AI Insights
The case involves M/S Nagindas Kasturchand and Bros., who challenged the legality of an order transferring their income tax assessment case from Surendranagar to Ahmedabad. The transfer was executed under Section 127(2) of the Income Tax Act, 1961, by the Principal Commissioner of Income Tax, Ahmedabad. The writ-applicant argued that the transfer was done without any notice or opportunity for a hearing, violating the principles of natural justice. The respondents defended the transfer citing administrative exigencies and compliance with CBDT guidelines. The court analyzed the legal requirements for transferring a case under Section 127 and the implications of not adhering to these requirements.
Appeal Details
Counselvise Citation
[2022] 140 COUNSELVISE.COM (IT) 767808 (HC-GUJARAT)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Others
Pronouncement Date
11-04-2022
Assessment Year
misc
Judgement Text
"C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16529 of 2021 With CIVIL APPLICATION (FOR STAY) NO. 1 of 2022 In R/SPECIAL CIVIL APPLICATION NO. 16529 of 2021 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE J.B.PARDIWALA Sd/- and HONOURABLE MS. JUSTICE NISHA M. THAKORE Sd/- ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? NO ================================================================ M/S NAGINDAS KASTURCHAND AND BROS. Versus PRINCIPAL COMMISSIONER OF INCOME TAX 3, AHMEDABAD ================================================================ Appearance: MR K.M.PARIKH with MR KULDEEP K.ADESARA, ADVOCATES for the Petitioner(s) No. 1 MR M.R.BHATT, SR.ADVOCATE for M.R.BHATT & CO. for the Respondent(s) No. 1,3,4 MS MAITHILI D MEHTA, ADVOCATE for the Respondent(s) No. 2 ================================================================ CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 11/04/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) Page 1 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 1. By this writ-application under Article 226 of the Constitution of India, the writ-applicant has prayed for the following reliefs : “A. This Hon’ble Court be pleased to admit and allow the Petition filed by the Petitioner. B. This Hon’ble Court be pleased to issue Writ of Mandamus or Writ of Certiorari or any other appropriate Writ, Order or direction for quashing and setting aside impugned order at Annexure-A dated 08/07/2021 issued by Respondent No.1 u/s.127(2) of the Act. C. Pending admission, hearing and final disposal of present Petition, this Hon’ble Court be pleased to stay the implementation, operation and execution of impugned order at Annexure-A dated 08/07/2021 issued by Respondent No.1 u/s.127(2) of the Act and consequential assessment order at Annexure-B dated 28/09/2021 passed by Respondent No.2 u/s.143(3) of the Act for A.Y. 2018-19 in pursuance to impugned order dated 08/07/2021 at Annexure-A passed by Respondent No.1 u/s.127(2) of the Act. D. Pending admission, hearing and final disposal of present Petition, this Hon’ble Court be pleased to direct Respondents not to take any coercive steps under the Act in any manner against the Petitioner Firm in respect of the amount quantified in the assessment order without prior permission of this Hon’ble Court. Page 2 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 E. This Hon’ble Court be pleased to grant ex-parte ad- interim relief in favour of the Petitioner and against the Respondents as prayed for in Para-C and Para-D of the Petition. F. This Hon’ble Court be pleased to grant any other just and proper relief in the facts and circumstances of the case in the interest of justice and equality.” 2. The writ-applicant seeks to challenge the legality and validity of the order dated 8th July 2021 passed by the respondent no.1 herein under Section 127(2) of the Income Tax Act, 1961, transferring the case of the writ-applicant from the office of the respondent no.3 at Surendranagar to the office of the respondent no.2 at Ahmedabad. 3. It appears that the writ-applicant filed its return of income on 8th October 2018 for the Assessment Year 2018-19, declaring the total income of Rs.12,54,590=00. 4. A survey under section 133A of the Act was carried out on 4th February 2019 at the premises of the assessee. The case was selected for compulsory scrutiny in view of the CBDT guidelines bearing F.No.225/126/2020/ITA-II (ITA-II Division) dated 17th September 2020 and a notice under section 143(2) of the Act dated 25th September 2019 was issued and served upon the assessee by the ACIT, Surendranagar Circle, Surendranagar. 5. The National E-Assessment Centre issued notice under Page 3 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 Section 142(1) of the Act to the writ-applicant, dated 23rd February 2021, for the Assessment Year 2018-19. 6. The writ-applicant filed its reply dated 8th March 2021 to the above notice for the Assessment Year 2018-19. 7. It appears that the respondent no.2 issued notice under Section 142(1) of the Act, dated 26th August 2021, wherein it was brought to the notice of the writ-applicant that its case had been transferred to the office of the respondent no.2 as Transferee Assessing Officer vide the impugned order passed under Section 127 of the Act. 8. It was brought to the notice of the writ-applicant that the respondent no.2 has assumed jurisdiction as the Assessing Officer in the case of the writ-applicant for the Assessment Year 2018-19. 9. The writ-applicant filed its reply dated 31st August 2021 and 1st September 2021 respectively against the notice dated 26th August 2021 issued under Section 142(1) of the Act, stating that it was not aware about any order passed under Section 127 of the Act as no notice for hearing under Section 127 of the Act had been served upon the writ-applicant and the writ-applicant had not even received any order passed under Section 127 of the Act. 10. In such circumstances referred to above, the writ-applicant is here before this Court with the present writ-application. Page 4 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 11. During the pendency of this writ-application, the writ- applicant had to prefer one civil application with the following prayers : “A. This Hon’ble Court be pleased to allow present Civil Application for stay filed by the applicant. B. This Hon’ble Court be pleased to stay the execution, operation and implementation of impugned order dated 08/07/2021 passed by respondent no.1 u/s.127(2) of the Act. C. Pending admission, hearing and final disposal of Special Civil Application No.16529/2021, this Hon’ble Court be pleased to direct income tax authorities as mentioned in Column-5 and Column-6 of an order dated 08/07/2021 passed by respondent no.1 u/s.127(2) of the Act, not to pass any coercive orders in any manner against applicant assessee for A.Y. 2017-18 and for any assessment years without prior permission of this Hon’ble Court. D. Pending admission, hearing and final disposal of Special Civil Application No.16529/2021, this Hon’ble Court be pleased to direct income tax authorities as mentioned in Column-5 and Column-6 of an order dated 08/07/2021 passed by respondent no.1 u/s.127(2) of the Act that no proceedings under the provisions of the Income Tax Act including revision proceedings u/s.263 of the Act for A.Y. 2017-18 be initiated, continued and completed against the applicant on the basis of the jurisdiction so assumed by income tax authorities stated in Column-5 and Column-6 of Page 5 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 order dated 08/07/2021 passed by respondent no.1 u/s.127(2) of the Act without prior permission of this Hon’ble Court. E. Pending admission, hearing and final disposal of Special Civil Application No.16529/2021, this Hon’ble Court be pleased to direct PCIT (Central), Ahmedabad to stay the revisional proceedings initiated u/s.263 of the Act against the applicant for A.Y. 2017-18 and not to pass any final order against the applicant for A.Y. 2017-18 without prior permission of this Hon’ble Court. F. This Hon’ble Court be pleased to grant any other and further relief to the applicant in the interest of justice.” 12. Thus, the aforesaid Civil Application came to be filed as the assessment order for the Assessment Year 2017-18 was taken up for revision by the PCIT-Central, Ahmedabad, in exercise of the powers conferred under Section 263 of the Act. It is the case of the writ-applicant that till the issue as regards the legality and validity of the order of transfer passed under Section 127(2) of the Act is not decided, the PCIT-Central, Ahmedabad, should not be permitted to proceed with the revisional proceedings initiated under Section 263 of the Act for the Assessment Year 2017-18. SUBMISSIONS ON BEHALF OF THE WRIT-APPLICANT : 13. The principal argument of Mr.Parikh is that no opportunity of hearing was given to his client before transferring the case under Section 127 of the Act. Page 6 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 14. Mr.Parikh would submit that his client should have been served with a notice containing the reasons for transfer and should also have been given an opportunity of hearing before passing the impugned order. In the absence of both, the impugned order is not sustainable in law. SUBMISSIONS ON BEHALF OF THE RESPONDENT : 15. On the other hand, Mr.M.R.Bhatt, the learned senior counsel appearing for the Revenue, submitted that considering the implementation of Faceless Assessment Scheme, 2020, as well as the administrative difficulties being faced on account of the Covid-19 pandemic, the CBDT, vide Instructions dated 17th September 2020, issued guidelines and parameters for compulsory selection of returns for complete scrutiny during the Financial Year 2020-21 and conduct of assessment proceedings. Following the directions of the Director General of Income Tax (Investigation), Ahmedabad, and subsequent communication from the Principal Commissioner of Income Tax-Central, Ahmedabad, an order under Section 127(2) of the Act came to be passed by the Principal CIT-3, Ahmedabad, transferring the case of the writ-applicant from the ITO Ward-2, Surendranagar Circle, Surendranagar, to the ACIT-Central Circle-2(3), Ahmedabad, with effect from 8th July 2021. 