Vishal Kumar… v. Commissioner Of Income Tax And Anr

* IN THE HIGH COURT OF DELHI AT NEW DELHI Decided on: 18.02.2014 +W.P.(C) 1147/2014, C.M. APPL. 2393/2014 & 2394/2014 VISHAL KUMAR…..Appellant Through: Sh. Ajay Vohra, Ms. Kavita Jha and Sh.Vaibhav Kulkarni, Advocates. Versus COMMISSIONER OF INCOME TAX AND ANR. …..RespondentsThrough: Ms. Suruchii Aggarwal, Sr. StandingCounsel. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE R.V. EASWAR MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) % 1.This writ petition impugns an order under Section 127 of theIncome Tax Act, 1961 (“the Act”) passed by the CIT (XVI), NewDelhi, as a result of which jurisdiction over the writ petitioner (i.e. theassessee) has been transferred from the DCIT, Circle 48(1), NewDelhi to the ACIT, Central Circle, Noida. 2.On 9.10.2013, the CIT, New Delhi issued a show-cause noticeto the petitioner under Section 127 of the Act proposing the transfer,in the following terms: “It is proposed to transfer your case from Delhi toFaridabad. Therefore, before transferring your case u/s127(2) of the IT Act, 1961 an opportunity of being heard inperson or through your authorized representative or awritten reply, is being given to you before CIT, Delhi-XVI,New Delhi. If you have any objection for the proposed transfer you arerequested to bring all evidences before CIT, Delhi-XVI, NewDelhi, in support of your claim on 18[th]Oct. 2013 at 12.30P.M. in Room No.313 D-Block, Pratyakshkar Bhawan, Dr.S.P. Mukherjee Civic Centre, Minto Road, New Delhi.In case your reply/submission is not received in this officeby 17-10-2013, it will be presumed that you have noobjection if your case is centralized with the Commissionerof Income tax (Central Circle), Faridabad.” 3.At this stage, it is important to note the background in whichthis show-cause notice was issued. The show cause notice pertains tothe centralization of the petitioner’s case with the CIT, Faridabad,along with the group of cases concerning the Eldeco Group ofCompanies. The petitioner is the Managing Director of XanderAdvisors Pvt. Ltd. (“XAPL”), a company incorporated in India, withits registered offices in Delhi. XAPL are engaged as advisors byXander Investment Management, Mauritius, which in turn rendersadvisory services to Xander Investment Holding Limited III (“XIHIII”) and Xander Investment Holding Limited IV (“XIH IV”), bothincorporated inMauritius.XIH III andXIH IV areforeignshareholders of Indian incorporated companies belonging to theEldeco Group, including importantly Eldeco Jalandhar PropertiesPrivate Limited and Eldeco City Private Limited, which carry-outconstruction activities in Punjab and Lucknow respectively. The petitioner states categorically that these two companies “are … specialpurpose vehicle companies promoted by Eldeco group.” It is in thiscontext of the inquiry into the income of the Eldeco Group ofCompanies, and the search and seizure operations conducted underSection 132 of the Act at the premises of Xanders Advisors andXander Finance Private Limited, that the show-cause notice wereissued. 4.Pursuant to the show-cause notice, while the petitioner did notmake any oral representation on the assigned date, written objectionswere furnished raising the following grounds: petitioner states categorically that these two companies “are … specialpurpose vehicle companies promoted by Eldeco group.” It is in thiscontext of the inquiry into the income of the Eldeco Group ofCompanies, and the search and seizure operations conducted underSection 132 of the Act at the premises of Xanders Advisors andXander Finance Private Limited, that the show-cause notice wereissued. 4.Pursuant to the show-cause notice, while the petitioner did notmake any oral representation on the assigned date, written objectionswere furnished raising the following grounds: “The assessee is the Managing Director of Xander AdvisorsIndia Pvt. Ltd., which has its Registered as well asCorporate office in Delhi. Xander Group has invested in theprojects of Eldeco Group and formed SPVs for the purpose.The assessee acts only in the capacity of the nomineeDirector, of the Xander Group and draws no remunerationfrom Eldeco Group of Companies. Other than this, theassessee has no business relationship with Eldeco Group.We are enclosing the copies of the income tax returns alongwith the acknowledgment of the assessee for the past 5 yearsfrom where it may be verified that he is in receipt of salaryfrom Xander Advisory India Private Limited and has beenregularly paying his taxes and filing the returns of incomeaccordingly. In view of the above, we request that thecentralization of the assessee's case with Eldeco group, isneither justified nor will it serve any useful purpose and hebe continued to be assessed by the existing A.O.” 