Non-disclosure of precise material relied on transferring the case from one jurisdiction to other is against principles of natural justice

Brief of the case:

The Hon’ble Himachal Pradesh High Court in the case of Anand Chauhan & others held that not providing assessee with the precise reason for transfer of his case from one jurisdiction to other amounts to violating the principles of natural justice as non-disclosure take away his right of putting forward his objections effectively.

Facts of the case:

• The case of the petitioners had been transferred to DCIT, Central Circle, Chandigarh. The petitioners objected the order passed u/s 127 by CIT, Shimla on the ground that the show cause notice issued to them did not spell out the exact reason which has been taken as basis for ordering such transfer.
• Aggrieved by such order the petitioners approached to Hon’ble Himachal Pradesh High Court.

Contention of Petitioners:

• Petitioners contended that they were not provided with the relevant material which formed the basis of issuance of show-cause notices. The fact of interlinkage of their cases with other 11 Delhi based persons were not disclosed neither in show cause notice nor in personal hearing and the same disclosed only in the order passed u/s 127.
• The non-disclosure of the exact material relied in passing order had caused serious prejudice to them because in the absence of complete information they could not make up their responses.

Contention of Revenue:

• It is not the fundamental right of the assessee to be assessed in one particular jurisdiction. The case of the petitioners were transferred to DCIT Chandigarh for coordinated enquiry.
• Further, the petitioners were also issued show cause notice before passing an order transferring their cases. The material gathered in the course of investigation after issuance of show cause notice was not required to be provided.

Issue before the High Court:

Whether the order passed under section 127 to transfer the cases of petitioners to different jurisdiction was passed adhering to the principles of natural justice?

Held by Hon’ble High Court:

• The case of petitioners vide order u/s 127 dated 14.7.2014 has been passed in order to ensure coordinated investigation and assessment of a number of assessees including 11 other persons who had been assessed at Delhi, whose financial dealings are interlinked with the petitioners.
• However, in the show cause notice issued proposing such transfer the petitioners were served separate notices and in those notices no mention was found of any interlinkage of case of petitioners with 11 other Delhi based persons.
• High Court relied on a no. of decisions of Hon’ble Supreme court , the common theme of all these decisions was that show cause notice is the foundation on which the department has to build up its case, therefore, if the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/ or unintelligible or do not disclose the real material upon which a proposed action to be taken, then it is sufficient to hold that the notice was not given proper opportunity to meet the allegations indicated in the show cause notice.
• Applying the ratio of those judgments to the present case , we found that the petitioners were not provided any information regarding the interlinkage of their cases with other Delhi based persons and consequent transfer for a coordinated enquiry. The same was first known to them only from the order passed u/s 127.
• Therefore, the taking an action without disclosing in show cause notice the material proposed to be utilized is clearly a case of violation of principles of natural justice.
• Therefore, the order passed u/s 127 to transfer case to DCIT(Central) Chandigarh, was passed violating the principles of natural justice and thus, bad in law.
• In result the writ filed by petitioner admitted by the court setting aside the order passed u/s 127.