investment made from own income also have inflation loss while calculating capital gain."
The submission made by the assessee was considered by ld. AO, but found not acceptable as the assessee failed to substantiate the claim without any supporting documents. Ld. AO also noted that the claim of investment of Rs. 25,00,000/- was not submitted by the assessee.
Therefore, ld. AO stated that the exemption claim of the assessee remain unexplained. Based on the discussion made above, the claim of the exemption of Rs. 45,20,361/-made by the assessee, was disallowed.
4. Aggrieved by the order of the Assessing Officer, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant findings of the ld. CIT(A) is reiterated here in below:
"Ground No. 18. Ground no. 1 states that principles of natural justice have been violated in this case.
8.1 It is observed that the assessment has been finalized after issuing notice u/s 148 and issuing show-cause notice to the appellant. The appellant submitted detailed reply dated 29.03.2022 which has been duly considered by the AO before finalization of assessment. Thus, it is concluded that the appellant was afforded due opportunity of being heard by the AO and no violation of any principle of natural justice was made by the AO. The ground is without merit and is dismissed.Ground No. 2 5
IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT
9. In ground no. 2, the appellant has contended that notice u/s 148 was issued by the non-Jurisdictional AO, which rendered the assessment proceeding and order null in the eyes of law.
9.1 It has been contended that the status of the appellant was non-resident for the year under appeal and therefore, the jurisdiction was with the International Taxation Circle, Jaipur. As the reasons to believe were recorded by the ITO, Pratapgarh, Rajasthan, he did not have jurisdiction to record reasons for issuance of notice u/s 148 of the Act.
9.2 It is observed that this was a case where the appellant was not filing any regular return of income. The AO had received credible information that the appellant prima facie had taxable income but no return of income had been filed. Therefore, proceedings u/s 147 were initiated by the AO having territorial jurisdiction over the appellant. The AO having territorial jurisdiction issued notice u/s 148 after completing necessary statutory procedure such as recording of reasons and approval of competent authority etc. It appears that the case was subsequently transferred to the DCIT. Circle (International Taxation), Jaipur when it became clear that the appellant was a non-resident. All subsequent proceedings were carried out and completed by the DCIT, Circle (International Taxation), Jaipur. The appellant did not raise any objections to such proceedings and duly participated in the assessment.
9.3 It is therefore, clear that the proceedings were initiated by AO having territorial jurisdiction as he was not aware of the residential status of the appellant as no return of income was filed by appellant. When clarity about residential status was with the AO, he transferred the case to International Taxation Circle. Therefore, no infirmity is found in the action of the AO who initiated proceedings u/s 147 of the Act. The case laws relied upon by the appellant are not applicable to the facts of the present case.
9.4 It is pertinent to note that undisputedly, the appellant had participated in the assessment proceedings taken up by ACIT, International Taxation, Jaipur. The appellant therefore, cannot take any such ground subsequent to the assessment during the course of appellate proceedings. As per section 124(3)(b) of the Act, jurisdiction of the assessing officer cannot be called in question by an assessee after expiry of the time allowed by the notice u/s 148 for making the return. The due date for filing of return in response to notice u/s 148 was 18.04.2021 as notice u/s 148 was issued on 18.03.2021. Clearly, the appellant did not raise any such objection before 18.04.2021. Subsequently also the appellant had submitted 6 IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT details before the AO without raising any jurisdictional issue which shows that the appellant did not have any objection to the jurisdiction of the AO. Thus, the appellant is clearly barred by section 124 of the Act in raising this objection in appeal.
9.5 In view of above, the challenge to jurisdiction of AO is without any legal merit and the ground is dismissed.
Ground No. 310. Ground no. 3 challenges the assessment on the ground that assessment under section 147 of the Act was finalized without following the mandatory issuance of statutory notice u/s 143(2) of the Act.
10.1 It has been contended that section 148 provides that all the provisions of Act shall be applicable in respect of return of income u/s 148 as if the same was return furnished u/s 139 and therefore, it was mandatory for the AO to issue notice u/s 143(2).
10.2 It is pertinent to observe that in this case the appellant filed return in response to notice u/s 148, however, the same was never e-verified till the finalization of assessment. This is clearly mentioned in the first paragraph of assessment order. Thus, the return of income could not be treated as a valid return in the eyes of law. For this reason, the AO has finalized the assessment u/s 144 only as the return was non-est. As there was no valid retum of income in the eyes of law, the question of issuing any notice u/s 143(2) did not arise. Thus, this legal argument is also without any merit. A person cannot seek advantage of his own wrong doings. Notice u/s 143(2) would have been issued if the appellant had filed a legally valid return of income, which is not the case here. The ground is dismissed.
