2021 (2) TMI 950 - AT - Income Tax

Validity of reopening of assessment - notice u/s 148 has been issued on a dead person - AO has not taken any steps to serve the notice u/s 148 on the legal heir but has proceeded to complete the assessment on the legal heir - HELD THAT - Factum of the death of the assessee was brought to the notice of the AO during the re-assessment proceedings pursuant to issuance of notice u/s 148 but the AO has not taken any steps to bring Legal Heir on record and to issue notices u/s 148 of the Act to the L/Rs. In fact, the notice u/s 148 has been issued on a dead person and therefore, it is an invalid notice and the consequent assessment on the LRs without issuing the notice u/s 148 to the LRs is not sustainable - See SRI AEMALA VENKATESWARA RAO VERSUS INCOME TAX OFFICER, WARD-2 (1) , GUNTUR 2019 (5) TMI 767 - ITAT VISAKHAPATNAM - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act to a deceased person.
2. Validity of the assessment order based on the notice issued to a deceased person.
3. Consideration of the transaction as a transfer under Section 2(14) of the Income Tax Act.
4. Applicability of capital gains tax on the transaction.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act to a deceased person:
The primary issue was whether the notice under Section 148 issued to the deceased assessee on 8.3.2016 was valid. The Tribunal found that the notice was issued after the death of the assessee on 14.12.2015. It was held that "the notice issued on a dead person is invalid and the consequent assessment on the LRs without issuing the notice u/s 148 to the LRs is not sustainable." This conclusion was supported by the decision in the case of Sri Aemala Venkateswara Rao, where it was held that such a notice is unenforceable in law.

2. Validity of the assessment order based on the notice issued to a deceased person:
The Tribunal further analyzed whether the assessment completed on the legal heir without issuing a proper notice under Section 148 to the legal heir was valid. It was noted that "the AO has not taken any steps to bring Legal Heir on record and to issue notices u/s 148 of the Act to the L/Rs." The Tribunal held that the assessment was not sustainable because the foundational requirement of issuing a notice to the correct person was not met, as emphasized in the case of Alamelu Veerappan Vs. ITO and Sumit Balkrishna Gupta v. Asstt. CIT.

3. Consideration of the transaction as a transfer under Section 2(14) of the Income Tax Act:
The appellant argued that the transaction between the father and son should not be considered a transfer as per Section 2(14) of the Income Tax Act, suggesting it was in the nature of a gift. However, this issue was not the primary focus of the Tribunal's decision, as the invalidity of the notice and subsequent assessment were sufficient to annul the proceedings.

4. Applicability of capital gains tax on the transaction:
The Tribunal did not delve deeply into the applicability of capital gains tax on the transaction due to the invalidity of the notice under Section 148. The assessment of capital gains was rendered moot because the foundational notice itself was found invalid.

Conclusion:
The Tribunal concluded that the notice under Section 148 issued to a deceased person was invalid, and the subsequent assessment order based on such a notice was unsustainable. The appeal of the assessee was allowed, and the assessment was annulled. The decision emphasized the necessity of issuing notices to the correct legal representatives to uphold the validity of reassessment proceedings.

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