ITAT Ahmedabad: Surrender Value of Pension Policy Not Chargeable Under Section 56 — Addition Deleted
Overview of the Decision
In a significant ruling, the Income Tax Appellate Tribunal, Ahmedabad Bench, delivered a taxpayer-friendly decision in the case of Kirankumar Jayantilal Mala Vs DCIT (ITAT Ahmedabad), holding that the amount received upon premature surrender of a pension policy cannot be subjected to tax as "Income from Other Sources" under Section 56 of the Income Tax Act, 1961. The Tribunal found that the Assessing Officer had fundamentally misread both the factual background and the applicable statutory provisions, particularly Section 80CCC(2), while framing the reassessment.
This ruling carries significant implications for assessees who have prematurely exited pension schemes and subsequently faced tax demands treating the surrender proceeds as miscellaneous income.
Background and Factual Matrix
The assessee in this case is an individual who had filed his Income Tax Return for Assessment Year 2015-16 on 12.05.2016, declaring a total income of Rs. 38,61,260/-.
Years later, a notice under Section 148 of the Income Tax Act, 1961 was issued on 31.03.2021, initiating reassessment proceedings. In response to this notice, the assessee filed a fresh return declaring a marginally different total income of Rs. 38,61,310/-.
Following the reassessment proceedings conducted under Section 147 read with Section 144B of the Income Tax Act, 1961, the Assessing Officer passed an order dated 21.03.2022 determining the total assessed income at Rs. 49,01,900/-. This elevated figure was the direct result of an addition of Rs. 10,40,593/-, representing the amount that the assessee had received upon the premature surrender of his pension policy.
The Assessing Officer classified this receipt as taxable income under the head "Income from Other Sources" by invoking
Section 56of the Income Tax Act, 1961.
The assessee challenged this addition before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. However, the CIT(A) confirmed the addition vide order dated 20.11.2025, prompting the assessee to approach the ITAT.
Grounds of Appeal Raised Before ITAT
The assessee raised the following grounds of appeal before the Tribunal:
The Ld. CIT(A) has erred, both in law and on facts, in not appreciating that AO was not at all justified in reopening the assessment u/s 147 of the Act.
The Ld. CIT(A) has erred, both in law and on facts, in confirming addition of Rs. 10,40,593/-made u/s 56 of the Act in respect of amount received on account of premature surrender of pension policy by treating the same as income from other sources.