M/S.mrl Postnet Private Limited( v. The Principal Commissioner Of Income Tax, Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 11.12.2018 CORAM THE HON'BLE MR. JUSTICE K.RAVICHANDRABAABU M/s.MRL Postnet Private Limited(Represented by its Chief Financial OfficerMr.B.Sundar),8/17, B Block, 1st Floor,Sunnyside, Shafee Mohammed Road,Nungambakkam,Chennai 600 034PAN: AAECP7679M ... Petitioner vs. 1.The principal Commissioner of Income Tax, Chennai-4, 301, Wanaparthy Block, Aayakar Bhavan, 121, Mahatma Gandhi Road, Nungambakkam, Chennai 600 034. 2.The Deputy Commissioner of Income Tax, Central Circle-1 (1), 3rd Floor, Central Revenues Building, Queen's Road, Bangalore 560 001. ... Respondents Prayer: Writ Petition filed under Article 226 of theConstitution of India praying to issue a Writ of certiorari tocall for the records of the first respondent bearingNotification No.03/2018-19 in C.No.27/Centralisation/PCIT-4/2017-18 dated 26.06.2018 and quash the same. For Petitioner : M/s.Sandeep BagmarFor Respondents : Mrs.Hema Muralikrishnan Standing Counsel The petitioner is aggrieved against the order of thefirst respondent dated 26.06.2018 passed under Section 127 intransferring the assesees case from ITO, Corporate Ward 4 (1),Chennai to DCIT, Central Circle-1(1), Bangalore. https://hcservices.ecourts.gov.in/hcservices/ 2. The case of the petitioner, in short, is as follows:a) It is a Private limited Company engaged in the businessof providing point of sale technology infrastructure to theBanks and consumer service providers. The petitioner wasacquired by the Worldline Group, France through its Singaporesubsidiary i.e. Worldline IT and Payment Services (Singapore)Pte. Ltd. (Worldline Singapore) in October 2017. WorldlineSingapore acquired 72% stake held by Mr.Kishore Kothapalli(erstwhile Director), 5% stake held by M/s.Global Tech Park Pvt.Ltd. and 23% from other shareholders in the petitioner. As aresult of this acquisition Worldline Singapore became 100% ownerof the petitioner. Prior to the said acquisition, Mr.KishoreKothapalli and Mr.Satish P Chandra were Directors of thepetitioner. They resigned from the Directorship of thepetitioner with effect from 25.10.2017. b) On 01.02.2018, a survey under Section 133A of the IncomeTax Act, 1961 was conducted at the office premises of thepetitioner at Chennai by the Assistant Director of Income Tax(Investigation), Unit 3 and at office in Hyderabad, located at620, Road No.33, Aditya Enclave, Venkatigiri, Jubilee Hills,Hyderabad. During the course of the survey proceedings, thepetitioner produced certain documents. Pursuant to the saidsurvey, show cause notice dated 04.06.2018 was issued by thefirst respondent asking the petitioner show cause as to whycentralization of the petitioner's case should not be done withthe Assessing Officer, Bangalore, the second respondent herein.The first respondent in the said notice dated 04.06.2018 barelystated that there are substantial linkages between thepetitioner and Satish P Chandra and his Company M/s.GTPL withoutexactly stating as to what those linkages are with thepetitioner. The petitioner sent their reply dated 13.06.2018specifically stating that Satish P Chandra, Kishore K Kothapalliand M/s.GTPL did not play any part in the management of thepetitioner ever since Worldline Singapore became its 100% owner.It was specifically stated that the petitioner has no connectionwith Satish P Chandra, Kishore K Kothapalli and M/s.GTPL as onthe date of survey and declaration of capital gains by SatishChandra on sale of shares of the petitioner. Therefore, thepetitioner contended that the sale of share of the petitioner isnot a ground necessitating centralization. However, the firstrespondent, through the impugned order, without considering themerits of the petitioner's reply and without providing anyreason, transferred the petitioner's case from Chennai toBangalore. 3. The respondents filed a counter affidavit along withvacate stay petition. The case of the respondents as stated inthe counter affidavit is as follows: The notice issued to the petitioner itself clearly showsthe linkage between the persons searched in Bengaluru, Chennaiand Hyderabad. The first respondent cannot be expected to spellout the investigation for the purpose of transfer of files. Thereasoning that the materials seized or impounded need to befurther investigated cannot be called as vague as that is whytransfer of files is important. The reply filed by thepetitioner was duly considered by the first respondent and afterthat, an opportunity of personal hearing was also granted to theassessee. The authorised representative of the petitionerappeared before the first respondent and made his submission.After due