M/S Nagindas Kasturchand And Bros v. Principal Commissioner Of Income Tax 3, Ahmedabad

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16529 of 2021 With CIVIL APPLICATION (FOR STAY) NO. 1 of 2022 In R/SPECIAL CIVIL APPLICATION NO. 16529 of 2021 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE J.B.PARDIWALAandHONOURABLE MS. JUSTICE NISHA M. THAKORE Sd/- Sd/- ================================================================ ================================================================M/S NAGINDAS KASTURCHAND AND BROS. Versus PRINCIPAL COMMISSIONER OF INCOME TAX 3, AHMEDABAD ================================================================Appearance:MR K.M.PARIKH with MR KULDEEP K.ADESARA, ADVOCATES for the Petitioner(s) No. 1 MR M.R.BHATT, SR.ADVOCATE for M.R.BHATT & CO. for the Respondent(s) No. 1,3,4 MS MAITHILI D MEHTA, ADVOCATE for the Respondent(s) No. 2 ================================================================ CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALAand HONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 11/04/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1.By this writ-application under Article 226 of theConstitution of India, the writ-applicant has prayed for thefollowing reliefs : “A.This Hon’ble Court be pleased to admit and allow thePetition filed by the Petitioner. B.This Hon’ble Court be pleased to issue Writ ofMandamus or Writ of Certiorari or any other appropriateWrit, Order or direction for quashing and setting asideimpugned order at Annexure-A dated 08/07/2021 issuedby Respondent No.1 u/s.127(2) of the Act. C.Pending admission, hearing and final disposal ofpresent Petition, this Hon’ble Court be pleased to stay theimplementation, operation and execution of impugned orderat Annexure-A dated 08/07/2021 issued by RespondentNo.1 u/s.127(2) of the Act and consequential assessmentorder at Annexure-B dated 28/09/2021 passed byRespondent No.2 u/s.143(3) of the Act for A.Y. 2018-19 inpursuance to impugned order dated 08/07/2021 atAnnexure-A passed by Respondent No.1 u/s.127(2) of theAct. D.Pending admission, hearing and final disposal ofpresent Petition, this Hon’ble Court be pleased to directRespondents not to take any coercive steps under the Act inany manner against the Petitioner Firm in respect of theamount quantified in the assessment order without priorpermission of this Hon’ble Court. E.This Hon’ble Court be pleased to grant ex-parte ad-interim relief in favour of the Petitioner and against theRespondents as prayed for in Para-C and Para-D of thePetition. F.This Hon’ble Court be pleased to grant any other justand proper relief in the facts and circumstances of the casein the interest of justice and equality.” 2.The writ-applicant seeks to challenge the legality andvalidity of the order dated 8[th] July 2021 passed by therespondent no.1 herein under Section 127(2) of the Income TaxAct, 1961, transferring the case of the writ-applicant from theoffice of the respondent no.3 at Surendranagar to the office ofthe respondent no.2 at Ahmedabad. 3.It appears that the writ-applicant filed its return of incomeon 8[th] October 2018 for the Assessment Year 2018-19, declaringthe total income of Rs.12,54,590=00. 4.A survey under section 133A of the Act was carried out on4[th] February 2019 at the premises of the assessee. The case wasselected for compulsory scrutiny in view of the CBDT guidelinesbearing F.No.225/126/2020/ITA-II (ITA-II Division) dated 17[th]September 2020 and a notice under section 143(2) of the Actdated 25[th] September 2019 was issued and served upon theassessee by the ACIT, Surendranagar Circle, Surendranagar. 5.The National E-Assessment Centre issued notice under Section 142(1) of the Act to the writ-applicant, dated 23[rd]February 2021, for the Assessment Year 2018-19. 3.It appears that the writ-applicant filed its return of incomeon 8[th] October 2018 for the Assessment Year 2018-19, declaringthe total income of Rs.12,54,590=00. 4.A survey under section 133A of the Act was carried out on4[th] February 2019 at the premises of the assessee. The case wasselected for compulsory scrutiny in view of the CBDT guidelinesbearing F.No.225/126/2020/ITA-II (ITA-II Division) dated 17[th]September 2020 and a notice under section 143(2) of the Actdated 25[th] September 2019 was issued and served upon theassessee by the ACIT, Surendranagar Circle, Surendranagar. 5.The National E-Assessment Centre issued notice under Section 142(1) of the Act to the writ-applicant, dated 23[rd]February 2021, for the Assessment Year 2018-19. 6.The writ-applicant filed its reply dated 8[th] March 2021 tothe above notice for the Assessment Year 2018-19. 7.It appears that the respondent no.2 issued notice underSection 142(1) of the Act, dated 26[th] August 2021, wherein it wasbrought to the notice of the writ-applicant that its case had beentransferred to the office of the respondent no.2 as TransfereeAssessing Officer vide the impugned order passed under Section127 of the Act. 8.It was brought to the notice of the writ-applicant that therespondent no.2 has assumed jurisdiction as the AssessingOfficer in the case of the writ-applicant for the Assessment Year2018-19. 