Madhu Khurana vs Commissioner of Income Tax and Another

H.N. Devani, J.—Rule. Learned advocate for the Respondents is directed to waive service. Having regard to the controversy involved in the present petition, which lies in a very narrow compass, the matter is taken up for final hearing today.

This petition has been filed with the following prayers:

The Petitioner, therefore, prays that this Hon''ble Court be pleased to issue a writ of mandamus or a writ in the nature of mandamus or a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, direction or order and be pleased to:

(a) quash and set aside the impugned order dt. 11th Nov., 2009 at Annex. A'' and the impugned notice issued on 23rd Feb., 2010 at Annex. ''B'' to this petition;

(b) pending the admission, hearing and final disposal of this petition, to stay implementation and operation of the order at Annex. ''A'', and of the notice at Annex. B'' of this petition and stay further proceeding for the transfer of the Petitioner''s case from Ahmedabad to Bhopal;

(c) any other and further relief deemed just and proper be granted in the interest of justice;

(d) to provide for the cost of this petition.

The facts stated briefly are that vide notice dt. 29th July, 2009 issued by the Dy. CIT, Circle-7, Ahmedabad, the Petitioner was informed that the Dy. Director of Investigation, Bhopal, had made a proposal for centralization of her case in connection with the search and seizure action carried out in case of Shri Avtarsingh Khurana and Others. It was further stated in the notice that the Petitioner was being given an opportunity of being heard with regard to the said subject and was requested to attend the office of the Dy. CIT or furnish a reply in writing before the date specified in the notice, if she wanted to represent her views in the matter. In response to the said notice, the Petitioner filed a reply dt. 6th Aug., 2009 addressed to the Dy. CIT objecting to the proposal of centralization and transfer of the Petitioner''s case to Bhopal. The Petitioner also addressed a similar letter to the Respondent No. 1 CIT, Ahmedabad-III, reiterating the reasons for not transferring her case to Bhopal.

Subsequently, by the impugned order dt. 11th Nov., 2009 made u/s 127(2) of the Act, the case of the Petitioner was transferred to Asstt. CIT-1(1) Bhopal. By an application dt. 24th Dec, 2009, the Petitioner requested the Chief CIT, Ahmedabad-II to look into her case and give her an opportunity of being heard before any final decision is taken for transferring her case to Bhopal. Vide letter dt. 31st Dec, 2009 of the Chief CIT, Ahmedabad-I addressed to the Director General of IT (Inv.), Bhopal, it was suggested that in view of the fact that the Petitioner''s objections for transfer appeared to be reasonable and there was nothing on record to justify such transfer, the Petitioner''s case be centralized with the AO at the CIT (Central), Ahmedabad. Vide letter dt. 5th Jan., 2010, the Chief CIT, Ahmedabad-II requested the Chief CIT, Bhopal, that the CIT concerned may be directed to pass an order u/s 127 of the Act, transferring the case of the Petitioner back to an AO at the Central Circle, Ahmedabad, as an order u/s 127(2) of the Act had already been passed transferring her case from Ahmedabad to Bhopal as the same would ensure a proper and co-ordinated investigation of all the three cases by the AO at Central Circle at Ahmedabad and also avoid any hardship which would be caused to the Petitioner, being an old lady. Vide letter dt. 1st Feb., 2010, the Petitioner requested the Respondent No. 1 not to transfer the records relating to the Petitioner''s case to Bhopal, specially in view of the correspondence of the Chief CIT, Ahmedabad with his counterpart in Bhopal. Subsequently, the Asstt. CIT-1(1), Bhopal, issued a notice dt. 23rd Feb., 2010, u/s 153C of the Act to the Petitioner. Being aggrieved, the Petitioner has filed the present petition seeking relief noted hereinabove.

Assailing the impugned order, Mr. S.N. Soparkar, senior advocate, learned Counsel for the Petitioner invited attention to the provisions of Section 127 of the Act to point out that in a case where the AO from whom the case is to be transferred and the AO to whom the case is to be transferred are not subordinate to the same Director General, or Chief CIT or CIT, two basic requirements are required to be satisfied before making an order transferring the case u/s 127(2) of the Act, viz., the concerned Director General, Chief CIT or CIT from whose jurisdiction the case is to be transferred is required to give the Assessee a reasonable opportunity of being heard; and the concerned authority is required to record reasons for doing so. It was submitted in the present case the impugned order dt. 11th Nov., 2009 has been passed without affording any opportunity of hearing to the Petitioner and no reasons have been recorded for transferring the case of the Petitioner to the AO at Bhopal, and as such the impugned order being in breach of the statutory provisions is illegal and invalid and as such the entire proceedings initiated pursuant thereto, including the impugned notice u/s 153C of the Act would stand vitiated. In support of his submissions, the learned Counsel placed reliance upon the decision of the apex Court in the case of Ajantha Industries and Others Vs. Central Board of Direct Taxes, New Delhi and Others, Various other contentions have also been advanced on the merits of the case, however, considering the view that the Court is inclined to take in the matter, it is not necessary to refer to the same in detail.

