2025 (4) TMI 1000 - HC - Income Tax

Order u/s 127 (2) proposing to transfer the petitioner s assessment case from Mumbai to Indore - HELD THAT - In any event the court was not apprised of the orders/approvals and as a routine the petitioner went on obtaining an extension of the interim reliefs. Even an attempt on the part of petitioner to get the petition disposed of as infructuous leaves a lot to be desired. All this prima facie suggests that the court proceedings were used or abused to compromise the Revenue s interests. Now that respondents have abandoned the impugned order transferring the proceedings from Mumbai to Indore and substituted the same by transferring the proceedings from one Circle to the other in Mumbai there is nothing much we can do in this petition. But we would be failing in our duty if we do not bring these developments to the notice of the higher authorities i.e. the CBDT and Ministry of Finance so that such developments are probed deeply. At least prima facie all these orders made during the pendency of this petition and without apprising the Court of such developments suggest that there is something more than what meets the eye. This Court s orders and the Court proceedings were prima facie sought to be misused and even the Court was kept in the dark about all these developments. The assessment orders now made by the Mumbai Assessing Authorities practically accept everything submitted by the petitioner. There is no explanation of whether any powers of review are vested in the officials for re-transferring the matters in the way they have been re-transferred. Accordingly we direct the CBDT and Ministry of Finance to take cognizance of this matter and its proceedings make at least a preliminary enquiry as to the developments in this matter and decide whether any action is necessary against the officials involved. Needless to add the principles of natural justice and regular prescribed procedures must be followed and full opportunity must be granted to the officials involved. Though we are disposing of this petition given the order dated 20 February 2025 made by PCIT Mumbai-4 we direct the Chairperson of CBDT to file the compliance report in this Court by 27 June 2025. Ultimately the CBDT and Tax officials must realize that they are dealing with public funds and just as this court is always anxious to see that honest tax payers are not hassled we think that we would be failing in our duty if we do not flag issues which prima facie suggest that the interests of the revenue which are equally important are not being prima facie compromised by attempting to use or abuse Court proceedings.

The core legal questions considered by the Court in this matter include:

Whether the transfer order dated 20 September 2023, transferring the petitioner's assessment proceedings from Mumbai to Indore under Section 127(2) of the Income-tax Act, 1961, was valid and properly issued.
Whether the subsequent actions and orders by Revenue authorities, including the issuance of a fresh transfer order dated 20 February 2025 transferring the proceedings within Mumbai circles, were lawful and consistent with the Court's directions and principles of natural justice.
The propriety and legality of the Revenue's conduct during the pendency of the petition, particularly their failure to file replies or appear before the Court despite directions.
Whether the petitioner's claim that the petition had become infructuous due to the issuance of assessment orders was valid.
The necessity for intervention by higher authorities (CBDT and Ministry of Finance) to investigate possible misuse or abuse of Court proceedings and irregularities in the transfer and assessment orders.

Issue 1: Validity of the Transfer Order dated 20 September 2023

The legal framework governing the transfer of assessment proceedings is Section 127(2) of the Income-tax Act, 1961, which empowers the Commissioner of Income Tax to transfer cases for reasons such as convenience or proper administration. The Court examined whether the transfer from Mumbai to Indore was justified and whether proper procedures were followed.

The Court noted that the initial transfer order was challenged by the petitioner and that an ad-interim stay was granted restraining the Revenue from implementing the transfer. Despite repeated directions, the Revenue failed to file any reply or appear before the Court, which raised concerns about their conduct.

The Court observed that the Revenue did not bring to its notice any approval or rationale supporting the transfer during the hearings, which undermined the legitimacy of the transfer order. The absence of reasons or explanations from the Revenue, coupled with their non-appearance, suggested misuse or abuse of Court orders.

Accordingly, the Court continued the ad-interim stay, effectively restraining the transfer order's operation. The petitioner's contention that the petition had become infructuous due to assessment orders was rejected at this stage, as any benefit derived from interim relief would be subject to final adjudication.

Issue 2: Legality of Subsequent Transfer and Assessment Orders

The Court scrutinized the subsequent developments, particularly the fresh transfer order dated 20 February 2025, which re-transferred the assessment proceedings within Mumbai circles, and the assessment orders dated 30 March 2024 and 30 March 2025 for various assessment years.

Key evidence included:

The approval letter dated 18 March 2024 by CCIT-2, Mumbai, authorizing transfer within Mumbai, which was not disclosed to the Court during earlier hearings.
The assessment order dated 30 March 2024 passed by an officer whose jurisdiction had ostensibly been transferred to Indore.
The subsequent assessment orders accepting the petitioner's case substantially without reference to the pending Court proceedings or the interim orders.

The Court found it perplexing that despite the approval for transfer within Mumbai being dated 18 March 2024, the assessment order dated 30 March 2024 was passed by an officer whose jurisdiction had been transferred, and without any mention of the ongoing litigation. This indicated procedural irregularities and a lack of transparency.

The Court emphasized that the Revenue's volte-face in abandoning the original transfer to Indore and substituting it with a transfer within Mumbai, without reasons or Court approval, raised serious questions about the propriety of the Revenue's actions.

The failure to inform the Court of these developments and the apparent disregard for the Court's orders suggested misuse or abuse of Court proceedings, potentially compromising the interests of the Revenue and the petitioner alike.

Issue 3: Conduct of the Revenue and Non-Compliance with Court Directions

The Court repeatedly noted the Revenue's failure to appear or file replies despite explicit directions. This conduct hindered the judicial process and raised suspicions about their intentions.

The petitioner's counsel's attempts to declare the petition infructuous were viewed with skepticism, as the Court perceived these as attempts to circumvent judicial scrutiny.

The Court underscored the importance of adherence to procedural norms and the principles of natural justice, emphasizing that any transfer or assessment action must be transparent and accountable.

Issue 4: Necessity for Higher Authority Intervention

Given the irregularities and the apparent misuse of Court proceedings, the Court directed the Central Board of Direct Taxes (CBDT) and the Ministry of Finance to take cognizance of the matter and conduct a preliminary enquiry.

The Court stressed that any enquiry must adhere to principles of natural justice, providing full opportunity to the officials involved to explain their actions.

The Court also mandated a compliance report from the Chairperson of CBDT within a stipulated timeframe, highlighting the gravity of the situation and the need for institutional oversight.

Significant Holdings and Core Principles

The Court held that:

"If, ultimately, we find no merit in the petition, then any benefit derived based on an interim order cannot survive and will have to be set at nought."
"The Court's orders and the Court proceedings were prima facie sought to be misused, and even the Court was kept in the dark about all these developments."
"The principles of natural justice and regular prescribed procedures must be followed, and full opportunity must be granted to the officials involved."
"The CBDT and Tax officials must realize that they are dealing with public funds, and just as this court is always anxious to see that honest tax payers are not hassled, we think that we would be failing in our duty if we do not flag issues which prima facie suggest that the interests of the revenue, which are equally important, are not being prima facie compromised by attempting to use or abuse Court proceedings."

The Court concluded that, in light of the fresh transfer order dated 20 February 2025, the original petition challenging the transfer to Indore was rendered ineffective, and therefore, it was disposed of accordingly.

However, the Court emphasized the importance of institutional scrutiny and accountability, directing the CBDT and Ministry of Finance to investigate the matter thoroughly and report back.

Finally, the Court directed the Revenue's counsel to place on record the relevant approval order and to forward authenticated copies of the judgment to the Chairperson of CBDT, ensuring transparency and compliance.

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