9.The writ-applicant filed its reply dated 31[st] August 2021and 1[st] September 2021 respectively against the notice dated 26[th]August 2021 issued under Section 142(1) of the Act, stating thatit was not aware about any order passed under Section 127 ofthe Act as no notice for hearing under Section 127 of the Act hadbeen served upon the writ-applicant and the writ-applicant hadnot even received any order passed under Section 127 of the Act. 10.In such circumstances referred to above, the writ-applicantis here before this Court with the present writ-application. 11.During the pendency of this writ-application, the writ-applicant had to prefer one civil application with the followingprayers : “A.This Hon’ble Court be pleased to allow present CivilApplication for stay filed by the applicant. B.This Hon’ble Court be pleased to stay the execution,operation and implementation of impugned order dated08/07/2021 passed by respondent no.1 u/s.127(2) of theAct. C.Pending admission, hearing and final disposal ofSpecial Civil Application No.16529/2021, this Hon’ble Courtbe pleased to direct income tax authorities as mentioned inColumn-5 and Column-6 of an order dated 08/07/2021passed by respondent no.1 u/s.127(2) of the Act, not topass any coercive orders in any manner against applicantassessee for A.Y. 2017-18 and for any assessment yearswithout prior permission of this Hon’ble Court. D.Pending admission, hearing and final disposal ofSpecial Civil Application No.16529/2021, this Hon’ble Courtbe pleased to direct income tax authorities as mentioned inColumn-5 and Column-6 of an order dated 08/07/2021passed by respondent no.1 u/s.127(2) of the Act that noproceedings under the provisions of the Income Tax Actincluding revision proceedings u/s.263 of the Act for A.Y.2017-18 be initiated, continued and completed against theapplicant on the basis of the jurisdiction so assumed byincome tax authorities stated in Column-5 and Column-6 of order dated 08/07/2021 passed by respondent no.1u/s.127(2) of the Act without prior permission of this Hon’bleCourt. E. Pending admission, hearing and final disposal of SpecialCivil Application No.16529/2021, this Hon’ble Court bepleased to direct PCIT (Central), Ahmedabad to stay therevisional proceedings initiated u/s.263 of the Act againstthe applicant for A.Y. 2017-18 and not to pass any finalorder against the applicant for A.Y. 2017-18 without priorpermission of this Hon’ble Court. F.This Hon’ble Court be pleased to grant any other andfurther relief to the applicant in the interest of justice.” order dated 08/07/2021 passed by respondent no.1u/s.127(2) of the Act without prior permission of this Hon’bleCourt. E. Pending admission, hearing and final disposal of SpecialCivil Application No.16529/2021, this Hon’ble Court bepleased to direct PCIT (Central), Ahmedabad to stay therevisional proceedings initiated u/s.263 of the Act againstthe applicant for A.Y. 2017-18 and not to pass any finalorder against the applicant for A.Y. 2017-18 without priorpermission of this Hon’ble Court. F.This Hon’ble Court be pleased to grant any other andfurther relief to the applicant in the interest of justice.” 12.Thus, the aforesaid Civil Application came to be filed as theassessment order for the Assessment Year 2017-18 was takenup for revision by the PCIT-Central, Ahmedabad, in exercise ofthe powers conferred under Section 263 of the Act. It is the caseof the writ-applicant that till the issue as regards the legality andvalidity of the order of transfer passed under Section 127(2) ofthe Act is not decided, the PCIT-Central, Ahmedabad, should notbe permitted to proceed with the revisional proceedings initiatedunder Section 263 of the Act for the Assessment Year 2017-18. SUBMISSIONS ON BEHALF OF THE WRIT-APPLICANT: 13.The principal argument of Mr.Parikh is that no opportunityof hearing was given to his client before transferring the caseunder Section 127 of the Act. 14.Mr.Parikh would submit that his client should have beenserved with a notice containing the reasons for transfer andshould also have been given an opportunity of hearing beforepassing the impugned order. In the absence of both, theimpugned order is not sustainable in law. SUBMISSIONS ON BEHALF OF THE RESPONDENT: 15.On the other hand, Mr.M.R.Bhatt, the learned seniorcounsel appearing for the Revenue, submitted that consideringthe implementation of Faceless Assessment Scheme, 2020, aswell as the administrative difficulties being faced on account ofthe Covid-19 pandemic, the CBDT, vide Instructions dated 17[th]September 2020, issued guidelines and parameters forcompulsory selection of returns for complete scrutiny during theFinancial Year 2020-21 and conduct of assessment proceedings.Following the directions of the Director General of Income Tax(Investigation), Ahmedabad, and subsequent communicationfrom the Principal Commissioner of Income Tax-Central,Ahmedabad, an order under Section 127(2) of the Act came to bepassed by the Principal CIT-3, Ahmedabad, transferring the caseof the writ-applicant from the ITO Ward-2, Surendranagar Circle,Surendranagar, to the ACIT-Central Circle-2(3), Ahmedabad,with effect from 8[th] July 2021. 16.Mr.Bhatt put forward the following propositions on behalfof the department in defence of the impugned order : (a)A statute can, in appropriate cases, exclude theprinciples of natural justice; (b)Since the assessee has no legal right of beingassessed by any particular Assessing Officer, the principlesof natural justice can be validly excluded in the matter ofthe Income Tax Act; (c)Section 127 restricts the obligation of hearing andpassing a speaking order only when the case is to betransferred suo motu; (d)Section 127 excludes, by necessary implication, anopportunity of hearing when the transfer is on account ofthe administrative exigencies; (e)In the facts of the case on hand, the concept of‘empty formality’ may be invoked. In other words, assigningreasons and giving opportunity of hearing to the assesseewould otherwise have been an empty formality. 