TRANSFER OF A CASE UNDER SECTION 127 OF INCOME TAX, 1961

[Mr. M. GOVINDARAJAN]

Section 127 of the Income Tax Act, 1961 (‘Act’ for short) deals with the power of competent officers to transfer cases.   The said section reads as follows:

127(1) The Director General or Chief Commissioner or Commissioner may, after giving the assessee a reasonable opportu­nity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him.

(2) Where the Assessing Officer or  Assessing Officers from whom the case is to be transferred and the Assessing Officer or As­sessing Officers to whom the case is to be transferred are not subordinate to the same Director General or Chief Commissioner or Commissioner,—

(a) where the Directors General or Chief Commissioners or Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Director General or Chief Commissioner or Commissioner from whose jurisdiction the case is to be trans­ferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order;

(b) where the Directors General or Chief Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Director General or Chief Commissioner or Commissioner as the Board may, by notification in the Official Gazette, authorize in this behalf.

(3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or  Assessing Officers (whether with or without concurrent jurisdiction) to any other Assessing Offi­cer or Assessing Officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place.

(4) The transfer of a case under sub-section (1) or sub-section (2) may be made at any stage of the proceedings, and shall not render necessary the re-issue of any notice already issued by the Assessing Officer or Assessing Officers from whom the case is transferred.

Explanation.—In section 120 and this section, the word "case", in relation to any person whose name is specified in any order or direction issued there under, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year.

Section 127(1) confers powers, inter alia, on the Commissioner ‘after giving the assessee a reasonable opportunity of being heard in the matter, whenever it is possible to do so, and after recording his reasons for doing so to transfer any case from one Assessing Officer subordinate to him to any other Assessing Officer also subordinate to him.   Under sub-section (2), where the Assessing Officer from whom the case is to be transferred and the Assessing Officer to whom the case is to be transferred are not subordinate, inter alia, to the same Commissioner, the power is, inter alia, conferred upon the Commissioner from whose jurisdiction the case is to be transferred.   In such a case, the Commissioner, the statute provides, “may after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so and after recording his reasons for doing so, pass the order.

In ‘Sagarmal Spinning and Weaving Mills Limited V. CDBT’ – 1970 (10) TMI 18 - MADHYA PRADESH High Court the Court held that on a plain reading of Section 127 of the Income Tax Act, 1961, two things are absolutely necessary, namely,

• A reasonable opportunity of being heard in the matter wherever it is possible to do so; and
• The recording of reasons for transferring a case.

In the absence of these two requirements being fulfilled, it is not possible to support an order of transfer and especially with a vague observation that the transfer is proposed for facility of investigation.

In ‘Vijayashanthi Investments P. Limited V. Chief Commissioner of Income Tax’ – 1990 (11) TMI 139 - ANDHRA PRADESH High Courtthe High Court held 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.

In ‘Chotanagpur Industrial Gases P. Limited v. Commissioner of Income tax’ – 1996 (10) TMI 17 - CALCUTTA High Court it was held that the provision of a reasonable opportunity of hearing the assessee was mandatory when it was possible to give such a hearing. It was further held that the entire process was vitiated because of the denial of a reasonable opportunity of being heard.

In ‘Sahara Hospitality Limited and another V. Commissioner of Income Tax and others’ – 2012 (9) TMI 520 - BOMBAY HIGH COURT the petitioner’s registered office, which was originally in Delhi, was shifted to the State of Maharastra in the year 2003. By an order dated 22.09.2003, under Section 127(2) of the Act the petitioner’s case was transferred from Delhi to Mumbai Office. The petitioner filed their returns in Mumbai Office.   However by a letter dated 12.09.2011 the Department informed the petitioner that he was directed to proposed to transfer the petitioner’s case from Mumbai to New Delhi. The petitioner was further requested the petitioner for its no—objection certificate for the proposed centralization of the case and in the event of the petitioner not complying with the same, it would be presumed that it had no objection thereto and a order under Section 127(2) of the Act would be passed accordingly.

The petitioner reply to the request of the Department requested to furnish the reasons for the proposed transfer and to offer it a reasonable time to object the same. The petitioner further stated that the Department ought to grant it a personal after receiving its objections. The petitioner requested the Department to keep the proposed transfer in abeyance till the personal hearing was granted. The Department in its letter intimated that in view of the large scale finance transactions and investments of the petitioner with the Sahara group of companies to which it belonged and that the other entities of the Sahara group were already centralized in New Delhi. The letter offered an opportunity to file the written submissions but did not mention anything about a personal hearing. The petitioner filed various objections to the transfer of its assessment proceedings. The petitioner submitted that in case the Department did not accept its submissions, a further opportunity be granted to the petitioner to make further submissions.

But without giving an opportunity to the petitioner the Department passed the order under Section 127(2) transferring the petitioner’s case from Mumbai to New Delhi. Against this order the petitioner approached the High Court. The Department submitted the following before the High Court:

• Section 127 merely requires an assessee to be granted an opportunity of placing its submission in writing before the concerned officer;
• Section 127 does not require the concerned officer to grant an assessee a personal hearing in respect of the proceedings under Section 127(1) and (2) even where it is possible to do so.

The High Court did not accept this argument. In its opinion Section 127(1) and 127(2) mandate an assessee being granted a reasonable opportunity of being heard wherever it is possible to do so. The section indicates that the word ‘may’ in sub-sections (1) and (2) of Section 127 ought to be read as ‘shall’.   It is obvious that upon the transfer of a case from one jurisdiction to another in a different city as opposed to cases where the transfer is from one officer to another in the same city, locality of place, would adversely affect the rights of an assessee for reasons too obvious to state.   This becomes clear when sub-sections (1) and (2) on the one hand are compared to sub-section (3) on the other. In cases falling under sub-section (3) there is no requirement of giving the assessee a reasonable opportunity of being heard in the matter. The High Court set aside the order on the ground that the petitioner had not been heard.