2012 (9) TMI 520 - HC - Income Tax

Fair Hearing Required: Court Sets Aside Transfer Order Without Personal Hearing

The court held that granting a reasonable opportunity of being heard under Section 127(1) and (2) of the Income Tax Act, 1961 is mandatory. The impugned ... Reasonable opportunity of being heard - mandatory requirement of hearing under Section 127(1) and (2) - reading 'may' as 'shall' in Section 127 - recording of reasons for transfer - exception where transfer is within same city, locality or place - transfer of cases for coordinated investigationReasonable opportunity of being heard - mandatory requirement of hearing under Section 127(1) and (2) - reading 'may' as 'shall' in Section 127 - Requirement under Section 127(1) and (2) to give the assessee a reasonable opportunity of being heard wherever it is possible to do so is mandatory. - HELD THAT: - The Court held that the phrase in subsections (1) and (2) requiring that the assessee be given a reasonable opportunity of being heard, 'wherever it is possible to do so', imposes a mandatory obligation on the authority to afford such opportunity unless it reasonably concludes it is not possible. The word 'may' in these subsections is to be read as 'shall' insofar as the duty to afford a hearing arises where it is possible to do so. The Court relied upon and applied the ratio in the decision of the Supreme Court in Kashiram Aggarwalla v. Union of India where it was held that a reasonable opportunity should be given wherever possible and that the authority's discretion is limited to deciding whether it is possible to give such an opportunity; if it decides it is not possible, the authority must act reasonably and bona fide and record reasons. The Court observed that the statutory scheme and the proviso/subsection (3) exception (where transfer is within the same city/locality) demonstrate that hearings are required in transfers across jurisdictions unless it is not possible to give one. Accordingly, the discretion of the authority is confined to (a) determining whether it is possible to afford a reasonable opportunity in the circumstances and (b) deciding what constitutes a reasonable opportunity; it is not a discretion to deny hearing where a hearing is possible. The recording of reasons remains an independent statutory requirement. [Paras 2, 10, 16, 18]The statutory requirement to grant a reasonable opportunity of being heard under Section 127(1) and (2) is mandatory wherever it is possible to do so; 'may' must be read as 'shall' in that context.Transfer of cases for coordinated investigation - recording of reasons for transfer - remand for fresh consideration after hearing - The impugned transfer order was vitiated by failure to afford the petitioner the personal hearing it requested and was accordingly set aside and remanded for fresh consideration after hearing. - HELD THAT: - On the facts, the petitioner had expressly requested a personal hearing and had filed objections; the Commissioner passed the transfer order without affording the personal hearing although it was possible to do so. The respondent's averments that the petitioner had been heard were unsupported by particulars or dates. Applying the mandatory requirement found above, the Court concluded that the impugned order dated 05.01.2012 was liable to be quashed for denial of the required opportunity. The Court therefore set aside the transfer order and directed that respondent no.1, after hearing the petitioner, pass a fresh order; the Court left open all merits and other questions including limitation, as conceded by the petitioner. [Paras 20, 22]Impugned order set aside for failure to afford the required opportunity to be heard; respondent to hear the petitioner and pass a fresh order.Final Conclusion: The petition is allowed: the transfer order dated 05.01.2012 is quashed for denial of the mandatory opportunity to be heard; respondent no.1 is directed to hear the petitioner and pass a fresh order. No order as to costs. Issues Involved:1. Whether the requirement under Section 127(1) and (2) of the Income Tax Act, 1961 of granting an assessee a reasonable opportunity of being heard is mandatory.2. Whether the impugned order transferring the petitioner's case from Mumbai to New Delhi was valid without granting a personal hearing to the petitioner.Issue-wise Detailed Analysis:1. Mandatory Nature of Granting a Reasonable Opportunity of Being Heard under Section 127(1) and (2):The court addressed whether the requirement under Section 127(1) and (2) of the Income Tax Act, 1961 to grant an assessee a reasonable opportunity of being heard is mandatory. The court affirmed this requirement on both principle and authority grounds. It cited various judgments, including those from the Supreme Court and High Courts, which supported the mandatory nature of this provision. The court emphasized that the word 'may' in Section 127 should be read as 'shall,' making the provision obligatory wherever it is possible to provide such an opportunity. The court referenced the judgments of the Madhya Pradesh High Court in Sagarmal Spinning & Weaving Mills Ltd. v. C.B.D.T., the Andhra Pradesh High Court in Vijayasanthi Investments Pvt. Ltd. v. Chief Commr. of I.T., and the Supreme Court in Kashiram Aggarwalla v. Union of India, which all underscored the necessity of granting a reasonable opportunity of being heard. The court concluded that the legislative intent behind Section 127(1) and (2) was to provide an assessee with a reasonable opportunity of being heard, and this requirement is mandatory.2. Validity of the Impugned Order without Granting a Personal Hearing:The court examined the specific circumstances of the case where the petitioner's case was transferred from Mumbai to New Delhi without a personal hearing. The petitioner had explicitly requested a personal hearing, but the respondent did not grant one. The court noted that the petitioner's registered office had shifted to Maharashtra, and the tax returns were filed and assessed in Mumbai. However, the respondent proposed to transfer the case to New Delhi for administrative convenience and coordinated investigation, citing the petitioner's financial transactions with the Sahara Group. The court found that the respondent's letter did not mention a personal hearing, and the petitioner's objections were not adequately considered. The court highlighted that the respondent's affidavit in surrejoinder failed to provide details or evidence of any personal hearing granted to the petitioner. Consequently, the court set aside the impugned order on the ground that the petitioner had not been heard, as required under Section 127(1) and (2). The court directed respondent no.1 to pass a fresh order after granting the petitioner a reasonable opportunity of being heard.Conclusion:The court ruled that the requirement under Section 127(1) and (2) to grant a reasonable opportunity of being heard is mandatory wherever possible. The impugned order transferring the petitioner's case was set aside due to the lack of a personal hearing, and the respondent was directed to pass a fresh order after hearing the petitioner. The writ petition was disposed of with no order as to costs.