2024 (2) TMI 836 - AT - Income Tax

Revision proceedings under section 263 against assessment order in deceased person's name declared invalid

Late Smt. Bhavnaben K. Punjani C/o. L/H. Smt. Arushiben U. Shah Versus Principal Commissioner of Income Tax-2, Rajkot

Late Smt. Bhavnaben K. Punjani C/o. L/H. Smt. Arushiben U. Shah Versus Principal Commissioner of Income Tax-2, Rajkot - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment framed after the death of the assessee, in the name of the deceased and without bringing legal representatives on record, is valid for the purposes of revision under section 263 of the Income-tax Act, 1961. 2. Whether, in absence of a statutory obligation on legal heirs to notify the Income-tax Department of the assessee's death, the failure of legal heirs to intimate the Department renders an assessment framed in the name of the deceased valid. 3. Whether the principal commissioner (revisionary authority) correctly exercised jurisdiction under section 263 in setting aside an assessment framed in the name of a deceased person and directing fresh assessment proceedings to ascertain year and cost of acquisition for capital gains. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of assessment framed in name of deceased person and its susceptibility to revision under section 263 Legal framework: Assessment provisions (sections 143/144/147) permit reopening and assessment procedures; section 263 empowers revision where an order is erroneous and prejudicial to revenue. Fundamental principle: an assessment must be made upon the proper legal person - a living assessee or his legal representatives when relevant. Precedent treatment: The Court relied on consistent judicial pronouncements holding that proceedings and notices served on a deceased person, and assessments framed in his name without bringing legal representatives on record, are invalid and nullities. Earlier rulings of High Courts and the Supreme Court establish that an order cannot be validly passed in the name of a deceased person. Interpretation and reasoning: The Tribunal examined the chronology showing death prior to framing of assessment and found no steps taken to place legal heirs on record. It reasoned that where an assessee is deceased at the time an assessment is framed, the assessment in the name of the deceased is a nullity; such an order lacks legal existence and therefore cannot be the subject of a valid revision under section 263. The Tribunal distinguished between procedural lapses by the department and jurisdictional defect - the latter being fatal if the person on whom the order purportedly operates is not the proper legal entity. Ratio vs. Obiter: Ratio - An assessment framed in the name of a deceased person without bringing legal heirs on record is invalid and cannot be revised under section 263; consequent proceedings predicated on such an invalid order are void. Obiter - Observations on administrative expectations from legal heirs regarding notification, where not statutorily mandated, are explanatory. Conclusions: The Court concluded that the original assessment, having been framed in the name of a person who had already died, was invalid; consequently, the revision order under section 263 based on that invalid assessment could not stand. Issue 2: Duty of legal heirs to intimate death to the Income-tax Department and effect of non-intimation Legal framework: No express statutory provision in the Income-tax Act imposes a duty upon legal heirs to notify the department of the assessee's death; service of notices and validity of proceedings depend on applicability to the proper legal person. Precedent treatment: Prior judicial authority has held that, in absence of statutory obligation, legal representatives are not under a legal compulsion to intimate the death to the tax authorities and that a notice served on a deceased person prima facie may be invalid if the assessable person is no longer extant. Interpretation and reasoning: The Tribunal accepted that absence of statutory provision means no legal duty exists on legal heirs to inform the department. However, the Tribunal emphasized that the absence of intimation does not retrospectively validate an assessment in the name of a deceased person. The department's issuance of notices and framing of assessment against the deceased person, without recognizing or impleading legal heirs, cannot be legitimised by mere inaction of heirs where law prescribes no such duty. Ratio vs. Obiter: Ratio - Non-intimation by legal heirs, in the absence of a statutory duty, does not cure the jurisdictional defect of an assessment framed in the name of a deceased person. Obiter - Practical expectations or administrative inconvenience arising from non-notification were noted but do not affect legal outcome. Conclusions: The Tribunal held that lack of statutory obligation to notify death cannot be construed as imputing assent or authorising proceedings against a deceased person; therefore, non-intimation does not validate the defective assessment. Issue 3: Correctness of exercise of power under section 263 where underlying assessment is void Legal framework: Section 263 permits revision of an assessment order that is erroneous and prejudicial to the revenue; however, it presupposes existence of a valid assessable order to revise. Precedent treatment: Judicial authorities recognise that revision under section 263 cannot be exercised to rectify or revise an order that is void ab initio; administrative powers of revision do not validate proceedings which are jurisdictionally non-existent. Interpretation and reasoning: The Tribunal found that because the AO's assessment order was invalid (being framed in the name of a deceased person), the revisional power under section 263 could not be exercised to set aside or rectify that non-existent order. The proper consequence is to hold the section 263 order void insofar as it seeks to revise an invalid assessment, and to set aside the revisional order rather than to remit for rectification under the guise of revision. Ratio vs. Obiter: Ratio - Section 263 cannot be invoked to revise an assessment that is void ab initio; where the foundational assessment is invalid, any revisional order predicated on it must be set aside. Obiter - Directions for de novo proceedings (if any) are permissible only after proper initiation against the correct legal person. Conclusions: The Tribunal set aside the order passed under section 263, holding it invalid because it attempted to revise an assessment that was void ab initio; consequential directions were implied that fresh proceedings require proper initiation against legal heirs or other competent persons in accordance with law. Cross-references and Practical Implications Cross-reference: Issues 1-3 are interlinked - the invalidity of the original assessment (Issue 1) and the absence of statutory duty on heirs to intimate death (Issue 2) together determine that the revisional power under section 263 could not be legitimately exercised (Issue 3). Practical implication: Tax authorities must ensure that proceedings are directed against proper legal persons; assessments or notices issued in the name of persons already deceased, without impleading legal representatives, risk being invalidated irrespective of non-notification by heirs.