Bhagyanagar India Ltd. Vs PCIT (Telangana High Court)
The Telangana High Court set aside orders passed under Sections 127 and 263 of the Income Tax Act after finding that the proceedings were conducted in undue haste and without affording the assessee a fair and reasonable opportunity of hearing. The Court noted that although objections had been filed against the proposed transfer of jurisdiction under Section 127, no further hearing was granted and the transfer order was not properly served upon the assessee. It also observed irregularities in the Section 263 proceedings, including the issuance of two show cause notices prescribing different hearing dates, which indicated a hurried approach by the authorities. Significantly, the Court took into account that the proceedings occurred during the peak COVID-19 period, when business operations and movement were severely restricted. Holding that the actions violated principles of natural justice, the Court quashed both orders while granting liberty to the department to initiate fresh proceedings in accordance with law.
Core Issue. Whether orders passed under sections 127 and 263 during the peak COVID-19 period could be sustained when the assessee was not afforded a fair and reasonable opportunity of hearing, resulting in violation of principles of natural justice.
Facts. The assessee-company, engaged in manufacturing copper products, was issued a show cause notice under section 127 on 11.02.2021 proposing transfer of its assessment records from Hyderabad to Chennai based on search proceedings conducted on certain Chennai-based entities. The assessee filed objections on 15.02.2021. Thereafter, no further hearing or progress in the transfer proceedings was communicated to the assessee.
Subsequently, an order under section 127 dated 10.03.2021 was passed transferring jurisdiction. Thereafter, the department initiated revision proceedings under section 263. Significantly, two show-cause notices dated 22.03.2021 were issued under section 263 fixing different hearing dates, namely 26.03.2021 and 06.04.2021. Ultimately, the revision order under section 263 was passed on 29.03.2021, barely 19 days after the transfer order.
The assessee challenged both orders on the ground that they were passed in undue haste during the peak COVID period without granting an effective opportunity of hearing.
High Court Findings. The Court found merit in the assessee’s contention that the proceedings had been rushed through. After filing objections to the section 127 notice, the assessee was not informed of any further hearing or progress, and the transfer order was passed without demonstrating that an effective opportunity of hearing had been granted.
The Court also noted that the record disclosed two separate section 263 show-cause notices issued on the same day prescribing different hearing dates, for which the department offered no satisfactory explanation. This strengthened the assessee’s allegation that the proceedings were conducted hurriedly.
The Court further emphasized that both proceedings were initiated and concluded during the peak COVID-19 period, when movement restrictions, lockdowns and disruption of business operations were prevalent. In such circumstances, the department was not justified in proceeding with such haste.
Held. The High Court held that both the section 127 transfer order dated 10.03.2021 and the section 263 revision order dated 29.03.2021 were passed in violation of principles of natural justice and without affording a fair and reasonable opportunity of hearing. Accordingly, both orders were set aside with liberty to the department to initiate fresh proceedings in accordance with law.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
Heard Mr. Dundu Manmohan, learned counsel for the petitioner; and Ms. B. Sapna Reddy, learned Senior Standing Counsel for Income Tax Department appearing on behalf of the respondents.
2. The instant writ petition under Article 226 of the Constitution of India has been filed by the petitioner assailing the action on the part of the respondents in transferring the petitioner’s file from the jurisdiction of respondent No.2 to the jurisdiction of respondent Nos.5 and 6. The petitioner is also aggrieved of the consequential order passed under Section 263 of the Income Tax Act, 1961 (for short the ‘Act’) for the assessment year 2016-17, dated 29.03.2021, which again according to the petitioner is an order which has been passed hurriedly without there being sufficient proceedings and undue haste shown by the respondents in concluding the proceedings detrimental to the interest of the petitioner.
