TMI Blog2022 (10) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... d against the order of CIT(A), NFAC dated 13.7.2022 for the assessment year 2017-18. The assessee has raised following grounds of appeal:- 1. General Ground 1.1. The learned Deputy Commissioner of Income Tax, Centralized Processing Centre. Bangalore (hereinafter referred as DCIT, CPC for brevity), has erred in passing the intimation under section 143(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') in the manner passed by him and the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Center, Delhi (hereinafter referred as `CIT(A), NFAC') has erred in affirming the variations made by the DCIT, CPC in the intimation. The order passed by the CIT(A), NFAC is bad in law and liable to be quashed. 2. Grounds on addition to Income from Other Sources based on Form 26AS 2.1. The learned DCIT, CPC and learned CIT(A), NFAC have erred in adding Rs. 9,66,006 to the income of the appellant based on Form 26AS without appreciating the facts of the case. Based on facts and circumstances of the case, the amount reflected in Form 26AS is not income chargeable to tax. 2.2. The learned DCIT, CPC and learned CIT(A), N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest under section 234B and under section 234C of the Act amounting to Rs. 87,090 and Rs.16,979 respectively. On facts and circumstances of the case and law applicable, levy of consequential interest under section 234B and under section 234C is incorrect. The appellant denies its liability to pay the consequential interest under section 234B and under section 234C. Prayer: 5.1. In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order passed by the learned CIT(A), NFAC under section 250 of the Act being bad in law, be quashed, or in the alternative a) the addition of income of Rs. 9,66,006 be deleted, b) Full TDS credit of Rs. 1,21,659 be allowed, and c) Interest levied under sections 234B and 234C be deleted. The Appellant prays accordingly. 2. With regard to the additions to income from other sources, based on Form 26AS, short grant of TDS credit and levy of interest u/s 234B of the Income-tax Act,1961 ['the Act' for short]. 3. Facts of the issue are that the appellant, a resident individual, filed his return of income for Assessment Year (AY)2017-18 on 05.08.2017 vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per IT return (Rs.) As per Form 26AS (Rs.) SB interest not liable for TDS hence not appearing in Form 26as 14,887 Interest from other parties not liable for TDS hence not appearing in Form 26AS 19,107 Interest from Cha Chaganraj Thalajee Sons TDS done appearing in Form 26AS 2,96,288 2,6,288 Income from LIC proceeds 4,78,000 14,78,000 Total 8,08,282 17,74,288 Difference between Form 26AS and IFOS as per return of income = 17,74,288 - 8,08,282 = 9,66,006. 3.6 The appellant submitted an online response on 1.6.2018 stating that difference was towards the refund of principal amount received by the appellant on maturity of LIC policy No. 103235137. It was submitted that the refund towards principal amount is not a part of the income of the appellant. The amount received on maturity was Rs. 14,78,000/- out of which sum assured was Rs. 10,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not rectify any of the aforesaid errors and the demand of Rs. 4,40,170/- as per 143(1) intimation sustained in the order u/s 154 dated 31.10.2019. The appellant has also filed a rectification request manually before the assessing officer on 19.12.2019. 3.11 However, no action has been taken by the learned AO in respect of the said application. 4. Against this assessee went in appeal before Ld. CIT(A). Ld. CIT(A) have gone through above submissions of the Appellant and have considered the facts and evidence on record. 4.1 Ld. CIT(A) observed that the appellant is a resident individual who filed the return of income for A/Y 2017-18 on 05.08.2017 disclosing total income of Rs. 16,13,080/- from salary, house property and income from other sources. 4.2 The A,O., CPC, Bangalore processed the return on 21.05.2018 and communicated to the appellant about an error, being inconsistency between income from other sources in the return of income and in Form 26AS amounting to Rs. 9,66,006. This difference was computed based on income offered under the head income from other sources vis- -vis income reported in Form 26 AS (Difference between Form 26AS and IFOS as per return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income were not included in the Form 26AS, as follows: i) Savings Bank Interest Rs. 14,887/- ii) Other Interest Income Rs. 9,262/- and Rs. 9,845/- from two parties which were not liable to TDS 1.8 The CPC rejected the explanation provided by the appellant via communication notice dated 25.09.2018. The reason for non-acceptance of response was stated by CPC as, 'The response furnished by you is not acceptable for the reason that the income on the basis of which the difference has been arrived at in accordance with section 143(1)(a)(vi) of the IT Act is reflected in your Form 26AS. The head under which the difference has arisen due to non-reporting of income in your return of income was commune through the notice cited in this communication. Your response to the earlier rye fails to prove that the income as reflected in his 26AS has been offered to tax in your return of income either under the head relatable to such TDS, or under such heads of income taxable at such special rates.' 