TaxTMI 
TaxTMI 
2002 (7) TMI 94
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.... petitioner No. 6, is a partnership firm comprising petitioners Nos. 1 and 2. It is also stated to be engaged in the business of manufacture and export of handloom products, its factory as well as head office are stated to be located at Panipat. Anand Co., i.e., petitioner No. 7, is a partnership firm comprising petitioners Nos. 1 and 2. It is stated to be engaged in carrying out trading activities in handloom products. Its business premises are stated to be located at Panipat. The facts narrated above have not been disputed in the written statement filed on behalf of the respondents. 3. All the petitioners were regularly assessed to income-tax at Panipat by the Assistant Commissioner of Income-tax, Panipat, as well as by the Income-tax Officers of Wards Nos. 1 and 4. From the facts depicted in the foregoing paragraph, it is apparent that petitioners Nos. 1 to 4 are individuals, being members of one family, whereas petitioners Nos. 5 to 7 are partnership concerns comprising petitioners Nos. 1 to 4. The books of account relating to the business activities of petitioners Nos. 5 to 7 are stated to be maintained and kept in the business premises of the three firms at Panipat itself.....
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....ke co-ordinated enquiry and investigations" into the financial affairs of Rajesh Mahajan (petitioner No. 1), Rakesh Mahajan (brother of petitioner No. 1), and their family members. The petitioners were also permitted to avail of a personal hearing with the Commissioner of Income-tax, Rohtak, if they so desired. 6. Since the present controversy pertains to the interpretation of section 127 of the Act, it is considered appropriate to extract the aforesaid provision hereunder: "127. (1) The Director-General or Chief Commissioner or Commissioner 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, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him. (2) Where the Assessing Officer or Assessing Officers from whom the 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 Di....
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....ined at Panipat, whereas, the books of account and other documents of the business concerns of Rakesh Mahajan and his family members were maintained and retained at New Delhi. Referring to the search and seizure operations conducted on August 29, 2000, it was specifically stated that nothing "has been found during the course of search and seizure operations, which warrant any connection between two family groups". It would be pertinent to mention that in the written objections dated January 31, 2001, it was conceded that Rajesh Mahajan was one of the directors of Mahajan Industries Ltd. and Pan Foods Ltd. It was, however, pointed out that he had no hand whatsoever in the conduct of day-to-day affairs of the business of the said companies. In this behalf, it was asserted that Rajesh Mahajan had less than four per cent, shares in the two companies. It was also clarified that the status of his shares had remained the same without "any significant change" for the last more than 30 years. According to learned counsel these facts were sufficient to depict lack of involvement of Rajesh Mahajan in the business ventures controlled by Rakesh Mahajan. In order to show that Rajesh Mahajan had ....
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...." 10. In furtherance of the liberty granted to the respondents by the order passed in Civil Writ Petition No. 7819 of 2001, notices dated July 12, 2001, were issued by the Commissioner of Income-tax, Rohtak, under section 127 of the Act, proposing once again, to transfer all assessment proceedings pending against the petitioners from Panipat to the Deputy Commissioner of Income-tax, Central Circle 20, New Delhi. The instant notices dated July 12, 2001, besides making a reference to Civil Writ Petition No. 7819 of 2001 and the order passed therein; were indistinguishable from the notices issued earlier (on January 4, 2001). The petitioners responded to the notices dated July 12, 2001, through a communication dated July 19, 2001. In the short communication dated July 19, 2001, the petitioners recorded their serious concern by stating that the liberty granted by the High Court was being misconstrued by the respondents. It was pointed out that the notices dated July 12, 2001, did not express any ground/justification for the transfer of assessment proceedings of the petitioners, from Panipat to New Delhi. On the merits, the petitioners continued to rely on the reply dated January 31,....
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....hri Rajesh has inseparable interest in Pan Foods Limited and Mahajan Industries Pvt. Ltd., which has already been centralised. As per the information, Shri Rajesh Mahajan and his family also stays at B-81, Greater Kailash-I, New Delhi, and on the date of search, he was stated to be present at Mahajan House. Therefore, undoubtedly, there was a basis and material on the record to show that there is connection between Rakesh Mahajan and Rajesh Mahajan group of cases. The other groups already having been transferred, it becomes imperative that the cases are also transferred to Central Circle, New Delhi, so the meaningful and co-ordinated enquiries could be made. It would not be out of place to mention here that search operations were conducted on the basis of suspected concealment by persons of these groups. 5. Accordingly, the contention of the assessee that there was no connection between these two groups does not sustain on the basis of scrutiny of the facts available on record. As regards the second contention of the assessee that they are being assessed to tax at Panipat, it may be mentioned here that when transfer of a case is effected in the interest of proper investiga....