Ground Nos. 4 & 511. Grounds no. 4 & 5 challenge the action of the AO in not considering the objections submitted by the assessee in response to the draft order issued u/s144C dated 29.03.2022 and also in not forwarding the objections to DRP and not allowing them to issue necessary direction guiding him to complete the assessment in u/s 144C of the Act.
11.1 It is observed that in response to the draft order, as per Section 144C of the Act. the assessee has option to file objections to the Dispute Resolution Panel and 7 IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT to give a copy of the same to the AO. Therefore, the objections against draft order have to be filed before the DRP which undisputedly has not been done in this case and only a copy of the same is to be provided to the AO. There is no requirement in law that the AO has to forward the objections to the DRP as contended by the appellant.
11.2 The appellant has claimed that it was not aware of DRP rules requiring direct submission of Form no. 35A to the DRP.
11.2.1 It is trite law that ignorance of law is no excuse. Ignorantia juris non excusat or ignorantia legis neminem excusat (Latin for "ignorance of the law excuses not"
and "ignorance of law excuses no one respectively) is a legal principle holding that a person who is unaware of a law may not escape liability for violating that law merely by being unaware of its content. The rationale of the doctrine is that if ignorance were an excuse, a person charged with criminal offenses or a subject of a civil lawsuit would merely claim that one was unaware of the law in question to avoid liability, even if that person really does know what the law in question is. Thus, the law imputes knowledge of all laws to all persons within the jurisdiction. Even though it would be impossible, even for someone with substantial legal training, to be aware of every law in operation in every aspect of a state's activities, this is the price paid to ensure that willful blindness cannot become the basis of exculpation. Thus, it is well settled that persons engaged in any undertakings outside what is common for a normal person will make themselves aware of the laws necessary to engage in that undertaking. If they do not, they cannot complain if they incur liability. The excuse of ignorance of law is therefore, not acceptable.
11.3 In view of the above, the ground of appeal is found to be without merit and is therefore, dismissed.Ground Nos. 6 & 7
12. Grounds no. 6 & 7 are against the addition of Rs. 45,20,361/--
12.1 The appellant has claimed that the receipt was exempt u/s 10(10D) of the Act being maturity amount received from LIC. The only contention in support of claim is that the LIC agent/ people who sold the appellant his policy had said that the maturity proceeds would not be taxable. However, no exemption can be allowed based on some promise made by an agent. The exemption, for being allowed, will have to satisfy the test laid down in law. It is therefore, pertinent to analyse provisions of section 10(10D) of the Act 8 IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT 12.2 The section 10(10D) of the Income-tax Act as substituted by Finance Act 2003 w.e.f 1-4-2004 is as follows:
Section 10: "In computing the total income of a previous year of any person, any income falling within following clauses shall not be included:
[(10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than-
(a) any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA or
(b) any sum received under a Keyman insurance policy, or
(c) any sum received under an insurance policy issued on or after the 1stday of April, 2003 [but on or before the 31st day of March, 2012] in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured [; or]
(d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured:]Provided that the provisions of [sub-clauses (c) and (d)] shall not apply to any sum received on the death of a person:
Provided further that for the purpose of calculating the actual capital sum assured under 30[sub-clause (c)], effect shall be given to the[ Explanation to sub-section (3) of section 80C or the Explanation to sub-section (2A) of section 88, as the case may be] 12.3 The Memorandum explaining the provisions of Finance Bill, 2003 explains the rationale behind substitution of the original section 10(10D) with the substitution as under.
"Under the existing provisions contained in clause (10D) of section 10, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, (other than any sum received under the a policy for the medical treatment, training and rehabilitation of a handicapped dependent u/s. 80DDA or any sum received under the a Keyman insurance policy), is exempt. ........
