HARLEEN KAUR BHATIA,INDORE vs. PR. CIT-2, INDORE

PER MANISH BORAD, AM

The above captioned appeals filed at the instance of the different assessee(s) pertaining to Assessment Year 2015-16 are

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 directed against the orders of Pr.Commissioner of Income Tax-2 (in short ‘Pr.CIT’] Indore dated 21.12.2018 & 24.12.2018 passed u/s 263 of the Income Tax Act 1961(In short the ‘Act’).

ITA No.150/Ind/2019 in case of Smt. HarleenKaur Bhatia

That, on the facts and in the circumstances of the case, the 1(a) learned Pr. CIT grossly erred in invoking the provisions of section 263 of the Income-Tax Act, 1961 in the appellant's case without considering the material fact that the Assessment 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, both on facts and in law, in assuming the jurisdiction u/s. 263 of the Income-Tax Act, 1961 without considering the material fact that during the course of the assessment proceedings, the appellant had brought on record all the materials and evidences relating 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 Pr.CIT has grossly erred in giving a direction to the AO to assess the income in the hands of the assessee on account of maturity receipts of the Keyman Insurance Policy amounting to Rs.6,49,45,7101- and as also, to examine the treatment of the insurance premiums paid by Shri Amandeep Singh Bhatia, on behalf of the appellant, after the assignment of the policy to the appellant. 3.That, the learned Pr. CIT grossly erred in assuming the jurisdiction under s.263 of the Act without considering and appreciating the material fact that during the course of the assessment proceedings, the appellant had duly furnished the necessary particulars and explanation in respect of the subject issue by way of a note while filing her return of income for the relevant assessment year which was duly examined and

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 verified by the learned AO before passing the Assessment Order in the case of the appellant. 4. That, Ld. Pr. CIT grossly erred in invoking provisions 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 Bhatia

1(a) That, on the facts and in the circumstances of the case, the learned Pr. CIT grossly erred in invoking the provisions of section 263 of the Income-Tax Act, 1961 in the appellant's case without considering the material fact that the Assessment 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, both on facts and in law, in assuming the jurisdiction u/s. 263 of the Income-Tax Act, 1961 without considering the material fact that during the course of the assessment proceedings, the appellant had brought on record all the materials and evidences relating 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 Pr.CIT has grossly erred in giving a direction to the AO to assess the income in the hands of the assessee on account of maturity receipts of the Keyman Insurance Policy amounting to Rs.7,29,49,460/- and as also, to examine the treatment of the insurance premiums paid by Shri Amandeep Singh Bhatia, on behalf of the appellant, after the assignment of the policy to the appellant. 3.That, the learned Pr. CIT grossly erred in assuming the jurisdiction under s.263 of the Act without considering and appreciating the material fact that during the course of the assessment proceedings, the appellant had duly furnished the necessary particulars and explanation in respect of the subject issue by way of a note while filing her return of income for the 3

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 relevant assessment year which was duly examined and verified by the learned AO before passing the Assessment Order in the case of the appellant. 4. That, Ld. Pr. CIT grossly erred in invoking provisions 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

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 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 deduction u/s 37 of the Act as expenditure during the terms of payment. 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 further assigned the policy to his wife i.e. the assessee on 30.01.2013 and the assignment was duly recorded by Life Insurance Corporation of India. This Policy was prematured in February 2015 and the amount was received from LIC of India. Assessee claimed it as an exempted receipt. Assessee’s case was selected for scrutiny assessment and Ld. Assessing officer after conducting necessary enquiry accepted the claim of assessee. Subsequently Ld. Pr. CIT on examining the transaction in light of the amendment brought in by Finance Act 2013 effective from 01.04.2014 in Explanation 1 to section 10(10D) of the Act was of the view that this amendment is clarificatory in nature and the entire amount received on maturity is liable to tax. Ld. Pr. CIT, issued show cause notice 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 notice assessee filed a

