Wp/1965/2019 Of Darsan Jitendra Jhaveri v. Commissioner Of Income Tax And 2 Ors

Digitallysigned byGAURIGAURI AMITGAEKWADAMITDate:GAEKWAD2021.09.2914:47:20+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.1965 OF 2019 Darshan Jitendra Jhaveri)Non-Resident Indian, residing at 20A, Block)1, Caremen’s Garden, 9, Cox Road, Cowloon,)Hong Kong and presently in Mumbai at)3/11, Sea View, Dongersi Road, Walkeshwar,)Mumbai – 400 006) ….Petitioner V/s.1. Commissioner of Income Tax)(International Taxation) – 3 Mumbai, having)his office at Room No.1601, 16[th] Floor, Air)India Building, Nariman Point, Mumbai –)400 021)2. Income Tax Officer (HQ))(International Taxation) – 3 Mumbai, having)his office at Room No.1601, 16[th] Floor, Air)India Building, Nariman Point, Mumbai –)400 021)3. Union of India)having its office at 3[rd] Floor, Aayakar Bhavan,)M.K. Road, Mumbai – 400 020) Also)through Secretary, Ministry of Finance, North)Block, New Delhi – 110 001) ….Respondents ---- Mr. Vikram Nankani, Senior Advocate a/w. Mr. Prithwiraj Choudhary,Ms. Divya Shah, Mr. Kinnar Shah and Mr. Jimish Shah i/b. Divya ShahAssociates for petitioner. Mr. P. C. Chhotaray for respondents-Revenue. ---- CORAM : K.R. SHRIRAM & M.S. KARNIK, JJ. DATED : 22[nd] SEPTEMBER 2021 ORAL JUDGMENT : (PER K.R. SHRIRAM, J.) 1Since pleadings are completed, we decided to dispose this petition at the admission stage itself. Rule. Rule made returnable forthwith. Heard by consent of parties. 2Petitioner is a non resident Indian since 2001 residing in HongKong. Petitioner has been conducting business through and in the name ofvarious legal entities, of which petitioner was either the sole shareholderand/or one of the shareholders. These corporate entities were set up eitherin Hong Kong or in British Virgin Islands (BVI). It is stated in the petitionthat since 2013-2014 petitioner’s only source of income is out ofinvestments in India and outside India. Petitioner has been filing income taxreturns as NRI since 2001. According to petitioner, all assessments arecompleted including in respect of the returns filed for Assessment Year2018-2019. 3Petitioner received an intimation dated 20[th] June 2019 underSection 127 (1) of the Income Tax Act, 1961 (the Act) informing petitionerthat a search and seizure action under Section 132 of the Act was conductedon 27[th] July 2017 in the case of Salagaocar Group of Companies by Pr. DIT(Inv.) Panji and these cases are proposed to be centralized with ACIT(Central) Circle, Goa. Paragraphs 1, 2 and 3 of the intimation dated20[th] June 2019 read as under : A Search & Seizure action u/s. 132 of the IT Act, 1961 wasconducted on 27.07.2017 in the case of Salagaocar Group ofCompanies, by Pr. DIT (Inv.) Panji, and these cases areproposed to be centralized with ACIT (Central) Circle, Goa.It is informed to this office that you are connected to thisgroup therefore your case has been identified now forcentralization. As per jurisdiction your case is lying withITO(IT) 3(1)(1), Mumbai, which is also going to beconducted on 27.07.2017 in the case of Salagaocar Group ofCompanies, by Pr. DIT (Inv.) Panji, and these cases areproposed to be centralized with ACIT (Central) Circle, Goa.It is informed to this office that you are connected to thisgroup therefore your case has been identified now forcentralization. As per jurisdiction your case is lying withITO(IT) 3(1)(1), Mumbai, which is also going to be centralized to ACIT Central Circle, Goa. I am directed to request you to file your objections, if any tothe proposed centralization, to this office either personallyor through authorized representative or through a writtensubmission on or before 25.06.2019. This letter is an opportunity, prescribed u/s. 127(1) of the ITAct, 1961. As such, if nothing is heard from you till01.07.2019, the matter would be decided on merits. centralized to ACIT Central Circle, Goa. I am directed to request you to file your objections, if any tothe proposed centralization, to this office either personallyor through authorized representative or through a writtensubmission on or before 25.06.2019. This letter is an opportunity, prescribed u/s. 127(1) of the ITAct, 1961. As such, if nothing is heard from you till01.07.2019, the matter would be decided on merits. 