2025 (7) TMI 20 - AT - Income Tax

Penalty proceedings u/s. 270A against the dead person/deceased assessee - HELD THAT - The information of the death of the assessee was brought to the knowledge of the AO by the legal heir of the assessee on 28.05.2021. Despite this information available to the assessing officer he passed the impugned order on 26.08.2021 for levy penalty u/s 270A Once the fact of the death of the assessee was brought to the knowledge of the AO he was required to bring the legal heir of the assessee on record and thereafter pass order on him. Whereas the assessing officer has passed the order of the dead person. It is settle law that no order can be passed on dead person and therefore the present order passed by the AO is quashed ab-initio and cannot be sustained. The direction of the Ld. CIT(A) is accordingly set aside and the order of the Ld.AO is cancelled. Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

- Whether penalty proceedings under section 270A of the Income Tax Act can be validly initiated or continued against a deceased assessee.

- Whether the Assessing Officer (AO) erred in passing a penalty order against the deceased assessee without impleading the legal heirs.

- Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was correct in directing the AO to implicate the legal heirs of the deceased assessee and proceed accordingly.

- Ancillary issues raised but rendered academic include whether there was underreporting of income warranting penalty and the timing and validity of notices issued post death.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Validity of penalty proceedings against a deceased assessee

Relevant legal framework and precedents: The penalty under section 270A of the Income Tax Act is levied for concealment or underreporting of income by an assessee. It is a settled principle of law that no proceedings can be initiated or continued against a deceased person. The legal heir or representative of the deceased must be brought on record to continue or initiate proceedings.

Court's interpretation and reasoning: The Tribunal noted that the death of the assessee was informed to the AO on 28.05.2021. Despite this, the AO passed the penalty order on 26.08.2021 against the deceased assessee. The Tribunal emphasized the settled legal position that no order can be passed against a dead person. The AO's order was therefore quashed ab-initio as invalid and unsustainable.

Key evidence and findings: The acknowledgment of the death information uploaded by the legal heir was placed on record (paper book pages 10-13). The AO's penalty order dated 26.08.2021 was passed after receipt of this information, indicating a procedural lapse.

Application of law to facts: Since the AO failed to implead the legal heirs before passing the penalty order, the order was invalid. The Tribunal held that the AO was required to bring the legal heirs on record and then pass the order. Passing penalty order against the deceased without impleading legal heirs contravenes settled legal principles.

Treatment of competing arguments: The CIT(A) acknowledged the death but directed the AO to implicate legal heirs and pass fresh orders. The assessee contended that penalty proceedings could not be continued against the deceased and legal heirs could not be implicated retrospectively. The Tribunal sided with the principle that no order can be passed on a dead person and found the AO's order void.

Conclusion: The penalty order passed against the deceased assessee was quashed. The CIT(A)'s direction to implicate legal heirs was set aside as the AO's order itself was invalid. The appeal on this ground was allowed.

Issue: Direction to implicate legal heirs in penalty proceedings

Relevant legal framework and precedents: Legal heirs or representatives are entitled to be impleaded in tax proceedings after the death of the assessee. However, penalty proceedings cannot be continued against the deceased person themselves.

Court's interpretation and reasoning: The Tribunal observed that the CIT(A) directed the AO to implicate the legal heirs and pass fresh orders. However, since the AO had already passed an invalid order against the deceased, the CIT(A)'s direction was rendered unnecessary and was set aside. The Tribunal held that the AO must first annul the order passed against the deceased and then initiate proceedings against the legal heirs, if necessary.

Key evidence and findings: The CIT(A)'s order dated 13.03.2025 was examined, which acknowledged the death but did not set aside the penalty proceedings entirely. Instead, it remanded the matter for impleading legal heirs.

Application of law to facts: The Tribunal found the CIT(A)'s approach inconsistent with the settled legal position that no order can be passed on a dead person. Therefore, the CIT(A)'s direction to implicate legal heirs without quashing the penalty order was set aside.

Treatment of competing arguments: The assessee argued that legal heirs cannot be implicated in penalty proceedings initiated against the deceased and that the entire penalty order was void. The Revenue relied on CIT(A)'s direction to continue proceedings against legal heirs. The Tribunal favored the assessee's submissions.

Conclusion: The direction to implicate legal heirs without setting aside the penalty order against the deceased was quashed. The AO's order was cancelled and the appeal allowed.

Ancillary issues: Underreporting and timing of penalty proceedings

The assessee raised grounds that there was no underreporting since the returned income and assessed income were the same, and that penalty proceedings initiated after death were invalid. The Tribunal found these grounds academic in light of the primary issue decided and did not adjudicate on merits.

3. SIGNIFICANT HOLDINGS

- "It is settled law that no order can be passed on dead person and therefore, the present order passed by the Ld.AO is quashed ab-initio and cannot be sustained."

- "Once the fact of the death of the assessee was brought to the knowledge of the Ld.AO, he was required to bring the legal heir of the assessee on record and thereafter pass order on him."

- The Tribunal held that the CIT(A)'s direction to implicate legal heirs without setting aside the penalty order against the deceased was not tenable and was set aside.

- The penalty order passed against the deceased assessee was cancelled and the appeal was allowed.