2023 (6) TMI 878 - AT - Income Tax

Validity of Revision u/s 263 - proceedings initiated in the name of assessee who had passed away as on the date of initiation of 263 - order passed u/s 143(3) as erroneous and prejudicial to the interest of revenue - Gain on sale of shares - capital gain v/s business income - HELD THAT - It is a well-settled principle of law that no order can be passed in the name of a deceased person, and various Courts, including the Hon'ble Supreme Court and jurisdictional Gujarat High Court, have consistently taken a view that such order passed in the name of the deceased person, is not valid in the eyes of law. See LATE BHUPENDRA BHIKHALAL DESAI (SINCE DECD.) 2021 (9) TMI 431 - SC ORDER , DURLABHBHAI KANUBHAI RAJPARA 2019 (10) TMI 933 - SC ORDER , CHANDRESHBHAI JAYANTIBHAI PATEL 2019 (1) TMI 353 - GUJARAT HIGH COURT , URMILABEN ANIRUDHHASINHJI JADEJA 2019 (9) TMI 356 - GUJARAT HIGH COURT , LATE BHARTI HARENDRA MODI BY HER LEGAL HEIR NIKHIL HARENDR MODI 2019 (7) TMI 544 - GUJARAT HIGH COURT . Thus as observed that at the time when the notice u/s 263 was issued by the Principal CIT, the assessee had already expired (on 23-02- 2018), order passed under section 263 of the Act is not valid in the eyes of law,having been passed on a deceased person - Decided against revenue.

Summary

Issues involved:
The issues involved in the judgment are the validity of the order passed under section 263 of the Income Tax Act, 1961 against a deceased person and the assessment of non-compete fees paid to shareholders.

Validity of Order under Section 263:
The appeal was filed against the order of the Principal Commissioner of Income Tax, Ahmedabad, under section 263 of the Act. The assessee contended that the order was void ab initio as it was passed against a deceased person. Despite the assessee's submission that the proceedings were initiated against a deceased individual, the Principal CIT did not address this objection. Citing legal precedents, including cases like ITO v. Bhupendra Bhikhalal Desai and Urmilaben Anirudhhasinhji Jadeja v. ITO, it was argued that orders passed against deceased persons are not valid in the eyes of the law. The Tribunal agreed with this argument, emphasizing that a notice or order issued in the name of a deceased person is legally invalid. Therefore, the order passed under section 263 was set aside on grounds of jurisdiction.

Assessment of Non-Compete Fees:
The Principal CIT found the assessment order to be erroneous and prejudicial to the interests of the Revenue due to two main reasons. Firstly, the assessee offered capital gains on the sale of shares with a non-compete clause, suggesting that the consideration for the transfer of shares should have been treated as business income under section 28(va) of the Act. Secondly, a long-term capital loss was claimed incorrectly as the assessee's share in the property transferred was only 50%, but the loss was claimed at 100%. The Principal CIT directed the Assessing Officer to make fresh inquiries. However, the Tribunal found the view taken by the assessing officer to be legally tenable. The Tribunal held that even on merits, the assessment order could not be considered erroneous and prejudicial to the interests of the revenue based on the facts of the case.

Conclusion:
In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the order passed under section 263 of the Income Tax Act, 1961. The judgment highlighted the legal principle that orders passed in the name of deceased persons are not valid in the eyes of the law, citing various judicial precedents to support this position. The Tribunal also addressed the grounds of appeal related to the assessment of non-compete fees, finding the assessing officer's view to be legally sound.