NIRMAL KUMAR (AS LEGAL HEIR/REPRESENTATIVE OF LATE MISHRILAL SHARNICKRAJ),BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-5(2)(1) , BANGALORE

This appeal is filed by the assessee against the order dated 19.04.2024 of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC], for the AY 2015-16 on the following grounds:-

The impugned order is liable to be quashed for non- compliance with stipulated procedures for service of notice in assessment proceedings as well as in appellate proceedings. There is no confirmation of service of notice to assessee/ appellant by way of physical service of notice/ mahazar report.

At no point of time has the Assessing Officer, informed to the assessee of his intent to make additions on the basis of the Annual Information Report, this vitiating the principles of natural justice. 11 The appellant denies liability to pay interest. The interest has been levied erroneously and is liable to be deleted. 12 In view of the above and on other grounds that may be adduced at the time of hearing, it is requested that the impugned order be quashed/ set aside.”

Briefly stated the facts of the case are that the assessee had expired on 25.07.2015 and return of income was filed by L/R on 02.11.2015 declaring total income of Rs.22,20,160. The case was selected for scrutiny through CASS for the reasons of (a) Contract fees/receipt mismatch (b) Sales turnover mismatch (c) Cash deposit (d) Tax credit mismatch. Statutory notices issued on different dates. The AO noted that the contract receipt as per Form 26AS is Rs.2,41,31,247, whereas in the return the assessee has declared Rs.6,80,35,231 which is higher than Form 26AS figure. As per assessment order para 4(b), the AO (Assessing Officer) noted that turnover is NIL in tax audit report and income tax return, hence there is no mismatch in turnover. The assessee deposited cash of Rs.1,57,00,000 in his Savings Bank account with SBH (now SBI), J C Road Br., Bangalore as per AIR information. As there was no reply from the assessee, the AO sent a letter to the Bank requesting statement from 01.04.2015 to 31.03.2016, since there was no reply from the bank, the entire cash deposit was added back to the total income of the assessee u/s. 68 and order u/s. 143(3) r.w.s. 144 dated 26.12.2017 was passed in the name of Mishrilal Sharnickraj, PAN: ADOPS 5835Q. The L/R of the assessee Shri Nirmal Kumar holding PAN ACLPD2715J filed appeal before the CIT(Appeals) on 25.01.2018.

At the outset, the ld. AR of the assessee strongly submitted that the order passed by the AO in the name of deceased assessee is not sustainable as the assessee died on 25.07.2015 and Shri Nirmal Kumar, L/R of the assessee filed the income tax return on behalf of the assessee after adding in the income tax web portal. The turnover reported in the return is approx. Rs.6.8 crores which was audited and Form 3CB and 3CD were uploaded in the income tax web portal. The AO issued notice u/s. 143(2) and passed order u/s 143(3) in the name of deceased assessee (Mishrilal Sharnickraj). Before passing the assessment order, the AO had the entire information regarding death of the assessee. The ld. AR further submitted that this issue was raised before the ld. CIT(Appeals) as per ground No.2, however, he has not adjudicated on this ground. In support of his argument, he relied on the judgment of jurisdictional High Court dated 19.06.2024 in WP No.25728/2032 [T-IT) in the case of Smt. Sowmya S. v. ITO. The ld. He also relied on the following judgments.

