2020 (3) TMI 970 - HC - Income Tax

Court quashes transfer of assessment jurisdiction under Income Tax Act due to procedural lapses

Parappurathu Varghese Mathai, Sarakutty Mathai, Olive Builders Versus Principal Commissioner of Income Tax-28 & others

Parappurathu Varghese Mathai, Sarakutty Mathai, Olive Builders Versus Principal Commissioner of Income Tax-28 & others - [2020] 428 ITR 79 (Bom) Issues Involved:1. Validity of the transfer of assessment jurisdiction from Mumbai to Kochi under Section 127 of the Income Tax Act.2. Compliance with procedural requirements under Section 127(2) of the Income Tax Act.3. Whether the petitioner was given a reasonable opportunity of being heard.4. Whether there was an agreement between the designated higher authorities for the transfer of jurisdiction.Issue-wise Detailed Analysis:1. Validity of the transfer of assessment jurisdiction from Mumbai to Kochi under Section 127 of the Income Tax Act:The petitioner challenged the orders dated 09.08.2019 and 09.12.2019, which transferred the assessment jurisdiction from Mumbai to Kochi. The petitioner contended that the transfer was invalid due to non-compliance with Section 127(2) of the Income Tax Act. The court examined whether the impugned decision was in accordance with the law, specifically the requirements of Section 127 of the Act.2. Compliance with procedural requirements under Section 127(2) of the Income Tax Act:Section 127(2) requires that if the assessing officers are not subordinate to the same higher authority, there must be an agreement between the designated higher authorities, and the assessee must be given a reasonable opportunity of being heard. The court noted that the initial order dated 09.08.2019 did not disclose any agreement between the designated higher authorities and did not indicate that a reasonable opportunity of hearing was granted to the petitioner. The court emphasized that the requirement to provide a reasonable opportunity of hearing is fundamental and must be done before passing an order under Section 127(2)(a).3. Whether the petitioner was given a reasonable opportunity of being heard:The court found that the petitioner was not given a reasonable opportunity of being heard before the initial order dated 09.08.2019 was passed. The hearing was granted only after the decision was taken, which culminated in the second order dated 09.12.2019. The court held that this post-decisional hearing was not contemplated under the statute and was not sufficient to comply with the requirements of Section 127(2)(a).4. Whether there was an agreement between the designated higher authorities for the transfer of jurisdiction:The court scrutinized the requirement of an agreement between the designated higher authorities under Section 127(2)(a). The respondents contended that a proposal from the Principal Director of Income Tax (Investigation), Kochi, was construed as consent for the transfer. However, the court held that a proposal for centralization does not amount to an agreement as required by the statute. The court cited the Supreme Court's decision in Noorul Islam Educational Trust Vs. CIT, which clarified that absence of disagreement does not equate to an agreement. The court concluded that there was no positive meeting of minds between the designated higher authorities, and thus, the procedural requirements under Section 127(2)(a) were not met.Conclusion:The court concluded that the decision-making process leading to the impugned orders was vitiated due to non-compliance with statutory procedural requirements. Consequently, both orders dated 09.08.2019 and 09.12.2019 were set aside and quashed. The court allowed the Central Board of Direct Taxes to take action as per clause (b) to sub-section (2) of Section 127, if necessary, in accordance with the law. All consequential actions based on the quashed orders were also interfered with. The petitions were allowed without expressing any opinion on the merits of the case, leaving all contentions open for future consideration.