17.Mr.Bhatt invited the attention of this Court to the followingaverments made in the affidavit-in-reply filed on behalf of therespondent no.1 : (c)Section 127 restricts the obligation of hearing andpassing a speaking order only when the case is to betransferred suo motu; (d)Section 127 excludes, by necessary implication, anopportunity of hearing when the transfer is on account ofthe administrative exigencies; (e)In the facts of the case on hand, the concept of‘empty formality’ may be invoked. In other words, assigningreasons and giving opportunity of hearing to the assesseewould otherwise have been an empty formality. 17.Mr.Bhatt invited the attention of this Court to the followingaverments made in the affidavit-in-reply filed on behalf of therespondent no.1 : “3.At the outset, I submit that the petitioner haschallenged the impugned order dated 08.07.2021 passedunder section 127(2) of the Income Tax Act, 1961 (‘the Act’)whereby the case of the petitioner was transferred from ITO,Ward-2, Surendranagar to ACIT, Central-2(3) Ahmedabad.Consequent to the impugned transfer order, the assessingofficer has framed assessment order u/s 143(3) of the Acton 28.09.2021 for A.Y 2018-19 after considering the exhaustive written submissions of the petitioner assessee. Isubmit that the impugned transfer order is administrative innature and the assessee has no right of selection of aparticular assessing officer for undertaking assessment.There is no prejudice caused to the assessee pursuant toimpugned transfer order as the petitioner was duly heardbefore framing of assessment order. It is also not the case ofthe petitioner that the assessment order passed is inviolation of principles of natural justice. In view of the above,the petition may kindly be dismissed. 4.The brief facts are that a survey under section 133A ofthe Act was carried out on 04.02.2019 at the premises ofthe assessee. The case was selected for compulsoryscrutiny in view of CBDT guidelines bearing F.No.225/126/2020/ITA-II (ITA-II Division) dated 17.09.2020and a notice under section 143(2) of the Act dated25.09.2019 was issued and served upon the assessee bythe ACIT, Surendranagar Circle, Surendranagar. 5.Keeping in view the implementation of FacelessAssessment Scheme, 2020 as well as difficulties beingfaced amid COVID-19 pandemic, the CBDT vide InstructionF.No.225/126/2020/ITA-II dated 17.09.2020, had issuedguidelines and parameters for compulsory selection ofreturns for Complete Scrutiny during the Financial Year2020-21 and conduct of assessment proceedings. A copy ofCBDT Instructions dated 17.09.2020 is annexed heretoand marked as Annexure-R1. Relevant portion is as under: assessment proceedingsin such cases will beconducted by NeAC. TheAssessing Officer shallupload the Survey Reportin the ITBA at the time ofissue of notice u/s 143(2)ofthe Act. 6.Subsequently, the CBDT vide Instruction F.No.225/126/2020/ITA-II dated 30.09.2020 had extended thedate of selection of cases for Compulsory Scrutiny on thebasis of prescribed parameters, as communicated videBoard’s letter dated 17.09.2020, from 30.09.2020 to31.10.2020. A copy of CBDT Instructions dated 30.09.2020is annexed hereto and marked as Annexure-R2. Relevantportion of the said communication is as under: “Kindly refer to Board’s letter dated 17.09.2020regarding Guidelines for compulsory selection ofreturns for Complete Scrutiny during the FinancialYear 2020-21. 2. Vide the said letter, the following time limits wereprescribed for completion of certain actions: a)Selection of cases for compulsory scrutiny on thebasis of the prescribed parameters shall becompleted by 30th September 2020.basis of the prescribed parameters shall becompleted by 30th September 2020. “Kindly refer to Board’s letter dated 17.09.2020regarding Guidelines for compulsory selection ofreturns for Complete Scrutiny during the FinancialYear 2020-21. 2. Vide the said letter, the following time limits wereprescribed for completion of certain actions: a)Selection of cases for compulsory scrutiny on thebasis of the prescribed parameters shall becompleted by 30th September 2020.basis of the prescribed parameters shall becompleted by 30th September 2020. b)The Survey Cases with impounded materialshave to be transferred to the Central Chargesunder section 127 of the Income-tax Act, 1961(Act) within 15 days of issue of notice u/s 143(2)of the Act.have to be transferred to the Central Chargesunder section 127 of the Income-tax Act, 1961(Act) within 15 days of issue of notice u/s 143(2)of the Act. c)Search cases u/s 153C of the Act, if lyingoutside the Central Charges, have to betransferred to the Central Charges u/s 127 ofthe Act within 15 days of issue of notice u/s143(2) of the Act. 3.Considering the difficulties faced by the fieldformation due to COVID-19 pandemic and PANmigration related issues, this matter has beenreconsidered and it has been decided to extend thedate for selection of cases for Compulsory Scrutiny onthe basis of prescribed parameters, as communicatedvide Board’s letter dated 17.09.2020, from 30thSeptember, 2020 to 31st October,2020. 