General Exporters vs Commissioner of Income Tax and another

E. Padmanabhan J.

The petitioner, a registered partnership firm through its managing partner, has filed this writ petition praying for the issue of a writ of certiorari to

call for the records comprised in Order No. 18/III of 1997-98 in C. No. 1127/III Jurdn. of 1997-98 dated June 10, 1997, issued by the first

respondent and quash the same.

The petitioner, a registered partnership firm, is carrying on business as exporter of tea with headquarters at Chennai and it is an assessee to

Income Tax on the file of the Income Tax Office, City Ward-VIII(3), Chennai, under General Index No. 73368-G.

The petitioner states that the assessment for the year 1995-96 has already been completed and it has filed its return for the assessment year

1996-97, that the first respondent issued a notice u/s 127 of the Income Tax Act (hereinafter referred to as ""the Act"") dated May 26, 1997, that

the petitioner filed detailed objections, and that without reference to the objections and without affording an opportunity, the objections have been

overruled and by the impugned proceedings, the petitioner''s file has been ordered to be transferred to New Delhi from Chennai on June 10, 1997.

A detailed counter has been filed by the first respondent on behalf of both the respondents.

It is not necessary to set out the details in the counter affidavit and it is sufficient for the purpose of the present writ petition to incorporate

paragraph 6 of the counter affidavit alone :

All the above reasons were duly recorded in a separate note kept in the jurisdiction file. As the note was very lengthy, the same was not

incorporated in the notice or in the order passed u/s 127 of the Act.

The notice issued by the first respondent on May 26, 1997, reads thus :

It is proposed to transfer your case to the Commissioner of Income Tax (Central-II), New Delhi.

In view of this, you are hereby requested to state your objections, if any, in writing on or before June 10, 1997. If, however, no reply, is received

on the said date, it will be construed that you have no objection to the said proposal and your case will be transferred to New Delhi as indicated

above.

On receipt of the notice, the petitioner has submitted detailed objections on June 5, 1997. The impugned order passed by the first respondent

reads thus :

In exercise of the power conferred by sub-section (2) of section 127 of the Income Tax Act, 1961, and of all powers enabling him in this behalf,

the Commissioner of Income Tax, Tamil Nadu-III, Chennai-34, hereby transfers the cases, the particulars of which are mentioned in column 3 of

the schedule hereto annexed from the Assessing Officer mentioned in column 4 to the Assessing Officer mentioned in column 5 thereof :- The

contention raised in the assessee''s letter dated June 3, 1997, are considered; the assessee''s objection is overruled and notification issued :

SCHEDULE

------------------------------------------------------------------------

Sl. G.I. No. Name and address of the Transferred

No. P.A. No. assessee

From To

------------------------------------------------------------------------

1 2 3 4 5

------------------------------------------------------------------------

73368-G General Exporters No. 3, ACIT CC-VII ACIT Central

Sylvan Lodge-Colony, (Inv.) Chennai Cir. 8, New

IIIrd Cross Street, Delhi.

Chennai-10

------------------------------------------------------------------------

Learned counsel for the petitioner contended that in the show-cause notice, no reason has been set out, that the impugned order is non-speaking

and that none of the objections raised by the petitioner had either been adverted to or considered besides pointing out that no opportunity has been

afforded to the petitioner.

The contentions raised by learned counsel for the petitioner deserve to be accepted and there is no escape.

Learned senior counsel for the respondents sought to justify the order of transfer on the basis of reasons set out in the counter affidavit as well

as by producing the file where reasons have been recorded by the first respondent before ordering transfer. I am afraid that the submissions of

learned senior counsel for the respondents cannot at all be sustained.

Section 127(2) of the Income Tax Act reads thus :

Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to

whom the case is to be transferred are not subordinate to the same Director-General or Chief Commissioner or Commissioner, -

(a) where the Directors-General or Chief Commissioners or Commissioners to whom such Assessing Officers are subordinate are in agreement,

then the Director-General or Chief Commissioner or Commissioner from whose jurisdiction the case is to be transferred may, after giving the

assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass

the order.