consideration of the submission, the impugned orderwas passed. Hence, the order is valid as per the provisions ofthe Income Tax Act. Section 127 is to facilitate the transferof assessees case for jurisdictional purpose. Though WorldlineSingapore acquired the petitioner Company in December 2017, onaccount of this transfer, the said Satish Chandra had receivedsale proceeds and declared capital gains to the extent of Rs.19crores. All these transactions took place in the financial year2017-18. Hence the accounts of both parties involved requiredverification and investigation before reaching any conclusion.When huge amounts and numerous transactions between differentparties are to be investigated, it is necessary to have co-ordinated investigation and therefore, the files of thepetitioner necessarily to be transferred. 4. Learned counsel appearing for the petitioner afterreiterating the contentions raised in the affidavit filed insupport of the writ petition further submitted that perusal ofthe impugned order would show that the first respondent has notassigned the specific reasons for transferring the case exceptstating that the objections raised by the assessee cannot be thebasis for not centralizing the case and that the materials,which were seized and impounded need to be further investigated.Thus, the learned counsel submitted that the above observationmade by the first respondent in the impugned order alone is notsatisfying the requirement, as contemplated under Section 127(1)of the Income Tax Act, since the first respondent is duty boundto record his reasons for transferring the case. In support ofhis contention, the learned counsel relied on (1976) 102 ITR 281(SC), Ajantha Industries vs. CBDT, (2013) 258 CTR 320(Chhatisgarh), Ram Gopal Agrawal vs. UOI and (2016) 387 ITR 223(Mum), Zodiac Developers (P.) Ltd. v. Pr.CIT. 5.On the other hand, the learned counsel appearing for therespondents submitted that the notice sent to the assesseeseeking his objection against transfer contained the specificreasons for transfer and when those reasons undoubtedly drive toa conclusion that the co-ordinated investigation is necessary inthis case, the first respondent cannot be found fault with in passing the order of transfer. Therefore, she contended thatthe impugned order is passed in accordance with the provisionsof law and the reason stated by the first respondent fortransferring the case is enough to justify a co-ordinatinginvestigation. In support of her contention, the learnedcounsel relied on a decision rendered by the learned SingleJudge of this Court reported in (1999) 104 Taxman 566 (Madras),General Exporters vs. Commissioner of Income Tax. 6. Heard both sides and perused the materials placed beforethis Court. passing the order of transfer. Therefore, she contended thatthe impugned order is passed in accordance with the provisionsof law and the reason stated by the first respondent fortransferring the case is enough to justify a co-ordinatinginvestigation. In support of her contention, the learnedcounsel relied on a decision rendered by the learned SingleJudge of this Court reported in (1999) 104 Taxman 566 (Madras),General Exporters vs. Commissioner of Income Tax. 6. Heard both sides and perused the materials placed beforethis Court. 7. It is seen that in pursuant to a survey conducted on01.02.2018 and on impounding certain documents from thepossession of the petitioner, a show cause notice dated04.06.2018 was issued to the petitioner by the first respondentasking them as to why centralization of the petitioner's caseshould not be done with the Assessing Officer in Bangalore. Itis true that the said show cause notice stated certain reasons,which are as follows: " 1.A search operations under Section 132of the Income Tax Act, 1961 was conducted on01.12.2018 in the case of Mr.Satish PrphullaChandra & M/s.Global Tech Park Private Limited(GTPL) & others at various locations. M/s.GTPLgroup of companies n Bengaluru is majorly intoproviding infrastructure solutions and Mr.SatishPraphulla Chandra is its Chairman & ManagingDirector. 2. As part of this operation, survey underSection 133 A was conducted on 01.12.2018 at theoffice premise of M/s.MRL Postnet Pvt. Ltd., at1st Floor, No.8/17. Sunny Side Central Block,Shafee Mohammed Road, Nungambakkam, Chennai 600034 and at #620, Road No.33, Aditya Enclave,Venkatagiri, Jubilee Hills, Hyderabad-500 033.Also, search under Section 132 was conducted on01.12.2018 at the residence of Mr.KishoreK.Kothapalli, Promoter & Director of M/s.MRLPosnet Private Limited at House No.17. WhisperValley, Raidurga, Hyderabad - 500 008. It isfound from the records available with the IncomeTax Department that your PAN: is lyingwith the ITO. Corporate Ward 4(1), Chennai.Whereas. It is also seen that M/s.GTPL held 24-56% of shares in M/s.MRL Posnet Private Limitedand Mr.Satish P Chandra is one of its directorsalso, that Mr.Kishore K.Kothapalli is a closeassociate of Mr.Satish P.Chandra and is involvedin this financial affairs. During the course ofsearch, it was found that M/s.MRL Posnet wasacquired by a French company in the directors. On account of this Mr.Satish P Chandra hasdeclared Capital Gains to the extent of Rs.19crores." 