4. It is clarified that even though the new statutorytime limit as per the Taxation and other laws(Relaxations and amendment of certain provisions) Act,2020 for selection of cases for Compulsory Scrutiny onthe basis of prescribed parameters was extended to31st March,2021, still for the purpose of timelyallocation of cases to NeAC, the above time limit willhave to be strictly adhered to, otherwise, the allocationof cases to NeAC will get considerably delayed. 5. Further, for the same reasons as above in para4, the cases covered under the scenarios mentioned inPara 2(b) and 2(c) of this letter shall be transferred tothe Central Charges by issue of orders u/s 127 of theAct, immediately after service of notice u/s 143(2) of the Act. 6.These instructions may be brought to the noticeof all concerned for necessary compliance. 7.This issue with the approval of Chairman(CBDT).” 7.Pursuant to the above instructions dated 17.09.2020and 30.09.2020 of the CBDT, the office of the DirectorGeneral of Income-tax (Investigation), Ahmedabad videletter No. DGIT(Inv)/Ahd/Centralization/Search/Survey/2021-22 dated 30.06.2021 had granted “in principle”approval for centralization of assessee’s case with anyAssessing Officer holding central charge under the chargeof PCIT (Central), Ahmedabad. A copy of letter dated30.06.2021 of the DGIT(Inv), Ahmedabad is annexed heretoand marked as Annexure-R3. 8.Keeping in view the CBDT’s instructions dated17.09.2020 (supra), the directions of the Director General ofIncome-tax (Investigation), Ahmedabad and the request ofPr. CIT (Central), Ahmedabad; an order under section127(2) of the Act was passed by the then Pr. CIT-3,Ahmedabad on 08.07.2021 transferring the case (Sr. No.14) from ITO Ward-2, Surendranagar to ACIT Central Circle-2(3), Ahmedabad, w.e.f. 08.07.2021. 9.Subsequently, due to change of incumbent, noticeu/s. 142(1) r.w.s. 129 of the Act along with detailed questionnaire was issued by the Assessing Officer i.e. ACITCentral Circle-2(3), Ahmedabad on 26.08.2021 calling forthe details/information for assessment. The asseseee, inresponse to the above notice, had raised objection vide replyfiled on 31.08.2021 on e-portal. In response to the same,the Assessing Officer provided copy of order u/s. 127(2) ofthe Act to the assessee vide letter dated 15.09.2021. 9.Subsequently, due to change of incumbent, noticeu/s. 142(1) r.w.s. 129 of the Act along with detailed questionnaire was issued by the Assessing Officer i.e. ACITCentral Circle-2(3), Ahmedabad on 26.08.2021 calling forthe details/information for assessment. The asseseee, inresponse to the above notice, had raised objection vide replyfiled on 31.08.2021 on e-portal. In response to the same,the Assessing Officer provided copy of order u/s. 127(2) ofthe Act to the assessee vide letter dated 15.09.2021. 10.In response to the same, the assessee had filed replyon 16.09.2021 in the e-portal stating that the order u/s.127(2) dated 08.07.2021 is an invalid order. Subsequently,the Assessing Officer vide letter dated 19.09.2021 hadinformed the assessee that his case has been centralizedwith ACIT Central Circle-2(3), Ahmedabad vide order u/s.127(2) of the Act dated 08.07.2021 passed by the thenPr.CIT-3, Ahmedabad in pursuance to CBDT guidelinesrelated to assessment of survey cases. The AssessingOfficer has also stated that the copy of the said order hasalready been provided to the assessee and hence he wasrequested to file objection, if any, against said order beforethe office of thePr.CIT-3, Ahmedabad. 11.Later on, the assessee filed compliances to the noticesissued by the Assessing Officer and the assessmentproceedings were completed u/s. 143(3) of the Act on28.09.2021 determining total income of Rs. 11,28,51,670/-. 12.In view of the above facts, it is humbly submitted thatfollowing the directions of the Director General of Income-tax (Investigation), Ahmedabad and subsequentcommunication from Pr. CIT (Central), Ahmedabad, an order under section 127(2) of the Income-tax Act, 1961 has beenpassed by the then Pr. CIT-3, Ahmedabad vide letter No.Pr.CIT-3/DCIT(HQ)/Order/127(2)/ Centralization/16/2021-22 dated 08.07.2021, transferring the case (Sr. No. 14) fromITO Ward-2, Surendranagar to ACIT Central Circle-2(3),Ahmedabad, w.e.f. 08.07.2021.This has been done incompliance to the guidelines and parameters forcompulsory selection of returns for Complete Scrutiny duringthe Financial Year 2020-21 and conduct of assessmentproceedings issued by the CBDT vide letter dated17.09.2020 (supra), keeping in view the implementation ofFaceless Assessment Scheme, 2020 as well as difficultiesbeing faced amid COVID-19 pandemic. It is to reiterate thatCBDT is empowered to issue instructions to subordinateauthorities under section 119(2)(b) of the Act. Relevantportion is reproduced as under : “(b)the Board may, if it considers it desirable orexpedient so to do for avoiding genuine hardship inany case or class of cases, by general or special order,authorise [any income- tax authority, not being aCommissioner (Appeals)] to admit an application orclaim for any exemption, deduction, refund or anyother relief under this Act after the expiry of the periodspecified by or under this Act for making suchapplication or claim and deal with the same on meritsin accordance with law;” 13.To obviate the difficulties being faced by the assesseedue to COVID-19, CBDT issued such instructions to help theassessee to avoid physical contact and complete the assessment in e-proceedings manner which is in the interestof the assessee. 14.Considering the above facts of the case, it is submittedthat the order dated 08.07.2021 passed u/s 127(2) of theAct by the then Pr.CIT-3, Ahmedabad was as per theprovisions of the Act and in compliance to the guidelinesissued by the CBDT vide letter dated 17.09.2020. 18.In view of the aforesaid, Mr.Bhatt prays that there being nomerit in this writ-application, the same may be rejected. ANALYSIS: 13.To obviate the difficulties being faced by the assesseedue to COVID-19, CBDT issued such instructions to help theassessee to avoid physical contact and complete the assessment in e-proceedings manner which is in the interestof the assessee. 14.Considering the above facts of the case, it is submittedthat the order dated 08.07.2021 passed u/s 127(2) of theAct by the then Pr.CIT-3, Ahmedabad was as per theprovisions of the Act and in compliance to the guidelinesissued by the CBDT vide letter dated 17.09.2020. 18.In view of the aforesaid, Mr.Bhatt prays that there being nomerit in this writ-application, the same may be rejected. ANALYSIS: 19.Having heard the learned counsel appearing for the partiesand having gone through the materials on record, the onlyquestion that falls for our consideration is, whether theimpugned order of transfer passed under Section 127(2) of theAct is sustainable in law. 20.It appears from the materials on record, as pointed out inthe Civil Application referred to above, that the respondent no.2as the Transferee Assessing Officer [subordinate to the PCIT -Central, Ahmedabad] concluded the assessment proceedings andproceeded to pass the assessment order under Section 143(3) ofthe Act, dated 28[th] September 2021, assessing the total incomeof the writ-applicant to the tune of Rs.11,28,51,670=00 for theAssessment Year 2018-19. It further appears that the PCIT -Central, Ahmedabad, has also initiated revisional proceedingsunder Section 263 of the Act for the Assessment Year 2017-18. 21.It is not in dispute that no show-cause notice came to beissued to the writ-applicant assigning reasons for transfer underSection 127(2) of the Act. It is also not in dispute that at no pointof time the writ-applicant was served with a copy of the orderpassed under Section 127(2) of the Act. Whether this lapse issufficient to quash and set-aside the impugned order of transferunder Section 127(2) of the Act and all consequentialproceedings undertaken thereafter ? 22.Section 127 of the Act, which reads as under, prescribestwo pre-requisite conditions for exercising power of transfer of acase from one Assessing Officer to another Assessing Officer inthe circumstances given therein, namely, opportunity of hearingto the assessee and recording of reasons for the transfer. “Power to transfer cases.- (1) The Director General or ChiefCommissioner or Commissioner may, after giving theassessee a reasonable opportunity of being heard in thematter, wherever is possible to do so, and after recording hisreasons for doing so, transfer any case from one or moreAssessing Officers subordinate to him (whether with orwithout concurrent jurisdiction) to any other AssessingOfficer or Assessing Officers (whether with or withoutconcurrent jurisdiction) also subordinate to him. (2)where the Assessing Officer or Assessing Officers fromwhom the case is to be transferred and the AssessingOfficer or Assessing Officers to whom the case is to betransferred are not subordinate to the same Director Generalor Chief Commissioner or Commissioner : (a)where the Directors General or ChiefCommissioners or Commissioners to whom suchAssessing Officers are subordinate are in agreement,then the Director General or Chief Commissioner orCommissioner from whose jurisdiction the case is to betransferred may, after giving the assessee areasonable opportunity of being heard in the matter,wherever it is possible to do so, and after recording hisreasons for doing so, pass the order; (b)where the Director General or ChiefCommissioners or Commissioners aforesaid are not inagreement, the order transferring the case may,similarly, be passed by the Board or any such DirectorGeneral or Chief Commissioner or Commissioner asthe Board may, by notification in the Official Gazette,authorize in this behalf. (a)where the Directors General or ChiefCommissioners or Commissioners to whom suchAssessing Officers are subordinate are in agreement,then the Director General or Chief Commissioner orCommissioner from whose jurisdiction the case is to betransferred may, after giving the assessee areasonable opportunity of being heard in the matter,wherever it is possible to do so, and after recording hisreasons for doing so, pass the order; (b)where the Director General or ChiefCommissioners or Commissioners aforesaid are not inagreement, the order transferring the case may,similarly, be passed by the Board or any such DirectorGeneral or Chief Commissioner or Commissioner asthe Board may, by notification in the Official Gazette,authorize in this behalf. (3)Nothing in Sub-section (1) or Sub-section (2) shall bedeemed to require any such opportunity to be given wherethe transfer is from any Assessing Officer or AssessingOfficers (whether with or without concurrent jurisdiction) toany other Assessing Officer or Assessing Officers (whetherwith or without concurrent jurisdiction) and the offices of allsuch officers 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 noticealready issued by the Assessing Officer or AssessingOfficers from whom the case is transferred.” 