Delhi HC Set Aside non-speaking Income Tax Transfer Orders 

Kamlesh Kumar Jha Vs PCIT (Delhi High Court)

Introduction: The Delhi High Court recently issued a significant judgment in the case of Kamlesh Kumar Jha vs. Principal Commissioner of Income Tax (PCIT). The case revolved around challenging two separate orders issued under Section 127(2) of the Income-tax Act, 1961, related to the transfer of cases. In this article, we delve into the court’s decision and the grounds on which the transfer orders were challenged.

1. Non-Speaking Orders: The petitioner raised two fundamental objections against the impugned orders. First, the orders were non-speaking, meaning they did not provide any reasons for transferring the cases. The absence of specific reasons in the orders left the petitioner without clarity regarding the basis for the transfers. This non-speaking nature of the orders was challenged, emphasizing the necessity for a transparent process.

2. Lack of Document Identification Number (DIN): The second objection raised was related to the absence of a Document Identification Number (DIN) in the orders. The petitioner contended that, without a DIN, the documents were legally invalid. This argument was supported by Circular No. 19/2019 dated 14.08.2019, which emphasized the requirement for DIN in official documents.

3. Background of the Transfer: The transfer of the petitioner’s cases was initiated due to a search conducted on the Suumaya Group in Mumbai. A previous search and seizure operation had been carried out on the petitioner, and the cases were initially handled by DCIT, Circle 43(1), Delhi. However, the cases were proposed to be transferred to DCIT, Central Circle – 4(4), Central Range-4, Mumbai for administrative convenience and coordinated investigation.

4. Lack of Justification in the Orders: The impugned orders did not address the reasons behind the transfer. The PCIT issued the orders without providing any explanation for the decision. The absence of reasoning in the orders was a violation of Section 127(1), which requires that reasons for transfer be recorded.

5. Supreme Court Precedent: Citing the Supreme Court judgment in Ajantha Industries v. Central Board of Direct Taxes (1976) 102 ITR 281, the court emphasized the importance of communicating reasons to the assessee. This communication allows the assessee to challenge the order if it is believed to be arbitrary, based on irrelevant considerations, or mala fide.

Conclusion: The Delhi High Court, in its judgment, emphasized the importance of providing speaking orders with reasons and complying with DIN requirements in official documents. In this case, the court set aside the impugned transfer orders due to the absence of reasons and DIN, leaving the PCIT the liberty to proceed as per the law. The court’s decision underscores the significance of transparency and accountability in administrative actions, particularly in income tax matters.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Allowed, subject to just exceptions.

W.P.(C) 12914/2023 and CM APPL. 50863/2023 [Application filed on behalf of the petitioner seeking interim relief]

W.P.(C) 12917/2023 and CM APPL. 50871/2023 [Application filed on behalf of the petitioner seeking interim relief]

2. Issue notice.

3. Mr Aseem Chawla, learned senior standing counsel, who appears on behalf of the respondent/revenue, accepts notice.

4. Given the directions we propose to pass, Mr Chawla says that he does not wish to file counter-affidavit(s) in the above-mentioned matters, and will argue the matters based on the record presently available with the court. 1 Therefore, with the consent of the learned counsels for the parties, the writ petitions are taken up for hearing and final disposal at this stage itself.

5. These writ petitions seek to challenge two separate orders [in short, “impugned orders”] dated 06.09.2023 passed under Section 127(2) of the Income-tax Act, 1961 [in short, “Act”]

6. Two broad grounds are articulated in the writ petitions in support of the plea that the impugned orders are unsustainable in law:

(i) First, that the impugned orders passed in the matters are non-speaking

(ii) Second, the impugned orders do not bear a Document Identification Number (DIN).

7. It is stated that in the absence of DIN, the document is non est in law. In support of this plea, the petitioner relies on Circular No. 19/2019 dated 14.08.2019.

8. We may note that, before the issuance of notice, the petitioners were served with a letter dated 22.05.2023. The reason indicated in the letter for transferring the case of the petitioners from DCIT, Circle 43(1) Delhi to DCIT, Central Circle – 4(4), Central Range-4 in the charge of PCIT(C)-2, Mumbai [in short “DCIT, Mumbai”] was that a search had been conducted under Section 132 of the Act concerning a group going by the name The search was conducted on the Suumaya Group on 05.07.2022 in Mumbai. Previously, a search and seizure operation was conducted on the petitioners on 16.02.2023 under Sections 132 and 133A of the Act. 8.1. Via the aforesaid letter, it was indicated that the transfer of cases concerning the petitioners to DCIT, Mumbai was proposed for administrative convenience and coordinated investigation carried out qua Suumaya.

