2024 (9) TMI 1842 - AT - Income Tax

Reassessment notice under Section 148 to deceased held void; Section 144 best judgment assessment also quashed

ITAT allowed the assessee's appeal and quashed the reassessment proceedings. It held that the notice issued u/s 148 in the name of a deceased person was ... Validity of reassessment issued u/s 147/ 148 - notice issued in the name of a non-existence or a deceased person - before the date of issue of notice - void ab initio - Legality of consequent assessment order u/s 144, passed by AO - best judgment assessment - addition in the hands of the legal heir - duty of the legal heirs to inform the department regarding the demise - HELD THAT:- We believe that the present case is one where the matter could have clearly been decided by the ld. CIT (A) on the basis of facts placed before him even without any further representation by the assessee. This is because once Shri. Anand Jeewan Verma had expired on 10.11.2006, no credits to that account in the Financial Year 2008-09 could be assessed in his hands and consequently in the hands of his legal heirs. It may well be that the legal heir of Shri. Anand Jeewan Verma is the same person who is operating the bank account for the purposes of his business, but the fact remains that that person is a separate taxable entity in his own right and if at all the amount was to be assessed in his hands, it could only have been assessed in his hands in his individual capacity and not in the capacity of the legal heir of Shri. Anand Jeewan Verma. The appellant has submitted that there is no occasion for even this, because he is regularly assessed to tax in respect of his poultry feed business, the proceeds of which are credited to this account. These facts have not been controverted by the Revenue. Therefore, it is apparent that the ld. Assessing Officer issued the notice in the name of a wrong person and as pointed out by the ld. AR, in various decisions the Courts have held that a notice to initiate proceedings that are issued in the name of a non-existent or a deceased person render the proceedings void ab initio. With regard to the submission of the ld. Sr. DR that it was the duty of the legal heirs to inform the department regarding the demise of Shri. Anand Jeewan Verma and because the said business was taken over by the Shri. Amit Verma, the income had been correctly assessed in his hands, we would record our disagreement. The Hon’ble ITAT Rajkot Bench in the case of Late Smt. Bhavnaben K. Punjani [2024 (2) TMI 836 - ITAT RAJKOT], while deciding a similar matter held that ' in the absence of any specific statutory provision, a duty could not be cast upon the legal representative to intimate the factum of death to the department and thus where ld. Assessing Officer had issued a notice to the assessee under section 148 after his death, it could not have been said to have been validly served upon the assessee and since the said notice was invalid, it was to be quashed.' Thus, it is held that the order under section 144 passed by the ld. Assessing Officer is not valid in the eyes of law in view of the fact that the notice under section 148 was issued in the name of deceased person and furthermore that there is no occasion to tax the credit appearing in the said bank account after the death of the assessee, in the hands of the legal heir of the assessee, late Shri. Anand Jeewan Verma. Accordingly, the order is quashed. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice for reassessment issued under section 148 of the Income Tax Act addressed to a deceased person is valid, and whether consequential assessment proceedings (including an order under section 144) based on such notice can stand. 2. Whether, in absence of any statutory obligation on legal representatives, failure of legal heirs to inform the tax department of the assessee's death renders subsequent notices and assessments valid. 3. Whether cash credits appearing in a bank account after the death of an account-holder can be assessed as income of the deceased in the hands of his legal heirs, particularly where the account is a joint account and the survivor continues the business and is separately assessed. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of a section 148 notice addressed to a deceased person and validity of consequent assessment under section 144 Legal framework: Reassessment under section 147/148 requires issuance of a valid notice addressed to the assessee. An assessment order predicated on invalid initiation is itself vitiated. Section 144 provides for best judgment assessment when the assessee fails to comply with notices, but such power presupposes a valid initiating notice and valid jurisdiction over the person assessed. Precedent treatment: Prior judicial and quasi-judicial authorities have held that where a notice to initiate reassessment is issued to a non-existent or deceased person, the notice is a nullity and consequent proceedings are void ab initio. Such precedents treat the validity of initiation as jurisdictional. Interpretation and reasoning: The Tribunal found on facts that the notice under section 148 was addressed to a person who had died prior to issuance and prior to the credits in question. Because the initiating notice was