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....ncerns managed by Rajesh Mahajan (petitioner No. 1) and his family members, and Rakesh Mahajan (brother of petitioner No. 1) and his family members, and for better tax administration. According to learned counsel for the petitioners, the terminology used in the impugned order is unacceptable in law. In this behalf, it is asserted that the reasons recorded in the show-cause notice do not constitute a valid basis for the transfer of assessment proceedings as it does not detail the express reasons/basis for the contemplated action. 13. Learned counsel for the petitioners has also made an alternative submission to the second contention. Alternatively, learned counsel for the petitioners contended that none of the reasons expressed in the impugned order can be accepted as a valid basis for transfer of the pending income-tax proceedings from Panipat to New Delhi, as the reasons expressed in the impugned order have no relevance with the ultimate decision arrived at by the income tax authorities. It is further asserted that the reasons expressed in an order finally passed under section 127 of the Act must take into consideration the objections raised by the assessee, otherwise, the mand....
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....e, the mandate requiring the authority to record reasons would be reduced to an empty formality. 15. In so far as the present controversy is concerned, the first contention of learned counsel for the petitioners is based on the first essential component of a fair hearing noticed above, namely, the communication of the reasons/basis on which the concerned/competent authority proposes to take action under section 127 of the Act to the petitioners. The second contention is based on the other essential components of the rules of natural justice, namely, that the concerned authority must record reasons (whenever possible) for finally taking action contemplated under section 127 of the Act. The alternate submission to the second contention is based on the third step described in the preceding paragraph, namely, the reasons recorded by the concerned/competent authority in the decision finally taken, all objections raised by the assessee must be dealt with, additionally, the reasons recorded in the final order must have direct bearing/nexus with the object sought to be achieved. 16. I shall now endeavour to deal with the first contention: In Nasir Ahmed v. Asst. Custodian-Ge....
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.... the two groups (comprising the families of Rajesh Mahajan and Rakesh Mahajan). As against the solitary reason depicted in the notices issued to the petitioners, learned counsel for the petitioners invited the attention of this court to the decisions rendered in Vijayasanthi Investments Pvt. Ltd. v. Chief CIT [1991] 187 ITR 405 (AP); Saptagiri Enterprises v. CIT [1991] 189 ITR 705 (AP); Y. Moideen Kunhi and Co. v. ITO [1993] 204 ITR 29 (Karn); Shivajirao Angre v. CIT [1986] 158 ITR 162 (MP) and Power Controls v. CIT [2000] 241 ITR 807 (Delhi) wherein different High Courts have opined that it is not sufficient merely to mention that the proposed transfer is to facilitate detailed and co-ordinated investigations. 19. In so far as the first contention of learned counsel for the petitioners is concerned, the challenge is to the validity of the show-cause notices issued to the petitioners under section 127 of the Act. There can be no dispute about the fact that the notices dated July 12, 2001, extracted above do not disclose the basis which prompted the authorities to initiate action (to transfer assessment proceedings of the petitioners from Panipat to New Delhi) under section 127 o....
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.... 2001) were raised by the petitioners in their objections, therefore, it is clear that the petitioners were very well aware of the reasons/basis on account of which, the authorities were contemplating the transfer of assessment proceedings (from Panipat to New Delhi); and effectively responded to the same. It is further contended that if the petitioners could not decipher the exact basis for the proposed transfer of assessment proceedings (from Panipat to New Delhi), from the notices dated July 12, 2001, rather than filing detailed objections, they should have required the authorities to inform them of the reasons which prompted them (the authorities) to initiate action under section 127 of the Act against them (the petitioners). Having not done so, and having accepted the notices dated July 12, 2001, as valid notices, and having filed detailed objections to the said notices and also having participated in the personal hearing granted to them by the Commissioner of Income-tax, Rohtak, on July 20, 2001, it is not now open to the petitioners to raise the plea that the notices issued to them were defective. 21. While deliberating upon the first contention, raised by learned counsel....
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....e same pleas (which were raised in the written objections filed on January 31, 2001) have not been raised in the instant writ petition. Therefore, although, ordinarily it would have been just and proper to quash the notices dated July 12, 2001, if the petitioners had approached this court at the opportune stage (i.e., after they had received the notices, but before responding to them) by asserting that the notices issued under section 127 of the Act, were benefit of reasons, it is not appropriate at this stage to accept the aforesaid contention. Procedural norms are devised to protect a person proceeded against; it is not open to such person to base his claim on violation of such procedure, if he has waived such requirement either expressly or by his conduct. In the instant case, on the basis of the facts noticed above, it is inevitable to conclude that by filing detailed objections dated January 31, 2001, the petitioners by their conduct expressly waived the right now claimed by them. Moreover, it is now evident that the petitioners have not been deprived of an effective response since the pleas raised in the objections dated January 31, 2001, constitute a complete reply to the re....
