2004 (1) TMI 337 - AT - Income Tax

Income escaping assessment - Validity of assessment proceedings initiated u/s 148 - HELD THAT - The other factor which is relevant for disposal of this appeal is that if this irregularity is cured as on today the AO is not competent to issue notice u/s 148 to other legal heirs because of the provisions of s. 149 of the Act and as such by no means estate can be represented on the basis of notice issued u/s 148 on 21st Feb. 1990 to Shri Badri Prasad Bhatia who is also stated to have expired long back. In these circumstances and facts of this case we are of the considered view that the assumption of jurisdiction by the learned AO u/s 147/148 of the Act is bad in law. The defect of not sending notices to all the legal representatives is not curable under this Act. We concur with the findings of the learned CIT(A) in this regard. The issue of notice under ss. 142(1) and 142(2) is entirely on the different footing. The processing of the returns u/s 143(3) simpliciter and the one processed u/s 148 of the Act after assuming jurisdiction to initiate reassessment proceedings are totally different. The assumption of jurisdiction is a very important step under the Act which is based on certain happenings; whereas the proceedings u/s 142(1)/142(2) are quite procedural and ordinary. The proceedings u/s 147/148 of the Act affect the rights of the assessee. There is no infirmity in the findings of the learned CIT(A). The Department is to fail in this appeal on this count. In the result the appeal of the Department is dismissed.

Summary

Issues involved:
The appeal concerns the validity of assessment proceedings initiated under section 148 of the Income Tax Act, 1961, specifically regarding the issuance of notices to legal heirs of a deceased individual.

Validity of Notice under Section 148:
The Department filed an appeal against the order of the CIT(A) annulling the assessment on the grounds that the notice under section 148 was not issued to all legal heirs of the deceased individual. The Department argued that one legal heir had complied with the notices and no objections were raised by other legal heirs during the assessment proceedings. The Department relied on a Supreme Court decision stating that non-service of notice to all legal representatives did not invalidate assessments.

Legal Objection and Assessment Proceedings:
The appellant raised a legal objection to the assessment, contending that the notice under section 148 was not issued to all legal heirs as required by law, rendering the assessment void. The CIT(A) upheld this objection, annulling the assessment. The Departmental Representative argued that the assessment was justified as one legal heir had complied with the notices and no objections were raised by other legal heirs during the proceedings.

Supreme Court Decision and Legal Heirs:
The Departmental Representative cited a Supreme Court decision regarding assessments involving legal heirs, emphasizing that compliance by one legal heir could validate the assessment. The appellant's Authorized Representative countered this argument, stating that the circumstances of the present case differed from the Supreme Court decision as re-assessment proceedings were involved.

Assumption of Jurisdiction and Legal Representatives:
The Tribunal considered the jurisdictional aspect of the case, noting that the AO's assumption of jurisdiction under section 147/148 was flawed due to the failure to send notices to all legal representatives. The Tribunal agreed with the CIT(A) that the defect was not curable under the Act and that the proceedings under section 147/148 significantly impacted the rights of the assessee. Consequently, the Department's appeal was dismissed.

This judgment highlights the importance of complying with legal procedures, particularly regarding the issuance of notices to all legal heirs in assessment proceedings under section 148 of the Income Tax Act, 1961.