2019 (1) TMI 592 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - penalty imposed upon the legal heirs of the original deceased assessee by the authorities - Held that - Penalty cannot be imposed upon the legal heirs of the original deceased assessee by the authorities in the given situation. In that view of the matter the penalty levied by the authorities below is hereby deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of notice issued under section 148 of the Act to a deceased person.
3. Liability of legal representatives for penalties imposed on the deceased assessee.

Issue-wise Detailed Analysis:

1. Legality of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue revolves around the penalty of ?1,05,500 levied under section 271(1)(c) for concealment of income. The assessee had disclosed an undisclosed income of ?6,36,384 during an enquiry conducted by the ADIT(Inv.)-II, Baroda, and subsequently filed a return of income declaring a gross income of ?6,36,380 and net taxable income of ?5,36,380. The Assessing Officer (AO) concluded that the assessee concealed income of ?5,36,384 and levied the penalty. However, the legal heirs argued that all particulars were duly submitted, and there was no concealment of income. The Tribunal noted that the AO assessed the income tax liability as 'Nil' and did not make any addition or disallowance during the assessment. The Tribunal held that without any addition or disallowance, there could not be any income deemed to be concealed, and thus, the penalty was not justified.

2. Validity of Notice Issued under Section 148 of the Act to a Deceased Person:
The notice under section 148 was issued on 31.03.2015 to the deceased assessee, who had died on 26.06.2011. The legal heirs contended that it is a settled principle of law that a notice under section 148 cannot be served upon a dead person. The Tribunal agreed with this contention, stating that the penalty proceedings should have been dropped once the death of the original assessee was made known to the AO. The Tribunal emphasized that issuing a notice to a deceased person is legally untenable.

3. Liability of Legal Representatives for Penalties Imposed on the Deceased Assessee:
The Tribunal examined whether the legal representatives could be held liable for penalties imposed on the deceased assessee. The Tribunal referred to section 159 of the Income Tax Act, which outlines the liability of legal representatives. It was observed that the statute does not make legal representatives liable for penalties under section 271(1)(c). The Tribunal cited the judgment of the Hon'ble ITAT, Patna in ACIT Vs. Nageshwar Prasad and the Hon'ble jurisdictional High Court's decision in ACIT vs. Late Shrimant P.P. Gaekwad, which held that penalties cannot be imposed on legal representatives when the assessee dies before the assessment is framed. Consequently, the Tribunal deleted the penalty imposed on the legal representatives.

Conclusion:
The Tribunal concluded that the penalty under section 271(1)(c) was not justified as there was no addition or disallowance made during the assessment. It further held that the notice under section 148 issued to a deceased person was invalid, and legal representatives cannot be held liable for penalties imposed on the deceased assessee. Therefore, the penalty levied by the authorities was deleted, and the appeal was allowed in favor of the assessee.

Order Pronounced:
This Order was pronounced in Open Court on 10/01/2019.