A reading of the above mentioned provision makes it abundantly clear that a notice should be given by the transferring authority. Such notice

should contain reasons for the proposed transfer. The transferring authority should afford an opportunity of hearing and thereafter pass a speaking

order considering the objections raised, if any, by the assessee. Besides such an order should be communicated by the transferring authority

disclosing the reasons for transfer.

It is not necessary to multiply the decisions cited by either side. In PANNALAL BINJRAJ AND ANOTHER Vs. THE UNION OF INDIA

AND OTHERS. (AND OTHER CASES)., , the apex court while upholding the validity of section 5(7A) of the Indian Income Tax Act, 1922,

held that it would be prudent if the principles of natural justice are followed before any order of transfer is made.

In Ajantha Industries and Others Vs. Central Board of Direct Taxes, New Delhi and Others, , the Supreme Court once again reiterated the

requirement of recording reasons u/s 127(1) of the Act as mandatory and the communication of reasons as also essential. The Supreme Court also

held that when law requires reasons to be recorded in a particular order, and if such reason is not recorded and communicated to the affected

party, it is definitely in violation of the principles of natural justice and on that ground, the order has to be quashed. The apex court has held thus

(page 285) :

We are clearly of opinion that the requirement of recording reasons u/s 127(1) is 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 . . . . 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.

The case reported in Ajantha Industries and Others Vs. Central Board of Direct Taxes, New Delhi and Others, , relates to a case arising out

of section 127(1) of the Act and in my view, it makes no difference, even in respect of a case which arises out of sub-section (2) of section 127. It

applies on all fours.

In Vijayasanthi Investments Pvt. Ltd. Vs. Chief Commissioner of Income Tax and Others, , a Division Bench of the Andhra Pradesh High

Court, while following the dicta laid down by the Supreme Court in Ajantha Industries and Others Vs. Central Board of Direct Taxes, New Delhi

and Others, and V.K. Steel Industries Pvt. Ltd. Vs. Assistant Commissioner of Income Tax and Others, , reiterated that the provision is

mandatory, that the show-cause notice should contain the reasons for any proposed transfer, that there should be a personal hearing by the

transferring authority that orders recording reasons should be passed by the transferring authority and that it requires to be communicated to the

assessee. Deviation from any one of these requirements vitiates the order of transfer.

Following the above pronouncements of the Supreme Court as well as the Andhra Pradesh High Court, this court has no alternative except to

quash the impugned proceedings and allow the writ petition as prayed for.

In the present case, the show-cause notice is silent and no reason has been disclosed and no opportunity of hearing has been afforded to the

assessee, who has filed objections. The objections raised by the assessee have not been adverted to and considered in a manner known to law

and reasons for overruling the objections and ordering transfer had not been communicated to the assessee.

On the other hand, in the file, which has been produced and in the counter affidavit, certain reasons have been assigned to sustain the impugned

order of transfer. Such approach of the respondents cannot be appreciated as it is in violation of the principles of natural justice as well as the

mandatory requirements of sub-section (2) of section 127 of the Act.

An incidental question has also been raised as to whether the first respondent is competent to order transfer of the petitioner''s file from

Madras to New Delhi, which are under two different circles and under the administrative control of two different Chief Commissioners. However,

this court is not going to decide the issue and it is left open as it is not necessary at this stage to decide this point.

In the counter-affidavit, it is admitted that reasons have been recorded, that reasons are available on the file but that they have not been

communicated to the writ petitioner. This is fatal to the case of the Revenue. In the foregoing circumstances, the writ petition is allowed and the

impugned order is quashed. No costs. However, it is made clear that it is open to the respondents or other competent authority to pass fresh

orders in terms of section 127 of the Act by complying with the requirements of the said provision. Consequently, W.M.P. Nos. 15489 and

15490 of 1997 are dismissed.