MS SHEWETA BAID V. THE UNION OF INDIA and 9 ORS

WP(C)/6659/2015

AI Insights

The case involves a series of writ petitions challenging the transfer of various assessees' cases from Guwahati to New Delhi under Section 127(2) of the Income Tax Act, 1961. The transfers were initiated by the Income Tax Department for centralizing cases post-search and seizure actions. The assessees contested the transfers, arguing that the show cause notices did not disclose adequate reasons for the transfer, and that the Principal Commissioner acted under the direction of the CCIT (Central), New Delhi, without proper application of mind. The court found that the show cause notices were inadequate as they failed to disclose the reasons for the transfer, thus violating the principles of natural justice.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 725581 (HC-ASSAM)
• Appeal Type: Others
• Pronouncement Date: 01-09-2015
• Assessment Year: misc
• Other Referred Cases: Ajantha Industries Vs. Central Board of Direct Taxes, Chotanagpur Industries Gases (P) Ltd. Vs. Commissioner of Income Tax, Rathi and Co. and Ramesh and Co. vs. Union of India
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S SARMA
• Assessee Lawyers: U K BORTHAKUR
• Keywords: Centralization of Cases; Natural Justice; Show cause notice; Income Tax Transfer
• Section: 132(1); 127(2); 132(9A)