16. Mr.Bhatt put forward the following propositions on behalf of the department in defence of the impugned order : (a) A statute can, in appropriate cases, exclude the principles of natural justice; Page 7 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 (b) Since the assessee has no legal right of being assessed by any particular Assessing Officer, the principles of natural justice can be validly excluded in the matter of the Income Tax Act; (c) Section 127 restricts the obligation of hearing and passing a speaking order only when the case is to be transferred suo motu; (d) Section 127 excludes, by necessary implication, an opportunity of hearing when the transfer is on account of the administrative exigencies; (e) In the facts of the case on hand, the concept of ‘empty formality’ may be invoked. In other words, assigning reasons and giving opportunity of hearing to the assessee would otherwise have been an empty formality. 17. Mr.Bhatt invited the attention of this Court to the following averments made in the affidavit-in-reply filed on behalf of the respondent no.1 : “3. At the outset, I submit that the petitioner has challenged the impugned order dated 08.07.2021 passed under section 127(2) of the Income Tax Act, 1961 (‘the Act’) whereby the case of the petitioner was transferred from ITO, Ward-2, Surendranagar to ACIT, Central-2(3) Ahmedabad. Consequent to the impugned transfer order, the assessing officer has framed assessment order u/s 143(3) of the Act on 28.09.2021 for A.Y 2018-19 after considering the Page 8 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 exhaustive written submissions of the petitioner assessee. I submit that the impugned transfer order is administrative in nature and the assessee has no right of selection of a particular assessing officer for undertaking assessment. There is no prejudice caused to the assessee pursuant to impugned transfer order as the petitioner was duly heard before framing of assessment order. It is also not the case of the petitioner that the assessment order passed is in violation of principles of natural justice. In view of the above, the petition may kindly be dismissed. 4. The brief facts are that a survey under section 133A of the Act was carried out on 04.02.2019 at the premises of the assessee. The case was selected for compulsory scrutiny in view of CBDT guidelines bearing F.No. 225/126/2020/ITA-II (ITA-II Division) dated 17.09.2020 and a notice under section 143(2) of the Act dated 25.09.2019 was issued and served upon the assessee by the ACIT, Surendranagar Circle, Surendranagar. 5. Keeping in view the implementation of Faceless Assessment Scheme, 2020 as well as difficulties being faced amid COVID-19 pandemic, the CBDT vide Instruction F.No.225/126/2020/ITA-II dated 17.09.2020, had issued guidelines and parameters for compulsory selection of returns for Complete Scrutiny during the Financial Year 2020-21 and conduct of assessment proceedings. A copy of CBDT Instructions dated 17.09.2020 is annexed hereto and marked as Annexure-R1. Relevant portion is as under: Page 9 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 Sr No The Parameter Assessment proceedings to be conducted by 1 Cases pertaining to survey u/s. 133A of the Income- tax Act, 1961 (“Act”) Cases pertaining to survey u/s 133A of the Act, excluding those cases where books of accounts, documents, etc were not impounded and returned income (excluding any disclosure made during the Survey) is not less than returned income of preceding assessment year. However, where assessee has retracted from disclosure made during the Survey, such cases will be considered for scrutiny. (i) In respect of such cases selected for compulsory scrutiny and where there is impounded material (ii) In respect of such cases selected for compulsory scrutiny and where there is no impounded material (i) After the issue of notice u/s 143(2) of the Act by the Jurisdictional Assessing Officer for compulsory selection, such cases shall be transferred to Central Charges u/s 127 of the Act within 15 days of issue of notice u/s 143(2) of the Act. (ii) After the issue of notice u/s 143(2) of the Act by the Jurisdictional Assessing Officer for compulsory selection, Page 10 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 assessment proceedings in such cases will be conducted by NeAC. The Assessing Officer shall upload the Survey Report in the ITBA at the time of issue of notice u/s 143(2) of the Act. 6. Subsequently, the CBDT vide Instruction F.No. 225/126/2020/ITA-II dated 30.09.2020 had extended the date of selection of cases for Compulsory Scrutiny on the basis of prescribed parameters, as communicated vide Board’s letter dated 17.09.2020, from 30.09.2020 to 31.10.2020. A copy of CBDT Instructions dated 30.09.2020 is annexed hereto and marked as Annexure-R2. Relevant portion of the said communication is as under: “Kindly refer to Board’s letter dated 17.09.2020 regarding Guidelines for compulsory selection of returns for Complete Scrutiny during the Financial Year 2020-21. 2. Vide the said letter, the following time limits were prescribed for completion of certain actions: a) Selection of cases for compulsory scrutiny on the basis of the prescribed parameters shall be completed by 30th September 2020. b) The Survey Cases with impounded materials have to be transferred to the Central Charges under section 127 of the Income-tax Act, 1961 (Act) within 15 days of issue of notice u/s 143(2) of the Act. Page 11 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 c) Search cases u/s 153C of the Act, if lying outside the Central Charges, have to be transferred to the Central Charges u/s 127 of the Act within 15 days of issue of notice u/s 143(2) of the Act. 3. Considering the difficulties faced by the field formation due to COVID-19 pandemic and PAN migration related issues, this matter has been reconsidered and it has been decided to extend the date for selection of cases for Compulsory Scrutiny on the basis of prescribed parameters, as communicated vide Board’s letter dated 17.09.2020, from 30th September, 2020 to 31st October,2020. 4. It is clarified that even though the new statutory time limit as per the Taxation and other laws (Relaxations and amendment of certain provisions) Act, 2020 for selection of cases for Compulsory Scrutiny on the basis of prescribed parameters was extended to 31st March,2021, still for the purpose of timely allocation of cases to NeAC, the above time limit will have to be strictly adhered to, otherwise, the allocation of cases to NeAC will get considerably delayed. 5. Further, for the same reasons as above in para 4, the cases covered under the scenarios mentioned in Para 2(b) and 2(c) of this letter shall be transferred to the Central Charges by issue of orders u/s 127 of the Act, immediately after service of notice u/s 143(2) of Page 12 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 the Act. 6. These instructions may be brought to the notice of all concerned for necessary compliance. 7. This issue with the approval of Chairman (CBDT).” 7. Pursuant to the above instructions dated 17.09.2020 and 30.09.2020 of the CBDT, the office of the Director General of Income-tax (Investigation), Ahmedabad vide letter No. DGIT(Inv)/Ahd/Centralization/Search/Survey/ 2021-22 dated 30.06.2021 had granted “in principle” approval for centralization of assessee’s case with any Assessing Officer holding central charge under the charge of PCIT (Central), Ahmedabad. A copy of letter dated 30.06.2021 of the DGIT(Inv), Ahmedabad is annexed hereto and marked as Annexure-R3. 8. Keeping in view the CBDT’s instructions dated 17.09.2020 (supra), the directions of the Director General of Income-tax (Investigation), Ahmedabad and the request of Pr. CIT (Central), Ahmedabad; an order under section 127(2) of the Act was passed by the then Pr. CIT-3, Ahmedabad on 08.07.2021 transferring the case (Sr. No. 14) from ITO Ward-2, Surendranagar to ACIT Central Circle- 2(3), Ahmedabad, w.e.f. 08.07.2021. 9. Subsequently, due to change of incumbent, notice u/s. 142(1) r.w.s. 129 of the Act along with detailed Page 13 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 questionnaire was issued by the Assessing Officer i.e. ACIT Central Circle-2(3), Ahmedabad on 26.08.2021 calling for the details/information for assessment. The asseseee, in response to the above notice, had raised objection vide reply filed on 31.08.2021 on e-portal. In response to the same, the Assessing Officer provided copy of order u/s. 127(2) of the Act to the assessee vide letter dated 15.09.2021. 10. In response to the same, the assessee had filed reply on 16.09.2021 in the e-portal stating that the order u/s. 127(2) dated 08.07.2021 is an invalid order. Subsequently, the Assessing Officer vide letter dated 19.09.2021 had informed the assessee that his case has been centralized with ACIT Central Circle-2(3), Ahmedabad vide order u/s. 127(2) of the Act dated 08.07.2021 passed by the then Pr.CIT-3, Ahmedabad in pursuance to CBDT guidelines related to assessment of survey cases. The Assessing Officer has also stated that the copy of the said order has already been provided to the assessee and hence he was requested to file objection, if any, against said order before the office of thePr.CIT-3, Ahmedabad. 11. Later on, the assessee filed compliances to the notices issued by the Assessing Officer and the assessment proceedings were completed u/s. 143(3) of the Act on 28.09.2021 determining total income of Rs. 11,28,51,670/-. 12. In view of the above facts, it is humbly submitted that following the directions of the Director General of Income- tax (Investigation), Ahmedabad and subsequent communication from Pr. CIT (Central), Ahmedabad, an order Page 14 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 under section 127(2) of the Income-tax Act, 1961 has been passed by the then Pr. CIT-3, Ahmedabad vide letter No. Pr.CIT-3/DCIT(HQ)/Order/127(2)/ Centralization/16/2021- 22 dated 08.07.2021, transferring the case (Sr. No. 14) from ITO Ward-2, Surendranagar to ACIT Central Circle-2(3), Ahmedabad, w.e.f. 08.07.2021.This has been done in compliance to the guidelines and parameters for compulsory selection of returns for Complete Scrutiny during the Financial Year 2020-21 and conduct of assessment proceedings issued by the CBDT vide letter dated 17.09.2020 (supra), keeping in view the implementation of Faceless Assessment Scheme, 2020 as well as difficulties being faced amid COVID-19 pandemic. It is to reiterate that CBDT is empowered to issue instructions to subordinate authorities under section 119(2)(b) of the Act. Relevant portion is reproduced as under : “(b) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorise [any income- tax authority, not being a Commissioner (Appeals)] to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law;” 13. To obviate the difficulties being faced by the assessee due to COVID-19, CBDT issued such instructions to help the assessee to avoid physical contact and complete the Page 15 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 assessment in e-proceedings manner which is in the interest of the assessee. 