2006-VIL-457-ALH-DT

Equivalent Citation: [2008] 283 ITR 532, 201 CTR 520, 154 TAXMANN 220

ALLAHABAD HIGH COURT

Date: 23.02.2006

RK. AGARWAL. NK. AGARWAL. YK. AGARWAL.

Vs

COMMISSIONER OF INCOME-TAX AND OTHERS.

BENCH

Judge(s)  : A. K. YOG., PRAKASH KRISHNA.

JUDGMENT

Heard Shri Ravi Kant, senior advocate, assisted by Shri R.S. Agrawal, advocate for the petitioners and Shri Bharat Ji Agrawal, senior advocate along with Shri Ashok Kumar, advocate for the respondents.

The above writ petitions are decided finally as all the respondents are represented by standing counsel representing the Department. Initially the respondents did not file counter-affidavit on the understanding that these writ petitions are to be decided on the basis of three documents, i.e., notice dated October 26, 2005/annexure 2, reply of the assessee/annexure 3 dated October 27, 2005, and the impugned order of transfer dated December 16, 2005/annexure 4 to the writ petition, the authenticity of which was not disputed before the court.

The petitioners have approached this court through the aforementioned writ petitions under article 226 of the Constitution of India and seek to challenge the transfer of their case by a common order dated December 16, 2005 passed by the Commissioner of Income-tax-I, Kanpur, in exercise of powers vested under section 127(2), Income-tax Act, 1961 (called "the Act") from Kanpur to the Assessing Officer at New Delhi.

For convenience we refer to the facts leading to Writ Petition No. 55 of 2006 (R.K. Agarwal v. CIT). According to the petitioner, he is engaged in the business of sale of printing paper and board. He is, besides Smt. Rekha Agrawal (wife of his brother) and Shri Mayank Agrawal (brother of the petitioner) partner in the firm, M/s. Malay Enterprises.

In paras. 4 and 5, it is pleaded that the petitioner and his firm "has got absolutely no connection with the company known as M/s. Trimurti Fragrances P. Ltd. He is neither a shareholder nor a director of the aforesaid concern." The petitioner has however admitted that he is married to the sister of Pradeep Agarwal one of the directors of M/s. Trimurti Fragrances P. Ltd. In para. 6 of the writ petition, it is stated that the petitioner is an income-tax payer for the last several years.

A search and seizure operation under section 132 of the Act was conducted on July 2, 2003 within the residential and business premises belonging to the partners/directors of the said firms/units called "Shikhar Gutkha group".

The Commissioner of Income-tax served a show-cause notice on the subject titled "transfer of your case record from Kanpur to New Delhi". The relevant contents of the said show-cause notice dated October 26, 2005/annexure 2 to the writ petition are reproduced below:

"Please refer to the notice under section 127(2) of the Income-tax Act, 1961, dated September 20, 2005 above.

2. Consequent upon the search and seizure operation under section 132 on July 2, 2003 in the Shikhar Gutka group, a number of cases connected with Shikhar Gutka have already been centralized with the Deputy Commissioner of Income-tax, Central Circle-9, New Delhi. A search operation was also conducted at your residential premises along with the Shikhar Gutka group. Since your case is also found to be connected with Shikhar Gutka group, it is proposed to transfer your cases to the Deputy Commissioner of Income-tax, Central Circle-9, New Delhi, for the purpose of co-ordinated and effective investigation.

3. In this regard a notice dated September 20, 2005, was issued to you in terms of section 127(2) of the Income-tax Act, 1961, by the learned Commissioner of Income-tax-I, Kanpur fixing the date of hearing at September 27, 2005, which was duly served on you.

4. In this connection I am directed to intimate that one more opportunity of being heard is being provided to you in terms of section 127(2) of the Income-tax Act, 1961 in respect of proposed transfer of your case to the jurisdiction of the Deputy Commissioner of Income-tax, Central Circle-9, New Delhi under Central Range-4 of the Commissioner of Income-tax (Central)-II, New Delhi. The date of hearing in this regard is fixed at 12.00 p.m. on October 31, 2005."