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 detailed submissions placing reliance on various judgments but the same was not found acceptable. Ld. Pr. CIT. after recording detailed finding, discussing the issues on merits as well as the legal aspect decided to set aside the assessment order and directed the AO to make afresh assessment order in accordance with law.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 other judgements it was submitted that since the amendment brought in by Finance Act 2013 in explanation 1 to section 10(10D) of the Act increases the scope of taxability for the assessee, they are to be treated as prospective in nature and by no cannon can be treated as retrospective or clarificatory in nature.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 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(Bom) 6.CIT vs. R.K. Construction Co. 313 ITR 65 (Gujarat) 7. CIT vs. Arvind Jewellers (2003) 259 ITR 502(Gujarat) 8.CIT vs. Sunbeam Auto Ltd. (20100 189 Taxman 436 (Del)

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 valid and in accordance with law laid down u/s 263 of the Act, it is necessary for us to discuss the provisions of section 263 of the Act which empowers the Pr. CIT/CIT to revise the assessment order:

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or] Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without 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 with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. (2) No order shall be made under sub-section (1) after 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-section (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 consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, 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 giving 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 under this section is stayed by an order or injunction of any court shall be excluded.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 12. It is well settled law that for invoking the provisions of section 263 of the Act both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 revenue, has no merit. Section 263(1) clearly contemplates that the order of assessment itself should be prejudicial to the interests of the revenue and this prejudice has to be proved by reference to the assessment order only. It cannot be argued that there is some possibility of the assessment order being challenged or revised in appeal and, therefore, on account of this contingency, the order becomes prejudicial to the interests of the revenue.” [emphasis supplied]

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 income - Resolution passed by assessee was not placed before Assessing Officer - Assessing Officer accepted entry in statement of account filed by assessee and accepted same - Commissioner 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 Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263(1) was justified - Held, yes

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 opinion, the Commissioner cannot exercise powers for revising the order under section 263 merely on the basis that the order under consideration is erroneous. If the material in that regard is available on the record of the assessee concerned, the Commissioner cannot exercise his powers by ignoring that material which links the income concerned with the tax realization made thereon. The two questions are inter-linked and the authority exercising powers under section 263 is under an obligation to consider the entire material about the existence of income and the tax which is realizable in accordance with law and further what tax has in fact been realised under the alleged assessment orders.[emphasis supplied]

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 revenue. If one of the other factor was absent, the Commissioner cannot exercise the suomoto power of revision under section 263.” [emphasis supplied]

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 Premium thereon was paid by the company upto Oct, 2010 and claimed deduction thereof, u/s 37 of the Act from its computation of income. You have got the ordinary life insurance policy through assignment from your husband sub-sequent to the payment 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 being the director of M/s Bhatia International Ltd. the source of premium & surrender value paid in your hand have been show as gift received from the husband, the assignment is completed in your favour on 31.03.2013 i.e. before the amendment of section 10(10D) of the I.T. Act LIC has deducted TDS @ 2% under section 194DA on maturity value and you have received premature maturity value in Feb, 2015 whereas the actual date of maturity is 28.04.2015. In view of amendment provisions 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. Although 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 taxation on its maturity/prematurity receipts. The receipts have taken place subsequent to such amendment, therefore, the same should have been taxed either in the hands of keyman (the assesseee’s husband) or in the hands of the assessee (the keyman’s 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 erroneous 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 mentioned above.”

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 19. In response to the above notice the sole issue was with regard to the maturity amount received on the insurance policy by the assessee which was originally taken as a Keyman Insurance Policy by Bhatia International Ltd but subsequently assigned to the Keyman i.e. Director, Amandeep Singh Bhatia on 23.02.2012 and further Mr. Amandeep Singh Bhatia assigned policy to his wife Smt. Harleen Kaur Bhatia on 30.01.2013. Foremost it is to be seen that whether this issue of taxability of maturity proceeds of the insurance policy came up before the Ld. AO and whether he conducted sufficient enquiry with regard to this issue.

During the relevant period assessee received maturity amount of insurance policy of Rs.6,49,45,710/- and on which assessee has paid assignment value of Rs.1,72,32,045/- and after assignment premium of Rs.1,61,65,193/- i.e. total amount of Rs.3,33,97,238/-. During the relevant period assessee received maturity amount of insurance policy of Rs.6,49,45,710/-. The company Bhatia International Ltd. in which the assessee’s husband was a director, had purchased insurance policy named as “JeevanAnand” from LIC of India in April 2005, on the life of the assesseee’s husband with a sum assurance of Rs.5.00 cr. Premium thereon was paid by the company upto Oct. 2010 and claimed deduction thereof, u/s 37 from its computation of income (ie. In P/L Account).

