Power to transfer cases under section 127 of the Income Tax Act, 1961

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.

Text of section 127

^[1][Power to transfer cases

127.(1) The ^[2][Principal Director General or] Director General or ^[2][Principal Chief Commissioner or] Chief Commissioner or ^[2][Principal 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 ^[2][Principal Director General or] Director General or ^[2][Principal Chief Commissioner or] Chief Commissioner or ^[2][Principal Commissioner or] Commissioner,—

(a) where the [2][Principal Directors General or] Directors General or ^[2][Principal Chief Commissioners or] Chief Commissioners or ^[2][Principal Commissioners or] Commissioners to whom such Assessing Officers are subordinate are in agreement, then the ^[2][Principal Director General or] Director General or ^[2][Principal Chief Commissioner or] Chief Commissioner or ^[2][Principal 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 ^[2][Principal Directors General or] Directors General or ^[2][Principal Chief Commissioners or] Chief Commissioners or Principal Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such ^[2][Principal Director General or] Director General or ^[2][Principal Chief Commissioner or] Chief Commissioner or ^[2][Principal Commissioner or] Commissioner as the Board may, by notification in the Official Gazette, authorise 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 reissue 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 thereunder, 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.]”

KEY NOTE

1. Substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 01.04.1988.

2. Inserted by the Finance (No. 2) Act, 2014, with retrospective effect from 01.06.2013.

 

Purpose of Centralisation

The purpose of centralisation is to ensure that all cases directly connected with the Group searched are assessed at one place to prevent any loss of revenue and to facilitate a proper assessment. But this does not necessarily mean that the related parties are also to be centralized.

All the assessees related to issues pointed out in Appraisal Report may be centralized and their assessments should be completed in a nameless/faceless manner, where the assessees as well as Assessing Officers are not aware of each other’s identities, to ensure transparency in the assessments.

As per the CBDT instruction no. 8, dated 14.08.2002 and para No. 6.45 to 6.48 of Search and Seizure Manual, the search cases shall be centralized in central charges to facilitate coordinated and sustained investigations and to facilitate in-depth examination of issues pointed out in investigation to make the assessment more effective. As far as possible, the assessments should be taken up group-wise to ensure a holistic approach as well as to ensure that no income remains un-assessed due to any confusion or doubt regarding the hands in which it is to be assessed.

 

Centralised assessment of searched group covering all the related assessees

All search cases are generally centralised in central circles to facilitate co-ordinated and sustained investigations However, the DGIT (Investigation)/CCIT (Central) may in exceptional situations take a decision not to centralise a search case in a central charge because of heavy work load in central charges and/or low investigation potential/ low tax impact. If there is no central charge in a region, the concerned DGIT (Investigation) and the concerned CCIT may after suitable deliberations, decide whether to centralise search cases in a central charge of another region or with the Assessing Officer having jurisdiction over core cases of the group or with any other Assessing Officer. 6.46 The DIT (Investigation) should initiate the proposal for centralisation within one month of the date of initiation of search. The process should be completed within two months of the initiation of search.142 This involves the following main steps:

(1)     Soon after the search in a case or a group of cases, the Additional/Joint DIT (Investigation) should submit a proposal for centralisation to the DIT (Investigation), indicating, inter alia, the following:

(i)               names, addresses, status and PAN of the persons/concerns of the group of cases proposed to be centralised;

(ii)             date(s)of search, survey or other action taken in their cases;

(iii)           their relationship with the main person(s)/concern(s) of the group;

(iv)            whether the person/concern is an existing income-tax assessee;

(v)             the assessment unit where the person is assessed or assessable to tax and the corresponding Range, CIT charge and CCIT/ DGIT region;

(vi)            the likely tax potential of the cases and the complexity of investigations involved;

(vii)          nature and extent of tax-evasion and other tax violations established or likely to be established;

(viii)        particulars of the assessment units, Range, CIT charge and CCIT/DGIT region from where the cases are proposed to be transferred out;

(ix)            particulars of the assessment units, Range, CIT charge and CCIT/DGIT region where the cases are proposed to be centralised; and

(x)             reasons for suggesting centralisation of the cases.

 

(2)     The DIT (Investigation) should forward the proposal referred to at S.No. (1) above to the (a) CCIT’s/DGIT’s and CIT’s from whose region and charge the cases are proposed to be transferred out and (b) CCIT’s/DGIT’s and CIT’s in whose region/charge the cases are proposed to be centralised. He should also give his comments/recommendations on the proposal.

(3)   On receipt of the proposal, the concerned CIT’s should take a decision in the matter within a reasonable period of time. Where the concerned CITs are not in agreement or where both of them agree not to accept the said proposal, the matter should be referred to the concerned CCITs/DGITs for decision. If they too are not in agreement, the matter should be referred to the Board for decision.

(4)   Once a decision for centralisation has been taken, all follow-up actions should be taken with out delay. Some such actions are:

(i)    The transferor CIT should, keeping in view the relevant statutory provisions and the views taken by the Courts in various cases in this regard, pass suitable order under section 127, indicating, inter alia, the date from which the order is effective.

(ii)   After the order referred to at S.No. (i) above has been passed, the transferor Assessing Officer should transfer all the assessment records, records of other proceedings and matters relating to the transferred cases to the transferee Assessing Officer before the date from which the order under section 127 is effective. He should also send a list of all pending (including pending time-barring) actions, proceedings, outstanding demands, etc. to the transferee Assessing Officer.

(iii)  The appropriate authority should take appropriate action for transfer of PAN.

(iv)  The transferor CIT should transfer the following to the transferee CIT:

(a)   In case the transferee CIT has a separate PDA, the transferor CIT should transfer the seized money relating to the case lying in his PDA to that of the transferee CIT.

(b)   Confidential files relating to search including copies of the appraisal reports, if already received and Control Chart maintained in his office.

(c)   Other records relating to the case(s) maintained in his office, like matters relating to sections 273A, 264, grievance petitions, TEPs, etc.

(v) The CCIT/DGIT from whose region the cases have been transferred to another region should transfer all records of such cases maintained in his office to the CCIT/DGIT in whose region the cases have been centralised.

It should be ensured that all the above actions are taken promptly. The aforesaid time-limit of two months laid down for the completion of the centralisation process should be strictly adhered to. Search related assessments are required to be completed within the time-limit laid down in the Act and any delay in centralisation may affect the quality of investigation by the Assessing Officer.

Time schedule for centralisation in the Investigation wing

Following time-schedule should be strictly followed for completing centralisation work from the date of initiation of search:

1	Initiation of proposal for centralisation	One month
2.	Completion of centralisation work, including orders under section 127, etc.	Two months

 

Centralisation of Cases [ITBA-Investigation Instruction No. 5, dated: 12.03.2018]

(i). Facility has been provided to DDIT/ ADIT/ ITO (Inv.) to request for centralisation of cases relating to any Search/ Survey proceedings. This facility is provided in respect of cases relating to those Search/ Survey Proceedings only which have been entered in ITBA system.

Refer ITBA-Investigation Instruction No. 4 for details

(ii). The following is the path to navigate to this facility in ITBA.

