Case Law Details
Kamal Varandmal Galani Vs PCIT (Bombay High Court)
The petitioner challenged the order dated 21 November 2022 passed under Section 127 of the Income Tax Act, 1961, transferring his assessment jurisdiction from the Deputy Commissioner of Income Tax-19(3), Mumbai to the Deputy Commissioner of Income Tax, Central Circle-3, Jaipur. The transfer was proposed to facilitate coordinated assessment with the Veto Group, Jaipur, in respect of which search proceedings under Section 132 had been conducted. The petitioner stated that he had been filing his income tax returns in Mumbai for the last 22 years, including the return for Assessment Year 2021-22.
A show cause notice dated 24 June 2022 informed the petitioner that the Principal Commissioner of Income Tax (Central), Rajasthan had proposed centralization of his case with the Veto Group at Jaipur to enable coordinated assessment. The petitioner was invited to submit objections. Section 127 requires recording of reasons and providing the assessee a reasonable opportunity of being heard before transferring a case. Where the assessing officers are not subordinate to the same authority, the provision also requires agreement between the concerned authorities before passing the transfer order.
The petitioner objected to the proposed transfer, contending that there was no material connecting him with the Veto Group. He stated that no search under Section 132 had been conducted at his premises. Although a survey under Section 133A had been carried out at Landmark Hospitality Pvt. Ltd., where he was a director, no incriminating material was found during the survey. He further submitted that the show cause notice did not disclose any material collected against him that could justify transfer of jurisdiction.
The objections were rejected by the order dated 21 November 2022. The order recorded that a search had been conducted in the cases of the Veto Group on 22 December 2021, that the petitioner was a director of Landmark Hospitality Pvt. Ltd. and a key person of the Veto Group, and that during search and survey at various entities, incriminating documents and data were found which “may relate” to the petitioner and other assessees. It also noted that 69 out of 79 assessees connected with the Veto Group had already been centralized at Jaipur and concluded that the petitioner’s case also required centralization for coordinated, comprehensive and logical enquiry and investigation.
Before the High Court, the petitioner argued that there was no basis or material for transferring his assessment jurisdiction. He contended that if any material had existed, it should have been disclosed in the show cause notice to enable him to file an effective reply. He also relied on the survey records, which specifically recorded that nothing was found or inventoried during the survey conducted at Landmark Hospitality Pvt. Ltd.
The Revenue submitted that the transfer was made to facilitate effective investigation and meaningful assessment after complying with Section 127. It stated that search and seizure proceedings under Section 132 had been conducted on the petitioner and other entities of the Veto Group, and that incriminating documents and data found during the search may relate to the petitioner and other assessees. It further relied upon CBDT Instruction No. 286/22/2008-IT (Inv.II) dated 17 September 2008, contending that searched cases and connected cases were required to be centralized with an assessing officer of the central charge.
The High Court observed that the Revenue’s reply contained no specific assertion that any incriminating material had been found either during the survey of Landmark Hospitality Pvt. Ltd. or during the search of the Veto Group connecting the petitioner with that group. The survey records reflected that no inventory had been prepared, indicating that nothing incriminating was found. The Court also noted that neither the show cause notice nor the Revenue’s reply rebutted the petitioner’s contention that no incriminating material had been found against him during the search proceedings. Instead, the Revenue only stated that the seized documents “may relate” to the petitioner and other assessees.
The Court referred to the CBDT Instructions relied upon by the Revenue and observed that proposals for centralization were required to contain reasons, including the relationship of the connected cases with the main persons of the group. It found that no such sustainable reasons were available on record. According to the Court, the Mumbai authority appeared to have acted merely on the request made by the Jaipur authority and on speculation, without possessing cogent material justifying transfer of jurisdiction.
The High Court further observed that transferring assessment jurisdiction from Mumbai to Jaipur would cause inconvenience and hardship to the petitioner in terms of time, money and resources. It held that, in the absence of requisite material and reasons, the transfer order amounted to an arbitrary exercise of power. The Court also found that the impugned order under Section 127(2) did not explain why transfer of jurisdiction was necessary and failed to deal with any of the objections raised by the petitioner.
