M/S. Rsg Foods Pvt. Ltd v. Commissioner Of Income Tax, Bathinda And Others

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH CWP No. 26503 of 2014 Date of agruments:- 21.05.2015Date of Decision:- 08.07.2015 M/s. RSG Foods Pvt. Ltd. ......Petitioner(s) vs. Commissioner of Income Tax, Bathinda and others ......Respondent(s) CORAM:- HON'BLE MR. JUSTICE S.J. VAZIFDAR,ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE G.S.SANDHAWALIA Present:-Mr. Sandeep Goyal, Advocate,for the petitioner. Mr. Suneel Ranga, Advocate,for Mr. G.S. Hooda, Advocate,for respondents no. 1 and 2. G.S.SANDHAWALIA, J. Challenge in the present writ petition is to the order dated08.10.2014 (Annexure P-13) passed by respondent no. 1 under Section 127(2)(a) of the Income Tax Act, 1961 (in short 'the Act') whereby, thepetitioner's jurisdiction for the purpose of assessment proceedings has beenchanged from the Assessing Officer at Circle-III, Ferozepur to the CentralCircle, Amritsar on the ground of a coordinated investigation of theconcerned group of cases and in the interest of administrative convenience.The subsequent notices dated 11.12.2014 (Annexures P-14 and P-15) whichhave been issued in pursuance to the transfer of the case under Section 127 and asking for information by the Deputy Commissioner of Income Tax,Central Circle, Amritsar and to appear before the said officer are alsosubject matter of challenge. The pleaded case of the petitioner is that it is engaged in thebusiness of rice shelling at village Sandhe Hasham, Zira Road, Ferozepur.The company has two directors and 11 share holders closely related to eachother. One of the family members of the Directors had sold certain portionof its land about 3-4 years back to the Narula Group of Companies (in short'NGC'), who had set up a solvent plant by the name of Sat Kartar SolvexPvt. Ltd. and the petitioner company is running a rice sheller and the saidsolvent plant had no similarity of business which was located adjoining thebusiness premises of the petitioner-company. However, due to shortage ofspace, 31,589 bags of paddy had been stocked in the premises of M/s. SatKartar Solvex Pvt. Ltd. The rice bran, which is one of the by-products ofthe shelling, is also sold to the said company as a normal businesstransaction and there was otherwise no similarity or relationship with theNGC, who were not residents of Ferozepur. On 05.12.2013, search and seizure operation under Section 132of the Act was carried out on the said NGC which is based at Guru HarSahai, Amritsar. The petitioner was thereafter served a notice dated22/23.01.2014 (Annexure P-2) wherein, it was averred that the petitionerwas sufficiently related to the NGC and, therefore, there was a proposal thatthe jurisdiction of its case was to be centralized with the DCIT/ACIT,Central Circle, Amritsar for purposes of coordinated investigation andadministrative convenience. Objections were accordingly invited, to which On 05.12.2013, search and seizure operation under Section 132of the Act was carried out on the said NGC which is based at Guru HarSahai, Amritsar. The petitioner was thereafter served a notice dated22/23.01.2014 (Annexure P-2) wherein, it was averred that the petitionerwas sufficiently related to the NGC and, therefore, there was a proposal thatthe jurisdiction of its case was to be centralized with the DCIT/ACIT,Central Circle, Amritsar for purposes of coordinated investigation andadministrative convenience. Objections were accordingly invited, to which the petitioner replied taking the plea that it was an independent companyand having a separate PAN number and there were no common premisesand neither their premises had been searched. There were no familymembers of the above said group who were share holders and neither therewas an introduction of any capital loan from the group or vice versa.Reliance was also placed upon the judgment of this Court in RajeshMahajan and others vs. CIT and others, (2002) 257 (ITR) 577.Information was also sought from the respondents as to on what basis theyhad recorded a finding that the two groups were attached. Accordingly, thepetitioner was supplied the 4 reasons on 22.05.2014 (Annexure P-7) due towhich the centralization was sought to be done. That the petitionerthereafter replied on 24.07.2014 (Annexure P-10) that the reasons givenwere wrong and prayed for an opportunity of being heard. The said reasonswere again objected to on 04.09.2014 (Annexure P-12) which lead to thepassing of the order transferring the jurisdiction from Ferozepur toAmritsar, as noticed above. The reasons and reply thereto read thus: Sr.ReasonsReplyNo. 