9911796707
TMI Blog2002 (7) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... products, its factory as well as head office are stated to be located at Panipat. Anand Co., i.e., petitioner No. 7, is a partnership firm comprising petitioners Nos. 1 and 2. It is stated to be engaged in carrying out trading activities in handloom products. Its business premises are stated to be located at Panipat. The facts narrated above have not been disputed in the written statement filed on behalf of the respondents. All the petitioners were regularly assessed to income-tax at Panipat by the Assistant Commissioner of Income-tax, Panipat, as well as by the Income-tax Officers of Wards Nos. 1 and 4. From the facts depicted in the foregoing paragraph, it is apparent that petitioners Nos. 1 to 4 are individuals, being members of one family, whereas petitioners Nos. 5 to 7 are partnership concerns comprising petitioners Nos. 1 to 4. The books of account relating to the business activities of petitioners Nos. 5 to 7 are stated to be maintained and kept in the business premises of the three firms at Panipat itself. The factum of residence of the petitioners at Panipat, the location of their business premises at Panipat and the maintenance of books of account at Panipat, are also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers. The petitioners were also permitted to avail of a personal hearing with the Commissioner of Income-tax, Rohtak, if they so desired. Since the present controversy pertains to the interpretation of section 127 of the Act, it is considered appropriate to extract the aforesaid provision hereunder: "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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on August 29, 2000, it was specifically stated that nothing "has been found during the course of search and seizure operations, which warrant any connection between two family groups". It would be pertinent to mention that in the written objections dated January 31, 2001, it was conceded that Rajesh Mahajan was one of the directors of Mahajan Industries Ltd. and Pan Foods Ltd. It was, however, pointed out that he had no hand whatsoever in the conduct of day-to-day affairs of the business of the said companies. In this behalf, it was asserted that Rajesh Mahajan had less than four per cent, shares in the two companies. It was also clarified that the status of his shares had remained the same without "any significant change" for the last more than 30 years. According to learned counsel these facts were sufficient to depict lack of involvement of Rajesh Mahajan in the business ventures controlled by Rakesh Mahajan. In order to show that Rajesh Mahajan had no control/interest in the aforesaid two firms, it was also pointed out that he (Rajesh Mahajan) was not paid any remuneration or salary for being a director, and further that, he was not even paid fees for attending board meetings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll assessment proceedings pending against the petitioners from Panipat to the Deputy Commissioner of Income-tax, Central Circle 20, New Delhi. The instant notices dated July 12, 2001, besides making a reference to Civil Writ Petition No. 7819 of 2001 and the order passed therein; were indistinguishable from the notices issued earlier (on January 4, 2001). The petitioners responded to the notices dated July 12, 2001, through a communication dated July 19, 2001. In the short communication dated July 19, 2001, the petitioners recorded their serious concern by stating that the liberty granted by the High Court was being misconstrued by the respondents. It was pointed out that the notices dated July 12, 2001, did not express any ground/justification for the transfer of assessment proceedings of the petitioners, from Panipat to New Delhi. On the merits, the petitioners continued to rely on the reply dated January 31, 2001 (submitted in response to the previous notice dated January 4, 2001), and, therefore, enclosed the said reply with the com munication dated July 19, 2001. As on the earlier occasion, the Commissioner of Income-tax, Rohtak, granted a personal hearing to the petitioner on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt at Mahajan House. Therefore, undoubtedly, there was a basis and material on the record to show that there is connection between Rakesh Mahajan and Rajesh Mahajan group of cases. The other groups already having been transferred, it becomes imperative that the cases are also transferred to Central Circle, New Delhi, so the meaningful and co-ordinated enquiries could be made. It would not be out of place to mention here that search operations were conducted on the basis of suspected concealment by persons of these groups. 5. Accordingly, the contention of the assessee that there was no connection between these two groups does not sustain on the basis of scrutiny of the facts available on record. As regards the second contention of the assessee that they are being assessed to tax at Panipat, it may be mentioned here that when transfer of a case is effected in the interest of proper investigation, inconvenience caused to the assessee would not matter. The convenience of an assessee could not override the needs of the Revenue for better investigation as has been held by the Allahabad High Court in the cases of Bhatia Minerals v. CIT [1993] 200 ITR 591; Mahesh Chand Vishan Swarup v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asserted that the reasons recorded in the show-cause notice do not constitute a valid basis for the transfer of assessment proceedings as it does not detail the express reasons/basis for the contemplated action. Learned counsel for the petitioners has also made an alternative submission to the second