Case Law Details
Law laid down in the case of Ajantha Industries (supra), is still the law of the land and has not been overruled by any competent bench of the Supreme Court whereas a co-ordinate Division Bench has taken a contrary view, judicial decorum demands that we should refer the matter to a larger bench for deciding the question which we formulate below:
“Whether the decision of the three-judge-bench of the Supreme Court in the case of Ajantha Industries reported in [1976] 102 ITR 281 so far as it lays down the law that the requirement of recording reasons under section 127(1) of the Income tax Act is a mandatory direction under the law and non-communication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee is still a good law in view of the subsequent decisions of the Supreme Court in the cases of Managing Director, ECIL v. B. Karunakar, AIR 1994 SC 1074, and State Bank of Patiala v. S. K. Sharma, AIR 1996 SC 1669 as held by a Division Bench of this court in the case of Arti Ship Breaking vs. Director of Income Tax (Investigation) and others reported in (2000) 244 ITR 333.”
HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION No. 18243 of 2011 To 18251 of 2011
MILLENNIUM HOUSEWARE
Versus
COMMISSIONER OF INCOME-TAX
Date : 12/03/2012
JUDGMENT
By these Special Civil Applications, the writ-petitioners have challenged the order dated July 29, 2011 passed by the Commissioner of Income Tax, Valsad transferring the cases of the petitioners in exercise of power conferred under sub-section (2) of Section 127 of the Income Tax Act, 1961.
2. The facts giving rise to filing of these applications may be summed up thus:-
The petitioner is a firm of which the partners are citizens of India and an assessee under the Income tax Act, 1961 (Act).
On July 11, 2011, the respondent No.1 issued a notice upon the petitioners proposing to centralize the petitioners’ case from Vapi to Surat “to facilitate coordinated and effective investigation” under Section 127(2) of the Act and asked the petitioners to either remain present or to furnish a reply in writing as to any objection to the said act of centralization.
On July 25, 2011, the petitioners filed reply to the said notice thereby objecting to the proposal of centralization and transfer of the petitioners’ case to Surat.
On July 29, 2011, the respondent No.1 passed the order, which is the subject matter of these writ-applications under Section 127(2) of the Act by transferring the case to the respondent No.2 without giving any further opportunity of being heard. Further, it does not reflect from the said order that any of the written objections given by the petitioners was considered.
On August 8, 2011, the petitioners again raised objection before the respondent No.1 against the centralization and transfer of the cases alleging that the same was highly unjustified and contrary to the principles of natural justice inasmuch as before passing such order appropriate opportunity of being heard was not given. The petitioners have thus come up with the present applications.
3. The above Special Civil Applications are contested by the respondent No.1 by filing affidavit-in-reply and the objections taken in such affidavit may be summarized thus:
The petitioners have not disclosed how the constitutional right guaranteed under Articles 14 or 19(1) (g) of the Constitution of India have been violated and on that ground alone, the applications are liable to be dismissed.
The procedure envisaged under Section 127 of the Act having been complied with, this Court should not entertain the applications filed by the petitioners.
There was a search at the premises of the petitioners. In the case of search, all related cases are required to be centralized for effective and coordinated investigation. For the above reason, the Director General of Income Tax (Investigation), Ahmedabad directed the Commissioner of Income Tax (Central)-1, Ahmedabad to ensure centralization of the group cases. The CIT (Central)-1, Ahmedabad addressed a letter to the respondent No.1 recording the DGIT (Inv), Ahmedabad’s approval for centralization of the Cello group with DCIT, Central Circle-4, Surat.
In respect of all the nine cases, the warrant of authorization under Section 132 of the Act have been issued. In view of the above reference letter, a show cause notice dated July 11, 2011 was issued to the petitioners proposing to centralize the petitioners’ case from Vapi to Surat.
The petitioners filed objections and for effective and coordinated investigation in the search cases of the same group, the order impugned in the applications was passed. The said order was passed after considering the objections raised by the petitioners and also in compliance of the directions and instructions indicated above.