The Court held that the assessing officer had acted mechanically by treating the request from the Jaipur authority as binding. It observed that the agreement contemplated under Section 127 requires an independent assessment of the request and the recorded reasons. It further held that if every transfer request were treated as binding, the statutory requirement of recording reasons and granting the assessee an opportunity of hearing would become meaningless. According to the Court, these safeguards exist to prevent arbitrary exercise of power under Section 127 and cannot be reduced to mere formalities. The Court was therefore not persuaded that the CBDT Instructions required automatic acceptance of the transfer request.
Holding that the transfer order was unsustainable in law, the High Court set aside the order dated 21 November 2022. However, it granted liberty to the Principal Commissioner, Mumbai, to pass a fresh order if the concerned Principal Commissioner or any authorized officer from the Jaipur jurisdiction communicated cogent material and reasons justifying the transfer within four weeks. The petitioner was to be given an opportunity of hearing, and any fresh order was directed to be passed within eight weeks. The writ petition was disposed of on these terms.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. The Petitioner seeks the issuance of a writ of Certiorari for quashing the Order dated 21 November 2022 under Section 127 of the Income Tax Act, 1961 (hereinafter called “the Act”), whereby the case of the Petitioner for purposes of assessment was transferred from the Deputy Commissioner of Income Tax-19(3), Mumbai to the Deputy Commissioner of Income Tax Central Circle-3, Jaipur.
2. Briefly stated that the material facts are as under :
The Petitioner claims that he has been fling his income returns in Mumbai for the last 22 years, the last of which was fled electronically from Mumbai on 31 December 2021 for the assessment year 2021-22.
3. A notice dated 24 June 2022 came to be issued by the Principal Commissioner of Income Tax-19 informing the Petitioner regarding the proposed transfer of assessment jurisdiction from the Deputy Commissioner of Income Tax-19(3) to the Deputy Commissioner of Income Tax Central Circle-3, Jaipur, with a view to enable a proper and co-ordinated assessment along with the assessment in the case of Veto Group, Jaipur on whom search proceedings were conducted under Section 132 of the Act. The show cause notice stated that the Principal Commissioner of Income Tax (Central), Rajasthan vide a communication dated 16 February 2022 had proposed for centralization of the case of the Petitioner with Vito Group at Jaipur and, therefore, the Petitioner was asked to file his submissions in that regard.
4. Section 127 of the Act authorizes inter alia the Principal Chief Commissioner to transfer any case from one or more assessing officers subordinate to him to any other assessing officers also subordinate to him, after recording reasons and after giving to the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so. Section 127(2) further envisages that where the Assessing Officers from whom the case is to be transferred and the Assessing Officers to whom the case is to be transferred are not subordinate to the same officer, then there ought to be an agreement between the Principal Commissioner or other authorities mentioned in the said sub-section exercising jurisdiction over such assessing officers, and an Order can then be passed after recording reasons and providing the assessee a reasonable opportunity of being heard in the matter.
5. Objections to the transfer of jurisdiction were fled by the Petitioner, wherein, it was stated that there was no basis for transfer of the assessment jurisdiction of the Petitioner from DCIT-19(3), Mumbai to the DCIT Central Circle-3, Jaipur as there was no material found during the search operation, which would connect the Petitioner with the Vito Group of Jaipur. It was also stated that no such search was conducted in terms of Section 132 of the Act on the premises of the Petitioner, although, a survey under Section 133A of the Act was conducted in the case of M/s Landmark Hospitality Pvt. Ltd. in Mumbai in which the Petitioner was a Director. It was also stated that during the course of survey proceeding, statement of the Petitioner had been duly recorded and further that there was no incriminating material found during the survey proceeding so conducted, which would connect either the Petitioner or even M/s Landmark Hospitality Pvt. Ltd. with the Vito Group of Jaipur in whose case the search action had been conducted.
It was further urged that the Petitioner had also highlighted the fact that in the show cause notice, no mention had been made as regards there being any material collected by the revenue against the Petitioner, on the basis of which, the transfer of the jurisdiction could be contemplated.