contention. Alternatively, learned counsel for the petitioners contended that none of the reasons expressed in the impugned order can be accepted as a valid basis for transfer of the pending income-tax proceedings from Panipat to New Delhi, as the reasons expressed in the impugned order have no relevance with the ultimate decision arrived at by the income tax authorities. It is further asserted that the reasons expressed in an order finally passed under section 127 of the Act must take into consideration the objections raised by the assessee, otherwise, the mandate of the statute to record reasons (whenever possible) will not be satisfied. In this behalf, the lament of the petitioners is that the reasons recorded in the impugned order have no nexus with the final decision, and further that the objections raised by them have not been duly considered. Before one can embark on the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the concerned/competent authority proposes to take action under section 127 of the Act to the petitioners. The second contention is based on the other essential components of the rules of natural justice, namely, that the concerned authority must record reasons (whenever possible) for finally taking action contemplated under section 127 of the Act. The alternate submission to the second contention is based on the third step described in the preceding paragraph, namely, the reasons recorded by the concerned/competent authority in the decision finally taken, all objections raised by the assessee must be dealt with, additionally, the reasons recorded in the final order must have direct bearing/nexus with the object sought to be achieved. I shall now endeavour to deal with the first contention: In Nasir Ahmed v. Asst. Custodian-General, Evacuee Property, AIR 1980 SC 1157, the apex court held that a notice which merely repeated the statutory language without giving any facts and other particulars, is insufficient and inadequate for an effective response. It is, therefore imperative that the notice issued to an affected party discloses the grounds on which the action is propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (AP); Y. Moideen Kunhi and Co. v. ITO [1993] 204 ITR 29 (Karn); Shivajirao Angre v. CIT [1986] 158 ITR 162 (MP) and Power Controls v. CIT [2000] 241 ITR 807 (Delhi) wherein different High Courts have opined that it is not sufficient merely to mention that the proposed transfer is to facilitate detailed and co-ordinated investigations. In so far as the first contention of learned counsel for the petitioners is concerned, the challenge is to the validity of the show-cause notices issued to the petitioners under section 127 of the Act. There can be no dispute about the fact that the notices dated July 12, 2001, extracted above do not disclose the basis which prompted the authorities to initiate action (to transfer assessment proceedings of the petitioners from Panipat to New Delhi) under section 127 of the Act. The only reason for transfer of proceedings expressed in the notices issued to the petitioners was "...in order to make co-ordinated enquiries and investigations..." and nothing beyond that. In view of the decisions, noticed hereinabove, the aforesaid reason expressed in the notices issued to the petitioners is not acceptable in law. The notices in the instant case merely rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposed transfer of assessment proceedings (from Panipat to New Delhi), from the notices dated July 12, 2001, rather than filing detailed objections, they should have required the authorities to inform them of the reasons which prompted them (the authorities) to initiate action under section 127 of the Act against them (the petitioners). Having not done so, and having accepted the notices dated July 12, 2001, as valid notices, and having filed detailed objections to the said notices and also having participated in the personal hearing granted to them by the Commissioner of Income-tax, Rohtak, on July 20, 2001, it is not now open to the petitioners to raise the plea that the notices issued to them were defective. While deliberating upon the first contention, raised by learned counsel for the petitioners, I have carefully examined the notices dated July 12, 2001, issued to the petitioners. I have also carefully gone through the objections raised by the petitioners. As against the first notices issued under section 127 of the Act dated January 4, 2001, the petitioners submitted their objections through a communication dated January 31, 2001. After this court intervened in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the notices issued under section 127 of the Act, were benefit of reasons, it is not appropriate at this stage to accept the aforesaid contention. Procedural norms are devised to protect a person proceeded against; it is not open to such person to base his claim on violation of such procedure, if he has waived such requirement either expressly or by his conduct. In the instant case, on the basis of the facts noticed above, it is inevitable to conclude that by filing detailed objections dated January 31, 2001, the petitioners by their conduct expressly waived the right now claimed by them. Moreover, it is now evident that the petitioners have not been deprived of an effective response since the pleas raised in the objections dated January 31, 2001, constitute a complete reply to the reasons which have been disclosed in the impugned order dated July 26, 2001. As a matter of fact, in terms of ground realities, the petitioners cannot be stated to have suffered any prejudice on account of non-communication of reasons in the notices dated July 12, 2001. The ultimate object of the rule of audi alteram partem is to ensure a fair