Wp/16038/2015 Of Shri Farooq Ali Khan v. The Principal Commissioner Of Income Tax

IN THR HIGH COURT OF KARNATAKA AT BBNGALURU DATED THIS THE 28 DAY OF APRIL, 2010 BEFORE| THE HON’BLE MR.JUSTICE ARAVIND KUMAR WRIT PETITION NOs.16038/2015!17799$803 /2015 ($IT) BETWEEN: SHRI FAROOO ALI KHANAGED ABOUT 48 YEARS9/O.SHRI GULZAR ALI KHAN400, I BLOCK, I FLOOR, |IIT MAIN ROAD, R.T.NAGAR,BENGALURU — 560 O32._.. PHTITIONER (BY SRI.NARASIMHA PRASAD.B.S, ADVOCATE) AND: Ll.THERE PRINCIPAL COMMISSIONER OF INCOME TAX BENGALURU - 6, I FLOOR, C.R.BUILDING, QUEEN’S ROAD,BBNGALURU — 560 OO1.BBNGALURU — 560 OO1. iaTHE ASST. COMMISSIONER OF INCOME TAX, | CENTRAL CIRCLE -8(2),ROOM NO.658, 6[ ]FLOOR, AAYAKAR |BHAWAN, MAHARSHI KARVE ROAD,|MUMBAI — 400 O2OROOM NO.658, 6[ ]FLOOR, AAYAKAR |BHAWAN, MAHARSHI KARVE ROAD,|MUMBAI — 400 O2O ROOM NO.658, 6[ ]FLOOR, AAYAKAR | .... RESPONDENT (BY SRI.K.V.ARAVIND, ADVOCATE) THRESK WRIT PETITIONS ARE FILED UNDERARTICLK 226 OF THR CONSTITULIION OF INDIAPRAYING TO QUASH THE IMPUGNED NOTICE ISSUEDBY THE R-1 U/S 127 OF THE ACT, ENCLOSED WITHTHIS PRTITION AS ANNX-H AND THER IMPUGNBDNOTICES ISSUED BY THE R-2 U/S 153 A OF THE ACT,BNCLOSED WITH THIS PETITION AS ANNX-E TO K DI.26.03.2015. THESEWRITPETITIONS.COMING.ON|KORPRELIMINARY HEARING IN ‘B’ GROUP THIS DAY, THECOURT MADE THR FOLLOWING:| ORDER Petitioner is seeking for quashing of noticesdated 26.03.2015, Annexures - E to K issued under|Section1L538andorder/notification|dated06.03.2015, Annexure-M, issued under Section 127|of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’ for short), whereunder assessment|proceedings of petitioner has been transferred from|jurisdictional Assessing Officer namely Assistant|Commissioner of Income Tax / Deputy Commissioner|of Income Tax, Circle — 6(2)(1), Bengaluru, to the| Assessing Officer, Assistant Commissioner of Income|Tax / Deputy Commissioner — Income Tax, Central|Circle — 8(2), Mumbai. — 2 ||haveheard.theargumentsoT|ori.Narasimha Prasad.B.8, learned counsel appearingfor petitioner and Sri.K.V.Aravind, learned panel|counsel appearing for respondents. 3.|search proceedings came to be conducted|under Section 127 oft the Act at the residence otpetitioner, consequent to search conducted in the|business premises of Associate Group, Mumbai on.24 02.9014 and 25.02.2014. Sworn statement of the|petitioner came to be recorded during the search|proceedings under Section 132(4) of the Act before|impoundingcertaindocuments under.Section|133A(3)(1a), which consisted of pen drive, folders,|files, registers, etc. — 4On 14.01.2015 first respondent issued|notice to petitioner proposing to transfer jurisdiction|OVETthepetitioner’sCaSCfromtheDeputyCommissioner of Income Tax, Circle —- 6(2)(1),Bengaluru, to second respondent at Mumbai and|called upon petitioner to submit his objections, ifany, to such transfer by fixing the hearing date as|22.01.2015. Petitioner appeared and filed his.response on 20.01.2015 and through his authorized|representative made oral submissions in support of)his objections filed for transfer. | 5 |On account of change of incumbent|Officer who had issued notice of transfer, second.notice came to be issued to petitioner calling for|personal hearing before the first respondent on|02.03.2015. Petitioner appeared again and reiteratedhis earlier objections. Subsequently an order has| 5 beenpassedOTL06.03.2015,Annexure-M,transferring the petitioner’s assessment from the|jurisdiction of Assistant Commissioner of Income Tax|/ Deputy Commissioner of Income Tax, Circle 6(2)(1),Bengaluru to Assistant Commissioner of Income Tax,Circle -8(2) of Mumbai. Thereafter, notice came to be|issued under Section 153A of the Act to petitioner on)26.03.2015 as per Annexures — E to K calling upon|petitioner to deliver a true and correct return of|income for the assessment years under reference. —Petitioner is questioning said notices and order oftransfer contending interalia that: %4&order of transfer is not communicated.to petitioner; |to petitioner; | %44&reasons are not assigned in the order oftransfer; |transfer; | 5 beenpassedOTL06.03.2015,Annexure-M,transferring the petitioner’s assessment from the|jurisdiction of Assistant Commissioner of Income Tax|/ Deputy Commissioner of Income