14. Considering the above facts of the case, it is submitted that the order dated 08.07.2021 passed u/s 127(2) of the Act by the then Pr.CIT-3, Ahmedabad was as per the provisions of the Act and in compliance to the guidelines issued by the CBDT vide letter dated 17.09.2020. 18. In view of the aforesaid, Mr.Bhatt prays that there being no merit in this writ-application, the same may be rejected. ANALYSIS : 19. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is, whether the impugned order of transfer passed under Section 127(2) of the Act is sustainable in law. 20. It appears from the materials on record, as pointed out in the Civil Application referred to above, that the respondent no.2 as the Transferee Assessing Officer [subordinate to the PCIT - Central, Ahmedabad] concluded the assessment proceedings and proceeded to pass the assessment order under Section 143(3) of the Act, dated 28th September 2021, assessing the total income of the writ-applicant to the tune of Rs.11,28,51,670=00 for the Assessment Year 2018-19. It further appears that the PCIT - Central, Ahmedabad, has also initiated revisional proceedings under Section 263 of the Act for the Assessment Year 2017-18. Page 16 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 21. It is not in dispute that no show-cause notice came to be issued to the writ-applicant assigning reasons for transfer under Section 127(2) of the Act. It is also not in dispute that at no point of time the writ-applicant was served with a copy of the order passed under Section 127(2) of the Act. Whether this lapse is sufficient to quash and set-aside the impugned order of transfer under Section 127(2) of the Act and all consequential proceedings undertaken thereafter ? 22. Section 127 of the Act, which reads as under, prescribes two pre-requisite conditions for exercising power of transfer of a case from one Assessing Officer to another Assessing Officer in the circumstances given therein, namely, opportunity of hearing to the assessee and recording of reasons for the transfer. “Power to transfer cases.- (1) The Director General or Chief Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him. (2) where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Director General or Chief Commissioner or Commissioner : Page 17 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 (a) where the Directors General or Chief Commissioners or Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Director General or Chief Commissioner or Commissioner from whose jurisdiction the case is to be transferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order; (b) where the Director General or Chief Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Director General or Chief Commissioner or Commissioner as the Board may, by notification in the Official Gazette, authorize in this behalf. (3) Nothing in Sub-section (1) or Sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place. (4) The transfer of a case under Sub-section (1) or Sub- section (2) may be made at any stage of the proceedings, and shall not render necessary the re-issue of any notice already issued by the Assessing Officer or Assessing Officers from whom the case is transferred.” Page 18 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 23. It cannot be gainsaid that if a statute requires affording of an opportunity of hearing before an order is passed to the person to whom the order relates, it would be an effective opportunity, which is required to be given. The effective hearing, which is required to be given would mean that the assessee must know the ground for the proposed transfer/proposed action and opportunity to rebut the same and to establish that the grounds for such transfer are not tenable under law or for any other reason, as may be admissible under law, such ground would not be sufficient to pass an order of transfer. In doing so, the material which is being sought to be relied upon and the facts, which have led to the formation of opinion for the proposed transfer, have to be broadly and briefly informed to the assessee. On knowing the aforesaid ground and the facts and circumstances of the case, the assessee would have a right to object by filing written representation/objections and thereafter the authority concerned, after affording an opportunity of personal hearing, would pass an order either accepting the objections or the pleas raised by the assessee, or giving his own reasons for not accepting the same. The latter exercise would be incorporated and reduced into writing, which would meet the requirement of recording of reasons in the order. The reasons, so recorded, have to be relevant and germane to the issues raised which can be supported by documentary evidence or such evidence, as may be available, but if reasons are absurd or non- existent, mere recording of statement of reasons would not be sufficient to hold the order as valid for the compliance of the requirement of recording reasons. However, the sufficiency or adequacy of material for recording such reasons, may not be a factor to raise a plea of quantitative insufficiency of material, so as to make the reasons recorded as arbitrary or bad. Page 19 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 24. In the case of Mahabir Prasad Santosh Kumar vs. State of UP and Ors., MANU/SC/0018/1970 : [1971]1 SCR 201, it has been held by the Supreme Court as under : “....Recording of reasons in support of a decision on a disputed claim by a quasi-judicial authority ensures that the decision is reached according to law and is not the result of caprice, whim or fancy or reached on grounds of policy or expediency. A party to the dispute is ordinarily entitled to know the grounds on which the authority has rejected his claim.” 25. In the case of Power Controls and Ors. vs. CIT and Ors., MANU/DE/1195/1999 : (2000) 158 CTR (Del) 222, more particularly, para 19 of the report, the Court observed as under : “....though it may neither be possible nor desirable to confront the assessee with the entire material on record necessitating transfer of case to a particular AO for co- ordinated investigation but in order to provide a reasonable and proper opportunity to him to make an effective representation, as contemplated in Section 127(2), some basic summary of facts, giving some broad idea of the reason for the transfer of the case must be indicated in the show cause notice itself.” 26. Their Lordships in the aforesaid case clarified in para 22 of the report as under : “....we (Their Lordships) are not holding for a moment that 'administrative convenience and/or 'co-ordinated Page 20 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 investigation' cannot be valid ground for transferring the cases belonging to a particular group to a single AO. It would be a good ground, for transfer but the requirement of law, which has to be observed before transferring the assessee's case from one officer to another, is that the assessee must be apprised of the basic and broad facts, which, in the opinion of the authorities concerned, necessitate co-ordinated investigation by a single AO, to enable the assessee to put forth his viewpoint on the issue so that a considered decision is taken to prevent unnecessary harassment to the assessee and at the same time the object of the transfer is achieved, which of course is the prime consideration in such like matters.” 27. In Pannalal Binjraj vs. Union of India, MANU/SC/0020/1956, the Court observed as under : “.....If the reasons for making the order are reduced however briefly to writing, it will also help the assessee in appreciating the circumstances which make it necessary or desirable for the CIT or the Central Board of Revenue, as the case may be, to transfer his case under Section 5(7A) of the Act and it will also help the Court in determining the bona fides of the order as passed if and when the 'same is challenged in the Court as mala fide or discriminatory'.” 28. The aforesaid was a case under Section 5(7A) of the Income Tax Act, 1922. The Court also took notice of the fact that the Central Board of Revenue or the CIT, as the case may be, instructed the ITOs concerned to minimise the inconvenience Page 21 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 caused to the assessees and even proceed to their respective residence or places of business in order to examine the accounts and evidence. In spite of the denials of the assessees in the affidavits which they filed in rejoinder, Their Lordships presumed that such facilities would continue to be afforded to them in the future and the inconvenience and harassment which would otherwise be caused to them would be avoided. A humane and considerate administration of the relevant provisions of the Income Tax Act would go a long way in allaying the apprehensions of the assessees and if that is done in the true spirit, no assessee will be in a position to charge the Revenue with administering the provisions of the Act with ‘an evil eye and unequal hand’. 29. In the case of Hindustan Petroleum Corporation Ltd. vs. Darius Shapur and Ors., MANU/SC/0610/2005: AIR 2005 SC 3520 , the Supreme Court observed as under : “….When an order is passed by a statutory authority, the same must be supported either on the reasons stated therein or on the grounds available therefore in the record. A statutory authority cannot be permitted to support its order relying on or on the basis of the statements made in the affidavit de hors the order or for that matter de hors the records.” 30. The question as to whether the exercise of power under Section 127(2) is administrative in nature or it is quasi-judicial has also been seriously argued by the parties, the stand of the Revenue being that it is administrative exercise of power, Page 22 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 whereas the assessees' counsel submitted that it is quasi- judicial function of the authority. 