Investigation Module >> Menu >> Search and Survey >> Initiate Centralisation

(iii). The process will facilitate the DDIT/ ADIT/ ITO (Inv.) to select PANs and proposed jurisdiction for centralisation. User will initiate the request for centralisation of cases, which will be reviewed by Addl. DIT/JDIT. After review, Addl. DIT/ JDIT will forward the proposal to the PDIT(Inv.). If the cases are to be centralised in multiple PCIT/CIT charges, then separate proposal should be sent for each charge.

(iv). PDIT(Inv.) will have the provision to recommend or not recommend any case and forward the proposal for approval by DGIT (Inv.).

(v). DGIT(Inv.) will have the facility to approve or reject proposal in any case. DGIT(Inv.) will also have the provision to edit/change the proposed jurisdiction for centralisation of cases.

(vi). After approval, DGIT (Inv) will send the workitem to the CCIT (Central)/ PCIT(Central)/ any other DGIT(Inv.) (as per the user selected in proposed jurisdiction) for further action. CCIT (Central)/ selected DGIT(Inv.) (if selected) will forward the workitem to concerned PCIT (Central) in respect of the approved centralisation requests.

(vii). PCIT (Central) will send the request to PCIT (Jurisdictional) for initiating the process of PAN Transfer in order to centralise the cases with the central jurisdiction. In case PANs involved in the proposal belong to different jurisdiction, separate request for PAN transfer will be sent to each PCIT (Jurisidictional).

Once the PCIT (Jurisdictional) accepts the proposal, the PAN transfer order will need to be passed in PAN module. If PCIT (Jurisdictional) rejects the proposal, reasons recorded for rejection will be shown in the workitem of PCIT (Central) in Centralisation Details.

Note: For detailed procedure of PAN transfer, users are advised to go through the User Manual and FAQs of PAN module, available on the ITBA portal.

(viii). Once all the cases are centralised i.e. PAN transfer is done/ rejected by PCIT (Jurisdictional), PCIT (Central) will need to close the Centralisation workflow

(f). De-Centralisation of Cases:

For decentralisation of cases, users are required to use the PAN transfer functionality available in PAN module.

For detailed procedure of the above functionalities, the users are advised to go through the User Manual and FAQs available on the ITBA portal.

Users are advised to contact helpdesk in case of any issues in respect of the ITBA.

(a). URL of helpdesk - http://itbahelpdesk.incometax.net

b. Help desk number – 0120-2811200

(c). Email ID – itba.helpdesk@incometax.gov.in

(d). Help desk Timings – 8.30 A.M. to 7.30 P.M. (Monday to Friday)

 

Centralisation of search cases – CBDT’s Instruction No. – F. NO. 286/88/ 2008-IT (Inv. II), dated 17.09.2008

Subject : Centralisation of search cases - Regarding

 Instances have come to notice of the Board that search cases are not being centralised promptly, thereby causing delay in initiation of the search assessment proceedings, deferment of payment of taxes and finally resulting in completion of search assessments at the fag end of the limitation period.

2. In supersession of existing Board’s Instruction No. 8/2002, dated 14th August, 2002 on above subject, I am directed to inform that following procedure for early centralisation of search cases should be followed:

(a) In regions where the central charges exist, a copy of the Fax Report of search should be endorsed to CCIT and CIT having jurisdiction over the assessee and DGI (Inv)/CCIT (C) in whose jurisdiction the cases of the group would be centralised after the search. The CCIT/CIT having jurisdiction should ensure that the assessment records of search cases are kept in personal custody of the Assessing Officer. To avoid any manipulation with the records.

(b) In regions where there are more than one CIT (C), the DGIT (Inv)/CCIT (C) should identify the CIT (C) in whose charge the cases will be centralised and inform the DIT (Inv) concerned as well as the CIT (C) within seven days of initiation of search.

(c) In regions where there is no central circle or the group is assessed in more than one CCIT region or involving more than one CIT charges, then the DGIT (Inv.) should identify the CIT charge in which the group searched will be centralised in consultation with the CCIT in whose jurisdiction the main cases of the group are assessed to tax within seven days of initiation of search.

(d) The ADIT (Inv) should send proposal for centralisation through the Addl. DIT (Inv) to the DIT (Inv), who in turn should send the proposal to the CIT(C) or the CIT as mentioned in (c) above, as the case may be, within 30 days of initiation of search.

In ‘Sagarmal Spinning and Weaving Mills Limited v. CBDT, the Madhya Pradesh High Court held that on a plain reading of section 127 of the Income Tax Act, 1961, two things are absolutely necessary, namely:—

(a) A reasonable opportunity of being heard in the matter wherever it is possible to do so; and

(b) The recording of reasons for transferring a case.

Where the transfer of jurisdiction only involves Assessing Officers situated in the same city [Section 127(3)]

Section 127(3) makes it clear that no opportunity is required to be given in respect of transfer of jurisdiction within the same city.

It was held that the mandatory requirement of recording reasons was not to be applicable, as the transfer orders were in the same city and only wards were changed but the Court did observe about the nature of transfer orders under section 127. - [Kashiram Aggarwalla v. Union of India and others (1965) 56 ITR 14 (SC)]

 

Where case of assessee partnership firm was transferred from ITO, Delhi to Commissioner, Faridabad for coordinated investigation as one of partners of assessee was residing in Faridabad and also cases of other concerns in which said partner was a director were also centralized at Faridabad, said transfer of case of assessee was justified

Place of residence - Pursuant to a search conducted upon assessee partnership firm, case of assessee was transferred under section 127 from ITO, Delhi to Commissioner, Faridabad for coordinated investigation as one of partners of assessee, namely, DKG was residing at Faridabad. It was noted that said partner of assessee was also director in other concerns whose cases were also centralized at Faridabad. Faridabad was within Delhi-NCR region and in close proximity with Delhi. On facts, impugned transfer of case of assessee from ITO, Delhi to Commissioner, Faridabad was to be upheld. – [Dev Wines Sales Corporation v. PCIT (2021) 279 Taxman 342 : 126 taxmann.com 168 (Del.)]

 

Transfer order passed under section 127 is more in nature of an administrative order rather than quasi-judicial order and assessee cannot have any right to choose his assessing authority, as no prejudice can be said to have been caused to assessee depending upon which authority of Department passes assessment order

On account of centralisation of search and seizure cases, assessment proceedings of assessee were transferred from one assessing authority to another parallel authority. On writ, Single Judge did not find any ground to interfere with said consolidation and transfer of cases from one Assessing Officer to another and, therefore, dismissed writ petition. During pendency of writ petition, as assessment was getting time-barred, Single Judge, by interim order, had given liberty to revenue, to conclude assessment proceedings, with a caveat, that it would not be given effect to till further orders.Accordingly revenue passed assessment order and after dismissal of writ petition sought to serve same upon assessee. However, assessee filed writ appeal against transfer order passed under section 127 and requested assessing authority to withdraw assessment order on account of pendency of said appeal. Writ appeal had become infructuous in view of assessment order having been passed by assessing authority in pursuance of impugned transfer order under section 127. Further transfer order passed under section 127 is more in nature of an administrative order rather than quasi-judicial order and assessee cannot have any right to choose his assessing authority, as no prejudice can be said to have been caused to assessee depending upon which authority of department passes assessment order. [In favour of revenue] (Related Assessment year : 2014-15) – [PCIT v. Advantage Strategic Consulting (P) Ltd. (2021) 277 Taxman 512 : 124 taxmann.com 511 (Mad.]

