2016 (7) TMI 212 - HC - Income Tax

Court overturns transfer of assessment cases under Income Tax Act, citing lack of justification.

HINDUSTHAN M-I SWACO LTD Versus PR COMMISSIONER OF INCOME TAX, VADODARA - 3

The court set aside the order transferring assessment cases from Bharuch to Kolkata under Section 127 of the Income Tax Act, 1961. The court found the ... Transfer of assessment cases - Power of the Principal Commissioner of Income-tax to transfer the case u/s 127(2) - Held that:- While recognizing wide discretionary powers of the competent Revenue Authorities to transfer assessment cases under section 127 of the Act in public interest, the Court also recognized a degree of prejudice or inconvenience that may be caused to the assessee whose assessment may be lifted from his principal place of business and may be put at the disposal of an assessing authority who may be situated at another place far away from the assessee's place of business. The power of transfer of cases therefore, would have to be exercised in proper cases when sufficient material on record justify such action. This is, however, not to suggest that transfer of cases for effective investigation and coordination can be resorted to only in cases of assesses who are subjected to search operations. This requirement may arise in other circumstances also. However, the sufficiency of reasons would have to be judged from case to case basis. In the present case, we find no such justification. Entire approach of the Principal Commissioner, was erroneous since he proceeded on an incorrect premise that the petitioner also was subjected to search operation. There being no further reliable material justifying such consolidation of cases, impugned order is set aside. Issues Involved:1. Legality of the transfer of assessment cases under Section 127 of the Income Tax Act, 1961.2. Validity of the reasons provided for the transfer of assessment cases.3. Procedural correctness in issuing the transfer order.4. Impact of the transfer on the petitioner’s business operations and compliance burden.Issue-wise Detailed Analysis:1. Legality of the Transfer of Assessment Cases under Section 127 of the Income Tax Act, 1961:The petitioner challenged the order dated 09.12.2015, passed by the Principal Commissioner of Income-tax, transferring the assessment cases from Bharuch to Kolkata under Section 127(2) of the Income Tax Act, 1961. The petitioner argued that no search action had been taken against them, contrary to the respondent's claim, making the entire transfer order based on a factually incorrect premise.2. Validity of the Reasons Provided for the Transfer of Assessment Cases:The Principal Commissioner justified the transfer for 'effective and coordinated investigation' due to alleged transactions between the petitioner and the searched entity, Hindusthan Engineering & Industries Ltd. However, the petitioner contended that no incriminating material was found during the survey operations, and the mere presence of common directors did not justify the transfer. The court noted that the Principal Commissioner’s reliance on a CBDT circular, which pertains to search cases, was misplaced as the petitioner was not subjected to a search.3. Procedural Correctness in Issuing the Transfer Order:The petitioner was given an opportunity to object to the transfer, which they did through detailed representations. Despite this, the Principal Commissioner proceeded with the transfer, dismissing the objections as general and unsupported by legal arguments. The court found that the Principal Commissioner’s order was based on an incorrect premise that the petitioner was subjected to search operations, leading to erroneous conclusions.4. Impact of the Transfer on the Petitioner’s Business Operations and Compliance Burden:The petitioner argued that transferring the assessment to Kolkata would cause undue hardship, as their registered office and all statutory records were maintained in Bharuch. The Principal Commissioner dismissed these concerns, stating that two directors were based in Kolkata and that the petitioner could authorize representatives to handle tax matters. The court, however, recognized the inconvenience and potential prejudice to the petitioner, emphasizing that the transfer of cases should be justified by weighty reasons, which were lacking in this case.Conclusion:The court set aside the impugned order, noting that the Principal Commissioner’s decision was based on an incorrect premise and lacked sufficient material to justify the transfer. The court also clarified that the interim order issued on 25.01.2016, which prevented the transfer of records to Kolkata, would impact the limitation period for completing the assessments for the relevant years. The petition was allowed with these further directions.