DASARI SAI ANNAPURNA L/R OF LATE DASARI GOPI KRISHNA REDDY,VIJAYAWADA vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(1), VIJAYAWADA, VIJAYAWADA

On the facts and circumstances of the case, the Learned CIT(A) is not justified in not considering the ground that The Learned Assessing Officer while disallowing the claim of exemption u/s.54F totally would have considered exemption on one flat u/s.54F of the I.T. Act.

Succinctly stated, the assessee had filed his return of income for AY 2015-16 on 30/09/2015, declaring an income of Rs. 17,27,510/-. Thereafter, the AO, based on the information shared with him by the ITO, Ward-2(4), Vijayawada, vide letter dated 31/03/2019, wherein he was informed that as per the information that had surfaced during the course of the assessment proceedings in the case of M/s. CSK Construction, the assessee, viz., Sri Dasari Gopikrishna, had entered into a Joint Development Agreement on 30/05/2014 with the said concern, vide Document No.3838/2014 for a consideration of Rs. 1,37,07,000/-. As per the information, the assessee had given the land admeasuring 505.5 sq yards at Kanur Village, Penamaluru Mandal, Krishna District, for development to M/s. CSK Construction, Vijayawada, vide Document No. 3838/2014. As per the information, the assessee would receive 43.33% of total flats (18 flats) – 9 flats admeasuring 6344 Sq. ft, while the developer would receive 56.67% of total flats (18 flats) – 10 flats ad- measuring 7435.25 sq ft, after completion of the building.

The AO based on the aforesaid information observed that the assessee as per the provisions of section 45 r.w.s 2(47)(v) of the Act was though statutorily obligated to disclose “capital gains” on te aforesaid transaction during the subject year after taking into consideration the cost of acquisition of land vis-à-vis sale value of 8 flats that were to be received by him, but no such income was disclosed by him in his return of income. Accordingly, the AO for bringing to tax the capital gain on the transfer of the subject property that had escaped assessment, initiated proceedings under section 147 of the Act. Notice under section 148 of the Act, dated 31/03/2021, was duly served upon the assessee. As the assessee failed to comply with the said notice and did not file his return of income within the stipulated time period, therefore, the AO issued notices under section 142(1) of the Act, which too were not responded by the assessee. Also, the reference made by the AO to the designated Verification Unit (VU) to serve notices to the assessee in person remained futile.

Accordingly, the AO, based on the aforesaid facts, proposed to conclude the assessment to the best of his judgment under section 147 r.w.s 144 r.w.s 144B of the Act. Considering the merits of the case, a draft assessment order was served upon the assessee along with a show cause notice (SCN), dated 22/03/2022.

In reply, Smt. Dasari Sai Annapurna, Legal Heir of late Shri Dasari Gopikrishna Reddy, i.e., the assessee, vide her letter dated 25/03/2022 submitted before the AO that the assessee had passed away on 17/05/2021, i.e., after commencement of the assessment proceedings in March, 2021. On merits, it was submitted by her that though the Joint Development Agreement (JDA) was entered into and registered on 30/05/2014, but the construction was delayed and the project could be completed only in the year of 2018. Also, it was submitted by her that no flat in the subject property had been sold so far. It was further submitted by Smt. Dasari Sai Annapurna (supra) that, being a beneficial land owner, the assessee was entitled to raise a claim of exemption of the Long-term capital gain (LTCG) u/s 54F of the Act by treating the entire 8 apartments as one single unit. However, the AO did not find substance in the Ld. AR’s contention and vide his order passed under section 147 r.w.s 144 r.w.s 144B of the Act, dated 28/03/2022, declined the assessee’s claim of exemption under section 54F of the Act and made an addition of long-term capital gain of Rs. 72,25,753/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(A) who in exercise of the powers vested with him under the “first proviso” of section 251(1)(a) of the Act, after taking cognizance of the fact that the assessment was framed by the AO under section 147 r.w.s 144 r.w.s 144B of the Act, dated 28/03/2022, wherein certain documents and submissions could not be produced by the assessee in the course of the assessment proceedings, set aside the matter to the file of the AO for making a fresh assessment after considering the documentary evidence as was placed before him and making such further enquiries as may be considered as he may deem fit. For the sake of clarity, the observations of the CIT(A) are culled out as under:

We have heard the Learned Authorised Representatives of both parties, perused the orders of the lower authorities and the material available on record.