5.These objections were disposed off by the impugned order ofthe CIT dated 31.10.2013, passed under Section 127(2) of the Act,whereby the transfer was effected. The order states as follows: “A proposal for centralization of search cases of M/s.Eldeco Group with DCIT/ ACIT Central Circle Noida (D.O. S. 28/03/2012) was received vide letter no. 1870 dated4/9/2013 from the office of Commissioner of Income Tax(Central)Kanpur.Theletteralsointimatedthatincontinuation to earlier proposal for centralization of EldecoGroupofCasesissuedvideletterno.1101dated27/06/2013, wherein five cases from the CIT XVI Chargewere proposed to be centralized, it was found that somemore cases of the family members of the Directors or theirHUFs should also be centralized as they lead to somerelevant information of the assessment in the main entity.XXXXXXXXXXXXXXXXXX 2.As per the requirements of section 127 of theIncome Tax Act, 1961, an opportunity of being heard wasprovided to Sh. Rohan Sikri and Sh. Vishal Kumar to filetheir reply if they had any objection to the proposedtransfer. No reply was received from Sh. Rohan Sikri. In theabsence of any reply from Sh. Rohan Sikri, it is construedthat he has no objection to his case getting centralized withDCIT/ACIT Central Circle Noida. Sh. Vishal Kumar filed a reply dated 17/10/2013.The main contentions made by Vishal Kumar against theproposed transfer were that he was MD in M/s. XanderAdvisors India Pvt. Ltd. which had registered office inDelhi; he drew no salary from Eldeco Group of Companies;and he was a regular assessee paying his taxes in time. Reply of Sh. Vishal Kumar has been consideredand is found to have no force in light of the reasons forwhich proposal for centralization of the cases is sought bythe CIT (Central) Kanpur. Assessee has himself stated in hisreply that M/s. Xander Group has invested in the projects ofEldeco Group and formed SPVs for the purpose. There issufficient reason to transfer the case to DCIT/ACIT Central Circle Noida for effecting meaningful investigation in acoordinated manner with one officer. Sh. Vishal Kumar filed a reply dated 17/10/2013.The main contentions made by Vishal Kumar against theproposed transfer were that he was MD in M/s. XanderAdvisors India Pvt. Ltd. which had registered office inDelhi; he drew no salary from Eldeco Group of Companies;and he was a regular assessee paying his taxes in time. Reply of Sh. Vishal Kumar has been consideredand is found to have no force in light of the reasons forwhich proposal for centralization of the cases is sought bythe CIT (Central) Kanpur. Assessee has himself stated in hisreply that M/s. Xander Group has invested in the projects ofEldeco Group and formed SPVs for the purpose. There issufficient reason to transfer the case to DCIT/ACIT Central Circle Noida for effecting meaningful investigation in acoordinated manner with one officer. 3.In exercise of powers conferred by sub-section (2) ofsection 127 of the I.T. Act, 1961 and all powers enabling mein this behalf, I, the Commissioner of Income Tax Delhi XVINew Delhi hereby transfer the cases, particulars of whichare mentioned in Column No. 2 of the Schedule hereunder,from the Assessing Officer mentioned in Column No. 4 tothe Assessing Officer mentioned in Column No. 5 below,after receiving the concurrence from the Commissioner ofIncome Tax (Central) Kanpur vide letter no. 1870 dated4/9/2013. This order is being passed for conductingcoordinated investigation:” 6.Impugning this order, the petitioner argues that it does not carryany cogent reasons for transfer, as required by Section 127. It isargued that there was no warrant to transfer the cases, as no materialwas presented on the basis of which the transfer could be made.Rather, such a transfer – it is argued – was made on a mere suspicion,especially since no raid was conducted at the petitioner’s residence.Further, learned counsel argues no justifiable and cogent reasons havebeen brought on record; consequently the Court should use its powersunder Article 226. The petitioner in his response to the show-causenotice, specifically stated that he has no business or financialconnection with the Eldeco group, apart from holding one position asa nominee Director. It is argued that despite this categorical assertion,which was not displaced by the Revenue, no reasons have beenprovided except for a vague reference to the need for “conducting acoordinated investigation”. In the absence of any incriminatingmaterial suggesting any possible undisclosed income in the hands of the petitioner, and the absence of any link between the Eldeco Groupof Companies and the petitioner, it is argued that the rationale of‘coordinated investigation’ cannot sustain the order of transfer underSection 127. Furthermore, it is argued that since the proceedings havenot only been transferred from one Assessing Officer to another, butalso from one State to another, the considerations must be stricter injudging whether the powers under Section 127 have been properlyutilized. the petitioner, and the absence of any link between the Eldeco Groupof Companies and the petitioner, it is argued that the rationale of‘coordinated investigation’ cannot sustain the order of transfer underSection 127. Furthermore, it is argued that since the proceedings havenot only been transferred from one Assessing Officer to another, butalso from one State to another, the considerations must be stricter injudging whether the powers under Section 127 have been properlyutilized. 