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 Assesse has got the ordinary life insurance policy through assignment from her husband on the payment of surrender value paid to the company Bhatia International ltd. for Rs.1,72,32,045/- dated 31.03.2012 as this is a Keyman Policy in the name of Bhatia International Ltd. (Keymanassessee’s husband) and 07 years premium paid by the company(ie from April 2005 to March 2012). Company had assigned this policy to the Keyman on surrender value & for remaining tenure 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 assignment is completed in favour of assessee on 30.01.2013 before the amendment w.e.f 01.04.2014 u/s 10(10D). these amendment is prospective not retrospective therefore maturity value is fully exempt in the hand of assessee because these is an ordinary policy. Only due to these amendment assessee has paid 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 exempt. LIC has deducted TDS @ 2% under section 194DA on maturity value and assessee has received pre mature maturity value in Feb. 2015 where actual date of maturity value is 28.04.2015.

“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 for complete 19

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 scrutiny through CASS and the reason for selection were mentioned as high ratio of refund to TDS, delayed payment 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 insurance policy on which the tax has been deducted by the insurance company at the time of payment of maturity proceeds. The policy was a keyman insurance policy which as assigned to the husband of the assessee namely ShriAmandeep Bhatia by the employer namely Bhatia International Ltd. in the month of March, 2012. Shriamandeep Singh Bhatia later on assigned the policy to the assessee on 30.01.2013. The Policy was encashed before 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 Assessing Officer asked some more questions such as mismatch the amount paid to related persons, copy of bank account, bill vouchers of sale of jewellery etc. Another notice was issued on 13.11.2017 there also some sundry question like purchase of share and source thereof was asked. In none of the notice the Assessing Officer asked about the maturity of the insurance policy and its treatment thereof. He did not even aske the assessee as to what is the reason for high refund or refund out of self-assessment tax paid. The order sheet entered 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 proceedings in which he has reproduced the sequence of events narrated by the assessee in the submissions related to the receipt of maturity amount of insurance policy. He has accepted the version given by the assessee without any enquiry regarding the sources of payment of insurance premium, the utilization of the policy maturity receipts etc. The case laws which has been relied by the assessee before the Assessing Officer such as Rajan Nanda 18 taxman.com 98 and Prashan J. Agarwal 243 Taxman 119 is

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 no more applicable as the provision of section 10(10D) of the Income Tax Act has been amended w.e.f. 01.04.2014 in which the loophole regarding assignment of keyman insurance policy has been plugged. The Assessing Officer did not make any attempt to make any enquiry on the issue. The sequence of event as narrated by the assessee before the Assessing Officer clearly show that the policy was assigned to Mr. Bhatia by Bhatia International Ltd. on the surrendered value of 1.72 crores on 23.02.2012. Subsequently, mr. Bhatia assigned this policy to his wife as a gift on 30.01.2012. The policy was finally terminated prematurely in Feb, 2015. These dates clearly show that the date of maturity is after 01.04.2014, the date from which the amendment in section 10(10D) came into effect. The Assessing Officer should have examined the whole sequence of event and must have enquired about the motive of the assessee for showing a gift of the policy the receipt of which was taxable. The Assessing Officer therefore committed an error by not pursuing the enquiries regarding the policy maturity and accepting the version of the assessee without application of mind. He did not go through the provision of section 10(10D) properly and wrongly accepted the claim of the assessee. 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 amount to tax. The Assessing Officer therefore, wrongly applied the provisions of law. The assessee relied on the judgment of Bombay High Court in the case of Prashant J. Agarwal 243 Taxman 119 and the same was accepted by the Assessing Officer which was incorrect. In the judgment the assessee had received the maturity amount during financial year 2009-10 relevant to Assessment year 2010-11. The assessment was passed by the Assessing Officer after the amendment was brought in the Act. The court has held that any receipt of maturity amount prior 01.04.2014 would not be accepted by the amended definition. In the present case the amount has been received on maturity in March 2015 which is clearly after the date from which the amendment was made effective. During the course of proceedings u/s 263 this officer made

