DCIT-CC- 3(2), MUMBAI vs. VRAJLAL CHANDULAL MEHTA, MUMBAI

The assessee made following submissions before the CIT(A) and from the submissions of the assessee, ld. CIT(A) observed as follow: “5. Ground No. 1 of the appeal is against the legality of the re-assessment order wherein the appellant had stated that the order passed by the AO is not correct since the AO has not invoked proper jurisdiction over the Estate of Late Shri Vrajlal C Mehta and has passed the assessment order in the name of Shri Anoop V Mehta in his capacity as Legal Heir of Late Shri V C Mehta. It is claimed that the assessment made in the hands of a wrong person does not survive and needs to be quashed 5.1. It is noted that in this case, there was a search action at office and residential premises of one Anoop C Mehta on 13.9.2011. During the course of search proceedings, Mr. Mehta was confronted with certain documents which indicated that his father Shri Vrajlal C Mehta had certain bank accounts with significant balances in them at HSBC, Geneva Branch. In his statement u/s 132(4) of the Act, he admitted existence of one account i.e. Yeel Investments and he promised to offer the amount to tax. He also admitted that he was the legal heir to the assets in his father's estate. Subsequently, he communicated this fact to the Vrajlal C. Mehta 4 ITA No. 1903/M/2020 Executors of the Estate of his father and the Executors, with help from professional attorneys, were able to bring back the amounts in the account of the Estate of Late V C Mehta. The Executors offered this amount to tax while filing return of income of the Estate for AY 2012-13. This fact was communicated to the Department by Shri Anoop Mehta vide his letter dated 19.1.2012 as a reason for his not including these amounts in his own return of income. 5.2 The Estate of Late Shri V C Mehta had filed his original return of income for AY 2006-07 and AY 2007-08 on 5.2.2008. Subsequent to the search, the AO issued a notice under section 148 of the Act for AY 2007-08 on 31.3.2014 and for AY 2006.07 on 23.2.2015 wherein the reasons recorded for reopening the cases were similar in nature, being the concealment of amounts shown as balance in the HSBC accounts in these years which were not offered to tax in the hands of the assessee. The notices were issued in the name of Shri Anoop V Mehta, Legal Heir of Late Vrajlal C Mehta. The notices were forwarded by Anoop Mehta to the Executors of the Estate of Late Vrailal C Mehta and the Executors responded on 25th March, 2015 by filing a return of income in the name of the Estate wherein an income of Rs 8 00 94 225/- was offered to tax of which Rs 8,00,94,000 pertained to the peak balance in the HSBC account, Geneva Branch. In the forwarding letter dated 25th March, 2015, the Executors clarified that although the notice had been issued in the name of Anoop Mehta as one of the legal heirs of Late Shri V C Mehta, they were responding as the notice had been forwarded by Anoop Mehta to them as they were the Executors to the Estate which had not devolved on the legal heirs. Outlining the various proceedings in this case and the fact that the Executors did not have any knowledge of the base note and that a copy of the note had only been made available on 16th March, 2015, the Executors elaborated that although the base note was unsigned and unsubstantiated, they were revising the returns of income for AY 2006-07 and AY 2007-08 to offer the income in the year in which it was reflected in the bank account rather than in AY 2012-13 where it had been actually offered. The Executors also requested that the income of AY 2012-13 needed to be modified accordingly and the SA tax paid in that year should be set off against the tax due on this amount. 5.3 In his order, the AO has noted that the assessee has filed his return of income on 5.2.2008 declaring nil income and that the assessee has also filed his revised return of income on 26.3.2015 pursuant to issue of a notice under section 148 of the Act. It is noted that both these returns of income noted by the AO have been filed in the capacity of the Estate of Late Vrajlal Mehta. At para 4 of his order, the AO also observes that the assessee is an individual who has expired on 24th April, 2005 and has income from other sources During the assessment proceedings, the AO has also accepted letters and explanations from the Executors of the Estate and it is noted that invariably, all the replies to the AO's queries have been provided by the Executors of the Estate. While framing the order, the AO has relied on answer of Anoop Mehta to Q no. 10 wherein he has admitted US$ Vrajlal C. Mehta 5 21,51,725/- as his undisclosed income. The AO also acknowledges that Mr Anoop Mehta, vide his letter dated 19.1.2012, has submitted that the account under question was opened by Late Shri Vrajlal Mehta and that the amount of US$ 24,68,070 has been declared in the hands of Estate of Late Shri Vrailal Mehta for AY 2012-13. The AO goes on to observe that since the credit is reflected during the period November 2005 to February 2007, declaration of this income in AY 2012- 13 is not correct and that the income should have been declared in the year in which the amount has been credited in the HSBC bank account. With reference to his decision to made an addition in the hands of Anoop Mehta as legal heir, the AO observed that: "5.10 It seems odd that the legal heir who claims beneficial ownership of the HSBC Bank account and also got the balance remitted in India could not obtain a copy of the bank account. Even the executors have not provided a copy of the account to provide their bonafides. Notwithstanding, the assessee's non co-operation as the legal heir has claimed that the undisclosed account belongs to his father, the same is treated as his undisclosed income on its peak balance during the relevant period. 5.4 In his submission dated 2gth December, 2016, the assessee has outlined the sequence of events since the day of search in the premises of Anoop Mehta. It has been claimed that the Executors did not have any information with reference to the HSBC account prior to search action and hence, it was only after the search that the Executors initiated action to get the amount back in India. Being unaware of various transactions in this account in earlier years, the amount was offered to tax in the hands of the estate in the year of its receipt in India. However once the AO shared the base note with the legal heir who passed on the information to the Executors, the Executors revised the return of the Estate in accordance with the information in the base note. The assessee submits that the AO passed the assessment order wherein he accepted the income declared by the Estate in the return filed by it but despite the fact that entire compliance was made by the Executor and the return was filed in the name of the Estate and the assessment order u/s 143(3) rws 147 was passed in the name of Mr Anoop Mehta (the legal heir). 5.5 The assessee has claimed that the AO erred in making an erroneous observation that the legal heir claimed beneficial ownership of the HSBC bank account. It is claimed that the legal heir never claimed the beneficial ownership of the said account. The said account belonged to the appellant and hence, it has been offered in his return of income. It is further claimed that as per the will of Late V C Mehta, Mr Anoop Mehta was beneficiary of the residual estate of late Shri V C Mehta. Thus, by execution of the Will, Mr Anoop Mehta was the beneficiary of Vrajlal C. Mehta 6 ITA No. 1903/M/2020 the money belonging to the residual estate and not direct beneficiary of the alleged HSBC Bank account. 5.6 The assessee has submitted that the orders passed by the AO for AY 2006- 07 and AY 2007-08 were similar and were passed in the name of Anoop Mehta as legal heir and the additions made also related to the same HSBC bank account balances. Since the order of the CIT(A) for AY 2007-08 was passed earlier, it was matter of appeal before ITAT wherein the assessee challenged the legality of the order in light of the fact that the order had been passed in the hands of the wrong person. In their decision in for AY 2007-08 decision dated 29.8.2018, the TAT has quashed the order holding that the AO did not assume correct jurisdiction and that the AO had assessed the wrong person and as such the assessment order was liable to be quashed. The ITAT held that it was the Estate of Late Vrailal Mehta who was liable to be assessed in respect of the HSBC income and not Mr Anoop Mehta in his capacity as legal heir. The assessee has relied on this order claiming that in light of same facts, the assessment order for AY 2006-07 is also liable to be quashed in light of the order of the ITAT for AY 2007-08. 5.7 In order to substantiate his bona-fide and intention to ensure assessment of income lying in the HSBC account in correct hands as also to stress that the assessee is not interested in exploring for loopholes to enable that the amount is not subjected to tax in India, the assessee has filed a letter dated 17th October, 2016, submitting that; "This is in reference to the appeal filed by us for AY 2006- 07 on 11.12.2015 before Your Honour, In the above referred appeal, we have taken various grounds including the general ground challenging validity of the assessment order passed by the Assessing Officer. We would like to clarity that we have filed our returns of income for the above assessment year i.e. for AY 2006-07 as well as for AY 2007-08 and AY 2012-13 in which income in the form of peak balance in the bank account of HSBC Bank, Geneva being account no. 5091334050 has been offered for the purpose of taxation. The year- wise position of income declared is as under : Sl. No. A.Y. Date of filing of revised Amount (₹) return of income 1. 2006-07 26.03.2015 8,00,94,000/- 2. 2007-08 1,57,86,300/- 3. 2012-13 2,43,20,246/- We would like to clarify that we will stand by our aforesaid disclosure of income & we will not be seeking any reduction in the income offered at any Vrajlal C. Mehta 7 ITA No. 1903/M/2020 stage. We further clarity that we have owned up the balances lying in the above referred bank account and paid the taxes thereon in various assessment years. We would not be claiming any refund of the amount of taxes already paid except for inter-se adjustment of the taxes paid amongst various assessment years. It is noted that a similar letter has also been filed by the assessee for AY 2007-08 during the course of proceedings before ITAT.

