2017 (11) TMI 967 - AT - Income Tax

Validity of proceedings taken against the assessee, who expired during the pendency of the proceedings - proceedings continued against legal representatives in the same capacity - Held that - Any proceedings taken against an assessee before his death shall be deemed to have taken against the legal representatives which may be continued against the L/Rs. from the stage at which it stood on the date of the death of the assessee. A perusal of the record would indicate that a notice under section 143(2) was issued on 30.8.2010 when Shri Atulkumar M. Shah was alive. An opportunity to the assessee was given to make submission in support of his return, as required under section 143(2). This assessment proceedings was set in motion by the AO when the assessee was alive. Fact of death of the assessee was brought to the notice of the AO at the very fag end i.e. vide letter dated 23.12.2011. The AO has, though taken cognizance of this letter, but failed to issue notice to the L/Rs. so that they can put their defence before him. There is no illegality committed by the AO. He only committed an irregularity and it is settled position that wherever any irregularity crept in the proceedings, the proceedings itself cannot be declared void, rather irregularity deserves to be rectified. Considering these aspects, we allow appeal of the assessee for statistical purpose. We set aside both the impugned orders and restore all issues to the file of the AO for adjudication afresh. The ld.AO shall re-determine income of the assessee on merit after considering plea of the assessee whether loss suffered by the assessee in share trading deserves to be set off against ultimate assessed income. The ld.AO shall issue notice to the legal representatives by providing reasonable opportunity of hearing, and thereafter pass assessment order.

Summary

Issues:
1. Appeal against assessment order for the Asstt.Year 2009-10 under section 143(3) of the Income Tax Act, 1961.
2. Appeal against penalty imposed under section 271(1)(c) of the Act.

Issue 1: Appeal against assessment order under section 143(3) of the Income Tax Act, 1961:

The appellant contested the assessment order, arguing that it should be declared null and void due to being issued in the name of a deceased person, late Shri Atulkumar Mansukhlal Shah. The appellant relied on Section 159 of the Income Tax Act, emphasizing the need for notice to legal heirs in such cases. The appellant cited legal precedents to support the claim that the assessment order should be quashed. However, the Revenue contended that the proceedings against a deceased assessee can continue against legal representatives, and any irregularity can be rectified by issuing notice to the legal representatives. The Tribunal examined Section 159 of the Income Tax Act, noting that proceedings against a deceased assessee can be continued against legal representatives. The Tribunal found that the AO initiated assessment proceedings when the assessee was alive, and the fact of the assessee's death was notified later. The Tribunal distinguished the cited cases from the present situation and concluded that the AO committed an irregularity, not an illegality, and therefore, the assessment order was not null and void. The Tribunal allowed the appeal for statistical purposes, setting aside the orders and directing the AO to re-determine the income after providing an opportunity to the legal representatives for a hearing.

Issue 2: Appeal against penalty imposed under section 271(1)(c) of the Act:

The Tribunal decided to set aside the appeal challenging the penalty imposition to the AO for re-adjudication, as the genesis for imposing the penalty was remanded for reconsideration along with the assessment order. The decision on whether to initiate the penalty would be at the discretion of the AO after passing the assessment order. Consequently, both appeals of the assessee were allowed for statistical purposes, leaving the penalty imposition subject to the AO's discretion post reassessment.

This judgment by the Appellate Tribunal ITAT Ahmedabad involved appeals against an assessment order and a penalty imposed under the Income Tax Act, 1961. The Tribunal analyzed the arguments presented by the appellant and the Revenue regarding the assessment order issued in the name of a deceased person and the penalty imposition under section 271(1)(c) of the Act. The Tribunal referred to Section 159 of the Income Tax Act to determine the validity of the assessment order in light of the appellant's contentions. Ultimately, the Tribunal allowed the appeal against the assessment order for statistical purposes and remanded the issues back to the AO for fresh adjudication, while also setting aside the penalty appeal for reconsideration by the AO.