31. The requirement of giving opportunity to the assessee before passing an order of transfer of cases from one place to another under Section 127(2), coupled with the requirement of recording of reasons for passing such an order, cannot put the said power into the exclusive administrative domain of the authority but it symbolizes its quasi-judicial function. However, the distinction and the requirement of following the principles of natural justice and recording of reasons for passing an order in the proceedings either administrative or quasi-judicial have been reduced into a very thin margin, in effect, making such a distinction non-existent. Any order, even if it is administrative, has to meet the test of Article 14 of the Constitution and should be supported by reasons, which are not absurd or arbitrary. An order of transfer of cases under Section 127(2) may cause some inconvenience to the assessee and, therefore, any such order has to be passed after hearing and by giving reasons. The aforesaid requirement does fulfill the necessary ingredients of principles of natural justice, which have also been incorporated in the aforesaid provision. Thus, the nature of the authority, which is exercised under Section 127(2) is not of much significance, i.e., whether it is taken as administrative exercise of power or quasi- judicial exercise of power. 32. In the case of Ajantha Industries and Ors. vs. CBDT and Ors., 1976 CTR (SC) 79 : (1976) 1 SCO 1001, the Supreme Court was dealing with a case, wherein the reasons were not communicated and it was said that failure to communicate the Page 23 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 reasons for passing an order under Section 127 renders the order bad. The Supreme Court in aforesaid case observed as under : “The reason for recording of reasons in the order and making these reasons known to the assessee is to enable an opportunity to the assessee to approach the High Court under its writ jurisdiction under Art. 226 of the Constitution or even this Court under Art. 136 of the Constitution in an appropriate case for challenging the order, inter alia, either on the ground that it is mala fide or arbitrary or that it is based on irrelevant and extraneous considerations. Whether such a writ or special leave application ultimately fails is not relevant for a decision of the question. We are clearly of opinion that the requirement of recording reasons under section 127(1) is a mandatory direction under the law and non-communication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee. Mr. Sharma drew our attention to a decision of the Delhi High Court in Sunanda Rani Jain vs. Union of India, (1975) 99 ITR 391 (Del), where the learned Single Judge has taken a contrary view. For the reasons, which we have given above, we have to hold that the said decision is not correct. The appellant drew our attention to a decision of this Court in Shri Pragdas Umer Vaishya vs. Union of India, (1967) 12 MPLJ 868, where rule 55 of the Mineral Concession Rules, 1960, providing for exercise of revisional power by the Page 24 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 Central Government was noticed. It was held that under rule 55 the Central Government in disposing of the revision application must record its reasons and communicate these reasons to the parties effected thereby. It was further held that the reasons could not be gathered from the nothings in the flies of the Central Government. Recording of reasons and disclosure thereof is not a mere formality. Mr. Sharma drew our attention to a decision of this Court in Kashiram Aggarwal vs. Union of India, (1965) 56 ITR 14 (SC). It is submitted that this Court took the view that orders under section 127(1) are held in that decision to be ‘purely administrative in nature’ passed for consideration of convenience and no possible prejudice could be involved in the transfer. It was also held therein that under the proviso to section 127(1) it was not necessary to give the appellant an opportunity to be heard and there was consequently no need to record reasons for the transfer. This decision is not of any assistance to the Revenue in the present case since that was a transfer from one ITO to another ITO in the same city, or, as stated in the judgment itself ‘in the same locality’ and the proviso to section 127(1), therefore, applied. When law requires reasons to be recorded in a particular order affecting prejudicially the interests of any person, who can challenge the order in Court, it ceases to be a mere administrative order and the vice of violation of the principles of natural justice on account of omission to communicate the reasons is not expiated. Mr. Sharma also drew our attention to a decision of this Court in S. Narayanappa vs. CIT, (1967) 63 ITR 219 (SC), Page 25 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 where this Court was dealing with section 34 of the old Act. It is clear that there is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the CFT to accord sanction to proceed under section 34 must also be communicated to the assessee. The ITO need not communicate to the assessee the reasons which led him to initiate the proceedings under section 34. The case under section 34 is clearly distinguishable from that of a transfer order under section 127(1) of the Act. (1) [1975] 99 ITR 391 (Delhi) (2) [1967] 12 MPLJ 868 (3) [1965] 56 ITR 14 (SC) (4) [1967] 63 ITR 219 (SC) When an order under section 34 is made the aggrieved assessee can agitate the matter in appeal against the assessment order, but an assessee against whom an order of transfer is made has no such remedy under the Act to question the order of transfer. Besides, the aggrieved assessee on receipt of the notice under section 34 may even satisfy the ITO that there were no reasons for reopening the assessment. Such an opportunity is not available to an assessee under section 127(1) of the Act. The above decision is, therefore, clearly distinguishable. We are, therefore, clearly of opinion that non-communication of the reasons in the order passed under section 127(1) is a serious infirmity in the order for which the same is invalid. Page 26 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 The judgment of the High Court is set aside. The appeal is allowed and the orders of transfer are quashed. No costs.” 33. In Benz Corporation vs. ITO and Ors., [1998] 232 ITR 807 (Ker), the Kerala High Court held as under : “.....Chief CIT had filed a counter-affidavit stating certain facts and circumstances which were not disclosed in any of the communications. The Chief CIT could not supplement the notification with averments made in the counter-affidavit and that the power of transfer of assessment files from one authority to another is conferred on the CIT under Section 127(1) of the IT Act, 1961. The power is a quasi-judicial one. Such a power has to be exercised in a fair and reasonable manner and not in an arbitrary and mechanical way. The passing of a reasoned order is one of the requirements of fairness in action.” 34. We find that a Division Bench of this Court in the case of Arti Ship Breaking vs. Director of IT (Inv.) & Ors., (2000) 244 ITR 333, considered the similar question as to whether non- disclosure of reason in the order of transfer vitiates the order and in spite of referring the above decision of the Supreme Court decided to ignore such vital defect. The following observations of the Division Bench are quoted below : “The last submission which has been made by learned advocate, Shri Puj, is with regard to transfer of the cases from Bhavnagar to Rajkot. It has been submitted by him that in pursuance of the search which had been carried out, Page 27 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 the cases of the firm and its partners have been transferred to Rajkot. It has been submitted by him that as per the provisions of s. 127(2) of the Act, before transferring the cases from Bhavnagar to Rajkot, the transferring authority ought to have recorded the reasons and communicated the same to the concerned assessee. The submission of Mr. Puj is that the reasons were neither recorded nor communicated and the objections filed by the petitioner in reply to the show-cause notice were not considered by the transferring authority. It has been submitted by him that as observed by the Supreme Court in the case of Ajantha Industries vs. CBDT, (1976) 102 ITR 281 (SC), the reasons should not only be recorded but they should also be communicated to the assessee. It has been submitted by the learned advocate appearing for the petitioner that the order of transfer was never communicated to the petitioner before filing this petition but the petitioner-assessee was informed only when a copy of the said order was received by the petitioner by way of an annexure to one of the affidavits filed in the present proceedings. Moreover, it has been submitted that the reasons are not recorded in the order. We have gone through the record and we have also perused the reasons which have been given by the concerned authority for transferring the case of the petitioner under section 127 of the Act. It is clear that the case of the petitioner has been transferred from Bhavnagar to Rajkot for administrative reasons. It has been submitted by the learned advocate, Shri Naik, and it has been stated in the affidavit filed by the Dy. CIT (Central Circle-I), Rajkot, that after completion of the work with regard to the search, the Page 28 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 work pertaining to assessment was handed over to the office of the CIT (Central Circle-I). In the instant case, the search was carried out at Bhavnagar and as there is no office of the CIT (Central Circle-I) at Bhavnagar, for administrative reasons, it was thought proper by the transferring authority to transfer the case of the petitioner- assessee from Bhavnagar to the office of the Dy. CIT (Central Circle-I), Rajkot. The said administrative reason appears to be just and reasonable. Looking to the said administrative reason which has been also incorporated in the reasons recorded by the concerned CIT, we do not think that this Court should interfere with the said decision with regard to the transfer. It is true that the order with regard to the transfer and the reason for which the case was transferred from Bhavnagar to Rajkot were not communicated to the petitioner before the petition was filed, but, looking to the affidavit-in-reply filed by the respondent concerned