2016 (4) TMI 87 - HC - Income Tax

Court quashes transfer orders citing lack of reasons & natural justice, remands to tax officials

The court found the transfer orders under Section 127(2) of the Income Tax Act unsustainable due to inadequate reasons in the show cause notices and ... Natural justice - requirement to disclose reasons in show cause notice - quasi judicial nature of transfer order under Section 127(2) of the Income tax Act - centralisation of cases versus locus of jurisdiction - nexus with administrative convenience and coordinated investigation - abdication of function / non application of mind by competent authority - remand for fresh consideration with recorded reasonsNatural justice - requirement to disclose reasons in show cause notice - quasi judicial nature of transfer order under Section 127(2) of the Income tax Act - Validity of show cause notices and consequent transfer orders under Section 127(2) where reasons for transfer were not disclosed to the assessees. - HELD THAT: - The Court held that an order under Section 127(2) is quasi judicial and, when it prejudicially affects an assessee, the show cause notice must disclose the reasons or gist of reasons so that the assessee can make an effective representation. Reliance on Ajantha Industries and the Calcutta High Court decision establishes that non communication of reasons in such notices infringes principles of natural justice. A bare, omnibus statement of 'centralisation' without explaining why transfer out of the local jurisdiction (to New Delhi) is necessary, and without nexus to administrative convenience or coordinated investigation, is inadequate. The record showed that the Principal Commissioners acted on requests from CCIT (Central), New Delhi, and did not disclose the nature of the proposal or demonstrate application of mind; this indicated abdication of responsibility and rendered the notice and consequential transfer orders vitiated for want of adequate reasons and a fair opportunity. [Paras 15, 16, 17, 18, 19]Show cause notices that failed to disclose reasons germane to the proposed transfer and consequent orders under Section 127(2) were quashed for denial of a fair and effective opportunity.Remand for fresh consideration with recorded reasons - abdication of function / non application of mind by competent authority - Relief to be granted and further course of action where transfer orders are quashed for inadequacy of reasons. - HELD THAT: - The Court remanded the matters to the respective Principal Commissioners of Income Tax, Guwahati I and Guwahati II, directing them to take fresh steps under Section 127 after affording the assessees a fair opportunity and after recording reasons. The remand contemplates that any fresh order must reflect due application of mind, state the reasons (or gist thereof) supporting transfer to New Delhi, and be passed in accordance with law so that the assessees can make effective representations; mere post hoc reasons in the final order cannot cure the defect in an inadequate show cause notice. [Paras 15, 16, 17, 20]Matters remitted to the Principal Commissioners for fresh consideration under Section 127, after giving fair opportunity and recording reasons; consequential transfer orders set aside.Final Conclusion: The impugned transfer orders under Section 127(2) were quashed for failure to disclose reasons and denial of an effective opportunity; matters are remanded to the Principal Commissioners, Guwahati I and Guwahati II, to proceed afresh under Section 127 after recording reasons and affording fair opportunity. Issues Involved:1. Validity of the transfer of cases under Section 127(2) of the Income Tax Act.2. Adequacy of reasons provided in the show cause notices.3. Compliance with principles of natural justice.Issue-wise Detailed Analysis:1. Validity of the transfer of cases under Section 127(2) of the Income Tax Act:The income tax authorities invoked Section 127(2) of the Income Tax Act to transfer the cases of the assessees from Guwahati to New Delhi. The Principal Commissioners of Income Tax in Guwahati issued show cause notices proposing the transfer for centralization of cases under one Officer. The final orders were passed without specifying any reasons for the proposed action, transferring the cases from Guwahati to New Delhi.2. Adequacy of reasons provided in the show cause notices:The petitioners contended that the show cause notices did not disclose the reasons for transferring the cases to New Delhi, making it difficult for them to make effective representations. The notices merely stated that the transfer was for centralization purposes, without explaining why the cases could not be centralized under an officer in Guwahati. The court emphasized that the show cause notice must convey the reason for the proposed transfer to enable the assessee to make effective representation.3. Compliance with principles of natural justice:The court referred to the judgment in Ajantha Industries Vs. Central Board of Direct Taxes, which stated that non-communication of reasons in an order prejudicially affecting the interest of any person violates the principle of natural justice. The court found that the show cause notices in the present cases did not satisfy the requirement of Sub-Section (2) of Section 127 of the Income Tax Act, as they did not disclose the reasons for the proposed transfer. The court held that the hearing provided to the assessees was a mere formality and did not satisfy the requirement of natural justice.Conclusion:The court concluded that the transfer orders were unsustainable due to the lack of proper reasons in the show cause notices and the failure to provide a fair opportunity to the assessees. The court quashed the transfer orders dated 31.8.2015 and 31.7.2015 and remanded the matter back to the respective Principal Commissioners of Income Tax in Guwahati to take fresh steps under Section 127 of the Income Tax Act, after giving fair opportunity to the petitioners and recording the reasons for the proposed action. The cases were disposed of without any order as to cost.