TMI Blog2021 (10) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically excluded any sum received under a keyman insurance policy from exemption u/s. 10(10D) of the Act. By Finance Act, 2012, w.e.f. 1.4.2013, explanation 1 was inserted explaining the expression Keyman Insurance Policy . Assessee received the amount on maturity of Keyman Insurance Policy after coming into effect of the amended Explanation-1 to section 10(10D) of the Act. The decision relied by assessee may not be of any help to the assessee as there is no retrospective application of the provision. In this view of the matter, in our considered opinion, the assessee is not eligible to claim exemption under section 10(10D) of the Act on the maturity value of the Keyman Insurance Policy. Valid Notice u/s. 143(2) - transfer of case u/s 127 - notice issued u/s. 143(2) of the Act by ITO Ward-11(1), Belgaum is without jurisdiction and as such the assessment order was framed is ab initio - HELD THAT:- Admittedly notice u/s. 143(2) of the Act dated 25.9.2017 was issued by ITO Ward-1(1) Belgaum. However, he is not the concerned assessing officer of the assessee and actual assessing officer was ITO Ward-1 Bellary/ACIT Circle-1 Bellary. Being so, the notice issued u/s. 143(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to appreciate that there was no Notice u/s. 143(2) issued by the jurisdictional assessing officer i.e., the Assistant Commissioner of Income Tax (ACIT), Circle 1, Bellary, before completing the impugned assessment order and therefore, the same is void-ab initio. (ii). Failed to appreciate that the learned ITO, Ward 1(1), Belgaum, who issued the Notice u/s. 143(2) dated, 25-09-2017 had no jurisdiction over the case and therefore, the impugned assessment order passed u/s. 143(3) (4) cited, 21-12-2017 is void-ab initio. (iii). Failed to appreciate that the return of income was not filed under the jurisdiction of the learned ITO, Ward 1(1), Belgaum and further, there was no order u/s. 127 transferring the jurisdiction of the case to the assessing officer at Bellary, contrary to the observations in para 6 of page 4 of his order. (iv). Failed to appreciate that it was not a case where the Notice u/s. 143(2) was issued by the jurisdictional assessing officer and subsequently there was change of the incumbent officer as per section 129 or transfer of jurisdiction by an order u/s. 127 of the Act. For these and other Grounds of Cross Objection that may be taken at the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the assessee, however, on merit, the CIT(A) observed that matured keyman insurance amount received by the assessee not taxable on assignment that the amendment made to the Finance Act, 2013 to section 10(10D) of the Act is not retrospective as held for Bombay High Court in the case of Prashant J. Agarwal 243 Taxman 119. 4. Against deletion of the addition, revenue is in appeal before us. With regard to the issue of notice u/s. 143(2) of the Act, assessee is in appeal before us. 5. First, we take up the revenue's appeal. These findings of ours is without prejudice to our findings in assessee's C.O. No. 5/Bang/2020 with regard to legal issue on issue of notice u/s. 143(2) of the Act. The Ld. D.R. submitted that the amendment to the explanation (1) to section 10(10D) of the Act, a keyman insurance policy would not change its character even if there is any assignment in favour of the assessee during the tenure of the policy. He submitted that since in the case of the assessee the policy matured after the amendment came into force, it will not come within the purview of section 10(10D) of the Act. 6. On the other hand, Ld. A.R. submitted that the firm by name Sharmee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. therefrom is taxable. Once has to keep in mind on maturity, it does not the company but who is an individual getting the matured value of the insurance. The combined judgement of Delhi High Court earlier in cases of Rajan Nanda and Naresh Trehan and Escorts Heart institute and Research Centre, delivered on 16/12/2011, also support the same view as above. The High Court states as follows. 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 therefore is taxable. One has to keep in mind on maturity, it does not the company but who is an individual who getting the matured value of the insurance 4.2 We have considered the rival submissions of both the parties and have perused the record of the case. Before ld. CIT(A) it was clarified that as per para 14.4 of the circular, the surrender value is taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds 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 no more remains the contracting parties. We have to bear in mind that law permits such an assignment even 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of ₹ 7.34 crores. The A.O. invoked the explanation 1 to section 10(10D) of the Act. Now we will go through the provisions of section 