2016 (4) TMI 1327 - AT - Income Tax

Penalty u/s 271(1)(c) - no notice to legal heir assessee in spite of the fact that the Assessing Officer was made aware that the assessee had expired on 20th March 2011 - order passed against a dead person - delay in filing return of income - AO while completing the assessment treated the return of income as invalid and held the income declared by the assessee as undisclosed income - Held that - In the course of penalty proceedings under section 271(1)(c) the Authorised Representative in his letter dated 16th June 2011 not only explained the reason for delay in filing the return of income but also brought to the notice of the Assessing Officer the fact that the assessee had expired on 20th March 2011 and also furnished a copy of his death certificate. In spite of the fact that the Assessing Officer was made aware that the assessee had expired on 20th March 2011 instead of bringing his legal heir on record the Assessing Officer proceeded to pass the impugned penalty order in the name of deceased assessee. As rightly held by the learned Commissioner (Appeals) order passed against a dead person has no legal affect hence invalid in law. - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of penalty under section 271(1)(c) for assessment year 2006-07 due to deceased assessee's failure to file return of income, Assessing Officer's imposition of penalty without issuing notice to legal heir, validity of penalty order against deceased person.

Analysis:
1. The Department's appeal challenged the deletion of penalty imposed under section 271(1)(c) for the assessment year 2006-07 due to the deceased assessee's failure to file a return of income. The Assessing Officer initiated action under section 147 of the Income Tax Act, treating the income declared in the late return as undisclosed income, leading to the imposition of a penalty of ` 22,32,551. The legal representative contended that penalty proceedings should be dropped due to the deceased's poor health and subsequent death, which led to the delayed filing of the return. However, the Assessing Officer proceeded with the penalty, resulting in an appeal before the Commissioner (Appeals).

2. Before the Commissioner (Appeals), the legal heir challenged the validity of the penalty order, arguing that the Assessing Officer failed to issue a notice to the legal heir despite being informed of the assessee's demise. The Commissioner (Appeals) considered the remand report and submissions, ultimately deleting the penalty on the grounds that no order can be passed against a deceased person. The Commissioner emphasized that the legal personality ceases to exist after death, and any order against a dead person is void ab initio, highlighting the necessity of issuing notice to the legal heir.

3. The Tribunal upheld the Commissioner's decision, emphasizing that the penalty order against a deceased person has no legal effect. Despite the assessee having filed the return of income and paid taxes before his death, the Assessing Officer failed to bring the legal heir on record and proceeded to pass the penalty order in the deceased assessee's name. The Tribunal concurred with the legal principle that an order against a dead person is invalid in law. As the order of the Commissioner was in line with established legal principles, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the penalty.

In conclusion, the Tribunal upheld the decision to delete the penalty under section 271(1)(c) for the assessment year 2006-07, emphasizing the legal principle that no order can be passed against a deceased person and highlighting the necessity of issuing notice to the legal heir in such cases.