2016 (6) TMI 799 - AT - Income Tax

Penalty u/s 271(1)(c) imposed on the legal heir - genuineness of purchase - assessee could not produce original evidences at the time of quantum proceedings but produced during the penalty proceedings - Held that - It is undisputed fact that the assessee expired on November 22, 2010. In this case, the assessment was completed on December 17, 2008, and penalty was imposed on March 1, 2011. It means that after the death of the assessee. The assessee claimed the expenditure of ₹ 6,09,534 in the profit and loss account, which has been disallowed by the Assessing Officer. The same has been confirmed by the Income-tax Appellate Tribunal, vide order dated November 26, 2010. The assessee claimed that this marble was fixed in the construction made in Kamla Modi Market which was purchased on February 3, 2006. Copy of the bill placed before us on page 9 of the paper book, which is copy of the bill of lading for purchase of marble at ₹ 4,11,608 on which registration number of the seller and the name of the transporter has been given. The evidence placed for remaining expenses also perused and we find that the assessee could not produce these original evidences at the time of quantum proceedings but produced during the penalty proceedings before the learned Commissioner of Income-tax (Appeals) but he has not taken any cognizance. He simply treated them as non-genuine. The learned Commissioner of Income-tax (Appeals) has coterminous power with the Assessing Officer as penalty proceedings are distinct from the assessment order, he could have sent these evidences to the Assessing Officer for verification. The inquiry made by the Inspector in December, 2008, to verify the marble fixed in the constructed area. The case law referred by the assessee particularly the decision of the Mumbai Income-tax Appellate Tribunal Bench in the case of Bhagwansingh Shriramsingh L/H Dinesh Bhagwan Singh v. ITO 2006 (5) TMI 270 - ITAT MUMBAI is squarely applicable as any sum referred in section 159(1) does not include the penalty proceedings on the legal representative under section 159(2) of the Act. Therefore, penalty imposed on the legal heir is not justified. - Decided in favour of assessee

Summary

Issues:
1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Legality of imposing penalty on a deceased person.

Issue 1 - Imposition of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The appeal was filed against the order of the Commissioner of Income-tax (Appeals) confirming the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961, amounting to ?2,44,937 for the assessment year 2006-07. The penalty was imposed due to the assessee declaring income from construction and sale of shops but claiming bogus expenses for cost of marble and other personal expenses. The Assessing Officer found the claimed expenses to be unsubstantiated and imposed the penalty, which was upheld by the Commissioner of Income-tax (Appeals). The assessee argued that the expenses were genuine, reflected in the books of account, and related to the property sold during the year. The legal representative of the deceased assessee contended that penalty cannot be imposed on a dead person, citing legal provisions and case laws. The Income-tax Appellate Tribunal reversed the Commissioner's order, stating that the penalty on the legal heir was not justified, as penalty proceedings do not extend to legal representatives under section 159(2) of the Act.

Issue 2 - Legality of Imposing Penalty on a Deceased Person:
The second issue revolved around the legality of imposing a penalty on a deceased person. The assessee had passed away before the penalty was imposed, raising questions about the liability of the legal representative for the penalty amount. The legal representative argued that penalty proceedings are quasi-criminal in nature and do not extend to legal heirs after the death of the assessee. Various case laws were cited to support the contention that penalty proceedings abate on the death of the assessee and cannot be imposed on the legal representatives. The Tribunal agreed with this argument, emphasizing that penalty proceedings on a deceased person are not automatic and do not extend to legal representatives, as per the provisions of section 159(2)(b) of the Act. The Tribunal, therefore, allowed the appeal of the assessee, holding that the penalty imposed on the legal heir was not justified.

In conclusion, the Appellate Tribunal reversed the decision of the Commissioner of Income-tax (Appeals) and allowed the appeal of the assessee, holding that the penalty imposed on the legal representative of the deceased assessee was not justified under the Income-tax Act, 1961.