2018 (8) TMI 2069 - AT - Income Tax

Tribunal Quashes Assessment Orders & Enhancements, Advocates Liberal Tax Credit Consideration

The Tribunal allowed the appeal, quashing the assessment orders passed in the name of the legal heir and setting aside the CIT(A)'s enhancement of income. ... Reassessment passed in the name of Legal heir of Late Vrajlal Chandulal Mehta instead of Estate of Late Vrajlal Chandulal Mehta - locus standi of “Estate of late Vrajlal C Mehta” in filing this appeal - HELD THAT:- What was assessed in the year under consideration by the AO was the income declared by “Estate of Late Vrajlal C Mehta” in the revised return of income filed for AY 2007-08, even though the AO had rejected the same. In response to the notice issued u/s 148 of the Act, only Estate of Vrajlal C Mehta has filed return of income and not “Anoop Mehta, Legal heir of late Vrajlal C Mehta”. The said return has been acted upon by the assessing officer, but the assessment order was passed in the name of “Anoop Mehta, legal heir of late Vrajlal C Mehta”. In view of the above said facts and in accordance with the law laid down in the case laws relied upon by the Ld A.R, we hold that the appeal filed by the Executors in the name of “Estate of late Vrajlal C Mehta” is valid. The legal heirs have not disputed the right of the Executors to get the money transferred from Switzerland to India. In fact, Shri Anoop Mehta has given in writing to the revenue that he has informed the Executors about the HSBC bank accounts and also requested them to make arrangements for transfer of money to India. CIT(A) has also observed that it is the primary responsibility of the executors of the Will to clear all the tax dues of Shri Vrajlal Mehta as applicable on all the incomes/properties standing in his name before they are distributed. Hence, it is nobody’s case that the deposit found in HSBC account was not forming part of assets of “Estate of late Vrajlal C Mehta”. The provisions of Indian Succession Act, which have been relied upon by Ld CIT-DR, deals with procedural aspects of dealing with the assets and liabilities of the Estate. As per the Will of Shri Vrajlal C Mehta, it is the duty of the Executors to distribute the assets in accordance with the directions given in the Will. Since the impugned income has accrued after the date of death of Shri Vrajlal C Mehta and since the Executors have taken responsibility to get the funds and distribute them, in our view, it may not be correct to contend that the same does not form part of the Estate. Even if we accept the contentions of Ld CIT-DR that the HSBC accounts do not form part of assets of Estate as correct for a moment, then those assets shall devolve upon the legal heirs as per the law. Since the year under consideration falls after the death of Shri Vrajlal C Mehta, the income relating to the impugned deposits has to be assessed only in the hands of legal heirs in their individual capacity, since they have inherited the assets of the deceased in their own right. In that kind of situation also, the assessment in the hands of Late Vrajlal Mehta through his legal heir Shri Anoop Mehta could not be possible. Assessment framed on the Legal heir, i.e., on Shri Anoop Mehta as legal heir of late Vrajlal C Mehta in respect of income arising after the date of death is not in accordance with the provisions of sec. 159 r.w.s. 168 of the Income tax Act, 1961. Accordingly, shri Anoop Mehta cannot be asked to pay tax as legal representative of late Vrajlal C Mehta u/s 159 of the Act. We also hold that it is the “Estate of late Vrajlal C Mehta”, which is liable to pay tax in terms of sec. 168 of the Act in respect of impugned income. Since the assessing officer has assessed wrong person for the above said income and since the Ld CIT(A) has also confirmed the same, in our view, orders passed by them are not sustainable in law for the reasons discussed above. Accordingly we quash the orders passed by the tax authorities. Enhancement of income by the learned CIT(A) by an amount relating to HSBC Bank account standing in the name of a company called Investment Lexcor SA. - We notice that the Shri Anoop Mehta, from the very beginning, has been claiming that the bank accounts standing in the name of M/s Euro Investment Ltd and M/s Investment Lexcor SA belong to his brother Shri Rajesh Mehta, who happens to be an NRI for several years. He has also filed affidavit before the Investigation wing accepting the ownership of both the bank accounts. During the course of assessment proceedings also, the AO made enquiries about these two accounts and Shri Anoop Mehta has reiterated his earlier submissions. Accordingly the assessing officer did not make any addition in respect of these two accounts. Out of the two accounts, the account standing in the name of M/s Euro Investment Ltd was closed in 2003 itself and hence the dispute arose in respect of M/s Investment Lexcor SA. Besides the above, the assessing officer has initiated proceedings u/s 153C of the Act in respect of the above said account in the hands of Shri Rajesh Mehta and a specific query was also raised in this regard. The