Jay Patel Vs ITO (ITAT Raipur)
Summary: The Income Tax Appellate Tribunal, Raipur, considered an appeal arising from the reassessment of a deceased taxpayer for Assessment Year 2015-16. The Assessing Officer had denied exemption under Section 10(38) on long-term capital gains of ₹8,61,760 from transactions in shares of Mahavir Advance Remedies Limited and treated the amount as an unexplained cash credit under Section 68. The CIT(A), NFAC, upheld the addition, but the legal heir challenged the validity of the assessment itself.
The assessee, identified in the judgment as Shri Rajendra Kumar Patel, had died on 11 September 2021 during the reassessment proceedings. His legal heir informed the Assessing Officer of the death through a letter and death certificate uploaded to the Income Tax Department’s portal on 15 March 2022. Nevertheless, the Assessing Officer passed the reassessment order on 28 March 2022 in the deceased assessee‘s name without bringing the legal representative on record.
The Tribunal examined Section 159 of the Income-tax Act, 1961, which governs the liability of legal representatives and continuation of proceedings following a taxpayer’s death. Under Section 159(2), proceedings commenced before death may continue against the legal representative from the stage at which they stood when the taxpayer died. The Tribunal also considered CIT Vs Dalumal Shyamumal, in which the Madhya Pradesh High Court held that an assessment framed in the name of a deceased person was a nullity but directed that the matter be remanded for proper proceedings against the legal representative.
Following that decision, the ITAT declared the reassessment order dated 28 March 2022 a nullity and remanded the matter to the Assessing Officer for compliance with Section 159(2), including valid notice to the deceased taxpayer‘s legal representative or representatives. The Tribunal did not decide the underlying dispute concerning the alleged bogus long-term capital gains. The appeal was allowed for statistical purposes, rather than the substantive tax addition being finally deleted.
Cases Discussed
- Raja Kumari Vs Income Tax Officer, W.P. Nos. 29157 & 29162 of 2023, dated 10 October 2023 — Cited by the assessee in support of the challenge to assessment in the name of a deceased person.
- Commissioner of Income Tax Vs M. Hemanathan, (2016) 384 ITR 177 (Madras High Court) — Cited by the assessee concerning proceedings involving a deceased taxpayer.
- Commissioner of Income Tax Vs Dalumal Shyamumal, (2005) 276 ITR 62 (Madhya Pradesh High Court) — Followed by the Tribunal: assessment in the name of a deceased taxpayer is a nullity; remand for Section 159 compliance and notice to legal representatives.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 07.11.2023, which in turn arises from the order passed by the A.O under Sec. 147 r.w.s.144B of the Income-tax Act, 1961 (in short ‘the Act’) dated 28.03.2022 for the assessment year 2015-16. The assessee has assailed the impugned order on the following grounds of appeal:
“1. On the facts and circumstances of the case & in law, the Id CIT(A) has erred in sustaining the addition of Rs.8,61,760/- on the count of long term capital gain on sale of equity shares by denying exemption u/s.10(38) and applying sec. 68 treating it as bogus transaction; addition made is unjustified and is liable to be deleted.
2. The appellant craves leave, to add urge, alter, modify or withdraw any grounds before or at the time of hearing.”
Also, the assessee has raised an additional ground of appeal which reads as under:
“1. On the facts and circumstances of the case and in law, assessment made u/s. 147 on 28-3-22 is invalid as it is passed on the deceased person, who died on 11-9-21 duly intimated to the Ld. AO on 15-3-22; assessment u/s. 147 would be liable to be quashed.”
2. Succinctly stated, the assessee had filed his return of income for A.Y.2015- 16 on 31.03.2016, declaring an income of Rs.5,80,750/- along with an exempt income of Rs.8,67,760/-. Based on information that the assessee had traded in a penny scrip of M/s. Mahavir Advance Remedies Limited, and, thus, had raised a bogus claim of long term capital gain (LTCG) which was sought as exempt (having been subjected to payment of securities transaction tax), the A.O reopened his case u/s. 147 of the Act.
