TaxTMI 
TaxTMI 
2006 (2) TMI 128
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....Writ Petition No. 5395 (MB) of 2005, M/s. Sahara Airlines Ltd. v. Director General of Income-tax (Inv.) is being taken as the leading petition. The pleadings exchanged in one or more writ petitions shall form the basis of challenge and defence in all the writ petitions. In all there are 48 assessees, out of which, six are individual assessees at Lucknow and the rest of the assesses are companies, firms or individuals. Out of these 48 assessees, 31 companies including six individual assessees are assessed at Lucknow, two are assessed at Kolkata, nine at Mumbai, five at New Delhi and one at Pune. Twelve companies and six individuals are being assessed at present by the Assistant Commissioner of Income-tax, Central Circle at Lucknow and the rest of the assessees at Lucknow are being assessed by the respective Assessing Officers of their Circle. The notice under section 127(2) of the Act has been issued in all the cases and the date of notice is June 20, 2005. The notice has been issued and served upon the petitioners saying that the Sahara group consists of several companies, firms and individuals, which are presently assessed to tax at various places, including at Lucknow, Delhi a....
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....aving lapsed since the group cases were centralized, despite request for decentralization of cases at Lucknow, the cases have not been so far decentralized and now out of the blue, it is proposed that the cases of the assessee-petitioner be transferred to Central Circle, New Delhi. The reply also indicated that the assessee would be facing a lot of inconvenience as the entire activities of the assessee are centralized at Lucknow, which is the command office of the assessee and all the books of account and movement of staff from Lucknow to New Delhi time and again just for the compliance of the income-tax proceedings would involve not only precious man hours, loss of time but also hampers the day-to-day running of the business of the assessee and that the proposed action may have been justified had there been no competent authority at Lucknow but the cases at Lucknow are being presently assessed in the Central Circle itself and, therefore, there cannot be any reason for transfer. The observation regarding inter-lacing and inter-connection of funds and the business activities amongst the various entities of the group, in the notice was found to be a sweeping observation by the peti....
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....sfer was passed on July 29, 2005. The order of transfer passed under section 127(2) of the Act takes into consideration the various objections raised by the petitioners and holds that the Sahara group consists of several companies, firms and individuals, which are presently assessed to tax at various places, including at Lucknow, Delhi and Kolkata. After centralization of some of the cases of the group at Lucknow in 1991, the group has, over a period of time, diversified its business activities, which are now spread across cities and towns of the country. There is an interlacing and inter-connection of funds and of the business activities amongst the various entities of the group. In the aforesaid reply, the assessee denied that there is any inter-lacing and inter-connection of funds and of the business activities amongst the entities of the group on the ground that the various entities of the group are separate having separate nature of business and being separately assessed to tax. This claim of the assessee was, however, not found acceptable. A few examples of inter-lacing of funds and close connection amongst the various entities of the group were also enclosed as annexure to t....
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....ity of the same and reasonableness thereof, can be subjected to judicial scrutiny. (iii) There was no justification for transferring the cases from Lucknow to New Delhi as a group of cases was already being assessed with the Central Circle at Lucknow right from the year 1991 and, therefore, the transfer of all the cases from Lucknow is an arbitrary action (out of 31 assessees/petitioners at Lucknow, only 18 are being assessed with the Central Circle, including six individuals from the year 1991/1993 and the rest of the assessees at Lucknow are being separately assessed at different circles even in Lucknow). (iv) The application moved by the petitioners in the year 1996 for transfer of cases from Lucknow to New Delhi under the given circumstances, at that time, could not have been made the basis of transfer in the year 2005, ignoring the subsequent events and developments. (v) Inter-lacing and inter-connection of funds and the business activities of different entities and companies are mere business transactions and well known in the business world and, therefore, this ground in itself could not be a reason for transferring the cases. (vi) It was for the best co-ordinated invest....