 

SLP dismissed against High Court ruling that where assessee challenged order of transfer of its case on ground that its Chartered Accountant was 85 years old and it would cause hardship for assessee if its case was transferred, such grievance of assessee was imaginary because Income-tax returns were now filed online, thus, order of transfer of case was to be upheld

A search under section 132 was conducted upon assessee company and its directors during which incriminating materials tending to show huge tax evasions were recovered. Pr. Commissioner, Madurai transferred case of assessee from Tiruneveli to Madurai for reason that detailed, coordinated and centralized investigation was necessary. Assessee contended that there was no clear reasons provided for transfer of its case. It further contended that its Chartered Accountant was stationed at Tirunelveli and that he was 85 years old and it would cause hardship for assessee if its case would be transferred to Madurai - It was noted that show cause notice had clearly spelt out reasons for proposed transfer of case of assessee - Further, grievance of assessee that its Chartered Accountant was an elderly person was also imaginary because Income-tax returns were now filed online. High Court by impugned order held that, on facts, order of transfer of case was to be upheld. Special leave petition filed against impugned order was to be dismissed. [In favour of revenue] - [V.V. Minerals v. CIT  (2021) 276 Taxman 279 : (2020) 122 taxmann.com 83 (SC)]

 

Where case of assessee was transferred from one Assessing Officer to another Assessing Officer within same city, in view of provisions of sub-section (3) of section 127, there was no statutory requirement for notice or prior intimation to be given to assessee before order of transfer

Section 127 - Power to transfer cases (Prior intimation of transfer) - Where case of assessee was transferred from one Assessing Officer to another Assessing Officer within same city, in view of provisions of sub-section (3) of section 127, there was no statutory requirement for notice or prior intimation to be given to assessee before order of transfer [In favour of revenue] (Related Assessment years : 2009-10 to 2011-12) - [Jaswantlal J. Shah v. ACIT(C) (2021) 128 taxmann.com 378 (ITAT Mumbai)]

Where ITO passed a reassessment order under section 147/143(3) and thereafter case of assessee was transferred under section127 from ITO to Dy. CIT, impugned reassessment order under section 263/143(3) passed by ITO giving effect to order of Pr. CIT requiring to set aside said reassessment order under section 147/143(3) originally framed by ITO was without jurisdiction and same was to be quashed

ITO passed a reassessment order under section 147/143(3) in case of assessee by making an addition of certain amount as against assessee's returned income of lesser amount - Thereafter, case of assessee was transferred under section127 from ITO to DCIT. Later on, Pr. CIT invoked his revisionary jurisdiction under section 263 requiring to set aside such reassessment order originally framed by ITO under section 147/143(2). ITO giving effect to order of Pr. CIT set aside such earlier order passed by him under section 147/143(3) and framed reassessment under section 263/143(3). It was noted that from plain reading of order under section127 it was found that transfer of jurisdiction over assessee's case from charge of ITO to Dy. CIT was absolute and without reserving any right of concurrent jurisdiction over assessee to ITO. Therefore, ITO had no jurisdiction to frame impugned revisional assessment under section 263 as jurisdiction vested in him had already been transferred under section127 to DCIT, thus, such revisional order under section 263/143(3) was to be quashed. [In favour of assessee] (Related Assessment year : 2008-09) - [OSL Developers (P) Ltd. V. ITO (2021) 125 taxmann.com 98 (ITAT Kolkata)]

 

Power to transfer cases - Assessee was given opportunity to be heard- Order for transfer is valid—Notice sent by post to correct address of assessee—Presumption that notice had been served

Dismissing the petitions the Court held that prior to sending the notice there was an agreement between the Director General of Income-tax (Inv), Kochi and the Principal Chief Commissioner of Income-tax, NER, Guwahati belonging to the two jurisdictions. Assessee was given an opportunity to be heard. Notice was sent by post to correct address of assessee, Presumption that notice had been served. Order for transfer is valid. - [M. K. Rajendran Pillai v. CIT (2020) 421 ITR 274 (Gau.)]

 

Power to transfer cases – Transfer for purposes of co-ordinated investigation - Mode of investigation need not be disclosed - Notice to transfer implies that both the Commissioners are in agreement – Manner of agreement need not be recorded - Transfer is held to be valid – Writ is held to be not maintainable

Reasons for transfer - Assessee company was engaged in business of providing point of sale technology infrastructure to banks and consumer service providers. A survey under section 133A was conducted at office premises of assessee at Chennai in which certain documents were impounded. Pursuant to said survey, case of assessee was transferred by Principal Commissioner from Chennai to Bangalore for centralisation for co-ordinated investigation with other related parties. It was noted that purpose of centralisation of cases was to investigate transactions among various related entities and to assess income of all persons concerned. Dismissing the petition the Court held that, transfer for purposes of coordinated investigation and mode of investigation need not be disclosed. Court also held that notice to transfer implies that both the Commissioners are in agreement. Manner of agreement need not be recorded. Accordingly, the transfer is held to be valid and Writ is held to be not maintainable. [In favour of revenue]- [MRL Posnet (P) Ltd. v. PCIT (2019) 418 ITR 349 : 112 taxmann.com 317 : (2020) 268 Taxman 343 (Mad.)]

Where assessee-company and others were connected with accused in Augusta Westland scam and scam was Investigated by ED and CBI, transfer of assessment of assessee from Chandigarh to Delhi was proper

Following a survey conducted in case of assessee-company and others, assessment of assessees had been transferred from ACIT, Circle-5(1), Chandigarh to DCIT/ACIT, Central Circle-05, New Delhi - Assessees filed instant petition alleging that impugned orders of transfer of cases were completely cryptic and no reasons had been assigned. Revenue submitted that assessee-company and others were closely linked and had close connection with Gautam Khaitan Group and that involvement of assessees in Augusta Westland scam and Gautam Khaitan Group cases were being probed by Enforcement Directorate and Central Bureau of Investigation (CBI). Since a perusal of pleadings and documents on record revealed that assessee had full and complete knowledge of reasons which had weighed with competent authority while passing order of centralization of cases, and moreover there was no categoric denial to averment that assessees were connected in some manner to Augusta Westland case and to Gautam Khaitan Group of companies, instant petition was liable to be dismissed. [In favour of revenue] – [IDS Infotech Ltd. v. PCITI, Delhi (2020) 120 taxmann.com 426 (P&H)]

 

Power to transfer cases - Reasons must be recorded – Objections must be considered - Order of transfer is held to be not valid

Allowing the petition the Court held that the Principal Commissioner had only stated in his order that he was of the opinion that the objections raised by the assessee could not be the basis for not centraliza the case and the materials which were seized and impounded needed to be further investigated. The notice issued to the assessee stated some reasons. But at the same time, when such reasons were opposed and a reply was filed by the assessee objecting to the transfer, the Principal Commissioner had to necessarily record his reasons with certain facts and circumstances warranting the transfer and to justify that centraliz or co-ordinated investigation was required. The order of transfer was not valid.—[MRL Postnet (P) Ltd. v. CIT (2019) 416 ITR 407 (Mad.)]