3. Assessment was, thereafter, framed vide order passed u/s. 147 r.w.s. 144B of the Act dated 28.03.2022, wherein after declining the assessee’s claim for exemption u/s.10(38) of the Act of LTCG of Rs.8,61,760/- arising from purchase/ sale of shares of M/s. Mahavir Advance Remedies Limited, the A.O made an addition of the same u/s. 68 of the Act.
4. On appeal, the CIT(Appeals) finding no infirmity in the view taken by the A.O upheld the addition of Rs.8,61,760/- u/s. 68 of the Act. For the sake of clarity, the observations of the CIT(Appeals) are culled out as under:
“7. Ground No. 2:- This ground of appeal relates to the appellant’s objection against the addition of Rs.8,61,760/- made to his total income for the year u/s 68 of the Act, disallowing LTCG claimed u/s 10(38) of the Act. During the course of appellate proceedings, the appellant did not produce any documentary evidence or submission in support of his ground of appeal. In fact, as mentioned hereinabove, he did not make any compliance whatsoever till date. It is therefore seen that he is not interested in pursuing the ground of appeal raised by him. Nothing has been brought on record to controvert the detailed findings of the AO as mentioned in the Assessment Order. The AO has based his findings on the factual matrix of the case, relying upon the findings of Investigation Wing of the Department, SEBI and various case laws. The scrip traded in by the appellant was of an entity held to be a penny stock company providing accommodation entries. The appellant has not brought anything on record in support of his claim that the amount added by the AO was in the nature of genuine LTCG exempt u/s 10(38) of the Act. I, therefore, find no reason to interfere with the Order of the AO and hence the same is upheld and the ground of appeal raised by the appellant is dismissed.”
5. The legal heir of the assessee (since deceased) being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.
6. Shri Sunil Kumar Agrawal, Ld. Authorized Representative (for short ‘AR’) for the assessee at the threshold assailed the validity of the order passed by the A.O u/s. 147 r.w.s 144B of the Act dated 28.03.2022 in the hands of the assessee (since deceased). Elaborating on his contention, the Ld. AR submitted that as the assessee, viz. Shri Rajendra Kumar Patel had expired in the course of the assessment proceedings, i.e. on 11.09.2021, a fact which the legal heir of the deceased assessee had brought to the notice of the A.O vide letter dated 15.03.2022 along with a copy of death certificate that were uploaded during the course of the assessment proceedings on the e-portal of the department, therefore, the assessment framed by him in the name of the assessee (i.e. a dead person) could not be sustained and was liable to be struck down on the said count itself. The Ld. AR in order to fortify his aforesaid contention had drawn my attention to a letter dated 15.03.2022 wherein the A.O was informed about the death of the assessee; copy of death certificate; and E-acknowledgement of the aforesaid reply and the death certificate that were uploaded on e-portal of the department on 15.03.2022, Page 18 to 20 of APB. Carrying his contention further, the Ld. AR submitted that as no order can be passed against a dead person, therefore, the order passed by the A.O u/s. 147 r.w.s. 144B of the Act dated 28.03.2022 without impleading the legal heir of the deceased assessee despite having been intimated of the aforesaid fact, thus, could not be sustained and was liable to be vacated.
The Ld. AR in support of his aforesaid contention had relied on the following judicial pronouncements:
(i) Raja Kumari Vs. Income Tax Officer, Writ Petn. Nos. 29157 & 29162 of 2023, dated 10.10.2023;
(ii) Commissioner of Income Tax Vs. M. Hemanathan, (2016) 384 ITR 177 ( Mad.)
7. Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities. On being confronted with the fact that though the assessee had expired, and the said fact was brought to the notice of the A.O but the assessment had been framed in the name of the deceased assessee, the Ld. DR did not controvert the same.