The petitioner submitted reply dated October 27, 2005/annexure 3 through speed post. For ready reference, the relevant paragraphs of the aforesaid reply are reproduced below:

"With reference to your notice dated October 26, 2005 firstly I have to inform your honour that my counsel attended on September 27, 2005, but he came to know that you are on leave and on the next date, i.e., October 31, 2005, due to Dewali festival. I will be out of Kanpur therefore, I am sending my reply through speed post, I have to submit that I am a regular income-tax payee and filed our return of income up to the assessment year 2004-05.

You have not assigned any reason in your notice under reference except a search has been conducted in Shikhar Gutkha group. I may submit that I have no connection with Shikhar Gutkha group except family relation with Shri Murlidhar Agarwal. Thus proposed action initiated by you is illegal and bad in the eyes of law and till then I reserve my right to reply further in this connection.

Further I have to inform you that my case is very much identical to the case of Mr. Virendra Kumar Jain and M/s. Vijay Kumar Pradeep Kumar, Kanpur. The case of the aforesaid person and firm was transferred under section 127 by the Commissioner of Income-tax (Central), Kanpur to New Delhi. Being aggrieved, both of them filed a writ petition before the hon'ble Allahabad High Court and the hon'ble court vide order dated May 2, 2005 stayed the operation of order passed under section 127 and also held that 'Since the case of main company M/s. Trimurti Fragrances P. Ltd. which was sought to be transferred and after that the case of Shikhar Gutkha from Kanpur to Delhi has been stayed by this court, we find that the case of the petitioner on that very grounds should not have been transferred. Consequently, as an interim measure we stay the operation of the impugned order dated April 4, 2005 ...'

For your kind perusal, I am enclosing herewith a copy of stay order dated May 2, 2005 in both the cases.

In view of the stay order as discussed above passed by the hon'ble Allahabad High Court, the main grounds for transferring my case are truly identical, therefore my case should not be transferred till the disposal of the writ petition filed by M/s. Trimurti Fragrances P. Ltd.

I request you that looking into the totality of the facts and the view of the hon'ble Allahabad High Court in the stay order passed in the case of Mr. Virendra Kumar Jain and M/s. Vijay Kumar Pradeep Kumar, please do not transfer my case from Kanpur to New Delhi otherwise it will cause grave injustice and harassment to me and also violation of the views of the hon'ble Allahabad High Court as well as disregard for the hon'ble Allahabad High Court stay orders passed in both the aforesaid cases."

The Commissioner of Income-tax-I, Kanpur, passed the impugned order of transfer dated December 16, 2005/annexure 4 to the writ petition, relevant paras. 5 and 6 of it are:

"5. The main objection of the abovenamed assesses to the transfer of their cases to the Deputy Commissioner of Income-tax, Central Circle-IX, New Delhi is that they have no connection with Shikhar Gutkha group except family relation with Shri Murlidhar Agrawal of the said group. They have also stated that their case is very much identical to the case of Mr. Virendra Kumar Jain and M/s. Vijay Kumar Pradeep Kumar, Kanpur, which was transferred under section 127 of the Income-tax Act, 1961 by the Commissioner of Income-tax (Central), Kanpur to New Delhi and the operation of the order of the Commissioner of Income-tax (Central) has been stayed by the hon'ble High Court, Allahabad vide order dated May 2, 2005 in a writ petition filed by Mr. Virendra Kumar Jain and M/s. Vijay Kumar Pradeep Kumar before the hon'ble High Court, Allahabad. Therefore in view of the stay order passed by the hon'ble High Court of Allahabad, their cases should not be transferred.

6. The above named assessees in their replies have merely stated that their cases are identical to that of Mr. Virendra Kumar Jain and M/s. Vijay Kumar Pradeep Kumar, Kanpur, which were transferred to Delhi by the Commissioner of Income-tax (Central), Kanpur. They have not elaborated their contention as to in which manner their cases are identical to the aforesaid Mr. Virendra Kumar Jain and Mr. Vijay Kumar Pradeep Kumar, Kanpur. They have also not given any explanation with regard to their contention that they do not have any connection with Shikhar Gutkha group of cases. Therefore, the objections raised by the said three assessees against the proposed transfer of their cases to the Deputy Commissioner of Income-tax, Central Circle-IX, New Delhi are therefore, not tenable. It is necessary to centralise the cases of the above named assessees with Deputy Commissioner of Income-tax, Central Circle-IX, New Delhi so that co-ordinated and post search investigation could be done in these cases consequent upon the aforesaid search and seizure action."