Power to transfer cases - Co-ordinated investigation - Recorded reasons and opportunity of hearing was given - Transfer is held to be valid

Dismissing the petition the court held that the transfer of case is done for co-ordinated investigation. Commissioner recorded the reasons and opportunity of hearing was given. Transfer is held to be valid. (Related Assessment year : 2017-18)—[Soma Enterprise Ltd. v. CIT (2019) 414 ITR 374 : 309 CTR 396 : 180 DTR 79 (Telangana)]

 

Non-application of mind – Reason must disclose that patently, logic and prudence has been applied before passing the order – Decentralisation of central charges cannot constitute sufficient reason to transfer the cases

Recording of reason – Assessee’s case was transferred from one jurisdiction to another jurisdiction – Reason assigned for transferring jurisdiction was ‘decentralisation of cases from central charges’. Assessee filed writ petition challenging validity of transfer order on ground that reason assigned did not constitute sufficient reason for transferring jurisdiction of assessee’s case. Where High Court accepted assessee’s plea that reason assigned for transfer of its case from one jurisdiction to another jurisdiction i.e. ecentralization of cases from central charges, did not constitute sufficient reason and thus, impugned transfer order passed by Assessing Officer was not sustainable, SLP filed against said order was to be dismissed [In favour of assessee] – [PCITI v. Rohtas Project Ltd. (2019) 260 Taxman 94 : (2018) 100 taxmann.com 384 (SC)]

 

Power to transfer cases – Opportunity of hearing – Assessee’s case was transferred from one Assessing Officer to another Assessing Officer having offices in different localities/ places, notice had to be given to assessee – Order is held to be void ab initio and barred by limitation

The assessee, individual, filed his return declaring certain taxable income. The return was processed under section 143(1) and subsequently, the case was selected for scrutiny under CASS. Thereafter, the Addl. CIT, Kurnool, transferred the files to Addl. CIT (IT-II) Hyderabad, stating that the jurisdiction of the case vested with the Assessing Officer, Hyderabad since the assessee was a non-resident. Assessing Officer issued a notice under sections 143(2) and 142(1) and completed the assessment under section 143(3). The assessee preferred an appeal before the Commissioner (Appeals) challenging the jurisdiction of the Assessing Officer at Hyderabad on making the assessment and also the additions made by the Assessing Officer. Tribunal held that, where assessee’s case was transferred from one Assessing Officer to another Assessing Officer having offices in different localities/places, notice under section 127(1) had to be given to assessee and it was only Principal Director General or Principal Commissioner who could transfer case under section 127. Order is held to be void ab initio and barred by limitation. (Related Assessment year : 2011-12)—[Vijay Vikram Dande Kurnool v. ADIT (2019) 178 ITD 139 (ITAT Hyderabad)]

Where assessee’s case was transferred from one Assessing Officer to another Assessing Officer having offices in different localities/places, notice under section 127(1) had to be given to assessee

Opportunity of hearing - In terms of sub-section (3) of section 127, provisions of sub-sections (1) and (2) are not applicable and no opportunity is to be given to assessee, where transfer is from one Assessing Officer to another Assessing Officer where offices of both officers are situated in same city, locality or place. Where assessee's case was transferred from one Assessing Officer to another Assessing Officer having offices in different localities/places, notice under section 127(1) had to be given to assessee and it was only Principal Director General or Principal Commissioner who could transfer case under section 127. [In favour of assessee] (Related Assessment year : 2011-12) – [Vijay Vikram Dande Kurnool v. Assistant Director of Income-tax (International Taxation) (2019) 107 taxmann.com 452 (ITAT Hyderabad)] 

 

Transfer for centralization of cases within city is valid, it is neither necessary to record the reasons nor opportunity of hearing is to be given

Dismissing the petition the Court held that, Transfer for centralization of cases within city is valid, it is neither necessary to record the reasons nor opportunity of hearing is to be given. (Related Assessment year : 2012-13) —[Advantage Strategic Consulting (P) Ltd. v. PCIT (2018) 400 ITR 405 : 300 CTR 151:253 Taxman 11 :161 DTR 108 (Mad)]

Where assessee’s case was transferred from one place to another without agreement being reached by officers of equal rank as required under section 127(2), impugned transfer order was to be set aside.

Agreement between officers) - Assessee filed instant petition challenging order passed by respondent No.1 under section 127(2) transferring his case from Kolhapur to Mumbai. According to assessee, he was informed that a meeting of Centralisation Committee was conveyed wherein it was decided to centralise cases relating to ‘P’ Group to DCIT/ACIT, Mumbai. It was further convyed that since assessee's case belonged to said group, same was being transferred from Kolhapur to Mumbai. Assessee raised a plea that impugned order did not refer to any agreement being reached by officers of equal rank at Mumbai and Kolhapur as required under section 127(2) and, thus, it was not sustainable. It was undisputed that Centralisation Committee was not authority, envisaged under section 127(2). Moreover, revenue had not placed anything on record to show, that Commissioner, Pune, had given a consent to request to Commissioner, Mumbai so as to constitute agreement as a pre-condition for invoking powers under section 127. On facts, mere ‘Absence of dissenting notice’ from officers of equal rank who had to agree to proposed transfer, would not constitute agreement, as envisaged under section 127(2)(a). Therefore, impugned order was to be set aside. [In favour of assessee] - [Herambh Anandrao Shelke v. M.L. Karmakar, PCIT, Kolhapur (2018) 257 Taxman 487 : 96 taxmann.com 308 (Bom.)]

 

CIT(A) cannot cancel order under section 127 transferring jurisdiction from one Assessing Officer to another

An order passed under section 127 of the Act is not appealable before the ld. CIT(A). Since the first appellate authority has no jurisdiction to decide the validity or otherwise of an order passed under section 127, transferring the jurisdiction from one Assessing Officer to another, it is, but, natural that he cannot declare any order passed under section 127 as invalid and consequently set aside the assessment order. Adverting to the facts of the instant case, it is observed that the ld. CIT(A) crossed his jurisdiction in declaring the order under section 127 of the Act as invalid and as a fortiori, quashing the assessment. The impugned order is, therefore, overturned and the matter is restored to the file of ld. CIT(A) for deciding the appeal on merits, after allowing a reasonable opportunity of hearing to the assessee. (Related Assessment Year : 2004-05)—[DCIT v. Shri Subhash Gandhi - Date of Judgement : 21.02.2018 (ITAT Amritsar)]

Case was aptly transferred to Meerut city as money of assessee was seized from property of her in-laws located in Meerut city

Petitioner being daughter-in-law was living at residence of her in-laws in Meerut - Said premises was covered under search and seizure operation – Petitioner’s case was ordered to be transferred from Kanpur to Meerut for integrated assessment. Transfer order stated that in above search operation, cash amount was found from petitioner’s room and same was seized. High Court by impugned order held that such reason could not be said to be irrelevant or not germane to issue and that was valid and cogent reason. Special Leave Petition filed against impugned order was to be dismissed. [In favour of revenue] - [Preeti Elhence v. CIT, Kanpur (2017) 248 Taxman 82 : 81 taxmann.com 426 (SC)] 

Transfer of case for the purpose of administrative convenience was held to be valid