7.Learned counsel urges that a mechanical order has been passedin this case, which betrays a non-application of mind. Reliance hasbeen placed on various decisions, including Y.K. Agarwal v. CIT, 283ITR 532 (All), PS Housing Finance (P) Limited v. UOI, 290 ITR 316,Rajesh Mahajan v. CIT,2002 ( 257) ITR 577, Saptagiri Enterprises v.CIT and Ors., (1991) 189 ITR 705 (AP), and Global Energy Pvt. Ltd.v. CIT, 365 ITR 502, for the proposition that merely mentioning thatthe transfer is required for the purpose of co-ordinated investigation oradministrative convenience is insufficient to justify an order underSection 127. Furthermore, learned counsel argues that the impugnedorder is totally silent on the nature of the proposed investigationsought to be conducted, since the petitioner is only a salariedemployee, who does not have any links with the Eldeco Group.Furthermore, learned counsel argues that the impugned order proceedson a factually incorrect premise that some of the “family members ofthe Director or their HUFs” remain to be centralized, which includesthe case of the petitioner. This – it is argued – is factually incorrect asthe petitioner is not the family member of any of the Directors of any Eldeco Group, nor is the petitioner a member of any of the HUF’srelated to the Eldeco Group. Finally, learned counsel argued that areasonable opportunity of being heard is mandatory under Section127. It is argued that in this case no specific reasons for the proposedtransferwererecorded,norwasanymaterialor informationcommunicated to the petitioner, such that an effective representationcould be made. Finally, it is argued that the impugned order iscontrary to the show-cause notice. While the latter purported totransfer the case to the CIT (Central Circle), Faridabad, the case wasultimately centralized in Noida. 8.The impugned order and the preceding show-cause notice inthis case arise from previous investigations of the Revenue into theEldeco Group of Companies. It is not in dispute today that thepetitioner holds a crucial position of Managing Director of XAPL,which in turn, provides advisory services – through a chain ofcompanies – to XIH III and IV, which are part of the Eldeco Group ofCompanies. The petitioner also admits that the entities lying furtherdownstream are Special Purpose Vehicles, which are dependent uponand controlled by the Eldeco Group, and are engaged in constructionactivities. The officers of XAPL were subject to search and seizureunder Section 132 of the Act. The petitioner is also a nomineeDirector appointed by the Eldeco group, and thus, represents theinterests of the Eldeco group in that capacity, though – if thepetitioner’s assertions are believed – receives no monetary or financialgain in that capacity. Nonetheless, through these facts, which presentthemselves from a reading of the show-cause notice, the impugned order and the facts that are admitted between the parties, it is clear thatthe petitioner is linked, in some business capacity, with the EldecoGroup of Companies. It is not in dispute that the Eldeco Group ofCompanies are receiving attention from the Revenue. In such case, theassessment of the assets and liability of the Eldeco Group ofCompanies,andtheassessmentofthoseassociatedwiththefunctioning of the group in Delhi, by the same Assessing Officerbecomes important. Indeed, it is not in the Court’s domain to second-guess the Revenue’s reasoning, or sit in appeal. Rather, the conspectusof facts in this case clearly points towards some nexus between theEldeco Group and the petitioner, which satisfied the scrutiny of thisCourt in its limited writ jurisdiction under Article 226. 