2020 (3) TMI 1497 - AT - Income Tax

Assessment on deceased assessee invalid when notice under section 142(1) not served on legal heirs

ITAT held that the assessment initiated on a deceased person was invalid, as the AO issued notice under section 142(1) after the assessee's death and did ... Validity of assessment against dead person - HELD THAT:- We find that before service of notice under section 142(1) Shri Keshavlal Somnath Panchal had already expired. His legal heirs did not file return for this assessment year. Therefore, the right course for the AO is to find out L/Rs, and more particularly, L/R who has inherited assets and liabilities of Shri Keshavlal Somnath Panchal because L/R is liable to pay taxes of the deceased only equivalent to the property inherited from the deceased. Procedure followed by the AO in the present case is patently illegal. Service of notice upon a dead person under section 142(1) would not authorise him to assume jurisdiction to pass assessment order on the L/Rs. also. The right course for him is to explore jurisdiction for issuing a notice on the L/Rs. of Shri Keshavlal Somnath Panchal. After going through the above provisions, and keeping in mind note placed by the ld. counsel for the assessee explaining the procedure required to be followed in the present case, we are satisfied that ld.CIT(A) ought to have entertained the present appeal, and should have decided on merit. Therefore, we set aside the orders of the ld.CIT(A) and restore the issue to the file of the ld.CIT(A) for re-adjudication. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether an assessment initiated by issuing notice under section 142(1) to a person who had already expired is valid, and whether such notice confers jurisdiction on the Assessing Officer to complete assessment. 1.2 Whether the first appellate authority was justified in dismissing the assessee's appeal as non-maintainable solely on the ground that it was filed manually and not electronically under Rule 45 of the Income-tax Rules, 1962, in the factual situation of a deceased assessee. 1.3 Consequentially, whether the appeal required to be restored to the first appellate authority for adjudication on merits. --- 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of assessment initiated on a deceased person by notice under section 142(1) Interpretation and reasoning 2.1 The Court recorded the undisputed factual position that the concerned assessee had expired on 2.10.2017, whereas the notice under section 142(1) was issued on 12.3.2018. Thus, the statutory notice commencing assessment proceedings was issued in the name of, and served upon, a dead person. 2.2 The Court held that, in such circumstances, the proper course for the Assessing Officer was to identify the legal representatives of the deceased and, in particular, the legal representative(s) who had inherited the assets and liabilities of the deceased, as the liability of legal representatives is confined to the value of the property inherited. 2.3 It was observed that service of notice upon a dead person under section 142(1) does not authorise the Assessing Officer to assume jurisdiction to frame a valid assessment, either upon the deceased or upon the legal heirs. The Assessing Officer must explore and invoke appropriate jurisdictional provisions for issuing notice to the legal representatives of the deceased assessee. 2.4 The Court also highlighted that, if an assessment were finalized in such a manner, legal representatives could legitimately raise objections on grounds such as non-inheritance of property from the deceased or absence of proper statutory notice in their own names. Conclusions 2.5 The procedure followed by the Assessing Officer, in issuing notice under section 142(1) to a deceased person and proceeding ex parte thereon, was characterised as patently illegal and not in accordance with the legal framework governing assessment of legal heirs. 2.6 However, instead of finally annulling the assessment in this proceeding, the Court confined itself to these observations as part of its reasoning, and proceeded to decide the appeal on the aspect of maintainability before the first appellate authority. --- Issue 2: Legality of dismissal of the appeal by the first appellate authority on the ground that it was filed manually and not electronically under Rule 45 Legal framework (as discussed) 3.1 The Court noted that the first appellate authority dismissed the appeal solely on the technical ground that it had been filed manually instead of electronically, referring to Rule 45 of the Income-tax Rules, 1962, which provides for electronic filing of appeals before the Commissioner (Appeals). 3.2 The assessee's representative relied upon Rule 45 and Rule 12 of the Income-tax Rules, 1962, and pointed out that under the scheme of these rules, in certain categories of cases, an assessee has the option to furnish the return of income in paper form. Reference was made to the tabular prescription in Rule 12 and the option for filing in paper form in specified cases, including by reference to the form in which returns were earlier filed. Interpretation and reasoning 3.3 The Court observed that the first appellate authority had reproduced the entire assessment order but had not examined the specific contention that the assessee had died prior to initiation of assessment proceedings, nor the written note explaining why a manual appeal was filed by the legal heir in the circumstances. 3.4 It was reasoned that, had the first appellate authority properly considered the submissions, including the fact of death prior to issue of notice and the provisions of Rule 45 read with Rule 12, the authority could and ought to have entertained the appeal even though it was filed manually. 3.5 The Court accepted the explanation placed by the assessee's counsel that, the assessee being deceased and no return having been filed for the relevant year, and earlier returns having been filed in paper form, the legal heir chose to file the appeal manually, and that outright rejection of such appeal as non-maintainable was not in conformity with the applicable rules in the particular factual setting. Conclusions 3.6 The Court held that the first appellate authority erred in dismissing the appeal purely on the technical ground of non-electronic filing. 3.7 It concluded that the appeal ought to have been entertained and adjudicated on merits, particularly in light of the assessee's death before initiation of assessment proceedings and the provisions of Rule 45 read with Rule 12. --- Issue 3: Necessity of remand to the first appellate authority for adjudication on merits Interpretation and reasoning 4.1 Having found the procedure of the Assessing Officer to be patently illegal and the dismissal of the appeal by the first appellate authority to be unjustified, the Court considered the appropriate remedial course. 4.2 The Court clarified that its observations concerning the legal position under section 159 regarding assessment of legal heirs, and the consequences of issuing notice to a dead person, were made only to explain the situation and should not prejudice the Assessing Officer or the legal heirs in any future proceedings. Conclusions 4.3 The Court set aside the order of the first appellate authority dismissing the appeal as non-maintainable. 4.4 The matter was restored to the file of the first appellate authority with a direction to entertain the appeal and re-adjudicate it on merits in accordance with law. 4.5 The appeal before the Tribunal was allowed for statistical purposes, reflecting that the substantive issues on merits were left open for decision by the first appellate authority upon remand.