hearing and also to ensure that there is no failure of j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are followed, where circumstances permit, before any order of transfer under section 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 representing his views on the question and the reasons of the order are reduced, however, briefly to writing..... There is no presumption against the bona fides or the honesty of an assessee and normally the income-tax authorities would not be justified in refusing to an assessee a reasonable opportunity of representing his views when any order to the prejudice of the normal procedure laid down in section 64(1) and (2) of the Act is sought to be made against him, be it a transfer from one Income-tax Officer to another within the State or from an Income-tax Officer within the State to an Income-tax Officer without it, except of course where the very object of the transfer would be frustrated if notice was given to the party affected. If the reasons for making the order are reduced however briefly to writing it will also help the assessee in appreciating the circumstances which make it necessary or des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mandatory direction under the law and non-communication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee." Paragraphs 4 to 6 of the order dated July 26, 2001, have already been extracted hereinabove. The contents of the aforesaid paragraphs certainly lead to the conclusion that detailed reasons for taking action against the petitioners under section 127 of the Act have been enumerated therein. In the aforesaid circumstances, it is not possible for this court to accept the second contention, i.e., that the impugned order is bereft of the reasons/basis which had weighed with the authorities for transferring the assessment proceedings pending against the petitioners under the Income-tax Act from Panipat to New Delhi. Now, I shall deal with the alternative plea to the second contention raised on behalf of the petitioners: Learned counsel, for the petitioners as well as the respondents, have invited the attention of this court to the factual contents narrated in paragraph 4 of the impugned order, which expresses the following reasons for the transfer of income-tax assessment proceedings of the petitioners from Panipat t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also connected with Pan Foods Limited. Both these companies belong to Rakesh Mahajan group. In this connection, it may be clarified that Rajesh Mahajan, petitioner No. 1 is the real brother of Rakesh Mahajan. Being a real brother, his name is associated with Mahajan Industries Pvt. Ltd. as a director. He is only an ornamental director. He does not take part in any business, financial or managerial activities of the companies. He has no role to play whatsoever in the day-to-day conduct of their business affairs. His share capital is nominal and his nominal shareholding is continuing without any alteration or addition practically for the last three decades as follows: ------------------------------------------------------------------------------------- Total number of Percentage shares Share held Rajesh Name of the company shares of the held by Rajesh Mahajan company Mahajan and others ------------------------------------------------------------------------------------- Pan Foods Ltd. 243500 2.58 per cent. 32115 Mahajan Industries Pvt. Ltd. 50000 4.02 per cent. 2008 ------------------------------------------------------------------------------------- It may be added t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demonstrate their independent location. So far as Rajesh Mahajan, petitioner No. 1 is concerned, the office of only one of the companies, namely Mahajan Overseas Private Limited, is located in those premises. So far as his main offices pertaining to his main business are concerned, they are all at Panipat. So far as Mahajan Overseas Private Limited is concerned, it is assessed at Delhi and there is no dispute with regard to its place of assessment or transfer. So far as the Rakesh Mahajan group is concerned, the offices of Mahajan Industries Private Ltd. and Pan Foods Pvt. Limited are located separately and independently in those premises and that there is nothing in common between the two offices. Their employees are separate, their establishment and office equipment are separate, even their reception and entrances are separate and independent of each other. Separate premises bear separate sign board/boards of the respective concerns. A site map of the offices of the concerns at the respective premises is enclosed and marked annexure P-6 to this writ petition. It may be further clarified that Shri Rajesh Mahajan was present at the time of search in his premises and not in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... photo copies of the seized documents to both the groups separately and independently on the basis of the seized memos as indicated in this paragraph. Therefore, it is wholly incorrect and highly pretentious on the part of respondent No. 1 to allege that the seized documents are intermingled while the state of affairs is just to the contrary. (f) It is further alleged that Rajesh Mahajan has inseparable relation with Pan Foods and Mahajan Industries Private Limited, the two companies belonging to the Rakesh Mahajan group. This statement is the farthest from the truth. Shri Rajesh Mahajan has absolutely nothing to do with Mahajan Industries Pvt. Ltd. or Pan Foods Limited, except holding minor equity and being an ornamental director without any financial or pecuniary involvement. (g) It is also alleged that Shri Rajesh Mahajan was staying at B-81, Greater Kailash Part-I, New Delhi. It is not clear as