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....in that show-cause notice, namely, 'facility of investigation' can be read as a part of the impugned order although there is no mention of any reasons therein as such. We are unable to accede to this submission. It appears that section 5(7A) of the old Act came for consideration in Pannalal Binjraj v. Union of India [1957] 31 ITR 565 (SC), and this court observed: '...it would be prudent if the principles of natural justice are followed, where circumstances permit, before any order of transfer under section 5(7A) of the Act is made by the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, and notice is given to the party affected and he is afforded a reasonable opportunity of representing his views on the question and the reasons of the order are reduced, however, briefly to writing..... There is no presumption against the bona fides or the honesty of an assessee and normally the income-tax authorities would not be justified in refusing to an assessee a reasonable opportunity of representing his views when any order to the prejudice of the normal procedure laid down in section 64(1) and (2) of the Act is sought to be made a....
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....rticle 226 of the Constitution or even this court under article 136 of the Constitution in an appropriate case for challenging the order, inter alia, either on the ground that it is mala fide or arbitrary or that it is based on irrelevant and extraneous considerations. Whether such a writ or special leave application ultimately fails is not relevant for a decision of the question. We are clearly of opinion that the requirement of recording reasons under section 127(1) is a mandatory direction under the law and non-communication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee." 23. Paragraphs 4 to 6 of the order dated July 26, 2001, have already been extracted hereinabove. The contents of the aforesaid paragraphs certainly lead to the conclusion that detailed reasons for taking action against the petitioners under section 127 of the Act have been enumerated therein. In the aforesaid circumstances, it is not possible for this court to accept the second contention, i.e., that the impugned order is bereft of the reasons/basis which had weighed with the authorities for transferring the assessment proceedings pendin....
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....g itself treated the two groups separate from each other and issued on March 12, 2001, two separate questionnaires; one for each group independently of the other. Even a cursory glance over these questionnaires would have revealed to respondent No. 1 that no inquiry is made from the petitioners, namely, Rajesh Mahajan group and cases about the matters relating to the other group, namely, Rakesh Mahajan group and the vice-versa. (b) That it is also stated in the said order that Shri Rajesh Mahajan is one of the directors of the Mahajan Industries Private Ltd. and is also connected with Pan Foods Limited. Both these companies belong to Rakesh Mahajan group. In this connection, it may be clarified that Rajesh Mahajan, petitioner No. 1 is the real brother of Rakesh Mahajan. Being a real brother, his name is associated with Mahajan Industries Pvt. Ltd. as a director. He is only an ornamental director. He does not take part in any business, financial or managerial activities of the companies. He has no role to play whatsoever in the day-to-day conduct of their business affairs. His share capital is nominal and his nominal shareholding is continuing without any alteration or addi....
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....ondent No. 1 that Shri Rajesh Mahajan and Rakesh Mahajan are having their offices at Mahajan House, E-1 and E-2, South Extension, New Delhi, and that Shri Rajesh Mahajan was also present at Mahajan House on the date of the search. The fact of the matter is that the offices of Rajesh Mahajan and Rakesh Mahajan are located in entirely separate and independent premises on the first floor of Mahajan House and have nothing in common. The site map of both the offices is enclosed to demonstrate their independent location. So far as Rajesh Mahajan, petitioner No. 1 is concerned, the office of only one of the companies, namely Mahajan Overseas Private Limited, is located in those premises. So far as his main offices pertaining to his main business are concerned, they are all at Panipat. So far as Mahajan Overseas Private Limited is concerned, it is assessed at Delhi and there is no dispute with regard to its place of assessment or transfer. So far as the Rakesh Mahajan group is concerned, the offices of Mahajan Industries Private Ltd. and Pan Foods Pvt. Limited are located separately and independently in those premises and that there is nothing in common between the two offices. Their emplo....
