2025 (5) TMI 27 - AT - Income Tax

Assessment against dead assessee - Addition u/s 68 - cash deposit in the bank of the deceased assessee during the relevant yea r - unexplained credit transaction reflected in bank account in the old currency - HELD THAT - It is pertinent to note that the AO was very well aware about the death Shri Panchanbhai Muljibhai Chavda which is clearly mentioned in assessment order and therefore subsequent notice should have been issued to the legal heir of the deceased assessee. Besides this the Assessing Officer has passed the assessment order in the name of dead person and therefore the same cannot sustain. Therefore the assessment order itself is invalid and the CIT(A) has rightly allowed the appeal of the legal heir of the deceased assessee. Hence the appeal filed by the Revenue is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the Assessing Officer (AO) erred in making an addition of Rs. 1,47,28,200/- as unexplained credit in the bank account of the deceased assessee, ignoring the fact that the cash deposits were made post the death of the assessee and that the AO was under a bona fide belief that the assessee was alive when issuing notices.

(b) Whether the assessment order framed in the name of the deceased assessee is valid, especially when notices were served on the legal heir who did not respond, and the AO became aware of the death only through postal remarks.

(c) Whether the continuation of business by the legal heir using the deceased's PAN and bank account during the demonetization period without intimation to the Department affects the validity of the assessment and the jurisdiction of the AO.

(d) Whether the failure of the legal heir to challenge jurisdiction or respond during remand proceedings protects the case from the provisions of section 292BB of the Income Tax Act, 1961.

(e) Whether the income relating to the period after the death of the assessee ought to have been assessed under the estate of the deceased under section 150 of the Act instead of being assessed in the deceased's name.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Validity of addition and assessment order in the name of deceased assessee

Relevant legal framework and precedents: The Income Tax Act requires that assessment and notices be issued to the correct person. When an assessee is deceased, notices and assessments must be directed to the legal heirs or representatives. Jurisprudence including the jurisdictional High Court rulings (Kanubhai Dhirubhai Patel vs. ITO and Rasid Lala vs. ITO) establish that notices issued to a deceased person without proper intimation to legal heirs are invalid and liable to be quashed.

Court's interpretation and reasoning: The Tribunal noted that the AO was aware of the death of the assessee, as stated in para 6 of the assessment order, and had attempted to serve notices on the legal heir. However, the AO framed the assessment in the name of the deceased person, which is legally impermissible. The Tribunal emphasized that an assessment order passed in the name of a deceased person is invalid.

Key evidence and findings: The AO's own assessment order acknowledged the death and the attempt to serve the legal heir. The legal heir did not respond to notices, but the AO's failure to issue the assessment order in the legal heir's name was a critical procedural flaw.

Application of law to facts: Since the AO knew of the death, the proper course was to issue notices and frame assessment in the name of the legal heir or estate. The failure to do so rendered the assessment order invalid.

Treatment of competing arguments: The Revenue argued that the AO acted in bona fide belief and that the legal heir's failure to respond or surrender PAN was unjustified. The Tribunal rejected this, holding that procedural compliance and correctness of the person assessed are paramount and cannot be overridden by such factors.

Conclusions: The Tribunal held the assessment order invalid and upheld the CIT(A)'s quashing of the addition on account of unexplained credit.

Issue (c): Continuation of business by legal heir using deceased's PAN and bank account

Relevant legal framework and precedents: The Income Tax Act requires proper intimation to the Department and surrender of PAN in case of death of an assessee. Continued use of PAN and bank accounts post death without notification may raise compliance issues but does not validate assessment against the deceased.

Court's interpretation and reasoning: The Tribunal acknowledged the Revenue's contention that the legal heir continued business using the deceased's PAN and bank account during demonetization period without intimation. However, this procedural lapse does not cure the fundamental error of framing assessment in the deceased's name.

Key evidence and findings: The AO's data analytics revealed cash deposits during demonetization period in the deceased's bank account. The legal heir's non-intimation was noted but not held sufficient to validate the assessment order against the deceased.

Application of law to facts: The Tribunal held that the procedural irregularity by the legal heir does not confer jurisdiction or validate the assessment order issued to the deceased.

Treatment of competing arguments: The Revenue's argument that the legal heir's conduct justified the AO's actions was rejected as it does not substitute the legal requirement of proper notice and assessment in the name of the legal heir.

Conclusions: The Tribunal did not uphold the assessment on this ground and maintained that the assessment order was invalid.

Issue (d): Impact of legal heir's failure to challenge jurisdiction or respond during remand proceedings

Relevant legal framework and precedents: Section 292BB of the Income Tax Act deals with the validity of notices and presumption of service. However, the law mandates that notices be issued to the correct person, and failure to respond does not cure jurisdictional defects.

Court's interpretation and reasoning: The Tribunal observed that the legal heir's failure to challenge jurisdiction or respond does not protect the assessment from being quashed if the assessment itself is invalid due to being framed against a deceased person.

Key evidence and findings: The legal heir did not respond to notices or during remand proceedings, but the AO's failure to issue assessment in the correct name was the overriding defect.

Application of law to facts: The Tribunal held that non-response cannot validate an otherwise invalid assessment order.

Treatment of competing arguments: The Revenue's reliance on section 292BB to uphold the assessment was rejected.

Conclusions: The Tribunal held that the case is not protected by section 292BB and the assessment order remains invalid.

Issue (e): Assessment of income post demise under section 150 of the Act

Relevant legal framework and precedents: Section 150 of the Income Tax Act provides for assessment of income of a deceased person in the hands of the legal representative or estate for the relevant period after death.

Court's interpretation and reasoning: The Tribunal noted that the income in question pertained to the period after the assessee's death and ought to have been assessed under the estate of the deceased. The CIT(A) was correct in holding that the AO should have directed assessment under section 150 rather than allowing the appeal on technical grounds.

Key evidence and findings: The AO's assessment related to cash deposits during demonetization period, which was after the death of the assessee on 14.03.2015.

Application of law to facts: The Tribunal supported the view that income earned post demise must be assessed in the hands of the estate or executors and not the deceased person.

Treatment of competing arguments: The Revenue's contention that the AO was justified in assessing the deceased was rejected.

Conclusions: The Tribunal affirmed that the income should be assessed under the estate of the deceased under section 150.

3. SIGNIFICANT HOLDINGS

"The Assessing Officer was very well aware about the death Shri Panchanbhai Muljibhai Chavda which is clearly mentioned in para 6 of the assessment order and therefore subsequent notice should have been issued to the legal heir of the deceased assessee. Besides this, the Assessing Officer has passed the assessment order in the name of dead person and therefore the same cannot sustain. Therefore, the assessment order itself is invalid and the CIT(A) has rightly allowed the appeal of the legal heir of the deceased assessee."

Core principles established include:

• An assessment order framed in the name of a deceased person is invalid if the AO is aware of the death and fails to issue notice and assessment in the name of the legal heir or estate.
• The legal heir's failure to respond or challenge jurisdiction does not cure jurisdictional defects or validate an invalid assessment order.
• Income earned post demise must be assessed under the estate of the deceased under section 150 of the Income Tax Act.
• Procedural irregularities such as non-intimation of death or continued use of PAN by legal heir do not validate an assessment order issued to a deceased person.

The final determination was to dismiss the Revenue's appeal and uphold the quashing of the addition and assessment order by the CIT(A) on grounds of invalidity due to assessment being framed in the name of the deceased.