9.The Court also takes notice of the fact that an “order of transferis passed for the purpose of assessment of income. It serves a largerpurpose. Such an order has to be passed in public interest.” (see, KPMohammed Salim v. CIT, (2008) 11 SCC 573). The purpose of aSection 127 transfer is not to subject the petitioner to any tax liability,or even undergo any other obligation (onerous or otherwise), butrather, only to direct that the regular assessment (as is carried out inthe usual course of events) will be conducted by an AO other than thejurisdictional AO in order to ensure coordinated investigation.Importantly, in this case, the Revenue does not rely on the mere pleaor assertion of coordinated investigation. Rather, the facts, asdiscussed above, provide a context of the need for such a coordinateinvestigation, given the various limbs and branches of the entitiesinvolved in the Eldeco Group and their varying business connections. Indeed, the very purpose of the Section 127 order in this case is toensure than an orderly and coordinated investigation takes place whileconducting the assessment of the various (and possibly related)entities involved. Indeed, the Supreme Court has also recognized thata Section 127 order does not – by itself – cause any prejudice to theassesee, and given that due deference must be granted to the Revenuein such matters, the limits of review of such orders is narrow. InKashiram Agarwala v. Union of India, [1965] 56 ITR 15 (SC), theSupreme Court held: “6. But on the other hand, the provision that nothing in sub-section (1) shall be deemed to require any opportunity to begiven, is worded in an emphatic form; and that fact has tobe borne in mind in considering the effect of the proviso.Besides, it would not be unreasonable to assume that therecording of reasons prescribed by s. 127(1) would beappropriate where a transfer is being made otherwise thanin the manner prescribed by the proviso. In such a case,normally, the assessee has to be given a reasonableopportunity to be heard; and the natural corollary of thisrequirement is that his objections to transfer should beconsidered and reasons given why the transfer is madedespite the objection of the assessee. In other words, therequirement as to the recording of reasons flow as a naturalconsequence and corollary of the requirement that areasonable opportunity should be given to the assessee. If,however, a reasonable opportunity is not given to theassessee on the ground that it is not possible to do so,s.127(1) requires that the transfer being of a category wherea reasonable opportunity should be given to the assessee,the authority should record it reasons for making transfer,even though no opportunity was in fact given to theassessee. If that be the true position, it is not easy tounderstand why the proviso should be so construed as torequire reasons to be given for the transfer, even though no opportunity to the assessee is required to be given. That isone aspect of the matter which has to be borne in mind indetermining the true scope and effect of the proviso. XXXXXX XXXXXX XXXXXX opportunity to the assessee is required to be given. That isone aspect of the matter which has to be borne in mind indetermining the true scope and effect of the proviso. XXXXXX XXXXXX XXXXXX 8.…Thisprovisionclearlyindicatesthatwherea transfer is made under the proviso to s. 127 (1) from oneIncome-tax Officer to another in the same locality, it merelymeans that instead of one Income-tax Officer who iscompetent to deal with the case, another Income-tax Officerhas been asked to deal with it. Such an order is purely in thenature of an administrative order passed for considerationsof convenience of the department and no possible prejudicecan be involved in such a transfer. Where, as in the presentproceedings,assessmentcasespendingagainsttheappellant before an officer in one ward are transferred toan officer in another ward in the same place, there is hardlyany occasion for mentioning any reasons as such, becausesuch transferareinvariablymadeongroundsofadministrativeconvenience,andthatshowsthatonprinciple in such cases neither can the notice be said to benecessary, nor would it be necessary to record any reasonsfor the transfer............................” 10.The assessee also has the opportunity to present his case, and besubject to a regular assessment, in front of the AO to whomjurisdiction has been transferred. No prejudice is caused by the merefact of a Section 127 order, such that detailed reasons and specificgrounds are required to be provided, as the petitioner today argues.Equally, the show-cause notice dated 9.10.2013 granted the petitionerin this case an opportunity of being heard. No oral representation wasmade by the petitioner on that date, nor was any request for anotherdate made to the Commissioner. Written objections, however, were preferred, which were considered and disposed off by the impugnednotice in this case. The argument, thus, that no chance to effectivelyrepresent the case was provided has no merit.11.For the above reasons, this writ petition, being meritless, isdismissed along with pending applications. S. RAVINDRA BHAT(JUDGE)R.V. EASWAR(JUDGE)FEBRUARY 18, 2014