6. Objections raised by the Petitioner came to be decided and rejected by virtue of the Order dated 21 November 2022. The crux of the Order, which is contained in para-3 is reproduced herein below :
“3.Thereafter, your objection was forwarded to the AO where centralization is proposed i.e. DCIT Central Circle-3, Jaipur. The concerned AO has submitted that a search action was carried out in the cases of Veto Group, Jaipur on 22.12.2021. A warrant of authorization was issued in the name of Shri Kamal Galani. It is also worthwhile to mention here that Shri Kamal Galani is one of the Director of M/s Landmark Hospitality Pvt. Ltd. (which is also proposed to be centralized with this office) and key person of the Veto Group. In the above mentioned case along with other entities of the group, survey action was also carried on 22.12.2021 in the case of M/s Landmark Hospitality Pvt. Ltd. During the course of search/survey at various entities of the Group, incriminating documents and data were found and seized/impounded which may relate to the assessee as well other assessees of this group. Further, it is submitted that out of 79 assessees related to the Veto group, 69 assessees have already been centralized with this office.
In view of the above facts, case of the assessee is required to be centralized with this office under the change of the Principal Commissioner of Income tax (Central), Jaipur for coordinated, comprehensive and logical enquiry and investigation in respect of “VETO GROUP” entities.”
7. Learned Counsel for the Petitioner, Mr. Madhur Agrawal, vehemently urged that there was absolutely no basis or material with the Deputy Commissioner of Income Tax-19(3), Mumbai to Order the transfer of the assessment jurisdiction of the Petitioner from DCIT-19(3), Mumbai to DCIT Central Circle-3, Jaipur. It was stated that had there been any material, the same ought to have been reflected in the show cause notice and provided to the Petitioner, which would have then enabled the Petitioner to fle an effective reply. It was, thus, urged that the action of the Respondent-revenue was, therefore, arbitrary. In addition to this, it was stated that according to the records of survey proceeding prepared by the Respondent-revenue, during the survey conducted on M/s Landmark Hospitality Pvt. Ltd, nothing incriminating was found and no inventory prepared.
For the purpose of reference what was recorded in the survey proceeding, is reproduced herein below :
“4.In the course of the Survey.
A) The following were found and inventoried – Nil.”
8. Reply affidavit has been filed by the Respondent-revenue, wherein it is stated that the assessment jurisdiction of the Petitioner was transferred to Rajasthan for an effective investigation and meaningful assessment after fulfilling the applicable procedural and legal requirements as stated under Section 127 of the Act. Reply filed in para 5.3 of the affidavit reads as under :
“……. that a search and seizure u/s 132 of the Income Tax Act was carried out by the Investigation Wing of Jaipur on 22.12.2021 in the Petitioner’s case and other entities of “Veto Group”. During the course of search at various entitles of the Group, incriminating documents and data were found and seized which may have related to the petitioner and other assessees of this group. Once a search u/s 132A of the Income Tax Act, 1961 takes place, then as per the binding instruction of CBDT being instruction number 286/22/2008-IT (Inv.II) dated 17 September 2008, it is mandatory for the investigation authorities who have carried out the search to get all the searched cases and connected to the search to centralize with an assessing officer of a central charge at the earliest. The instruction of the CBDT are binding on the officers of the Income Tax department.”
9. However, from the aforementioned reply, it can be seen that there is no specific averment made that there was anything incriminating found either during the survey proceeding conducted on M/s Landmark Hospitality Pvt. Ltd, of which the Petitioner was a Director, or during the search proceedings conducted on the Vito Group, which would connect either M/s Landmark Hospitality Pvt. Ltd. or the Petitioner to the Vito Group of Jaipur. The survey report and records prepared in regard to the survey proceedings on M/s Landmark Hospitality Pvt. Ltd. does reflect that there was no inventory prepared during the survey proceeding, suggesting that there was nothing incriminating found.
10. As regards the search and seizure action conducted on Vito Group, neither the show cause notice issued on 24 June 2022, nor the reply submitted by the Respondent-revenue reflects or rebuts the contention of the Petitioner that there was no incriminating material found against the Petitioner during the said search proceedings. If there had at all been any material found, the same would have been relied upon by the Respondent-revenue.
On the other hand, from the reply fled by the Respondent-revenue the authorities only seem to be speculating that the incriminating documents and data found and seized/impounded ‘may relate to the assessee as well as other assesses of this group.’