9. In response to the said notice, the petitioners filed their replies dated 05.2023, in which, the petitioners cited the following reasons as to why transfer to DCIT, Mumbai was uncalled for:

(i) First, they were residents of Delhi.

(ii) Second, they were directors in two companies going by the name KK Software Pvt. Ltd. and MJ Software Solutions Pvt. Ltd. [hereafter, collectively referred to as “companies”]. These companies were located in The companies traded in computer software and I.T. -related products including CCTV, televisions, and mobile phones. The companies were also authorized partners/distributors of various products such as anti-virus software like EScan, ESat, Quick heal, Nortan, K7, Kasper Sky, Macfee, Adobe, etcetera.

10. In sum, the petitioner sought to portray that the business activity of the companies was being managed from their registered office located in Delhi, and accordingly, the books of accounts were also located in Delhi. To buttress this submission, the petitioners also averred that their tax consultant and authorised representative was based in Delhi; whose services, perhaps, were required to progress its legal interest.

11. It is not in dispute that the aforementioned response, for whatever it was worth, was filed before the concerned officer i.e., PCIT-15, New Delhi. The concerned officer, while passing the impugned order, has not said a word as to what prevailed with her in directing the transfer of the petitioners’ cases to DCIT, Mumbai. This fact is evident upon a bare perusal of the orders. The relevant part of one of the orders is, thus, set forth hereafter:

“ORDER U/S 127(2) OF THE I.T. ACT, 1961

In exercise of powers conferred by sub-section (2) of Section 127 of the Income Tax Act, 1961 (43 of 1961) and all other powers enabling me in this behalf, I, the Principal Commissioner of Income Tax, Delhi-15, New Delhi, hereby transfer the case, the particulars of which are mentioned hereunder in column (2) & (3) from the Assessing Officer mentioned in Column (4) therein, to the Assessing Officer mentioned in Column (5).

2. This is in concurrence with letters bearing email dated 29.08.2023 received from Office of the Pr. CIT(Central)-2, Mumbai. The order shall come into force with immediate effect.”

12. As indicated above, the orders do not bear the DIN as well. Although Mr Aseem Chawla did try to persuade us to sustain the impugned orders, having regard to the fact that coordinated investigation was necessary as Suumaya Group was in Mumbai, we are not inclined to accept the plea as the impugned orders do not even advert to the reasons stated in the letter i.e., search on Suumaya group, administrative convenience, and coordinated investigation.

13. As indicated above, there were several reasons given by the petitioners as to why the transfer ought not to take place. The least the PCIT could have done was to discuss, in the briefest of terms, why these reasons did not prevail with her. It cannot be disputed that Section 127(1) required PCIT to set forth reasons in the order. For convenience, the provision is extracted hereafter:

“127. (1) The Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or 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.”

[Emphasis supplied by us]

14. Furthermore, the Supreme Court in Ajantha Industries v. Central Board of Direct Taxes (1976) 102 ITR 281 (SC) held that reasons available on file [in the instant case, the letter dated 22.05.2023] cannot supplement what is not contained in the order. For convenience, the relevant paragraphs of the judgment are extracted hereafter:

“…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 of section 12 7(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 under  section 12 7(1) is a mandatory direction under the law and noncommunication  thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee.

xxx xxx xxx

We are, therefore, clearly of opinion that non-communication of the reasons in  the order passed under section 12 7(1) is a serious infirmity in the order for which the same is invalid.”

[Emphasis is ours]

15. What compounds the injury is that the impugned orders do not bear a DIN, which is a requirement of the CBDT Circular No. 19/2019 dated 14.08.2019. Thus, for the foregoing reasons, we are inclined to set aside the impugned orders.

15.1 It is directed accordingly.

16. The PCIT would be at liberty to take the next steps in the matter, albeit, as per law. In case the PCIT decides to recommence the process concerning the transfer of the petitioners’ cases, she would do well to deal with apprehensions expressed in that behalf by the petitioners, as mere incantation of the expression “administrative convenience and coordinated investigation”, by itself, conveys nothing.

17. The writ petitions are disposed of in the aforesaid terms.

18. Consequently, the pending applications shall also stand closed.