and the submissions made by the learned advocate, Shri Naik, it is clear that the reasons were recorded by the concerned authority on the file. The said reasons have already been communicated to the petitioner in the present proceedings. In the circumstances, it cannot be said that the order with regard to the transfer of the case from Bhavnagar to Rajkot is without any application of mind. It is also true that the petitioner had raised certain objections with regard to the transfer when, by a show- cause notice, the petitioner was called upon to show cause as to why its case should not be transferred to Rajkot. It appears, that the said objections were considered but for administrative exigencies, ultimately the impugned order with regard to transfer was passed under the provisions of Page 29 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 section 127 of the Act. Thus, it cannot be said that the objections filed by the petitioner were not considered by the concerned authority before passing the impugned order with regard to the transfer of the petitioner's case from Bhavnagar to Rajkot. The learned advocate, Shri Naik, appearing for the respondent authorities, has cited the judgment delivered in the case of Managing Director, ECIL vs. B. Karunakar, AIR 1994 SC 1074 and in the case of State Bank of Patiala vs. S.K Sharma, AIR 1996 SC 1669. The said judgments pronounced by the Supreme Court, which are later in point of time, than the one relied upon by Shri Puj, lay down the law to the effect that at times non-communication of a report or reasons recorded by the authority would not vitiate the entire enquiry or the proceedings especially when even after furnishing the report or reasons to the concerned person no different consequences would have followed. Even in the instant case, after considering the objections filed by the petitioner, when the authority had recorded the reasons and had decided to transfer the case of the petitioner and its partners from Bhavnagar to Rajkot, in our opinion, it would not make any difference whether the said reasons were communicated at an earlier point of time or not. Of course, now the reasons have already been communicated and upon perusal of the said reasons, we are satisfied that the said reasons are just and proper and the decision with regard to the transfer is in the interest of administration. Simply because the said reasons are not incorporated in the impugned order, the reasons would not become non est Looking to the ratio of the judgments cited by Shri Naik, we Page 30 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 do not find any illegality in the order whereby the proceedings have been transferred to the office of the Dy. CIT (Central Circle), Rajkot. Looking to the facts of the case and the reasons recorded here in above, we do not think that in this writ petition, at this stage, this Court should interfere especially when, as a result of the search, some material has already been found by the authorities. Moreover, even after the assessment is framed, it would be open to the petitioner to challenge the order of assessment by filing an appeal as per the provisions of the Act. The petition, therefore, stands disposed of as rejected with no order as to costs.” 35. It appears from the above reasons recorded by the Division Bench for not following the decision of the Supreme Court in the case of Ajantha Industries (supra) was that Their Lordships were of the opinion that in view of the subsequent decisions of the Supreme Court in the cases of Managing Director, ECIL vs. B.Karunakar AIR 1994 SC 1074; and State Bank of Patiala vs. S.K. Sharma AIR 1996 SC 1669, the principles laid down in the case of Ajantha Industries (supra) are no longer a good law. According to their lordships in the above two later decisions it was held that at times non-communication of a report or reasons recorded by the authority would not vitiate the entire enquiry or the proceedings especially when even after furnishing the report or reasons to the concerned person no different consequences would have followed. 36. The decision of this Court in the case of Arti Ship Breaking (supra) was taken notice of by a Coordinate Bench of this Court, Page 31 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 to which one of us (J.B.Pardiwala) was a party in the case of Millennium Houseware vs. Commissioner of Income Tax, Valsad (Special Civil Application No.18243/2011 to Special Civil Application No.18251/2011). 37. In Millennium Houseware (supra), it was argued on behalf of the Revenue that the decision of the Supreme Court in the case of Ajantha Industries (supra) would no longer be a good law in view of the subsequent Supreme Court judgments taken notice of by this Court in the case of Arti Ship Breaking (supra). In Millennium Houseware (supra), this Court passed the following order dated 12th March 2012 : “13. We have gone through those two decisions minutely. 14. In the case of Managing Director, ECIL v. B.Karunakar (supra), it was held that although on account of the 42nd Amendment of the Constitution, it was no longer necessary to issue a notice to the delinquent employee to show cause against the punishment proposed and, therefore, to furnish a copy of the Inquiry Officer's report along with the notice to make representation against the penalty, whenever the Inquiry Officer is other than the disciplinary authority and the report of the Inquiry Officer holds the employee guilty of all or any of the charges with proposal for any punishment or not, the delinquent employee is entitled to a copy of the report to enable him to make a representation to the disciplinary authority against it and the non-furnishing of the report amounts to a violation of the rules of natural justice. According to the said decision, this was the law laid Page 32 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 down in Mohd. Ramzan Khan's case AIR 1991 SC 471 and it is appropriate that the said law should apply to employees in all establishments whether Government or non-Government, public or private. According to the said decision, this will be the case whether there are rules governing the disciplinary proceeding or not and whether those expressly prohibit the furnishing of the copy of the report or are silent on the subject. Whatever the nature of punishment, further, whenever the rules require an inquiry to be held, the Supreme court proceeded, for inflicting the punishment in question, the delinquent employee should have the benefit of the report of the Inquiry Officer before the disciplinary authority records its findings on the charges levelled against him. 15. In the case of State Bank of Patiala v. S.K.Sharma (supra), a two-judge-bench of the Supreme Court was dealing with a case where in a disciplinary enquiry against a bank officer for temporary misappropriation, the enquiry officer failed to furnish the copies of the statements of two witnesses. However, the delinquent was permitted to peruse them and take notes there from more than three days prior to their examination. Of the two witnesses, one witness was examined and the delinquent had not raised any objection during the enquiry that the non-furnishing of the copies of the statements was disabling him or has disabled him, as the case may be, from effectively cross-examining the witnesses or to defend himself. In such a case it was held that no prejudice was resulted to the delinquent on account of not furnishing him the copies of the statements of Page 33 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 witnesses. On account of the said violation of rule, according to the said decision, it could not be said that the delinquent did not have a fair hearing or that the disciplinary enquiry against him was not a fair enquiry. 16. In the above context, it was further held that it was possible to say that there had been a substantial compliance with the sub-clause (iii) of Regn. 68(x) (b), in the facts and circumstances of the case, though not a full compliance. According to the said decision, this, in turn, raised the question whether each and every violation of rules or regulations governing the enquiry automatically vitiates the enquiry and the punishment awarded or whether the test of substantial compliance should be invoked in cases of such violation and whether the issue has to be examined from the point of view of prejudice. It was further pointed out that as far as the position obtaining under the Code of Civil Procedure and Code of Criminal procedure is concerned, there are specific provisions there under providing for such situation. There is Section 99 of the Code of Civil Procedure and Chapter 35 of the Code of Criminal Procedure. Section 99, C.P.C. says, “no decree shall be reversed or substantially varied nor shall any case be remanded in appeal on account of any misjoinder or non- joinder of parties or causes of action or any error, defect or irregularity in any proceedings in the suit, not affecting the merits of the case or the jurisdiction of Court”. Section 465(1) of the Criminal Procedure Code, which occurs in Chapter 35 similarly provides that “subject to the provisions herein before contained, no finding, sentence or order passed by a Page 34 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 Court of competent jurisdiction shall be reversed or altered by a Court of appeal, confirmation or revision on account of any error, omission or irregularity in the complaint, summons, warrant, proclamation, order, judgment or other proceedings before or during trial or in any enquiry or other proceeding under this Code or any error or irregularity in any sanction for the prosecution unless in the opinion of that Court a failure of justice has in fact been occasioned thereby”. The Supreme Court further pointed out that it was not shown to the Court that the State Bank of Patiala (Officers') Service Regulation contains provision corresponding to Section 99, C.P.C. or Section 465, Cr.P.C. According to the said decision, the test in such cases should be one of prejudice but this statement is subject to a rider. The regulations may contain certain substantive provisions, e.g., who is the authority competent to impose a particular punishment on a particular employee/officer. Such provisions must be strictly complied with. However, there may be any number of procedural provisions which stand on a different footing. Even among procedural provisions, there may be some provisions, which are of a fundamental nature in the case of which the theory of substantial compliance may not be applicable. 