3. As there are substantial linkagesbetween M/s MRL Posnet Private Limited andMr.Satish P Chandra and his Company. M/s.GTPLwhich were covered u/s 132 of the Income Tax Act,1961, your case along with the business concernsand individuals in which search was conducted isbeing proposed for centralization to theDCIT/ACIT Central Circle 1(1) Bengaluru so that asingle Assessing Officer can do furtherinvestigation." On account of this Mr.Satish P Chandra hasdeclared Capital Gains to the extent of Rs.19crores." 3. As there are substantial linkagesbetween M/s MRL Posnet Private Limited andMr.Satish P Chandra and his Company. M/s.GTPLwhich were covered u/s 132 of the Income Tax Act,1961, your case along with the business concernsand individuals in which search was conducted isbeing proposed for centralization to theDCIT/ACIT Central Circle 1(1) Bengaluru so that asingle Assessing Officer can do furtherinvestigation." 8. The petitioner did not accept the proposal and on theother hand, filed their reply/objection dated 13.06.2018 bycontending that as on the date of survey, the petitioner Companyhad no linkage with the said Satish Chandra and therefore, thecase should not be transferred. Consequent to the said replyand after giving opportunity of personal hearing to thepetitioner representative, the impugned order was passed on26.06.2018. Perusal of the said order would show that the firstrespondent, after extracting the contents of the reply submittedby the petitioner in response to the show cause notice, has onlystated in paragraph 6 of his order that he is of the opinionthat the objections raised by the assessee cannot be basis fornot centralizing the case and the materials, which were seizedand impounded need to be further investigated. I am afraidwhether such observation made by the first respondent itself isenough to conclude that the first respondent has recorded hisreasons for transferring the case, as required under Section 127(1) of the Income Tax Act, which reads as follows:Power to transfer cases:127(1) The [Principal Director General or]Director General or [Principal Chief Commissioner or]Chief Commissioner or [Principal Commissioner or]Commissioner may, after giving the assessee areasonable opportunity of being heard in the matter,wherever it is possible to do so, and after recordinghis reasons for doing so, transfer any case from one ormore Assessing Officers subordinate to him (whetherwith or without concurrent jurisdiction) to any otherAssessing Officer or Assessing Officers (whether withor without concurrent jurisdiction) also subordinate tohim." 9. No doubt, the show cause notice issued to the petitionerstated some reasons. But at the same time, when such reasonsare opposed and a reply is filed by the assessee objecting thetransfer, the first respondent has to necessarily record hisreasons with certain facts and circumstances warranting the 9. No doubt, the show cause notice issued to the petitionerstated some reasons. But at the same time, when such reasonsare opposed and a reply is filed by the assessee objecting thetransfer, the first respondent has to necessarily record hisreasons with certain facts and circumstances warranting the transfer and to justify that centralised/coordinatedinvestigation is required in a particular case. No doubt, thelearned counsel for the respondents contended that since thereasons are clearly stated in the show cause notice, they neednot be reiterated once again in the order rejecting theobjections against transfer. I do not find any justification onsuch submission. If such view is accepted, then there would beno meaning or purpose in issuing the show cause notice.Needless to say that reasons stated in the show cause notice areonly to be construed as a prima facie view of the Authorityissuing such show cause notice and not as his conclusive view orfinding in respect of the subject matter in issue. Therefore,any reason stated in the show cause notice is always subject tochange or affirmation depending upon the consideration of theobjection raised against the propose made in the show causenotice. Therefore, an order passed in pursuant to the showcause notice, should necessarily deal with the reasons stated inthe show