Case Law Details
Sindhu Shree Charles Vs PCIT (Madras High Court)
In a significant procedural ruling, the Madras High Court has set aside an order issued by the Income Tax Department that sought to transfer a taxpayer’s assessment from Chennai to Kolkata. The Court determined that the assessee, Sindhu Shree Charles, was not afforded a “reasonable opportunity of being heard,” a fundamental requirement under Section 127 of the Income Tax Act, 1961. The judgment emphasizes the judiciary’s commitment to upholding due process even in tax administration.
Background of the Transfer Order
The case originated from a notice dated December 14, 2023, sent to Ms. Sindhu Shree Charles. This notice indicated that incriminating documents had been seized during a search and seizure operation conducted under Section 132 of the Income Tax Act. These documents were alleged to be interconnected and relevant to the petitioner’s assessment. Consequently, the Income Tax Department proposed to centralize the assessment relating to these transactions with the Deputy Commissioner of Income Tax (DCIT), Central Circle-4(4), Kolkata, thus transferring her case from the Income Tax Officer (ITO), Non Corporate Ward-10(1), Chennai.
The petitioner was granted a mere three days to respond to this transfer proposal. On December 15, 2023, Ms. Charles submitted her objections, primarily stating that she had previously resided in Chennai and had since relocated to Coimbatore after marriage. Despite her objections and the short response window, the impugned transfer order was subsequently issued on February 8, 2024, directing the change of her assessing officer to Kolkata.
Petitioner’s Arguments: Denial of Reasonable Opportunity
Learned counsel for Ms. Charles, arguing before the Madras High Court, primarily challenged the transfer order on the grounds that it violated the mandatory provisions of Section 127 of the Income Tax Act, specifically the requirement of providing a “reasonable opportunity of being heard.”
The counsel highlighted several key points to support the claim of inadequate opportunity:
- Insufficient Timeframe: The notice of December 14, 2023, only provided three days for the assessee to respond. The petitioner argued that such a truncated period could not be considered “reasonable” for a taxpayer to adequately formulate and present objections to a significant procedural change like a transfer of assessment.
- Discrepancy in Information: The initial notice proposing the transfer made a general reference to “incriminating documents” and “interconnected transactions” related to a “Lottery Group.” However, it conspicuously omitted any specific details about the petitioner’s alleged “role” in these transactions. In stark contrast, the final transfer order, issued after the petitioner’s brief response, explicitly referred to Ms. Charles as “one of the key persons” in the Lottery Group transactions. The counsel contended that this sudden and uncommunicated elevation of her alleged role in the final order prevented the petitioner from effectively addressing the specific reasons for her assessment’s transfer during the brief window provided.
- Claim of Disconnection: The petitioner’s counsel emphasized that Ms. Charles claimed to be “completely unconnected” to the relevant transactions, save for being the daughter-in-law of one of the directors of the Lottery Group. Furthermore, it was submitted that her income returns for several preceding years were consistently below the taxable limit, questioning the basis for such an intensive transfer to a Central Circle, typically reserved for complex or significant cases.
These arguments collectively painted a picture of a transfer process that, while ostensibly following procedure, failed to provide a genuinely reasonable opportunity for the assessee to understand the specific allegations against her and present a comprehensive defense.
Revenue’s Counter-Arguments
Ms. Premalatha, learned junior standing counsel representing the Income Tax Department, defended the transfer order, citing Section 127 of the Income Tax Act. She argued that the provision only mandates a “reasonable opportunity of being heard… wherever it is possible to do so.” Her contention was that, in this instance, such an opportunity was provided through the December 14, 2023 notice.
The Department’s counsel further pointed to paragraphs 5 and 6 of the impugned transfer order, asserting that these sections contained adequate “several reasons” for transferring and centralizing the assessment due to its interconnected nature with other cases. The underlying premise of the Revenue’s argument was that the exigencies of centralizing complex investigations, especially those arising from search and seizure operations, might necessitate a more expedited process, and that the opportunity provided, however brief, met the statutory requirement.
Judicial Interpretation of Section 127 and ‘Reasonable Opportunity’
The core of the dispute hinged on the interpretation of Section 127 of the Income Tax Act, which governs the power to transfer cases. Both Sub-sections (1) and (2) of Section 127 explicitly state that the Principal Director General, Director General, Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner may transfer a case “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.”
The High Court meticulously analyzed this provision. It noted that the very issuance of the notice dated December 14, 2023, by the Principal Commissioner of Income Tax (PCIT) itself indicated the department’s acknowledgment that it was possible to provide a reasonable opportunity to the assessee before making a decision. This implicitly rejected the Revenue’s argument that providing an opportunity might not always be “possible.”
The Court then moved to the crucial question: whether the opportunity provided was, in fact, “reasonable.” The judgment pointed to the following critical aspects:
- Three-day window: The Court found the three-day period granted for response to be insufficient. A reasonable opportunity necessitates adequate time for the assessee to gather facts, consult legal counsel, and formulate a comprehensive response to the allegations or reasons for transfer.
- Lack of Specificity in Notice: The notice of December 14, 2023, was vague regarding the petitioner’s specific involvement. It broadly mentioned “incriminating documents” and “interconnected transactions” but did not detail the nature of these connections or the petitioner’s alleged “role.”
- New Information in Order: The most damning point for the Revenue was the appearance of new, significant information in the final transfer order that was not communicated in the initial notice. By suddenly identifying the petitioner as “one of the key persons” in the Lottery Group transactions in the impugned order, without having previously informed her of this specific accusation or basis for transfer, the department effectively denied her the chance to address it. A reasonable opportunity implies that the assessee must be fully apprised of the material grounds on which the decision is being taken, enabling a meaningful representation.
The Court held that when these facts and circumstances were considered cumulatively, it became evident that a “reasonable opportunity” as mandated by Section 127 was not extended to Ms. Charles. The principles of natural justice require that an individual be informed of the case against them and given a fair chance to present their side. This entails providing clear reasons and adequate time for response. While the judgment does not explicitly cite other judicial precedents by name, its reasoning is firmly rooted in these well-established principles of administrative law that govern the exercise of statutory powers and ensure fairness in governmental action. The requirement of a “speaking order” (an order that states reasons) and a “fair hearing” are cornerstones of Indian jurisprudence, underpinning the interpretation of “reasonable opportunity” in statutes like Section 127.
Court’s Decision and Remand
Given these findings, the Madras High Court concluded that the impugned transfer order necessitated interference. The Court therefore quashed the transfer order and remanded the matter back to the Income Tax Department for reconsideration.
The judgment outlined the specific steps to be followed for a proper reconsideration:
1. Fresh Reply: The petitioner, Ms. Sindhu Shree Charles, has been granted permission to file a fresh, comprehensive reply to the original notice dated December 14, 2023. This reply must include all her objections and relevant documents.
2. Timeframe for Reply: This fresh reply must be submitted within a maximum period of 15 days from the date of receipt of the High Court’s order.
3. Personal Hearing: Upon receiving the petitioner’s fresh reply, the first respondent (the Principal Commissioner of Income Tax or relevant authority) is directed to issue a fresh order after providing Ms. Charles an opportunity for a personal hearing.
The writ petition was disposed of on these terms, with no order as to costs. The connected miscellaneous petitions were also closed. This ruling serves as a reminder to tax authorities of the imperative to adhere to the procedural safeguards enshrined in the Income Tax Act, ensuring that taxpayers receive a fair hearing before significant administrative actions like transfer of assessments are finalized.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
A transfer order dated 08.02.2024 by which the assessing officer of the petitioner was changed from ITO, Non Corporate Ward-10(1), Chennai to DCIT, Central Circle-4(4), Kolkata is the subject of challenge in this writ petition.
