2021 (9) TMI 1281 - HC - Income Tax

Transfer of case u/s 127 - transfer proposed is from one commissionerate to another commissionerate - reasonable opportunity denied - HELD THAT - Sub Section (1) of Section 127 is not applicable to the case at hand because the transfer proposed is from one commissionerate to another commissionerate. Sub Section 1 applies only where a transfer is proposed to be made from one AO subordinate to the same Commissioner to any other AO also subordinate to the same Commissioner. In this case, the transfer was proposed to be made by one Commissioner to an Assessing Officer under another Commissioner and both AO are not subordinate to the same Commissioner. Reasonable opportunity would mean that the show cause notice or the intimation issued should contain such details that would enable the assessee to know the reasons for which the case is being transferred. In the intimation notice dated 20th June 2019, apart from stating you are connected to this group there are no other details as to how petitioner is connected to the Salagaocar Group. The word connected has varied and a wide meaning. Respondents ought to have mentioned in the show cause notice how petitioner was connected to Salagaocar Group of companies. The purpose of show cause notice is to enable a party to effectively deal with the case made out by respondent. If a vague show cause notice is given without specifying anything or the grounds, then it can be held that reasonable opportunity of showing cause against an order of transfer being made by the Commissioner was not given, because the assessee would be totally unaware of the grounds which prompted the Commissioner to arrive at prima facie conclusion that the power u/s 127 (2) of the Act was required to be exercised. Issuance of show cause notice is the preliminary step which is required to be undertaken before giving opportunity of hearing under Section 127 (2) Also show cause notice issued is under Section 127 (1) when all applicable provisions are under Section 127 (2) (a) of the Act. Even in the order impugned, respondent no.1 states that the assessee was provided opportunity under Section 127 (1) but he exercised his powers under Sub Section 2 of Section 127 - that also shows non application of mind by respondent no.1. Respondent no.1 also should have dealt with all the points raised by petitioner in his reply, which he has failed to do. Moreover, the show cause notice has been issued by one Income Tax Officer (HQ), International Taxation 3 and not by the Commissioner of Income Tax, who was exercising his power. On that ground also the show cause notice itself is defective.

Summary

Issues:
1. Transfer of case under Section 127 of the Income Tax Act, 1961 from one commissionerate to another.
2. Compliance with the principles of natural justice in the transfer process.
3. Adequacy of reasons provided in the show cause notice for transferring the case.
4. Consideration of objections raised by the petitioner in response to the transfer.

Analysis:
1. The case involved the transfer of the petitioner's income tax case from one commissionerate to another based on a search and seizure action conducted on the Salagaocar Group of Companies. The petitioner, a non-resident Indian conducting business through various legal entities, objected to the transfer citing genuine hardship and lack of specific reasons connecting him to the group. The respondent passed an order under Section 127(2) of the Act, stating the petitioner's connection to the group as the reason for the transfer.

2. The High Court analyzed the provisions of Section 127 of the Act, emphasizing the requirement of providing a reasonable opportunity of being heard to the assessee before transferring a case. The Court noted that the show cause notice lacked specific details on the petitioner's alleged connection with the group, rendering the opportunity to respond effectively inadequate. The Court highlighted the importance of a detailed show cause notice to enable the assessee to understand the grounds for transfer and effectively present their case.

3. The Court further critiqued the respondent's failure to address all points raised by the petitioner in response to the transfer notice. It noted that the respondent's order was based on Section 127(2) but the show cause notice was issued under Section 127(1), indicating a lack of proper application of relevant provisions. The Court also pointed out that the show cause notice was issued by an Income Tax Officer instead of the Commissioner, raising concerns about its validity.

4. In light of the above analysis, the High Court quashed and set aside the impugned order, directing the respondents to issue a new show cause notice with detailed grounds for transfer. The Court emphasized the importance of providing a personal hearing to the petitioner after the submission of objections. The Court kept all rights and contentions of the petitioner open for further proceedings, ensuring compliance with the principles of natural justice throughout the transfer process.

This detailed analysis of the judgment highlights the legal intricacies involved in the case regarding the transfer of income tax cases and the importance of adhering to procedural fairness and providing detailed reasons for such transfers.