Assessment reopening dismissed against deceased assessee's legal heirs under section 147 for lack of proper notice service

ITAT Jodhpur upheld dismissal of reopening assessment u/s 147 against legal heirs of deceased assessee. CIT(A) found AO failed to establish that deceased received any benefit from third party's transaction, with only Rs. 21,355 divided between two sisters being received. ITAT confirmed coordinate bench's finding that notice u/s 148 was not properly served to legal heirs, creating incurable defect. Assessment was conducted casually without proper inquiry to establish deceased as beneficiary. AO cannot tax notional income without establishing actual benefit. Revenue's casual approach provided no assistance to tribunal. Earlier order dated 19.03.2018 confirmed without reconsideration despite legal heirs being placed on record per HC direction.

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Issues Involved:
1. Substitution of legal representatives of the deceased respondent.
2. Validity of the assessment order passed without substituting the legal representatives.
3. Merits of the assessment order and the evidence provided by the Assessing Officer (AO).

Summary:

1. Substitution of Legal Representatives:
The Hon'ble Rajasthan High Court remanded the matter to the ITAT to pass the order afresh after substituting the persons representing the estate of the deceased. The High Court noted that the order passed by the ITAT without substitution is a nullity and must be set aside. The proposed legal representatives have the right to contest the application for substitution.

2. Validity of Assessment Order:
The case involved reopening the assessment of late Shri Jethmal Binwara, with the notice served to his legal heir, Smt. Sita. The CIT(A) allowed Smt. Sita's appeal, noting that the AO failed to bring any evidence suggesting that the appellant benefited from transactions entered by the deceased. The ITAT upheld this decision, emphasizing that the AO did not issue notices to all legal heirs, rendering the reassessment null and void. The ITAT referenced the case of ACIT vs. Late Shri Mangilal, where it was held that notice u/s 148 must be issued to all legal heirs.

3. Merits of the Assessment Order:
The CIT(A) found that the AO did not conduct a proper inquiry to determine the actual beneficiary of the transactions by the deceased. The assessment was framed casually, without establishing that the legal heir received any substantial benefit. The ITAT agreed, noting that the AO's failure to provide evidence or conduct a thorough inquiry invalidated the assessment. The legal heirs of late Smt. Sita, as per the High Court's direction, were recorded, but the ITAT found no reason to reconsider the original findings.

Conclusion:
The ITAT confirmed the earlier order dated 19.03.2018, sustaining the decision that the reassessment was invalid due to the failure to notify all legal heirs and lack of evidence of any benefit received by the legal heir from the deceased's transactions. The legal heirs were recorded as per the High Court's direction, but the findings remained unchanged. The appeal of the department was dismissed, and the original order was upheld.

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