2006 (2) TMI 128 - HC - Income Tax

Order passed under section 127(2) for transferring the cases - validity of an order impugned is to be tested in the light of the facts and circumstances as it existed on the day of the passing of the order. Any subsequent development or event cannot make the order bad nor can it be set aside on that ground, unless such an event has the effect of nullifying the order. It would be a different matter in a given case that any subsequent development or change or subsequent event, if relevant, may give opportunity to the aggrieved person, for approaching the authority concerned for consideration of such an event. we find no arbitrariness or illegality in the impugned order of transfer.

Issues Involved:
1. Validity of the transfer order under section 127(2) of the Income-tax Act, 1961.
2. Opportunity of hearing and recording of reasons.
3. Justification for transferring cases from Lucknow to New Delhi.
4. Relevance of the application moved by the petitioners in 1996.
5. Inter-lacing and inter-connection of funds and business activities.
6. Administrative convenience and co-ordinated investigation.
7. Principal place of business and jurisdiction under section 124.

Detailed Analysis:

1. Validity of the Transfer Order under Section 127(2):
The court examined whether the transfer order was valid under section 127(2) of the Income-tax Act, 1961, which requires giving the assessee a reasonable opportunity of being heard and recording reasons for the transfer. The court found that the notices were issued and served, objections were filed, and personal hearings were conducted. The reasons for transfer, such as inter-lacing and inter-connection of funds and business activities among the Sahara group entities, were recorded and communicated.

2. Opportunity of Hearing and Recording of Reasons:
The court emphasized that the opportunity of hearing must be effective, allowing the assessee to know the grounds for the proposed transfer and to rebut them. The court found that the petitioners were given adequate opportunity to present their case and that the reasons for the transfer were recorded and communicated. The court rejected the argument that the reasons were insufficient or arbitrary, noting that the reasons were based on the petitioners' own records and balance-sheets.

3. Justification for Transferring Cases from Lucknow to New Delhi:
The court considered the justification for transferring the cases from Lucknow to New Delhi. The court noted that the Sahara group had diversified its business activities across various cities, and there was a need for co-ordinated investigation and assessment. The court found that the transfer was justified for better investigation and assessment, despite the inconvenience it might cause to the assessee.

4. Relevance of the Application Moved by the Petitioners in 1996:
The court addressed the relevance of the application moved by the petitioners in 1996 for transferring the cases from Lucknow to New Delhi. The court found that the application was relevant as it reflected the petitioners' own acknowledgment of the need for centralized assessment. The court noted that the application was not the sole basis for the transfer order but was considered along with other factors.

5. Inter-lacing and Inter-connection of Funds and Business Activities:
The court examined the issue of inter-lacing and inter-connection of funds and business activities among the Sahara group entities. The court found that the petitioners had not specifically denied the inter-lacing and inter-connection of funds in their objections. The court held that the inter-lacing and inter-connection of funds and business activities were relevant factors for transferring the cases to a single officer for co-ordinated assessment.

6. Administrative Convenience and Co-ordinated Investigation:
The court considered the argument of administrative convenience and co-ordinated investigation. The court found that the transfer of cases to New Delhi was necessary for co-ordinated investigation and assessment, given the inter-lacing of funds and business activities among the Sahara group entities. The court held that the choice of place for assessment was within the discretion of the Commissioner and could not be interfered with unless it was arbitrary or unreasonable.

7. Principal Place of Business and Jurisdiction under Section 124:
The court addressed the argument that the principal place of business of the Sahara group was at Lucknow, and therefore, the cases should not have been transferred to New Delhi. The court held that the determination of jurisdiction under section 124 and the transfer of cases under section 127(2) have different considerations. The court found that the transfer of cases was justified for effective investigation and assessment, regardless of the principal place of business.

Conclusion:
The court dismissed the writ petitions, holding that the transfer order under section 127(2) was valid, justified, and not arbitrary. The court found that the petitioners were given adequate opportunity to present their case, and the reasons for the transfer were recorded and communicated. The court upheld the transfer of cases from Lucknow to New Delhi for better investigation and assessment.

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