23.It cannot be gainsaid that if a statute requires affording ofan opportunity of hearing before an order is passed to the personto whom the order relates, it would be an effective opportunity,which is required to be given. The effective hearing, which isrequired to be given would mean that the assessee must knowthe ground for the proposed transfer/proposed action andopportunity to rebut the same and to establish that the groundsfor such transfer are not tenable under law or for any otherreason, as may be admissible under law, such ground would notbe sufficient to pass an order of transfer. In doing so, thematerial which is being sought to be relied upon and the facts,which have led to the formation of opinion for the proposedtransfer, have to be broadly and briefly informed to the assessee.On knowing the aforesaid ground and the facts andcircumstances of the case, the assessee would have a right toobject by filing written representation/objections and thereafterthe authority concerned, after affording an opportunity ofpersonal hearing, would pass an order either accepting theobjections or the pleas raised by the assessee, or giving his ownreasons for not accepting the same. The latter exercise would beincorporated and reduced into writing, which would meet therequirement of recording of reasons in the order. The reasons, sorecorded, have to be relevant and germane to the issues raisedwhich can be supported by documentary evidence or suchevidence, as may be available, but if reasons are absurd or non-existent, mere recording of statement of reasons would not besufficient to hold the order as valid for the compliance of therequirement of recording reasons. However, the sufficiency oradequacy of material for recording such reasons, may not be afactor to raise a plea of quantitative insufficiency of material, soas to make the reasons recorded as arbitrary or bad. 24.In the case of Mahabir Prasad Santosh Kumar vs. State ofUP and Ors., MANU/SC/0018/1970 : [1971]1 SCR 201, it hasbeen held by the Supreme Court as under : “....Recording of reasons in support of a decision on adisputed claim by a quasi-judicial authority ensures that thedecision is reached according to law and is not the result ofcaprice, whim or fancy or reached on grounds of policy orexpediency. A party to the dispute is ordinarily entitled toknow the grounds on which the authority has rejected hisclaim.” 24.In the case of Mahabir Prasad Santosh Kumar vs. State ofUP and Ors., MANU/SC/0018/1970 : [1971]1 SCR 201, it hasbeen held by the Supreme Court as under : “....Recording of reasons in support of a decision on adisputed claim by a quasi-judicial authority ensures that thedecision is reached according to law and is not the result ofcaprice, whim or fancy or reached on grounds of policy orexpediency. A party to the dispute is ordinarily entitled toknow the grounds on which the authority has rejected hisclaim.” 25.In the case of Power Controls and Ors. vs. CIT and Ors.,MANU/DE/1195/1999 : (2000) 158 CTR (Del) 222, moreparticularly, para 19 of the report, the Court observed as under : “....though it may neither be possible nor desirable toconfront the assessee with the entire material on recordnecessitating transfer of case to a particular AO for co-ordinated investigation but in order to provide a reasonableand proper opportunity to him to make an effectiverepresentation, as contemplated in Section 127(2), somebasic summary of facts, giving some broad idea of thereason for the transfer of the case must be indicated in theshow cause notice itself.” 26.Their Lordships in the aforesaid case clarified in para 22 ofthe report as under : “....we (Their Lordships) are not holding for a moment that'administrativeconvenienceand/or'co-ordinated'administrativeconvenienceand/or'co-ordinated investigation' cannot be valid ground for transferring thecases belonging to a particular group to a single AO. Itwould be a good ground, for transfer but the requirement oflaw, which has to be observed before transferring theassessee's case from one officer to another, is that theassessee must be apprised of the basic and broad facts,which, in the opinion of the authorities concerned,necessitate co-ordinated investigation by a single AO, toenable the assessee to put forth his viewpoint on the issueso that a considered decision is taken to preventunnecessary harassment to the assessee and at the sametime the object of the transfer is achieved, which of course isthe prime consideration in such like matters.” 27.InPannalalBinjrajvs.UnionofIndia,MANU/SC/0020/1956, the Court observed as under : “.....If the reasons for making the order are reduced howeverbriefly to writing, it will also help the assessee inappreciating the circumstances which make it necessary ordesirable for the CIT or the Central Board of Revenue, as thecase may be, to transfer his case under Section 5(7A) of theAct and it will also help the Court in determining the bonafides of the order as passed if and when the 'same ischallenged in the Court as mala fide or discriminatory'.” 