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....case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Director General or Chief Commissioner or Commissioner, (a) where the Directors General or Chief Commissioners or Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Director General or Chief Commissioner or Commissioner from whose jurisdiction the case is to be transferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order; (b) where the Directors General or Chief Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Director General or Chief Commissioner or Commissioner as the Board may, by notification in the Official Gazette, authorize in this behalf. (3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) t....
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.... afforded to the petitioners, it is apparent and there is no serious dispute also that the notices as required to be issued to the petitioners giving the grounds for the proposed transfer and affording an opportunity of hearing, were issued and served, to which the petitioners responded not only by filing objections but also additional objections and they were also afforded personal hearing before passing of the order. However, an attempt has been made to impress that full opportunity could not be said to have been afforded as the observation in the matter of inter-lacing and inter-connection of funds and the business activities of different entities of the group, was only a sweeping observation in the notice but in passing the order, a list of a few such companies/asses-sees has been annexed as annexure to support the aforesaid ground but the names of such companies/assessees were not disclosed to the petitioners in the notice. The aforesaid plea of the petitioners is to be seen in the light of the contents of the notice issued under section 127(2) and the case of the petitioners, which has been taken in the writ petition. In the notice, it has been specifically incorporated that....
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....nd also Sahara States, Bhopal with co-ventures (i) Sahara India Commercial Corporation Ltd.; (ii) Sahara Airlines Ltd.; and (iii) Sahara India International Corporation Ltd. From the above details, it implies that Sahara India Financial Corporation Ltd. holds the balance 7.5% shares in both these joint venture projects. The details also show on examination of the balance-sheet of M/s. Sahara India (Firm) for the assessment year 2003-04 the following transactions. (i) The firm has shown receipt of Rs. 250.45 crores as reimbursement from M/s. Sahara India Financial Corporation Ltd. and has shown to have paid rent and utility charges of Rs. 3.57 crores and lease rent of Rs. 5.33 crores to M/s. Sahara India Financial Corporation Ltd. (ii) The firm has shown receipt of Rs. 442.53 crores as commission and service charges from M/s. Sahara India Commercial Corporation Ltd. Kolkata. (iii) The firm has shown to have received Rs. 20.81 crores as service charges from M/s. Sahara Airlines Ltd. The firm has shown to have paid Rs. 9.80 crores against air freight and cargo charges and Rs. 5.17 crores against computer lease rent to M/s. Sahara Airlines Ltd. (iv) The firm has shown to have rec....
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....iven to illustrate the inter-lacing and inter-connection of funds amongst the different entities of the Sahara group. During the course of the arguments, Sri Rakesh Dwivedi, learned senior advocate, did admit that the inter-lacing and inter-connection of funds and the business activities is a part of business and no exception can be taken thereto, as each and every entry stands explained or would be explained, as required. Sri Dewan, who initially submitted that inter-lacing is nothing but inter-borrowing of funds amongst the entities of the group or taking loan, which is permissible under law, however, adopted the same stand as was taken by Sri Rakesh Dwivedi and said mat the inter-lacing and inter-connection of funds and the business activities is a common phenomenon in a group of companies and that the assessments are being separately made of each assessee of the company and they are being separately assessed, therefore, there cannot be any objection to that as the law permits to do so. In the light of the aforesaid stand of the petitioners, not much remains to hold that due opportunity was not afforded to the petitioners, while considering the question of inter-lacing and in....
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....in order to provide a reasonable and proper opportunity to him to make an effective representation, as contemplated in section 127(2), some basic summary of facts, giving some broad idea of the reason for the transfer of the case must be indicated in the show-cause notice itself". Their Lordships in the aforesaid case clarified in para. 22 of the report 37 that "... we (their Lordships) are not holding for a moment that 'administrative convenience' and/or 'co-ordinated investigation' cannot be a valid ground for transferring the cases belonging to a particular group to a single Assessing Officer. It would be a good ground for transfer but the requirement of law, which has to be observed before transferring the assessee's case from one officer to another, is that the assessee must be apprised of the basic and broad facts, which, in the opinion of the authorities concerned, necessitate co-ordinated investigation by a single Assessing Officer, to enable the assessee to put forth his view point on the issue so that a considered decision is taken to prevent unnecessary harassment to the assessee and at the same time the object of the transfer is achieved, which of course is the prime c....