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 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 the same. The risk of life remained that of the husband of the assessee. Further the enquiries also revealed that the insurance premium of the policy, after purported assignment to the assessee, was paid by Mr. Bhatia to whom the policy was assigned by the company. The Assessing Officer did not make any enquiry 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, who had purchased the keyman insurance policy from the company Bhatia International Ltd. by paying the residuary/surrender value of the policy, was still the person assured and he had assigned only the receipts of the policy to his wife i.e. the assessee. The gift is of the maturity proceeds of the policy and not that of the policy itself. There is the difference between assignment of the Keyman insurance policy by the company to its keymanMr. Bhatia and subsequent assignment by Mr. Bhatia to his wife. In the first assignment ie. By the company to thekeyman was for a consideration which was equal to the residual value of the policy at that time. The character of the policy also changed at that time and it became an assigned 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 camouflage to avoid the taxability of the maturity proceeds. There is no real purpose of assigning the policy as the annual premium was still being paid by Mr. Bhatia (keyman of Bhatia International Ltd. ), the assessee took to loan which was again invested in the business of the Bhatia Group and the life assured or insured remained the same i.e. Mr. Bhatia. Therefore, the whole pretention of assigning of the policy is merely to avoid the taxability of the maturity proceeds.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 It would not be out of place to reproduce the Explanation 1 to section 10(10D) of the Income Tax Act which read as under: “Explanation 1. For the purpose of this clause, Keyman insurance policy” means 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 first mentioned persona and included such policy which has been assigned 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 introduced by the Finance Act 2013 and effective from 01.04.2014. Here, it would also be useful to reproduce the relevant extract 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 than 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 first mentioned person. 5.2 It has been noticed that the policies taken a keyman insurance policy are being assigned to the keyman before its maturity. The keyman pays the remaining premium on the policy and claims the entire sum received under such 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. 23

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 5.4 With a view to plug the loophole and check such practices to avoid payment of taxes, the provisions of clause (10D) of section 10 of the Income Tax Act, 1961 have been amended to provide that a keyman insurance policy which has been assigned to any person during its term, with or without consideration, shall continue to be treated as a keyman insurance policy and consequently would not be eligible for any exemption under section 10(10D) of the Income Tax Act.” The wording of the explanation also clearly say that if the keyman insurance policy is assigned to “a person” anytime during the term of the policy with or without consideration the policy would be considered as keyman insurance policy. The legislature has not use the work ‘the’ which would have signified a limited meaning to the assignee. The term 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 the character of receipt. It remains the receipt from a keyman insurance policy as per the definition given in Explanation 1 to section 10(10D) of the Income Tax Act. The assignment of the policy for the second time does not change the basic character of the policy as per the provisions of Income Tax Act.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 4. AnujJayendra Shah, vs. PCIT-35, Mumbai (67 Taxman.com 38)

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 contents of the submissions made by the assessee in various dates are reproduced below: Letter datedJune 15, 2017(Annexure A/6 of PAPER BOOK filed on 07.05.2019)

01] The assessee has Electronically filed his return of total income for the year under consideration on 31.03.2016 vide Ack. No. 143045360310316. Copy of Acknowledgement of said Return 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 is not fall in any category of section 44AB. 03] Assessee is an individual, copy of Statement of Affairs &Capital account for last 3 years i.e.AY. 2015-16, 2014-15 &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 copy of Form No. 26AS showing payment of taxes is enclosed herewith. Encl. No.14 to17. 05] Assessee has claimed deduction under chapter VIA for payment of PPF of Rs. 150000/- Copy of the Pass Book is enclosed herewith for your ready reference. Elcl. No.18 to 19

Letter dated 09.10.2017 (Annexure A/7of PAPER BOOK filed on 07.05.2019)

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 2. Your honour is asked to submit the policy copy duly shows assignment clause.