On the other hand, Mr. M.R. Bhatt, learned senior advocate appearing on behalf of the Respondents has reiterated the contents of the affidavit-in-reply filed by the Respondent No. 1.

Having regard to the submissions advanced by the learned Counsel for the respective parties, what is required to be examined is as to whether the impugned order dt. 11th Nov., 2009 satisfies the requirements of the provisions of Section 127(2) of the Act. A perusal of the record of the case as available with the Court indicates that notice u/s 127 of the Act proposing to centralize the case of the Petitioner was issued by the Dy. CIT, Circle-7, Ahmedabad, whereas the impugned order dt. 11th Nov., 2009 u/s 127(2) of the Act has been made by the Respondent No. 1, CIT, Ahmedabad-III. It is an undisputed position that Respondent No. 1 CIT has not given any opportunity of hearing to the Petitioner prior to making the impugned order. On behalf of the Respondents it has been contended that the Dy. CIT who had issued notice u/s 127 of the Act had given opportunity of hearing to the Petitioner and that the impugned order had been passed after considering the reply submitted by the Petitioner, and as such the provisions of Section 127 of the Act had been substantially complied with. In this regard it may be germane to refer to the provisions of Section 127 of the Act which insofar as the same are relevant for the present purpose read as under :

Power to transfer cases.--(1) The Director General or Chief CIT or CIT 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 A Os subordinate to him (whether with or without concurrent jurisdiction) to any other AO or A Os (whether with or without concurrent jurisdiction) also subordinate to him.

(2) Where the AO or A Os from whom the case is to be transferred and the AO or A Os to whom the case is to be transferred are not subordinate to the same Director General or Chief CIT or CIT,

(a) where the Director Generals or Chief CI Ts or CI Ts to whom such A Os are subordinate are in agreement, then the Director General or Chief CIT or CIT 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 Director Generals or Chief CI Ts or CI Ts aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Director General or Chief CIT or CIT as the Board may, by notification in the Official Gazette, authorise in this behalf.

In the present case, the case of the Petitioner has been transferred from an AO to an AO who is not subordinate to the same CIT, hence the provisions of Sub-section (2) of Section 127 of the Act would be applicable. On a plain reading of the provisions of Sub-section (2) of Section 127 of the Act it is apparent that the same contemplates giving a reasonable opportunity of hearing to the Assessee by the Director General, or Chief CIT or CIT (in the present case the CIT) from whose jurisdiction the case is to be transferred. In the present case it is an undisputed position that the CIT, Ahmedabad-III had not afforded any opportunity of hearing to the Petitioner before making the impugned order. Thus, the first requirement of the said provision is evidently not satisfied. The second requirement is that the CIT should record his reasons for transferring the case. In this regard reference may be made to the contents of the impugned order which read thus :

In exercise of powers under Sub-section (2) of Section 127 of the IT Act, 1961 and all other powers enabling me in this behalf, I, the CIT, Ahmedabad-III, Ahmedabad hereby transfer the case, the particulars of which are mentioned in column No. 2 of the Schedule hereunder from the AO mentioned in column No. 5 to the AO mentioned in column No. 6 thereof :

Schedule

This order shall take effect from 11th Dec, 2009.