Tax, Circle 6(2)(1),Bengaluru to Assistant Commissioner of Income Tax,Circle -8(2) of Mumbai. Thereafter, notice came to be|issued under Section 153A of the Act to petitioner on)26.03.2015 as per Annexures — E to K calling upon|petitioner to deliver a true and correct return of|income for the assessment years under reference. —Petitioner is questioning said notices and order oftransfer contending interalia that: %4&order of transfer is not communicated.to petitioner; |to petitioner; | %44&reasons are not assigned in the order oftransfer; |transfer; | %444&all relevant particulars ought to have.been made available to petitioner at thebeen made available to petitioner at the time of issuing notice viz., reasons for.transfer ought to have been disclosed;%4I&reasons assigned in the impugned ordernamely tor the sake of administrativeconvenience, is vague, general and.stock phraseology is used and not.based on valid, specific or cogentreasons, which can be said as germanefor having nexus to the facts of case; | Reasons|assigneddoes|notfulfill the.parameters fixed under Section 127 of the Act for the Commissioner to transfer the case of petitioner from|Bengaluru to Mumbai. — 6.|Per contra, Sri.K.V.Aravind, learned panel|counsel appearing on behalf of respondents would|Support the impugned order and contends that on|account of search conducted in the business| premises of Associate Group, Mumbai, it resulted in)consequentialsearch conducted OTLpetitioner’spremises and certain share holders of Associate|Group of Mumbai / Directors being associated with|the company ADL, Malur, of which petitioner is the|Managing Director, necessitated Commissioner to|exercise the power under Section 127 of the Act to.transfer the assessment proceedings of petitioner|from the jurisdictional Assessment Officer, Bengaluruto Assessing Officer at Mumbai, who is framing the|assessment proceedings of Associate Group, Mumbai. ©Hence, he supports the impugned order as well as|notices. [|Havingheardthe|learnedAdvocatesappearing for parties and on careful perusal of case|papers and bestowing my careful consideration to rival contentions raised at the bar, it would emerge|that under Section 127 of the Act it enables the' Principal Director General or Director General or.Principal Chief Commissioner or Chief Commissioner|or Principal Commissioner or Commissioner to|transfer any case from one or more Assessing Officerssubordinate to him to any other Assessing Officer or AssessingOfficers,whether|withOTwithotuiconcurrent jurisdiction aiter giving the assessee a_reasonable opportunity of being heard in the matter. — 8.|IntheinstantCase,undisputedlypetitioner is assessed under income tax under the.jurisdiction of Deputy Commissioner of Income Tax,|Circle 6(2)(1). Petitioner is the Managing Director ofADL having its registered office at Malur near'Bengaluru. Said company is a joint venture between|Associate Group, Mumbai and petitioner and they|hold 67% and 37% shares respectively and said|Associate Group which is engaged in the business otreal estate, trading, timber, etc. was subjected to| 8.|IntheinstantCase,undisputedlypetitioner is assessed under income tax under the.jurisdiction of Deputy Commissioner of Income Tax,|Circle 6(2)(1). Petitioner is the Managing Director ofADL having its registered office at Malur near'Bengaluru. Said company is a joint venture between|Associate Group, Mumbai and petitioner and they|hold 67% and 37% shares respectively and said|Associate Group which is engaged in the business otreal estate, trading, timber, etc. was subjected to| search under Section 132 ot the Act on 24.02.2014|and25.02.2014.namelybusiness|premisesoT|Associate Group and residential premises of its|Directors in Mumbai. A consequential search|operation also came to be conducted at the residenceof petitioner and at the office of ADL. This resulted in|issuance of notice dated 14.01.2015, Annexure-A,whereunder the Commissioner of Income Tax,Bengaluru, proposed to transfer the petitioner’s case|from Bengaluru to Mumbai in exercise of his power|under Section 127 of the Act namely from Deputy|Commissionerot|IncomeTax, Circle6(2)(1),|Bengaluru, to Deputy Commissioner of Income Tax/Deputy Commissioner of Income