ITAT Pune: Assessment Not Invalid Merely Because Order Passed In Deceased Assessee’s Name When Notice Was Issued In Lifetime

Background Of The Dispute

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) in the case of ITO Vs Shrikanta Amritkumar Jain has clarified an important aspect of assessments where the assessee dies during the pendency of scrutiny proceedings. The Tribunal has held that when a valid scrutiny notice under Section 143(2) of the Income Tax Act 1961 is issued during the lifetime of the assessee, the assessment proceedings do not become void merely because the final assessment order is passed in the name of the deceased. Instead, this is a curable procedural defect, and the correct remedy is to frame a fresh assessment in the name of the legal heir under Section 159.

The matter arose from an appeal filed by the Revenue against the order of the CIT(A)/NFAC, who had annulled the assessment on the sole ground that the order was passed in the name of a deceased person. The ITAT overturned the CIT(A)’s decision and remanded the case to the Assessing Officer (AO) to pass a fresh assessment order in the legal heir’s name after giving due opportunity of hearing.

Key Facts Of The Case

Return Filing And Scrutiny Selection

  • The assessee, an individual, filed her return of income for Assessment Year 2018-19 on 30.09.2018, declaring total income of Rs. 13,19,400.
  • The case was picked up for scrutiny under CASS.
  • A statutory scrutiny notice under Section 143(2) was issued on 28.09.2019 in the assessee’s name while she was still alive.

Death Of The Assessee And Subsequent Steps

  • The assessee expired on 23.11.2019.
  • After her demise, the AO issued a notice under Section 142(1) dated **10.02.2020`.
  • The assessee’s son, Riteshkumar Amritkumar Jain, registered himself as legal heir on the income-tax e-filing portal on 26.06.2020.
  • The legal heir then started participating in the assessment proceedings and responded to various notices and queries raised by the AO through the faceless assessment mechanism.

Draft Assessment And Final Order

  • A draft assessment order was issued on 10.03.2021 under the faceless regime (Section 143(3) read with Section 144B).
  • In response, the legal heir informed the AO that his mother, Late Shrikanta Amritkumar Jain, had passed away on 23.11.2019, and that he had already been registered as legal representative on the portal since 26.06.2020.
  • It was specifically argued before the AO that any notice or order issued in the name of a deceased person is void in law.
  • Despite this, the AO completed the assessment in the name of the deceased assessee under Section 143(3) read with Section 144B vide order dated 26.04.2021, determining total income at Rs. 6,38,21,750 as against returned income of Rs. 13,19,400.

Major Additions Made By AO

The additions included:

  • Rs. 5,46,97,765 under Section 68 as unexplained cash credits; and
  • Rs. 78,04,588 disallowed from interest claimed on unsecured loans.

Thus, substantial tax demand arose as a result of the assessment framed in the deceased’s name.

Appeal Before CIT(A)/NFAC

The legal heir filed an appeal before the CIT(A)/NFAC primarily on the jurisdictional issue that the assessment order was invalid because it was passed in the name of a dead person. The key contentions were:

  • Once the assessee had died and intimation of death was given to the AO, any further action should have been taken only in the name of the legal representative in accordance with Section 159.
  • The assessment order passed solely in the deceased’s name is void ab initio, i.e., non-existent in law.
  • Reliance was placed on:
    • Rupa Shyamsunder Dhumatkar (Bom HC WP 404/2019)
    • Sumit Balkrishna Gupta [2019] 103 taxmann.com 188 (Bombay)
    • Chandreshbhai Jayantibhai Patel (Gujarat HC SCA 15172/2018)
      where assessments or notices issued to deceased persons were held to be invalid.

CIT(A)’s Observations

The CIT(A)/NFAC recorded the following key findings:

  1. Validity Of Initial Notice

    • The notice under Section 143(2) was issued on 28.09.2019, prior to the date of death (23.11.2019). Hence, initiation of assessment proceedings in the assessee’s name was valid.
    • Under Section 159(2)(a), such proceedings are to be treated as continuing against the legal representative from the stage at which they stood on the date of death.

  2. Conduct Of Legal Heir

    • The legal heir had been participating in the proceedings and responding to notices without serious objection until the final show-cause stage in March 2021.
    • The legal heir had already been approved and registered as legal representative on the portal on 26.06.2020, as shown by system screenshots.