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....ction and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself. In the case of Hindustan Petroleum Corporation Ltd. v. Darius Shapur Chenai [2005] 7 SCC 627, the Supreme Court observed that" ... When an order is passed by a statutory authority, the same must be supported either on the reasons stated therein or on the grounds available therefor in the record. A statutory authority cannot be permitted to support its order relying on or on the basis of the statements made in the affidavit de hors the order or for that matter de hors the records". Reliance has also been placed upon the case of Mohinder Singh Gill v. Chief Election Commissioner reported in [1978] 1 SCC 405 for the aforesaid proposition. The petitioners' plea that the order has been sought to be improved and supplemented by the reasons given in the counter affidavit, apparently does not stand supported by averments made in the counter affidavit when compared with the reasons recorded in the order for transfer. The counter affidavit only explains the reasons given in the impugned order. It has been the own case of the petitioners that the....
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.... [2005] 7 SCC 627. In regard to the plea that the order suffers from acute unreasonableness as it takes into consideration, the application dated October 17, 1996, moved by the petitioners themselves for transfer of the cases from Lucknow to New Delhi, the following facts are essential in understanding the issue and also to find out that whether the reference to the aforesaid application was wholly irrelevant, which has the effect of vitiating the order and, if not, the extent to which the said reference has swayed the order. Eleven companies were being assessed under one officer in the Central Circle, Lucknow since the year 1991 and thereafter seven more assesses including one company and six individuals were brought under the same officer some time in the year 1993. Thus in all 18 petitioners were and are being assessed by the Assistant Commissioner of Income-tax, Central Circle, Lucknow. Request for transfer of cases to New Delhi from Lucknow was for the first time made on October 21,1994, then on November 9,1994 and January 17, 1996 but having failed to get the cases transferred from Lucknow to New Delhi, the last application dated October 17, 1996, was moved by the group giv....
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....ed to be transferred from Noida to Lucknow, for which necessary formalities were done with the Registrar of Companies. It has been specifically pleaded and contended by Sri Anil Dewan that the earlier order of transfer was cancelled, because of the difficulty being faced by the Department in dealing with the cases at New Delhi, on the request so made by the petitioners. The fact that the transfer order dated November 20, 1996, was cancelled because of the difficulties being faced by the Department has been refuted by the respondents nor such a mention finds place in the order of cancellation of transfer but taking the plea as correct that the said transfer order was cancelled by the Department, because of its own difficulty in carrying on the assessment at New Delhi, the same would mean that the petitioners were neither unwilling nor were facing any inconvenience or difficulty in being assessed at New Delhi, despite 18 assessees of the group already being assessed by one single officer at Lucknow, therefore, if the cases are now being transferred to New Delhi, there cannot be a possible objection on the ground that the earlier transfer was cancelled on the request of the petition....
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....tion, the cases are being transferred, rather the relevance of the said application has been limited to the extent of making a reference to the facts given in the order with respect to various activities of the Sahara group of companies at New Delhi and the request of the petitioners themselves regarding the request for transfer of cases from Lucknow to New Delhi. It is also relevant to mention that as per the own pleading of the petitioners, which has been strenuously pressed, the cancellation of the transfer order dated November 20, 1996, passed on the request of the Sahara group on its application dated October 17,1996, was passed not because of any difficulty or inconvenience of the petitioners (Sahara group), nor such an inconvenience was ever pleaded for cancellation of the earlier transfer order and if that be so, reference to the aforesaid application can be of no exception. The fact remains that at the time when the group moved the application for the first time for transfer of cases from Lucknow to New Delhi on October 21, 1994, and then again on November 9, 1994, and January 17, 1996, and lastly on October 17, 1996, the same position as it exists today, namely, 18 comp....
