Delhi High Court

Power Controls & Ors. vs Commissioner Of Income Tax & Ors. on 7 December, 1999

Equivalent citations: (2000) 158 CTR Del 222

Author: D K Jain

JUDGMENT

D. K. Jain, J.

Rule D.B.

2. Since a short point is involved and there is not much controversy on facts, with the consent of counsel for the parties, we proceed to decide the writ petition finally at this stage itself.

The petitioners, five in number, have filed this writ petition for quashing the order passed by respondents No. 1 and 2 on 15/16-6-1999, and 31-5/3-6-1999, respectively in exercise of powers conferred by sub-section (2) of section 127 of the Income Tax Act, 1961 (herinafter referred to as the Act), whereby their cases have been transferred from different wards in New Delhi to Dy. Commissioner (Central), Faridabad. The reason for transfer, stated in the order passed by respondent No. 2 in the case of petitioner No. 3 namely, M/s Diana Organics (P) Ltd., filed with the counter-affidavit of the said respondent as the petitioner claim to have not received the same, is for "administrative convenience and coordinated investigation". However, no reason has been given in the orders passed by respondent No. 1 in the cases of Power Controls, Power Engineers and Smt. Savitri Suneja, petitioners No. 1, 2 and 5 respectively.

3. Petitioner No. 1 is a proprietorship concern of one R.K. Suneja and was being assessed by the assessing officer Ward 10(1), New Delhi; petitioner No. 2 is a partnership firm regularly assessed by the assessing officer, Ward 10(1), New Delhi; petitioner No. 3 is an incorporated company assessed by the assessing officer, Company Circle 26(2), New Delhi, petitioner No. 4 is an HUF of which the said R. K. Suneja is the Karta and is assessed at Faridabad and petitioner No. 5, wife of R.K. Suneja, is a partner in petitioner No. 2 and is assessed by the assessing officer, Ward 10(1), New Delhi. Respondents No. 1 to 5 are respectively Commissioner Delhi-VII, Commissioner Delhi-I, Commissioner (Central), Ludhiana, Commissioner, Rohtak, and Dy. Commissioner, Central Circle, Faridabad.

The impugned orders were preceded by three sets of show-cause notices, which are reproduced hereunder for the sake of ready reference.

Dt. 1/4th Feb., 1999

To,

The Principal Officer,

M/s Diana Organics (P) Ltd.,

2003, Katra Lachhu Singh,

Bhagirath Palace,

NEW DELHI.

Sir,

Sub : Transfer of case with Dy. Commissioner (Central), Faridabad-Regarding.

You are aware that a search has been conducted in the R.K. Suneja & Associates group of cases on 12-9- 1998, in which your case was also covered under section 132(1) of the Income Tax Act, 1961. For the sake of coordinated investigation in the group cases, I want to transfer your case under section 127 of the Income Tax Act, 1961, to the Dy. Commissioner (Central), Faridabad.

In this connection, you are hereby provided an opportunity of being heard under section 127(1) of the Income Tax Act, 1961, if you have any objection to the proposed transfer. For this purpose, your case is fixed, before the undersigned for hearing on 9-2-1999 at 3.00 P.M. in Chamber No. 363, Central Revenue Building. Indraprastha Estate, New Delhi.

Yours faithfully,

Sd/-

(P.L.SINGH)

CIT, Delhi-I, New Delhi

Dt. 12th/15th Feb., 1999

Shri R.K. Suneja,

1959, Katra Lachhu Singh,

Bhagirath Palace

New Delhi

Sir,

Sub : Assignment/Centralization of search cases of Sh. R.K. Suneja & Associates, 1959, Katra Lachhu Singh, Bhagirath Palace, New Delhi.

Reference above. It is proposed by the Director General of Income Tax (Inv.) New Delhi to centralize your case with the Dy. Commissioner (Central Circle), Faridabad. You are, therefore, hereby given an opportunity of being heard by the Commissioner, Delhi-VIII, New Delhi in his room No. 251, C.R. Building, New Delhi on 22-2-1999, at 11.30 A.M.

Yours faithfully,

Sd/-

(Anand Jha)

Dy. CIT (Hqrs-VII), New Delhi

Dt. 21-1-1999

Ms. R.K. Suneja & Associates,

16/6, Mathura Road,

Faridabad

Sir,

Sub : Assignment/Centralization of search cases of Sh. R.K Suneja & Associates

It has been proposed to centralize your group of cases to Faridabad. I am directed to request you to send your objection, if any, to the undersigned within a week of receipt of this letter.

Yours faithfully,

Sd/-

(D. K. SANDILA)

Dy. CIT (Co-ord), New Delhi.

