2025 (11) TMI 912 - AT - Income Tax

Penalty under s.271(1)(b) invalid where notices served on deceased assessee without notifying or involving legal heirs

ITAT RAJKOT held the penalty under s.271(1)(b) invalid where notices were served on a deceased assessee without issuing or intimating penalty proceedings ... Penalty u/s 271(1)(b) imposed on a dead person - HELD THAT:- Notices served on the dead person is invalid in the eyes of law. Penalty notices should have been issued on the legal heirs of the assessee, which the AO has failed to do so, while imposing the penalty. Therefore, based on these facts and circumstances, note that since the penalty has been imposed on the dead person without intimating about the initiation of penalty to the legal heir of the assessee and without bringing the legal heir on record, despite the fact that legal representative of the deceased assessee, had informed to the Department that the assessee had died. The Supreme Court, in a plethora of judgments, has taken the view that if the person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. Revenue cannot recover the tax from the dead person and the dead person cannot be prosecuted and cannot be put into the jail/ imprisonment, or can not be keep in prison. Therefore, note that this penalty imposed by the assessing officer, does not have any leg to stand. Therefore, delete the penalty. Appeal filed by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the delay of 230 days in filing the appeal to the Tribunal should be condoned in the exercise of judicial discretion. 2. Whether penalty proceedings and the penalty order under section 271(1)(b) were valid where notices and the penalty order were served on and framed against a deceased assessee despite intimation to the department of the assessee's death and without bringing the legal representative/ heirs on record. 3. Whether imposing and attempting to recover penalty from a deceased person (without prosecution/notice/recording against legal representative) is legally sustainable under the taxing statute and attendant principles of interpretation. 4. Ancillary complaints raised (grouped): jurisdictional challenge to the appellate order under section 250 read with section 254; alleged failure of the appellate authority to follow Tribunal directions; alleged denial of reasonable opportunity of hearing; alleged non-adjudication of grounds - to the extent these affect the validity of penalty proceedings and adjudication against a deceased person. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of Delay (Discretionary Relief) Legal framework: The Tribunal has discretionary jurisdiction to condone delay where sufficient cause/mitigating circumstances are shown. Precedent treatment: No specific precedent cited as binding for the condonation decision in the text; the Tribunal applied established discretionary principles. Interpretation and reasoning: The Tribunal examined the reasons advanced by the assessee's counsel and found mitigating circumstances (non-receipt of appellate order by email, death of the assessee and unverified email account) that justified exercise of discretion in favour of the appellant. Ratio vs. Obiter: Ratio - the condonation of delay is an operative interlocutory procedural determination specific to the facts; the Tribunal's view that mitigating circumstances justified condonation forms the binding dispositional element of the order. Conclusions: Delay of 230 days in filing the appeal was condoned and the appeal admitted for adjudication on merits. Issue 2 - Validity of Penalty Proceedings Where Notices Were Served on a Deceased Person Legal framework: Principles governing service of notices and initiation of proceedings require that the person sought to be proceeded against be properly brought on record; where a person has died, notice and prosecution must, where relevant, be directed to the legal representative/ heirs, and recovery/prosecution cannot proceed against a dead person. Precedent treatment: The Tribunal relies on well-settled principles (including a cited Supreme Court exposition) that a person cannot be taxed or prosecuted unless the statute's provisions bring that person within the letter of the law; equitable considerations do not substitute for statutory text. The cited decision emphasizes strict textual interpretation of taxing statutes. Interpretation and reasoning: Facts established that the legal representative had informed the Department of the assessee's death; notwithstanding that, notices of hearing in respect of penalty proceedings were served on the deceased person and the penalty order was framed against the deceased. The Assessing Officer did not bring the legal heir/representative on record nor issue proceedings to them. The Tribunal concluded that notices served on a dead person were invalid in law and that the AO failed to comply with the requirement to issue penalty notices to the legal heirs or otherwise proceed against proper representatives. Ratio vs. Obiter: Ratio - the conclusion that penalty proceedings and notice/service were invalid because they were directed at a deceased person and not at the legal representative is a central, operative holding; it determines the outcome (deletion of penalty). The general principle that the State cannot recover tax or prosecute a person who is not within the letter of the taxing statute is treated as governing law rather than mere obiter. Conclusions: Penalty imposed under section 271(1)(b) was deleted because it was levied on a deceased person without valid service/recording against the legal representative or legal heirs; therefore the penalty lacked legal foundation and was unsustainable. Issue 3 - Interpretation of Taxing Statute vis-à-vis Recovery/Prosecution of a Deceased Person Legal framework: Taxing statutes are to be interpreted strictly according to their words; equitable considerations cannot be used to expand liability beyond what the statute provides. Recovery and criminal/procedural actions must fit within the statutory scheme and be brought against the correct person. Precedent treatment: The Tribunal applied the principle from the Supreme Court decision emphasizing literal interpretation of taxing statutes and the inadmissibility of imputing obligations or proceedings where the statute does not expressly provide for them. Interpretation and reasoning: Applying the strict interpretive approach, the Tribunal reasoned that since the procedures for imposing penalty were not followed in relation to the legal representative (service and record), the revenue cannot recover penalty from, or prosecute, a dead person. The Tribunal treated the State's inability to comply with statutory requirements as fatal to recovery. Ratio vs. Obiter: Ratio - the application of literal construction to invalidate penalty proceedings framed against a deceased person where statutory formalities were not observed is an operative legal principle in the decision. Conclusions: The requirement to bring the correct person within the letter of the taxing statute is conclusive; absent valid initiation and service on the legal representative, penalty proceedings against a deceased person cannot stand. Issue 4 - Ancillary Complaints Regarding Appellate Jurisdiction, Non-Compliance with Tribunal Directions, Denial of Opportunity, and Non-Adjudication of Grounds Legal framework: Appellate authorities must act within jurisdiction conferred by statute and comply with procedural fairness including adjudicating raised grounds and affording reasonable opportunity of hearing; directions by the Tribunal are to be followed unless distinguishable. Precedent treatment: The Tribunal noted the grounds raised by the appellant but the adjudication focused on the core defect of proceedings being directed at a deceased person. No express overruling of prior appellate directions or extended analysis of each ancillary ground is undertaken in the text. Interpretation and reasoning: The Tribunal considered these contentions in the context of the central defect (penalty imposed on a deceased person). Because the penalty was invalid on that ground, the Tribunal did not engage in a detailed re-examination of the appellate authority's jurisdictional or procedural compliance beyond noting the appellant's contentions. Ratio vs. Obiter: Obiter/ancillary - to the extent these complaints did not affect the dispositive legal defect (service on the deceased), the Tribunal's limited treatment of them is ancillary. The Tribunal's primary ratio is the invalidity of penalty for being directed at a dead person; findings about the other alleged infirmities are consequential but not necessary to the operative result. Conclusions: Ancillary complaints were noted but the Tribunal disposed of the appeal on the basis that the penalty proceedings themselves were invalid because they were framed and notices served against the deceased without bringing legal representatives on record; therefore further adjudication of peripheral jurisdictional and procedural alleged errors was unnecessary for the result. Disposal The Tribunal condoned the delay in filing the appeal and, on merits, deleted the penalty imposed under section 271(1)(b) as being invalidly levied on a deceased person where the legal representative/ heirs were not brought on record or validly served; appeal allowed.