Judgement Text

"WP(C) 6659/2015 BEFORE HON’BLE MR. JUSTICE HRISHIKESH ROY HON’BLE MR. JUSTICE MANOJIT BHUYAN Heard Mr. U.K. Borthakur, the learned counsel appearing for the petitioners. The respondents are represented by Mr. S. Sarma, the learned standing counsel for t he Income Tax Department. 2. In these cases, the income tax authorities have invoked Section 127(2) o f the Income Tax Act to transfer the cases of the assessees from Guwahati to the jurisdictional income tax officer at New Delhi. 3. For the first group of litigants [WP(C) Nos.5828/2015, WP(C) Nos.5845/20 15, WP(C) Nos.5870/2015, WP(C) Nos.5879/2015, WP(C) Nos.6625/2015, WP(C) Nos.662 6/2015, WP(C) Nos.6632/2015, WP(C) Nos.6657/2015, WP(C) Nos.6658/2015, WP(C) Nos .6694/2015, WP(C) Nos. 6686/2015, WP(C) Nos.6681/2015 & WP(C) Nos.6689/2015], th e show cause notice for transferring the case was issued on 29.7.2015 by the Pri ncipal Commissioner of Income Tax, Guwahati-2 and the said notice reads as under :- & & & & & & & & & & &.. Sub: Notice u/s.127(2) of the Income-tax Act, 1961 - transfer of your case from ACIT, Circle-4, Guwahati to DCIT, Central Circle-28, New Delhi-reg. Sir, The CCIT (Central), New Delhi has approved the proposal of investigation wing to centralized the cases with one assessing officer after search and seizu re action u/s.132(1) of the Income-tax Act, 1961. Accordingly, the Principal Com missioner of Income Tax (Central)-3, New Delhi vide No.PCIT(C)-3/Del/Centralisat ion/2015-16/673 dated 10.07.2015 has requested to pass an order u/s.127(2) of th e I.T. Act, 1961 transferring your case from ACIT, Circle-4, Guwahati to DCIT (C entral Circle)-28, New Delhi. It is therefore proposed to transfer your case fro m ACIT, Circle-4, Guwahati to DCIT, Central Circle-28, New Delhi. You are hereby provided with an opportunity to represent your case eithe r in person or through an authorized representative or by way of written submiss ion, if any on 07.08.2015 at 10:00 AM at 2nd floor, Aayakar Bhawan, Christian Ba sti, G.S. Road, Guwahati-781005. In case of failure to comply with this notice, it will be presume that there is no objection to the proposed transfer of your c ase as above. Yours faithfully, (Vinay Kumar) Principal Commissioner of Income Tax, Guwahati-2, Guwahati. 4. On the other hand, for the second group [WP(C) Nos.5871/2015, WP(C) Nos. 5872/2015, WP(C) Nos.5876/2015, WP(C) Nos.6659/2015, WP(C) Nos.6676/2015 and WP( C) Nos.6685/2015], a separate show cause notice was issued by the Principal Comm issioner of Income Tax, Guwahati-1 and the said notice is extracted here-in-belo w for ready reference: & & & & & & & & & & &.. Sub: Centralisation of Search & Seisure cases & & & & & & & Sir, 1. Your case is proposed to be transferred u/s. 127 of the Income-tax Act, 1961 from the ACIT, Circle-2, Guwahati to the O/o. Assistant/Deputy Commissioner of Income-tax, Central Circle-28, New Delhi. 2. Opportunity of being heard is hereby granted to furnish your comments on or before 30/07/2015. In case your comments are not received by 30/07/2015, it shall be presumed that you have no objection to transfer your case to the office of the Assistant/Deputy Commissioner of Income-tax, Central Circle-28, New Delh i. Yours faithfully, Income Tax Officer (Tech.) For, Principal Commissioner of Income Tax, Guwahati-I, Guwahati 5. As can be seen from the above notice(s), the transfer was proposed for c entralization of the cases of different assessees, under one Officer of the Inco me Tax Department and that is why the assessees were asked to respond as to why, their respective cases should not be transferred out of the jurisdiction of the income tax officer at Guwahati to the officer at New Delhi. 6. In their respective replies, the assessees contended that the reasons/gr ounds are not disclosed for transferring the cases to New Delhi in the show caus e notice and accordingly request was made to convey the reason for the proposed action and further not to pass any order on the proposed transfer, without commu nication of the reasons. 7. Thereafter, without specifying any reason for the proposed action, the P rincipal Commissioner of Income Tax stipulated a date of hearing and final order s were passed on 31.8.2015 in the first Group Cases and on 31.7.2015 in the seco nd Group Cases, whereby the cases of the assessees were transferred from the Guw ahati officer to the jurisdiction of the Assistant Commissioner of Income Tax, C entral Circle-28 at New Delhi. 8. In all these cases common issues are involved and similar arguments are advanced by the respective counsel representing the assessees and the Revenue an d therefore the following order will cover all the cases. 9.1 The learned counsel Mr. U.K. Borthakur for the petitioners refer to both show cause notices to contend that reasons are not disclosed to the assessee as to why their cases are required to be transferred to New Delhi. To be precise, if centralizing the case is the objective, it is not shown why all the cases cou ld not be clubbed under one Income Tax Officer at Guwahati and why they needed t o be transferred out of Guwahati jurisdiction. 9.2 The next contention made by the petitioners is that although the show ca use notice(s) were issued by the competent authority i.e. the Principal Commissi oner of Income Tax, he abdicated his responsibility by acting under the directio n of the CCIT (Central), New Delhi and this was a case of non-application of min d by the competent officer. In order to buttress this contention Mr. UK Borthaku r refers to the averments in the counter affidavit in the WP(C) No.6676/2015 (Bh awani Shankar Sharma vs. Union of India), where the deponent income tax officer stated that coordination of investigation is not required in this case and there fore the order under Section 127(2) of the Income Tax Act was recalled and the c ase of this assessee was re-transferred to the ITO-1(1), Guwahati. 9.3 According to the petitioners, the show cause notice without containing t he real reason was defective and therefore the consequential hearing was a mere formality in the instant cases and they do not satisfy the requirement of Sub-Se ction (2) of Section 127 of the Income Tax Act as explained in the applicable ju dgment(s) of the Apex Court. 9.4 The petitioners’ counsel refers to the provisions of Sub-section (9A) of Section 132 of the Income Tax Act to contend that when assessment is followed b y search and seizure, all seized materials/documents are to be handed over to th e Assessing Officer exercising jurisdiction over the concerned assessee and in t he instant case, the competent Officer at Guwahati could have easily coordinated /centralized the assessment work, for all these litigants. 10.1. On the other hand Mr. S. Sarma, the learned standing counsel for the Inc ome Tax Department submits that most of the assessees involved in the present ca ses are residents of Delhi and that is one of the reason for transferring these cases to the jurisdiction of the Delhi based Income Tax Officer. 