Considering the rival submissions, we note that the assessee passed away on 25.07.2015. The AO has passed order in the name of non-existent person and the ld. CIT(A) has passed ex parte order in the name of Nirmal Kumar as appellant/AR. Shri Nirmal Kumar, L/R of the assessee in the first appeal has raised a legal issue in ground No. 2 regarding the AO passing the order in the name of non-existent person is bad in law and is liable to be quashed which was not decided and similar issues were raised before us. Since the L/R has raised legal issue which were not decided by the first appellate authority, even the entire supporting evidences were filed by the L/R before filing the income tax return and ld. CIT(A) could have examined the same, therefore we are deciding the legal issue first. The turnover of the assessee during the year was Rs. 6,80,35,230.62/- and books of accounts were audited by the C.A. on 30.09.2015. The return of income was filed by Nirmal Kumar on 02.11.2015, adding his name in the income tax web portal as L/R and digitally signed holding PAN: ACLPD 2715J. In the income tax web portal, under the head ‘Authorised Partner’, there is sub-head ‘Register as Representative Assessee’ and without registering as representative assessee, it is not possible to file return of income. After submitting necessary documents for getting registered as representative assessee, the assessee has uploaded the L/R certificate. Further in the web portal under the sub-head ‘Deceased (Legal Heir)’, firstly representative has to register after filling details like copy of PAN of deceased, copy of death certificate, copy of L/R proof as per norms, etc. These are mandatory documents before getting registered as L/R. After approval by the department, the assessee was able to file return of the deceased assessee and signed digitally. It clearly shows that the assessee’s L/R had already informed to the department before filing the income tax return of the deceased assessee. As per acknowledgement of the return, the jurisdictional AO is mentioned as Ward 3(2)(4), Bangalore. However, the assessment order has been passed by Circle 5(2)(1), Bangalore. Therefore it was in the knowledge of the AO that the assessee had died and the AO wrongly passed the order in the name of deceased/non-existent assessee. The argument of the ld. DR that while filing the return of income, the representative assessee did not disclose his capacity in the return is a minor mistake committed by Shri Nirmal Kumar, L/R of the assessee while filling the income tax return which will not affect since the income tax department had the information about the deceased assesse before issuing notice u/s 143(2) & passing the assessment order u/s 144 of the Income Tax Act. The procedure for incorporating the name of L/R of the assessee has not been followed by the AO. A similar issue has been decided by the Hon’ble Delhi High Court in the case of Vikram Bhatnagar v. ACIT [2023] 147 taxmann.com 254 (Delhi) in which it has been held as under:-

In Alamelu Veerapan v. ITO [2018] 12 ITR-OL 95 (Mad); [2018] (6) TMI 760- the Madras High Court, it has been held by the Madras High Court, "In such circumstances, the question would be as to whether section 159 of the Act would get attracted. The answer to this question would be in the negative, as the proceedings under section 159 of the Act can be invoked only if the proceedings have already been initiated when the assessee was alive and was permitted for the proceedings to be continued as against the legal heirs. The factual position in the instant case being otherwise, the provisions of section 159 of the Act have no application". In Rajender Kumar Sehgal (supra), a Coordinate Bench of this court has held, (page 291 of 414 ITR) "This court is of the opinion that the absence of any provision in the Act, to fasten revenue liability upon a deceased individual, in the absence of pending or previously instituted proceedings which is really what the present case is all about, renders fatal the effort of the Revenue to impose the tax burden upon a legal representative". There is no statutory requirement imposing an obligation upon legal heirs to intimate the death of the assessee.

In the present case as admitted by the Respondent the facts are admitted. The death of the Assessee was duly communicated by his legal heirs (the Petitioner herein). The ITR also duly disclosed that the same has been filed by the legal representative. However, in ignorance of the said facts available on the record the scrutiny proceedings have been wrongly conducted in the name of the deceased Assessee without bringing on record all his legal heirs as per the requirement of law.

In the present case, the jurisdictional notice under section 143(2) of the Act was issued against the dead person and the assessment order has also been passed against the dead person on his PAN without bringing on record all his legal representatives, therefore, the said assessment order and the subsequent notices are null and void and are liable to be set aside.

Consequently, the impugned notice dated 22nd September, 2019 issued under section 143(2) of the Act and the impugned assessment order dated 30th September, 2021 is set aside along with all consequential proceedings and notices. The petition is allowed; however, Revenue will have the liberty to take steps in the matter, albeit as per law. In case any such-steps are taken, the Petitioner will have liberty to assail the same, in accordance with law.”

Respectfully following the above judgment, we quash the assessment order since the AO issued notice u/s. 143(2) and passed order u/s 144 of the Income Tax Act in the name of deceased and non- existent assessee whereas the AO had information about the death of the assesse before passing order u/s 144 of the Act. Accordingly the assessment order passed in the name of deceased and non-existent assessee is not a valid order passed in the eyes of law. Accordingly we quash the assessment order.

In the result, the appeal by the assessee is allowed.