2025 (6) TMI 1743 - AT - Income Tax

ITAT rules proceedings against deceased assessee invalid, orders must follow Section 159 for legal representatives

Late Kailash Chandra Agrawal Through Legal Heir Ankush Agrawal Versus The Income Tax Officer Mahasamund (C.G.)

The ITAT Raipur held that proceedings against a deceased assessee are invalid and constitute a nullity. The CIT(A) erred by passing an order in the name ... Validity of proceedings u/s.147 against dead person/assessee - consequential direction as contemplated u/s.159 - HELD THAT:- Ostensibly, the legal heir of the assessee (since deceased), had in the course of the appellate proceedings, brought the fact about the death of the assessee to the notice of the CIT(A). However, we find that the CIT(A) despite having been intimated about the fact that the assessee had expired failed to implead his legal heir and passed the order in the name of the deceased assessee. As stated by the AR, and rightly so, as per the settled principle of law, no order can be passed against a dead person, and thus, any proceedings taken against the deceased assessee shall be continued against the legal representative from the stage at which it stood on the date of the death of the deceased. In a case where an assessee dies pending any assessment proceedings, the provisions of Section 159 get attracted. Accordingly, it is incumbent on the A.O to ensure compliance with sub-section (2) of Section 159 before any order is passed. The aforesaid view is supported by the judgment of Dalumal Shyamumal [2004 (11) TMI 57 - MADHYA PRADESH HIGH COURT] as observed that as the A.O had framed the assessment in the name of the assessee (since deceased), therefore, assessment so framed was a nullity. However, the Hon’ble High Court was of the view that once the assessment order was held to be nullity, then the Tribunal should have given a consequential direction as contemplated u/s. 159 of the Act to the A.O so that proper assessment order could be passed. Thus, remand the matter to his file for ensuring compliance with Section 159(2) of the Act for passing an appropriate order after validly putting to notice the legal representative/representatives of the deceased assessee. CIT(Appeals) is also directed to consider the submissions that were filed by the assessee before him on 14.08.2024. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this appeal include:Whether the addition of Rs. 45,75,500/- made by the Assessing Officer (AO) on account of alleged bogus purchases was justified and sustainable under the Income-tax Act, 1961;Whether the AO and Commissioner of Income-Tax (Appeals) [CIT(A)] erred in making and sustaining the addition without specifying the relevant provisions of the Act;Whether the addition was made mechanically without proper appreciation of evidences and without rejecting the books of accounts;Whether the entire sum of Rs. 45,75,500/- could be disallowed or only a reasonable percentage thereof, based on judicial precedents;Whether the appellate order passed by the CIT(A) is valid in the absence of impleading the legal heirs of the deceased assessee and without following the procedure under Section 159 of the Act;Whether principles of natural justice were complied with, including providing adequate opportunity of hearing, furnishing copies of reasons for reopening under Section 147, third-party statements, and opportunity for cross-examination;Whether the appeal was filed within the prescribed time-limit in view of the amendment to Section 253(3) of the Act effective from 01.10.2024;Whether the submissions and evidences filed by the assessee during appellate proceedings were duly considered by the CIT(A).2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification and legality of addition of Rs. 45,75,500/- on account of bogus purchasesRelevant legal framework and precedents: The addition was made under Section 147 read with Section 144B of the Income-tax Act, 1961, following the detection of bogus purchases from a tainted party, M/s. Maa Sharda Process. Judicial precedents cited include the decision of the Hon'ble High Court of Gujarat in N.K. Industries Ltd. v. Deputy Commissioner of Income-tax, which held that restricting disallowance on bogus purchases to a percentage basis is impermissible, and the entire amount representing bogus transactions can be disallowed.Court's interpretation and reasoning: The AO found that the assessee failed to substantiate the genuineness of purchases amounting to Rs. 45,75,500/- as no supporting documents such as transportation details, bilty, or toll receipts were produced. The CIT(A) upheld the addition, noting that the addition was not solely based on third-party statements but on the absence of corroborative evidence from the assessee. The Tribunal concurred that restricting the disallowance to a percentage of the amount would be unjustified, relying on the Gujarat High Court ruling.Key evidence and findings: The assessee's failure to provide documentary proof of genuine transactions and the tainted nature of the supplier formed the basis for the addition.Application of law to facts: The addition was made in accordance with Sections 147 and 144B, and the absence of proof justified the disallowance. The Tribunal found no merit in the contention that only a part of the amount should be disallowed.Treatment of competing arguments: The assessee argued that the disallowance was mechanical and without proper appreciation of evidence. The Tribunal rejected this, noting that the assessee had ample opportunity to produce evidence but failed to do so.Conclusion: The addition of Rs. 45,75,500/- on account of bogus purchases was justified and sustainable.Issue 2: Validity of addition without specifying the section under the ActRelevant legal framework and precedents: The AO's order did not explicitly mention the section under which the addition was made. The CIT(A) referred to the ruling in K.M. Nagaraj v. Deputy Commissioner of Income Tax, which held that mere incorrect or missing mention of the section does not vitiate the assessment proceedings if the assessee was aware of the issues involved.Court's interpretation and reasoning: The Tribunal agreed with the CIT(A) that the assessee was well informed about the nature