The insurance policies with high premium and minimum risk cover are similar to deposits or bonds. With a view to ensure that such insurance policies are treated at 9 IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT par with other investment schemes, it is proposed to rationalise the tax concessions available to such policies. It is therefore, proposed to substitute the clause (10D) of section 10, so as to provide that the exemption available under the said clause shall not be allowed on any sum received under an insurance policy in respect of which the premium paid in any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured. However, any sum received under such policy on the death of a person shall continue to be exempt. It is also proposed to clarify that the value of any premiums agreed to he returned or of any benefit by way of bonus or otherwise, over and above the sum actually assured, which is to be or may be received under the policy by any person, shall not be taken into account for the purpose of calculating the actual capital sum assured under this clause. The new provision also provides that the amounts received under sub-section (3) of section 80DD, shall not be exempt under this clause..."
12.4 The appellant himself submits that he had paid Rs. 24,04,200/- as single premium towards the policy. Therefore, as the premium paid in this case, was more than 20% of the sum assured, the money received was fully taxable. Therefore, the claim of exemption has rightly been rejected by the AO. In the facts of the case and applicable law, the receipt of Rs. 45,20,361/- is held to be taxable.
12.5 The appellant has claimed deduction of original investment from the proceeds. It is observed that at the time of assessment, the appellant had failed to explain the source of investment, therefore, the same was treated as unexplained and not allowed. During the course of appeal also, no explanation or any documentary evidence as regards the investment and source thereof has been submitted by the appellant. Therefore, the action of the AO in taxing the entire amount is found to be justified and is confirmed.
12.6 These grounds are dismissed.
13. In the result, the appeal is dismissed."
5. Feeling dissatisfied, the assessee preferred the present appeal on the grounds as reproduced hereinabove. To support the various grounds so raised by the assessee, ld. AR of the assessee filed the written submission 10 IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT in respect of the grounds raised by the assessee. The written submission so filed reads as under;
"The assessee was Not Ordinary Resident for last more than 25 years, he made an investment of Rs. 24,04,200/- in LIC Bima Nivesh bond Scheme on 20-08-2005 and received maturity amount of Rs 45,20,361/- after ten years on 20-08-2015 in his SBI bank account.
The ITO, Pratapgarh, Rajasthan, a Non Jurisdictional AO has recorded reason to believe u/s 147, and obtained an approval from non-jurisdictional approval authority Ld JCIT, Range -2, Udaipur and issued statutory Notice u/s 148 dated 18-03-2021 & 142(1) to Not Ordinary Resident assessee. later on assessment proceeding was transferred to AO, Circle ( Intl Tax), Jaipur and he has without appreciating evidences and explanation passed an order u/s 144 and made addition of Rs 45,20,361/-, the ld CIT(A) has also confirmed the addition and assessee being aggrieved by appeal order preferred an appeal before Hon'ble Bench with following grounds of appeal.
Ground No. 1 : On the facts and circumstances of the case and in law the Ld CIT (Appeals), Delhi - 42 erred in holding validity of acquisition of valid jurisdiction for assessment, even issue of notice u/s 148 by the non-Jurisdictional Assessing Officer.
1.1 The non jurisdictional assessing officer, ITO, Pratap garh, Rajasthan had recorded reason to believe u/s 147, obtained approval from non-jurisdictional approval authority and issued statutory Notice u/s 148 dated 18-03-21 to NOR appellant.
1.2 Whereas, being Not ordinary Resident assessee his jurisdiction was lied with assessing officer (International taxation circle), Jaipur, but, neither he had recorded reasons to believe nor got approval of jurisdictional competent authority. 1.3 The Ld CIT(A) has wrongly upheld validity of notice u/s 148 issued by non- jurisdictional assessing officer on sole premise that he was having territorial jurisdiction over assessee and after completing necessary statutory procedure assessment proceeding was transferred to DCIT, Circle (Intl Taxation), Jaipur. 1.4 These facts itself proved that jurisdiction was lying with DCIT, (Intl Tax.), Jaipur and neither he has applied requisite an independent mind to record mandatory reason to believe nor designated competent authority u/s 151 has granted an approval to issue of notice u/s 148. Therefore, assessment proceeding was without lawful assumption of jurisdiction by issue of valid notice u/s 148 of the Act. 1.5 The Ld. CIT(A) has relied upon section 124(3)(b) and rejected claim of question of jurisdiction considering case of non-filing of return of income for pendency of verification of ITR V. Whereas, the assessee has posted his duly 11 IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT signed ITR-V by speed post receipt no. ER110959007IN on dated 16/10/2021 to CPC, Bengaluru. But it is noticed that CPC Bengaluru has not updated that ITR V in data of portal, The assessee did not have any control over CPC action about updation of receipt of ITR V. So, the premise for rejection of object by Ld CIT(A) was factually incorrect.