The petitioners filed replies to the show-cause notices objecting to the transfer of their cases mainly on the ground that three of the four main business entities namely, M/s Power Controls, M/s Power Engineers, M/s Diana Organics (P) Ltd. and M/s R.K. Associates (HUF) have their principal place of business at Delhi and are assessed at Delhi for the last ten years ; the proprietors/partners and directors of the said concerns were assessed in Delhi in their individual capacities; the books of accounts were maintained and audited at Delhi; all major bank accounts and credit limits were in Delhi and all books of account and the major assets were found and seized during the course of search at Delhi. It was, thus, pleaded that the transfer of cases to Faridabad will cause enormous hardship and difficulty to all the assessees and also defeat the purpose of coordinated investigation in group cases.

4. The Commissioner concerned, after considering the replies to the show-cause notices, passed the impugned orders transferring the cases of the petitioners along with some other cases on the above said ground of "administrative convenience and coordinated investigation". Hence the present petition, assailing the orders, inter alia, on the ground that these have been passed in gross violation of the principles of natural justice in contravention of the statutory requirement of section 127 of the Act.

5. Respondents 1, 2 and 5 have filed affidavits-in- opposition, justifying the orders on the grounds mentioned therein. It is asserted that reason for the transfer of cases was mentioned in the show-cause notices issued to the petitioners, giving intimation as to why their cases were being assigned to one assessing officer at Faridabad along with the cases of other assessees for administrative convenience and coordinated investigation and in any case the said reason for transfer has been recorded and communicated to the petitioners and, therefore, provisions of section 127 of the Act have been duly complied with.

6. We have heard Mr. O.S. Bajpai, learned counsel for the petitioners and Mr. R. C. Pandey, learned counsel for the respondents. We have also perused the record of the cases maintained in the office of the Director General, Income Tax (Investigation), Chief Commissioner, Delhi-I Commissioner, Delhi-I and Delhi-VII, and Commissioner (Central), Ludhiana, made available by learned counsel for the respondents.

7. It is submitted for petitioners that the impugned orders of transfer are illegal and invalid because except in the case of Diana Organics, neither in the show-cause notices nor in the final orders of transfer any reason has been disclosed for transfer of cases of the petitioners from Delhi to Faridabad and in so far as Diana Organics is concerned, the purported reason administrative convenience and coordinated investigation" being very vague and general the assessee could not be expected to make an effective and purposeful representation against the proposed transfer in reply to the show-cause notices. It is asserted that it is inherent in the concept of reasonable opportunity of being heard, enshrined in section 127(1) and (2), that particulars of the investigation should be put to the assessee to enable him to file a meaningful reply to the notice in case he has any objection to the transfer and failure to do so violates the mandate of the said provision of law, rendering the order of transfer invalid. It is urged that mere communication of the alleged afore noted reason does not meet the requirement of reasonable opportunity of being heard as it is only a communication of final decision. In support, reliance is placed on Ajantha Industries & Ors. v. CBDT & Ors. 1976 (1976) 102 ITR 281 (SC), Vijaysanti Investments (P) Ltd. v. Chief CIT & Ors. (1991) 187 ITR 405 (AP) and Saptagiri Enterprises v. CIT & Ors. (1991) 189 ITR 705 (AP). On facts, the objections taken in reply to the show-cause notices have been reiterated.

8. On the other hand, Mr. Pandey has contended that there has been sufficient compliance with the provisions of section 127 of the Act inasmuch as before the final orders of transfer were passed, the petitioners were made fully aware of the afore noted reason for transfer, which was clearly understood by them and they filed whatever objections they had to the proposed transfer. Relying on S.L. Singhania & Ors. v. Assistant Commissioner ICWT (1992) 193 ITR 275 (Del), Sameer Leasing Co. Ltd. v. Chairman, CBDT (1990) 185 ITR 129 (Del), Bhatia Minerals v. CIT & Ors. (1993) 200 ITR 591 (All) and Jharkhand Mukti Morcha v. CIT & Ors. (1997) 225 ITR 284 (Pat), learned counsel has urged that "administrative convenience and coordinated investigation" constitutes a valid reason of transfer of cases.

9. In order to appreciate the rival contentions, it would be necessary to notice the provisions of section 127 of the Act. Sub-section (2) of section 127, relevant to the present case reads as follows:

"Power to transfer cases :

127(1) : ********

(2) Where the assessing officer or assessing officer from whom the case is to be transferred and the assessing officer or assessing officer to whom the case is to be transferred are not subordinate to the same Director General or Chief Commissioner or Commissioner.

