2016 (10) TMI 691 - AT - Income Tax

Appellate Tribunal emphasizes notice requirement for deceased assessee's legal heir.

The Appellate Tribunal upheld the decision to annul the assessment due to the failure to issue notice under section 143(2) to the legal heir of the ... Service of notice under section 143(2) - Validity of assessment where notices issued to a deceased person - Liability and procedural status of legal representative under section 159 - Requirement of notice under section 143(2) before completing assessment under section 143(3) - Non-curability of defective service under sections 292B/292BBService of notice under section 143(2) - Validity of assessment where notices issued to a deceased person - Liability and procedural status of legal representative under section 159 - Requirement of notice under section 143(2) before completing assessment under section 143(3) - Non-curability of defective service under sections 292B/292BB - Assessment completed under section 143(3) in the name of the deceased where notices under section 143(2) were not issued to the legal heir was vitiated and liable to be annulled. - HELD THAT: - The Tribunal recorded that a search was carried out on 6.2.2013 and the assessee died on 29.7.2013; despite the legal heir informing the Assessing Officer of the death in response to the section 142(1) notice, the AO continued to issue notices under section 143(2) and completed the assessment in the name of the deceased. The CIT(A) and the Tribunal applied section 159, noting that on death the legal representative is the person in law to be proceeded against and is deemed to be an assessee for continuation of proceedings. Reliance was placed on the settled proposition that before completing assessment under section 143(3) a notice under section 143(2) must be served and that failure to serve such notice in accordance with law vitiates the assessment (as per the principle in Hotel Blue Moon). The Tribunal agreed with the CIT(A) that the AO's failure to issue and serve notice under section 143(2) on the legal heir could not be cured by provisions relating to condonation or formal defects under sections 292B/292BB, and therefore the assessment completed in the deceased's name was invalid and rightly annulled by the CIT(A). [Paras 5, 7]The assessment under section 143(3) was annulled because notices under section 143(2) were not issued or served on the legal heir in accordance with section 159 and settled law; defect was not curable under sections 292B/292BB.Validity of assessment where notices issued to a deceased person - Requirement of notice under section 143(2) before completing assessment under section 143(3) - Assessment for Assessment Year 2013-14 could not be completed under section 153A. - HELD THAT: - The Tribunal noted the chronology: search on 6.2.2013 and the subsequent proceedings, and expressly held that in view of the date of search and the facts on record the assessment for AY 2013-14 could not be framed under section 153A. This finding was adopted from the reasoning of the CIT(A) and was not controverted by the Revenue before the Tribunal. [Paras 6]Assessment year 2013-14 assessment could not be under section 153A.Final Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s annulment of the assessment for AY 2013-14 because notices under section 143(2) were not issued and served on the legal heir in accordance with section 159 and settled law, and the defect was not curable under sections 292B/292BB; the assessment could not be framed under section 153A for AY 2013-14. Issues:1. Failure to issue notice under section 143(2) of the Income-tax Act, 1961 to the legal heir of the deceased assessee.2. Validity of the assessment completed without serving notice under section 143(2) to the legal heir.Issue 1: Failure to issue notice under section 143(2) to the legal heirThe main grievance of the Revenue in this case was against the order of the ld. CIT(A) annulling the assessment due to the non-issuance of notice 143(2) of the Income-tax Act, 1961 to the legal heir of the deceased assessee. The search operation under section 132 of the Act was conducted at the premises of the deceased assessee, who had passed away before the statutory notices were served. Despite the legal heir informing the Assessing Officer of the demise of the assessee, notices under section 143(2) were repeatedly issued in the name of the deceased, leading to the completion of the assessment in the deceased's name.Issue 2: Validity of the assessment completed without serving notice under section 143(2) to the legal heirThe ld. CIT(A) upheld the contention of the assessee regarding the non-issuance and service of notice under section 143(2) to the legal heir, leading to the annulment of the assessment. The legislative history was examined, citing the provisions of section 159 of the Act that deal with situations where the assessee dies during assessment proceedings. The legal representative, as per section 159, becomes liable to pay any sum the deceased would have been liable to pay, and the assessment is to be made as if the legal representative were the assessee. The Hon'ble Supreme Court's ruling in CIT & Another vs. M/s Hotel Blue Moon emphasized the mandatory nature of serving notice under section 143(2) before completing assessment under section 143(3). The failure of the Assessing Officer to issue and serve notice to the legal heir, as per section 159, could not be cured under other sections of the Act, leading to the dismissal of the Revenue's appeal.In conclusion, the Appellate Tribunal upheld the decision of the ld. CIT(A) to annul the assessment due to the failure to issue notice under section 143(2) to the legal heir of the deceased assessee. The Tribunal emphasized the importance of following the statutory provisions, especially in cases where the assessee has passed away during the assessment proceedings, ensuring that the legal representative is duly informed and involved in the assessment process.