L. H. Sugar Factories Ltd. Vs DCIT (ITAT Lucknow)
Assessee, a sugar manufacturing company, originally filed its return declaring income of ₹15.66 crores, which was assessed u/s 143(3) at ₹19.83 crores. Later, AO reopened the assessment u/s 147 by issuing notice u/s 148 dated 29.03.2016, mainly alleging escapement of income on account of “surrender value” of Keyman Insurance Policies.
In reassessment, AO added ₹73,00,052/- being the revaluation / surrender value of Keyman Insurance Policies which had NOT matured during the year. Assessee argued that this was merely a notional figure, no money was received or receivable, & the real surrender value of matured policies amounting to ₹10.80 crores had already been offered to tax in the return of income. Thus, taxing the balance notional value would amount to double taxation. It was also contended that Assessee followed a consistent method, accepted by the Department in earlier & later years.
Before CIT(A), Assessee challenged both validity of reopening (change of opinion, audit objection, lack of proper sanction, & non-disposal of objections by a speaking order) & addition on merits. However, CIT(A) confirmed the addition.
Before the Tribunal, Assessee relied on:
- Own ITAT orders for AYs 2009-10, 2010-11 & 2011-12 on identical issue.
- Vodafone West Ltd. (354 ITR 520), Cadila Healthcare (335 ITR 393), Jagat Jayantilal Parikh (355 ITR 400) – invalid reopening beyond 4 years based on audit objection/change of opinion.
- SC in Kelvinator – “change of opinion” is not permissible.
- Concept of real income vs notional income.
Tribunal observed that the entire matured surrender value of ₹10.80 crore was already taxed, hence taxing additional ₹73 lakh (unmatured surrender value) was unjustified, as the income had neither accrued nor arisen. It was purely notional & hypothetical, & notional income cannot be taxed. Only real income is taxable. Therefore, the addition was deleted.