4.5 Ld. CIT(A) stated that the appellant further reiterated that Section 10(10D) contemplates exemption on any sum received under a life insurance policy. It reads as follows- any sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resents the investment value of the policy paid by th'e appellant through premiums. In other words, principal portion represents the cost of acquisition of the policy. Only amounts received over and above the principal should be exigible to tax under the Act. The amount received on maturity of the life insurance policy is synonymous to amount received on the maturity of a fixed deposit with a banking institution or receipt of installment of an EMI. Under the latter transactions, only the interest received at the end of term of the policy or the interest portion of the EMI is taxable under the provisions -of the Act. The principal invested portion remains untaxed. It is only the accretion in the investment that can be taxed under the Act. Applying the same principle in the present case, the principal portion invested in the life insurance policy remains outside the ambit of taxation and the accretion by way of bonus shall only be taxable under the Act. The above proposition that only net proceeds is taxable on maturity of the life insurance policy is supported by the CBDT in Circular No. 7 of 2003 dated 5.9.2003. Paragraph 10.3 of the circular states as follows: The insurance p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, only net proceeds are taxable. On the other hand, section 194DA mandates deduction of tax at source on any sum received from a life insurance policy, not exempt under section 10(10D). This results in a situation wherein only the net proceeds on maturity of life insurance is taxable but TDS undersection 194DA is on the entire amount of proceeds. Thus, there is a mismatch between the amount of income offered to tax and the amount on which TDS is deducted. This issue of the underlying difference in the amount on which TDS is deducted (gross amount) and amount taxable in the hands of the appellant (net amount) is an area of contention in the present case. This deficiency as point out above) was observed by the legislature. Vide the Finance (No. 2) Bill 2019 section 194DA was amended to provide that TDS on life insurance pay outs should be in respect of the proceeds remaining payable after reduction of the premium paid by the appellant during the subsistence of the policy. The memorandum to the Finance (No.2) Bill, 2019 states as follows: TDS on non exempt portion of life insurance payout on net basis. Under section 194DA of the Act, a person is obliged to deduct tax at source, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(10D) was not available to the appellant as the premium exceeded Rs.1,00,000/- (10% of the actual sum assured of Rs.10,00,000/-). 4.8 It is also observed by Ld. CIT(A) that the insurance policy under consideration was issued on 28.10.2006. As per the provisions of section 10(10D), any sum received under an insurance policy issued on or after 01.04.2003 but on or before 31.03.2012, in respect of which the premium payable for any of the years during the term exceeds 20% of the actual sum assured, is not exempt. The annual premium paid by the appellant was Rs.2,12,550/- which is more than Rs.2,00,000/- (20% of the actual sum assured of Rs.10,00,000/-). Hence, the appellant was not eligible for exemption u/s 10(10D) due to the aforementioned condition. Vide Circular No.7/2003 dated 05.09.2003 by issued by the Board, it was stated that the exemption available u/s 10(10D) shall not be allowed on any sum received under an insurance policy issued on or after 01.04.2003 in respect of which premium payable in any of the years exceeds 20% of the actual sum assured. The appellant has stated that section 194DA has been amended vide Finance Bill 2019 to provide that TDS on life insurance pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A). 5. Against this assessee is in appeal before me. 6. I heard the rival submissions and perused the materials available on record. In this case, assessee took a Life Insurance Policy for a period of 10 years in the financial year 2006-07. The sum assured was Rs.10 lakhs. The assessee has paid half yearly premium of Rs.1,06,275/- for 5 years totalling of Rs.10,62,750/- (Rs.1,06,275 x 10). It was a policy, wherein the annual premium exceeded 10% of sum assured. The maturity proceeds were therefore not exempted u/s 10 (10D) of the Act and it was chargeable to tax under the head income from other sources . As per policy condition, assessee has received in the assessment year 2017-18 (on 28.10.2016) a sum of Rs.14,63,220/- and TDS of it was Rs.14,780/- totalling (Rs.14,78,000/-). The assessee offered a sum of Rs.4,78,000/- as income on net receipt i.e. (Rs.14,78,000 Rs10 lakhs). Though the assessee was required to offer net receipt of Rs.4,15,250/- (Rs.14,78,000/- - Rs.10,62,750/-). Thus, assessee offered an excess amount of Rs.62,750/-. The return was processed u/s 143(1) by CPC vide their intimation dated 21.5.2018. The Form No.26AS reflects Rs.17,74,288/- and assessee dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. The present requirement is to deduct at the rat of one per cent of such sum at the time of payment. Several concerns have been expressed that deducting tax on gross amount creates difficulties to an assessee who otherwise has to pay tax on net income (i.e. after deducting the amount of insurance premium paid by him from the total sum received). From the point of views of tax administration as well, it is preferable to deduct tax on net income so that the income as per TES return of the deductor can be matched automatically with the return of income filed by the assessee. The person who is paying a sum to a resident under a life insurance policy is aware of the amount of insurance premium paid by the assessee. 8. From a reading of the aforesaid observation as well as taking note of contention of the assessee in respect of premium paid to the insurance company cannot be brought to tax subject to the fact that assessee shall not avail deduction u/s 80C of the Act in respect of premium paid towards that insurance policy. Being so, we remit this issue to the file of AO to consider only net amount as discussed above to taxation provided assessee has not claimed deduction u/s 80C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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