Sri MV Prasad, Chartered Accountant, the Learned Authorised Representative (for short, “Ld. AR”) for the assessee, at the threshold of hearing of the appeal, submitted that as the assessee, viz. Shri Dasari Gopikrishna Reddy had expired on 17/05/2021, therefore, the assessment order passed by the AO under section 147 r.w.s 144 r.w.s 144B of the Act, dated 28/03/2022, in his case, without impleading the legal heirs of the assessee (since deceased), cannot be sustained and is liable to be struck down. The Ld. AR to buttress his contention had drawn support from the judgment of the Hon’ble High Court of Madhya Pradesh in the case of Sitaram Raikwar vs. National Faceless Appeal Centre (024) 167 taxmann.com 325 (Madhya Pradesh), wherein it was observed that where an assessment order was passed against the deceased assessee even when the legal heir of the assessee had filed the “death certificate” of the assessee, and no notices were tried to be served on legal heir, the impugned assessment order framed in the name of the deceased assessee was to be set aside. Also, the Ld. AR had pressed into service the judgment of the Hon’ble High Court of Bombay in the case of Amjad Ahmed Shaikh vs. ITO, (2025) 172 taxmann.com 687 (Bombay), wherein it was held that where the Assessing Officer despite being in knowledge of the demise of assessee had issued reassessment notice in the name of the deceased assessee, then the impugned notices and orders cannot not bind the legal representatives and were to be quashed and set aside. The Ld. AR had further relied upon the order of the ITAT, Mumbai Bench “D” in Motilal Hastimaji Bothra vs ITO (2023) 156 taxmann.com 447 (Mumbai-Trib), wherein it was held that where the assessee had expired much before the passing of reassessment order and issuance of notices, and his legal heir was not brought on record and no notice was issued the name of the legal heir, then the reassessment order passed in the name of the assessee (since deceased) was non-est in law and hence was to be quashed. The Ld. AR by drawing support from the aforesaid judicial pronouncements, submitted that as in the present case, the AO despite being well in knowledge about the fact that the assessee had expired on 17/05/2021 had failed to implead his legal heirs on record and passed the assessment order in his name, viz., Gopikrishna Reddy Dasari, therefore, the order so passed by him under section 147 r.w.s 144 r.w.s 144B of the Act, dated 28/03/2022 cannot be sustained and is liable to be struck down on the said count itself.

Per contra, Dr. Aparna Villuri, the Learned Senior Departmental Representative (for short, “Ld. Sr. DR”), relied upon the orders of the lower authorities. The Ld. Sr. DR submitted that as the assessee had expired after the notice under section 148 of the Act, dated 31/03/2021, was issued, therefore no infirmity arises from the validity of the jurisdiction that was framed by the AO for initiating the reassessment proceedings at the relevant point of time, i.e., during the lifetime of the assessee.

We have heard the Learned Authorised Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.

At the threshold, we may herein observe that the judgment of the Hon’ble High Court of Madhya Pradesh in the case of Sitaram Raikwar vs. National Faceless Appeal Centre (supra) as had been pressed into service by the Ld. AR, being distinguishable on facts, will not assist his case. Although, in the case before the Hon’ble High Court the assessment order was passed in the name of the deceased assessee, despite the legal heirs of the assessee had filed with the AO a copy of the “death certificate” of the assessee (since deceased) and brought the fact of his death to his knowledge, but notice under section 148 of the Act was issued in the name of the assessee (since deceased). Unlike the facts involved in the aforementioned case, in the case before us, it is a fact discernible from the record that the notice under section 148 of the Act, dated 31/03/2021, was served upon the assessee during his lifetime.

Apropos, the judgment of the Hon’ble High Court of Bombay in the case of Amjad Ahmed Shaikh vs. ITO (supra), we find that in the said case as the AO, despite being well aware about the demise of the assessee, had issued the reassessment notice in the name of the deceased assessee, despite being well aware about the demise of the assessee, therefore, it was in the backdrop of the said fact that the Hon’ble High Court had observed that the impugned notices and orders made based on the aforesaid notice in the name of the assessee (since deceased) could not be sustained and was liable to be quashed. Once again, as in the case of the present assessee before us, the notice under section 148 of the Act, dated 31/03/2021, was issued and served upon the assessee during his lifetime, therefore, the same renders the present case distinguishable on facts as in comparison to the aforesaid judicial pronouncement.

Coming to the order of the ITAT, Mumbai Bench “D” in the case of Motilal Hastimaji Bothra vs ITO (supra), as the assessee had expired much before the passing of the reassessment order and issuance of notices, the Tribunal had observed that as no notice was issued in the name of the legal heir, therefore, the re-assessment order passed in the name of the assessee (since deceased) was non-est in law and hence was liable to be quashed.

We have given thought consideration to the facts which are involved in the present case, i.e., the assessee was alive at the time when the notice under section 148 of the Act, dated 31/03/2021, was issued, but had, during the pendency of the assessment proceedings expired on 17/05/2021, which fact was brought to the notice of the AO by Smt. Dasari Sai Annapurna, i.e. Legal Heir of the assessee (since deceased) vide her letter dated 25/03/2022.

We are of the view that, as per the settled principle of law, no order can be passed against a dead person, and any proceedings regarding the deceased assessee shall be continued against the legal representatives from the stage at which it stood on the date of the death of the deceased. Our aforesaid view is supported by section 159 of the Act, which reads as under:

In the result, the appeal of the assessee is allowed for statistical purposes in terms of our aforesaid observations.