The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that a reassessment notice issued in the name of a person who had already died was invalid, quashing proceedings that had resulted in an addition of Rs 8.71 crore as long-term capital gains.
The case relates to Assessment Year 2009-10. The deceased taxpayer had originally disclosed the sale of a Greater Kailash property for Rs 2.75 crore in his income-tax return. The return, filed on July 22, 2009, declared total income of Rs 2.09 crore and was processed under Section 143(1) of the Income Tax Act.
Tax department relied on Rs 9.90 crore property sale value
The reassessment was triggered after a search at the premises of a deed writer in September 2013. The Income Tax Department recovered a computer hard disk containing property-related documents, including two draft agreements concerning the property.
One of the draft agreements showed a sale consideration of Rs 9.90 crore, significantly higher than the Rs 2.75 crore consideration recorded in the registered sale deed. The Assessing Officer treated Rs 9.90 crore as the actual sale consideration and computed long-term capital gains of around Rs 8.71 crore.
However, by the time the reassessment notice under Section 148 was issued on March 31, 2016, the taxpayer had already died on October 2, 2015.
The legal heir informed the Assessing Officer in writing on April 19, 2016, that the notice had been issued in the name of a dead person and requested that the proceedings be dropped. Despite this, the AO directed the legal heir to file a return and proceeded with the reassessment.
ITAT: Tax notice issued to dead person is invalid
The CIT(A) had deleted the entire Rs 8.71 crore addition after holding that the Section 148 notice was invalid. The Revenue challenged this before the ITAT.
The Tribunal dismissed the appeal and held that a notice issued to a dead person cannot confer valid jurisdiction on the Assessing Officer. It said that in proceedings involving a deceased taxpayer, the legal heir has to be identified and the notice must be issued and served on the legal heir in that capacity within the prescribed limitation period.
The ITAT also held that such a defect is a substantive illegality and not merely a procedural error that can be cured under Section 292BB. It further noted that there is no legal obligation on the legal heir to proactively inform the Income Tax Department about the taxpayer’s death.
Importantly, March 31, 2016 was the last date for issuing the reassessment notice in this case. Therefore, the Assessing Officer could have proceeded against the legal heir only if a valid notice had been issued within the limitation period. Since that did not happen, the Tribunal held that the entire reassessment was void ab initio.
What does the ruling mean for legal heirs?
The ruling does not mean that the Income Tax Department cannot reassess the income of a deceased taxpayer. Under Section 159(2)(b), reassessment proceedings can be initiated against the legal heirs for proceedings that could have been taken against the deceased if he had survived. However, the notice must be issued to the legal heir, in that capacity, within the prescribed limitation period.
“ITAT also noted that there is no statutory obligation on legal heirs to proactively inform the tax department about the taxpayer’s death. Courts have held that the responsibility to ensure that the notice is issued to the correct person rests with the department. In this case, the legal heir had in fact objected in writing soon after receiving the notice, pointing out that it had been issued in the name of a deceased person,” an tax expert said.
For taxpayers and families dealing with such notices, the key takeaway is to check the name and date of the notice against the date of death and the applicable limitation period.
“If the notice is issued in the name of a deceased person, the legal heir should raise the objection in writing and preserve all relevant documents and correspondence. The ITAT’s decision was based on the validity of the reassessment proceedings; it did not decide whether the alleged Rs 9.90 crore sale consideration was actually unaccounted income,” she said.
