2018 (4) TMI 801 - HC - Income Tax

Penalty u/s 158BFA(2) on the legal representatives - block assessment proceedings - Held that - Penal proceedings have been initiated, only after the withdrawal of the appeal, filed by the deceased assessee, before the Income Tax Appellate Tribunal, at the instance of the legal representative of the deceased assessee. If the word, proceedings , includes penal proceedings , then the same should have been taken before the death of the deceased. The assessee expired on 14.02.2006. Appeal came to be dismissed as withdrawn. Only after the withdrawal of the appeal, proceedings under Section 158BFA(2) have been initiated only on 31.03.2008, in the block assessment order. A fiction is created whereby proceedings initiated against the deceased when he was alive, would continue against the legal representatives, as they have stepped into the shoes of the deceased, without there being any effect on the legality of the proceedings. Once this legal fiction comes into operation, then Clause (c) will have the consequential effect of applying all the provisions of the Act. In the case on hand, no penal proceedings have been initiated against the assessee, when he was alive. Assessment has not been done in the hands of the legal representatives and therefore, Section 159 of the Income-Tax Act, cannot be applied to the legal representative. The Tribunal has properly considered the facts, provisions and by applying the judgment of the Punjab and Haryana High Court in CIT v. Tikka Ram, through legal heir, Smt.Munni Devi reported in (2008 (5) TMI 710 - PUNJAB HARYANA HIGH COURT) held that there is no justifiable reason to impose penalty, on the legal representatives, under Section 158BFA(2) of the Income Tax Act. Going through the material on record, we concur with the same. - Decided against revenue

Issues Involved:
1. Legality of levying penalty under Section 158BFA(2) of the Income-Tax Act on the legal representatives of a deceased assessee.
2. Applicability of Section 159 of the Income-Tax Act concerning the liability of legal representatives.
3. Justification for imposing penalty due to the difference between assessed income and income declared by the deceased assessee.

Issue-wise Detailed Analysis:

1. Legality of Levying Penalty under Section 158BFA(2) on Legal Representatives:
The primary issue revolves around whether penalty under Section 158BFA(2) can be levied on the legal representatives of a deceased assessee. The Tribunal noted that the penalty proceedings were initiated after the death of the assessee and the legal representatives were unable to trace the necessary documents to explain the source of investment. The Tribunal emphasized that the power to levy penalty must be exercised judiciously and mere withdrawal of the appeal by the legal representatives does not justify the imposition of penalty. The Tribunal concluded that the legal representatives' inability to explain the discrepancies due to the deceased's death should not be exploited by the Revenue authorities.

2. Applicability of Section 159 Concerning the Liability of Legal Representatives:
Section 159 of the Income-Tax Act stipulates that legal representatives are liable to pay any sum the deceased would have been liable for if alive. The Tribunal examined whether the term "proceeding" in Section 159 includes penalty proceedings. It was determined that since no penal proceedings had been initiated against the deceased while alive, and assessment was not done in the hands of the legal representatives, Section 159 could not be applied to impose penalty on the legal representatives. The Tribunal highlighted that the penalty must be levied on the same person who filed the return and concealed income, which in this case, was the deceased and not the legal representatives.

3. Justification for Imposing Penalty Due to Discrepancies in Income:
The Tribunal considered the discrepancy between the assessed income and the income declared by the deceased. The deceased had declared an investment of ?18,41,238 in the VDI Scheme, whereas the actual investment was found to be ?71,48,000. The Tribunal noted that the legal representatives could not explain the difference due to the lack of documents after the deceased's death. It was observed that the legal representatives' withdrawal of the appeal should not be construed as an inability to explain the discrepancies. The Tribunal referred to the Punjab & Haryana High Court's ruling in CIT v. Tikka Ram, which held that if the legal representative is ignorant of the source of investment and accepts the notice under Section 148, the disclosure is considered bona fide and voluntary, thus no penalty should be levied. Applying this principle, the Tribunal found that the penalty under Section 158BFA(2) was not justified.

Conclusion:
The Tribunal concluded that the penalty levied under Section 158BFA(2) on the legal representatives was not justified and set aside the orders of the lower authorities. The Tribunal's decision was based on the principles of judicious exercise of power, the specific provisions of Section 159, and the precedent set by the Punjab & Haryana High Court. The High Court concurred with the Tribunal's findings and dismissed the Tax Case Appeal filed by the Commissioner of Income Tax, Chennai, thereby answering the substantial question of law against the revenue.

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