4Petitioner filed a reply on 28[th] June 2019 stating that his onlytransaction with Salagaocar Group is purchase of iron ore by his companiesbased in BVI during the period before 2012, which iron ore were exportedfrom India by the Salagaocar Group to these BVI companies and allpayments were made by BVI companies through banking channels. He hasalso stated that he has stopped dealing with Salagaocar Group in or aboutJune-July 2012 and his assessment has been completed until AssessmentYear 2018-2019. Petitioner has also brought to the notice of the show causenotice issuing authority that he was at a loss to effectively defend his case inthe absence of any reasons or grounds disclosed in the show cause notice asto how he was connected with the Salagaocar Group as alleged. Petitioneralso has reserved his rights to file a further and detailed reply, if so advised,after reasons or grounds showing so called alleged connection between himand Salagaocar Group companies are communicated to him. He has alsosought personal hearing before any decision was taken in the matter. 5Respondent no.1, thereafter issued an order dated 3[rd] July2019, which is impugned in this petition, in which respondent no.1 says thathe is passing the order in exercise of powers conferred by Sub Section 2 of Section 127 of the Act and at the same time, an opportunity was provided tothe assessee under Section 127 (1) of the Act regarding objections, if any. Inthe impugned order, respondent no.1 only says petitioner has stated thattransferring his case to Goa will create genuine hardship in case anycompliance in future is required to be made and that objection raised bypetitioner is not acceptable since petitioner is connected with SalagaocarGroup of companies. Respondent no.1 has not dealt with any other pointsthat petitioner raised in his reply dated 28[th] June 2019 like seeking detailsas to how he was connected with Salagaocar Group, or that he has stoppeddealing with Salagaocar Group in 2012, or how could a buyer of goods, whohas no share holding in the seller organisation, can be stated to beconnected to the seller and, that a personal hearing is required to begranted. The impugned order has been passed without granting a personalhearing though petitioner had requested for the same. Sub-Section 1 and 2 (a) of Section 127 which is relevant to the case at hand read as under : 127. Power to transfer cases : (1) The Principal Director General or Director General orPrincipal Chief Commissioner or Chief Commissioner orPrincipal Commissioner or Commissioner may, after givingthe assessee a reasonable opportunity of being heard in thematter, wherever it is possible to do so, and after recordinghis reasons 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 Assessing Officeror Assessing Officers to whom the case is to be transferredare not subordinate to the same Principal Director General or Director General or Principal Chief Commissioner or ChiefCommissioner or Principal Commissioner or Commissioner - (2) Where the Assessing Officer or Assessing Officers fromwhom the case is to be transferred and the Assessing Officeror Assessing Officers to whom the case is to be transferredare not subordinate to the same Principal Director General or Director General or Principal Chief Commissioner or ChiefCommissioner or Principal Commissioner or Commissioner - (a) where the Principal Directors General or DirectorsGeneral or Principal Chief Commissioners or ChiefCommissioners or Principal Commissioners or Commissionersto whom such Assessing Officers are subordinate are inagreement, then the Principal Director General or DirectorGeneral or Principal Chief Commissioner or ChiefCommissioner or Principal Commissioner or Commissionerfrom whose jurisdiction the case is to be transferred may,after giving the assessee a reasonable opportunity of beingheard in the matter, wherever it is possible to do so, and afterrecording his reasons for doing so, pass the order. 6 6Sub Section (1) of Section 127 is not applicable to the case athand because the transfer proposed is from one commissionerate to anothercommissionerate. Sub Section 1 applies only where a transfer is proposed tobe made from one Assessing Officer subordinate to the same Commissionerto any other Assessing Officer also subordinate to the same Commissioner.In this case, the transfer was proposed to be made by one Commissioner toan Assessing Officer under another Commissioner and both AssessingOfficers are not subordinate to the same Commissioner. Sub Section 2 (a)also requires that such an order can be passed after giving the assessee areasonable opportunity of being heard in the matter and after recording hisreasons for doing so. In our view, reasonable opportunity would mean thatthe show cause notice or