1.6 The CIT(A) has further held that assessee has participated in assessment proceeding without raising objection of jurisdiction and non-furnishing of return of income u/s 148 within 30 day time, so, he has lost right to raise question about jurisdiction. However, it is settled position of the law that question of jurisdiction is a question of law and that can be raised even at appellate stage. 1.7 It is settled position now that issue of statutory notice by non-jurisdictional assessing officer and participation of assessee in assessment proceedings does not fall under ambit of provisions of section 292BB of the Act, as therein, non- service, service beyond time limit and improper service of statutory notices can be cured by deemed validation of notice. The validity of notice by non jurisdictional assessing officer cannot be cured by section 292BB of the Act. 1.8 Herein the case, none of the situation had arisen to validate notice issued u/s 148, as contemplated in section 292BB. Therefore, Ld. CIT(A) has incorrectly invoked section 292BB of the Act to validate notice u/s 148 issued by non jurisdictional assessing officer.
1.9 In view of the provisions of section 147 /148 and 292BB of the Act, statutory notice u/s 148 issued by AO, Pratapgarh, Rajasthan in place of AO (International Taxation), Jaipur is bad in law and liable to quash, the appellant humbly request to allow this ground of appeal.
Ground No. 2 : CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the assessment order passed by the learned AO is without following the mandatory issuance of statutory notice u/s 143(2) of the Act, even after sent of ITR V to CPC Bengaluru by speed post.
2.1 The assessee has furnished his return of income on dated 31-07-2021 and sent ITR-V by speed post receipt no. ER110959007IN on dated 16/10/2021 to CPC, Bengaluru but later on this came to his knowledge on receipt of assessment order that status of return is appearing at portal as pending for e-verification, this was happened due to non-updation of documents delivered to CPC through speed post.
2.2 It is an admitted fact that no notice u/s 143(2) of the Act was issued by either non jurisdictional or jurisdictional assessing officer before completion of an assessment. It is settled position of law that an assessment order passed without issue of mandatory and statutory notice u/s 143(2) of the Act is bad in law.12
IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT 2.3 The appellant relied upon Apex Court Judgment in case of CIT Vs Hotel Bluemoon 321 ITR 362, wherein it was held that an omission on the part of AO to issue notice u/s 143(2) cannot be procedural irregularity and same is not curable, therefore, requirement of issuance of notice u/s 143(2) cannot be dispensed with.
Ground No. 3 : That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) ought not to have upheld in treating a principal repayment by the LIC as a taxable income, without appreciating the evidence for claim of investment.
3.1 The appellant has made investment of Rs 24,04,400/- in LIC Bima Nivesh Scheme on dated 20-08-2005 i.e. 10 years back and received assured maturity amount of Rs 45,20,361/- on 20-08-2015 comprising basic investment, assured vested return and interim bonus of Rs 17,70,361/- & Rs 250,000/-. The copy of policy status report issued by LIC was furnished before ld. AO and ld. CIT(A), but, Ld CIT(A) rejected the claim of deduction for reason mentioned at page 17 of impugned order that :
"....it is observed that at the time of assessment, the appellant had failed to explain source of investment, therefore, the same was treated as unexplained and not allowed..."
3.2 Whereas, the assessing officer has rejected claim of deduction of investment amount of Rs 25,00,000/- ( correct figure is 24,04,400/-) for the reason that :
"...claim of investment of Rs 25,00,000/- is not submitted by the assessee. Therefore, exemption claim of assessee remains unexplained...".
3.3 On perusal of both reasons for rejection of claim of exemption / deduction of investment cited by Ld CIT(A) and Assessing officer, it is found that these are two different and diverse reasons. However, assessee has duly furnished evidences being "Status Report of Policy No. 183635844 issued by LIC" in the name of assessee, containing details of original investment of Rs. 24,04,200/- accounted on 20-08-2005, letter dt 14-08-2015 issued by LIC, informing maturity amount due for payment to assessee, a hand written confirmation issued by Branch Manager, LIC, Dhariyawad, Rajasthan (Issuing branch).
