Penalty can’t be recovered from legal representatives after death of assessee

Hon’ble ITAT Nagpur bench in the case BEANTKAUR AVTARSINGH JUNEJA VERSUS INCOME TAX OFFICER WARD-4 (2) , NAGPUR, 2024 (4) TMI 1075 - ITAT NAGPUR has held that

The penalty amount is not recoverable from the legal representatives of accused; as imposition of penalty is intended to penalise the accused, therefore, recovery of penalty from the legal representatives would amount to punishing the legal representatives..

Facts of the case

Penalty u/s 271B was imposed on the assessee for non-furnishing of Tax Audit Report. The assessee filed appeal before CIT(A) but could not get the relief. After that assessee filed before ITAT.

During the appeal hearing, the bench was informed about the death of the assessee.

Now the question arose before the bench that “whether  a penalty levied u/s 271B of the Act is sustainable upon the death of assessee.”

Observation of the Hon’ble ITAT bench

On the subject matter of penalty, there could be two situations viz; (i) assessee dies before the imposition of penalty or (ii) assessee dies after the penalty is imposed. The imposition of penalty in cases falling in first scenario is no-more res-integra in the light of decision in ‘ACIT Vs Late Shrimant FB Gaekwad’ [2008, 313 ITR 192 Gujarat], ‘CIT Vs Dr. K.C.G. Verghese’ [2018, 92 taxmann.com 400 & 2019, 416 ITR 155 (Mad.] which followed in ‘CIT Vs Smt S Gowri’ [2020, 116 taxmann.com 764 & 417 ITR 45, Madras], wherein it has been categorically held that, penalty proceedings could not initiated and concluded against the legal representative of the deceased assessee. The former ratio however cannot come to rescue the cases falling in the latter category.

Let us first analyse the provisions of section 159 of the Act which talks about the liability of legal representative [‘LR’ hereinafter of deceased assessee. Without reproducing the provision in verbatim, it shall suffice to state that, the word ‘any sum’ referred in s/s (1) of section 159 of the Act has been substituted in place of word ‘any tax’ which occurred in old section 24B of the Income Tax Act, 1922 so as to cover not only tax payable but also any penalty or interest. Therefore, the legal representatives of the deceased can also be liable to pay penalty on behalf of the deceased assessee pursuant to the provisions of Section 159(1) of the Act. This finds support in the ratio of Hon’ble Allahabad High Court in case of ‘Kalawati Devi Vs ITO’ [1981, 6 Taxman 252] wherein their Hon’ble Lordship have held that, section 159(1) clearly makes the legal representatives liable not only for the tax payable by the deceased-assessee but also for all sums which the deceased would have been liable to pay had he not died. Hence, penalty proceedings for a default committed by a deceased could be started or continued against the legal representatives, too. Similarly, the Hon’ble Kolkata High Court in ‘Smt. Tapati Pal Vs CIT’ [2002, 124 Taxman 123 Cal.] held that penalty proceedings for a default committed by deceased can be started or continued against the legal representative as against its earlier decision in ‘Taraknath Gayen and others Vs CEGAT’ [1987, 31 ELT 631 (Cal)].

in the instant case the penalty proceedings were initiated and culminated during the lifetime of the deceased assessee. Therefore, the only question thus, remains of its recovery from the estate if any succeeded by legal representative of deceased assessee. At this juncture it is worthwhile to note here that, s/s (4) of section 159 of the Act only empowers recovery of ‘the tax’ liability to the extent of estate of deceased assessee succeeded by LR. The conjoint reading of s/s (1) and s/s (4) of section 159 of the Act suggests that in case of death of assessee, ‘the tax’ subject to estate of deceased assessee delved could only be recovered (if any) from the legal representative. Conversely nothing other than tax can be fastened to the estate succeeded by the LR.

The honourable High Courts and Apex Court in catena of judicial precedents has held that penalty proceedings are quasi-criminal in nature. In criminal jurisprudence, a crime dies with a man and the legal representative of the deceased offender or criminal cannot be penalised for the offences or crimes committed by the deceased. As such penalty proceedings are different and distinct in nature than tax while tax are price paid for buying civilisation whereas the penalties are levied for the contumacious conduct of the wrong doer therefore such penalty proceedings abate on the death of the assessee. If recovery of , penalty is permitted against the estate of deceased, then it would clearly lead to permitting the enforcement of crime against the right of LR in succeeded estate.

Order of the ITAT

In view of aforestated discussion and restriction placed in s/s (4) of section 159 of the Act and further adopting the reasoning laid in ‘Taraknath Gayen and others Vs CEGAT’ & & ‘Omwati Vs UOI’ (supra) we allow the legal ground arose in the instant appeal and in consequence set-aside the impugned order and direct the Ld. AO to delete the penalty.