Penalty under Section 271(1)(c) of IT Act upheld against legal heirs of deceased assessee; matter remitted to AO to assess estate liability.

Headnote:

The legal heirs of Late Jagdish challenged the penalty of Rs. 81,842/- levied under Section 271(1)(c) of the Income Tax Act, 1961, by the Assessing Officer (AO) and partly confirmed by the CIT(A). The appeal focused on whether penalty could be imposed posthumously and if legal heirs could be held liable. The Tribunal examined Section 159, the distinction between concealment of income and furnishing inaccurate particulars, and the onus of proving unexplained cash deposits. It was held that penalty proceedings could continue against legal heirs only to the extent of the estate capable of meeting the liability. The AO must clearly specify the limb of Section 271(1)(c) under which penalty is imposed. The case was remitted to the AO to determine the estate’s extent to satisfy the penalty.

Background:

Late Jagdish, assessee for AY 2007-08, had unexplained cash deposits of Rs. 3,80,000 and Long-Term Capital Gains (LTCG) of Rs. 14,62,758. The AO levied a penalty of Rs. 3,96,929 under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars. CIT(A) deleted the penalty on LTCG but sustained it on unexplained cash deposits. The assessee passed away on 08.02.2018, and his legal heir, Shri Chhaju Ram, was substituted. The legal heir challenged the levy, arguing that penalty is personal to the deceased, Section 159(4) limits liability to tax payable, and penalty should not extend to legal heirs. It was also argued that AO failed to specify the correct limb of Section 271(1)(c) for imposition of penalty.

Conclusion:

The Tribunal upheld that penalty proceedings can continue against legal heirs only to the extent of the deceased’s estate capable of meeting the liability. The AO must specify the limb under Section 271(1)(c) (concealment or furnishing inaccurate particulars). The appeal was partly allowed by remanding the matter to the AO to determine the extent of estate available to satisfy the penalty. Penalty on unexplained cash deposits is sustained, while other claims remain subject to AO’s assessment.

Case No.: ITA No. 1437/JP/2024

Bench: Jaipur, AM: Rathod Kamlesh Jayantbhai, JM: Narinder Kumar

Assessment Year: 2007-08

Appellant: Legal heir of Late Jagdish, Shri Chhaju Ram

Respondent: ITO, Ward 7(1), Jaipur

Date of Hearing: 09/09/2025

Date of Pronouncement: 07/10/2025