(P B oage no. 28-29) 3.4 These evidences contained amount of investment and date thereof i.e. 20- 08-2005, proved that assessee has made an investment in Bima Nivesh bond with fixed assured return on that and without any sum insured therein, therefore, it was clean investment in long term capital asset, so, transaction should have to assessed under the head of Capital Gain treating that investment as capital assets as alternatively sou motto offered by assessee during the assessment proceedings. The ld assessing officer has also mentioned in impugned assessment order at para 6 of page 3.
13IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT 3.5 All these documents were also furnished to Ld CIT(A) to prove that appellant has made an investment of Rs 24,04,400/- on 15-08-2005/20-08-2005 for 10 years in Bima Nivesh Bond and received maturity proceeds of Rs 45,20,361/- after 10 years on 20-08-2015. The assessing officer has neither asked source of investment made 10 years before nor rejected claim of deduction for that reason, but, ld CIT(A) has derived new reason for rejection of claim of deduction that assessee failed to explain source of investment during the assessment, so, he has confirmed disallowance of claim of deduction. Important to submit here that assessee was Not Ordinary Resident and made that investment in year 2005 out of his foreign Income and savings from Kuwait. Though the source of investment made 10 years back by any assessee is not required to explain after 10 years during assessment proceeding for other assessment year, since, year of investment is already barred by limitation after 6 year. Thus, the claim of deduction of Index cost of acquisition of an asset made in computation of capital gains in AY 2016-17 before assessing officer, should not have been rejected and confirmed by the CIT(A).
3.6 Worth to submit that assessment order itself contained at para no. 6 of page 3 that assessee has submitted response on 29-03-2022, wherein details of calculation of capital loss was computed by claiming deduction of index cost of investment of Rs 54,37,625/- (correct figure should have Rs 52,19,808/-) against cost of acquisition of Rs 24,04,400 x 254/117. This observation of assessing officer proved that appellant has explained transaction of investment in the year 2005 by furnishing of an evidence containing details of cost of acquisition during course of assessment. But the ld CIT(A) has without appreciating the evidence being proof of investment in the year 2005 and assessment order, arbitrarily confirmed claim of deduction of indexed cost of acquisition of capital asset by generating new cause of "..appellant failed to prove source of investment..." conversed to reason given by assessing officer.
3.7 The investment made in Bima Nivesh Scheme of LIC in the year 2005 was long term capital asset and in terms of provisions of section 112 of the Income Tax Act and 2nd proviso of section 48 of the Act, the indexed cost of acquisition of long term capital asset was available for deduction from sale consideration / maturity value, and long term capital gain derived thereafter was liable to special rate of tax @20%. In the instant case, as computed herein above, there was Long Term Capital Loss of Rs 699,447/- ( maturity value of Rs 45,20,361/- minus indexed cost Rs. 52,19,808/-).
3.8 Pertinent to submit before your honors that there was an investment in Bima Nivesh Bond was a capital asset in terms of provisions of section 2(14) of the Act, and it was transferred by surrender on expiry of maturity term of 10 years and maturity proceed was paid by LIC. The definition of the term "transfer" includes extinguishment, and when a policy matures and proceeds are paid to the policyholder, there is extinguishment of the policy, therefore, in the present case 14 IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT transfer of capital asset took place on 15-08-2015. So, income arisen on receipt of maturity proceed of Rs 45,20,361/- of LIC bond is eligible for claim of deduction of index cost of acquisition of Rs 52,19,808/- ( Rs 24,04,400x 52,19,808/- therefrom, which resulting into Long Term Capital Loss of Rs.699,447/-.
3.9 In view of these evidences it is established that observations of ld CIT(A) about non furnishing of an evidences was factually incorrect.
3.10 The Hon'ble CBDT vide Circular No. 07 of 2003 dated 05-09-2003 at para 10.3 categorically allowed the reduction of cost of investments from maturity proceeds received on account of investments not eligible for exemption u/s 10(10D) of the Act, herein the case the maturity amount of Rs 45,20,361/- was not eligible for claim of exemption u/s 10(10D), so, this maturity amount would have been reduced by cost of acquisition. The relevant extract of circular is reproduced hereunder :
......