Transfer of the case of the assessee from Delhi to Ludhiana was valid as the case was transferred for the purpose of centralisation of assessments after the search and seizure operation. The High Court held that the transfer of the case of the assessee from Delhi to Ludhiana was valid as no fault can be found with the reason of transfer as stated in transfer order under section 127 which is for the purpose of centralisation of assessment as a result of search and seizure operation carried out and that following the decision of the Delhi High Court in the case of Surya Pharmaceuticals Ltd. v. ITO (2007) 295 ITR 427 : (2008) 171 Taxman 163 (Delhi), it was held that the transfer which was made for the purpose of administrative convenience was valid.— [Ravneet Takhar v. CIT (2017) 145 DTR 435 : (2016) 76 taxmann.com 210 (Del)]

KEY NOTE

SLP of assessee was dismissed as the petition was withdrawn.—[Ravneet Takhar v. CIT (2017) 250 Taxman 92 (SC)]

Transfer from one Assessing Officer to another under two different jurisdictions – Agreement between two jurisdictional Commissioners – Absence of disagreement not same as agreement – Positive state of mind required – The transfer of the income-tax assessment file of the assessee from Assessing Officer, Tamil Nadu to the Assessing Officer, Kerala was not justified

Where the assessee’s case is transferred from one Assessing Officer to another and the two are not subordinate to the same Commissioner, under section 127(2)(a) of the Income-tax Act, 1961, an agreement between the Commissioners of the two jurisdictions is necessary. Section 127(2)(a) contemplates a positive state of mind of the two jurisdictional Commissioners. Held accordingly, that as the file of the assessee had been transferred from an Assessing Officer in Tamil Nadu to an Assessing Officer in Kerala and the two Assessing Officers were not subordinate to the same Director General or Chief Commissioner or Commissioner, under section 127(2)(a) of the Act, an agreement between the Director General, Chief Commissioner or Commissioner, as the case may be, of the two jurisdictions was necessary. The counter affidavit filed on behalf of the Department did not disclose that there was any such agreement. In fact, it had been consistently and repeatedly stated in the counter affidavit that there was no disagreement between the two Commissioners. Absence of disagreement was not tantamount to agreement as visualised under the section. The transfer of the income-tax assessment file of the assessee from Assessing Officer, Tamil Nadu to the Assessing Officer, Kerala was not justified or authorised under section 127(2)(a) of the Act and was to be set aside.—[Noorul Islam Educational Trust v. CIT (2016) 388 ITR 489 : 243 Taxman 519 : (2017) 291 CTR 230 (SC)]

Transfer of case was done after giving a reasonable opportunity of hearing and by passing reasoned order hence transfer of case was held to be valid

Dismissing the petition of the assessee, the Court held that: transfer of case from Ahmedabad to Moradabad was done after giving a reasonable opportunity of hearing and by passing reasoned order, hence transfer of case was held to be valid.—[Genus Electrotech Ltd. v. UOI (2017) 250 Taxman 550 : (2018) 162 DTR 103 (Guj)]

Where cases of assessee were transferred to another place due to restructuring of department, merely because an opportunity of being heard was not provided, transfer order could not become illegal unless assessee shows it to be prejudicial

Income-tax authorities without providing an opportunity of being heard transferred assessment cases of assessee from Rourkella to Sambalpur. By another order, authorities while taking into consideration assessee's grievance provided reasons for transfer as restructuring of department. It was found that even if an opportunity of being heard was provided, there would not be any possibility of change of situation. Decision of transfer could not become illegal unless and until assessee showed as to how assessee was prejudiced by not giving an opportunity of being heard. [In favour of revenue] (Related Assessment years : 2008-09 to 2013-14) – [Dr. Monu Pattanayak (HUF) v. Principal Chief Commissioner of Income-tax (2017) 77 taxmann.com 321 (Ori.)]

Where pursuant to search proceedings in assessee’s group companies, Commissioner passed an order under section 127 proposing to centralise all cases, since there was reasoning and public interest was discernable, order so passed did not require any interference

None of the assessees voiced any prejudice at the stage when they were issued notices. The record shows that all of them responded to the notice and gave their own justification why the final order under section127 should not be made. The assessee has no doubt relied upon the authority to say that this omission does not stop it from contending that the notices were void at the same time; the Court is not unmindful of the fact that two stages are separate. The substantiality of prejudice for lack of reasons or otherwise has to be independently considered given the fact of each cases.

In the present case it is not as if the notice did not contain the reasons at all. The assessees' contentions that the notice did not contain reasons is fallacious, the reference to search and seizure operations and the proposal to centralize the cases in Ghaziabad cannot be considered no reasons. If these had been omitted, the assessees would have been within their rights that the notices did not contain reasons. The assessees were fully aware of the search and seizure operations and the fact that its premises in Ghaziabad too were subject to such proceedings. Having regard to all these facts, the first contention that the ingredients of the notice did not exist when the proposal to transfer was first notified to these assessee, is rejected.

As far as the rationale to transfer, i.e., conduct of co-ordinated post search investigation and meaningful assessment goes, in the case of first contention, the assessees have failed here as well. The kind of reasoning required by an order under section 127 cannot be compared or likened to a quasi judicial order that has adverse consequences. One can understand if additions are made on sketchy or bare minimum reasons, they cannot be upheld. However, what is proposed by an order under section127 is the transfer of one or several assessments from one circle to another, to that extent inconvenience undoubtedly ensue; however, to say that this leads to grave prejudice if detailed reasoning were not given is something that the Court cannot countenance.

The consequence would only be that the assessees' contentions would have to be taken into account by another Assessing Officer who would also have before him or her all other related assessments. In these circumstances, it can not be held that the brief reasons relied upon by the revenue does not amount to reasons at all or that they are vague. In such exercise in every case where an order under section 127 is challenged, there are two interests. Those of the assessees who invariably plead inconvenience and hardship and that of the revenue which would inevitably cite public interest. The Court's task is to unravel whether in fact the revenue's contentions are correct and if so reject the assessees' contentions. On the other hand, if there is no real public interest and if there are no reasons even the briefest one, the order cannot be sustained. Conversely, if there is reasoning and the public interest is discernable, as in this case, the only result can be rejection of the assessees’ contentions. In view of the forgoing, these petitions have no merits; they are accordingly dismissed. – [Chaudhary Skin Trading Co. v. PCIT (2016) 290 CTR 533 : 76 taxmann.com 169 (Del.)]

 

Where Commissioner by an order passed under section 127 transferred case of assessee from Assessing Officer, Ahmedabad to Assessing Officer, Surat without affording opportunity of hearing, in true sense, compliance of section 127 was not made by Commissioner and, therefore, impguend order deserved to be quashed

From wordings of statutory provisions contained in section 127, in unequivocal terms, it is clear that reasonable opportunity be given to a person before passing an order. Assessee was regularly assessed with Assessing Officer, Ahmedabad. Commissioner, in exercise of his powers under section 127(2), issued on assessee a notice informing that on account of a search carried out on one H, Surat, it was proposed to transfer assessee's case from Ahmedabad to Surat for purpose of effective and coordinated investigation and assessment and fixed date of hearing on 26.10.2015. Assessee received said notice on 27.10.2015. Thereafter he prepared reply and submitted same before Commissioner on 30.10.2015. But by that time Commissioner informed assessee that order of transfer of case from Ahmedabad to Surat had already been passed on 27.10.2015. Snce no opportunity in actual terms was afforded to assessee before passing impugned order dated 27.10.2015, compliance of section 127 was not made by Commissioner. Therefore, impugned order deserved to be quashed. [In favour of assessee] - [Lalabhai Kamabhai Bharwad v. PCIT (2016) 289 CTR 36 : 72 taxmann.com 184 (Guj.)]

