2015 (4) TMI 1335 - HC - Income Tax

Transfer u/s 127 - reasonable opportunity of being heard - HELD THAT - Merely stating that the transfer is for the purpose of coordinating in itself is not a ground to consolidating the cases at one place. The cause of action has arisen within the State of Himachal Pradesh. The convenience of the party cannot be overlooked. The order passed by the competent authority transferring cases is a quasi judicial order and not an administrative order. The decision to transfer the case must comply with the provisions of section 127(2)(a) - The principles of natural justice have to be complied with at every stage. Violation of principles of natural justice at the initial stage cannot be cured at the subsequent stage. Moreover, the order should be self-contained/speaking and not merely a paper-decision. Recording of reasons is also sine qua non, as per mandatory provisions of section 127(2)(a) of the Income-tax Act. We are of the considered opinion that the petitioners at least should know the gist of enquiry carried out against them and were also liable to be supplied adverse material gathered against them during assessment proceedings or information available, in order to enable them to represent their cases effectively before the Commissioner of Income-tax. The adverse material gathered against the petitioners by way of inquiry, information etc. was to be made available before hand and not at the time of assessment proceedings. There is a difference between pre-decisional hearing and post-decisional hearing. In the instant case, taking into consideration the legal/factual assessment involved, petitioners are entitled to pre-decisional hearing in order to contest the show cause notice(s) dated 20.1.2015. There is a prima facie case and balance of convenience is also in favour of the petitioners.

Issues:
1. Show cause notices for centralization of cases issued to petitioners.
2. Request for material and information by petitioners turned down.
3. Compliance with Section 127 of the Income-tax Act, 1961 regarding transfer of cases.
4. Application of principles of natural justice and reasons for transferring cases.
5. Entitlement of petitioners to pre-decisional hearing and stay of show cause notices.

Analysis:

Issue 1: Show cause notices for centralization of cases issued to petitioners
The petitioners were issued show cause notices for centralization of cases on 20.1.2015 based on inquiries and material gathered during assessment proceedings. The petitioners requested the respondent to provide the information/material forming the basis of the notices, which was denied on 16.2.2015.

Issue 2: Request for material and information by petitioners turned down
The petitioners' request for the information/material that led to the issuance of the show cause notices was declined by the respondent on 16.2.2015. The respondent stated that the material would be provided during the assessment proceedings as per the law.

Issue 3: Compliance with Section 127 of the Income-tax Act, 1961 regarding transfer of cases
The judgment emphasized that the issuance of notices under Section 127 of the Income-tax Act, 1961 must demonstrate due application of mind. The order transferring cases must provide a reasonable opportunity for the assessee to be heard effectively, with specific reasons and compliance with the provisions of the Act.

Issue 4: Application of principles of natural justice and reasons for transferring cases
It was highlighted that the decision to transfer cases is quasi-judicial and not merely administrative. The order must contain specific reasons, comply with natural justice principles, and be self-contained/speaking. Violation of natural justice at the initial stage cannot be rectified later, and recording reasons is mandatory under Section 127(2)(a) of the Income-tax Act.

Issue 5: Entitlement of petitioners to pre-decisional hearing and stay of show cause notices
The judgment concluded that the petitioners should have been provided with the adverse material gathered against them before the assessment proceedings to enable effective representation. The petitioners were entitled to a pre-decisional hearing to contest the show cause notices dated 20.1.2015. A stay was ordered on the operation of the impugned show cause notices to prevent irreparable loss and injury to the petitioners.

This analysis underscores the importance of procedural fairness, compliance with statutory provisions, and the right of parties to be heard effectively in matters of transfer of cases under the Income-tax Act, 1961.

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