Income Tax Penalty Proceedings Cannot be Initiated Against Deceased Person: ITAT

The Income Tax Appellate Tribunal (ITAT), Mumbai, has cancelled a penalty imposed under section 271AAC(1) of the Income Tax Act, 1961, as it was issued to a deceased person.

Based on the information received by the AO, the assessee had deposited cash amounting to Rs 13,48,500 in his two bank accounts. The assessment was reopened, and the AO made an addition, treating the cash deposits as unexplained income under Section 69A of the Income Tax Act. The AO also passed an order imposing a penalty under Section 271AAC of the income tax. This penalty was also upheld by the National Faceless Appeal Centre (NFAC). Therefore, the assessee approached the ITAT, Mumbai.

Before the ITAT, the assessee’s counsel submitted that the penalty order was passed after the death of the assessee. He submitted the death certificate of the assessee, where it was observed that the assessee had died on 03.06.2021, while the penalty notice was issued much later on 29.03.2022.

The Income Tax Department argued that the assessing officer was not informed about the death at the time of issuing the notice.

The ITAT, relying on a Bombay High Court judgement, held that a penalty notice cannot be issued to a dead person. It added that the notice must be issued to the legal heir of the deceased assessee who is capable of answering the notice.

“It is the duty of the Department to ensure that penalty notice is issued and executed on a person who is capable of answering /responding to the notice,” the ITAT said.

The Tribunal noted that even if the department was not familiar with the death of the assessee, a penalty proceeding against a deceased person is still invalid.

Therefore, the ITAT quashed the penalty order and also set aside the appellate order. However, the Tribunal clarified that the Department can start fresh penalty proceedings against the legal heirs.