On a plain reading of the aforesaid order, it is amply clear that no reasons have been recorded therein. On behalf of the Respondents it has been sought to be submitted that reasons would have been recorded in the file and need not be spelt out in the order u/s 127(2) of the Act. In this regard it may be pertinent to note that a specific contention has been raised in para 3.2 of the petition that the Respondent No. 1 has acted illegally and without jurisdiction in not passing a speaking and reasoned order, however, despite the fact that the affidavit in reply has been made by the Respondent No. 1 CIT, Ahmedabad-III, there is no averment to the effect that reasons have in fact been recorded in the file nor have the reasons recorded, if any, been placed on record. Moreover, in the communication dt. 31st Dec, 2009 of the office of the Chief CIT, Ahmedabad-I addressed to the Director General of IT (Inv.), Bhopal, (Annex. G to the petition), it has been stated thus,

In this connection, CIT Ahmedabad-I, Ahmedabad vide letter No. CIT/ABD-I/A-18/Cent./2009-10, dt. 13th Nov., 2009 (copy enclosed for ready reference) submitted that in the case of M/s Dilip Avtar Construction (P) Ltd. the Assessee has filed objections to the proposed centralization. Vide this office letter of even No. dt. 23rd Nov., 2009 (copy enclosed for ready reference) the Director of IT (Inv.), Bhopal has been requested to forward detailed reasons for proposed centralization. In the case of Smt. Madhu Khurana the CIT, Ahmedabad-III, Ahmedabad vide letter No. CIT-III/R.7/Khurana/2009-10, dt. 17th Aug., 2009 (copy enclosed for ready reference) has anticipated that the Assessee may challenge the order of centralization and therefore, requested to supply detailed reasons on the basis of which a speaking order justifying the transfer of cases to Bhopal may be passed. The said letter of the CIT-III Ahmedabad has been forwarded to Director of IT (Inv.), Bhopal vide this office letter dt. 25th Aug., 2009 (copy enclosed for ready reference). Similarly, CIT, Ahmedabad-VII, Ahmedabad, in the case of Shri Avtar Singh Khurana has also submitted that due to health problem the Assessee has shown his inability to travel frequently from Ahmedabad to Bhopal. In this background a letter dt. 23rd Nov., 2009 (copy enclosed for ready reference) has been issued by this office to Director of IT (Inv.), Bhopal requesting for supply of detailed reasons for centralization of the above-referred cases from Ahmedabad to Bhopal.

On a bare reading of the aforesaid communication, it is apparent that on the date when the order u/s 127(2) of the Act had been made by the Respondent No. 1, no reasons had been made available to the said officer for the proposed centralization. In fact, from the above-referred contents of the aforesaid communication, it is apparent that no reasons had been recorded prior to making the order u/s 127(2) of the Act and that even till 31st Dec, 2009, the IT authorities at Ahmedabad had been requesting the Director of IT (Inv.), Bhopal to supply detailed reasons for centralization of the case of the Petitioner from Ahmedabad to Bhopal. Thus, the second requirement of recording reasons has also not been satisfied.

The Supreme Court in the case of Ajanta Industries v. CBDT (supra) has held thus :

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. The question then arises whether the reasons are at all required to be communicated to the Assessee. It is submitted, on behalf of the Revenue, that the very fact that reasons are recorded in the file, although these are not communicated to the Assessee, fully meets the requirement Section 127(1). We are unable to accept this 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 this 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. Whether such a writ or special leave application ultimately fails is not relevant for a decision of the question.

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.

Examining the facts of the present case in the light of the principles enunciated in the aforesaid decision, even if for a moment it is assumed that the reasons have in fact been recorded in the file, the apex Court has held that not only is the requirement of recording reasons u/s 127(1) a mandatory direction under the law, but that non-communication thereof is not saved by showing that the reasons exist in the file although not communicated to the Assessee. Thus, non-communication of the reasons recorded would also vitiate the order made u/s 127(2) of the Act.

In the facts of the present case, prima facie it appears that the reasons have not been recorded by the CIT before passing the impugned order u/s 127(2) of the Act as nothing has been placed on record to indicate anything to the contrary; if at all reasons have been recorded, the same have not been communicated to the Petitioner; and last but not least no opportunity of hearing been afforded to the Assessee before passing the impugned order. In the circumstances neither of the two mandatory requirements of the Section 127(2) have been complied with and as such the impugned order dt. 11th Nov., 2009 being violative of the relevant statutory provisions under which it has been passed, cannot be sustained. As a natural corollary, the impugned notice dt. 23rd Feb., 2010 u/s 153C of the Act which has been issued by the Respondent No. 2, Asstt. CIT-1(1), Bhopal, who derives jurisdiction by virtue of the impugned order dt. 11th Nov., 2009 also cannot be sustained.

For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned order dt. 11th Nov., 2009 (Annex. ''A'' to the petition) as well as the impugned notice dt. 23rd Feb., 2010 (Annex. ''B'' to the petition) are hereby quashed and set aside. Rule is made absolute accordingly with costs quantified at Rs. 5,000 (Rupees five thousand only).