Para 10.3 : The insurance policies with high premium and minimum risk covers are similar to deposits or bonds. With a view to ensure that such insurance policies are treated at par with other investment schemes, amendments have been made in section 88 and clause (10D) of section 10. The existing clause (10D) of section 10 has been substituted so as to provide that the exemption available under the said clause shall not be allowed on any sum received under an insurance policy issued on or after the 1st day of April, 2003, in respect of which the premium payable in any of the years during the term of the policy, exceeds twenty per cent of the actual capital sum assured. In view of this, the income accruing on such policies (not including the premium paid by the assessee) shall become taxable. However, any sum received under such policy on the death of a person shall continue to remain exempt. The new provision also provides that the amounts received under sub-section (3) of section 80DD, shall not be exempt under this clause.
....."
3.11 Thus, the appellant was eligible to claim indexed cost of acquisition considering that asset as long term from maturity value received by him in terms of para 10.30 of Circular no. 07/2003. In the instant case rejection of claim of deduction of indexed cost of acquisition was gross violation of 2nd proviso of section 48 and para 10.3 of circular no. 07/2003 dated 05-09-2003. In view of facts and circumstances of the case, Policy Status Report and confirmation issued by LIC placed before both authorities i.e. appeal and assessing officer, the appellant humbly prays your honors to allow the deduction of index cost of acquisition from maturity proceeds and directs assessing officer to compute income under the head of capital gains and allow this ground of appeal."
6. To support the contention so raised in the written submission reliance was placed on the following evidence and records:
15IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT Sr. No. Particulars of documents Page nos
1. Written Submission to CIT(A) dated 22.08.2022 & 1-27 21.12.2022, before AO dated 28.04.2022
2. LIC Bima Nivesh Bond status report and certificate issued 28-29 by LIC Branch Manager
7. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that initiation of the proceeding by issuing notice u/s. 148 of the Act by the ITO, Pratapgarh by taking the permission of Joint Commissioner of Income Tax, Range-2, Udaipur is bad in law as well as on facts as the assessee was not resident of India for the last 25 years, and therefore, the issue of notice u/s. 148 lacks jurisdiction the same should have been issued by the AO who finally passed the assessment i.e. ACIT, Circle (Internation Taxation), Jaipur. Therefore, the notice itself violates the jurisdiction in this case. Without prejudice to that fact, he submitted that any contributions made under life insurance policies are not revenue expenditures and therefore, at best, they can be termed as investment and, thus, a capital asset be charged to tax in accordance with law.
8. On the other hands ld. DR relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A).
16IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT
9. We have heard the rival contentions and perused the material placed on record. The assessee vide ground no. 3 challenged the addition of Rs.
45,20,361 made by the ld. AO. The brief facts related that dispute are that the assessee made an investment of Rs. 24,04,200/- in LIC Bima Nivesh Bond Scheme on 20.08.2005 and received maturity amount of Rs.
45,20,361/- after ten years on 20.08.2015 in his bank account. As there was no claim when the amount invested by the assessee from the income and therefore, the contributions made under life insurance policies are not revenue expenditures. At best, they can be termed as investment and, thus, a capital asset. Therefore, return on investment amounts to capital receipt which is not liable to income-tax, as it is not included in the definition of 'income' under section 2(24). Of course, under clause (vi) of section 2(24), income includes 'any capital gains chargeable under section 45'. So, only accretion to capital assets can be charged to tax as capital gains. Since the capital asset involved is a long-term capital asset, it will be chargeable to lower the rate of taxation under section 112 with full benefits of indexation thereon. Therefore, ground no. 3 raised by the assessee is allowed in terms of the observations so made. Since we have allowed the ground no. 3 the assessee on merits, the ground no. 1 & 2 being technical does not require our findings as they remained educative in nature.
17IT(IT) A. No. 04/JP/2023 Dilip Kumar Pachori vs. DCIT Resultantly, the appeal filed by the assessee is allowed in terms of the observation as discussed herein above.
Order pronounced in the open court on 27/01/2025.
Sd/- Sd/-
¼ujsUnz dqekj½ ¼jkBkSM+ deys'k t;UrHkkbZ½
(NARINDER KUMAR) (RATHOD KAMLESH JAYANTBHAI)
U;kf;d lnL;@Judicial Member ys[kk lnL; @Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 27/01/2025
*Ganesh Kumar, Sr. PS
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. The Appellant- Dilip Kumar Pachori, Pratapgarh
2. izR;FkhZ@ The Respondent- DCIT (Circle) International Taxation, Jaipur
3. vk;dj vk;qDr@ The ld CIT
4. vk;dj vk;qDr ¼vihy½@The ld CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (IT(IT)A No. 04/JP/2023) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar