2006 (2) TMI 95 - HC - Income Tax

Court sets aside transfer order under Income-tax Act due to error in addressing petitioners' denial of connection. Fresh orders directed.

The court set aside the transfer order under section 127(2) of the Income-tax Act, 1961, due to a manifest error in not addressing the petitioners' denial ... Transfer of case - we find that the impugned order of transfer suffers from manifest error apparent on the face of record and the same cannot be sustained in law. – impugned order is set aside Issues Involved:1. Legality of the transfer order under section 127(2) of the Income-tax Act, 1961.2. Adequacy of reasons provided for the transfer.3. Connection of the petitioners with Shikhar Gutkha group.Issue-wise Detailed Analysis:1. Legality of the Transfer Order under Section 127(2) of the Income-tax Act, 1961:The petitioners challenged the transfer of their case by a common order dated December 16, 2005, passed by the Commissioner of Income-tax-I, Kanpur, under section 127(2) of the Income-tax Act, 1961. The petitioners argued that they had no connection with the Shikhar Gutkha group, except for a family relation with one of its members. Despite this, their cases were transferred from Kanpur to New Delhi for coordinated and effective investigation post a search and seizure operation conducted on July 2, 2003. The court noted that the transfer order was passed without adequately addressing the petitioners' categorical denial of any connection with the Shikhar Gutkha group, thereby suffering from a manifest error apparent on the face of the record.2. Adequacy of Reasons Provided for the Transfer:The court emphasized that the reasons for the transfer must be adequately communicated to the assessee. The Commissioner of Income-tax-I, Kanpur, failed to provide specific reasons in the impugned order as to why the petitioners' cases were transferred, despite their categorical denial of any connection with the Shikhar Gutkha group. The court referred to the apex court decision in Ajantha Industries v. CBDT [1976] 102 ITR 281 (SC), which mandates that reasons must be recorded and communicated to the assessee to enable them to challenge the order if needed. The court found that the transfer order did not meet this requirement and thus could not be sustained in law.3. Connection of the Petitioners with Shikhar Gutkha Group:The petitioners contended that they had no connection with Shikhar Gutkha group, except for a family relation with one of its members. The Commissioner of Income-tax-I, Kanpur, dismissed this contention without providing a specific finding or evidence to the contrary. The court noted that the Department's approach in rejecting the petitioners' contention was misconceived and that the Department failed to prove any affirmative connection or association of the petitioners with the Shikhar Gutkha group. The court found that the Department's failure to address the petitioners' categorical denial of any connection with the Shikhar Gutkha group rendered the transfer order unsustainable.Conclusion:The court set aside the impugned transfer order dated December 16, 2005, with a direction to the respondents to pass fresh orders in accordance with the law. The court clarified that the time consumed from the date of filing of the reply till the decision of the writ petition would not be counted for the purpose of limitation to complete the assessment proceeding. The petitions were allowed.