10.2. The learned lawyer for the Revenue also submits that reasons for the imp ugned action are clearly discernible from the show case notice and also the fina l order passed under Section 127(2) of the Income Tax Act and therefore Mr. Sarm a argues that there has been no denial of adequate opportunity to the petitioner s. 11. The requirement of Section 127(2) of the Income Tax Act was considered i n Ajantha Industries Vs. Central Board of Direct Taxes, reported in (1976) 102 I TR 0281 and here the question that was decided is whether failure to record the reason in the order which was communicated to the assessees, violates the princi ple of Natural Justice. The issue was answered by the Apex Court by stating that when law requires reasons to be recorded in a particular order, which prejudici ally affects the interest of any person, such order ceases to be simple administ rative order and non-communication of reason in such order will infringe the pri nciples of Natural Justice. 12. The Calcutta High Court in (1998) 233 ITR 0377 (Chotanagpur Industries G ases (P) Ltd. Vs. Commissioner of Income Tax), while interpreting the provisions of Section 127(2) of the Income Tax Act concluded that show cause notice must c onvey the reason for the proposed transfer of the case so that the assessee coul d make effective representation with reference to the reasons set out in the not ice and if the reasons are not communicated, the hearing that may follow thereaf ter would not satisfy the requirement of the Income Tax Act. 13. The next case cited by both sides in support of their respective content ion is Rathi and Co. and Ramesh and Co. vs. Union of India reported in [2004] 26 7 ITR 295 (Gauhati) and therefore this case deserves careful consideration. The challenge here was to an order passed by the CIT, Guwahati-II, transferring the income tax and wealth tax cases of the petitioner from the jurisdiction of the A ssessing Officers at Guwahati to the Assessing Officer in Calcutta. Here also, a prior notice was issued to the assessee before the cases were transferred. But unlike the cases that we are dealing here, the petitioner in that case, submitte d their objections without any reservation and did not ask for any further mater ial. That is why the challenge to the transfer order on the ground of absence of reason in the show cause notice was not entertained by the High Court in Rathi and Co. (Supra). But the facts here are clearly distinguishable since in their r espective replies, each of the petitioners have highlighted the absence of reaso n in the show cause notice and requested intimation of the reason, for facilitat ing effective representation in the proceeding under Sub-Section (2) of Section 127 of the Income Tax Act. Therefore the decision in Rathi and Co. (Supra) shoul d not detain us in the present cases. 14. When a notice under Section 127 of the Income Tax Act is issued, it must prima facie show due application of mind and reasons must also be disclosed so that an effective opportunity is provided to the affected party to respond to th e show cause notice. The contemplated hearing in such matter to the assessee mus t be effective and not a mere formality. Bare omnibus statement that the transfe r is intended for the purpose of centralization of cases will not be enough sinc e all the cases can be centralized under an officer based in Guwahati and transf er of jurisdiction to an officer at New Delhi would not be justified for the rea son disclosed, more so, in view of Sub-section (9A) of Section 132 of the Income Tax Act. 15. That apart, the order passed under Section 127 of the I.T. Act is a quas i judicial order and it must be established that such order was passed upon due application of mind to the relevant facts having a bearing on the issue for invo king the powers under Section 127(2) of the Income Tax Act. Here we find that th e competent authority acted at the request of the CCIT (Central), New Delhi and noticing the reversal of the stand in the WP(C) No.6675/2015, we can reasonably infer that proper application of mind by the competent authority at Guwahati is lacking in the instant cases and because of this, the abdication of responsibili ty is discernible in these cases. 16. It further appears from the show cause notice dated 29.7.2015 that, the CCIT (Central), New Delhi had acted on the proposal of the investigation wing bu t what was that proposal and the nature of the approval to such proposal or even the gist thereof, were not disclosed in the show cause notice issued by the Guw ahati based Principal Commissioner of Taxes. 17. In a given situation, centralizing of the cases can be for a bonafide ob jective but the appropriate reason under the ratio of Ajantha Industries (Supra) must be disclosed in the notice itself and the failure to do so would vitiate t he notice and also the transfer order, consequent upon that inadequate notice. 18. Furthermore, while centralizing the cases can be a good ground for invok ing the powers under Section 127(2) of the Income Tax Act, some reasons must be given by the Commissioner as to why, it is also necessary, to transfer the cases from Guwahati to New Delhi. Undoubtedly, transfer of assessment may cause incon venience and monetary loss to the assessee and therefore the quasi judicial powe r under Section 127(2) of the Income Tax Act must be exercised in public interes t by affording due opportunity to the affected party. To facilitate a fair oppor tunity, the show cause notice must disclose the reason or the gist thereof as to why the transfer of jurisdiction to an officer at New Delhi is necessitated. 19. Moreover, the ground of transfer must have nexus towards administrative convenience and coordinated investigation , as is reflected in the impugned t ransfer order. But unfortunately these twin reasons of administrative convenien ce and coordinated investigation , are not reflected in the show cause notice and therefore in our opinion, the assessees were denied of a reasonable opportun ity of hearing as envisaged by law. In our view the principles of natural justic e have to be complied at every stage and violation at the initial stage can’t be cured through additional reasons incorporated in the final order. 20. In our considered view the impugned steps in the present matters were in denial of a fair opportunity to the assessee through disclosure of appropriate reasons germane to the objective intended to be achieved, at the stage of show c ause notice and therefore the consequential order(s) dated 31.8.2015 and 31.7.20 15, are found to be unsustainable and the same are quashed. The matter is howeve r remanded back to the respective Principal Commissioners of Income Tax, Guwahat i-I and Guwahati-II, who may take fresh steps under Section 127 of the Income Ta x Act, after giving fair opportunity to the petitioners and pass appropriate ord er thereafter, in accordance with law, after recording his reason. 21. With the above order, these cases are disposed of, without any order as to cost. "