Rajan Vasudev Dapki, Ahmedabad vs Assessee

Late Vasudev Gordhandas Dapki ACIT, Cent.Cir.1(3) By L/H Rajan Vasudev Dapkil Vs Ahmedabad. 63, Kamdhenu Complex ASE Building, Ambawadi Ahmedabad.

PAN : AAWPD 3173 D

अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)

Assessee by : Shri D.K. Parikh Revenue by : Shri B.L. Yadav, Sr.DR

सन ु वाई क तार ख/ Dateof Hearing : 13/03/2015 घोषणा क तार ख / Date of Pronouncement: 13/03/2015

आदे श/O R D E R

PER N.S. SAINI, ACCOUNTANT MEMBER: This an appeal filed by

the assessee against order of the CIT(A)-I, Ahmedabad dated 19.11.2010 for Asstt.Year 2007-08.

2. The grounds of appeal of the assessee are as under:

1. The Ld. CIT (A) has erred both in law and on facts in confirming the addition of Rs 19,93,518 made by the AO for alleged reduction in the value of closing stock. The Id CIT (A) ought to have held that the method adopted by the appellant was more scientific in view of the circumstances pointed out to the Id AO and which was bonafidely followed subsequently ought to have been accepted .It be so held now and the addition of Rs 19,93,518 erroneously made by the AO and confirmed by CIT(A) be deleted.

2. The Ld. CIT (A) has further erred in both law and on facts in not appreciating that in view of the detailed submissions made ITA No.426/Ahd/2011 2

to the AO and before him regarding the SEBI directions and further ,when the accounts being not rejected on the ground of being found to be incorrect or incomplete,, addition of Rs 19,93,518 was not justified. It be so held now and the addition be deleted.

3. The Id CIT(A) further erred in not appreciating that as per the settled legal position, there being no actual profit arising from the valuation of stock, as held by Supreme Court in Chanirup Sampatram vs CIT 24 ITR 431, the addition on account of stock valuation was not justified as the same value was carried as opening stock next year. It be so held now and the addition of Rs 19,93,518 be deleted.

4. The Id CIT(A) erred both in law and on facts in making irrelevant and unjustified observations regarding order of SEBI which has no relevancy to the ground before him. It be so held now.

5. The Id CIT (A) further erred in law and on facts in not accepting the alternative ground of the appellant for directing the AO to give consequential effect of addition in the opening stock of subsequent year. It be so held now.

6. The Id CIT (A) further erred both in law and on facts in confirming disallowance of Rs. 2,90,7597- made by the AO following rule 8-D. The rule 8-D being not applicable for assessment year under appeal as per decision cited ,the addition made by the Id AO ought to have been deleted. The same be deleted now. The Id CIT(A) further failed to appreciate that as no borrowed funds were found to have been used for making investment in shares, no disallowance under s 14A was called for. The entire disallowance be deleted now.

7. The Id CIT(A) further erred both in law and on facts in not cancelling the assessment order passed without notice to legal heirs.

8. The Id CIT(A) failed to consider and appreciate the various submissions and explanations furnished which ought to have been considered while passing the order.

The Id. CIT(A) ought to have allowed the appeal in toto.

ITA No.426/Ahd/2011 3 3. At the outset, the AR of the assessee submitted that the assessee, Shri Vasudev Gordhandas Dapki expired on 23.12.2007. This fact was brought to the notice of the AO vide letter dated 1.9.2009 and copy of death certificate was also filed before him. The AO has framed the assessment under section 143(3) of the Act on 30.9.2009 on the assessee, Shri Vasudev Gordhandas Dapki who had already expired. The assessee filed an appeal before the CIT(A) and requested for cancellation of the assessment order as the assessment framed on a dead person is a nullity. The CIT(A) dismissed the appeal of the assessee by observing that the assessee had attended all the assessment proceedings and the said issue had never been raised before the AO. He relied on the decision of this Bench of the Tribunal in the case of ITO Vs. Shri Akhter Nooruddinahmed Saiyed, ITA No.837/Ahd/2013 vide order dated 23.5.2014 in support of his argument that the assessment order made on a dead person is a nullity.

4. The DR on the other hand supported the orders of the lower authorities.

5. We have considered rival submissions and perused the orders of the lower authorities and material available on record. The undisputed facts of the case are that the assessee, Shri Vasudev Gordhandas Dapki expired on 23.12.2007 and this fact was brought to the notice of the AO during the course of assessment proceedings vide assessees's authorized representative, Shri Moihan Shah, Chartered Accountant, letter dated 1.9.2009. The Bench had called for the assessment record to verify whether the said letter was filed by the assessee and was forming part of the assessment record or not. The DR confirmed during the course of hearing by producing the assessment record that the said letter of the assessee dated 1.9.2009 was there in the assessment record. This proves that the assessee's AR had brought to the notice of the AO the factum of the death of the assessee, Shri Vasudev ITA No.426/Ahd/2011 4

Gordhandas Dapki. The AO, thereafter, instead of taking steps to bring the legal heirs on record, proceeded to frame the assessment of a dead person. Thus, this issue is covered by the decision of this Bench of the Tribunal in the case of ITO Vs. Shri Akhter Nooruddinahmed Saiyed (supra) wherein the Tribunal held as under:

"This is an appeal filed by the assessee against the order of the CIT(A), Valsad dated 27.12.2012 by taking the following grounds of appeal:

1. On the facts and circumstances of the case, and in law, the learned CIT(A) has erred in restricting the addition from Rs 18,34,600/- to Rs 1,66,949/- as G.P. @ 9.10% made on account of the undisclosed income.

2. On the facts and circumstances of the case, and in law, the learned CIT(A) has erred in deleting the addition made on account of disallowances of expenses of Rs 7,78,364/-.

