Reassessment — (i) Notice u/s 148 — Conditions precedent — New tangible material to show that income has escaped assessment and reason to believe — Notice on ground that assessee did not offer to tax interest and bonus received on surrender of life insurance policy before maturity — Original assessment without scrutiny not relevant — Reopening of assessment unsustainable; (ii) Exemption — Receipt of interest and bonus on surrender of life insurance policy before maturity — Conditions stipulated u/s 10(10D) — Department to prima facie establish which condition was not fulfilled by assessee — Assessee not receiving from insurer under contract of annuity plan — Provision of s. 80CCC(2) not applicable

Reassessment — (i) Notice u/s 148 — Conditions precedent — New tangible material to show that income has escaped assessment and reason to believe — Notice on ground that assessee did not offer to tax interest and bonus received on surrender of life insurance policy before maturity — Original assessment without scrutiny not relevant — Reopening of assessment unsustainable; (ii) Exemption — Receipt of interest and bonus on surrender of life insurance policy before maturity — Conditions stipulated u/s 10(10D) — Department to prima facie establish which condition was not fulfilled by assessee — Assessee not receiving from insurer under contract of annuity plan — Provision of s. 80CCC(2) not applicable

The assessee, a non-resident individual, for the A.Y. 2012-13, declared income from house property. After a period of four years, the Assessing Officer issued a notice u/s148 of the Income-tax Act, 1961 to reopen u/s 147, the assessment made u/s 143(1) and recorded reasons that information was received from the Deputy Director (Investigation) to the effect that the assessee had obtained a life insurance policy on 28th June, 2006 on payment of an annual premium up to the F.Y. 2010-11, that the total amount paid by the assessee was Rs. 50 lakhs and the sum assured was Rs. 50 lakhs and the date of the last premium was 28th June, 2020, that the assessee surrendered the policy prematurely on 15th April, 2011 and received the surrender value which included an amount of accretion on account of interest and bonus on the credit of the assessee in the policy fund and that the assessee did not offer the accretion value to tax which resulted in income escaping assessment. The assessee raised objections on the grounds that any sum received under life insurance, including the sum allocated by way of bonus on life insurance policies did not form part of total income u/s 10(10D) if it did not fall under Exception sub-clauses (a) to (d) provided under such section and that the provisions of section 80CCC(2) was not applicable as he did not claim deduction u/s 80CCC(1) in his return. The objections were rejected.

The Gujarat High Court allowed the writ petition filed by the assessee and held as under:

“i) Even where the proceedings u/s. 147 of the Income-tax Act, 1961 are sought to be initiated with reference to an intimation u/s. 143(1), the ingredients of section 147 are required to be fulfilled. Therefore, such an assessment cannot be reopened unless some new or fresh tangible material comes into the possession of the Assessing Officer, subsequent to the intimation u/s. 143(1) and there should exist “reason to believe” that income chargeable to tax has escaped assessment. According to the Explanatory Notes on the provisions of the Direct Tax Laws (Amendment) Act, 1987, contained in Circular No. 549, dated 31st October, 1989, issued by the CBDT no distinction u/s. 147 is contemplated between a scrutiny assessment u/s. 143(3) and the assessment u/s. 143(1) and tangible material is necessary to reopen even an assessment made without scrutiny.

ii) Reference to section 80CCC(2) by the Department was misconceived for two reasons: first, section 80CCC dealt with annuity plans whereas the assessee’s case was concerned with life insurance policy; secondly, section 80CCC(2) made any sum received by the assessee from the insurer towards contract for any annuity plan, taxable, provided premium paid for such plan was claimed as allowable deduction u/s. 80CCC(1) . There was no such averment or findings that the amount of premium paid by the assessee had been claimed and allowed as deduction u/s. 80CCC(1). According to section 10(10D) as on 1st April, 2021 as applicable for the A.Y. 2012-13, all that was required for an insurance policy to meet the requirements of section 10(10D) were that: (i) it should be a life insurance policy; (ii) it should be taken by the assessee on his/her life, and (iii) for insurance policies issued after 1st April, 2003, premium payable for any of the years during the term of the policy should not exceed 20 per cent. of the actual capital sum assured. Once these criteria were fulfilled, any sum received under such life insurance policy including bonus (accretions over and above the premiums paid) was exempt income. This amount was nothing, but, bonus, which was otherwise covered u/s. 10(10D). However, for this amount to be taxable, the Department had to prima facie indicate as to which of the conditions of section 10(10D) were not fulfilled or how the amount in question was not exempted under this section. Hence, in the absence of any new tangible material in the possession of the Assessing Officer, subsequent to the intimation u/s. 143(1), the reopening u/s. 147 was unsustainable.”