Tax, Central Circle|8(2), Mumbai and as such, called upon the petitioner|to file objections, if any, to the proposed transtier. Petitioner has filed his objections to the same on|20.02.2015, Annexure-B, and on account of change| in the incumbent Officer, fresh notice came to be.issued on 26.02.2015, which also came to be repliedto by petitioner on 02.03.2015, Annexures - C and D|respectively. —An order has been passed on06.03.2015 transiferring the petitioner's case asproposed under show cause notice dated 14.01.2015,Annexure-A. Said order has been impugned in the|present writ petition. OQ Anyorderthat|1Spassedby|theCommissioner in exercise of power under Section 127.of the Act should contain reasons and recording otreasons is mandatory as otherwise the noticee would|not be in position to assail the said order before thisCourt under the extraordinary jurisdiction. In fact,|Coordinate Bench of this Court had an occasion to)consider the import of Section 127 of the Act and it.has been held that assigning of reason is a must. 10.|In the case otY,.MOIDEEN KUNHI & CO. vs. INCOME-TAX OFFICERreported in (1993) 71TAXMAN 177 (KAR.)3>2Co-ordinate Bench otf thisCourt after considering the various contentions|raised at the bar has held to the following efiect: | “17. WheneveraSTOUPoT filesaltetransferredfromthejurisdictionalAssessing Officers at the place where theassessees are carrying on business orreside, to a place outside the city, localityor place, the assessees will invariably beput to undue hardship and inconvenience.Therefore, there must be justifiable andvalid reasons for such transter. Whenever.severalfilespendingwithVarl1ousassessing authorities are transferred to asingle authority, it is necessarily tofacilitateco-ordinatedinvestigation.Hence, that cannot be the reason for the)transier. To say that the transfer ofseveral files is being done to facilitateproper co-ordinated investigation does notamount to giving the reason for transfer,but stating the result sought to beachieved by the _ transfer. Take theexample of a group of assessees each ofwhom is maintaining true and correctaccounts, but assessed with different)assessing authorities. It will certainty beconvenient and time saving to transfer allthe file to a single officer, even though there is no tax evasion. But on that'seround can the files be transferred to a faraway place? The answer will be ‘no. Thesection itself makes a distinction between.a transfer to another authority in the samecity/locality and a transfer to an authorityoutside the city/locality. Sub-section (2)of section 127 provides that if the transfer|is to another assessing authority in thesame city or locality, no opportunity toshow cause need be given. That isbecause there is no stigma attached tosuch a transter as the transfer is deemed|to be merely a matter of convenience. Butif the transfer is outside the city, thetransfer ceases to be one of conveniencebut becomes one with the purpose ofcountering evasion of tax or a similarreason which is sought to be prevented bythe transfer. In such cases, merely statingthat the transtfer is to facilitate coordinatedinvestigation will not be sufficient reasonfor the transfer. | 18.In this case, XXXXKXKXKXXKXKXKKXKXcan give rise to such a transfer. 19.Whenever the Commissioner orderstransfer of the files of a group from onecityTO another, aTaxevasion|OT|misdemeanour by all or several of theparties constituting the group is assumed. —Before such a stigma is cast, it isnecessary that the affected parties shouldbe notified of the reason for the proposed|transfer in the show-cause notice, so that) they can effectively explain why such acourse is not necessary. Similarly, it isnecessary that the order communicatedshould also contain the reasons for.making the order for transfer. Thus,where the transfer is to another city, thenmere mention of stock — phrases like ‘tofacilitatecoordinatedinvestigation’OT|VariationsthereotwillNOTbe1nNcompliancewith|the.mandatoryrequirement of section 127(1) and contraryTOtheprinciples enunciatedby the|Supreme Court in|Ajantha Industries’Case |(supra). If the decisions of the High)Courts of Rajasthan, Calcutta, Delhi,Allahabad and Madhya Pradesh referred toin para 16 above are to be