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....ns and their alleged arbitrariness or illegality, it would be appropriate to put the record straight and see the case of the petitioners, which they have taken in reply to the notice issued against the proposed transfer of cases from Lucknow to New Delhi and whether such a plea of concession for transferring the cases from New Delhi to Lucknow was ever taken before the Commissioner. In their replies dated July 5, 2005, and July 11, 2005, the petitioners did not appear to have made any such statement that all the cases be transferred and centralized at Lucknow. The reply dated July 5, 2005, disputed the observations made in the proposed notice that the administrative/controlling offices of most of the cases of the group concerns, including those of M/s. Sahara Airlines Ltd. and of Sahara India (Firm) are located in Delhi and many of the companies are also assessed to tax at New Delhi which also challenged the notice on the ground that it has relied upon the application dated October 17, 1996, moved by the petitioners, and raised a grievance that despite the request for decentralization of cases at Lucknow, the cases were not decentralized but suddenly this transfer has been propose....
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....the cases at Lucknow and the competence of the Central Circle, where the group of companies is being assessed under a single officer and, therefore, the proposal of transfer be dropped. All the pleas raised in the reply were in fact, challenges to the proposed transfer and not for suggesting that the cases from New Delhi be transferred to Lucknow and if it is done so, the petitioners would have no objection. The reply, in fact, made a grievance of not decentralizing the cases of the petitioners (18 in number) which were being assessed by a single officer since 1991 or 1993, reflecting an element of discomfort in not decentralizing the cases. The argument, therefore, that the Commissioner did not consider the aforesaid plea of the petitioner of transferring all the cases from New Delhi to Lucknow, thus cannot be said to have been raised before the Commissioner. The subsequent raising of the aforesaid proposal before another authority who had no jurisdiction to review or recall the order of the Commissioner under the Act and thereafter making a clear statement to that effect in the writ petition, would not render the impugned order bad on this ground. The said plea also ignores the ....
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....ial to the assessees while participating in the assessment proceedings. The best co-ordinated investigation and assessment would require that all the cases are considered by an officer, who can have his access to the record of all the assessees and proper investigation could be made. This will also be less time consuming and more transparent and apparent. In view of the clear stand of the petitioners that there cannot be any objection to the cases being assessed by a single officer for co-ordinated and effective investigation, it requires no further discussion to hold that the ground for transfer of cases to one single officer cannot be said to be illegal, arbitrary or bad in law. We would like to put on record a passage from the judgment in the case of General Exporters v. CIT [2000] 241 ITR 845 (Mad), wherein the court considering judgments passed by various High Courts, has held that facilitating of investigation or co-ordinate investigation is a substantial ground for transfer of case, which reads as under: "In Jharkhand Mukti Morcha v. CIT [1997] 225 ITR 284, the Ranchi Bench of the Patna High Court, after referring to Sameer Leasing Co. Ltd. v. Chairman, CBDT [1990] 185 IT....
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....n considering the applicability of section 127(2). The determination of jurisdiction under section 124 and under section 127(2) has different connotations and a different purpose. Considerations, therefore, also differ and there cannot be a valid defence for the assessee for challenging the order passed under section 127(2) on the ground that the assessment should be made at a place where the assessees/group companies are having their principal place of business. Section 127(2) does not restrict the exercise of discretion of transfer of cases to any such limitation nor is its exercise to be guided by the principal place of business of the group companies/assessees. It would be sufficient if there are several assessees in a group and they are having their business transactions and activities at different places, which require consolidation or assessment proceedings to be conducted at one place under a single officer; such cases can be transferred to any one particular place, which is found to be appropriate by the authority. Of course, if the order is absolutely arbitrary transferring the cases to a particular place, where the assessee is having no business activities or where no f....