The principles of natural justice have been complied with and the impugned order was required to be passed in compliance with the directions/suggestions issued by the DGIT (Inv), Ahmedabad, CIT (Central)-1, Ahmedabad and Chief Commissioner of Income Tax, Surat for administrative convenience related to assessment in cases involving search assessment.
4. An affidavit-in-rejoinder was given by the petitioners thereby reiterating the stance of the writ-petitioners in the original applications and contending that centralization might be required to be done for effective investigation when cases of one group is scattered at different places before different Assessing Officers and where the same might have to be consolidated by transferring cases from one or more officers handling the group matters to another officer handling the other matters. However, in the present case, even that principle cannot apply because the cases are sought to be transferred at Surat where there is not even a single concern of the petitioner group, which is located, much less pending. The petitioners being regularly assessed at Vapi ever since inception at Nani Daman and other concerns of the group are assessed either at Vapi or at Mumbai. In fact, when other concerns of the group were searched in 1989 and in 1998, all the group-cases were centralized in Mumbai. Therefore, there is no valid ground for the respondent No.1 to transfer the cases at Surat for centralization of assessment of search cases involving the petitioners.
5. Mr Soparkar, the learned Senior Advocate appearing on behalf of the petitioners, has at the very outset by relying upon the decision of the Supreme Court in the case of Ajanta Industries vs. Central Board of Direct Taxes reported in (1976) 102 ITR 281 (SC) vehemently contended before us that in the absence of any reason assigned in the order impugned for transfer of the matters, the order should be quashed on that ground alone. Mr Soparkar contends that the reason now sought to be assigned in the affidavit was not given in the order impugned and on that ground the order impugned is liable to be set aside. According to Mr Soparkar, the illegality committed while passing the order impugned cannot be cured by supplying reason and that too, without affording any opportunity of hearing to his client. Mr Soparkar further contends that after his client gave written objection to the proposed transfer, it was the duty of the respondent No.1 to fix a date for personal hearing so that the petitioners could be heard on the aforesaid question. Mr Soparkar further contends that non-disclosure of any reason in the order impugned itself reflects non-application of mind of respondent No.1 in transfer of the matters. Mr Soparkar, therefore, prays for setting aside the order of transfer.
6. Mr Bhatt, the learned Senior Advocate appearing on behalf of the Revenue has, on the other hand, opposed the aforesaid contentions of Mr Soparkar and has by strongly relying upon a Division Bench decision of this Court in the case of Arti Ship Breaking vs. Director of Income Tax (Investigation) and others reported in (2000) 244 ITR 333 contended that mere non-assignment of reason in the order of transfer cannot invalidate the order if the reason for transfer is subsequently communicated. Mr Bhatt contends that in the case before us once in the affidavit filed by respondent No.1 the reason for transfer is disclosed, the requirement of Section 127 of the Act is fully complied with and the petitioners cannot take advantage of the order of the Supreme Court in the case of Ajanta Industries (supra). Mr Bhatt contends that the said decision in the case of Ajanta Industries (supra) has been explained by the above Division Bench of this Court thereby holding that mere non-disclosure of reason cannot lead to a conclusion that the order was illegal. In support of his contention, Mr Bhatt also relied upon the following decisions :-
(i) General Exporters vs. CIT reported in (2000) 241 ITR 845 (MAD)
(ii) Rathi And Co. vs. Union of India reported in (2004) 267 ITR 295 (GAUHATI);
(iii) Trimurti Fragrances P. Ltd. vs. CIT reported in (2006) 283 ITR 547 (ALL);
(iv) Sidh Gopal Gajanand vs. Income-tax Officer reported in (1969) 73 ITR 226 (ALL).