3. The facts of the case in nutshell are that the petitioner is a company dealing with manufacture of various copper products. The income tax returns of the petitioner are submitted at Hyderabad under PAN AAACB8963C. The petitioner was served with a show cause notice on 11.02.2021 calling upon the petitioner’s objections to Section 127 proceedings initiated under the Act, proposing the transfer of petitioner’s file from the jurisdiction of respondent No.2 to the jurisdiction of respondent Nos.5 and 6 as per the proposal initiated by respondent No.4. In the show cause notice, it was reflected that, in a search and seizure proceedings under Section 132 of the Act initiated against M/s. Jain Metal Rolling Mills & M/s. Jain FGL Metal Industries and its groups at Chennai on 25.02.2020 it was alleged that certain incriminating materials were seized referring to certain purchase transactions undertaken by the petitioner with the aforesaid two companies located at Chennai. Based upon the same, the respondent No.4 has proposed to transfer the assessment proceedings of the petitioner from Hyderabad to Chennai.
4. The contention of the learned counsel for the petitioner was that the order of transfer under Section 127 of the Act, in fact, has not been served upon the petitioner and the same has been decided without a fair and reasonable opportunity of hearing being extended to the petitioner.
5. It was also the contention of the learned counsel for the petitioner that to the show cause notice dated 11.02.2021 the petitioner has submitted his objections on 15.02.2021, however thereafter there has been no further progress intimated to the petitioner as regards the further developments on the transfer proceedings and also so far as the further hearings on transfer proceedings. According to the learned counsel for the petitioner, abruptly the petitioner received an order passed under Section 263 of the Act dated 29.03.2021, through which the petitioner understood the respondents to have passed an order under Section 127 of the Act in between and only thereafter having passed the order under Section 263 of the Act.
6. Learned counsel for the petitioner has assailed these orders as has been discussed earlier on the ground of not having got a fair and reasonable opportunity to defend himself, both in the proceedings under Section 127 of the Act, as also under Section 263 of the Act. So far as the Section 127 proceedings are concerned, the learned counsel for the petitioner contended that after having received the show cause notice on 11.02.2021 and having filed the objections on 15.02.2021 there has been no further progress whatsoever, nor was the petitioner ever intimated about the progress made under Section 127 proceedings and so far as the order under Section 127 transferring the petitioner’s file from Hyderabad to Chennai also was not served upon the petitioner. Nor was the petitioner ever issued with a notice for hearing, to be granted, before an order under Section 127 is passed. Thus, according to the learned counsel for the petitioner it can be safely concluded of the Section 127 proceedings being in violation of the condition stipulated under Section 127 of the Act and also being in violation of the principles of natural justice. Likewise, the learned counsel for the petitioner so far as assailing the order under Section 263 of the Act dated 29.03.2021 has taken the same ground of being deprived a fair and reasonable opportunity to defend and an opportunity of personal hearing being granted before the order was passed under Section 263 of the Act.
7. It was also the contention of the learned counsel for the petitioner that they have come to know about the order under Section 127 being passed on 10.03.2021, and if that be so, Section 263 proceedings have been finalized in a span of just around 19 days which by itself would go to show that there was some undue haste shown on the part of the respondents in concluding the proceedings under Section 263 or at least after the orders under Section 127 having been passed, the proceedings under Section 263 has been hurriedly concluded and decided.
8. As regards the similar proceedings having been drawn in respect of the other assessment years pertaining to the same assessee, the learned counsel for the petitioner contended that the Department subsequently on its own had transferred it back to Hyderabad jurisdiction and as a consequence the similar writ petition that the petitioner had filed i.e. Writ Petition No.9947 of 2021, was withdrawn on 09.11.2023, and the petitioner was hopeful of similar orders to be passed by the authorities for the present year also, but it did not happen.
9. Per contra, the learned Senior Standing Counsel for Income Tax Department contended that so far as the objection under Section 127 raised by the petitioner is concerned, those are not pre-conditions which needs to be adhered to in the course of the authorities passing an order under Section 127 of the Act. The mere necessity is of granting a reasonable opportunity to the petitioner of being heard before a formal order under Section 127 is passed, and the other requirement is that while passing the order the authority concerned has to record reasons for doing so. Other than these two there is no further requirement which has to be mandatorily followed.
