2025 (9) TMI 344 - AT - Income Tax

Assessment on deceased taxpayer set aside; death certificate deemed new material fact; AO to record heirs and verify cash deposits.

Assistant Commissioner of Income Tax, Circle-1, Patna Versus Manju Devi, Nalanda

Assistant Commissioner of Income Tax, Circle-1, Patna Versus Manju Devi, Nalanda - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment order passed in the name of a person who died prior to issuance of notice and passing of the order is legally valid. 2. Whether the absence of intimation of death by legal heirs during assessment proceedings renders an assessment passed in the deceased person's name valid or cleanses any jurisdictional defect. 3. Whether the appellate authority erred in quashing the assessment outright without remitting the matter to the Assessing Officer when a material new fact (death certificate/occurrence of death) was relied upon before the appellate forum. 4. Whether, in light of the above, remand to the Assessing Officer for recording legal heirs, examining books of account and passing a fresh assessment is appropriate. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity of assessment passed in name of deceased person Legal framework: Assessments must be made in respect of a taxable person; jurisdictional competence depends on identity and existence of the taxpayer at the relevant time under the Income Tax Act. Precedent treatment: The appellate order under challenge followed prior tribunal decisions holding that an assessment framed in the name of a deceased person is bad in law. Interpretation and reasoning: The Tribunal accepted that where notice under s.143(2) was issued and the assessment order passed after the date of the assessee's death, the proceedings were effectively conducted in respect of a non-existing person. The existence of death as a fact extinguishes the AO's competence to proceed against the deceased as if alive unless legal heirs are brought on record and proceedings continued appropriately. Ratio vs. Obiter: Ratio - an assessment order passed in the name of a person who was deceased prior to issuance of notice/passing of order is invalid. Obiter - factual nuances as to timing of specific notices may vary, but do not alter the core principle. Conclusions: The Tribunal affirmed the principle that an assessment cannot validly be framed in the name of a deceased person; such an order is liable to be set aside or addressed by bringing appropriate parties (legal heirs) on record. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Effect of non-intimation of death by legal heirs on validity Legal framework: Procedural fairness and jurisdictional requirements demand that proceedings be directed at the correct person; absence of intimation does not confer jurisdiction where the targeted person no longer exists. Precedent treatment: The revenue argued that failure of legal heirs to inform the AO and their non-participation indicated concealment and justified sustaining the assessment; the appellate authority relied on decisions invalidating assessments on deceased persons notwithstanding such conduct. Interpretation and reasoning: The Tribunal observed that the AO may have had no means of knowing about the death and that lack of intimation by legal heirs is a factual circumstance but does not validate an assessment framed on a non-existent person. However, the Tribunal also recognised equity and fact-finding implications of non-cooperation by legal heirs and the department's right to examine books and evidence once heirs are on record. Ratio vs. Obiter: Ratio - non-intimation by legal heirs does not cure the fundamental invalidity of an assessment in the name of a deceased person. Obiter - the conduct of legal heirs may be relevant to subsequent proceedings and to whether opportunity to explain was reasonably afforded. Conclusions: While the absence of intimation does not validate the original assessment, it justifies remand so the AO may bring legal heirs on record and examine whether non-reported facts affected the assessment substance. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Whether appellate authority should quash assessment outright or remit when new material (death) arises before it Legal framework: Appellate authorities can set aside, quash, or remit matters to the assessing authority where jurisdictional defect or new material affects the validity of proceedings; principles of natural justice require opportunity to be given to affected parties. Precedent treatment: The CIT(A) quashed the assessment following tribunal decisions without remand; Revenue urged that AO be given chance to bring heirs on record and to adduce/verify materials. Interpretation and reasoning: The Tribunal recognised two strands - (a) legal invalidity of assessment on a deceased person, and (b) that death (proved by death certificate) constituted a new material fact not before the AO. Because the fact was material and went to jurisdiction, and the AO had not had the opportunity to examine heirs, books or documents in light of that fact, the Tribunal considered remand appropriate rather than an outright quash that would preclude the department from carrying out fact-finding and assessment in respect of legal heirs. Ratio vs. Obiter: Ratio - where an appellate forum is shown a jurisdictional defect arising from a material fact not before the AO, the appellate forum may remit the matter to the AO for appropriate proceedings rather than simply dismissing departmental claims; the choice depends on whether further fact-finding is necessary. Obiter - procedural specifics on how AO should proceed are illustrative and not exhaustive. Conclusions: Quashing without remand was not deemed appropriate in circumstances where the death certificate/new fact was not before the AO; remand to enable the AO to bring legal heirs on record and to verify accounts was the proper course. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Scope and content of remand to Assessing Officer Legal framework: Remand orders should be specific as to actions required by the lower authority to enable meaningful further proceedings consistent with law and natural justice. Precedent treatment: The Tribunal relied on the principle that assessment proceedings can be re-directed at legal representatives/heirs when a taxpayer has died and that the AO should be afforded opportunity to examine evidence and pass an appropriate order. Interpretation and reasoning: The Tribunal specified practical steps to cure the defect: (a) bring legal heirs on record; (b) examine books of account and verify whether the impugned cash deposits are reflected therein; (c) thereafter pass an appropriate order assessing correct income in the name of the assessee/legal heirs. The Tribunal justified this course because the AO lacked the material fact of death and therefore did not have opportunity to proceed properly against the correct parties. Ratio vs. Obiter: Ratio - remand with clear directions to record heirs, verify books, and pass fresh order is necessary where proceedings were conducted in the name of a deceased and the AO lacked that material fact. Obiter - the Tribunal's recommended sequence is a pragmatic template and may be adapted to facts of other cases. Conclusions: The Tribunal remitted the matter to the AO with specified directions to bring legal heirs on record, verify books/accounts concerning cash deposits, and pass an appropriate assessment in respect of the correct taxable person(s). Cross-references and Final Disposition Cross-reference: Issues 1-3 are interlinked - the jurisdictional invalidity (Issue 1) informs the treatment of non-intimation by heirs (Issue 2) and the appellate remit/quash choice (Issue 3); Issue 4 prescribes curative steps following the Tribunal's conclusion on those linked issues. Disposition: The Tribunal allowed the departmental appeal for statistical purposes and remitted the matter to the Assessing Officer with directions as set out above, preserving the department's right to examine evidence and to assess income in the name of legal heirs after due process.