Mr Bhatt further submits that in view of the fact that there was search in the office of the petitioners, his client rightly decided to centralize the investigation by transferring the matters to Surat and thus, there is no justification of interference with the aforesaid decision in these writ-applications. Mr Bhatt, therefore, prays for dismissal of the applications.
7. Therefore, the only question that falls for determination in these applications is whether the respondent No.1 was justified in transferring the matters to Surat.
8. After hearing the learned counsel for the parties and after going through the materials on record, we find that in the order issuing transfer no reason has been assigned as to why the case should be transferred to Surat where admittedly no unit of the petitioners group is functioning.
9. Therefore, the first point that arises for determination is that in the order of transfer no reason having been given whether such non-disclosure of reason itself vitiates the order or whether such defect can be cured by giving subsequent reason in these proceedings through affidavit-in-reply.
10. We find that the above point came up for consideration before a three-judge-bench of the Supreme Court in the case of Ajantha Industries vs. Central Board of Direct Taxes (supra), where the Apex Court made following observations by answering the question in negative:
“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 127(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.
Mr. Sharma drew our attention to a decision of the Delhi High Court in Sunanda Rani Jain v. Union of India (1), where the learned single judge has taken a contrary view. For the reasons, which we have given above, we have to hold that the said decision is not correct.
The appellant drew our attention to a decision of this court in Shri Pragdas Umer Vaishya v. Union of India (2), where rule 55 of the Mineral Concession Rules, 1960, providing for exercise of revisional power by the Central Government was noticed. It was held that under rule 55 the Central Government in disposing of the revision application must record its reasons and communicate these reasons to the parties affected thereby. It was further held that the reasons could not be gathered from the notings in the files of the Central Government. Recording of reasons and disclosure thereof is not a mere formality.
Mr. Sharma drew our attention to a decision of this court in Kashiram Aggarwalla v. Union of India (3). It is submitted that this court took the view that orders under section 127(1) are held in that decision to be “purely administrative in nature” passed for consideration of convenience and no possible prejudice could be involved in the transfer. It was also held therein that under the proviso to section 127(1) it was not necessary to give the appellant an opportunity to be heard and there was consequently no need to record reasons for the transfer. This decision is not of any assistance to the revenue in the present case since that was a transfer from one Income-tax Officer to another Income-tax Officer in the same city, or, as stated in the judgment itself, “in the same locality ” and the proviso to section 127(1), therefore, applied.
When law requires reasons to be recorded in a particular order affecting prejudicially the interests of any person, who can challenge the order in court, it ceases to be a mere administrative order and the vice of violation of the principles of natural justice on account of omission to communicate the reasons is not expiated.
Mr. Sharma also drew our attention to a decision of this court in S. Narayanappa v. Commissioner of Income-tax (4), where this court was dealing with section 34 of the old Act. It is clear that there is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under section 34 must
also be communicated to the assessee. The Income-tax Officer need not communicate to the assessee the reasons which led him to initiate the proceedings under section 34. The case under section 34 is clearly distinguishable from that of a transfer order under section 127(1) of the Act.
(1) [1975] 99 ITR 391 (Delhi).
(2) [1967] 12 MPLJ 868.
(3) [1965] 56 ITR 14 (SC)
(4) [1967] 63 ITR 219 (SC).
When an order under section 34 is made the aggrieved assessee can agitate the matter in appeal against the assessment order, but an assessee against whom an order of transfer is made has no such remedy under the Act to question the order of transfer. Besides, the aggrieved assessee on receipt of the notice under section 34 may even satisfy the Income-tax Officer that there were no reasons for reopening the assessment. Such an opportunity is not available to an assessee under section 127(1) of the Act. The above decision is, therefore, clearly distinguishable.
We are, therefore, clearly of opinion that non-communication of the reasons in the order passed under section 127(1) is a serious infirmity in the order for which the same is invalid. The judgment of the High Court is set aside. The appeal is allowed and the orders of transfer are quashed. No costs.”