the intimation issued should contain such detailsthat would enable the assessee to know the reasons for which the case isbeing transferred. In the intimation notice dated 20[th] June 2019, apart fromstating “you are connected to this group” there are no other details as tohow petitioner is connected to the Salagaocar Group. The word “connected” has varied and a wide meaning. Respondents ought to have mentioned inthe show cause notice how petitioner was connected to Salagaocar Group ofcompanies. The purpose of show cause notice is to enable a party toeffectively deal with the case made out by respondent. If a vague showcause notice is given without specifying anything or the grounds, then it canbe held that reasonable opportunity of showing cause against an order oftransfer being made by the Commissioner was not given, because theassessee would be totally unaware of the grounds which prompted theCommissioner to arrive at prima facie conclusion that the power underSection 127 (2) of the Act was required to be exercised. Issuance of showcause notice is the preliminary step which is required to be undertakenbefore giving opportunity of hearing under Section 127 (2) of the Act. It isnot an empty formality. We find support for this opinion in Om Shri Jigar1Association V/s. The Union of India and Ors. We have to also note that the show cause notice issued is underSection 127 (1) when all applicable provisions are under Section 127 (2)(a) of the Act. Even in the order impugned, respondent no.1 states that theassessee was provided opportunity under Section 127 (1) but he exercisedhis powers under Sub Section 2 of Section 127. In our view, that also showsnon application of mind by respondent no.1. Respondent no.1 also shouldhave dealt with all the points raised by petitioner in his reply, which he hasfailed to do. Moreover, the show cause notice has been issued by one Income Tax Officer (HQ), International Taxation – 3 and not by theCommissioner of Income Tax, who was exercising his power. On that groundalso the show cause notice itself is defective. We have to also note that the show cause notice issued is underSection 127 (1) when all applicable provisions are under Section 127 (2)(a) of the Act. Even in the order impugned, respondent no.1 states that theassessee was provided opportunity under Section 127 (1) but he exercisedhis powers under Sub Section 2 of Section 127. In our view, that also showsnon application of mind by respondent no.1. Respondent no.1 also shouldhave dealt with all the points raised by petitioner in his reply, which he hasfailed to do. Moreover, the show cause notice has been issued by one Income Tax Officer (HQ), International Taxation – 3 and not by theCommissioner of Income Tax, who was exercising his power. On that groundalso the show cause notice itself is defective. 7Mr. Chhotaray states that petitioner had also been raided inconnection with the investigation against Salagaocar Group of companiesand therefore, he should be aware as to how he is connected to SalagaocarGroup of companies. In our view, when the statute states a reasonableopportunity of being heard in the matter, the show cause notice should spellout all details to enable the recipient of the show cause notice to effectivelyrespond to the show cause notice. We cannot accept that petitioner shouldbe aware in view of the past events as to what respondents mean by“connected with the Salagaocar Group”. In any event, petitioner had soughta personal hearing, which has not been granted. 8 Therefore, in our view, the order impugned has to be quashedand set aside and is hereby quashed and set aside. It is open to respondentsto take such steps as advised in accordance with law but in any show causenotice they may issue, all details will have to be provided to petitioner andonce the reply is filed, petitioner shall also be given a personal hearing. Allrights and contentions of petitioner are also kept open. 9Petition disposed. 10 Mr. Chhotaray states that the file has already been transferredto Goa. Respondents are directed to re-transfer the file back to its original Assessing Officer on or before 27[th] September 2021. Mr. Nankani states thateven the PAN card of petitioner has been transferred to Goa. Even that shallbe transferred back to the original office on or before 27[th] September 2021.Until that is done, the concerned office in Goa shall not take any furtheraction on petitioner’s case. 11All to act on authenticated copy of this order. (M.S. KARNIK, J.) (K.R. SHRIRAM, J.)