Deep Malhotra And Others v. The Chief Commissioner Of Income Tax And Others

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. CWP No. 17197 of 2008 Date of Decision 4 .8.2009 Deep Malhotra and others ... Petitioners Versus The Chief commissioner of Income Tax and others ... Respondents. CORAM:HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE JASWANT SINGH Present:Mr. J.S. Bhatia ,Advocate for the petitioner Ms. Savita Saxena, Standing counsel for CIT. 1. Whether Reporters of local papers may be allowed to see the judgement? Yes 2. To be referred to the Reporter or not ? Yes 3. Whether the judgement should be reported in the Digest ? Yes M.M.KUMAR, J. The petitioners have approached this Court with a prayer forquashing order dated 13.6.2008 (P.4) passed by the Commissioner ofIncome Tax, Bhatinda- respondent no. 5. The Commissioner exercising hispowers under Section 127(2) of the Income Tax Act, 1961 (for brevity 'theAct') has transferred the jurisdiction of some of the cases to the Assistant Commissioner/ Deputy Commissioner of Income Tax, Central 7, NewDelhi. Brief facts of the case are that the petitioners are wine contractors and have a joint venture of business. The business ofwine/liquor is not static and keeps on changing depending on the winecontracts, which they are able to secure in the open auction in the State ofPunjab. The petitioners have following PAN numbers namely:Deep Malhotra – AIGPM 919/C Gautam Malhotra – AAACO 1525 A. The petitioners have residential house at old Cantt. Road,Faridkot and they have also two shops one in Nehru shopping Centre andthe other in the Municipal Market, near Jubilee Cinema at Faridkot. Petitioner no. 3 namely M/s Oasis Resorts Pvt. Ltd. has its headoffice at Faridkot and branch offices at Ludhiana and New Delhi. It has alsoincome tax PAN No. namely AAACO1524 A. It has been filing its incometax return at Faridkot for the last over 15 years. Their cases have alreadybeen centralized at Faridkot and they are being assessed at Ward No. III(3)and Ward No. III(4). On 3.1.2008, the Commissioner – respondent no.5 issued noticeto Gautam Malhotra- respondent no.2 suggesting centralization ofassessment records/ jurisdiction in the group cases of Sh. Gautam Malhotraand others. He was asked to show cause on or before 16.1.2008. Accordingto the notice it was alleged that petitioner no.2 is a resident of Delhi and hehas business there (P.1). The petitioners filed objection on 1.2.2008asserting that they are resident of old Cantt. Road, Faridkot and they did nothave any kind of business in Delhi. They further averred that they are doing the business of liquor in the State of Punjab and disclosed their place ofresidence and properties at Faridkot. They also disclosed that they aremaintaining bank accounts in Punjab and Sind Bank, Faridkot and no searchand seizure under Section 132 of the Act had ever been taken against thepetitioners or petitioners' firm (P.2). The petitioners asserted that accordingto Section 127 of the Act, the Commissioner- respondent no.5 is under anobligation to record reasons in his order transferring the jurisdiction of theAssessing Officer failing which the order is vitiated. In the written statement filed by the respondents the stand taken is that Commissioner- respondent no.5 is holding administrative jurisdictionover the functioning of Income Tax Officers of Ward No. III(3) and (4),Faridkot. It is further asserted that while passing an order under Section 127of the Act, interest of administration has been duly taken into account. It hasbeen alleged that petitioners have been running hotels at Delhi andMousurie (Uttaranchal). They are residing at Delhi and they occasionallyvisit their residence at Faridkot. It is also pleaded that reasons have beenduly recorded in the order dated 13.8.2008 (R.1) and therefore, theimpugned order does not suffer from any legal infirmity. In the written statement filed by the respondents the stand taken is that Commissioner- respondent no.5 is holding administrative jurisdictionover the functioning of Income Tax Officers of Ward No. III(3) and (4),Faridkot. It is further asserted that while passing an order under Section 127of the Act, interest of administration has been duly taken into account. It hasbeen alleged that petitioners have been running hotels at Delhi andMousurie (Uttaranchal). They are residing at Delhi and they occasionallyvisit their residence at Faridkot. It is also pleaded that reasons have beenduly recorded in the order dated 13.8.2008 (R.1) and therefore, theimpugned order does not suffer from any legal infirmity. Mr. J.S. Bhatia, learned counsel for the petitioner has arguedthat Section 127 of the Act imposes an obligation on the Commissioner ofIncome Tax to pass an order supported with