11. We find that a Division Bench of this court in the case of Arti Ship Breaking vs. Director of Income Tax (Investigation) and others reported in (2000) 244 ITR 333 considered the similar question as to whether non-discloser of reason in the order of transfer vitiates the order and in spite of referring the above decision of the Supreme Court decided to ignore such vital defect. The following observations of the Division Bench are quoted below:
“The last submission which has been made by learned advocate, Shri Puj, is with regard to transfer of the cases from Bhavnagar to Rajkot. It has been submitted by him that in pursuance of the search which had been carried out, the cases of the firm and its partners have been transferred to Rajkot. It has been submitted by him that as per the provisions of section 127(2) of the Act, before transferring the cases from Bhavnagar to Rajkot, the transferring authority ought to have recorded the reasons and communicated the same to the concerned assessee. The submission of Mr.Puj is that the reasons were neither recorded nor communicated and the objections filed by the petitioner in reply to the show-cause notice were not considered by the transferring authority. It has been submitted by him that as observed by the Supreme Court in the case of Ajantha Industries v. CBDT [1976] 102 ITR 281, the reasons should not only be recorded but they should also be communicated to the assessee. It has been submitted by the learned advocate appearing for the petitioner that the order of transfer was never communicated to the petitioner before filing this petition but the petitioner-assessee was informed only when a copy of the said order was received by the petitioner by way of an annexure to one of the affidavits filed in the present proceedings. Moreover, it has been submitted that the reasons are not recorded in the order.
We have gone through the record and we have also perused the reasons which have been given by the concerned authority for transferring the case of the petitioner under section 127 of the Act. It is clear that the case of the petitioner has been transferred from Bhavnagar to Rajkot for administrative reasons. It has been submitted by the learned advocate, Shri Naik, and it has been stated in the affidavit filed by the Deputy Commissioner of Income-tax (Central Circle-I), Rajkot, that after completion of the work with regard to the search, the work pertaining to assessment was handed over to the office of the Commissioner of Income-tax (Central Circle-I). In the instant case, the search was carried out at Bhavnagar and as there is no office of the Commissioner of Income-tax (Central Circle-I),at Bhavnagar, for administrative reasons, it was thought proper by the transferring authority to transfer the case of the petitioner-assessee from Bhavnagar to the office of the Deputy Commissioner of Income-tax (Central Circle-I), Rajkot. The said administrative reason appears to be just and reasonable. Looking to the said administrative reason which has been also incorporated in the reasons recorded by the concerned Commissioner, we do not think that this court should interfere with the said decision with regard to the transfer. It is true that the order with regard to the transfer and the reason for which the case was transferred from Bhavnagar to Rajkot were not communicated to the petitioner before the petition was filed, but, looking to the affidavit in reply filed by the respondent concerned and the submissions made by the learned advocate, Shri Naik, it is clear that the reasons were recorded by the concerned authority on the file. The said reasons have already been communicated to the petitioner in the present proceedings. In the circumstances, it cannot be said that the order with regard to the transfer of the case from Bhavnagar to Rajkot is without any application of mind. It is also true that the petitioner had raised certain objections with regard to the transfer when, by a show-cause notice, the petitioner was called upon to show cause as to why its case should not be transferred to Rajkot. It appears, that the said objections were considered but for administrative exigencies, ultimately the impugned order with regard to transfer was passed under the provisions of section 127 of the Act. Thus, it cannot be said that the objections filed by the petitioner were not considered by the concerned authority before passing the impugned order with regard to the transfer of the petitioner’s case from Bhavnagar to Rajkot.