take as layingdown a proposition that even in case of|transfers to other cities, it is sufficient to)state ‘tofacilitateco-ordinatedinvestigation’ or similar formal words as.reason for the transfer in compliance withthestatutoryrequirementin.section127(1)relatingTOolvingandcommunicatingTEASOTIS,then|respecttully dissent from such a view.” 11.)Hon’ble Apex Court in the case _ o AJANTHA INDUSTRIESVS.CBDTreported in(19°76)102 ITR 281has held that while making an order oftransfer under Section 127 of the Act requirements of recordingTeasons1S.mandatoryandnon.communication of same to the assessee would not§save such order by showing that reasons existed in file although not communicated to assessee. It has|been held by the Hon’ble Apex Court in the said|judgment to the following effect: “The reasons for recording of reasonsin the order and making these reasonsknown to the assessee is to enable an'opportunity to the assessee to approachthe High Court under its writ jurisdictionunder article 226 of the Constitution or.even this court under article 136 of the.Constitution in an appropriate case for|challenging the order,inter alta,either on.the ground or special leave|mala fideOT|arbitrary or that it is based on irrelevantand extraneous considerations. Whethersuch a writ or special leave application|ultimately fails is not relevant for adecision of the question. We are clearly of opinion that the.requirement of recording reasons undersection 127(1) 1s a mandatory directionunder the law and non communication|thereof is not saved by showing that thereasons exist in the file although notcommu nicated to the assessee.” “When law requires reasons to berecorded in a particular order affectingprejudicially the interests of any person,who can challenge the order in court, itceases to be a mere administrative order.and the vice of violation of the principles ofnatural justice on account of omission tocommunicate the reasons is not expiated.” We are clearly of opinion that the.requirement of recording reasons undersection 127(1) 1s a mandatory directionunder the law and non communication|thereof is not saved by showing that thereasons exist in the file although notcommu nicated to the assessee.” “When law requires reasons to berecorded in a particular order affectingprejudicially the interests of any person,who can challenge the order in court, itceases to be a mere administrative order.and the vice of violation of the principles ofnatural justice on account of omission tocommunicate the reasons is not expiated.” 12.Now turning my attention back to the|facts on hand when impugned order is perused it|would indicate that there are no reasons forthcoming|from the impugned order as to why the assessment|proceedings of the petitioner pending before the|jurisdictional Assessing Officer at Bengaluru is being|transferred to Assessing Officer at Mumbai, except|indicating that “transfer is being effected to facilitate|effective and coordinate the investigations in the|connected case of petitioner’, in which search and|seizure operations under Section 132 of the Act was|conducted|OT)24 OCO22014by theDirector|ot Investigations, Mumbai. This would not satisfy the| criteria of reasons as indicated under Section 127 ofthe Act or the dicta laid down by this Court as well asby the Hon’ble Apex Court in the cases referred to hereinabove. In that view of the matter, I am of the|considered view that it would suffice and meet the'ends of justice if the impugned order is set aside and|matter|1SremittedbackTOthePrincipalCommissioner of Income Tax, Bengaluru-560 OO6 to redo the matter after affording opportunity to|petitioner. If further objections, if any, is filed to|proposed transfer same shall also be considered. It isalso made clear that no fresh notice for personalhearing shall be issued to petitioner by firstrespondent and petitioner shall appear before the.Principal Commissioner of Income Tax, Bengaluru - 060 OO6 (first respondent herein) on 11.05.2015 at|11.00 a.m. and aiter hearing petitioner or his|authorizedrepresentativefirstrespondentshall| proceed to pass orders on merits and in accordance. with law. No opinion is expressed with regard to| merits of the case. Ordered accordingly. Sd/-. JUDGE DR|