10. Referring to the proceedings, more particularly the order dated 10.03.2021, and also referring to the affidavit attached to the writ petition, the learned Senior Standing Counsel highlighted the fact that the petitioner was in fact given an opportunity to file his objections to the proceedings under Section 127. The petitioner having got issued with a show cause notice, to which he has also responded by filing an objection, completes the requirement under Section 127 of the Act and the order dated 10.03.2021 also gives the reasons for why the matter had to be transferred from Hyderabad to Chennai. Thus, there is no illegality or perversity on the part of the respondents in passing the order under Section 127 of the Act.
11. As regards the order under Section 263 of the Act is concerned, the learned Senior Standing Counsel for Income Tax Department was of the view that the writ petition is not maintainable on account of an alternative remedy available under the Income Tax Act. According to the learned Senior Standing Counsel for Income Tax Department given the fact that there was a statutory alternative remedy available, the petitioner ought to have availed the said statutory remedy rather than availing the writ remedy. According to the learned Senior Standing Counsel for Income Tax Department the writ remedy can be availed only when there is no other remedy available under any of the statutory provisions.
12. Learned Senior Standing Counsel for Income Tax Department referred to a decision of this very Bench in the case of Shreeji Foods (P.) Ltd. vs. Union of India’ and another decision of this Court in the case of Akshara Enterprises (P.) Ltd. vs. Principal Commissioner of Income-tax2.
13. Having heard the contentions put forth on either side and on perusal of records, it would be relevant at this juncture to take note of the list of dates involved in the writ petition. They are:-
1) Show cause notice in the Section 127 proceedings was issued on 11.02 .2021.
2) Objections to the show cause notice were submitted by the petitioner on 15.02.2021.
3) Show cause notice under Section 263 proposing to revise the order dated 26.12.2018 was issued through the ITBA on 22.03.2021, fixing the matter on 06.04.2021 at 11:00 A.M.
4) There was yet another show cause notice issued on the same day i.e. on 22.03.2021, fixing the date of hearing on 26.03.2021, and the order under Section 263 was finally passed on 29.03.2021.
14. No plausible explanation is available as to why there were two show cause notices issued, one giving the date of hearing as 06.04.2021, whereas the other giving the date of hearing as 26.03.2021. This is where the Bench finds force in the contention of the petitioner that the respondents have proceeded in a hasty and hurriedly manner.
15. Be that as it may, there is yet another aspect which needs to be seriously considered i.e. the aforesaid two proceedings under Section 127 as also under Section 263 have been initiated during the peak COVID period, when the entire business operations across the country was at a standstill position or was working with the bare minimum workforce and that too, most of these operations were being carried out adopting the work from home policy. In the given circumstances, when there was a forceful restriction of movement across the country, it does not appear to be justified on the part of the respondents to have initiated the proceedings and thereafter proceed in a hasty and hurriedly manner in concluding both the proceedings.
16. In the past also this Bench has, in a series of cases, where orders have been passed during the peak COVID period held it to be bad considering the ground reality of the forceful restrictions under the compelling pandemic situation prevailing in the country. The present case also does not seem to be in any manner an exception to the same. Thus, in the given circumstances it is difficult for this Bench to accept the order under Section 127 of the Act dated 10.03.2021, and also the subsequent order under Section 263 of the Act dated 29.03.2021, revising the earlier order dated 26.12.2018 to be proper, legal and justified. Moreover, the same apparently are passed without affording a fair and reasonable opportunity of defence amounting to violation of principles of natural justice.
17. Therefore, for all the aforesaid reasons the instant writ petition stands allowed. The impugned order dated 10.03.2021 passed under Section 127 of the Act, as also the impugned order dated 29.03.2021 passed under Section 263 of the Act, deserve to be and are accordingly set aside leaving it open for the respondents, if they want so, to initiate fresh proceedings in accordance with law.
18. As a sequel, miscellaneous petitions pending if any, shall stand closed. However, there shall be no order as to costs.
Notes:
1 2025 176 taxmann.com 484 (Tel)
2 2024 158 taxmann.com 579 (Tel)
