2024 (5) TMI 765 - AT - Income Tax

Tribunal Overturns Tax Assessment on Deceased, Sides with Heir Against Unjustified Cash Deposit Additions and Tax Rates.

The Tribunal invalidated the assessment order issued on a deceased individual, as it was legally unsound to assess a deceased person. It ruled in favor of ... Validity of assessment order passed on a dead person - legal heir of the assessee replied - AO has mentioned only the name of the deceased assessee and not that of the legal heir - HELD THAT:- While framing the assessment order and issuing demand notice u/s. 156 AO has mentioned only the name of the deceased assessee and not that of the legal heir who was on record before the AO. It is well settled principle of law, when the AO did not substitute the name of the legal heir and proceed to make an assessment in the name of the deceased person, is in valid in law as held in the case of PCIT Vs. Maruti Suzuki India Ltd [2019 (7) TMI 1449 - SUPREME COURT] Assessment order passed by the AO on a dead person is not valid in the eyes of law and liable to be quashed. Appeal filed by the Assessee is hereby allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment framed and demand issued in the name of a deceased taxpayer is valid when the Assessing Officer had been informed of the taxpayer's death and the legal heir was on record and participated in the proceedings prior to completion of assessment. 2. Whether, in the circumstances of this matter, it was necessary for the Tribunal to adjudicate the merits of additions treating bank cash deposits as unexplained money under section 69A read with section 115BBE, and the related contention on applicability of higher rate of taxation concerning timing of search/seizure and statutory amendment. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of assessment framed in the name of a deceased person despite legal heir being on record Legal framework: The assessment provisions require that proceedings and assessments be validly framed against the correct taxpayer; where a taxpayer dies during assessment proceedings, the legal representative or heir stands substituted for purposes of continuing proceedings and valid notices/assessments must reflect that substitution. Precedent Treatment: The Tribunal applied controlling jurisprudence of the Supreme Court that holds jurisdictional notices and assessments issued in the name of a non-existent entity (or a person who has ceased to exist) are fundamentally at odds with the legal position and cannot be validated merely by participation in proceedings; the ratio has been followed by the relevant High Court in subsequent decisions. Interpretation and reasoning: The record showed the department was informed of the assessee's death (death certificate furnished) and the legal heir was formally identified and actively participated by filing multiple replies before the assessment was finalized. Despite this, the Assessing Officer framed the assessment and issued demand in the name of the deceased without substituting the legal heir. The Tribunal reasoned that issuing the assessment in the name of the deceased, when the legal heir was on record and had participated, meant the basis on which jurisdiction was invoked was flawed and the assessment instrument was invalid. Ratio vs. Obiter: The finding that an assessment is invalid if framed in the name of a deceased person while a legal heir is on record is the operative ratio of the decision. Conclusion: The assessment and consequential demand issued in the name of the deceased were quashed as invalid. The appeal was allowed on this ground. Issue 2: Necessity of adjudicating additions under section 69A read with section 115BBE and applicability of higher taxation due to timing of statutory amendment (search/seizure-related contention) Legal framework: Section 69A permits deeming of unexplained money found in bank accounts as income of the assessee; section 115BBE prescribes a specific higher rate of tax for unexplained income. The applicability of an amended, higher rate may depend on the timeline of relevant events (e.g., search/seizure) and the effective date of legislative changes. Precedent Treatment: The parties raised authority on applicability of the higher rate where search/seizure predated the amendment; that line of authority was referenced by the assessee as favorable in the grounds. However, the Tribunal's analysis did not reach a conclusive determination on these substantive taxation issues because it disposed of the appeal on the preliminary jurisdictional defect. Interpretation and reasoning: Having held the assessment invalid for being framed in the name of a deceased person despite the legal heir being on record, the Tribunal did not examine in detail the Assessing Officer's treatment of the cash deposits as unexplained money nor the applicability of the higher rate under section 115BBE, including the contention premised on timing of search/seizure and the Taxation Laws (Second Amendment) Act, 2016. Ratio vs. Obiter: Any observations regarding the merits of additions under sections 69A/115BBE and the timing-related contention are obiter in this decision because the Tribunal's disposal was based solely on the jurisdictional/validity issue; no authoritative ratio on those substantive matters is laid down by this judgment. Conclusion: The Tribunal did not adjudicate or decide the substantive additions or the contention on applicability of higher taxation; those matters remain unaddressed due to quashing of the assessment on jurisdictional grounds. Cross-reference: see Issue 1 (disposition of appeal on validity of assessment).