(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, authorise 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) ******"

10. In the instant case, since the assessing officer of petitioners No. 1 to 3 and 5 from whom the cases are to be transferred and the assessing officer to whom the cases are to be transferred are not subordinate to the same Chief Commissioner or Commissioner and the Commissioners to whom the assessing officers are subordinate are stated to be in agreement, clause (a) of sub-section (2) of section 127 would be attracted, which mandates - (i) the grant of reasonable opportunity of being heard in the matter, and (ii) recording of reasons in the order for transfer of a case. In the case of petitioner No. 4, since the case is sought to be transferred from one ward to another in the same city, provisions of sub-section (3) of section 127 are attracted, which does not provide for either recording of reasons for ordering transfer or communication of reasons to the assessee.

11. The concept of natural justice in the form of reasonable opportunity of being heard and the requirement of recording of reasons of making an order of transfer was introduced in the 1961 Act. Though, in the corresponding section 5(7A) of the Indian Income Tax Act, 1922, there was no provision for providing an opportunity of hearing to the affected party, but still the Apex Court in Pannalal Binjraj & Anr. v. Union of India & Ors. (1957) 31 ITR 565 (SC) the need for observing the principle of natural justice by granting an opportunity of hearing to the affected person and recording of reasons in the order of transfer to enable the assessee to appreciate the circumstances which make it necessary or desirable for the Commissioner, etc., to transfer his case. It was observed that it would also help the court in determining the bona fides of an order passed if and when the same is challenged in court as mala fide, or discriminatory.

12. Section 127, prior to its substitution in the present form by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1998, but similar in substance to the existing provisions, came up for consideration before the Supreme Court in Ajantha Industries case (supra). While holding that apart from giving reasonable opportunity of being heard recording of reasons for transfer and communication of the reasons was necessary for supporting an order of transfer, their Lordships observed as follows:

"The reason for recording of reason 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 Articles 226 of the Constitution or even this court under Articles 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 consideration. 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. "

The court further held that "when law requires reasons to be recorded in a particular order affecting prejudicially 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 reasons is not expiated."

Elucidating the principles enunciated in Ajantha Industries case (supra) a Division Bench of the Andhra Pradesh High Court, speaking through M. Jagannadha Rao, J. (as his Lordship then was) in Vijayasanthi Investments' case (supra) held as follows:

"In the matter of the transfer of a case under section 127 of the Act, it is necessary that the authority which proposes to transfer the case must wherever it is possible to do so, give the assessee a reasonable opportunity of being heard with a view to enable him to effectively show-cause against the proposed transfer. The notice must also propose to give a personal hearing. It is also necessary to mention in the notice the reasons for the proposed transfer so that the assessee could make an effective representation with reference to the reasons set out. It is not sufficient merely to say in the notice that the transfer is proposed "to facilitate detailed and coordinated investigation". The reasons cannot be vague and too general in nature but must be specific and based on material facts. It is again not merely sufficient to record the reasons in the file but it is also necessary to communicate the same to the affected part."

Affirming the principle laid down in Vijayasanthi Investments' case (supra), another Division Bench of the Andhra Pradesh High Court in Saptagiri Enterprises' case (supra) held as follows :

"Furnishing specific and intelligible reasons for the proposed transfer of the case is only a concomitant of the concept of reasonable opportunity enshrined in section 127(1) and (2). Unless the assessee knows the precise reasons for the transfer, he would be handicapped in putting forth his objections effectively. If a vague and omnibus ground such as the one mentioned in the show-cause notice and repeated in the final order is given, the assessee cannot be reasonably expected to project his viewpoint. The requirement of a reasonable opportunity will then be reduced to an idle formality. It is, therefore, incumbent upon the authorities to spell out the basic reason for transfer, at least briefly and broadly, so that the assessee may have the opportunity of making an effective representation and an opportunity to question the final order in writ proceedings or otherwise. The phraseology "coordinated investigation" without anything more, does not convey any intelligible reason from the assessee's point of view."

13. We are in respectful agreement with the views expressed by the Andhra Pradesh High Court in the afore noted decisions, while interpreting section 127(2) of the Act. We are of the considered view that 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 assessing officer for coordinated 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. We feel that the user of expression 1. wherever it is possible to do so" in clause (a) of sub-section (2) of section 127 of the Act also reflects the intention of the legislature that ordinarily a reasonable opportunity of being heard should be granted to the assessee, witch would include disclosure of reasons recorded, unless a conscious decisions is taken that disclosure of specific reasons and for that matter even affording an opportunity to the assessee of being heard is likely to defeat the purpose of transfer. We may hasten to add that the grounds/reasons for transfer may differ from case to case and the decision to what extent these have to be disclosed has to be left to the discretion of the authorities concerned, who are expected to exercise the same keeping in view the principles of natural justice; the public interest and the purpose of the Act.

14. Having held so, we advert to the facts in hand to determine the question whether a reasonable opportunity of being heard has been granted to the petitioners before orders for transfer of their cases from New Delhi to Faridabad were passed.