28.The aforesaid was a case under Section 5(7A) of the IncomeTax Act, 1922. The Court also took notice of the fact that theCentral Board of Revenue or the CIT, as the case may be,instructed the ITOs concerned to minimise the inconvenience caused to the assessees and even proceed to their respectiveresidence or places of business in order to examine the accountsand evidence. In spite of the denials of the assessees in theaffidavits which they filed in rejoinder, Their Lordshipspresumed that such facilities would continue to be afforded tothem in the future and the inconvenience and harassment whichwould otherwise be caused to them would be avoided. A humaneand considerate administration of the relevant provisions of theIncome Tax Act would go a long way in allaying theapprehensions of the assessees and if that is done in the truespirit, no assessee will be in a position to charge the Revenuewith administering the provisions of the Act with ‘an evil eye andunequal hand’. 29.In the case of Hindustan Petroleum Corporation Ltd. vs.Darius Shapur and Ors., MANU/SC/0610/2005: AIR 2005 SC3520 , the Supreme Court observed as under : 29.In the case of Hindustan Petroleum Corporation Ltd. vs.Darius Shapur and Ors., MANU/SC/0610/2005: AIR 2005 SC3520 , the Supreme Court observed as under : “….When an order is passed by a statutory authority, thesame must be supported either on the reasons statedtherein or on the grounds available therefore in the record. Astatutory authority cannot be permitted to support its orderrelying on or on the basis of the statements made in theaffidavit de hors the order or for that matter de hors therecords.” 30.The question as to whether the exercise of power underSection 127(2) is administrative in nature or it is quasi-judicialhas also been seriously argued by the parties, the stand of theRevenue being that it is administrative exercise of power, whereas the assessees' counsel submitted that it is quasi-judicial function of the authority. 31.The requirement of giving opportunity to the assesseebefore passing an order of transfer of cases from one place toanother under Section 127(2), coupled with the requirement ofrecording of reasons for passing such an order, cannot put thesaid power into the exclusive administrative domain of theauthority but it symbolizes its quasi-judicial function. However,the distinction and the requirement of following the principles ofnatural justice and recording of reasons for passing an order inthe proceedings either administrative or quasi-judicial have beenreduced into a very thin margin, in effect, making such adistinction non-existent. Any order, even if it is administrative,has to meet the test of Article 14 of the Constitution and shouldbe supported by reasons, which are not absurd or arbitrary. Anorder of transfer of cases under Section 127(2) may cause someinconvenience to the assessee and, therefore, any such order hasto be passed after hearing and by giving reasons. The aforesaidrequirement does fulfill the necessary ingredients of principles ofnatural justice, which have also been incorporated in theaforesaid provision. Thus, the nature of the authority, which isexercised under Section 127(2) is not of much significance, i.e.,whether it is taken as administrative exercise of power or quasi-judicial exercise of power. 32.In the case of Ajantha Industries and Ors. vs. CBDT andOrs., 1976 CTR (SC) 79 : (1976) 1 SCO 1001, the Supreme Courtwas dealing with a case, wherein the reasons were notcommunicated and it was said that failure to communicate the reasons for passing an order under Section 127 renders theorder bad. The Supreme Court in aforesaid case observed asunder : “The reason for recording of reasons in the order andmaking these reasons known to the assessee is to enablean opportunity to the assessee to approach the High Courtunder its writ jurisdiction under Art. 226 of the Constitutionor even this Court under Art. 136 of the Constitution in anappropriate case for challenging the order, inter alia, eitheron the ground that it is mala fide or arbitrary or that it isbased on irrelevant and extraneous considerations. Whethersuch a writ or special leave application ultimately fails is notrelevant for a decision of the question. We are clearly of opinion that the requirement of recordingreasons under section 127(1) is a mandatory direction underthe law and non-communication thereof is not saved byshowing that the reasons exist in the file although notcommunicated to the assessee. Mr. Sharma drew our attention to a decision of the DelhiHigh Court in Sunanda Rani Jain vs. Union of India, (1975)99 ITR 391 (Del), where the learned Single Judge has takena contrary view. For the reasons, which we have givenabove, we have to hold that the said decision is not correct. The appellant drew our attention to a decision of this Courtin Shri Pragdas Umer Vaishya vs. Union of India, (1967) 12MPLJ 868, where rule 55 of the Mineral Concession Rules,1960, providing for exercise of revisional power by the We are clearly of opinion that the requirement of recordingreasons under section 127(1) is a mandatory direction underthe law and non-communication thereof is not saved byshowing that the reasons exist in the file although notcommunicated to the assessee. Mr. Sharma drew our attention to a decision of the DelhiHigh Court in Sunanda Rani Jain vs. Union of India, (1975)99 ITR 391 (Del), where the learned Single Judge has takena contrary view. For the reasons, which we have givenabove, we have to hold that the said decision is not correct. The appellant drew our attention to a decision of this Courtin Shri Pragdas Umer Vaishya vs. Union of India, (1967) 12MPLJ 868, 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 underrule 55 the Central Government in disposing