2016 (5) TMI 491 - HC - Income Tax

Transfer of cases - scope of section 127 - Authority competent to do so. - purpose of effecting transfer of cases from jurisdiction of one Commissioner to other - Held that - It is clear that power to transfer cases from jurisdiction of one Assessing Officer to other vests in the Commissioner of Income Tax. The said provisions require an opportunity of hearing to be given to the assessee. It is also necessary that the show cause notice should contain reasons why transfer of cases is required to be made by the competent Authority and there is no provision for delegation of power by the Commissioner of Income Tax to issue such transfer order to any other Officer as such. It was absolutely necessary as requirement of law that the show cause notices issued to the petitioners had to be under the signature of Commissioner of Income Tax. However, show cause notices involved in the petitions are issued by and under the signature of Deputy Commissioner of Income Tax-II (Headquarters) and not under the signature of Commissioner of Income Tax. We thus find that initiation of proceedings under Section 127 of the Act in the instant cases was not by the Authority competent to do so. It is clear that in the matter of 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 party. Thus the impugned order passed by the respondents transferring cases of petitioners from Wardha (Maharashtra) to Jodhpur (Rajasthan) and from Nagpur (Maharashtra) to Jodhpur (Rajasthan) being arbitrary and illegal are not sustainable and are thus quashed and set aside.

Issues Involved:
1. Legality of the transfer orders under Section 127 of the Income Tax Act, 1961.
2. Validity of show cause notices issued by the Deputy Commissioner of Income Tax.
3. Necessity and justification for centralized investigation and assessment.
4. Compliance with procedural requirements under Section 127(1) and (2) of the Act.

Detailed Analysis:

1. Legality of the Transfer Orders under Section 127 of the Income Tax Act, 1961:
The petitions challenge the transfer orders dated 10/4/2003, 15/12/2003, and 28/1/2004, which transferred the petitioners' income tax cases from Wardha and Nagpur in Maharashtra to Jodhpur in Rajasthan. The court found that the transfer orders were issued to centralize the cases of the Mundra group for coordinated investigation and assessment. However, it was held that the transfer orders were not in compliance with the provisions of Section 127 of the Act, as they lacked sufficient reasons and did not meet the statutory requirements.

2. Validity of Show Cause Notices Issued by the Deputy Commissioner of Income Tax:
The court noted that the show cause notices were issued by the Deputy Commissioner of Income Tax-II (Headquarters) and not by the Commissioner of Income Tax, as required by law. Section 127(1) of the Act mandates that the Commissioner of Income Tax must issue the show cause notices and there is no provision for delegation of this power. The court found that the initiation of proceedings under Section 127 was not by the competent authority, rendering the show cause notices invalid.

3. Necessity and Justification for Centralized Investigation and Assessment:
The respondents argued that the transfer was necessary for coordinated, systematic, and centralized investigation due to the interconnected nature of the petitioners' businesses and family affairs. However, the court found that the reasons provided in the show cause notices and transfer orders were vague and lacked specific material facts. The court emphasized that the notices must reveal why coordinated investigation and assessment could not be carried out at the original locations (Wardha or Nagpur). The absence of such specific reasons deprived the petitioners of their right to a meaningful hearing.

4. Compliance with Procedural Requirements under Section 127(1) and (2) of the Act:
The court highlighted that Section 127(1) and (2) require the Commissioner of Income Tax to provide a reasonable opportunity of being heard to the assessee and to record reasons for the transfer. The court found that the impugned orders did not comply with these procedural requirements. Specifically, the court noted the lack of agreement between the Commissioners of Income Tax, which is a statutory requirement for transferring cases from one jurisdiction to another. Additionally, the court observed that the show cause notices did not provide specific reasons based on material facts, making them vague and insufficient.

Conclusion:
The court quashed and set aside the impugned orders dated 10/4/2003, 15/12/2003, and 28/1/2004, transferring the petitioners' cases from Wardha and Nagpur to Jodhpur. The court held that the transfer orders were arbitrary and illegal due to non-compliance with the statutory provisions and procedural requirements under Section 127 of the Income Tax Act, 1961. The rule was made absolute, with no order as to costs.

← Previous Next →