The Principal Commissioner of Income Tax, therefore, did not appear to be in possession of any material at all, based upon which he could draw his satisfaction that the assessment jurisdiction deserved to be transferred from DCIT-19(3), Mumbai to the DCIT Central Circle-3, Jaipur and rather appears to have speculated that only because there was a search/survey conducted and a request made by the concerned Principal Commissioner of Income Tax (Central), Rajasthan, the jurisdiction had to be transferred following the instructions of CBDT dated 17 September 2008. Reference to the instructions dated 17 September 2008 relied upon by the Respondent-revenue is pertinent and in particular clause (d), which is reproduced herein under :
“(d) The ADIT (Inv.) should send proposal for centralization 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. The proposal should contain names of the cases their PANs, the designation of the present assessing offcers and the present CIT charge. The list should also contain the connected cases proposed to be centralized along with reasons thereof including their relationship with the main persons of the group. The assessees not having PAN should also be included along with their addressees and territorial jurisdiction. Against each of the cases, it should be mentioned whether it is covered u/s 132(1) of 132A or 133A(1) or it is a connected case copies of the proposal should also be endorsed to the CCIT concerned from whose jurisdiction the cases are to be transferred and the DGIT(Inv.)/CCIT(C) to whose jurisdiction the cases are being transferred.”
11.The Instructions make it clear that while sending a proposal for centralization, reasons had to be reflected including the relationship of the petitioner with the main persons of the group. No such sustainable reasons are forthcoming from the records except speculation connecting the Petitioner and the subject material and a request from the Principal Commissioner of Income Tax, Jaipur for centralization of the case. In fact the Deputy Commissioner of Income tax-19(3), Mumbai ought to have refused to accede to the request for centralization inasmuch as it had not received any cogent material or reasons, which would have formed a basis for the transfer of the case to the Deputy Commissioner of Income Tax Central Circle-3, Jaipur.
Needless to say that transfer of assessment jurisdiction from Mumbai to Jaipur would certainly cause inconvenience and hardship to the petitioner both in terms of money, time and resources, and therefore, the order impugned in the absence of the requisite material/reasons as the basis would be nothing but an arbitrary exercise of power and therefore liable to be set aside.
12. From a reading of the Order impugned passed under Section 127(2) of the Act, it can be seen that the same does not at all reflect as to why it was necessary to transfer the jurisdiction from DCIT-19(3), Mumbai to DCIT Central Circle-3, Jaipur. None of the issues raised by the Petitioner have been dealt with either in the Order dated 21 November 2022 disposing of the objections raised by the Petitioner much less have the same been reflected in the Order impugned under Section 127(2) of the Act. The assessing officer appears to have acted very mechanically treating the request from DCIT Central Circle-3, Jaipur, as if it was binding upon him. In our opinion, the said request was not at all binding inasmuch as if it was so, then the agreement envisaged under Section 127(1)(a) would be rendered superfluous.
The agreement envisaged in terms of aforesaid section is not in the context of showing deference to a request made by a colleague or higher officer, but an agreement based upon an independent assessment of the request in the light of the reasons recorded seeking transfer of the jurisdiction. Infact, section 127(1) (b) contemplates a situation where in the event of a disagreement, the matter is referred to an officer as the Board may, by notification in the Official Gazette, authorise in that behalf. Not only this, if a request for transfer of jurisdiction was to be treated as binding, then it would have rendered otiose Section 127 to the extent the same envisages an opportunity of being heard to be provided to the Petitioner. The obligation on the part of the assessing officer to record reasons before ordering the transfer of the case and the right of the assessee to be heard in the matter are not hollow slogans but prescribed to achieve a particular purpose and the purpose is to remove any element of arbitrariness while exercising powers under Section 127 of the Act. If the request for transfer of jurisdiction was so sacrosanct as could not be refused, then the opportunity of being heard would be nothing but illusory rendering the request a foregone conclusion regarding its acceptance. We, therefore, are not convinced at all that the moment a request was made by the concerned officer from Jaipur, the same had necessarily to be allowed as per the Instructions dated 17 September 2008.
13. For the reasons mentioned hereinabove, we hold that the Order impugned is unsustainable in law and is, accordingly, set aside. However, the Principal Commissioner, Mumbai shall have liberty to pass orders afresh if the concerned Principal Commissioner or any other officer authorised in that behalf from the Jaipur Jurisdiction communicates to him within four weeks and not beyond, cogent material and reasons justifying a transfer of jurisdiction to Jaipur. The petitioner would be given an opportunity of being heard. Requisite order, if any, be passed, not later than eight weeks from today. Consequently impugned notice dated 21 November 2022 is quashed.
14. The Writ petition is disposed of on the above terms.
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