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....s further established by supply of the photo copies of the seized documents to both the groups separately and independently on the basis of the seized memos as indicated in this paragraph. Therefore, it is wholly incorrect and highly pretentious on the part of respondent No. 1 to allege that the seized documents are intermingled while the state of affairs is just to the contrary. (f) It is further alleged that Rajesh Mahajan has inseparable relation with Pan Foods and Mahajan Industries Private Limited, the two companies belonging to the Rakesh Mahajan group. This statement is the farthest from the truth. Shri Rajesh Mahajan has absolutely nothing to do with Mahajan Industries Pvt. Ltd. or Pan Foods Limited, except holding minor equity and being an ornamental director without any financial or pecuniary involvement. (g) It is also alleged that Shri Rajesh Mahajan was staying at B-81, Greater Kailash Part-I, New Delhi. It is not clear as to how does his staying at that place establishes any business connection. The fact of the matter is that this flat is owned by Mahajan Overseas Limited and Smt. Sangeeta Mahajan, wife of Rajesh Mahajan who is one of the di....
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....irector of Income-tax (Investigation), New Delhi. Since the aforesaid communication has been relied upon on behalf of the respondents, it is necessary to reproduce the relevant extract thereof: "I strongly recommended that the cases mentioned in the said letter should also be centralised at Delhi for the following reasons: (1) As per his own admission, Sh. Rajesh Mahajan is the director of Pan Foods Ltd., and Mahajan Industries (P.) Ltd. Being a functional director, it is unconceivable that Sh. Rajesh Mahajan has no role whatsoever in the day-to-day affairs of running of these companies. (2) Sh. Rajesh Mahajan is also one of the trustees of Ram Lal Mahajan Charitable Trust, which is running Mother and Child Hospital at D-59, Defence Colony, New Delhi. As per documents available with us, a huge amount of money has been siphoned off to Mahajan House from Mother and Child Hospital, repeatedly. Sh. Rajesh Mahajan being the trustee is also a collaborator in siphoning off the money from the hospital being run by the trust. Sh. Rajesh Mahajan and Sh. Rakesh Mahajan both are having their offices in Mahajan House, E-1 and 2, NDSE, Part-II, New Delhi. As per docume....
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....vant for the transfer of income-tax assessment proceedings of the petitioners from Panipat to New Delhi. Realising the aforesaid predicament, learned counsel for the respondents took recourse to an easy way out by contending that it is not necessary for the income-tax authorities to decipher with precision the connection between the business or financial dealings of the family of Rajesh Mahajan (petitioner No. 1) and Rakesh Mahajan (brother of petitioner No. 1) and his family members, at the present juncture, and further that it is sufficient if the authorities at this stage can show that a reasonable and bona fide belief was entertained by the concerned/competent authority, that there are financial dealings between the family groups of Rajesh Mahajan and Rakesh Mahajan requiring a co-ordinated enquiry/investigation. After obtaining instructions, learned counsel for the respondents informed the court that the material seized during the course of the raid conducted on August 29, 2000, had not been scrutinised. It is indeed strange that despite the fact that the authorities were in possession of all the relevant files and documents seized on August 29, 2000, and despite the fact that....
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....having been pointed out in the objections, the authorities, passed the impugned order dated July 26, 2001. Now, again in para. 23(b) of the writ petition, the petitioners have reite rated the factual position indicated in the objections dated January 31, 2001. It has been expressly mentioned that petitioner No. 1 holds 2.58 per cent. shares in Pan Foods Ltd. and 4.02 per cent. shares in Mahajan Industries Pvt. Ltd. and that his holdings in the said companies have remained almost unaltered for the last three decades. It has again been reiterated that he (petitioner No. 1) has never taken part in business, financial or managerial activities of the afore said two companies. On the basis of the aforesaid facts, it is asserted by learned counsel representing the petitioners that the mere fact that petitioner No. 1 is a director of Mahajan Industries Pvt. Ltd or of Pan Foods Ltd. (not mentioned in the impugned order), cannot be a valid justification for transfer of assessment proceedings. The facts noticed in the objections dated January 31, 2001, and para. 23(b) of the writ petition, have not been disputed/denied in the written statement. The issue which arises for consideration, theref....
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....ent proceedings from one place to another, specially in the absence of material indicating involvement in financial dealings with the said companies. (ii) Another reason given for the transfer of income-tax assessment proceedings from Panipat to New Delhi is that Rajesh Mahajan (petitioner No. 1) is also one of the trustees of Ram Lal Mahajan Charitable Trust, which is running Mother and Child Health Centre in New Delhi. In so far as the aforesaid reason is concerned, in the instant writ petition, in para. 23(c), it has been asserted on behalf of petitioner No. 1 that he was nominated as a trustee in Ram Lal Mahajan Charitable Trust, merely on account of the fact that the trust was created by his grandfather. It is pointed out that the trust is actually being run by Dr. Nalini Mahajan wife of Rakesh Mahajan (brother of petitioner No. 1). It is further asserted that petitioner No. 1 -- Rajesh Mahajan has no hand in the conduct of the affairs of the trust. What is of significance, however, is that the petitioner has in unequivocal terms declared that neither they (petitioners Nos. 1 to 4) nor any of the concerns in which they have an interest (petitioners Nos. 5 to 7) have e....
