Requirement of recording reasons in making order of transfer. - Income Tax - 923/CBDT

INSTRUCTION NO. 923/CBDT Dated : February 20, 1976 Section(s) Referred: 127 Statute: Income - Tax Act, 1961 Attention is invited to the Supreme Court's judgment in case of M/s. Ajantha Industries and other Vs. Central Board of Direct taxes Others(Civil Appeal no. 724 of 1975 dated 5th December (102 ITR 281). 2. In this judgment arising out of an appeal filed by the assessee against the judgment of the Andhra Pradesh High Court in a writ filed by it against the transfer of cases from Nellore to Hyderabad u/s 127(1) of the Income-tax Act, 1961, the Supreme Court have referred to their judgment in Pannalal Binjray Vs. Union of India,(31-ITR-565) wherein they u/s 5(7A) of the income-tax Act, 1922, it would be prudent if the principles of natural justice are followed where circumstances permit before any order of transfer u/s 5(7A) of the Act is made by the Commissioner of Income-tax or the Central Board of Revenue as the case may be and notice is given to the party affected and he is afforded a reasonable opportunity of being heard and the reasons of the order are reduced, however briefly, to writing. Examining section 127 of the Income-tax Act, 1961, which has replaced section 5(7A), their Lordships have observed that "the legislature has introduced, inter alia, the requirement of recording reasons in making the order of transfer. It is manifest that once an order is passed transferring the case file of an assessee to another area, the requirement of recording reasons in making the order of transfer. It is manifest that once an order is passed transferring the case file of an assessee to another area, the order has to be communicated. Communication of the order is an absolutely essential requirement since the assessee is then immediately made aware of the reasons which impelled the authorities to pass the order of transfer. It is apparent that , if a case file is transferred from the usual place of residence or office where ordinarily assessments are made to a distant area, a great deal of inconvenience and even monetary loss is involved. That is the reason why before making an order of transfer the legislature has ordinarily imposed the requirement of a show cause notice and also recording of reasons." They have dismissed the Department's plea that the very fact that the reasons are recorded in the file, although these are not communicated to the assessee fully meets the requirements of section on 127(1), in these words:- "We are clearly of opinion that the requirement of recording reasons u/s 127(10 is a mandatory direction under the law and non-communication there-of is not saved by showing that the reasons exist in the file although not communicated to the assessee." 3. In view of the categorical finding of their Lordships, reproduced above as to what constitutes compliance with requirements u/s 127(1) for the transfer of a case from one area to another, it would now be necessary that in all cases where transfer is proposed from one area to another, there should in the first instance be an opportunity given to the assessee, wherever possible requiring him to show cause why his file should not be transferred as proposed. After issue of such notice and inviting the assessee's objections, if any, to the proposed transfer in all instances there should be a proper order transferring the case from one area to another as proposed and such an other should be communicated to the assessee. 4. this requirement in law as expounded by the Court may please be kept in view while making proposal for transfer of cases from one area to another. in making these proposals, each Commissioner should ensure that the reasons for the proposed transfer are detailed to enable the Board to give an opportunity to the concerned parties for making submissions as to why their case should not be transferred and thereafter for passing a proper order which again is now required to be communicated to the concerned parties. 5. These instructions may be brought to the notice of all officers in your charge.