The learned advocate, Shri Naik, appearing for the respondent authorities, has cited the judgment delivered in the case of Managing Director, ECIL v. B. Karunakar, AIR 1994 SC 1074, and in the case of State Bank of Patiala v. S. K. Sharma, AIR 1996 SC 1669. The said judgments pronounced by the Supreme Court, which are later in point of time, than the one relied upon by Shri Puj, lay down the law to the effect that at times non-communication of a report or reasons recorded by the authority would not vitiate the entire enquiry or the proceedings especially when even after furnishing the report or reasons to the concerned person no different consequences would have followed. Even in the instant case, after considering the objections filed by the petitioner, when the authority had recorded the reasons and had decided to transfer the case of the petitioner and its partners from Bhavnagar to Rajkot, in our opinion, it would not make any difference whether the said reasons were communicated at an earlier point of time or not. Of course, now the reasons have already been communicated and upon perusal of the said reasons, we are satisfied that the said reasons are just and proper and the decision with regard to the transfer is in the interest of administration. Simply because the said reasons are not incorporated in the impugned order, the reasons would not become non-est. Looking to the ratio of the judgments cited by Shri Naik, we do not find any illegality in the order whereby the proceedings have been transferred to the office of the Deputy Commissioner of Income-tax (Central Circle), Rajkot. Looking to the facts of the case and the reasons recorded hereinabove, we do not think that in this writ petition, at this stage, this court should interfere especially when, as a result of the search, some material has already been found by the authorities. Moreover, even after the assessment is framed, it would be open to the petitioner to challenge the order of assessment by filing an appeal as per the provisions of the Act. The petition, therefore, stands disposed of as rejected with no order as to costs.”
12. It appears from the above reasons recorded by the Division Bench for not following the decision of the Supreme Court in the case of Ajantha Industries was that their lordships were of the opinion that in view of the subsequent decisions of the Supreme Court in the cases of Managing Director, ECIL v. B. Karunakar, AIR 1994 SC 1074, and State Bank of Patiala v. S. K. Sharma, AIR 1996 SC 1669, the principles laid down in the case of Ajantha Industries (supra) is no longer a good law. According to their lordships in the above two later decisions it was held that at times non-communication of a report or reasons recorded by the authority would not vitiate the entire enquiry or the proceedings especially when even after furnishing the report or reasons to the concerned person no different consequences would have followed.
13. We have gone through those two decisions minutely.
14. In the case of Managing Director, ECIL v. B. Karunakar (supra), it was held that although on account of the 42nd Amendment of the Constitution, it was no longer necessary to issue a notice to the delinquent employee to show cause against the punishment proposed and, therefore, to furnish a copy of the Inquiry Officer’s report along with the notice to make representation against the penalty, whenever the Inquiry Officer is other than the disciplinary authority and the report of the Inquiry Officer holds the employee guilty of all or any of the charges with proposal for any punishment or not, the delinquent employee is entitled to a copy of the report to enable him to make a representation to the disciplinary authority against it and the non-furnishing of the report amounts to a violation of the rules of natural justice. According to the said decision, this was the law laid down in Mohd. Ramzan Khan’s case AIR 1991 SC 471 and it is appropriate that the said law should apply to employees in all establishments whether Government or non-Government, public or private. According to the said decision, this will be the case whether there are rules governing the disciplinary proceeding or not and whether those expressly prohibit the furnishing of the copy of the report or are silent on the subject. Whatever the nature of punishment, further, whenever the rules require an inquiry to be held, the Supreme court proceeded, for inflicting the punishment in question, the delinquent employee should have the benefit of the report of the Inquiry Officer before the disciplinary authority records its findings on the charges levelled against him.
15. In the case of State Bank of Patiala v. S. K. Sharma (supra), a two-judge-bench of the Supreme Court was dealing with a case where in a disciplinary enquiry against a bank officer for temporary misappropriation, the enquiry officer failed to furnish the copies of the statements of two witnesses. However, the delinquent was permitted to peruse them and take notes there from more than three days prior to their examination. Of the two witnesses, one witness was examined and the delinquent had not raised any objection during the enquiry that the non-furnishing of the copies of the statements was disabling him or has disabled him, as the case may be, from effectively cross-examining the witnesses or to defend himself. In such a case it was held that no prejudice was resulted to the delinquent on account of not furnishing him the copies of the statements of witnesses. On account of the said violation of Rule, according to the said decision, it could not be said that the delinquent did not have a fair hearing or that the disciplinary enquiry against him was not a fair enquiry.