to how does his staying at that place establishes any business connection. The fact of the matter is that this flat is owned by Mahajan Overseas Limited and Smt. Sangeeta Mahajan, wife of Rajesh Mahajan who is one of the directors of the company, is allotted this flat for her residence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the respondents, it is necessary to reproduce the relevant extract thereof: "I strongly recommended that the cases mentioned in the said letter should also be centralised at Delhi for the following reasons: (1) As per his own admission, Sh. Rajesh Mahajan is the director of Pan Foods Ltd., and Mahajan Industries (P.) Ltd. Being a functional director, it is unconceivable that Sh. Rajesh Mahajan has no role whatsoever in the day-to-day affairs of running of these companies. (2) Sh. Rajesh Mahajan is also one of the trustees of Ram Lal Mahajan Charitable Trust, which is running Mother and Child Hospital at D-59, Defence Colony, New Delhi. As per documents available with us, a huge amount of money has been siphoned off to Mahajan House from Mother and Child Hospital, repeatedly. Sh. Rajesh Mahajan being the trustee is also a collaborator in siphoning off the money from the hospital being run by the trust. Sh. Rajesh Mahajan and Sh. Rakesh Mahajan both are having their offices in Mahajan House, E-1 and 2, NDSE, Part-II, New Delhi. As per documents available, Sh. Rajesh Mahajan has been one of the signatories to the various resolutions passed by the trustees of Ram Lal Mahajan C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse to an easy way out by contending that it is not necessary for the income-tax authorities to decipher with precision the connection between the business or financial dealings of the family of Rajesh Mahajan (petitioner No. 1) and Rakesh Mahajan (brother of petitioner No. 1) and his family members, at the present juncture, and further that it is sufficient if the authorities at this stage can show that a reasonable and bona fide belief was entertained by the concerned/competent authority, that there are financial dealings between the family groups of Rajesh Mahajan and Rakesh Mahajan requiring a co-ordinated enquiry/investigation. After obtaining instructions, learned counsel for the respondents informed the court that the material seized during the course of the raid conducted on August 29, 2000, had not been scrutinised. It is indeed strange that despite the fact that the authorities were in possession of all the relevant files and documents seized on August 29, 2000, and despite the fact that this court restrained the income-tax authorities from passing any order to the prejudice to the petitioners as far as back on September 17, 2000, the respondents have failed to examine th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition indicated in the objections dated January 31, 2001. It has been expressly mentioned that petitioner No. 1 holds 2.58 per cent. shares in Pan Foods Ltd. and 4.02 per cent. shares in Mahajan Industries Pvt. Ltd. and that his holdings in the said companies have remained almost unaltered for the last three decades. It has again been reiterated that he (petitioner No. 1) has never taken part in business, financial or managerial activities of the afore said two companies. On the basis of the aforesaid facts, it is asserted by learned counsel representing the petitioners that the mere fact that petitioner No. 1 is a director of Mahajan Industries Pvt. Ltd or of Pan Foods Ltd. (not mentioned in the impugned order), cannot be a valid justification for transfer of assessment proceedings. The facts noticed in the objections dated January 31, 2001, and para. 23(b) of the writ petition, have not been disputed/denied in the written statement. The issue which arises for consideration, therefore, is whether income-tax assessment proceedings of an assessee can be transferred from one place to another merely on account of the fact that the assessee is a director of some company, which is sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax assessment proceedings from Panipat to New Delhi is that Rajesh Mahajan (petitioner No. 1) is also one of the trustees of Ram Lal Mahajan Charitable Trust, which is running Mother and Child Health Centre in New Delhi. In so far as the aforesaid reason is concerned, in the instant writ petition, in para. 23(c), it has been asserted on behalf of petitioner No. 1 that he was nominated as a trustee in Ram Lal Mahajan Charitable Trust, merely on account of the fact that the trust was created by his grandfather. It is pointed out that the trust is actually being run by Dr. Nalini Mahajan wife of Rakesh Mahajan (brother of petitioner No. 1). It is further asserted that petitioner No. 1 -- Rajesh Mahajan has no hand in the conduct of the affairs of the trust. What is of significance, however, is that the petitioner has in unequivocal terms declared that neither they (petitioners Nos. 1 to 4) nor any of the concerns in which they have an interest (petitioners Nos. 5 to 7) have ever been involved in any financial or business transaction with the said trust. There is absolutely no denial to the aforesaid assertion in the written statement. In the absence of any response in the written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us offices alleged to be located in the building under reference were found at locations other than those depicted in the site plan annexure P-6, during the search and seizure operations, Unfortunately, the respondents have not made any such assertion in their written statement. It is, however, significant to note that it has been alleged in response to the averments made in para. 23(d) of the writ petition that none of the respondents were members of the search