After analyzing the submissions, ld. CIT(A) held that the order passed by AO in the name of Mr. Anoop Mehta as legal heir is bad-in-law with the following observations: “5.8 The submission made by the assessee has been examined. The main submission made by the appellant is that the said ground is squarely covered by the judgement of the Hon'ble ITAT in the appellant's own case in AY 2007-2008 wherein the Hon'ble TAT has quashed the order passed by the Id. A.O. based on the fact that the order has been passed in the name of the wrong person as against the correct person, which is the Estate of Shri. Vrajlal C. Mehta. The relevant portion of the Hon'ble ITAT Order in AY 2007-2008 is reproduced herewith the ready reference: "45. In our view, both the decisions do not apply to the issue under consideration. In both the cases, there were only procedural irregularities, i.e., there was no mistake in assumption of jurisdiction. However, in the instant case, the assessing officer has not assumed jurisdiction over "Estate of late Vrajlal Mehta" at all. The Ld CIT-DR also placed her reliance on the decision rendered by Hon'ble Delhi High Court in the case of Sky light Hospitality LLP (W.P © 10870/2017 and CM No.44503/2017 dated 02-02-2018, which has been confirmed by Hon'ble Supreme court in petition No. 7409/2018 dated 06- 04-2018). The issue in this case was that the appellant contended that the notice wis 148 was issued under wrong name. The Hon'ble Supreme Court noticed that the Hon'ble Delhi High Court, after considering the facts available in that case, concluded that the wrong name given in the notice was merely clerical error which could be corrected u/s 292B of the Act. The said view was upheld by Hon'ble Supreme Court, However, the facts available in the instant case are with regard to the jurisdiction, i.e. who has to be assessed for the impugned income and hence, in our view, the revenue cannot take support of the decision rendered in the case of Sky Light Hospitality LLP.

