2014 (4) TMI 854 - HC - Income Tax

Court rules in favor of petitioner due to breach of natural justice in transfer decision under Income Tax Act.

The court allowed the petitioner's challenge against the order transferring jurisdiction from Mumbai to Hyderabad under section 127 of the Income Tax Act, ... Order u/s 127 – Validity of the transfer of the case to different jurisdiction – Opportunity of being heard - Held that:- The assesseee had filed an affidavit - The affidavit was forwarded under cover of the assessee’s Chartered Accountant's letter - The MOU referred to in the order was between the assessee and one Gill for the sale of the assessee's property - There is not even an attempt to explain the relevance or significance of the MOU - He was faced with it for the first time only in the order - The reasons in support of the order were not mentioned in the show cause notice - The assessee ever had an opportunity of responding to the MOU – assessee rightly contended that the impugned order is clearly in breach of the principles of natural justice, contrary to the provisions of section 127 and the judgments of Shikshana Prasaraka Mandali Sharda Sabhagruha Versus The Commissioner of Income Tax ] (Central) and others [2013 (3) TMI 153 - BOMBAY HIGH COURT] - the entire proceeding transferring the case from Pune to Mumbai is in breach of principles of natural justice – Decided in favour of Assessee. Issues:Challenge to order transferring case jurisdiction under section 127 of the Income Tax Act, 1961.Detailed Analysis:The petitioner sought to quash an order transferring their case from Mumbai to Hyderabad under section 127 of the Income Tax Act, 1961. The petitioner, an individual, had been filing returns in Mumbai under the jurisdiction of the Deputy Commissioner of Income Tax - 15(3). The transfer was based on a notice informing the petitioner of a search conducted on group companies, leading to the need to assess the petitioner's total income for preceding assessment years. The petitioner raised concerns about assessing income in Hyderabad due to being based in Mumbai and requested material seized during the search, which was not provided. The impugned order transferring jurisdiction to Hyderabad was solely based on a Memorandum of Understanding (MOU) found during the search, without providing a copy of the MOU to the petitioner or mentioning it in the show cause notice, thereby denying the petitioner an opportunity to respond.The impugned order transferring jurisdiction was challenged on grounds of breaching principles of natural justice and section 127 provisions. The petitioner's counsel argued that the order lacked a personal hearing, as mandated by law. Reference was made to a Division Bench judgment emphasizing the necessity of a personal hearing before transferring a case. The court held that the petitioner was not given an effective hearing, rendering the transfer decision unjust. Another legal precedent highlighted the importance of providing reasons for transfer and granting the assessee an opportunity to be heard, which was not adequately fulfilled in this case.The petitioner's counsel also contended that despite the MOU not being brought to the petitioner's attention, it should not be considered as the petitioner had no opportunity to respond to it. The court agreed that since the authorities did not rely on the MOU at any stage, they could not now use it to support their case. Consequently, the court allowed the petitioner's challenge, making the rule absolute in favor of the petitioner. The court emphasized that the authorities' failure to rely on the MOU earlier prevented them from doing so now, leading to the decision in favor of the petitioner without granting any costs.