reasons while exercising powerof transfer. According to the learned counsel when administrative order, likethe one in hand, does not disclose any reasons then such an order is liable tobe set aside. In support of his submission, learned counsel has placedreliance on a judgement of Hon'ble the Supreme Court rendered in the caseofAjantha Industries and orsv. CBDT and others, (1976) 102 ITR 281. He has further submitted that the aforesaid view has been repeatedlyfollowed by various High Courts including this Court which is thejurisdictional High Court. In that regard reliance has been placed on aDivision Bench judgement in the case of Lt. Col. Paramjit Singhv.Commissioner of Income Tax and another, (1996) 220 ITR 446 and aSingle Bench judgement in the case of Rajesh Mahajan and othersv.Commissioner of Income Tax, (2002) 257 ITR 577. Ms. Savita Saxena, learned counsel for the respondents hashowever argued that provisions of Section 127 of the Act have beenreligiously complied with in as much as reasons have been recorded by theCommissioner on 13.8.2008 (R.1). Having heard learned counsel for the parties and perusing the paper book with their able assistance, we are of the considered view thatpower of transfer is vested in various authorities including theCommissioner by Section 127 of the Act. It would be necessary to read theaforesaid section which is as under: “Section 127: POWER TO TRANSFER CASES. (1)The Director General or Chief Commissioner orCommissioner may, after giving the assessee a reasonableopportunity of being heard in the matter, wherever it is possibleto do so, and after recording his reasons for doing so, transferany case from one or more Assessing Officers subordinate tohim (whether with or without concurrent jurisdiction) to anyother Assessing Officer or Assessing Officers (whether with orwithout concurrent jurisdiction) also subordinate to him. Commissioner may, after giving the assessee a reasonableopportunity of being heard in the matter, wherever it is possibleto do so, and after recording his reasons for doing so, transferany case from one or more Assessing Officers subordinate tohim (whether with or without concurrent jurisdiction) to anyother Assessing Officer or Assessing Officers (whether with orwithout 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 orAssessing Officers to whom the case is to be transferred are notsubordinate to the same Director General or ChiefCommissioner or Commissioner, - (a) where the DirectorsGeneral or Chief Commissioners or Commissioners to whomsuch Assessing Officers are subordinate are in agreement, thenthe Director General or Chief Commissioner or Commissionerfrom whose jurisdiction the case is to be transferred may, aftergiving the assessee a reasonable opportunity of being heard inthe matter, wherever it is possible to do so, and after recordinghis reasons for doing so, pass the order; (2)Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer orAssessing Officers to whom the case is to be transferred are notsubordinate to the same Director General or ChiefCommissioner or Commissioner, - (a) where the DirectorsGeneral or Chief Commissioners or Commissioners to whomsuch Assessing Officers are subordinate are in agreement, thenthe Director General or Chief Commissioner or Commissionerfrom whose jurisdiction the case is to be transferred may, aftergiving the assessee a reasonable opportunity of being heard inthe matter, wherever it is possible to do so, and after recordinghis reasons for doing so, pass the order; (b)Where the Directors General or Chief Commissioners orCommissioners aforesaid are not in agreement, the ordertransferring the case may, similarly, be passed by the Board orany such Director General or Chief Commissioner orCommissioner as the Board may, by notification in the OfficialGazette, authorize in this behalf. (3)Nothing in sub-section (1) or sub-section (2) shall bedeemed to require any such opportunity to be given where thetransfer is from any Assessing Officer or Assessing Officers(whether with or without concurrent jurisdiction) to any otherAssessing Officer or Assessing Officers (whether with orwithout concurrent jurisdiction) and the offices of all suchofficers are situated in the same city, locality or place. (4)The transfer of a case under sub-section (1) or sub-section (2) may be made at any stage of the proceedings, and shall not render necessary the re-issue of any notice alreadyissued by the Assessing Officer or Assessing Officers fromwhom the case is transferred. “ A perusal of the aforesaid provision shows that DirectorGeneral or Chief Commissioner or Commissioner could transfer any case atany stage of the proceedings from one assessing officer subordinate to himto another one subordinate to him. However, under