query raised by the AO and the reply given by shri Rajesh Mehta is extracted in the preceding paragraphs. After considering the reply, it is stated that the proceedings u/s 153C of the Act were dropped. CIT(A) has not duly considered above facts and he has been mainly influenced by the fact that Shri Anoop Mehta is also shown as one of the beneficiaries in the above said account. Further the Ld CIT(A) has also stated that Shri Anoop Mehta is entitled to residual assets of Late Vrajlal Mehta as per the Will. In our view, the reasoning given by Ld CIT(A) is not sustainable. Under the Income-tax Act, the income tax is levied on the person who earned the income. The fact that Shri Anoop Mehta may be entitled to the residual assets may not be relevant to determine the person on whom the income is required to be assessed. For the same reasoning, the details of beneficiaries are also not relevant for that purpose. Claim for credit of tax paid by the assessee in AY 2012-13 in respect of income now offered in AY 2007-08 - There is merit in the claim of the assessee. As per the provisions of sec. 5 of the Act, income received in India is taxable in the year of receipt. Hence the assessee appears to have offered the income in AY 2012-13. However, when the revenue chose to assess the income on accrual basis, the assessee has accepted the same and has accordingly filed revised returns of income, though they were beyond the prescribed time. No information was placed before us about the fate of those return of income and revised return of income filed for AY 2012-13 by Estate of late Vrajlal C Mehta. Since we have quashed the assessment order passed in the name of Shri Anoop Mehta, legal heir of late Shri Vrajlal C Mehta, the return of income as well as revised returns of income filed by Estate of late Vrajlal C Mehta shall remain intact. Hence this issue shall really arise only when the revenue is acting on those returns. Hence, at that point of time, the revenue may consider the claim of the assessee liberally in accordance with the decision rendered by Hon’ble Gujarat High Court in the case of Naresh Bhavani Shah (HUF) [2017 (7) TMI 819 - GUJARAT HIGH COURT] - Assessee appeal allowed. Issues Involved:1. Legality of reassessment order passed in the name of a legal heir instead of the estate of the deceased.2. Enhancement of income by the CIT(A) based on credits in a foreign bank account.3. Credit for taxes paid in a different assessment year.4. Validity and consideration of a revised return of income filed by the appellant.Detailed Analysis:1. Legality of Reassessment Order:The primary issue was whether the reassessment order should have been passed in the name of 'Mr. Anoop Mehta (legal heir of Late Vrajlal Chandulal Mehta)' or the 'Estate of Late Vrajlal Chandulal Mehta.' The assessee argued that the order should be in the name of the estate, not the legal heir, citing sections 159 and 168 of the Income Tax Act, which differentiate between the assessment of income accrued during the deceased's lifetime and the income accrued post-death. The Tribunal agreed, noting that the income assessed for AY 2007-08 was post-death, making the estate the correct taxable entity. The Tribunal quashed the orders passed by the tax authorities, holding that the assessment should be in the name of the estate, not the legal heir.2. Enhancement of Income by the CIT(A):The CIT(A) enhanced the income assessed by the AO by Rs. 14.49 crores based on credits in the HSBC account of Investment Lexcor S.A. The assessee contended that this account belonged to Shri Rajesh Mehta, supported by an affidavit and statements during the search and assessment proceedings. The Tribunal found that the CIT(A) did not bring any new evidence to contradict the claim and relied on the fact that other authorities had accepted Shri Rajesh Mehta's ownership of the account. The Tribunal set aside the CIT(A)'s enhancement, emphasizing that the correct person must be assessed for the income.3. Credit for Taxes Paid in a Different Assessment Year:The assessee sought credit for Rs. 52,44,128/- paid in AY 2012-13 for income now offered in AY 2007-08. The AO and CIT(A) rejected this claim. The Tribunal acknowledged the peculiar circumstances, noting the income was initially offered in AY 2012-13 when received in India and later revised to AY 2007-08 based on the revenue's stance. The Tribunal cited CBDT Circular No.14 and a Gujarat High Court decision, suggesting the revenue should consider the claim liberally when acting on the revised returns.4. Validity and Consideration of Revised Return:The assessee filed a revised return for AY 2007-08, which was rejected by the AO as it was beyond the stipulated time. The Tribunal did not need to adjudicate this issue separately, as it was addressed through the decisions on the other grounds.Conclusion:The Tribunal allowed the appeal, quashing the assessment orders passed in the name of the legal heir and setting aside the CIT(A)'s enhancement of income. The Tribunal also suggested a liberal consideration for the credit of taxes paid in AY 2012-13 when the revenue acts on the revised returns.