party. It seems that the aforesaid excuse has been tendered in order to avoid a categoric response to the assertions made in para. 23(d) of the writ petition. The aforesaid excuse, in my opinion, is wholly unjustified: those involved in the search and seizure operations are certainly officers/officials of the Income-tax Department itself, and all of them would, in all probability, be subordinates of the respondents themselves. Had there been a desire to obtain information to respond to the averments made in para. 23(d), there would have been no difficulty in view of the categoric and definite assertions made on behalf of the petitioners in their objections dated January 31, 2001, and in para. 23(d) of the writ petition whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings of the petitioners from Panipat to New Delhi. (v) It is alleged in the impugned order dated July 26, 2001, that Rajesh Mahajan (petitioner No. 1) has inseparable interests in Pan Foods Ltd. and Mahajan Industries Pvt. Ltd. It is pointed out that assessment proceedings of the aforesaid two companies have already been centralised, and as Rajesh Mahajan (petitioner No. 1) is associated with the aforesaid concerns; his assessment should also be conducted by the same officers. In response to the aforesaid reason expressed in the impugned order, it is contended that Rajesh Mahajan (petitioner No. 1) is only an ornamental director, without any financial and pecuniary involvement, in the companies referred to above. Despite the fact that the petitioners have conceded that petitioner No. 1 has minor equity holding in the two companies, it is submitted that merely because an individual is a shareholder in a company, that would not be sufficient justification for transfer of income-tax assessment proceedings, in the absence of the shareholder's involvement in any business or financial or managerial activities. An allied aspect has already been dealt with at serial No. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded in para. 4 of the impugned order dated July 26, 2001, are wholly irrelevant to the transfer of the assessment proceedings of the petitioners from Panipat to New Delhi. Although learned counsel for the respondents had principally and primarily placed reliance on para. 4 of the order dated July 26, 2001, to highlight the reasons which had weighed with the respondents for the transfer of assessment proceedings of the petitioners from Panipat to New Delhi, he had also referred to the contents of para. 5 thereof, to stress that the reasons expressed in para. 4 of the impugned order are legally justified (in terms of judgments referred to in para. 5 of the impugned order). In so far as the assertions made in para. 5 of the impugned order are concerned, the same are clearly untenable in view of the categoric conclusion drawn in the preceding paragraph, that the reasons recorded in para. 4 of the impugned order have no relevance or nexus with the decision to transfer income-tax assessment proceedings, of the petitioners, from Panipat to New Delhi. Reliance had also been placed on the contents of para. 6 of the impugned order dated July 26, 2001, in order to justify the action of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he court some uncontroverted facts, namely, that the activities of the partnership firms over which petitioners Nos. 1 to 4 have control (depicted in para. 2 above) and the activities of the business ventures controlled by Rakesh Mahajan (brother of petitioner No. 1) and his family members (detailed in para. 4 above) clearly reveal that the trading activities of petitioners Nos. 1 to 4 are totally separate and distinct from the business activities of Rakesh Mahajan (brother of petitioner No. 1) and his family members. Additionally, it is pointed out that petitioners Nos. 1 to 4 reside at Panipat; that their business activities are primarily located at Panipat (except for a small sales office of Mahajan Exports Ltd. which admittedly is located at New Delhi) and that their books of account are also kept and maintained at Panipat. On the other hand, Rakesh Mahajan (brother of petitioner No. 1) and his family members reside at New Delhi. The head offices of the companies which Rakesh Mahajan and his family members control, are located at New Delhi and as such, it is obvious that their books of account are also kept and maintained at New Delhi. Learned counsel re-emphasised the fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a "reasonable opportunity" as is contemplated by the aforesaid provision. Thirdly, the reasons recorded in the final order passed under section 127 of the Act (by which the concemed/competent authority decides to execute the proposed action contemplated in the show-cause notice), must not only take into consideration the objections raised by the assessee, but the reasons recorded in the order must also have a direct nexus/bearing to the object sought to be achieved. Fourthly, belief/suspicion even though bona fide cannot be sufficient justification for taking recourse to any of the actions contemplated under section 127 of the Act. For a valid order under section 127 of the Act, the reasons expressed must disclose an actual financial nexus justifying the action. My conclusions on the controversy in hand, are as under: Firstly, although, the show-cause notice issued to the petitioners under section 127 of the Act did not disclose the reason for transfer of assessment proceedings of the petitioners from Panipat to New Delhi and were, therefore, liable to be set aside, however, since the petitioners had filed objections (through their communication dated January 31, 2001), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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