cause notice as well as the objections raised againstthose reasons. Thus, after considering the reasons andobjections, the final view of the Authority should be madeavailable evidently on the face of the order itself with reasonsand discussions. If not, the order passed without recordingreasons, would have to be construed as the one out of nonapplication of mind. 10. At this juncture, the decision of the Apex Court reliedon by the petitioner reported in (1976) 102 ITR 281(SC), AjanthaIndustries vs. CBDT, is relevant to be quoted, wherein it isobserved as follows: It is submitted on behalf of the Revenue by Mr.Sharma that reasons were communicated to the assesseesin the notice calling for objection against the proposedtransfer. It is, therefore, manifest that the reasonsgiven in that show cause notice, namely, "facility ofinvestigation" can be read as a part of the impugnedorder although there is no mention of any reasonstherein as such. We are unable to accede to this submission. Itappears section 5(7A) of the old Act came forconsideration in Pannalal Binjraj and Another vs. TheUnion of India and others and this Court observed atpage 589 as follows:- "......it would be prudent if the principles ofnatural justice are followed, where circumstancespermit, before any order of transfer under section 5(7A)of the Act is made by the Commissioner of Income- tax orthe Central Board of Revenue, as the case may be, andnotice is given to the party affected and he is affordeda reasonable opportunity of representing his views onthe question and the reasons of the order are reduced We are unable to accede to this submission. Itappears section 5(7A) of the old Act came forconsideration in Pannalal Binjraj and Another vs. TheUnion of India and others and this Court observed atpage 589 as follows:- "......it would be prudent if the principles ofnatural justice are followed, where circumstancespermit, before any order of transfer under section 5(7A)of the Act is made by the Commissioner of Income- tax orthe Central Board of Revenue, as the case may be, andnotice is given to the party affected and he is affordeda reasonable opportunity of representing his views onthe question and the reasons of the order are reduced however briefly to writing... There is no presumptionagainst the bona fide or the honesty of an assessee andnormally the Income-tax authorities would not bejustified in refusing to an assessee a reasonableopportunity of representing his views when any order tothe prejudice of the normal procedure laid down inSection 64(1) and (2) of the Act is sought-to be madeagainst him, be it a transfer from one Income- taxOfficer to another within their State or from an Income-tax officer with in the State to an Income-tax Officerwithout it, except of course where the very object ofthe transfer would be frustrated if notice was given tothe party affected. If the reasons for making the orderreduced however briefly to writing it will also help theassessee in appreciating the circumstances which make itnecessary or desirable for the Commissioner of Income-tax or the Central Board of Revenue, as the case may be,to transfer his case under section 5(7A) of the Act andit will also help the Court in deter mining the bonafides of the order as passed if and when the same ischallenged in Court as mala fide or discriminatory. Itis to be hoped that the Income-tax authorities willobserve the above procedure wherever feasible". This judgment was rendered by this Court onDecember 21, 1956, and we find that in the 1961 Actsection 127 replaced section 5(7A) where the legislaturehas introduced, inter alia, the requirement of recordingreasons in making the order of transfer. It is manifestthat once an order is passed transferring the case fileof an assessee to another area the order has to becommunicated. Communication of the order is anabsolutely essential requirement since the assessee isthen immediately made are of the reasons which impelledthe authorities to pass the order transfer. It isapparent that if a case file is transferred from theusual place of residence or office where ordinarilyassessments are made to a distant area, a great deal ofinconvenience and even monetary loss is involved, Thatis the reason why before making an order of transfer thelegislature has ordinarily imposed the requirement of ashow-cause notice and also recording of reasons. Thequestion then arises whether the reasons are at allrequired to be communicated to the assessee. It issubmitted, on behalf of the Revenue, that the very factthat reasons are recorded in the file, although theseare not communicated to the assessee, fully meets therequirement section 127(1). We are unable to accept thissubmission. The