16. In the above context, it was further held that it was possible to say that there had been a substantial compliance with the sub-cl. (iii) of Regn. 68(x) (b), in the facts and circumstances of the case, though not a full compliance. According to the said decision, this, in turn, raised the question whether each and every violation of rules or regulations governing the enquiry automatically vitiates the enquiry and the punishment awarded or whether the test of substantial compliance should be invoked in cases of such violation and whether the issue has to be examined from the point of view of prejudice. It was further pointed out that as far as the position obtaining under the Code of Civil Procedure and Code of Criminal procedure is concerned, there are specific provisions there under providing for such situation. There is Section 99 of the Code of Civil Procedure and Chapter 35 of the Code of Criminal Procedure. Section 99, C. P. C. says, “no decree shall be reversed or substantially varied nor shall any case be remanded in appeal on account of any misjoinder or non-joinder of parties or causes of action or any error, defect or irregularity in any proceedings in the suit, not affecting the merits of the case or the jurisdiction of Court.” Section 465(1) of the Criminal Procedure Code, which occurs in Chapter 35 similarly provides that “subject to the provisions hereinbefore contained, no finding, sentence or order passed by a Court of competent jurisdiction shall be reversed or altered by a Court of appeal, confirmation or revision on account of any error, omission or irregularity in the complaint, summons, warrant, proclamation, order, judgment or other proceedings before or during trial or in any enquiry or other proceeding under this Code or any error or irregularity in any sanction for the prosecution unless in the opinion of that Court a failure of justice has in fact been occasioned thereby.” The Supreme Court further pointed out that it was not shown to the Court that the State Bank of Patiala (Officers’) Service Regulation contains provision corresponding to Section 99, C. P. C. or Section 465, Cr. P. C. According to the said decision, the test in such cases should be one of prejudice but this statement is subject to a rider. The regulations may contain certain substantive provisions, e.g., who is the authority competent to impose a particular punishment on a particular employee/officer. Such provisions must be strictly complied with. However, there may be any number of procedural provisions which stand on a different footing. Even among procedural provisions, there may be some provisions, which are of a fundamental nature in the case of which the theory of substantial compliance may not be applicable.
17. We find that in those two decisions, the question related to irregularities in course of disciplinary proceedings, which has nothing to do with the statutory provision contained in Section 127 of the Act conferring power of transfer. In none of those decisions, the court had any occasion to consider the said statutory provision as well as the specific view taken by a three-judge-bench in the case of Ajantha Industries (supra) on the above point. Thus, with great respect to the learned judges, we are unable to subscribe to the view that the decision of Ajantha Industries (supra), has lost its force in view of those two subsequent decisions.
18. Since we propose to hold that the law laid down in the case of Ajantha Industries (supra), is still the law of the land and has not been overruled by any competent bench of the Supreme Court whereas a co-ordinate Division Bench has taken a contrary view, judicial decorum demands that we should refer the matter to a larger bench for deciding the question which we formulate below:
“Whether the decision of the three-judge-bench of the Supreme Court in the case of Ajantha Industries reported in [1976] 102 ITR 281 so far as it lays down the law that the requirement of recording reasons under section 127(1) of the Income tax Act is a mandatory direction under the law and non-communication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee is still a good law in view of the subsequent decisions of the Supreme Court in the cases of Managing Director, ECIL v. B. Karunakar, AIR 1994 SC 1074, and State Bank of Patiala v. S. K. Sharma, AIR 1996 SC 1669 as held by a Division Bench of this court in the case of Arti Ship Breaking vs. Director of Income Tax (Investigation) and others reported in (2000) 244 ITR 333.”
Registry is directed to place the matter before the Acting Chief Justice for passing appropriate order in terms of this reference.
