2022 (4) TMI 1284 - HC - Income Tax

Transfer order quashed for failing to issue show-cause notice and disclose reasons for proposed transfer

M/s Nagindas Kasturchand And Bros. Versus Principal Commissioner of Income Tax 3, Ahmedabad

Gujarat HC quashed transfer order under Section 127(2) for failure to issue show-cause notice and disclose reasons. Court held that effective hearing ... Transfer of case u/s 127 - no show-cause notice came to be issued to the writ-applicant assigning reasons for transfer - whether the exercise of power under Section 127(2) is administrative in nature or it is quasi-judicial - maxim ‘expressio unius est exclusio alterius’ - rule of prohibition by necessary implication - Concept of the ‘useless formality theory’ - principles of natural justice - transferring the case of the writ-applicant from the office of the respondent no.3 at Surendranagar to the office of the respondent no.2 at Ahmedabad - nondisclosure of reason in the order of transfer. HELD THAT:- It cannot be gainsaid that if a statute requires affording of an opportunity of hearing before an order is passed to the person to whom the order relates, it would be an effective opportunity, which is required to be given. The effective hearing, which is required to be given would mean that the assessee must know the ground for the proposed transfer/proposed action and opportunity to rebut the same and to establish that the grounds for such transfer are not tenable under law or for any other reason, as may be admissible under law, such ground would not be sufficient to pass an order of transfer. We are not impressed with the submission canvassed on behalf of the Revenue that Section 127 excludes, by necessary implication, an opportunity of hearing when transfer is on account of the administrative exigency or convenience. This proposition put forward by Mr.Bhatt, the learned senior counsel appearing for the Revenue, is based on the maxim ‘expressio unius est exclusio alterius’, which is a rule of prohibition by necessary implication. We do not think that the above rule will apply in the instant case. In the case of Ajantha Industries and Ors. [1975 (12) TMI 1 - SUPREME COURT], the Supreme Court was dealing with a case, wherein the reasons were not communicated and it was said that failure to communicate the reasons for passing an order under Section 127 renders the order bad. We are of the view that the principles enunciated by the Supreme Court in the case of Ajantha Industries (supra), hold the field. This Court, over a period of time, has been following Ajantha Industries (supra) in its letter and spirit. We have no hesitation in coming to the conclusion that the impugned order of transfer and all the consequential proceedings pursuant thereto could be said to be without jurisdiction. We are not impressed with the submission canvassed on behalf of the Revenue that Section 127 excludes, by necessary implication, an opportunity of hearing when transfer is on account of the administrative exigency or convenience. This proposition put forward by Mr.Bhatt, the learned senior counsel appearing for the Revenue, is based on the maxim ‘expressio unius est exclusio alterius’, which is a rule of prohibition by necessary implication. We do not think that the above rule will apply in the instant case. In the result, this writ-application succeeds and is hereby allowed. The impugned order of transfer dated 8th July 2021 passed under Section 127(2) of the Act qua the writ-applicant is hereby quashed and set-aside. Consequently, the assessment order dated 28th September 2021 also stands quashed and setaside. Issues Involved:1. Legality and validity of the transfer order under Section 127(2) of the Income Tax Act, 1961.2. Whether the principles of natural justice were followed in the transfer of the case.3. Impact of the transfer order on subsequent assessment and revisional proceedings.Issue-Wise Detailed Analysis:1. Legality and Validity of the Transfer Order under Section 127(2) of the Income Tax Act, 1961:The writ-applicant challenged the legality and validity of the order dated 8th July 2021, passed under Section 127(2) of the Income Tax Act, 1961, which transferred the case from the office of the respondent no.3 at Surendranagar to the office of the respondent no.2 at Ahmedabad. The court noted that no show-cause notice was issued to the writ-applicant assigning reasons for the transfer, and at no point was the writ-applicant served with a copy of the order passed under Section 127(2) of the Act. The court emphasized that Section 127 prescribes two pre-requisite conditions for exercising the power of transfer: opportunity of hearing to the assessee and recording of reasons for the transfer. The failure to meet these conditions rendered the transfer order unsustainable in law.2. Whether the Principles of Natural Justice Were Followed in the Transfer of the Case:The court analyzed whether the principles of natural justice were followed in the transfer process. It was highlighted that the principles of natural justice require that the assessee must be informed of the grounds for the proposed transfer and given an opportunity to rebut the same. The court referred to several precedents, including the Supreme Court's decision in Ajantha Industries and Ors. vs. CBDT and Ors., which held that non-communication of reasons for an order of transfer under Section 127(1) is a serious infirmity. The court concluded that the failure to provide an opportunity of hearing and to communicate the reasons for the transfer violated the principles of natural justice.3. Impact of the Transfer Order on Subsequent Assessment and Revisional Proceedings:The court noted that the Transferee Assessing Officer concluded the assessment proceedings and passed the assessment order under Section 143(3) of the Act, dated 28th September 2021, assessing the total income of the writ-applicant to the tune of Rs. 11,28,51,670 for the Assessment Year 2018-19. Additionally, the PCIT - Central, Ahmedabad, initiated revisional proceedings under Section 263 of the Act for the Assessment Year 2017-18. The court held that the impugned order of transfer and all consequential proceedings pursuant thereto were without jurisdiction due to the violation of the principles of natural justice. Consequently, the assessment order dated 28th September 2021 was also quashed and set aside.Conclusion:The court allowed the writ-application, quashing the impugned transfer order dated 8th July 2021 and the subsequent assessment order dated 28th September 2021. The court reserved the liberty in favor of the Revenue to initiate fresh proceedings for transfer under Section 127 of the Act by issuing a show-cause notice assigning reasons, thereby giving an opportunity of hearing to the writ-applicant, and then proceeding to pass a final order in accordance with law.