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....correct assessment of tax done, wherein by and large, the factors, which may be taken into account, are that the business of the assessee group is scattered and its activities are not confined at one particular place but at different places and it is necessary to have the assessment under one single authority, who may require access to all the records, which if seen together and cross-checked, may clear out and give the correct picture of the income, on which the assessment of tax is to be made or the accounts are maintained by different assessees of a group where there are inter-transactions of money, inter-lacing of funds and of business activities with sister concerns, which would also require the consolidation of all such cases and the records in all the cases to be available to the Assessing Officer or in a given case, the conduct of the assessees would not permit the assessment to be carried on at a particular place where normally it is to be made and so on and so forth. There cannot be any straight-jacket formula or any straight guidelines, under which the discretion of transfer of cases can be exercised. Each and every case will depend on its own facts and the reasons for t....
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....easons is not expiated." The infirmities as found by the apex court in the aforesaid case do not exist in the present case, as the reasons in this case were duly communicated for passing the order under section 127(2). In Benz Corporation v. ITO [1998] 232 ITR 807, the Kerala High Court held that the "... Chief Commissioner of Income-tax had filed a counter affidavit stating certain facts and circumstances which were not disclosed in any of the communications. The Chief Commissioner of Income-tax could not supplement the notification with averments made in the counter-affidavit' and that the power of transfer of the assessment files from one authority to another is conferred on the Commissioner of Income-tax under section 127(1) of the Income-tax Act, 1961. The power is a quasi-judicial one. Such a power has to be exercised in a fair and reasonable manner and not in an arbitrary and mechanical way. The passing of a reasoned order is one of the requirements of fairness in action". In the context of the present order, the petitioners have assailed the same saying that it is absolutely an arbitrary order and the reasons given therein are no reasons in the eyes of law. The argument ....
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....itioner that most of the assessments have been completed after transfer in the Chennai office, and the assessees have already transferred the registered office to Chennai and they are gradually closing down the business at Trivandrum. Further, the transfer of the registered office of Kerala Hotels P. Ltd. was approved by the Company Law Board and the certificate of incorporation with respect to the company at Chennai was also produced. Also the petitioner permanently shifted their residence to Chennai. The details of the property purchased in Tamil Nadu were also given and it was pleaded before the court that the property in Kerala cannot be sold out immediately but it will take some time and they shall sell them during the course of the period. The aforesaid case is of no assistance to the petitioners as it was based on the facts of the aforesaid case, wherein the assessee closed their business at Kerala, whereas in the instant case, no such plea had been raised of closing down the business at New Delhi of all the companies. It may be brought on record that on a plea being raised by the learned counsel for the petitioners Sri Anil Dewan that no notice has been issued for transfe....
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....centrated outside Lucknow. Under the circumstances when the business activities of the Sahara Group and its offices are spread throughout the country and there is interlacing/inter-connection of funds and the business activities amongst various entities of the group, the choice of a venue looking to the business activities of the group by making an overall assessment, the order passed by the Commissioner cannot be held to be unjustified or unreasonable. The choice of place where the cases are to be transferred is fully within the domain of the transferring authority. The assessee can have no choice to ask for a particular officer or a particular place for the assessment to be made when power under section 127(2) is to be exercised. It is sufficient that the place where the cases are being transferred has sufficient links with the business activities of the group assessees and that the comparative volume of business at a particular place, may not be very material. An assessee though can raise a plea against the transfer to a particular place in case it is found that there is no business activity at all at the proposed place of transfer of the group companies/firms/individual asses....
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.... order to assess the tax payable by an assessee more conveniently and efficiently it may be necessary to have him assessed by an Income-tax Officer of an area other than the one in which he resides or carries on business. It may be that the nature and volume of his business operations are such as require investigation into his affairs in a place other than the one where he resides or carries on business or that he is so connected with various other individuals or organizations in the way of his earning his income as to render such extra-territorial investigation necessary before he may be properly assessed. These are but instances of the various situations which may arise wherein it may be thought necessary by the income-tax authorities to transfer his case from the Income-tax Officer of the area in which he resides or carries on business to another Income-tax Officer whether functioning in the same State or beyond it". On considering the case of Dayaldas Kushiram v. CIT [1940] 8 ITR 139 (Bom); ILR 1940 Bom 650, the court observed that: "... in effect this section does not give a right to the assessee to have his assessment at a particular place but determines the Income-tax Offi....