2016 (9) TMI 197 - AT - Income Tax

Penalty u/s 271(1)(c) - penalty proceedings on the legal representative - penalty order passed against a dead person - Held that - The revenue has not controverted the fact that the notice for initiation of penalty proceedings was issued after the death of Shri Vinod Kumar Agarwal. It is also not rebutted that the penalty order was passed in the name of Shri Vinod Kumar Agarwal on 27.04.2011 when Shri Vinod Kumar Agarwal had already expired on 24.05.2010. The order of Coordinate Bench of ITAT Jaipur relied by the assessee in the case of Shri Kishan Agarwal vs. DCIT 2016 (6) TMI 799 - ITAT JAIPUR is squarely applicable in the case of the assessee, wherein it has been held that the decision of Mumbai ITAT Bench in the case of Bhagwansingh Shriramsingh L/H Dinesh Bhagwan Singh vs. 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 u/s 159(2) of the Act. Therefore, penalty imposed on legal heir is not justified. Accordingly, we reverse the order of the ld. CIT (Appeals). - Decided against revenue

Summary

Issues:
1. Penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 against a deceased person without bringing the legal heir on record.
2. Validity of penalty proceedings against legal representatives for furnishing inaccurate particulars by the deceased.
3. Applicability of penalty on legal heir under section 159(2) of the Act.

Analysis:
1. The appeal challenged the penalty levied by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961 against a deceased individual. The AO initiated penalty proceedings after the death of the assessee, and the penalty order was passed without bringing the legal heir on record. The counsel for the assessee argued that the penalty order against a deceased person was a legal nullity, supported by case law references. The contention was that the entire proceedings were invalid due to the absence of the legal heir on record.

2. The Tribunal considered the arguments and referred to a judgment highlighting that penalty proceedings can be validly taken against legal representatives for inaccurate particulars provided by the deceased. The Tribunal emphasized that penalties are distinct from taxes and are imposed for contumacious conduct. In this case, the penalty was linked to concealment of income or furnishing inaccurate particulars. The Tribunal, considering the peculiar facts, decided to cancel the penalties, citing the difficulty faced by legal representatives in defending against penalties imposed on the deceased.

3. Furthermore, the Tribunal relied on a decision where it was held that penalty proceedings against legal heirs are not justified under section 159(2) of the Act. Citing this precedent, the Tribunal reversed the order of the Commissioner of Income Tax (Appeals) and directed the Assessing Officer to delete the penalty imposed on the legal heir. The Tribunal set aside the order of the Commissioner and allowed the appeal of the assessee based on the decisions of the Coordinate Benches of the Tribunal.

This comprehensive analysis of the judgment highlights the issues raised, the arguments presented, and the Tribunal's decision based on legal precedents and interpretations of relevant sections of the Income Tax Act, 1961.