Being aggrieved the petitioners have filed the abovementioned writ petitions invoking the extraordinary jurisdiction of this court under article 226, Constitution of India, praying for issuing a writ, order or direction in the nature of certiorari calling for the record of the case and quashing the impugned order dated December 16, 2005/annexure 4 to the writ petition and also a writ, order or direction in the nature of prohibition to restrain respondent No.2/the Deputy Commissioner of Income-tax, Central Circle-9, New Delhi from taking further action in pursuance of the said impugned order dated December 16, 2005 and other usual reliefs.

We may note that Sri N.K. Agrawal, the petitioner in Writ Petition No.11 of 2006 categorically pleaded that he has absolutely no concern/connection with the company M/s. Trimurti Fragrance P. Ltd. Similarly, in Writ Petition No. 57 of 2006, the petitioner claims to be an individual and claims to be an employee of the firm Malay Enterprises (referred to above).

As noted above, the order of transfer has been passed with respect to the above petitioners in spite of their categorical stand taken in their reply that they have no concern/connection of any nature with M/s. Trimurti Fragrance P. Ltd. or its business.

Learned counsel for the petitioner submits that the impugned order of transfer suffers from manifest error apparent on the face of the record to the extent that the petitioner in his reply dated October 27, 2005, (in response to show-cause notice dated October 26, 2005) has specifically contended "that he had no connection with Shikhar Gutkha group except family relation with Sri Murlidhar Agrawal."

It is further pointed out that in spite of the aforesaid plea taken, the impugned order of transfer does not disclose as to why the case of the petitioner was transferred to New Delhi. The petitioners, in other words, contend that unless there is anything to show that there was any kind of connection or association of the petitioner with the firm/companies belonging to Shikhar Gutkha group, the impugned transfer order cannot be justified. It is also submitted that the reasoning adopted by the Commissioner of Income-tax-I/concerned authority in the impugned order of transfer to the effect that the assessee had failed to give "any explanation with regard to their contention that they do not have any connection with the Shikhar Gutkha group of cases. Therefore, the objections raised by the assessees against the proposition of transfer of their cases to the Deputy Commissioner of Income-tax, Central Circle-9 therefore are not tenable" is misconceived approach. The pith and substance of the argument is that the assessees could not be required to prove something which is non-existent or in the negative; it is for the Department to prove the affirmative.

It is being contended that if it is true that the petitioner had no concern or connection with Shikhar Gutkha group of cases, the question to centralize the cases of the petitioner with that of Shikhar Gutkha group did not arise at all.

In reply learned counsel representing the Department referred to the show-cause notice which recites: "A search operation was also conducted on your residential premises along with the Shikhar Gutka group. Since your case is also found to be connected with Shikhar Gutka group, it is proposed to transfer your case to the Deputy Commissioner of Income-tax, Central Circle-9, New Delhi for the purpose of co-ordinated and effective investigation.".

Referring to the recitation in the show-cause notice, it is being argued that no fault can be found in the impugned order of transfer, particularly in view of the admission of the assessee with respect to the case of Virendra Kumar Jain and M/s. Vijay Kumar Pradeep Kumar. The aforesaid stand taken in defence by the Department to defend the impugned order of transfer has two aspects:

(1) As to whether the recitation appearing in the show-cause notice can be availed of for the purpose to sustain the impugned order of transfer wherein there is no such mention. Conspicuously the impugned order of transfer does not refer to the fact that on the basis of search operation in question anything was found to indicate the connection or association of the assessee with the Shikhar Gutkha group. We may refer to the specific/definite stand taken by the assessee in his reply dated October 27, 2005/ annexure 6 to the writ petition wherein it has categorically stated: "I may submit that I have no connection with the Shikhar Gurkha group except family relation with Shri Murlidhar Agarwal". Such a plea being taken by the assessee, it was more the reason for the Department to have specifically recorded a finding as to why such a positive statement was not being accepted. In the absence of it, the plea taken by the assessee could not be ignored or brushed aside. The reasoning of the Department is clearly misconceived and misapprehended and the approach in rejecting the contention of the assessee on this score cannot be sustained.