17. We find that in those two decisions, the question related to irregularities in course of disciplinary proceedings, which has nothing to do with the statutory provision contained in Section 127 of the Act conferring power of transfer. In none of those decisions, the court had any occasion to consider the said statutory provision as well as Page 35 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 the specific view taken by a three-judge-bench in the case of Ajantha Industries (supra) on the above point. Thus, with great respect to the learned judges, we are unable to subscribe to the view that the decision of Ajantha Industries (supra), has lost its force in view of those two subsequent decisions. 18. Since we propose to hold that the law laid down in the case of Ajantha Industries (supra), is still the law of the land and has not been overruled by any competent bench of the Supreme Court whereas a co-ordinate Division Bench has taken a contrary view, judicial decorum demands that we should refer the matter to a larger bench for deciding the question which we formulate below : “Whether the decision of the three-judge-bench of the Supreme Court in the case of Ajantha Industries reported in [1976] 102 ITR 281 so far as it lays down the law that the requirement of recording reasons under section 127(1) of the Income tax Act is a mandatory direction under the law and non- communication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee is still a good law in view of the subsequent decisions of the Supreme Court in the cases of Managing Director, ECIL v. B.Karunakar, AIR 1994 SC 1074, and State Bank of Patiala v. S.K. Sharma, AIR 1996 SC 1669 as held by a Division Bench of this court in the case of Arti Ship Page 36 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 Breaking vs. Director of Income Tax (Investigation) and others reported in (2000) 244 ITR 333.” 38. It appears that a Full Bench was constituted to consider the question as formulated and referred to above. However, the Full Bench had no occasion to answer the question in view of the following order dated 12th March 2013 passed by the Full Bench : “Learned counsel Mr. Bandish Soparkar appearing with Ms. Swati Soparkar submitted, on instruction of the petitioner, that the petitions are now not pressed for any order on merits and proposed to be withdrawn. It was fairly conceded at the bar that the Special Larger Bench was constituted in terms of paragraph 18 of the elaborate referring judgment dated 12.3.2012 in Special Civil Application No.18243 of 2011 to Special Civil Application No.18251 of 2011, according to which the matter was referred to the Larger Bench for deciding specific question formulated therein. Since the matter is not proposed to be argued for any decision on the issue referred to the Larger Bench, the Reference cannot be answered either way and hence, the matter is required to be returned to the appropriate Court for final order. Accordingly, the office is requested to do the needful and list the original petitions before the appropriate Court, after obtaining orders from Hon'ble the Chief Justice.” Page 37 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 39. Later, both the writ-applications came to be disposed of as not pressed vide order dated 20th February 2013. 40. We are of the view that the principles enunciated by the Supreme Court in the case of Ajantha Industries (supra), hold the field. This Court, over a period of time, has been following Ajantha Industries (supra) in its letter and spirit. We may refer to and rely upon a decision rendered by a Coordinate Bench of this Court in the case of Genus Electrotech Ltd. vs. Union of India and others (Special Civil Application No.10328 of 2017, decided on 13th September 2017), wherein referring to and relying upon Ajantha Industries (supra), it was held as under : “Section 127 of the Act is founded on three principles. One is the requirement of transferring the assessment in appropriate cases which would have element of public interest. Second is that the assessee cannot choose his Assessing Officer. Section 124 of the Act which lays down the jurisdiction of the Assessing Officers ensures proper administration of assessments giving consistency, transparency and predictability on the question of which Assessing Officer would deal with which assessments. Nevertheless, an assessee cannot choose his Assessing Officer. At the same time, it is also recognised that transferring the assessment of an assessee at a far away place would lead to hardship and cause prejudice. It is in this context that the section requires giving of a reasonable opportunity of being heard to the assessee and to record reasons for transferring the assessment. The Courts have Page 38 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 also recognised that transferring an assessment of an assessee at a far away distance would certainly cause inconvenience and prejudice. It is in this respect that under sub-section (3) of section 127, the requirement of hearing and recording of reasons for transferring an assessment is not made applicable when the assessment is being transferred from one Assessing Officer to another Assessing Officer, both being situated in the same city, locality or place. The third important element of section 127 is when an assessment is being transferred from one Assessing Officer to another Assessing Officer, both of whom are not subordinate to the same head, the same could be done only with the agreement of the respective heads and if there is no such agreement, only by the Board or the authority that the Board may authorise in this behalf, by issuing notification in official gazette. This last requirement would ensure that there is no discordance between the heads of two Assessing Officers from where the assessment is transferred to where it is being transferred and in case there is a disagreement, such powers can be exercised only by the Board or an officer so authorised by the Board. While we are on the requirement of agreement between the two authorities, as referred to in clause (a) of sub-section (2) of section 127, we may also notice that upon such agreement being achieved, it is the authority from whose jurisdiction the case is to be transferred, has to grant a reasonable opportunity of being heard to the assessee and then pass an order recording his reasons. This requirement would have two significant elements. One is that the authority under whose Page 39 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 jurisdiction the assessment is being transferred has merely to show his agreement or disagreement, as the case may be. It is the authority from whose jurisdiction the case is being transferred, in addition to agreeing to transfer would have to grant an opportunity of hearing to the assessee and pass a reasoned order. The second element is that his agreement for transfer of the case cannot be equated with the decision to transfer. The decision can be reached only after hearing the assessee. He can form a final opinion that the case is to be transferred only after hearing the assessee, failing which, his decision would be ex-parte. Without the representation or involvement of the assessee, the requirement of hearing would then be rendered into an empty formality.” 41. We are not impressed with the submission canvassed on behalf of the Revenue that Section 127 excludes, by necessary implication, an opportunity of hearing when transfer is on account of the administrative exigency or convenience. This proposition put forward by Mr.Bhatt, the learned senior counsel appearing for the Revenue, is based on the maxim ‘expressio unius est exclusio alterius’, which is a rule of prohibition by necessary implication. We do not think that the above rule will apply in the instant case. In this context, we can do no better than to quote the following passage from De Smith's ‘Judicial Review of Administrative Action’, fourth edition (at page 187) : “(3) Where legislation expressly requires notice and hearing for certain purposes but imposes no procedural requirement for other purposes. Page 40 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 Here the maxim expressio unius est exclusion alterius may be invoked to deny a right to notice and hearing in a context where the statute or the rules are silent. But this maxim, like so many other aids to interpretation, ‘certainly requires to be watched’, it may be ‘a valuable servant, but a dangerous master to follow...’ The exclusio is often the result of inadvertence or accident, and the maxim ought not to be applied, when its application, having regard to the subject- matter to which it is to be applied, leads to inconsistency or injustice.” CONCEPT OF THE ‘USELESS FORMALITY THEORY’ : 42. The aforesaid concept has been very succinctly explained by the Supreme Court in the case of M.C.Mehta vs. Union of India and others, reported in (1999) 6 SCC 237. In the case before the Supreme Court, the following points arose for consideration : “(1) Whether this Court, in exercise of powers under Article 32 (or the High courts, generally under Article 226) is bound to declare an order of government passed in breach of principles of natural justice as void or whether the court can refuse to grant relief on the ground that the facts of the case do not justify exercise of discretion to interfere or because de facto prejudice has not been shown ? (2) Whether the court is not bound under Article 32 (or High Courts under Article 226) to quash an order of government on ground of breach of natural justice if such an action will result in the restoration of an earlier order of government Page 41 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 which was also passed in breach of natural justice or which was otherwise illegal ?” 