sub-section (2) ofSection 127 when the cases are to be transferred to an Assessing Officer,who is not sub-ordinate to the same Director General or ChiefCommissioner or Commissioner then both of them have to be in agreementand hearing has to be granted by the Chief Commissioner/Commissionerfrom whose jurisdiction the cases are proposed to be transferred. Thelegislature has further provided by Section 127(2) of the Act that beforetransferring any case from one assessing officer subordinate to him to anyother assessing officer, the assessee is required to be given reasonableopportunity of hearing and after record recording reasons for passing suchan order. The matter is no longer res-integra because Hon'ble theSupreme Court in Ajantha Industries case (supra) has interpreted theprovisions of Section 127(1) of the Act and it has been held that therequirement of recording the reasons is mandatory. The view of theirLordship is discernible from following para of the judgement which readsthus: “The reason for recording of reasons in the order andmaking these reasons known to the assessee is to enable anopportunity to the assessee to approach the High Court under its writ jurisdiction under Article 226 of the Constitution oreven this Court under Article 136 of the Constitution in anappropriate case for challenging the order, inter alia, either onthe ground that it is mala fide or arbitrary or that it is based onirrelevant and extraneous considerations. Whether such a writor special leave application ultimately fails is not relevant for adecision of the question. We are clearly of opinion that the requirement ofrecording reasons under Section 127 (1), is a mandatorydirection under the law and non-communication thereof is notsaved by showing that the reasons exist in the file although notcommunicated to the assessee.” Similar view has been taken by a Division Bench of this Courtin the case of Lt. Col. Paramjit Singh (supra) and a Single Bench in thecase of Rajesh Mahajan(supra). We are clearly of opinion that the requirement ofrecording reasons under Section 127 (1), is a mandatorydirection under the law and non-communication thereof is notsaved by showing that the reasons exist in the file although notcommunicated to the assessee.” Similar view has been taken by a Division Bench of this Courtin the case of Lt. Col. Paramjit Singh (supra) and a Single Bench in thecase of Rajesh Mahajan(supra). The provision of sub-section (2) of Section 127 of the Act insubstance provide for hearing beside requiring agreement between the ChiefCommissioner or Commissioner of transferring place and the place wherethe cases are to be transferred. There is, thus, no reason why the view ofHon’ble the Supreme Court in Ajantha Industries case (supra) along withthe judgments of this Court would not apply for interpreting Section 127(2)of the Act. We are further of the view that agreement between bothCommissioners cannot be withheld from the assessee and a copy thereofalso has to be furnished to the assessee. The argument of the learned counsel that the reasons have beenrecorded in a separate order dated 13.8.2008 would not satisfy the requirement of Section 127 of the Act because the reasons have to be part ofthe order and recording of separate reasons on file without communicatingthe same to the assessee has been considered to be unfair and unwarranted.In support of the aforesaid proposition reliance may be placed on theobservations made by a Constitution Bench of the Hon'ble Supreme Courtin the case ofMohinder Singh Gillv. Chief Election Commissioner, AIR 1978 SC 851. In para 8 of the judgment it has been observed as under: “The second equally relevant matter is that when a statutoryfunctionary makes an order based on certain grounds, itsvalidity must be judged by the reasons so mentioned and cannotbe supplemented by fresh reasons in the shape of affidavit orotherwise. Otherwise, an order bad in the beginning may, bythe time it comes to court on account of a challenge, getvalidated by additional grounds later brought out.” In view of the aforesaid principle, the recording of separatereasons which are not part of the impugned order and its noncommunication to the petitioners would not be sustainable in the eyes oflaw. Therefore, we find no hesitation to reject the aforesaid argument. For the reasons afore-mentioned, this petition succeeds and thesame is allowed. Order dated 13.8.2008 (Annexure P.4) is set aside.However, we leave it open to the Commissioner- respondent no.5 to pass afresh order in accordance with the law laid down by Hon'ble the SupremeCourt in Ajantha Industries' case (supra) and by this Court in the cases ofLt. Col. Paramjit Singh (supra) and Rajesh Mahajan (supra). 4.8.2009Okg/Pkapoor (M.M.Kumar)Judge (Jaswant Singh) Judge