2024 (2) TMI 1593 - HC - Income Tax

s.127(1)-(2): Three-day notice failing to identify key person denied reasonable opportunity to be heard; order quashed

HC held that s.127(1) and (2) require giving the assessee a reasonable opportunity to be heard. A three-day notice dated 14.12.2023 was inadequate, failed ... Transfer of cases u/s 127 - whether such reasonable opportunity was provided? - HELD THAT:- Both sub-sections (1) and (2) of Section 127 clearly envisage providing the assessee concerned a reasonable opportunity of being heard in the matter, wherever it is possible to do so. In the case at hand, the notice dated 14.12.2023 evinces that the PCIT was of the view that it is possible to provide a reasonable opportunity to the assessee before taking a decision. Whether such reasonable opportunity was provided? - By notice dated 14.12.2023, only three days was provided to the assessee to respond thereto. The said notice refers to the search and seizure action and the documents seized as a consequence thereof. It also refers to the interconnected nature of the documents. Conspicuous by its absence is any reference to the role of the petitioner in this transaction. By contrast, the impugned order refers to the petitioner as one of the key persons. Reasonable opportunity was not provided to the petitioner. For such reason, the impugned order calls for interference. Hence, the impugned order is quashed and the matter is remanded for reconsideration. The petitioner is permitted to file a fresh reply to notice dated 14.12.2023 setting out her objections and enclosing all relevant documents. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a transfer order under Section 127 of the Income Tax Act is vitiated where the assessee was not given a reasonable opportunity of being heard 'wherever it is possible to do so.' 2. Whether a three-day time-limit to respond to a notice proposing transfer of assessment satisfies the statutory requirement of a 'reasonable opportunity' where the notice does not disclose the petitioner's alleged role in the connected transactions. 3. Whether a transfer order may be sustained where the reasons recorded in the order identify the assessee as a key person but the prior notice to the assessee did not disclose that role. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Requirement to give a reasonable opportunity of being heard under Section 127 (legal framework) Legal framework: Section 127(1)-(2) mandates that the authority proposing to transfer an assessment shall, 'after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so,' and after recording reasons, make the transfer. The provision applies both where assessing officers are subordinate to the same superior and where they are not (see sub-s (2)(a)-(b)). Precedent Treatment: The judgment does not rely on or cite prior case law interpreting the 'reasonable opportunity' requirement; no precedent was followed, distinguished, or overruled in the recorded reasons. Interpretation and reasoning: The Court interprets the statutory phrase conjunctively: where the superior considers it possible to give a reasonable opportunity, the statutory duty to give such opportunity arises. The notice issued by the superior (PCIT) showed the authority regarded it as possible to provide an opportunity; consequently the statutory obligation to provide a reasonable opportunity became operative. Ratio vs. Obiter: Ratio. The Court holds as a legal proposition that Section 127 imposes a duty to give a reasonable opportunity when the authority deems it possible, and the existence of that duty is evidenced by the contents of the notice itself. Conclusion: Where the transfering authority indicates in its notice that it is possible to afford a hearing, it must in fact afford a reasonable opportunity in substance, not merely in form. Issue 2: Adequacy of time (three days) as a 'reasonable opportunity' where notice lacks disclosure of the assessee's alleged role (legal framework) Legal framework: The statutory standard is 'reasonable opportunity' (a substantive assessment of adequacy), judged in context; the Act requires reasons to be recorded for transfer. Precedent Treatment: No precedents were invoked; the Court assessed adequacy on the facts presented. Interpretation and reasoning: The Court measured reasonableness by whether the opportunity permitted the assessee to understand the case against her and to respond meaningfully. The notice here referenced search and seizure and inter-connected documents but did not identify the petitioner's alleged role in the transactions; the impugned order, by contrast, described the petitioner as a 'key person.' Given that lacuna, a three-day time-limit was held insufficient to enable a meaningful response about one's alleged centrality in complex seized records. The Court treated the absence of material particulars in the notice as making any short time-limit manifestly unreasonable. Ratio vs. Obiter: Ratio. The Court's finding that a short notice is inadequate where material allegations or the assessee's putative role are not disclosed is central to the decision quashing the order. Conclusion: A three-day response period was not a 'reasonable opportunity' in the circumstances where the notice failed to disclose the assessee's alleged role in the seized documents; adequacy of time must be assessed in light of the substance and specificity of the notice. Issue 3: Requirement to disclose material allegations (role of the assessee) in the notice proposing transfer (legal framework) Legal framework: The duty to give a reasonable opportunity necessarily requires that the assessee be informed sufficiently of the case against her so as to enable meaningful participation in the hearing process; Section 127 and the duty to record reasons underpin that requirement. Precedent Treatment: No earlier authorities were considered by the Court on the need to disclose the assessee's alleged role in the transfer notice. Interpretation and reasoning: The Court reasoned that where the transfer order ultimately records that the assessee is a key person, the prior notice ought to have apprised the assessee of that allegation so she could meet it. A notice that merely references seized documents and interconnections, without identifying the assesssee's alleged involvement, does not afford a real opportunity to be heard. This deficiency renders the subsequent recorded reasons and the transfer order susceptible to judicial interference. Ratio vs. Obiter: Ratio. The requirement that material allegations about the assessee's role be disclosed in the notice (so that the hearing opportunity is meaningful) is decisive in quashing the transfer. Conclusion: Where the proposed transfer relies on the assessee's alleged role in seized or interconnected documents, the notice must disclose such role; failure to do so vitiates the reasonableness of the hearing opportunity and the transfer order. Relief and directions flowing from findings (operative conclusion) Conclusions: The impugned transfer order was quashed and the matter remanded for reconsideration. The assessee was granted leave to file a fresh reply within a specified short period (15 days from receipt of the order) and to be afforded a personal hearing before a fresh transfer decision is taken. No costs were imposed. Cross-reference: The remand and directions implement the Court's holdings under Issues 1-3: where the authority deemed it possible to afford a hearing, it must disclose material allegations and afford a reasonable, substantive opportunity to respond; failing that, the transfer order is unsustainable and requires fresh consideration with an effective hearing.