2022 (11) TMI 330 - HC - Income Tax

Court Invalidates Improper Transfer & Scrutiny, Orders Reassessment

The court found the transfer of the case under Section 127 of the Income Tax Act from Mumbai to Guntur to be without jurisdiction, as the petitioner was ... Transfer of a case as provided u/s 127 - Validity of Assessment u/s 153C - un-accounted cash transactions - Whether the Order dated 16.02.2021 of Principal Commissioner of Income Tax, Vijayawada transferring the Income Tax jurisdiction of writ petitioner from Mumbai of Maharastha State to Guntur of A.P.State enabling Respondent No.1 to pass the impugned orders is arbitrary and is in violation of Section 127 of Income Tax Act? - HELD THAT:- As on one hand action in terms of Section 127 of Income Tax Act, 1961, was in the offing at Mumbai and opportunity of hearing was scheduled at Mumbai. However, much earlier to it the Order of learned Principal Commissioner of Income Tax Act, Vijayawada transferred the case from Mumbai to Guntur. Be it noted, by 16.02.2021 the competent authority at Mumbai did not even commence the proceedings of transfer as it commenced its proceedings for transfer only on 02.03.2021. In that scenario, even Sub-Section (4) of Section 127 of the Income Tax Act do not come for rescue for the Revenue. As a matter of record the assertions in the writ petition about the above referred notice dated 02.03.2021 issued by the office of the Principal Commissioner of Income Tax, Mumbai remain unquestioned and was not adverted to in the counter affidavit filed for the respondents. The above facts do indicate that at some point of time the revenue was conscious of statutory position as to which was the competent authority to transfer a case in terms of Section 127 of Income Tax. Yet, the action of transfer was taken up and achieved by the authorities of respondent No.1 which is not provided under law. This action on the part of the authorities of Respondent No.1 can be called as arbitrary as it was done in violation of the mandate in Section 127 of Income Tax Act. Article 14 of the Constitution of India provides for equal protection of laws and in the case at hand the acts of the authorities of Respondent No.1 which are based on Order dated 16.02.2021 by the learned Principal Commissioner of Income Tax, Vijayawada stand against that constitutional mandate. The upshot of the above discussion would indicate that the Order of transfer of case under Section 127 was without jurisdiction and the proceedings initiated under Section153C on the part of Respondent No.1 are also without jurisdiction. Therefore, the orders of assessment that were passed by Respondent No.1 on the anvil of the above proceedings under Section 127, 153C shall be held as invalid orders passed without jurisdiction. - Decided in favour of assessee. Issues Involved:1. Legality of the transfer of jurisdiction under Section 127 of the Income Tax Act.2. Jurisdiction of Respondent No.1 under Section 153C to initiate scrutiny proceedings.3. Validity of questioning the transfer of a case under Section 127 after the initiation of scrutiny proceedings.4. Maintainability of the writ petition in the presence of an alternative remedy of appeal.Issue-wise Detailed Analysis:1. Legality of the Transfer of Jurisdiction under Section 127 of the Income Tax Act:The writ petitioner argued that the transfer of the case from Mumbai to Guntur by the Principal Commissioner of Income Tax, Vijayawada was arbitrary and violated Section 127 of the Income Tax Act. It was contended that the transfer should have been executed by the authorities in Mumbai, as the petitioner was an assessee there. The court noted that Section 127 mandates that the authority in the jurisdiction of the assessee must provide a reasonable opportunity of being heard before transferring a case. The court found that the Principal Commissioner of Income Tax, Vijayawada, transferred the case without jurisdiction and without providing the petitioner an opportunity to be heard, as required by law. This action was deemed arbitrary and in violation of Article 14 of the Constitution of India.2. Jurisdiction of Respondent No.1 under Section 153C to Initiate Scrutiny Proceedings:The court examined the jurisdiction of Respondent No.1 to initiate scrutiny proceedings under Section 153C. It was established that the material discovered during the search and seizure at Guntur should have been forwarded to the Assessing Officer in Mumbai, who held jurisdiction over the petitioner. Instead, Respondent No.1 proceeded with the assessment, which was found to be in violation of the procedure outlined in Section 153C. The court cited relevant case law, including the Supreme Court's interpretation in Super Malls Private Limited v. Principal Commissioner of Income Tax, emphasizing that the Assessing Officer of the searched person must be satisfied that the seized material belongs to another person and then forward it to the jurisdictional Assessing Officer of that person.3. Validity of Questioning the Transfer of a Case under Section 127 after the Initiation of Scrutiny Proceedings:The respondent argued that the petitioner could not challenge the jurisdiction after submitting to it by responding to notices and summons. The court rejected this argument, stating that jurisdiction cannot be conferred by consent or convenience. The statutory prescription must be followed, and the question of jurisdiction can be raised at any stage as it goes to the root of the matter. The court held that the transfer order and subsequent proceedings were without jurisdiction and thus invalid.4. Maintainability of the Writ Petition in the Presence of an Alternative Remedy of Appeal:The respondent contended that the writ petition was not maintainable as the petitioner had an alternative remedy of appeal under the Income Tax Act. The court referred to the Supreme Court's ruling in Commissioner of Income Tax Vs Chhabil Dass Agarwal, which outlines exceptions to the rule of alternative remedy. The court found that the case fell within these exceptions as the statutory authority acted beyond its jurisdiction and in violation of fundamental principles of judicial procedure. Therefore, the writ petition was deemed maintainable.Conclusion:The court concluded that the transfer of the case under Section 127 was without jurisdiction, and the proceedings under Section 153C initiated by Respondent No.1 were also without jurisdiction. Consequently, the assessment orders were declared invalid. The court allowed the writ petition, setting aside the impugned orders and notices, and granted liberty to the respondent authorities to commence proceedings afresh in accordance with the law. There was no order as to costs, and any pending miscellaneous petitions were closed.