In view of the foregoing discussions, we find merit in the contentions of the assessee. Accordingly, we hold that the assessment framed on the Legal heir, i.e., on Shri Anoop Mehta as legal heir of late Vrajlal © Mehta in respect of income arising after the date of death is not in accordance with the provisions Vrajlal C. Mehta 8 ITA No. 1903/M/2020 of sec. 159 r.w.s. 168 of the Income tax Act, 1961. Accordingly, Shri Anoop Mehta cannot be asked to pay tax as legal representative of late Vrajlal C Mehta u/s 159 of the Act. We also hold that it is the "Estate of late Vrajlal C Mehta", which is liable to pay tax in terms of sec. 168 of the Act in respect of impugned income. Since the assessing officer has assessed wrong person for the above said income and since the Ld CIT(A) has also confirmed the same, in our view, orders passed by them are not sustainable in law for the reasons discussed above. Accordingly, we quash the orders passed by the tax authorities." 5.9 The contentions of the assessee and the order of the AO have been duly considered. I have gone through the details filed by the assessee as well record available. It is noted that the AO had issued notice u/s 148 in the name of Shri Anoop V. Mehta (Legal heir of late Vrajlal Chandulal Mehta). I have also observed that the return of income as well as all compliances during the course of Assessment Proceedings was made by or under the instructions of the Executors for and on behalf of the Estate of Shri Vrailal C. Mehta. The assessee has further made the AO aware of the entity which is required to be brought to tax with respect to the income under discussion. 5.10 I have also gone through the order of Hon'ble Tribunal for AY 2007-08 in the appellant's own case. The Hon'ble Tribunal has accepted the ground raised

Whether on the facts and circumstances of as above the case and in law, the Ld. CIT(A) was justified in quashing the assessment proceedings for the year under consideration without going into the merits of the case. 6. At the time of hearing, the ld. DR submitted that he relies on the assessment order on merit and for technical ground, he relies on ITAT order. 7. On the other hand, ld. AR submitted in the form of written submission, which is reproduced below:

Further, on 27th February 2015, a fresh notice us 148 dated 23rd February 2015 was issued on Mr. Anoop Mehta, in his capacity as legal heir of the appellant for the captioned assessment year. Subsequently on March 16th, 2015, Mr. Anoop Mehta was handed over the copy of the Base Note (whose authenticity and veracity is not known). On receipt of the same, to buy peace of mind, the executors of the Estate filed revised returns of income of AYs 2007-08 and 2012-13 and return us. 148 of the Act for AY 2006-07 thereby allocating the balances of the account as appearing in the base note and offering the same as income accordingly requesting due credit of taxes paid in AY 2012-13.

The Ld. AO vide his order dated 04.11.2015 passed u/s 143(3) r.w.s 147 of the Act accepted the income computed by the executors of the Estate but passed the order in the hands of Mr. Anoop Mehta as L/H of Late Vrajlal Mehta instead of the Estate. The Ld. AO also did not give any credit to taxes paid by the assessee on the same amount in AY 2012-13 wherein this income was offered by the assessee earlier and taxes had been duly paid. 9. Aggrieved by the said assessment order, the appellant filed an appeal before the Hon’ble Commissioner of Income Tax (Appeals) [CIT(A)] raising various grounds. However, for the sake of relevance and brevity, we would like to limit our submission to the discussion| observations with respect to the grounds of appeal

With respect to the above, we would like to submit that once it has been established by the appellate authorities that the assessment has been made on the wrong person, the income under consideration cannot be assessed in the hands of the said person.

Having said that, it may be of utmost importance to note at this juncture that the Hon ble ITAT for AY 2007-08 and Hon"ble CIT(A) in the impugned order have specifically stated that since the assessment order passed in the name of Mr. Anoop Mehta has been quashed, the return of income as well as revised returns of income filed by the Estate shall remain intact. Hence, there will be no change in the income and the tax paid thereon (along with the credits claim) of the appellant as filed in the return pursuant to the notice issued under section 148 of the Act.