15. From the three show-cause notices, reproduced above, it is evident that in the notices issued on 21-1-1999, and 12/15-2-1999, to R.K. Suneja & Associates and R.K. Suneja respectively, requiring the notices to appear before the Commissioner/send their objections, if any, to the proposed transfer, there was no indication whatsoever of the reasons for the transfer. In the notice dated 14-2-1999, issued to M/s Diana Organics (P) Ltd. though it states the reasons for transfer namely, "for the sake of coordinated investigation" in group cases, it does not spell out even briefly or remotely any reason requiring coordinated investigation much less various reasons now mentioned in the counter-affidavits filed on behalf of respondents 1, 2 and 5. Furthermore, even the orders of transfer passed by respondent No. 1 is a mere communication of transfer of the case of the assessee from one ward to another and it does not contain any reason. The order is merely a communication of the Dy. Commissioner, Head Quarters VIII to petitioners No. 1, 2 and 5 informing them that the Commissioner has transferred their cases to the assessing officer mentioned therein. Although the records produced for our perusal seem to contain some material which could perhaps be relied on by the authorities to come to the conclusion that assignment of all group cases to one assessing officer may be necessary for coordinated investigation but in our view in the light of the principle of law discussed above, existence of reasons in the file does not meet the requirement of reasonable opportunity of being heard as enshrined in section 127 of the Act. Moreover, in the records we do not find any indication that the disclosure of specific reasons was withheld by reason of any satisfaction having been recorded by either the Director General of Income Tax (Investigation) or any other Commissioners concerned that communication of specific reasons to the petitioners would be detrimental to the interests of the revenue.

16. We are, therefore, of the view that the petitioners have not been granted adequate opportunity to being heard before their cases were ordered to be transferred from Delhi of Faridabad. We may, however, clarify at this stage that we are not holding for a moment that "administrative convenience" and/or "coordinated investigation" cannot be a valid ground for transferring the cases belonging to a particular group to a single assessing officer. 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 appraised of the basic and broad facts, which, in the opinion of the authorities concerned, necessitate coordinated investigation by a single assessing officer, 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.

17. The ratio of the decisions relied on by learned counsel for the revenue, which are otherwise distinguishable on facts; is not applicable to the facts of the present case. In the case of S.L. Singhania (supra) the transfer of the case of the assessee was from one assessing officer to another not only in the same town but on the same floor in the same building and the court held that there was no requirement of giving an opportunity to the assessee to be heard before the transfer is effected. In the case of Sameer Leasing Co. Ltd. (supra) while holding that there is no reason why a properly coordinated investigation cannot be ground for directing that cases belonging to a group should be decided by a single assessing officer, it was noticed that in the order passed under section 127 of the Act it was mentioned that authorisation under section 132 of the Act had been issued for search and seizure of the premises ; the officers of the department were prevented from performing their duties and subjected to humiliation and severe physical injuries and the assessing officers and the staff at Muzaffarnagar were under constant threat and pressure of the assessees and were under fear that they would not be able to discharge their duties, which necessitated transfer of the cases from Muzaffarnagar to Meerut in public interest, which, as noticed above, is not the case here as no such indication appears in the impugned orders of transfer. Similarly, in the case of Jharkhand Mukti Morcha (supra) while upholding the transfer on the ground of "proper and coordinated investigation" the court observed that the show-cause notice proposing the transfer as well as the order clearly showed that the transfer had been made in public interest and to facilitate the assessment proceedings, launching of prosecution, collection of revenue and to achieve the object of the Act. As a matter of fact, in that case substantial material, taken into consideration for transfer of cases and disclosed to the assessees in the show-cause notices, has been quoted in the judgment. In the case of Bhatia Minerals (supra), the order of transfer was challenged mainly on the ground that the reasons given in the order of transfer viz., proper and coordinated investigation is not a valid reason for passing the said order. Since we have already observed above that such a contention cannot be accepted as an abstract proposition in law, the said decision is no authority for the propositions urged in the present case.

18. In the light of the above discussion, we hold that the orders transferring the cases of petitioners No. 1 to 3 and 5 are invalid and are liable to be set aside. In so far as the case of petitioner No. 4 is concerned, as noticed above, the same having been transferred from Income Tax Officer, Ward-I, Faridabad, to Dy. Commissioner (Central), Faridabad, i.e., in the same city, in view of the specific provisions of section 127(3) of the Act, the order passed by respondent No. 4 cannot be said to be illegal. Accordingly, the impugned orders of transfer passed by respondents No. 1 and 2 are quashed and the rule is made absolute to that extent. However, if otherwise permissible in law, this order will not preclude the authorities concerned from taking fresh appropriate proceedings for transfer of cases of the petitioners to any other officer in accordance with law, keeping in view the legal position discussed above. There will, however, be no order as to costs.