 

Where Commissioner, vide order dated 31.08.2012 passed under section 127, transferred case of assessee from Mumbai to Hyderabad and Bombay High Court dismissed writ petition filed by assessee on 11.02.2013 holding that in view of conduct of assessee in not challenging order of transfer at earliest and letting all believe that order of transfer was acceptable to assessee, there was no reason to entertain petition, SLP filed against order of High Court was to be dismissed

Commissioner, vide order dated 31.08.2012 passed under section 127, transferred case of assessee from Mumbai to Hyderabad - Assessee received impugned order on 07.12.2012 - Thereafter assessee filed writ petition on 11.02.2013 challenging order of transfer, but he did not move court to seek any stay on transfer of case - In meantime Deputy Commissioner, Hyderabad issued on assessee four notices under section 148 dated 23.07.2013 seeking to reopen his assessments for assessment years 2009-10 to 2012-13 - Thereupon assessee moved Court and sought permission to amend petition and also sought ad interim stay of impugned notices dated 23.07.2013. High Court held that in view of conduct of assessee in not challenging order of transfer dated 31.08.2012 at earliest and letting all believe, particularly Deputy Commissioner, Hyderabad, that order of transfer was acceptable to assessee, there was no reason to entertain petition and accordingly dismissed same. SLP filed against order of High Court was to be dismissed subject to observation that it would be open to assessee to make a representation before Commissioner against transfer of proceedings from Mumbai to Hyderabad and it shall be considered objectively. [In favour of revenue] (Related Assessment years : 2009-10 to 2012-13) – [Patel KNR JV v. CIT (2016) 243 Taxman 440 : 76 taxmann.com 11 (SC)]

Transfer of assessee’s case for administrative convenience is valid

Assessee in Delhi was subjected to search and seizure proceedings under section 132. A request was received from Commissioner (Central) Ludhiana/Jalandhar for centralization of some of group cases in Ludhiana/Jalandhar and, thus, for transfer of cases from New Delhi to CIT (Central), Ludhiana/Jalandhar. Decision of transfer was based upon convenience of income-tax authorities who conducted search in Ludhiana/Jalandhar. Materials on record filed along with counter-affidavit supported this. It was further noted that assessee was intimated about transfer and was also given an opportunity to file his objections in this regard. Administrative convenience was a valid ground for transfer of assessee’s case. [In favour of revenue] – [Ravneet Takhar v. CIT (2016) 76 taxmann.com 210 (Del.)]

 

Power to transfer cases – Reasons – Assessee to be given opportunity

Order passed without giving an opportunity was liable to be set aside. The reasons for transferring the assessee’s case from Mirzapur to Allahabad had to be spelt out in the order which had been passed under section 127(2), which was not the case here. Therefore, the order transferring the case of the assessee was to be set aside and the assessee was to file her reply to the proposed transfer.—[Chandra Prabha Kushwaha (Smt.) v. CIT (2014) 361 ITR 66 (All)]

As per provisions of section 127(1) and (2), requirement of granting assessee a reasonable opportunity of being heard, wherever it is possible to do so is mandatory

The question came up for consideration in this writ petition was whether the requirement under section 127(1) and (2) of granting an assessee a reasonable opportunity of being heard, wherever it is possible to do so is mandatory.

Held : The introduction in section 127(1) and (2) indicates the legislative intent of providing an assessee a reasonable opportunity of being heard in cases falling under sub-sections (1) and (2) thereof. The word ‘may’ in section 127 should be read as ‘shall’. The requirement of giving an assessee a reasonable opportunity of being heard wherever it is possible to do so, is mandatory. The discretion of the authorities is only as to what is a reasonable opportunity in a given case and on the question, whether it is possible in a given case to provide the opportunity. In the instant case, the assessee had not been granted an opportunity of hearing even if assessee’s case was transferred from one State to another. Thus, in view of aforesaid discussion, impugned order transferring assessee’s case was to be set aside. - [Sahara Hospitality Ltd. v. CIT (2012) 211 Taxman 15 : 25 taxmann.com 299 (Bom.)]

Opportunity of hearing

Order mandatory in the case of intra city transfers, though opportunity of hearing as postulated in section 127(1) and 127(2) has been dispensed with other statutory formalities which include issuing an order are required to be complied with; Assessing Officer on his own could not transfer an income-tax file to another officer without an order under section 127(3). (Related Assessment Years 2006-07 to 2008-09) - [Kusum Goyal v. ITO (2010) 329 ITR 283 : 48 DTR 343 : (2011) 237 CTR 390 (Cal)]

 

Jurisdiction – Kanpur to Delhi for Centralising case on basis of Search conducted in case of another assessee - In view of the subsequent events, that the proceedings for the transfer of the file of the appellant from Kanpur to Delhi for centralizing of case for co-ordinated investigation and meaningful assessment had became infructuous, and therefore, the order of transfer of the case of the appellant could not be sustained

Assessee was running a distillery and brewery company - Pursuant to a search conducted at premises of ‘R’ Ltd. it was found that some payments had been collected by U.P. Distilleries Association for payment to public servants. As per result of said search department initiated proceedings for transfer of assessee’s case from Kanpur to Delhi for purpose of co-ordinated investigation and meaningful assessment.  It was found from records that Assessing Officer had already passed an assessment order in assessee's case after taking into consideration said search and seizure proceedings and effect thereof and amount allegedly paid by said association had been treated as unexplained investment in assessment of 'R' Ltd.. Further, said ‘R’ Ltd. had also filed an application before Settlement Commission and order passed therein in favour of 'R' Ltd. was subject-matter of challenge before High Court, at instance of revenue. In view of above facts it could be said that proceedings for transfer of assessee's file from Kanpur to Delhi, for purpose of centralizing cases for co-ordinated investigation and meaningful assessment had become infructuous and were to be set aside. [In favour of assessee] – [Unnao Distilleries and Braveries Ltd. v. CIT (2009) 318 ITR 82 : 225 CTR 129 : (2010) 186 Taxman 47 (SC)]

Power to transfer of cases – Opportunity of being heard

Condition for transfer order under section 127 of the Act transferring the assessee’s case without affording him opportunity of being heard and also without giving any reason for transfer of case except for stating that the transfer was for administrative convenience, in such case the requirements of section 127 of the Act were held to be not fulfilled and the order transferring the case was liable to be quashed.—[Anand Kumar Arya & Anr. v. CIT (2009) 314 ITR 324 : 26 DTR 12 (Cal)]

Effective and coordinated investigation – Held valid.—[Shree Ram Vessel Scrap (P) Ltd. v. CIT (2013) 91 DTR 235 (Guj)]

Coordinated investigation – Transfer case was held to be valid.—[CIT v. UOI (Maa Mahamaya Group and others) (2013) 358 ITR 341 : 216 Taxman 135 (Chhattisgarh)]

Merely mentioning that it is necessary to transfer the case for coordinated investigation is not sufficient.—[Global Energy (P) Ltd. v. CIT (2013) 356 ITR 502 : 215 Taxman 224 : 89 DTR 194 (Bom)]

Once nexus is established transfer cannot be interfered with.—[Arrow Alloys (P) Ltd. v. UOI (2013) 351 ITR 259 : 215 Taxman 141 (Mag.) (Gauhati)]

Transfer of assessees’ cases from Kolkata to Patna not for the purpose of co-ordinated and effective investigation but for centralisation not valid

In connection with search and seizure operations against the R group of companies, the Commissioner of Income-tax after hearing the assessees passed a reasoned order directing transfer of the cases of the assessees from the Income-tax Officers at Kolkata to Patna.