8. I have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
9. As is discernible from the assessment order, to which my attention was drawn by the Ld. AR, the assessee, viz. Shri Rajendra Kumar Patel had expired on 11.09.2021, i.e. in the course of the assessment proceedings which had culminated into an order passed u/s. 147 r.w.s. 144B of the Act dated 28.03.2024. Ostensibly, the legal heir of the assessee (since deceased), viz. Shri Rajendra Kumar Patel had vide a letter dated 15.03.2022 along with a copy of the death certificate of the assessee, which were both uploaded on the e-portal of the department in the course of the assessment proceedings on 15.03.2022, brought the fact about the death of the assessee to the notice of the A.O, Page 18-20 of APB. However, I find that the A.O despite having been intimated about the fact that the assessee had expired failed to implead his legal heir and framed the assessment in the name of the deceased assessee, viz. Shri Rajendra Kumar Patel.
10. As stated by the Ld. AR, and rightly so, as per the settled principle of law, no order can be passed against a dead person, and thus, any proceedings taken against the deceased assessee shall be continued against the legal representative from the stage at which it stood on the date of the death of the deceased. My aforesaid view is supported by the mandate of law as per section 159(2) which reads as under:
“159. (1) Where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased.
(2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under section-147) of the income of the deceased and for the purpose of levying any sum in the hands of the legal representative in accordance with the provisions of sub-section (1),—
(a) any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased;
(b) any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative; and
(c) all the provisions of this Act shall apply accordingly.
(3) The legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessee.
(4) Every legal representative shall be personally liable for any tax payable by him in his capacity as legal representative if, while his liability for tax remains undischarged, he creates a charge on or disposes of or parts with any assets of the estate of the deceased, which are in, or may come into, his possession, but such liability shall be limited to the value of the asset so charged, disposed of or parted with.
(5) The provisions of sub-section (2) of section-161, section- 162 and section-167, shall, so far as may be and to the extent to which they are not inconsistent with the provisions of this section, apply in relation to a legal representative.
(6) The liability of a legal representative under this section shall, subject to the provisions of sub-section (4) and sub-section (5), be limited to the extent to which the estate is capable of meeting the liability.”
In a case where an assessee dies pending any assessment proceedings, the provisions of Section 159 of the Act get attracted. Accordingly, it is incumbent on the A.O to ensure compliance with sub-section (2) of Section 159 before any order is passed. The aforesaid view is supported by the judgment of the Hon’ble High Court of Madhya Pradesh in the case of Commissioner of Income Tax Vs. Dalumal Shyamumal (2005) 276 ITR 62 (MP). The Hon’ble High Court had observed that as the A.O had framed the assessment in the name of the assessee (since deceased), therefore, assessment so framed was a nullity. However, the Hon’ble High Court was of the view that once the assessment order was held to be nullity, then the Tribunal should have given a consequential direction as contemplated u/s. 159 of the Act to the A.O so that proper assessment order could be passed. For the sake of clarity, the observations of the Hon’ble High Court are culled out as under:
“In our opinion, the Tribunal while deciding the appeal ought to have taken note of section 159 ibid and should have accordingly, remanded the case to assessing officer for ensuring compliance of section 159 for passing appropriate orders of assessment after due notice to legal representative of deceased assessee. Indeed, once the assessment order is held to be a nullity then in such event consequential direction as contemplated under section 159 of the Act should have been given to assessing officer so that proper assessment order could be passed.”
As the facts involved in the present case before me remains the same as were there before the Hon’ble High Court in the case of Commissioner of Income Tax Vs. Dalumal Shyamumal (supra), therefore, I respectfully follow the same. I, thus, based on my aforesaid observations and the judgment of the Hon’ble High Court of Madhya Pradesh in the case of Commissioner of Income Tax Vs. Dalumal Shyamumal (supra), hold the order passed by the A.O u/s. 147 r.w.s. 144B, dated 28.03.2022 as nullity, and remand the matter to the file of the A.O for ensuring compliance with Section 159(2) of the Act for passing appropriate orders of assessment after validly putting to notice the legal representative/representatives of the deceased assessee.
11. In the result, appeal of the assessee is allowed for statistical purposes in terms of the aforesaid observations.
Order pronounced in open court on 13th day of February, 2024.
