2025 (1) TMI 613 - AT - Income Tax

Penalty u/s 271E/271D - contravention of section 269SS and 269ST - Addition u/s 69A - Receipt of estate from her late husband - HELD THAT - It is not disputed that neither the assessee was a shareholder nor director in the concerned entity M/s Ronnie Finance Company Ltd. AO has not brought anything on record to show that the assessee was involved in any way with the business dealings of M/s. Ronnie Finance Limited. In the instant facts of the case, there is no dispute that the violation of section 269SS and 269ST was committed by the said company. The assessee in the instant case, cannot be held liable for the acts/omissions on the behalf of her deceased husband i.e. Late Nimit Kumar Sachdeva , who was only a director in the said company. The assessee, neither as legal heir of her husband nor in her individual capacity, inherited any estate or any other valuable article on account of her late husband. We also find that during course of the assessment proceedings and the penalty proceedings, the assessee was never apprised with any tangible/incriminating material, through which serious allegations had been made in the present case. We find that the provisions of Section 159(6) of the Act, provides that the liability of a legal representative is limited to the extent of assets acquired by the legal representative. In the instant case, the Revenue has not made a case that the assessee received any estate from her late husband. The action of the Revenue, therefore, to fasten the assessee with the liability of the business dealings conducted by the M/s. Ronnie Finance Limited is neither legally permissible nor just. Accordingly, we do not find any reason to interfere with the well-reasoned decision of the ld. CIT(A) and direct the AO to delete the penalties levied u/s 271D and 271E - Decided against revenue.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the penalties levied under sections 271D and 271E of the Income-tax Act, 1961, for violations of sections 269SS and 269ST, were justified against the assessee, who was claimed to be the legal representative of the deceased director of M/s Ronnie Finance Limited.
Whether the assessee, as the alleged legal heir, could be held liable for the actions of M/s Ronnie Finance Limited, a company in which she had no direct involvement.
Whether the assessee inherited any estate from her deceased husband, thereby establishing her as a legal representative under section 159 of the Income-tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legitimacy of Penalties under Sections 271D and 271E

Relevant Legal Framework and Precedents: Sections 271D and 271E of the Income-tax Act impose penalties for contraventions of sections 269SS and 269ST, which prohibit certain cash transactions. Section 159 addresses the liability of legal representatives.
Court's Interpretation and Reasoning: The court examined whether the assessee was a legal representative of the deceased and if penalties could be imposed on her for the company's actions. It was noted that the assessee was neither a director nor a shareholder in M/s Ronnie Finance Limited.
Key Evidence and Findings: The court found no evidence that the assessee received any estate from her deceased husband, nor was she involved in the company's business dealings. The MCA Portal indicated other individuals as directors of the company.
Application of Law to Facts: The court applied section 159, determining that the assessee's liability as a legal representative would only extend to any estate received, which was not the case here.
Treatment of Competing Arguments: The Revenue's argument that the assessee was a legal representative was dismissed due to lack of evidence of inheritance or involvement in the company.
Conclusions: The penalties under sections 271D and 271E were deemed unjustified as the assessee was not liable for the company's actions, and no estate was inherited.

Issue 2: Liability of the Assessee as a Legal Representative

Relevant Legal Framework and Precedents: Section 159 of the Income-tax Act and relevant case law, including CIT vs Dalumal Shyamumal and CIT v Prabhawati Gupta, were considered.
Court's Interpretation and Reasoning: The court emphasized that legal representative status under the Income-tax Act requires actual receipt of the deceased's estate, not merely potential inheritance rights under the Hindu Succession Act.
Key Evidence and Findings: The court found no evidence that the assessee inherited any estate from her husband, and thus she could not be considered a legal representative liable for the company's actions.
Application of Law to Facts: The court applied the legal definition of a legal representative, concluding that the assessee did not meet the criteria as she did not acquire any estate.
Treatment of Competing Arguments: The Revenue's reliance on the Hindu Succession Act was countered by the court's focus on the Income-tax Act's requirements for legal representatives.
Conclusions: The assessee was not a legal representative under section 159, and thus the penalties could not be imposed on her.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The appellant may be the heir of Late Shri Nimit Kumar Sachdeva. But for the purposes of Income-tax, the tax can be levied only on the legal representative, whose definition is contained in Civil Procedure Code."
Core Principles Established: The liability of legal representatives under the Income-tax Act is limited to the extent of the estate actually received. Mere potential rights under succession laws do not suffice.
Final Determinations on Each Issue: The court dismissed the Revenue's appeals, concluding that the penalties under sections 271D and 271E were not applicable to the assessee, as she was neither a legal representative nor involved in the company's transactions.

The judgment underscores the importance of distinguishing between potential inheritance rights and actual receipt of an estate when determining legal representative status under tax laws. The court's decision reflects a careful application of statutory definitions and precedents to the facts at hand, ultimately protecting the assessee from unwarranted penalties.

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