On writ petitions challenging the transfer of cases the High Court held that the notices proposing transfer did not indicate that the transfer was for the purpose of co-ordinated and effective investigation. The transfer as proposed was for the purpose of centralisation.

Where the assessee vide its detailed reply objected to the show cause notice proposing to transfer his case for a coordinate investigation and the Commissioner passed an order under section 127(2) of the Act transferring the petitioner’s case without considering the reply of the assessee, the impugned order passed by the Commissioner was held to be in breach of principles of natural justice and liable to be quashed. - [Dhoot Developers (P) Ltd. v. CIT & Ors. (2011) 336 ITR 487 : (2010) 230 CTR 305 : 35 DTR 175 (Cal.)]

The assessees had made categorical statements in their representations that they had no business connection with their father, had no business at any place in Bihar, they managed their businesses on their own and had no business link with R, their father, and had no relation either in the business or otherwise in the R group of companies, but the authorities had not rebutted the categorical statements made in the written objections. Mere family connection cannot be a ground for transfer. Onus is on the revenue to produce material evidence in support of their case that assessee is with their father. Thus, as the order did not disclose any nexus of the assessees with R or the R group of companies, the order was without merit and could not be sustained. - [Dillip Kumar Agarwal v. CIT (2009) 314 ITR 291 (Cal.)]

 

Power under section 127 can also be exercised in respect of block assessment - Section 158BH which categorically states that all the other provisions of the Act shall apply to assessment made under the said Chapter

An order of transfer is passed for the purpose of assessment of income. It serves a larger purpose. Such an order has to be passed in public interest. Only because in section 127 words ‘any case’ have been mentioned, same would not mean that an order of transfer cannot be passed in respect of cases involving more than one assessment year. It would not be correct to contend that only because Explanation appended to section 127 refers to the word 'case', for the purpose of the said section as also section 120, the source of power for transfer of the case involving block assessment is relatable only to section 120. It is a well-settled principle of interpretation of statute that a provision must be construed in such a manner so as to make it workable. When the Act was originally enacted, Chapter XI-VB was not in the statute book. It was brought in the statute book only in the year 1996. 

The power of transfer, in effect, provides for a machinery provision. It must be given its full effect. It must be construed in a manner so as to make it workable. Even section 127 is a machinery provision. It should be construed to effectuate a charging section so as to allow the authorities concerned to do so in a manner wherefor the statute was enacted. 

Section 127, which falls under Chapter XIII, would mutatis mutandis apply to Chapter XIV-B, particularly when the jurisdiction of the income-tax authorities, inter alia, relates to passing an order of assessment. The word 'any' must be read in the context of the statute and for the said purpose, it may, in a situation of this nature, mean ‘all’. The principles of purposive construction for the said purpose may be resorted to. Thus, in the context of a statute, the word 'any' may be read as 'all' in the context of the Act for which the power of transfer has been conferred upon the authorities specified under section 127. Thus, the power under section 127 can also be exercised in respect of a block assessment. Therefore, there was no merit in the instant appeal and same was to be dismissed. (Block period : 1986-87 to 1996-97) - [K.P. Mohammed Salim v. CIT, Cochin (2008) 300 ITR 302 : 216 CTR 97 : 207 Taxation 81 : 169 Taxman 465 (SC)]

 

Power to transfer cases – Centralisation of group cases – Necessity of centralisation of cases for coordinated and effective investigation is a valid ground for transferring cases belonging to a particular group to a single Assessing Officer. - [Rathi & Co. v. UOI (2004) 267 ITR 295 : 190 CTR 221 : 137 Taxman 300 (Gau)]

Power to transfer of cases – Speaking order before transferring the case of an assessee, a notice containing reasons for proposed transfer should be given to the assessee concerned, an opportunity of hearing should be granted and thereafter a speaking order considering the objections raised is to be passed. Besides, such an order has to be communicated to the assessee concerned disclosing reasons for transfer. The dicta laid down by the Apex Court in Ajantha Industries v. CBDT (1976) 102 ITR 281 (SC) prescribing the conditions to be fulfilled before transferring case of an assessee, may have to be followed. - [Sarita Jain (Smt.) v. CIT (2003) 261 ITR 499 : 179 CTR 543 : (2004) 134 Taxman 737 (Del)]

 

Requirement of reasonable opportunity of hearing to an assessee before making an order of transfer cannot but mean that assessee would be entitled to represent or object to such proposed transfer which is not possible without disclosure of grounds or reason for such proposal – In show-cause notice under section 127 grounds or reason for proposed transfer was not indicated – Even then petitioner replied to show cause and he was also given hearing – Fact that petitioner gave a reply to show-cause notice expressing,inter alia, his personal inconvenience would not amount to either waiver or estoppel against provision of reasonable opportunity of hearing, same being mandatory and when it was possible to give such hearing – Under such circumstances, for non-compliance of statutory provision and denial of reasonable opportunity of hearing, entire proceeding of transferring cases of petitioner was vitiated and same was liable to be set aside

The petitioners were issued with a show-cause notice proposing to transfer the case in exercise of power under section 127. And each of the petitioners also replied to such show-cause notice and was heard and was given a hearing. Thereafter, the cases were transferred. On writ, the petitioners contended that in the show-cause notice where the proposal was made for transfer, no reason was indicated for which such proposal was made and that non-indication of reason for such proposal in the show-cause notice prevented the petitioner from making an effective representation to the same, and therefore, the principles of natural justice had been violated.

Held : When section 127 requires the giving of a reasonable opportunity of hearing to an assessee before passing an order of transfer, the same would obviously mean that the assessee will be entitled to make his objection or representation against the proposed order of transfer and such representation and objection cannot be an effective one unless it is known to him for what reason or on what grounds such proposal is being made. If such reason for proposal of such transfer is not indicated in the show-cause notice the opportunity of the petitioners to represent against such proposal would be entirely an illusory and not effective one as it is well settled because of different judicial decisions that personal inconvenience of an assessee cannot override a public interest necessitating such transfer. Under such circumstances if the reason was not indicated in the show cause notice it was not understood how the assessee could represent against such proposal and against what he could represent except expressing his personal inconvenience to be suffered for such transferor such other matters which are held to be irrelevant considerations for the purpose of such transfer. There is no straight jacket formula in deciding what would be reasonable opportunity of hearing and the same may differ under the facts and circumstances of different cases. But in a case of the present nature the requirement of reasonable opportunity of hearing to an assessee before making an order of transfer cannot but mean that the assessee would be entitled to represent or object to such proposed transfer which was not possible without disclosure of the grounds or reason for such proposal.

