Incorrect Exemption on LIC Annuity from VRS: ITAT Upholds Revision u/s 263 of Income Tax Act [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal upheld the Principal Commissioner of Income Tax(PCIT)revision order under Section 263 of Income Tax Act,1961, confirming that the exemption claim on the  LIC annuity payment from voluntary retirement scheme(VRS) was incorrect.

Rakesh Saxena,appellant-assessee,worked at M/s. GE Power India Ltd. and took voluntary retirement, receiving ₹34,67,866 as per Form 16. However, the return of income showed a gross salary of ₹7,04,116. The assessment disallowed an exemption claim of ₹4,50,000 under Section 10(10CC) and added interest income of ₹5,329, determining the total income as ₹10,64,798.

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The PCIT later found that the assessee claimed an annuity payment of ₹15,00,000 to LIC as non-taxable, which was incorrect. A show-cause notice was issued questioning the exemption claim.

The assessee filed a reply, which the PCIT considered before setting aside the assessment. It was observed that the AO had wrongly allowed an exemption of ₹15,00,000, despite the VRS amount being taxable as salary, with an exemption limit of ₹5,00,000 under Section 10(10C) of the Act.

During proceedings under Section 263, M/s. GE Power Ltd. clarified that the LIC annuity payment was not treated as a perquisite in Form 16, nor was it exempt under Section 10(10CC) of the Act. The company confirmed that the annuity was purchased at the employees’ request and formed part of the taxable VRS amount.

The PCIT noted that the AO failed to recognize this and wrongly allowed the exemption, making the assessment order erroneous and prejudicial to revenue.

Aggrieved by the revision order, the assessee filed an appeal.

The two member bench comprising Dr.BRR Kumar(Vice President) and T.R.Senthil Kumar (Judicial Member) reviewed the case, referring to Mafatbhai Bhikhabhai Parmar vs. PCIT & Ors., where the assessee claimed that ₹15 lakh was paid to LIC by the employer and wrongly included as salary in Form 16 but failed to provide evidence.The AO accepted the claim without verifying the details or making inquiries with the employer.

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During proceedings under Section 263, the PCIT obtained confirmation from M/s. GE Power India Ltd. that the LIC annuity payment was made from the employees' VRS amount and was taxable as salary. The employer also clarified that no exemptions under Sections 10(10CC) or 10(10B) applied. The appellate tribunal found that the AO had not conducted proper inquiries, making the assessment order erroneous and prejudicial to revenue.

Relying on the Co-ordinate Bench’s decision and the Supreme Court ruling in Navnit Lal Sakar Lal, which held that annuity payments made by an employer constituted taxable salary, the ITAT upheld the PCIT’s revision order. The appeal was dismissed, as there was no difference in facts from the earlier case.

To Read the full text of the Order CLICK HERE

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