The second aspect of the stand taken by the Department before this court is that the assessee in his reply had already come forward to state that his case is identical to the case of Virendra Kumar and M/s. Vijay Kumar Pradeep Kumar which was transferred from Kanpur to New Delhi under section 127 of the Act and who had approached the High Court by filing a writ petition and obtained interim orders. The said submission clearly ignores the later portion of the reply of the assessee. The aforesaid statement, in our opinion, was made for the sole purpose to inform the Department that the transfer of his case need to be stayed in view of the interim order passed by the hon'ble High Court. This statement however did not and cannot be read to mean that the petitioner admitted his connection or association with the aforesaid persons, namely Virendra Kumar Jain and M/s. Vijay Kumar Pradeep Kumar.

Learned counsel for the Department also submitted that it is not expected to disclose the material while passing the order of transfer in the interest of effective assessment proceedings and to ensure that the assessee does not resort to such practices which may cause hindrance in the process. There can be no quarrel with the aforesaid proposition. But the question remains as to whether the Department on the basis of the above stand can completely ignore a categorical statement of the assessee that he has no connection/association with respect to the Shikhar Gutkha group cases.

We find that no prejudice will be caused to the Department if the precise reason is disclosed to show that the authority did apply his mind to the material on record or information available on the basis of search and seizure operations, giving a link to the fact that the "assessee" has some connection or association and by making a mention of the said fact in the transfer order. This is more so necessary to show that the authority exercising its statutory power of transfer had actually gone through the record and applied its mind before passing the impugned order of transfer and that the power to transfer cases is not exercised mechanically. If the Department remains silent it will frustrate the whole object of the statutory provisions that transfer should not be passed mala fide or arbitrarily or on irrelevant/extraneous considerations.

We may refer to the apex court decision in the case of Ajantha Industries v. CBDT [1976] 102 ITR 281 (SC); AIR 1976 SC 437. For convenience paras. 9,10,11 and 15 of the said judgment are reproduced as under:

"9. This judgment was rendered by this court on December 21,1956, and we find that in the 1961 Act section 127 replaced section 5(7A) where the Legislature has introduced, inter alia, the requirement of recording reasons in making the order of transfer. It is manifest that once an order is passed transferring the case file of an assessee to another area the order has to be communicated. Communication of the order is an absolutely essential requirement since the assessee is then immediately made aware of the reasons which impelled the authorities to pass the order of transfer. It is apparent that if a case file is transferred from the usual place of residence or office where ordinarily assessments are made to a distant area, a great deal of inconvenience and even monetary loss is involved. That is the reason why before making an order of transfer the Legislature has ordinarily imposed the requirement of a show-cause notice and also recording of reasons. The question then arises whether the reasons are at all required to be communicated to the assessee. It is submitted on behalf of the Revenue that the very fact that reasons are recorded in the file, although these are not communicated to the assessee, fully meets the requirement of section 127(1). We are unable to accept this submission.

10. The reason for recording of reasons in the order and making these reasons known to the assessee is to enable an opportunity to the assessee to approach the High Court under its writ jurisdiction under article 226 of the Constitution or even this court under article 136 of the Constitution in an appropriate case for challenging the order, inter alia, either on the ground that it is mala fide or arbitrary or that it is based on irrelevant and extraneous considerations. Whether such a writ or special leave application ultimately fails is not relevant for a decision of the question.

11. We are clearly of opinion that the 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 the reasons exist in the file although not communicated to the assessee ...

15. When law requires reasons to be recorded in a particular order affecting prejudicially the interests of any person, who can challenge the order in court, it ceases to be a mere administrative order and the vice of violation of the principles of natural justice on account of omission to communicate the reasons is not expiated."

In that view of the matter, we find that the impugned order of transfer suffers from manifest error apparent on the face of record and the same cannot be sustained in law.

The impugned order of transfer dated December 16, 2005/annexure 4 to the writ petition (common to all writ petitions) passed against the asses-see-petitioners, in the abovementioned writ petitions, is hereby set aside with a direction to the respondents (if so advised) to pass fresh orders in accordance with law. We make it clear that the time consumed from the date of filing of the reply till the decision of the writ petition shall not be reckoned for the purpose of limitation to complete the assessment proceeding.

The petitions are allowed.

 

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