2006 (2) TMI 94 - HC - Income Tax

Transfer of case - Commissioner of Income-tax-I, Kanpur, vide impugned order dated January 23, 2004, exercising powers under section 127(2), transferred the assessment cases of the petitioners - impugned order and consequential notice, cannot be sustained and, therefore, are quashed

Issues Involved:
1. Legality of the transfer order dated January 23, 2004, under Section 127(2) of the Income-tax Act, 1961.
2. Validity of the notice dated March 1, 2004, issued under Section 153A of the Income-tax Act, 1961.
3. Requirement of recording and communicating reasons for the transfer order.
4. Adequacy of the opportunity of hearing provided to the petitioners.

Issue-wise Detailed Analysis:

1. Legality of the Transfer Order Dated January 23, 2004:
The petitioners challenged the transfer of their assessment cases from Kanpur to New Delhi by the Commissioner of Income-tax-I, Kanpur. The transfer was executed under Section 127(2) of the Income-tax Act, 1961. The petitioners argued that the transfer order was arbitrary and lacked any recorded reasons, thus violating the statutory requirements and principles of natural justice. The court observed that the transfer order did not contain any reasons, which are essential for such orders to avoid arbitrary actions. The court referenced the Supreme Court judgment in Ajantha Industries v. CBDT, emphasizing that reasons must be recorded and communicated to the assessee to enable them to challenge the order if necessary.

2. Validity of the Notice Dated March 1, 2004:
The petitioners sought to restrain the Assistant Commissioner of Income-tax, Central Circle-9, Range-4, New Delhi, from proceeding with the case based on the notice issued under Section 153A of the Income-tax Act. The court found that since the transfer order itself was invalid due to the lack of recorded reasons, the consequential notice dated March 1, 2004, also could not be sustained.

3. Requirement of Recording and Communicating Reasons for the Transfer Order:
The court highlighted the mandatory nature of recording reasons in the transfer order, as stipulated under Section 127(2) of the Income-tax Act. The court cited the Supreme Court's decision in Ajantha Industries, which held that non-communication of reasons to the assessee is not saved by merely showing that reasons exist in the file. The court reiterated that the reasons must be part of the order to ensure transparency and allow the assessee to challenge it if necessary. The court also referenced the Division Bench decision in Bansal Sharevests Services Ltd. v. CIT, which supported this view.

4. Adequacy of the Opportunity of Hearing Provided to the Petitioners:
The court noted that the petitioners were given an opportunity to explain their position through notices dated January 9, 2004. However, the court found that the absence of reasons in the transfer order itself indicated a lack of proper application of mind by the authority. The court emphasized that merely providing an opportunity to be heard is insufficient if the final order does not reflect the reasons for the decision.

Conclusion:
The court quashed the impugned transfer order dated January 23, 2004, and the consequential notice dated March 1, 2004, due to the absence of recorded reasons in the transfer order. The court directed the competent authority to pass a fresh order in accordance with the law, ensuring that reasons are properly recorded and communicated. The writ petition was allowed, and no order as to costs was made.

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