2.1. Where are enclosing here with policy copy along with assignment clause as required by you. Encl. No.28 to 31

2.2 We are also enclosing here with assignment letter issued by the Life Insurance Corporation of India in favour of assessee. 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 comprised of all the relevant evidentry documents at the time of filing of regular return therefore for facilitate scrutiny proceedings. We are enclosing here with copy of computation of total income , acknowledgement along with all necessary evidentry document in support of our exemption claim u/s 10(1OD). Encl. No. 33 to 35. 02] You honour is asked to submit the complete details of LIC Assignment in favor of beneficiaries as well as also asked to submit relevant documents. 2.1 We are enclosing here with assignment letter issued by the Life Insurance Corporation of India in favor of beneficiary along with related documents for your ready reference. Enel. No. 36 to 42 2.2 We are also enclosing here with certificate issued by the LIC for payment of guaranteed surrender value along copy of ledger account of payment of surrender value paid by the beneficiary. Encl. No. 43to 43A. 03J Copy of assignment letter issued by the Life Insurance Corporation of India in favor of assessee is also enclosed here with. Encl. No. 44

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 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)

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 got converted into ordinary policy as assignment was accepted by LIC. For this proposition we may derive support from 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 share purchase during the year along with source of investments. 1.1] Statement giving details of the shares purchase along with source of Investment is enclosed. Encl No.61 1.2] Copy of relevant pages of bank statement of assessee duly highlighting the payment of shares purchase is enclosed. Encl No.62 to 63. 1.3] Copy of share certificate is enclosed. Encl. No.64. 25. The various replies submitted by the assessee during the course of assessment proceedings u/s 143(3) of the Act mentioned above duly supported by documentary evidences were intended to convince the Ld. Assessing Officer that the Keyman Insurance Policy taken by the Company namely “BIC” were assigned to the Mr.A.S. Bhatia thereby the company offered surrender value of the policy as income in FY 2011-12. This policy was subsequently gifted to assessee by her husband in January 2013. On this assignment the characteristic of the Policy changed from Keyman Insurance Policy to normal Life Insurance Policy The total formality of the assignment of Insurance Policy is duly recorded by Life Insurance Corporation of India and it was before 1.4.2014 which was the effective date of the Amendment brought in Explanation (1) of

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 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 of the assessee were found to acceptable by the Ld. Assessing Officer and he took one of the permissible view provided in the law and in the light of the judicial pronouncements accepted the assessee’s claim of the maturity proceeds of LIC Policy (originally taken as Keyman Insurance Policy) as exempted income.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 February 2015 just before the 2 month of maturity date 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 the claim of the assessee through various documentary evidences produced by the assesse and computation of income, replies dated 15.06.2017, 09.10.2017, 23.10.2017 and 17.11.2017 and various judicial pronouncements Ld. AO formed the opinion that the said claim of the assessee is bonafide. Thus, looking to the facts of the case we are of the view that sufficient and adequate enquiry was conducted by the Ld. AO before accepting that the proceeds from prematurity of alleged life insurance policy are exempt from tax and thus the assessment order passed u/s. 143(3) of the Act, by no stretch can be held to be erroneous in nature.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 business against the financial loss, which may occur from the employee's premature death. The 'keyman' is defined in the circular as 'an employee or a director, whose services are perceived to have a significant effect on the profitability of the business'. The premium paid by the employer on such policy is to be allowed 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 parties, the two being the contracting parties and the third one is the person on whose life the insurance policy is taken. Thus in Keyman insurance policy which is accepted as such by LIC, the payer of the premium is the organisation and life insured is the keyman.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 sum received on maturity of keyman insurance policies, 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 Insurance Policy

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 organisation) which in this case has been done by “BIL” offering the surrender value of policies on the date of assignment to tax .

“52. Thus, the issue depends on the question as to whether on assignment of the insurance policy to the assessee, it changes its character from Keyman insurance also to an ordinary policy. It is because of the reason that if it remains Keyman insurance policy, then the maturity value received is subjected 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, the 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 insurance policy changes and it gets converted into an ordinary policy. Contracting parties also change inasmuch as after the assignment which is accepted by the insurance, the contract is now between the insurance company and the individual and not the company/employer which initially took the policy. Such company/employer no more remains the contracting parties. We have to bear in mind that law permits such an assignment even 34

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 LIC accepted the assignment and the same is permissible. There is no prohibition as to the assignment or conversion under the Act. Once there is an assignment, it leads to conversion and the character of policy changes. The insurance company has itself clarified that on assignment, it does not remain a keyman policy and gets converted into an ordinary policy. In these circumstances, it is not open to the Revenue to still 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 is an individual getting the matured value of the insurance.”