43. While answering the aforesaid two points, the Supreme Court discussed the concept of the ‘useless formality theory’. We quote the relevant observations thus : “14. It is true that, whenever there is a clear violation of principles of natural justice, the Courts can be approached for a declaration that the order is void or for setting aside the same. Here the parties have approached this Court because the orders of the department were consequential to orders of this Court. Question however is whether the Court in exercise of its discretion under Article 32 or Article 226 can refuse to exercise discretion on facts or on the ground that no de facto prejudice is established. On the facts of this case, can this Court not take into consideration the fact that any such declaration regarding the 10.3.1999 order will restore an earlier order dated 30.7.1997 in favour of Bharat Petroleum Corporation which has also been passed without notice to HPCL and that if the order dated 10.3.1999 is set aside as being in breach of natural justice, Bharat Petroleum will be getting two plots rather than one for which it has no right after the passing of the latter order of this Court dated 7.4.98 ? 15. Courts are not infrequently faced with a dilemma between breach of the rules of natural justice and the Court's discretion to refuse relief even though rules of natural justice have been breached, on the ground that no real prejudice is caused to the affected party. Page 42 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 16. We shall initially refer to two cases where discretion was exercised not to grant relief and the first one was a case where relief was refused even though there was breach of natural justice. The first one is Gadde Venkteswara Rao v. Government of Andhra Pradesh and Ors. MANU/SC/0020/1965 : [1966] 2 SCR 172. There the Panchayat Samithi, in exercise of its statutory powers passed a resolution on 25.8.1960 to locate a primary health center at Dharmajigudem. Later, it passed another resolution on 29.5.1961 to locate it at Lingapalem. On a representation by villagers of Dharmajigudem, government passed orders on 7.3.1962 setting aside the second resolution dated 29.5,1961 and thereby restoring the earlier resolution dated 25.8.1960. The result was that the health center would continue at Dharmajigudem. Before passing the orders dated 7.3.62, no notice was given to the Panchayat Samithi. This Court traced the said order of the government dated 7.3.1962 to Section 62 of the Act and if that were so, notice to the Samithi under Section 62(1) was mandatory. Later, upon a review petition being filed, government passed another order on 18.4.1963 cancelling its order dated 7.3.62 and accepting the shifting of the primary center to Lingapalem. This was passed without notice to the villagers of Dharmajigudem. This order of the government was challenged unsuccessfully by the villagers of Dharmajigudem in the High Court. On appeal by the said villagers to this Court, it was held that the latter order of the government dated 18.4.1963 suffered from two defects, it was issued by Government without prior show cause notice Page 43 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 to the villagers of Dharmajigudem and government had no power of review in respect of government orders passed under Section 62(1). But that there were other facts which disentitled the quashing of the order dated 18.4.63 even though it was passed in breach of principles of natural justice. This Court noticed that the setting aside of the latter order dated. 18.4.63 would restore the earlier order of Government dated 7.3.62 which was also passed without notice to the affected party, namely, the Panchayat Samithi. It would also result in the setting aside of a valid resolution dated 29.5.61 passed by the Panchayat Samithi. This Court refused relief and agreed that the High Court was right in not interfering under Article 226 even if there was violation of natural justice. Subba Rao, J (as he then was) observed (p. 189) as follows: Both the orders of the government, namely, the order dated March 7, 1962 and that dated April 18, 1963, were not legally passed : the former, because it was made without giving notice to the Panchayat Samithi and the latter, because the Government had no power under Section 72 of the Act to review an Order made under Section 62 of the Act and also because it did not give notice to representatives of Dharmajigudem village. His Lordship concluded as follows: In those circumstances, was it a case for the High Court to interfere in its discretion and quash the order Page 44 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 of the government dated April 18, 1963 ? If the High Court had quashed the said order, it would have restored an illegal order it would have given the Health center to a village contrary to the valid resolutions passed by the Panchayat Samithi. The High Court, therefore, in our view, rightly refused to exercise its extraordinary discretionary power in the circumstances of the case. 17. The above case is clear authority for the proposition that it is not always necessary for the Court to strike down an order merely because the order has been passed against the petitioner in breach of the natural justice. The Court can under Article 32 or Article 226 refuse to exercise its discretion of striking down the order if such striking down will result in restoration of another order passed earlier in favour of the petitioner and against the opposite party, in violation of principles of natural justice or is otherwise not in accordance with law. 18. We would next refer to another case, where, though there was no breach of principles of natural justice, this Court held that interference was not necessary, if the result of interference would be the restoration of another order which was not legal. In Mohammad Swalleh and Ors. v. Third Addl. District Judge, Meerut and Anr. MANU/SC/ 0776/1987 : [1988] 1 SCR 840 , which arose under the U.P. Urban Buildings (Regulations of letting, Rent and Eviction) Act, 1972, the prescribed authority dismissed an application filed by the landlord and this was held clearly to be Page 45 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 contrary to the very purpose of Section 43(2)(rr) of the Act. The District Court, entertained an appeal by the landlord and allowed the landlord's appeal without noticing that such an appeal was not maintainable. The tenant filed a writ petition in the High Court contending that the appeal of the landlord before the District Court was not maintainable. This was a correct plea. But the High Court refused to interfere. On further appeal by the tenant, this Court accepted that though no appeal lay to the District Court, the refusal of the High Court to set aside the order of the District Judge was correct as that would have restored the order of the prescribed authority, which was illegal. 19. Learned senior counsel for Bharat Petroleum contended that once natural justice was violated, the Court was bound to strike down the orders and there was no discretion to refuse relief and no other prejudice need be proved. 20. It is true that in Ridge v. Baldwin (1964) AC 40, it has been held that breach of principles of natural justice is in itself sufficient to grant relief and that no further de facto prejudice need be shown. It is also true that the said principles have been followed by this Court in several cases but we might point out that this Court has not laid down any absolute rule. This is clear from the judgment of Chinnappa Reddy, J. in S.L. Kapoor v. Jagmohan MANU/SC/0036/ 1980 : [1981] 1 SCR 746 . After stating (p.395) that 'principles of natural justice know of no exclusionary rule dependent on whether it would have made any difference if Page 46 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 natural justice had been observed' and that 'non-observance of natural justice is itself prejudice to a man and proof of prejudice independently of proof of denial of natural justice is unnecessary', Chinnappa Reddy J also laid down an important qualification (p.395) as follows: As we said earlier, where on the admitted or indisputable facts only one conclusion is possible and under the law only one penalty is permissible, the Court may not issue its writ to compel the observance of natural justice, not because it is not necessary to observe natural justice but because Courts do not issue futile writs. 21. It is, therefore, clear that if on the admitted or indisputable factual position, only one conclusion is possible and permissible, the Court need not issue a writ merely because there is violation of principles of natural justice. 22. Before we go into the final aspects of this contention, we would like to state that cases relating to breach of natural justice, do also occur where all facts are not admitted or are not all beyond dispute. In the context of those cases there is a considerable case law and literature as to whether relief can be refused even it the court thinks that the case of the applicant is not one of \"real substance\" or that there is no substantial possibility of his success or that the result will not be different, even if natural justice is followed. See Malloch v. Aberdeen Corporation (1971) 1 WLR 1578, (per Lord Reid and Lord Wilberforce), Glynn v. Keele Page 47 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 University (1971) WLR 87, Cinnamons v. British Airport Authority (1980) 1 WLR 582 and other cases where such a view has been held. The latest addition to this view is R v. Eating Magistrates court exp. Fannaran (1996) 8 Admn. L.R. 351 (See Desmith, Supp.) (1998) where Straughton L.J. held that there must be 'demonstrable beyond doubt' that the result would have been different. Lord Woolf in Lloyd v. Mc Mohan (1987) 2 WLR 821 has also not disfavoured refusal of discretion in certain cases of breach of natural justice. The New Zealand Court in McCarthy v. Grant (1959) NZLR 1014 however, goes halfway when it says that (as in the case of bias), it is sufficient for the applicant to show that there is 'real likelihood-not certainty-of prejudice'. On the other hand, Gamer Administrative Law (8th Edition 1996, PP. 271-272) says that slight proof that the result would have been different is sufficient. On the Other side of the argument, we have apart from Ridge v. Baldwin, Megarry J. in Johcn v. Rees (1969) 2 WLR 1294 stating that there are always 'open and shut cases' and no absolute rule of proof of prejudice can be laid down, Merits are not for the Court but for the authority to consider. Ackner, J. has said that the \"useless formality theory\" is a dangerous one and, however inconvenient, natural justice must be followed. His Lordship observed that \"convenience and justice are often not on speaking terms.