of the addition and the basis thereof. Therefore, the omission of the specific section did not invalidate the proceedings.Conclusion: The addition without specifically mentioning the section did not render the order bad in law.Issue 3: Alleged mechanical disallowance without rejecting books of account or appreciating evidenceRelevant legal framework: The assessee contended that the disallowance was mechanical and without rejecting the books of account.Court's interpretation and reasoning: The Tribunal noted that the AO provided the assessee with multiple opportunities to submit evidence, including show cause notices and draft assessment orders. The failure to produce transportation and other corroborative documents justified the addition. The statement of a third party was only one element; the absence of evidence was the primary basis.Conclusion: The disallowance was not mechanical but based on the assessee's failure to substantiate purchases.Issue 4: Whether only a percentage of the alleged bogus purchases should be disallowedRelevant legal framework and precedents: The assessee relied on precedents where disallowance was restricted to a percentage of bogus purchases. The Tribunal referred to the Gujarat High Court decision in N.K. Industries Ltd., which rejected such restriction and held that the entire amount representing bogus purchases can be disallowed.Court's interpretation and reasoning: The Tribunal found that restricting disallowance to a percentage would not do justice to the facts and law. The entire sum was rightly disallowed.Conclusion: The entire amount of Rs. 45,75,500/- was rightly disallowed without any percentage restriction.Issue 5: Validity of appellate order passed against deceased assessee without impleading legal heirsRelevant legal framework: Section 159 of the Income-tax Act mandates that proceedings against a deceased assessee continue against the legal representative, who must be impleaded and given notice. The legal heirs had uploaded details on the e-portal, but the CIT(A) passed the order in the name of the deceased without impleading them.Court's interpretation and reasoning: The Tribunal held that no order can be passed against a dead person and that the CIT(A)'s order was a nullity for failure to comply with Section 159(2). The Tribunal relied on the Madhya Pradesh High Court decision in Commissioner of Income Tax v. Dalumal Shyamumal, which held that assessment orders passed against deceased assessee without impleading legal heirs are invalid and require remand for compliance.Key evidence and findings: The legal heirs had notified the CIT(A) of the death and registered on the portal before the order was passed.Application of law to facts: The Tribunal remanded the matter to the CIT(A) for fresh disposal after validly impleading the legal heirs and considering their submissions.Conclusion: The appellate order was held to be a nullity and the matter was remanded for compliance with Section 159.Issue 6: Compliance with principles of natural justice and opportunity of hearingRelevant legal framework: The assessee contended that principles of natural justice were violated by not providing reasons for reopening, copies of third-party statements, and opportunity for cross-examination.Court's interpretation and reasoning: The CIT(A) and Tribunal noted that the assessee was given sufficient opportunities during assessment and appellate proceedings. The request for adjournment was not responded to by AO, but the assessee failed to produce required documents. The request for cross-examination was not made during assessment proceedings. Therefore, no violation was found.Conclusion: Principles of natural justice were complied with and no prejudice was caused to the assessee.Issue 7: Timeliness of filing the appeal in view of amendment to Section 253(3)Relevant legal framework: The Finance (No.2) Act, 2024 amended Section 253(3) w.e.f. 01.10.2024, extending the time for filing appeals to two months from the end of the month in which the order is communicated.Court's interpretation and reasoning: The Tribunal accepted the assessee's submission that the appeal filed on 28.11.2024 was within the extended period under the amended provision. The Revenue did not dispute this.Conclusion: The appeal was held to be timely filed.Issue 8: Consideration of submissions and evidence filed during appellate proceedingsRelevant legal framework: The assessee argued that submissions and evidences filed before the CIT(A) were not considered.Court's interpretation and reasoning: Since the matter was remanded for compliance with Section 159 and fresh disposal, the CIT(A) was directed to consider all submissions afresh, including those filed on 14.08.2024.Conclusion: The issue is to be addressed upon remand.3. SIGNIFICANT HOLDINGS'No order can be passed against a dead person, and thus, any proceedings taken against the deceased shall be continued against the legal representative from the stage at which it stood on the date of the death of the deceased.''Section 159(2) mandates that any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of death.''Mere mentioning of incorrect section or omission thereof in the assessment order cannot vitiate the assessment proceedings if the assessee was aware of the nature of the proceedings and issues involved.''In cases of bogus purchases, restricting disallowance to a percentage of the amount is not justified; the entire amount representing bogus transactions can be disallowed as per the provisions of Sections 68 and 69C of the Income Tax Act.''The appellate order passed by the CIT(A) without impleading the legal heirs of the deceased assessee is a nullity and requires remand for compliance with Section 159.'Final determinations:The addition of Rs. 45,75,500/- on account of bogus purchases was upheld as justified and sustainable;The appeal was timely filed under the amended Section 253(3);The CIT(A) order was held to be a nullity for non-compliance with Section 159 and was remanded for fresh disposal after impleading legal heirs;Principles of natural justice were held to have been complied with during assessment and appellate proceedings;Submissions and evidences filed by the assessee before the CIT(A) were to be considered afresh upon remand.