1.The Stock of Paddy of 31,589 Bags of theThat M/s. RSG Foods Pvt. Ltd. and M/s. Satkartarconcern of M/s. RSG Foods Pvt. Ltd. wasSolvex Pvt. Ltd. are dealing in the similar line offound lying at the premises of M/s.products doing regular business transactions and evenSatkartar Solvex Pvt. Ltd., in Villagethe business premises of both the parties is opposite toSandhe Hasham, Ferozepureach other. Hence, the bags of paddy relating to M/s.RSG Foods Pvt. Ltd. found in the premises of M/s.Satkartar Solvex Pvt. Ltd. was merely a normal businessdealing made by them to store the stock in the godownof M/s. Satkartar Solvex Pvt. Ltd. due to lack of storagespace in the premise of M/s. RSG Foods Pvt. Ltd. atthat moment.It cannot lead to any business relation/connectioncalling certralization of RSG Foods Pvt. Ltd.alongwith M/s. Satkartar Solvex Pvt. Ltd. 4Also the concerns M/s. RSG FoodsThat, the parties doing business transactions withPvt. Ltd. and M/s. Satkartar Solvexeach other is in normal course of business as isPvt. Ltd. are having businessdone by numerous business entities with Satkartartransactions relating to purchase andSolvex Pvt. Ltd. But we are unable to comprehendsale of Rice Bran with each other.how two parties doing normal businessThe concern M/s. RSG Foods Pvt.transactions can be termed as "CLOSLYLtd. is selling Rice Bran to theINTERLINKED".concern M/s. Satkartar Solvex Pvt.Ltd.It cannot lead to any businessrelation/connection calling centralization ofRSG Foods Pvt. Ltd alongwith M/s SatkartarSolvex Pvt Ltd.Pvt. Ltd. and M/s. Satkartar Solvexeach other is in normal course of business as isPvt. Ltd. are having businessdone by numerous business entities with Satkartartransactions relating to purchase andSolvex Pvt. Ltd. But we are unable to comprehendsale of Rice Bran with each other.how two parties doing normal businessThe concern M/s. RSG Foods Pvt.transactions can be termed as "CLOSLYLtd. is selling Rice Bran to theINTERLINKED".concern M/s. Satkartar Solvex Pvt.Ltd.It cannot lead to any businessrelation/connection calling centralization ofRSG Foods Pvt. Ltd alongwith M/s SatkartarSolvex Pvt Ltd. That, the contention mentioned in theletter- "Two Concerns are closely interlinked"is totally wrong & without any basis in view ofevidences on the following basis :i) We are an Independent Company having Regd.Office at Vill Sandhe Hasham, Zira Road,Ferozepur having PAN- since itsincorporationii) That, at the time of search no premises of ourcompany has ever been searched/or anysummons/search warrant has ever beenmade/issued against our Companyiii) That, our Company is regularly assessed withthe ACIT, Ferozepur & our list of share holders ison the official records of the Department, in whichthere is no family members/relatives of M/sSatkartar Solvex Pvt Ltd as a share holder. iv) That, there is no introduction of anycapital/loans from the said group or vice/versa.v) That, it is further evidenced from the bank loanraised by our Company, in which there is nodocumentation/guarantee by the said group/familymembers of that Group of cases. In the written statement filed, it has been pleaded that there was no prejudice caused to the petitioner as it has only to appear before theAssessing Officer at Amritsar which is equidistantly placed from Bathinda.The petitioner was not a person of such small means as to be adverselyaffected and the determining factor was that land had been transferred to theNGC by the Directors and an opportunity of hearing was given after takinginto consideration all the objections of the petitioner. Counsel for the petitioner has submitted that no valid reasonsas such have been given for transferring the case and the order is notsustainable whereas, counsel for the revenue, on the other hand, haddefended the said order and said that the detailed reasons have beenmentioned and a well reasoned and speaking order has been passed, whichis liable to be upheld. Section 127 of the Act provides the power to transfer casesafter giving the assessee reasonable opportunity of being heard in the matterwherever it is possible to do so. In the present case, there is no denying the fact that the assesseehas been heard. The issue that arises as to whether the reasons recorded fortransfer of the case from Ferozepur to Amritsar is on the basis of somerationale which is sought to be justified merely on the ground that there wasclose nexus between the petitioner and the NGC. The reasons which haveprevailed were that there were 31,589 bags of the petitioner firm lying in thepremises of M/s. Sat Kartar Solvex and in the absence of any considerationand on account of no rent being charged, it is presumed that they are closelyinter linked. The same land had been sold to M/s. Sat Kartar Solvex by thepetitioner-assessee 3-4 years back and if there was shortage of land, why was it sold and since both entities