invalid, the assessing officer lacked jurisdiction to proceed against the deceased; consequently the subsequent section 144 best judgment assessment could not validly be imposed on that basis. The Tribunal emphasized that jurisdictional defects at the stage of initiation cannot be cured by later procedural steps and that an order founded on a void notice is itself void. Ratio vs. Obiter: Ratio - a notice under section 148 issued to a deceased person is void, and any assessment order (including under section 144) founded on such a notice is invalid. Obiter - none significant on this point beyond affirming established principles. Conclusion: The reassessment notice issued to the deceased person was invalid and the consequent assessment order under section 144 is quashed as without jurisdiction. Issue 2: Duty of legal heirs to intimate death to the tax authority and effect of their non-intimation Legal framework: The statute contains mechanisms for assessment, service of notices and representation; absence of an express statutory duty on legal representatives to notify the department of the assessee's death bears on questions of service and validity of proceedings. Precedent treatment: Authorities have held that, in absence of a specific statutory provision imposing such a duty, legal representatives cannot be fastened with a jurisdictional obligation to inform the tax department of the assessee's death; therefore, non-intimation does not validate notices served on a deceased person. Interpretation and reasoning: The Tribunal rejected the Revenue's contention that the legal heir's failure to notify the department cured the defect. It reasoned that imposing such a duty in the absence of statutory mandate would be improper; validity of departmental action depends on conformity with statutory process, not on assumed obligations of legal heirs. The Tribunal noted that when the department is shown to have issued a notice to a deceased person, it is the department's error and the resulting proceedings cannot be sustained merely because legal heirs did not proactively communicate the death. Ratio vs. Obiter: Ratio - there is no statutory duty on legal heirs to intimate the death to the Income Tax Department that would validate otherwise void proceedings; non-intimation does not cure an invalid notice. Obiter - commentary that assessing officers should exercise due diligence in ascertaining identity/status before issuing notices. Conclusion: The absence of intimation of death by legal heirs does not validate a notice issued to a deceased person; proceedings so initiated remain invalid. Issue 3: Assessability of post-death credits in a joint account as income of the deceased in the hands of legal heirs; attribution where survivor continues business Legal framework: Income is assessable in the hands of the person to whom it belongs. Joint accounts and joint business operations raise questions of attribution; credits arising after a person's death are prima facie not income of the deceased. Where an individual operates a business and is assessed separately, amounts attributable to that individual are assessable in his/her hands. Precedent treatment: Decisions recognize that credits appearing after the death of an account-holder cannot be treated as the deceased's income; separate taxable entities (survivor/operator) can be assessed in their individual capacity if the amounts are attributable to them. Interpretation and reasoning: On the facts, the account at issue was a joint account, the deceased had died before the credited sums arose, and the son continued the business and was assessed in his individual capacity. The Tribunal held that amounts credited in the financial year after the death could not be assessed as the deceased's income in the hands of the legal heir. If any assessment was properly made, it could only be against the surviving operator in his individual capacity, and not as a successor liability of the deceased. The Tribunal also observed factual elements (deposits and withdrawals, peak balance) but concluded that jurisdictional invalidity of the notice made detailed appraisal unnecessary for validity purposes; nevertheless the principle that post-death credits are not estate income for assessment of the deceased was decisive. Ratio vs. Obiter: Ratio - credits recorded after the death of an account-holder cannot be assessed as income of the deceased in the hands of his legal heirs; assessment, if any, must be of the actual taxable person (survivor/operator) in his individual capacity. Obiter - reference to account analysis (debits/credits, peak balance) was treated as factual context rather than fixing a general rule on quantification. Conclusion: The credited sums in the year subsequent to death could not be taxed as income of the deceased in the hands of his legal heirs; the assessment of such sums on that basis was invalid. Disposition Because the initiating notice under section 148 was issued to a deceased person and was therefore void, and because post-death bank credits cannot be taxed as the deceased's income in the hands of legal heirs (any liability lying only on the individual who actually received/earned the sums), the assessment order founded on that notice was quashed and the appeal allowed.