10(10D) of the Act and also the explanation 1 to this section. The provision of section 10D of the Act which was made it clear that any amount under the LIC policy including bonus would not be taxable. However, the aforesaid provision have certain exceptions as provided in clause (A) which provided that any sum received under keyman insurance policy would not be eligible for exemption. In case of the assessee that an assignment of policy was made on 2.6.2009 and maturity amount was received on 22.2.2015. Now the contention of the A.R. is that amendment brought to explanation 1 to section 10(10D) of the Act by the Finance Act, 2013 w.e.f. 1st April, 2014 would not be applicable to the assessee's case since the assignment in the case of name of assessee has taken place much prior to the amendment. 8. As discussed earlier, section 10(10D) of the Act specifically excluded any sum received under a keyman insurance policy from exemption u/s. 10(10D) of the Act. By Finance Act, 2012, w.e.f. 1.4.2013, explanation 1 was inserted explaining th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10(101D) of the Act by way of Explanation-1, has already been made effective, therefore, would be applicable. That being the case, the maturity value received on the Keyman Insurance Policy would be taxable at the hands of the assessee. The decisions relied upon by the learned Authorised Representative having been rendered prior to the amendment to Explanation-1 to section 10(10D) of the Act, would not be applicable to the facts of the present case. In fact, in case of CIT v/s Prashant J. Agarwal, ITA no. 465 of 2014, judgment dated 26th September 2016, 243 Taxmann 119 (Bombay HC) the Hon'ble High Court has made it clear that any sum received under the assigned Keyman Insurance Policy prior to assessment year 2014-15, would be eligible for exemption under section 10(10D) of the Act, as the amendment in Explanation-1 would apply only from 1st April 2014. The aforesaid observations of the Hon'ble Jurisdictional High Court rather supports the case of the Revenue as in the present case, the Keyman Insurance Policy has matured on 20.2.2015. Thus, the assessee received the amount on maturity of Keyman Insurance Policy after coming into effect of the amended Explanation-1 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Hon'ble Supreme Court in the case of Hotel Blue Moon (2010) 321 ITR 362 (SC) and held that the jurisdiction was not vested in ITO, Ward 6(2)(2), Bengaluru and consequently, the Notice u/s. 143(2) was bad in law. It may be mentioned that the assessment order in this case was issues; under the seal signature of ITO, Ward 6(2)(3), Bengaluru who was the jurisdictional assessing officer. The Hon'ble Tribunal was pleased to quash the assessment order on the ground that there was no valid Notice issued u/s. 143(2) by the assessing officer having jurisdiction over the case, which is fundamental for assuming the jurisdiction, to pass the order u/s. 143(3) of the Act. 10.4 (a). Balaji Enterprise vs. ACIT [2021] '24 taxmann.com 78 (Guwahati - Trib.) In this case, the Notice u/s. 143(2) was issued by the ITO, Shillong, who transferred the case to the jurisdictional assessing officer, ACIT, Guwahati. The jurisdictional AO - ACIT Guwahati completed the assessment order u/s. 143(3). The case was transferred to the ACIT, Guwahati, accepting the objection of the assessee to the issue of Notice u/s. 143(2) and exercise of jurisdiction by the ITO, Shillong. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e., absence of Notice. (d) Arti Securities Services Ltd. [2021] 123 taxmann.com 395 (Lucknow - Trib.) In this case, the Notice u/s. 143(2) was issued by the DCIT-4, Kanpur and one more Notice u/s. 143(2) was also issued by the DCIT-6, Kanpur on the same day. However the case was then transferred by the DCIT, Kanpur to ITO, Kanpur on ground of monetary limit prescribed by the CBDT in its Instruction No. 172011, dated, 3001-2011, as per which the jurisdiction was vested with the ITO, Kanpur since the total income declared was below ₹ 20,00,000/-. The Hon'ble Tribunal was pleased to hold that the assessment order was invalid since there was no valid Notice issued u/s. 143(2) by the jurisdictional assessing officer i.e., ITO, Kanpur. 10.5. In view of the above it is submitted that the case of the assessee is unassailably on stronger foundation as the ITO, Ward-1, at far way place - Belgaum, issuing the Notice u/s. 143(2) had no jurisdiction and there was no valid Notice u/s. 143(2) issued by the jurisdictional assessing officer, who passed the assessment order. 