of the revisionapplication must record its reasons and communicate thesereasons to the parties effected thereby. It was further heldthat the reasons could not be gathered from the nothings inthe flies of the Central Government. Recording of reasonsand disclosure thereof is not a mere formality. Mr. Sharma drew our attention to a decision of this Court inKashiram Aggarwal vs. Union of India, (1965) 56 ITR 14(SC). It is submitted that this Court took the view that ordersunder section 127(1) are held in that decision to be ‘purelyadministrative in nature’ passed for consideration ofconvenience and no possible prejudice could be involved inthe transfer. It was also held therein that under the provisoto section 127(1) it was not necessary to give the appellantan opportunity to be heard and there was consequently noneed to record reasons for the transfer. This decision is notof any assistance to the Revenue in the present case sincethat was a transfer from one ITO to another ITO in the samecity, 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 particularorder affecting prejudicially the interests of any person, whocan challenge the order in Court, it ceases to be a mereadministrative order and the vice of violation of theprinciples of natural justice on account of omission tocommunicate the reasons is not expiated. Mr. Sharma also drew our attention to a decision of thisCourt in S. Narayanappa vs. CIT, (1967) 63 ITR 219 (SC), where this Court was dealing with section 34 of the old Act.It is clear that there is no requirement in any of theprovisions of the Act or any section laying down as acondition for the initiation of the proceedings that thereasons which induced the CFT to accord sanction toproceed under section 34 must also be communicated to theassessee. The ITO need not communicate to the assesseethe reasons which led him to initiate the proceedings undersection 34. The case under section 34 is clearlydistinguishable from that of a transfer order under section127(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 aggrievedassessee can agitate the matter in appeal against theassessment order, but an assessee against whom an orderof transfer is made has no such remedy under the Act toquestion the order of transfer. Besides, the aggrievedassessee on receipt of the notice under section 34 may evensatisfy the ITO that there were no reasons for reopening theassessment. Such an opportunity is not available to anassessee under section 127(1) of the Act. The above decisionis, therefore, clearly distinguishable. We are, therefore, clearly of opinion that non-communicationof the reasons in the order passed under section 127(1) is aserious infirmity in the order for which the same is invalid. The judgment of the High Court is set aside. The appeal isallowed and the orders of transfer are quashed. No costs.” We are, therefore, clearly of opinion that non-communicationof the reasons in the order passed under section 127(1) is aserious infirmity in the order for which the same is invalid. The judgment of the High Court is set aside. The appeal isallowed and the orders of transfer are quashed. No costs.” 33.In Benz Corporation vs. ITO and Ors., [1998] 232 ITR 807(Ker), the Kerala High Court held as under : “.....Chief CIT had filed a counter-affidavit stating certainfacts and circumstances which were not disclosed in any ofthe communications. The Chief CIT could not supplement thenotification with averments made in the counter-affidavitand that the power of transfer of assessment files from oneauthority to another is conferred on the CIT under Section127(1) of the IT Act, 1961. The power is a quasi-judicial one.Such a power has to be exercised in a fair and reasonablemanner and not in an arbitrary and mechanical way. Thepassing of a reasoned order is one of the requirements offairness in action.” 34.We find that a Division Bench of this Court in the case ofArti Ship Breaking vs. Director of IT (Inv.) & Ors., (2000) 244 ITR333, considered the similar question as to whether non-disclosure of reason in the order of transfer vitiates the orderand in spite of referring the above decision of the Supreme Courtdecided to ignore such vital defect. The following observations ofthe Division Bench are quoted below : “The last submission which has been made by learnedadvocate, Shri Puj, is with regard to transfer of the casesfrom Bhavnagar to Rajkot. It has been submitted by himthat in pursuance of the search which had been carried out, the cases of the firm and its partners have been transferredto Rajkot. It has been submitted by him that as per theprovisions of s. 127(2) of the Act, before transferring thecases from Bhavnagar to Rajkot, the transferring authorityought to have recorded the reasons and communicated thesame to the concerned assessee. The submission of Mr. Pujis that the reasons were neither recorded nor communicatedand the objections filed by the petitioner in reply to theshow-cause notice were not considered by the transferringauthority. It has been submitted by him that as observed bythe Supreme Court in the case of Ajantha Industries vs.CBDT, (1976) 102 ITR 281 (SC), the reasons should not onlybe recorded but they should also be communicated to theassessee. It has been submitted by the learned advocateappearing for the petitioner that the order of transfer wasnever communicated to the petitioner before filing thispetition but the petitioner-assessee was informed o