Admittedly, in the instant case, in the show-cause notice the grounds or reason for proposed transfer was not indicated. It was true that even then the petitioners replied to the show-cause and they were also given hearing. That would not, however, absolve the liability of the respondent in the matter of indicating the grounds or reasons for such proposed transfer in the show-cause notice. Such a provision for giving reasonable opportunity of hearing being mandatory and when it was not the case of the respondent that it was not possible to give a hearing, it was mandatory to indicate such grounds or reasons in the show-cause notice and non-indication thereof certainly amounted to denial of reasonable opportunity of hearing to the petitioners. The fact that the petitioners gave a reply to the show-cause notice expressing inter alia, their personal inconvenience would not amount to either waiver or estoppel, against provision of reasonable opportunity of hearing, the same being mandatory and when it was possible to give such hearing. Under such circumstances, for non-compliance of the aforesaid provision of the statute and denial of reasonable opportunity of hearing, the entire proceeding was vitiated and the same was liable to be set aside. The writ petition was allowed accordingly. [In favour of assessee] – [Chotanagpur Industrial Gases (P) Ltd. v. CIT (1998) 233 ITR 377 (1999) 151 CTR 180 (Cal.)]

 

While making an order of transfer under section 127, requirement of recording reasons is a mandatory direction under law and non-communication of same to assessee would not be saved by showing that reasons existed in file although not communicated to assessee

In the 1961 Act, section 127 replaced section 5(7A) of the 1922 Act, where 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 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. As regards the question as to whether the reasons were at all required to be communicated to the assessee, it was submitted, on behalf of the revenue, that the very fact that reasons were recorded in the file, although these were not communicated to the assessee, fully met the requirement of section 127(1). There was no merit in the said submission.

The reason for recording of reasons in the order and making these reasons known to the assessee is to enable an opportunity to the assessee to approach the High Court under its writ jurisdiction under article 226 of the Constitution or even the Supreme Court under article 136 of the Constitution in an appropriate case for challenging the order, inter alia, either on the ground that it is mala fide or arbitrary or that it is based on irrelevant and extraneous considerations.

The requirement of recording reasons under section 127(1) is a mandatory direction under the law and non communication thereof would not be saved by showing that the reasons existed in the file although not communicated to the assessee.

When law requires reasons to be recorded in a particular order affecting prejudicially the interests of any person, who can challenge the order in court, it ceases to be a mere administrative order and the vice of violation of the principles of natural justice on account of omission to communicate the reasons is not expiated. Hence, non-communication of the reasons in the order passed under section 127(1) was a serious infirmity in the order for which the same was invalid. The judgment of the High Court was to be set aside. The appeal was to be allowed and the orders of transfer were liable to be quashed. [In favour of assessee] – [Ajantha Industries v. Central Board of Direct Taxes (1976) 102 ITR 281 (SC)]

Mandatory requirement of recording reasons was not to be applicable, as the transfer orders were in the same city and only wards were changed but the Court did observe about the nature of transfer orders under section 127 - Impugned orders could not be challenged on ground that Board had not recorded reasons in directing transfer of cases pending against assessee from one Income-tax Officer to another in same locality

Two appeals arose out of two writ petitions filed by the appellant, in the Punjab High Court, challenging the validity of two orders passed by the Central Board of Revenue in which they had directed that the income-tax proceedings then pending against the appellant should be transferred from the ITO one ward to ITO of another. The petitioner alleged that these two orders were invalid, because before exercising its power under section 127(1), the Board had failed to comply with a mandatory requirement prescribed by the said provision. These petitions were dismissed summarily by the High Court.

Held : It was common ground that the impugned orders did not record any reasons why the Board thought it necessary to transfer the cases pending against the appellant from one ITO to the other; and the argument was that section 127(1) imposes an obligation on the authority exercising its power under the said section to record its reasons for directing the transfer of a case from one ITO to another. It will be noticed that section 127(1) requires that where the power conferred by it is intended to be exercised, an opportunity should be given to the assessee wherever it is possible to do so, and reasons have to be recorded for making the order of the transfer. The requirement that opportunity should be given, cannot be said to be obligatory, because it has been left to the discretion of the authority to consider whether it is possible to give such an opportunity to the assessee. It is, of course, true that in coming to the conclusion that it is not possible to give the required opportunity to the assessee, the authority must act reasonably and bona fide; but if the authority comes to the conclusion that it is not possible to give a reasonable opportunity to the assessee, that can be dispensed with. That, however, is not so with regard to the requirement that reasons must be recorded for making the transfer.

The provision that nothing in sub-section (1) shall be deemed to require any opportunity to be given, is worded in an emphatic form ; and that fact has to be borne in mind in considering the effect of the proviso. Besides, it would not be unreasonable to assume that the recording of reasons prescribed by section 127(1) would be appropriate where a transfer is being made otherwise than in the manner prescribed by the proviso. In such a case, normally, the assessee has to be given a reasonable opportunity to be heard; and the natural corollary of his requirement is that his objections to the transfer should be considered and reasons given why the transfer is made despite the objection of the assessee. In other words, the requirement as to the recording of reasons flows as a natural consequence and corollary of the requirement that a reasonable opportunity should be given to the assessee. If, however, a reasonable opportunity is not given to the assessee on the ground that it is not possible to do so, section 127(1) requires that the transfer being of a category where a reasonable opportunity should be given to the assessee, the authority should record its reasons for making the transfer, even though no opportunity was in fact given to the assessee. If that be the true position, it is not easy to understand why the proviso should be so construed as to require reasons to be given for the transfer, even though no opportunity to the assessee is required to be given. That is one aspect of the matter which has to be borne in mind in determining the true scope and effect of the proviso.

There is another consideration which is also relevant. Section 124 of the Act deals with the jursidiction of ITO’s. Section 124(3) provides that within the limits of the area assigned to him, the ITO shall have jurisdiction—

(a)   in resect of any person carrying on a business or profession, if the place at which he carries on his business or profession is situate within the area, or where his business or profession is carried on in more places than one, if the principal place of his business or profession is situate within the area, and

(b)   in respect of any other person residing within the area.

This was provision clearly indicates that where a transfer is made under the proviso to section 127(1) from one ITO to another in the same locality, it merely means that instead of one ITO who is competent to deal with the case, another ITO has been asked to deal with it. Such an order is purely in the nature of an administrative order passed for considerations of convenience of the department and no possible prejudice can be involved in such a transfer. Where, as in the instant proceedings, assessment cases pending against the appellant before an officer in one ward and transferred to an officer in another ward in the same place, there is hardly any occasion for mentioning any reasons as such, because such transfers are invariably made on grounds of administrative convenience, and that shows that on principle in such cases neither can the notice be said to be necessary, nor would it be necessary to record any reasons for the transfer.

The propriety of giving an opportunity to an assessee and the desirability of recording reasons had reference to cases where transfers were intended to be made from an Income-tax Officer in one place to the Income-tax Officer in another place; and they obviously had no reference to transfers like the instant where instead of one officer dealing with the case, another officer in the same place, is asked to deal with it.

If the obvious object of the proviso is taken into account and the relevant previous background is borne in mind, it would seem reasonable to hold that in regard to cases falling under the proviso, an opportunity need not be given to the assessee, and the consequential need to record reasons for the transfer is also unnecessary, and this view is plainly consistent with the scheme of the provision and the true intent of its requirements. It was accordingly held that the impugned orders could not be challenged on the ground that the Board had not recorded reasons in directing the transfer of the cases pending against the assessee from one ITO to another in the same locality. The result was, the appeals failed and were dismissed. - [Kashiram Aggarwalla v. Union of India and others (1965) 56 ITR 14 (SC)]