\" More recently Lord Bingham has deprecated the 'useless formality' theory in R. v. Chief Constable of the Thames Valley Police Forces exp. Cotton, (1990) IRLR 344 by giving six reasons, (see also his article 'should Public Law Remedies be discretionary ?' (1991) PL 64. A detailed and emphatic criticism of the 'useless Page 48 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 formality theory' has been made much earlier in 'Natural Justice, substance or Shadow' by Prof. D.H. Clark of Canada (see 1975) PL pp. 27-63 contending that Malloch and Glynn were wrongly decided. Foulkes (Administrative Law, 8th Ed. 1996, P. 323), Craig (Administrative Law, 3rd Ed. P. 596) and others say that the Court cannot prejudge what is to be decided by the decision making authority. De Smith (5th Ed. 1994 paras 10.031 to 10.036) says Courts have not yet committed themselves to any one view though discretion is always with the Court. Wade (Administrative Law, 5th Ed. 1994, PP. 526-530) says that while futile writs may not be issued, a distinction has to be made according to the nature of the decision. Thus, in relation to cases other than those relating to admitted or indisputable facts, there is considerable divergence of opinion whether the applicant can be compelled to prove that the outcome will be in his favour or he has to prove a case of substance or if he can prove a \"real likelihood\" of success or if he is entitle to relief even if there is some remote chance of success. We may, however, point out that even in cases where the facts are not all admitted or beyond dispute, there is considerable unanimity that the courts can, in exercise of their \"discretion\", refuse certiorari, prohibition, mandamus or injunction even though natural justice is not followed. We may also state that there is yet another line of cases as in State Bank of Patiala v. S.K. Sharma MANU/SC/0438/ 1996 : (1996) II LLJ 296 SC, Rajendra Singh v. State of M.P. MANU/SC/0690/1996 : AIR 1996 SC 2736, that even in relation to statutory provisions requiring notice, a distinction is to be made between cases where the provision is Page 49 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 intended for individual benefit and where a provision is intended to protect public interest. In the former case, it can be waived while in the case of the latter, it can be waived. 23. We do not propose to express any opinion on the correctness or otherwise of the \"useless formality\" theory and leave the matter for decision in an appropriate case, inasmuch as, in the case before us, \"admitted and indisputable\" facts show that grant of a writ will be in vain as pointed out by Chinnappa Reddy, J. 24. In our view, on the admitted and indisputable facts set out above, namely, the recall of our earlier order of the Court, it becomes mandatory for the court to restore the status quo ante prevailing on the date of its first order. Restitution is a must. Further Bharat Petroleum having got back its plot at the Ridge it cannot lay further claim to the one at San Martin Marg which was given to it only lieu of the Ridge plot. Similarly, HPCL has to get back its plot in San Martin Marg inasmuch, otherwise, it will have none and Bharat Petroleum will have two. Bharat Petroleum cannot retain the advantage which it got from an order of this Court which has since been withdrawn. Thus what is permissible and what is possible is a single view and case on hand comes squarely within the exception laid down by Chinnappa Reddy, J. in S.L. Kapoor v. Jagmohan.” 44. Thus, if on the admitted or indisputable factual position only one conclusion is possible and permissible, the Court may not proceed to issue a writ merely because there is violation of Page 50 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 principles of natural justice. In relation to cases other than those relating to admitted or indisputable facts, as held by the Supreme Court, there is considerable divergence of opinion whether the writ-applicant can be compelled to prove that the outcome will be in his favour or whether he is entitled to relief even if there is some remote chance of success. Even in relation to the statutory provision requiring notice, a distinction is to be made between the cases where the provision is intended for individual benefit and where a provision is intended to protect public interest. In the former case, it can be waived, while in the case of the latter, it cannot be waived. However, ultimately, the statement of law in Ridge vs. Baldwin (supra), that breach of principles of natural justice is in itself sufficient to grant relief and that no further de facto prejudice need be shown should be applied as far as possible. This principle in Ridge vs. Baldwin (supra) has been followed by the Supreme Court and various High Courts in several cases but not as an absolute rule. What we want to convey is that the ‘empty formality theory’ is an exception and should not be applied on mere asking. Ordinarily, this principle of ‘empty formality’ may be applied in the following category of cases : (1) Exclusion in case of emergency; (2) Express statutory exclusion; (3) Where disclosure would be prejudicial to public interest; (4) Where prompt action is needed; (5) Where it is impracticable to hold hearing; (6) Exclusion in case of purely administrative matters; (7) Where no right of person is infringed; Page 51 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 (8) The procedural defect would have made no difference to the outcome; (9) Exclusion on the ground of ‘no fault’ of decision maker. 45. Having regard to the issue on which we have debated, it may be clinching to refer to the following observations made by a Constitution Bench of the Supreme Court in the decision rendered in C.B.Gautam vs. Union of India, (1993) 1 SCC 78, while dealing with the words ‘for reasons to be recorded in writing’ occurring in Section 269UD(1) and (2) of the Income Tax Act : “Section 269UD(1), in express terminology, provides that the appropriate authority may make an order for the purchase of the property ‘for reasons to be recorded in writing’. Section 269UD(2) casts an obligation on the authority that it ‘shall cause a copy of its order under Sub-section (1) in respect of any immovable property to be served on the transferor’. It is, therefore, inconceivable that the order which is required to be served by the appropriate authority under Sub-section (2) would be the one which does not contain the reasons for the passing of the order or is not accompanied by the reasons recorded in writing. It may be permissible to record reasons separately but the order would be an incomplete order unless either the reasons are incorporated therein or are served separately along with the order on the affected party. We are, of the view, that reasons for the order must be communicated to the affected party. Page 52 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 46. Dealing with the need to give reasons in the show-cause notice before effecting a purchase under Section 269UD, the Supreme Court held : “We have further pointed out that although a presumption of an attempt to evade tax may be raised by the appropriate authority concerned in case of the aforesaid circumstances being established, but such a presumption is rebuttable and this would necessarily imply that the concerned parties must have an opportunity to show cause as to why such a presumption should not be drawn……...The very fact that an imputation of tax evasion arises where an order for compulsory purchase is made and such an imputation casts a slur on the parties to the agreement to sell lead to the conclusion that before such an imputation can be made against the parties concerned, they must be given an opportunity to show cause…….” 47. The recording of reasons which lead to the passing of the order is basically intended to serve a two-fold purpose : “(1) that the ‘party aggrieved’ in the proceeding before acquires knowledge of the reasons and, in a proceeding before the High Court or the Supreme Court (since there is no right of appeal or revision), it has an opportunity to demonstrate that the reasons which persuaded the authority to pass an order adverse to his interest were erroneous, irrational or irrelevant, and Page 53 of 54 C/SCA/16529/2021 JUDGMENT DATED: 11/04/2022 (2) that the obligation to record reasons and convey the same to the party concerned operates as a deterrent against possible arbitrary action by the quasi-judicial or the executive authority invested with judicial powers.” 48. In view of the aforesaid, we have no hesitation in coming to the conclusion that the impugned order of transfer and all the consequential proceedings pursuant thereto could be said to be without jurisdiction. 49. In the result, this writ-application succeeds and is hereby allowed. The impugned order of transfer dated 8th July 2021 passed under Section 127(2) of the Act qua the writ-applicant is hereby quashed and set-aside. Consequently, the assessment order dated 28th September 2021 also stands quashed and set- aside. 50. In view of the order passed in the main matter, the Civil Application stands disposed of. 51. We reserve the liberty in favour of the Revenue to initiate fresh proceedings for transfer under Section 127 of the Act by first issuing a show-cause notice assigning reasons, thereby giving an opportunity of hearing to the writ-applicant and thereafter proceed to pass a final order in accordance with law. (J. B. PARDIWALA, J.) (NISHA M. THAKORE, J.) /MOINUDDIN Page 54 of 54 "
Other Referred Cases
Mahabir Prasad Santosh Kumar vs. State of UP and Ors., Power Controls and Ors. vs. CIT and Ors., Ajantha Industries and Ors. vs. CBDT and Ors., Benz Corporation vs. ITO and Ors., Genus Electrotech Ltd. vs. Union of India and others, C.B.Gautam vs. Union of India, M.C.Mehta vs. Union of India and others, Managing Director, ECIL vs. B.Karunakar, State Bank of Patiala vs. S.K. Sharma, Hindustan Petroleum Corporation Ltd. vs. Darius Shapur and Ors.
Laws Referred To
Income Tax Act, 1961
1:1 Consultation on Salary Structuring
₹1
Tax Holiday Secrets for Startups
₹0
1:1 Consultation on SME Listing
₹0
Research Collaboration Agreement
₹0
CRM Implementation Plan
₹0
Minimum Alternate Tax (MAT): Comprehensive Overview and Key Changes under Finance Bill, 2026
Team Counselvise - February 06, 2026
Budget 2026: 5 Major Personal Tax Changes Every Taxpayer Must Know
Team Counselvise - February 05, 2026
Why Lacoste Won a 20-Year Trademark Battle Against Crocodile ?
Team Counselvise - March 10, 2026