2. Notice was issued to the respondent assessee by Registered Post with Acknowledgement Due on 07.05.2014 which was returned by the postal authorities on 09.05.2014 with the remarks "deceased".

3. The Departmental Representative at the time of the hearing filed before us copy of the death certificate of the assessee Shri Akhter Nooruddinahmed Saiyed and pointed out therefrom that the assessee expired on 29.12.2009 and the impugned order of assessment was passed by the Assessing Officer on 21.11.2011.

As the assessment has not been made in the name of the legal representative, therefore the assessment should be set aside and the matter should be restored back to the file of the Assessing Officer for making assessment afresh after bringing legal representatives of the assessee on record.

4. We have heard the Departmental Representative and perused the orders of lower authorities and material available on record. We find that in the instant case, the assessment order was passed on late Shri Akhter Nooruddinahmed Saiyed u/s. 143(3) of the Act on 21.11.2011, and thereafter, the CIT(A) passed the appellate order on 27.12.2012. According to the death certificate of Shri Akhter Nooruddinahmed Saiyed filed before us by the Departmental Representative, the assessee had expired on 29.12.2009 which was much before the date of passing of the assessment order.

ITA No.426/Ahd/2011 5 5. It may be recalled that in the case of Ellis C. Reid v. CIT 5 ITC 100 the Bombay High Court had held that where a person died after the commencement of the assessment year but before his income of the previous year was assessed, his executor was not liable to pay the tax and that if the death occurred while assessment proceedings were pending, the proceedings could not be continued and the assessment could not be made after the person's death: This view of the Bombay High Court led the Legislature to introduce Section 24B in the1922 Act in 1933. Section 24B corresponds to Section 159 of the present Act. The relevant part of Section 159 reads as under:-

159. (1) Where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased.

(2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under Section

147) of the income of the deceased and for the purpose of levying any sum in the hands of the legal representative in accordance with the provisions of Sub-section (1)-

(a) Any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of deceased;

(b) Any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative; and

(c) All the provisions of this Act shall apply accordingly.

(3) The legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessee.

A study of Sub-section (1) of Section 159 clearly shows that it is by a legal fiction created in the provision that the legal representative of a deceased person had been made liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased. The legal representative of the deceased, as has been laid down in Sub-section (3) of Section 159 are, by such legal fiction, deemed to be the assessees. Sub-section (2) of Section 159 lays down the conditions of applicability of the provisions of ITA No.426/Ahd/2011 6

Section 159. Clause (a) of Sub-section (2) says that any proceedings taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased. For the applicability of this clause the proceedings for making an assessment or for the purpose of levying any sum should have been taken against the deceased in his lifetime and these would be such proceedings which may be continued against the legal representative from the stage at which such proceedings stood on the date of the death of the deceased. Clause (b) of Sub-section (2) says that any proceedings which could have been taken against the deceased if he had survived may be taken against the legal representative. This clause obviously deals with the situation where the proceedings are contemplated to be taken against the estate of the deceased after his death. Since the legal representative of the deceased represents his estate such proceedings may be taken against them. The study of these provisions clearly brings us to hold that only those proceedings for making assessment or levying any sum may be taken against the deceased, so that they may be continued after his death, which have been taken in his lifetime. In his lifetime such proceedings would necessarily be taken against and in the name of the deceased. However, if the deceased had died before any such proceedings could have been taken against him, the proceedings may be taken against the legal representative of the deceased under the provisions of Sub-clause (b) of Sub-section (2) of Section 159. It is clearly inferred that assessment under the Act can only be made against an individual assessee who must be a living person.

6. In the case of CIT v. Amarchand N. Shroff [1963] 48 ITR 59 the Supreme Court held that the individual has ordinarily to be a living person and there could be no assessment on a dead person. With regard to the legal fiction, as has been created Under Section 159 of the Act, their Lordships of the Supreme Court referring to their earlier decision in the case of Bengal Immunity Co. Ltd. v. State of Bihar (sic.) observed that legal fictions are only for a definite purpose for which they are created and should not be extended beyond that limited field. The same principle was reiterated by the Supreme Court in the case of First Addl. ITO v. Mrs. Suseela Sadanandan [1965] 57 ITR 168 where it was held that on the death of a person the Income-tax Officer has to proceed against the executor and/or legal representative of the deceased. The proposition laid down by the Supreme Court in the above cases was followed by the Calcutta High Court in the case of CIT v. Shantilal C. Mehta [1978] 113 ITR 79 where it was held ITA No.426/Ahd/2011 7

that on the death of an assessee, his estate remains liable for payment of taxes accruing both before and after his death. After the death of the assessee, the assessment proceedings can only continue in the name of his legal representative. The Andhra Pradesh High Court in the case of CIT v. C.V. Raghava Reddy [1984] 148 ITR 385 following the same principle held that Under Section 159 a proceeding could be continued against the legal representative of the deceased assessee only if it had been initiated when the assessee was alive. It is thus well settled that an assessment made on a dead person would, on the face of it, be a nullity in law.

10. In the instant case, the Departmental Representative could not bring any material before us to show that the impugned assessment order was passed after issuing any notice to the legal representative of the deceased individual. Therefore, in our considered view, the appeal filed by the Revenue is not maintainable. We, therefore, dismiss the same."

6. Respectfully following the above decision of the Tribunal, we hold that the assessment order passed under section 143(3) dated 30.9.2009 is bad in law, and therefore, we cancel the same, and allow the appeal of the assessee.

7. In the result, the appeal of the assessee is allowed. Order pronounced in the Court on Friday the 13th March, 2015 at Ahmedabad.

Sd/- Sd/- (SHAILENDRA KUMAR YADAV) ( N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER