The Delhi High Court bench comprising Hon'ble Mr. Justice Manmohan and Hon'ble Mr. Justice Dinesh Kumar Sharma ruled that the concurrent jurisdiction of the Jurisdictional Assessing Officer and the Faceless Assessing Officer under Section 127 of the Income Tax Act, 1961, remains intact.
Brief Facts:
A set of Writ Petitions were filed before the High Court, requesting an examination of whether the Petitioners' evaluations could have been moved to the Central Circle through the challenged orders issued under Section 127 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), without the approval of the Central Board of Direct Taxes (hereinafter referred to as “CBDT”).
Brief Background:
These petitions were filed by five charitable trusts along with three individuals, Sonia Gandhi, Rahul Gandhi, Priyanka Gandhi Vadra, and a political party called Aam Aadmi Party.
The transfer orders issued under Section 127 of the Act were challenged. These orders had transferred the jurisdiction of the petitioners from the Exemption Circle (for trusts) and ACIT Circle 52(1) (for individuals) to DCIT Central Circle-27, and in the case of Aam Aadmi Party, from the Exemption Circle to DCIT Central Circle-03. It is worth mentioning that all the Income Tax Officers, both the ones transferring the jurisdiction and the ones receiving it, were located in Delhi.
The petitioner, Sanjay Gandhi Trust, was registered as a charitable institution under Section 12A of the Income Tax Act, and assessments have been completed until the Assessment Year 2017-18 under Section 143(3)/143(1) of the Act. The revenue authorities have never doubted the charitable purpose of the petitioner until this Assessment Year. With the introduction of the E-assessment Scheme through the Finance Act, 2018, the Central Government was empowered to make and notify a scheme for conducting E-assessments. On September 12, 2019, the E-assessment Scheme, 2019 was notified and implemented through two notifications. This move was aimed at making the tax assessment process faceless and eliminating undesirable practices.
Under the E-assessment Scheme, the petitioner received a notice on September 23, 2019, under Section 143(2) of the Act for scrutiny assessment for the Assessment Year 2018-19. Subsequently, on August 13, 2020, the Faceless Assessment Scheme was launched, emphasising no communication or contact between the Assessing Officer and the assessee, and the assessment officers were allotted through an automated system.
On October 14, 2020, the petitioner received a letter from the National e-Assessment Centre stating that the pending E-assessment for the Assessment Year 2018-19 would now be completed under the Faceless Assessment Scheme. The petitioner then received notices on November 23 and December 30, 2020, from the National e-Assessment Centre, requesting certain documents and details for the ongoing assessment proceedings, which were duly complied with.
However, during the ongoing E-assessment, on January 8, 2021, the Commissioner of Income Tax (Exemption), New Delhi passed an order under Section 127 of the Act, transferring the jurisdiction of the petitioner from the Deputy Commissioner of Income Tax (Exemption), New Delhi to another Deputy Commissioner of Income Tax. Subsequently, on January 13 and 25, 2021, the National e-Assessment Centre issued additional notices under Section 142(1) of the Act, requesting further information for the ongoing E-assessment proceedings. On February 3, 2021, the petitioner received an impugned notice under Section 142(1) of the Act from the Deputy Commissioner of Income Tax.
The petitioner challenged the order dated January 8, 2021, passed under Section 127 of the Act, and the notice dated February 3, 2021, issued by the Deputy Commissioner of Income Tax through the petition.
Contentions of the Petitioners:
The petitioners argued that the CBDT issued guidelines for the compulsory selection of returns for complete scrutiny in the financial year 2020-21. They stated that all assessments, except those related to international taxation and cases handled by the Central Circle, would now be subject to the Faceless Assessment procedure. They emphasised that the CBDT had issued circulars specifying the types of cases to be dealt with by the Central Circle, typically including cases involving income-tax raids or searches. They argued that the transfers to the Central Circle should strictly follow the CBDT's guidelines and not be based on the discretion of any individual officer.
The petitioners contended that none of the assessees in these cases had undergone raids or searches, yet their cases were being transferred to the Central Circle. They argued that these transfers violated statutory provisions and were tainted by legal malice. They highlighted that the original notifications permitted transfers only to the Assessing Officer with jurisdiction over the case, but subsequent amendments required prior approval from the CBDT. They contended that these notifications had a statutory character and could not be altered by circulars issued by the CBDT under Section 119 of the Income Tax Act.
Furthermore, the petitioners asserted that even if there was a power of transfer, it could only be exercised based on the conditions outlined in the circulars, which they claimed were not satisfied in these petitions. They further criticised the lack of evidence connecting the appeals of the trusts and the Gandhis to the Sanjay Bhandari group of cases, which the transfer orders purportedly justified. They rejected that guilt could be assumed based on association or relationships.
Additionally, the petitioners argued that the nature of the Faceless Assessment Mechanism changes the interpretation of transfer under Section 127 of the Act. The special nature of the scheme alters the meaning of transfer within or between cities. They contended that the statutory rights provided by the Faceless Assessment Mechanism should be upheld and that the introduction of the special scheme has altered the interpretation of transfer within the Act.
Contentions of the Respondents:
The respondents argued that the impugned orders transferred cases from the Exemption Circle for Trusts or ACIT Circle 52(1) for individuals in New Delhi to DCIT, Central Circle-27, which are both located in New Delhi, approximately 3 kilometres apart, under different Principal Commissioners of Income Tax (hereinafter referred to as “PCIT”). The reason cited for the transfer in the orders is "better coordination, effective investigation, and meaningful assessment," indicating administrative convenience and the need to avoid conflicting views or treatments in similar transactions. They argued that faceless assessment is not a vested right, as certain classes of cases are excluded from the scheme. When a legal exercise of power under Section 127 leads to centralised assessment for coordinated investigation, the faceless regime no longer applies. The choice of assessment manner or Assessing Officer is not a vested right as long as statutory provisions are followed. They contended that even when the assessment was outsourced to the Faceless Assessment Officer, the Jurisdictional Assessing Officer retains concurrent jurisdiction and performs various functions beyond assessment.
Observations of the Court:
It was highlighted that the power conferred by Section 127 of the Act was unaffected by the notifications issued on September 12, 2019, and August 13, 2020. Despite the implementation of the E-assessment and Faceless Assessment Scheme in 2019 and 2020, respectively, the jurisdictional Assessing Officer maintained concurrent jurisdiction with the Faceless Assessing Officer. Notification No.64/2020 dated August 13, 2020, granted the Income-tax Authorities of the National e-Assessment Centre the power to concurrently exercise assessment functions while the original jurisdiction remained with the Jurisdictional Assessing Officer. The High Court clarified that the Faceless Assessment Scheme did not modify Section 127, and its powers continued to apply without modification.
The power of transfer mentioned in Clause (2) of the notifications dated August 13, 2020, was distinct from the power to transfer under Section 127(2) of the Act. This clause allowed the Principal Chief Commissioner or Principal Director General of the National e-Assessment Centre to send the case back to the Jurisdictional Assessing Officer during the assessment, with prior approval of the Board. Such transfers were considered to fall under Section 127 of the Act, rather than the notifications.
It was outlined that no assessee possesses any fundamental or vested legal right to be assessed by a Faceless Assessing Officer as a result of the amendment of Sections 143(3A) and 143(3B) of the Act. Firstly, Section 143(3A) allows the Central Government to "make a Scheme" for eliminating the interaction between the Assessing Officer and the Assessee. This implied that the Central Government has the discretion to establish or not establish a Faceless Assessment Scheme. Secondly, when parties are centralised through the legal exercise of power under Section 127 for coordinated investigation purposes, they are no longer assessed under the Faceless regime.
Therefore, the Bench held that no prejudice was caused to the assessees by transferring their cases to the Central Circle. It is important to note that there can be no "guilt by association" or "guilt due to relationship"; however, in these cases, the assessments of the petitioners have been transferred solely for coordinated investigation and meaningful assessment.
The decision of the Court:
The Delhi High Court dismissed the writ petitions and further upheld the transfer orders passed under Section 127 of the Act.
Case Title: Sanjay Gandhi Memorial Trust v Commissioner of Income Tax (Exemption) & Ors.
Case No.: Writ Petition Civil 3535 of 2021
Coram: Hon'ble Mr. Justice Manmohan and Hon'ble Mr. Justice Dinesh Kumar Sharma
Advocates for Petitioner: Advs. Mr..Arvind Datar, Ms.Kavita Jha, Mr.Vaibhav Kulkarni and Mr. Anant Mann
Advocates for Respondent: Advs. Mr.Tushar Mehta, Mr.Balbir Singh, Mr.Zoheb Hossain, Mr.Vipul Agrawal, Mr.Sanjeev Menon, Mr.Prasanjeet Mohapatra, Mr.Shyam Gopal, Mr.Vivek Gurnani and Ms.Monica Benjimin
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