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Assessment in case of an assessee who died

Section 159 states that in case of death of an assessee, his legal representative shall be liable to pay any sum  (sum includes both taxes and penalty) which the assessee would have been liable to pay if he would have been alive and in the same manner & to the extent he was liable to pay.  If any proceeding under the Act has been initiated during the lifetime of the assessee, the proceeding shall continue against legal representatives, after the death of the assessee from the stage at which the assessee has died.  If the proceeding has not been initiated during the lifetime of the  assessee,   the same can be instituted against Legal representative and legal representative shall be deemed to be an assessee under the Act and all the provisions of this act shall apply. Therefore Section 159 is also a deeming provision.

Every legal representative shall be  personally liable to pay the sum and maximum to the extent he has inherited from the deceased assessee. Thus the provisions given under section 159 are complete. Notice u/s 143(2) has been issued to an assessee and the assessee has acknowledged the same during his lifetime and later he dies. In Athis situation as soon as death of the assessee comes to the knowledge of AO, the AO should conduct enquiry and determine all the Legal Heirs and bring them on the record. AO should issue 142(1) to all Legal Reprsentatives. These notices should be issued to Legal Representatives in the capacity of LRs only. AO should continue the proceedings and assessment should be made in the capacity of legal representative. It is advisable to issue notice u/s 143(2) also to all the Legal Representatives if limitation to issue notice u/s 143(2) has not been expired.If any notice has been issued to an assessee but it has been returned by Postal Department with comments “Assessee deceased”, the notice becomes invalid. Now notice can be issued to all LRs if time to issue the notice remains, otherwise it cannot be issued. If limitation permits, fresh notice in the capacity of LRs should be issued and served upon all the LRs. Only then AO can complete the proceeding. If notice u/s 148 for AY 2010-11 is issued on 31.03.2017 and it is returned to AO on 3rd April, 2017 with remark “assessee deceased”, AO cannot continue proceedings as notice issued to a non-existent person is bad in law. If AO pursues the same notice on LRs, even if LRs participate in the proceedings, 292BB will not cure the defect of notice as it is bad in Law.Penalty, Recovery and Prosecution:- In case of penalty proceedings also, similar procedure is to be adopted and similar precaution is to be taken. LRs are liable to pay penalty also for the error committed by the deceased assessee during his lifetime as section 159 clearly states that LRs are liable to pay any sum, thus penalty can also be levied on the LRs in the capacity of Legal Representative.  Where a valid assessment has been completed against a deceased assessee, recovery proceedings can also be initiated against the LRs but this is subject to condition laid down u/s 159(4). In layman language his liability is limited to the extent what he has inherited from the deceased. Regarding prosecution, prosecution being a criminal proceeding where an assessee is personally liable, prosecution should not be launched against a dead person.