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 tantamount to legislation and not interpretation. It is on the basis of the above enunciation of law by the Hon'ble High Court in the assessee's own case, that the Ld. CIT (A) has held and, in our considered opinion, rightly so, that after assignment of the policy in favour of the assessee, it changes its character from that of a Keyman Insurance Policy to that of an ordinary 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 is taxable out of the maturity value received from the insurance policy”

34A. However, Ld. Pr. CIT while setting aside the assessment order in question took a view that the amendment brought in by Finance Act 2013 Explanation 1 is retrospective and clarificatory in nature and thus the alleged maturity proceeds are taxable as they were received subsequent to the amendment. In order to adjudicate this

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 issue ,we find that in the notes on clauses to amendment 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 than 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 first-mentioned person. 5.2 It has been noticed that the policies taken as keyman insurance policy are being assigned to the keyman before its maturity. The keyman pays the remaining premium on the policy and claims the entire sum received under such 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 practices to avoid payment of taxes, the provisions of clause (10D) of section 10 of the Income Tax Act, 1961 have been amended to provide that a keyman insurance policy which has been assigned to any person during its term, with or without consideration, shall continue to be treated as a keyman insurance policy and consequently would not be eligible for any exemption under section 10(10D) of the Income Tax Act, 1961.”

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 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 first-mentioned person [and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration];]

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 operation of fiscal statute elaborates the principles of statutory interpretation in the following words: “Fiscal legislation imposing liability is generally governed by the normal 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 expressly or by necessary implication. The above rule applies to the 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 generally 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 vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either 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 will it be construed to authorize the Income tax Authorities to commence proceedings which, before the new Act came into force, had by the expiry of the period then provided become barred. 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 hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rdEdn.) and reiterated in several 39

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 decisions of this Court as well as English courts is that “all statutes other than those which are merely declaratory 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 existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 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 operation must be clear and unambiguous.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 bring back the character of the policy as Keyman insurance policy as the amendment is effective from 1-04-2014. The amendment is prospective in character as pointed out above. Therefore if a policy is an ordinary policy before the amendment either by 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 of assignment will be neutralized and the policy will continue to hold the character of keyman insurance policy. In view of this, the policies after assignment in October 2010 will continue to hold the character of ordinary policies till February 2015.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 In para 5.3 of the notes also notice that this is loophole in law which needs to be removed. These observations cannotes that before this amendment various assessees were claiming 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 was assigned in her favour on 30.01.2013 from her husband which was originally taken as a keyman insurance policy by Bhatia International Company. Since the assignment in favour of assessee duly recorded by LIC happened before the effective date of amendment in explanation 1 to section 10(10D) of the Act the same will have no adverse effect on the assessee and the alleged amount received on prematurity of insurance policy will be exempted. Though Ld. Pr. CIT has questioned about the source of premium paid by the assessee for the insurance policy, in our view there is hardly any effect on the fate of the case if the premium is paid by assessee’s 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 the 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 the case of Ravi Poddar V/s. CIT, ITA 130/JP/2016 dated 24.3.2017 has held that :-

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 6.9 Further, it is noted that the legislature has taken note of the said gaping holes in the taxing provisions and has brought 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 other than 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 first-mentioned person. It has been noticed that the policies taken as keyman insurance policy are being assigned to the keyman before its maturity. The 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 no longer a keyman insurance policy. Thus, the exemption under section 10(10D) is being 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. With a view to plug the loophole and check such practices to avoid payment of taxes, it is proposed to amend the provisions of clause (10D) of section 10 to provide that a keyman insurance policy which has been assigned to any person during its term, with or without 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 2014-15 and subsequent assessments years."

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 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.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 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.

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 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.

Now we take up appeal for another assessee namely Smt. Gurvinder Kaur Bhatia in ITANo.151/Ind/2019

HarleenKaur Bhatia &GurvinderKaur Bhatia ITA Nos.150 & 151 /Ind/19 51. Since the facts and issues involve are similar to the facts and issues adjudicated by us in the case of Smt. Harleen Kaur Bhatia in ITANo.150/Ind/2019,we, thus apply our decision mentioned above mutatis mutandisin 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 raised 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 �दनांक /Dated : 18th 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