reason for recording of reasons in the orderand making these reasons known to the assessee is toenable an opportunity to the assessee to approach theHigh Court under its writ jurisdiction under article 226of the Constitution or even this Court under Article 136of the Constitution in an appropriate case forchallenging the order, inter alia, either on the groundthat it is based on irrelevant and extraneouscondonations Whether such a writ or special leaveapplication ultimately fails is not relevant for adecision of the question We are clearly of opinion thatthe requirement of recording reasons under section 127(1) is a mandatory direction under the law and non-communication thereof is not saved by showing that thereasons exist in the file although not communicated tothe assessee." 11. The Chatisgarh High Court in a case reported in (2013)258 CTR 320 (Chatisgarh), Ram Gopal Agrawal vs. UOI, hasobserved at paragraph 16 as follows:"16. In the case in hand also the reason forproposed transfer was stated to be for "co-ordinatedinvestigation". The assessee(s) was expected toobject to this stock phraseology "co-ordinatedinvestigation" which was bald and vague in its tenor.However, in the opinion of this Court, if the basicreasons and foundations which have compelled or haveput the AO to such inconvenience where "co-ordinatedinvestigation" is not possible at Raipur are notknown to the assessee and against this, the assesseecould not have made any possible objection, thereason for proposed transfer is not only vague but bymentioning such reason proper opportunity is also notafforded to the assessee for raising his objection inthe matter." 12. In fact, I myself has considered the issue inW.P.No.847 of 2017 and passed an order on 05.06.2017, holdingthat it is the bounden duty of the Principal Commissioner ofIncome Tax to record the reasons for transfer, especially whenSection 127(2) contemplates the recording of reasons. As it isseen that the observation made by the first respondent inparagraph 6 cannot be construed as the reasons recorded fortransfer and on the other hand, it is only single line rejectionof the objection raised by the assessee, this Court is of theview that the matter has to go back to the first respondent tonecessarily state the reasons for transfer, as required underSection 127(1). 13. No doubt, the learned counsel for the respondentsrelied on a decision of this court reported in (1999) 104 Taxman566 (Madras), General Exporters vs. Commissioner of Income Taxto contend that the transfer of a case for coordinatedinvestigation cannot be found fault with. There is no quarrelthat a case can be transferred for coordinated investigation.At the same time, it is also necessary for the authority to saythat on what reasons, such co-ordinated investigation isrequired and that statement is to be clearly spelt out in theorder transferring the case from one Officer to another Officer.When such reasoning is not available in the present case, thisCourt is inclined to set aside the impugned order and remit thematter back to the first respondent to pass a fresh orderexpressing the reasons for transfer. At this juncture, thisCourt makes it very clear that it is not expressing any view onthe merits of the reasons stated in the show cause notice aswell as the objections raised by the petitioner opposing suchtransfer, as it is for the first respondent to consider thematter afresh and pass order by stating reasons. 14. Accordingly, the writ petition is allowed and theimpugned order dated 26.06.2018 is set aside. Consequently, thematter is remitted back to the first respondent to pass a freshorder on merits and in accordance with law with reasons within aperiod of two weeks from the date of receipt of a copy of thisorder. No costs. The connected miscellaneous petitions areclosed. Sd/- Assistant Registrar //True Copy// 14. Accordingly, the writ petition is allowed and theimpugned order dated 26.06.2018 is set aside. Consequently, thematter is remitted back to the first respondent to pass a freshorder on merits and in accordance with law with reasons within aperiod of two weeks from the date of receipt of a copy of thisorder. No costs. The connected miscellaneous petitions areclosed. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar vri To 1.The principal Commissioner of Income Tax, Chennai-4, 301, Wanaparthy Block, Aayakar Bhavan, 121, Mahatma Gandhi Road, Nungambakkam, Chennai 600 034. 2.The Deputy Commissioner of Income Tax, Central Circle-1 (1), 3rd Floor, Central Revenues Building, Queen's Road, Bangalore 560 001. +1cc to M/s.Sandeep Bagmar, Advocate sr.no.85643 +1cc to Mrs.Hema Muralikrishnan, Advocate sr.no.86016 W.P.No.19415 of 2018 sj(co)nr 09/01/2019