were doing the similar business ofmanufacturing rice and its by-products and, therefore, the question of saleand purchase from each other did not arise. was it sold and since both entities were doing the similar business ofmanufacturing rice and its by-products and, therefore, the question of saleand purchase from each other did not arise. The said reasoning, as noticed, cannot be merely on the basis ofthe fact that a coordinated investigation is required for looking into thetransactions of NGC, who apart from being a purchaser of the adjoiningland, is having normal business dealings without coming to any validconclusion that the parties are inter se deeply connected as such and that thepetitioner itself was also a party to evasion of tax alongwith the NGC. Onlyif the authorities came to a valid conclusion such as on the basis of somesubstantiated material, either in the form of material documents or in theform of statements, the authorities would have a valid justification totransfer the cases under Section 127 of the Act. Merely because some stockof paddy was lying on the adjoining premises which is not disputed andthere was no rent agreement as such inter se the parties would not be aground to link the parties in such a manner as has been sought to be done byrespondent no. 1. The fact that the land had earlier belonged to thepetitioner and had been sold could not as such be questioned in the mannerin which it has been done that if there was shortage of space, why the landwas sold. If the petitioner has sold the land for business or commercialexigency, the same cannot be questioned merely due to storage of the saidpaddy bags and it could not be a valid ground for the authorities to come toa conclusion that the jurisdiction of the assessment proceedings had to betransferred to Amritsar. No finding had been recorded that the Directors ofthe petitioner-company were also Directors in the NGC and that there were large number of transactions inter se vide which the tax had been evadedand that the petitioner was a key associate. Merely because the parties weredoing business in the normal course inter se, would not be a ground as suchto transfer the assessment in the absence of any major financial nexus, assuch, a ground would result in transferring other assessments of assesseeswho were doing business with the NCG. The reasoning, thus, which hasbeen resorted to by respondent no. 1 cannot be held to be justified in anymanner as the serious rights of the petitioner are involved as assessment isto be transferred for all purposes to a far off place to its detriment. Insimilar circumstances, a Single Bench of this Court in Rajesh Mahajan'scase (supra) has held that even if the transferee is one of the Directors, itwas not a valid justification for the transfer of income tax proceedings.Firstly, it is essential, that the show-cause notice issued under Section 127of the Act, discloses to the assessee the reasons/basis of the contemplatedaction in terms of the mandate of the rules of natural justice. Exceptions tothis essential ingredient would be the same as the exceptions to the rules ofnatural justice. Secondly, an assessee has the right to file objections on thereceipt of a show-cause notice issued under Section 127 of the Act. In theabsence of such liberty, the assessee cannot be stated to have been affordeda "reasonable opportunity" as is contemplated by the aforesaid provision.Thirdly, the reasons recorded in the final order passed under Section 127 ofthe Act (by which the concerned/competent authority decides to execute theproposed action contemplated in the show-cause notice), must not only takeinto consideration the objections raised by the assessee, but the reasonsrecorded in the order must also have a direct nexus/bearing to the object sought to be achieved. Fourthly, belief/suspicion even though bona fidecannot be sufficient justification for taking recourse to any of the actionscontemplated under Section 127 of the Act. For a valid order under Section127 of the Act, the reasons expressed must disclose an actual financial,commercial or other relevant nexus justifying the action. Thus, in theabsence of any independent finding recorded by the authorities below thatthe parties were as such linked in such a manner where there was major flowof finances from one side to the other, respondent no. 1 was not justified intransferring the proceedings and the said action cannot be held to bejustified. Accordingly, the present writ petition is allowed and orderdated 08.10.2014 (Annexure P-13) is quashed. Resultantly, the noticesissued from the respondents at Amritsar Annexures P-14 and P-15 are alsoset aside. (S.J. VAZIFDAR) ACTING CHIEF JUSTICE (G.S. SANDHAWALIA) JUDGE 08.07.2015shivani