2. A notice dated 14.12.2023 was received by the petitioner stating that a number of incriminating documents were seized pursuant to search and seizure action under Section 132 of the Income Tax Act, 1961 (the Income Tax Act). Since such documents are interconnected and affect the petitioner’s assessment, it was stated that it is proposed to transfer the assessment and centralise assessment relating to the transactions under consideration with the Central Circle, Kolkata. The petitioner was given three days to respond to the notice. By reply dated 15.12.2023, the petitioner objected to the transfer proposal on the ground that she previously lived in Chennai and currently lives in Coimbatore after marriage. The impugned transfer order came to be issued in the said facts and circumstances.
3. Learned counsel for the petitioner referred to Section (2) of Section 127 of the Income Tax Act and contended that the provision envisages a reasonable opportunity being given to the person whose assessment is proposed to be transferred. By pointing out that only three days was given, learned counsel contends that such opportunity was not reasonable. Moreover, learned counsel submits that the notice dated 14.12.2023 did not refer to the role of the petitioner in the transactions of the Lottery Group, whereas the impugned transfer order refers to her as one of the key persons. By relying on the returns of income filed by the petitioner for several years, learned counsel submits that the income returned by the petitioner was below the taxable limit during those years. He also submits that the petitioner is completely unconnected to the relevant transaction except for being the daughter-in-law of one of the directors of Lottery Group.
4. Ms. Premalatha, learned junior standing counsel, accepts notice for the respondents. By referring to Section 127 of the Income Tax Act, learned counsel contends that it is not necessary to provide a reasonable opportunity of being heard unless it is possible to do so. In any event, she submits that such reasonable opportunity was provided under notice dated 14.12.2023. By referring to paragraphs 5 and 6 of the impugned order, she points out that several reasons have been set out therein for transferring the assessment and centralising it with interconnected assessments. Hence, she submits that the writ petition is liable to be rejected.
5. Since the dispute turns on Section 127 of the Income Tax Act, the said provision, in relevant part, is set out below:
“127.Power to transfer cases.—(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.
(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 [Principal Director General or] Director General or [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner,—
(a) where the [Principal Directors General or] Directors General or [Principal Chief Commissioners or] Chief Commissioners or [Principal Commissioners or] Commissioners to whom such Assessing Officers are subordinate are in agreement, then the [Principal Director General or] Director General or [Principal Chief Commissioner or] Chief Commissioner or [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 [Principal Directors General or] Directors General or [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 [Principal Director General or]
Director General or [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner as the Board may, by notification in the Official Gazette, authorise in this behalf.”
Both sub-sections (1) and (2) of Section 127 clearly envisage providing the assessee concerned a reasonable opportunity of being heard in the matter, wherever it is possible to do so. In the case at hand, the notice dated 14.12.2023 evinces that the PCIT was of the view that it is possible to provide a reasonable opportunity to the assessee before taking a decision.
6. This leads to the question as to whether such reasonable opportunity was provided. By notice dated 14.12.2023, only three days was provided to the assessee to respond thereto. The said notice refers to the search and seizure action and the documents seized as a consequence thereof. It also refers to the interconnected nature of the documents. Conspicuous by its absence is any reference to the role of the petitioner in this transaction. By contrast, the impugned order refers to the petitioner as one of the key persons. When these facts and circumstances are considered cumulatively, I am of the view that reasonable opportunity was not provided to the petitioner. For such reason, the impugned order calls for interference.
7. Hence, the impugned order is quashed and the matter is remanded for reconsideration. The petitioner is permitted to file a fresh reply to notice dated 14.12.2023 setting out her objections and enclosing all relevant documents. This shall be done within a maximum period of 15 days from the date of receipt of a copy of this order. Upon receipt thereof, the 1st respondent is directed to issue a fresh order after providing an opportunity of personal hearing to the petitioner.
8. The writ petition is disposed of on the above terms. There will be no order as to costs. Consequently, connected miscellaneous petitions are closed.
Author Bio