11. On the other hand, the D.R. submitted that the jurisdiction of the assessee was originally wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him. (2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,- (a) where the Principal Directors General or Directors General or Principal Chief Commissioners or] Chief Commissioners or Principal Commissioners or] Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Principal Director General or] Director General or [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner from whose jurisdiction the case is to be transferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order; (b) where the [Principal Directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT Kolkata Bench in the case of M/s. Rungta Irrigation Ltd. Vs. ACIT in ITA No. 1224/Kol/2019 order dated 6.9.2019 was whether, non-issue of notice u/s. 143(2) by the AO who passed the assessment order will render the order of assessment void or was it a curable defect. It was the plea of the Assessee that as held by the Hon'ble Supreme Court in Hotel Blue Moon 321 ITR 362 (SC), non-issue of notice u/s. 143(2) by the AO who passed the order of assessment renders the order of assessment a nullity. The factual details in that case were as follows: 1. Upto 08.10.2008 DCIT, Circle-15(1), New Delhi was the AO of assessee on the basis of territorial jurisdiction. 2. On 08.10.2008 CIT-V, Delhi transferred the jurisdiction over the assessee's case u/s. 127 to DCIT, Central Circle-1, Ranchi. 3. From 09.10.2008 to 03.11.2017 DCIT, Central Circle-1, Ranchi was the AO of assessee for all proceedings under the Act. 4. 28.07.2016 ACIT, Circle-21(1), New Delhi issued notice u/s. 143(2) to the assessee. 5. 30.06.2017 ACIT, Circle-21(1), New Delhi issued notice u/s. 142(1) to the assessee. 6. 17.07.2017 Assessee objected to jurisdiction of ACIT, Circle-21(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable defect. The Tribunal also noticed that it's view in the case of Hotel Blue Moon (supra) was reiterated by the Hon'ble Apex Court in the case of CIT Vs Laxman Das Khandelwal (417 ITR 325 (SC). The relevant observations of the Hon'ble Supreme Court were extracted and are as follows: 5. At the outset, it must be stated that out of two questions of law that arose for consideration in Hotel Blue Moon's case the first question was whether notice under Section 143(2) would be mandatory for the purpose of making the assessment under Section 143(3) of the Act. It was observed:- 3. The Appellate Tribunal held while affirming the decision of CIT(A) that non-issue of notice under Section 143(2) is only a procedural irregularity and the same is curable. In the appeal filed by the assessee before the Gauhati High Court, the following two questions of law were raised for consideration and decision of the High Court, they were: (1) Whether on the facts and in circumstances of the case the issuance of notice under Section 143(3) of the income Tax Act, 1961 within the prescribed time-limit for the purpose of making the assessment under Section 143(3) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was (a) Not served upon him; or (b) Not served upon him in time; or (c) Served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment. 7. A closer look at Section 292BB shows that if the assessee has participated in the proceedings it shall be deemed that any notice which is required to be served upon was duly served an the assessee would be precluded from taking any objections that the notice was (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner. According to Mr. Mahabir Singh, learned Senior Advocate, since the Respondent had participated in the proceedings, the provisions of Section ITA Nos. 1037 1038/Bang/2019 292BB would be a complete answer. On the other hand, Mr. Ankit Vijaywargia, learned Advocate, appearing for the Respondent submitted that the notice under Section 143(2) of the Act was never issued which was evident from the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein it was held as follows: 19.11 In the present case, admittedly no notice u/s. 143(2) was issued by the AO who had jurisdiction over the Assessee at all material point of time. The Assessee filed return of income on 30.9.2015, with the DCIT-Circle-11(3), Bangalore. A notice u/s. 143(2) of the Act, dated 26.4.2016 was issued by the DCIT, CC-1(3), who ceased to have jurisdiction over the Assessee w.e.f 27.5.2013. Thereafter ITA Nos. 1037 1038/Bang/2019 notice u/s. 142(1) dated 5.10.2017 was issued by the Deputy Commissioner of Income Tax (DCIT)-Circle -11 (3) (Presently Circle-3(1)(2), Bangalore). An order of Assessment dated 7.12.2017 was passed u/s. 143(3) of the Act by the Deputy Commissioner of Income Tax (DCIT)-Circle -11 (3) (Presently Circle- 3(1)(2), Bangalore). As already stated, Admittedly there was no notice issued by the Deputy Commissioner of Income Tax (DCIT)- Circle -11 (3) (Presently Circle- 3(1)(2), Bangalore) who completed the Assessment and was the AO who had jurisdiction with the Assessee w.e.f. 27.5.2013. In those circumstances, the decision of the ITAT Kolkata Bench rendered in the case of Rungta Irrigation Pvt. Ltd. (supra) will be clearly applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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