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....(brother of petitioner No. 1), were also located separately from one another. So far as the instant assertion made by the petitioners are concerned, they could have easily been repudiated, if files and papers of various offices alleged to be located in the building under reference were found at locations other than those depicted in the site plan annexure P-6, during the search and seizure operations, Unfortunately, the respondents have not made any such assertion in their written statement. It is, however, significant to note that it has been alleged in response to the averments made in para. 23(d) of the writ petition that none of the respondents were members of the search party. It seems that the aforesaid excuse has been tendered in order to avoid a categoric response to the assertions made in para. 23(d) of the writ petition. The aforesaid excuse, in my opinion, is wholly unjustified: those involved in the search and seizure operations are certainly officers/officials of the Income-tax Department itself, and all of them would, in all probability, be subordinates of the respondents themselves. Had there been a desire to obtain information to respond to the averments made in par....
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....e absence of any reasons in the impugned order dated July 26, 2001, once again, the conclusion has to be the same, namely, that the instant reason cannot be considered as a valid justification for the transfer of income-tax assessment proceedings of the petitioners from Panipat to New Delhi. (v) It is alleged in the impugned order dated July 26, 2001, that Rajesh Mahajan (petitioner No. 1) has inseparable interests in Pan Foods Ltd. and Mahajan Industries Pvt. Ltd. It is pointed out that assessment proceedings of the aforesaid two companies have already been centralised, and as Rajesh Mahajan (petitioner No. 1) is associated with the aforesaid concerns; his assessment should also be conducted by the same officers. In response to the aforesaid reason expressed in the impugned order, it is contended that Rajesh Mahajan (petitioner No. 1) is only an ornamental director, without any financial and pecuniary involvement, in the companies referred to above. Despite the fact that the petitioners have conceded that petitioner No. 1 has minor equity holding in the two companies, it is submitted that merely because an individual is a shareholder in a company, that would not be suffic....
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....t been shown to be relevant even during the course of arguments. The conclusion again is bound to be the same as has been drawn in respect of the reasons dealt with hereinabove. 30. From the conclusions drawn above, it is clear that the reasons recorded in para. 4 of the impugned order dated July 26, 2001, are wholly irrelevant to the transfer of the assessment proceedings of the petitioners from Panipat to New Delhi. 31. Although learned counsel for the respondents had principally and primarily placed reliance on para. 4 of the order dated July 26, 2001, to highlight the reasons which had weighed with the respondents for the transfer of assessment proceedings of the petitioners from Panipat to New Delhi, he had also referred to the contents of para. 5 thereof, to stress that the reasons expressed in para. 4 of the impugned order are legally justified (in terms of judgments referred to in para. 5 of the impugned order). In so far as the assertions made in para. 5 of the impugned order are concerned, the same are clearly untenable in view of the categoric conclusion drawn in the preceding paragraph, that the reasons recorded in para. 4 of the impugned order have no relevance o....
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....sons recorded in the impugned order dated July 26, 2001, learned counsel for the petitioners vehemently contended that the action of the concerned/competent authority flows from a total non-application of mind. In this behalf, he has brought to the notice of the court some uncontroverted facts, namely, that the activities of the partnership firms over which petitioners Nos. 1 to 4 have control (depicted in para. 2 above) and the activities of the business ventures controlled by Rakesh Mahajan (brother of petitioner No. 1) and his family members (detailed in para. 4 above) clearly reveal that the trading activities of petitioners Nos. 1 to 4 are totally separate and distinct from the business activities of Rakesh Mahajan (brother of petitioner No. 1) and his family members. Additionally, it is pointed out that petitioners Nos. 1 to 4 reside at Panipat; that their business activities are primarily located at Panipat (except for a small sales office of Mahajan Exports Ltd. which admittedly is located at New Delhi) and that their books of account are also kept and maintained at Panipat. On the other hand, Rakesh Mahajan (brother of petitioner No. 1) and his family members reside at New....
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....he same as the exceptions to the rules of natural justice. Secondly, an assessee has the right to file objections on the receipt of a show-cause notice issued under section 127 of the Act. In the absence of such liberty, the assessee cannot be stated to have been afforded a "reasonable opportunity" as is contemplated by the aforesaid provision. Thirdly, the reasons recorded in the final order passed under section 127 of the Act (by which the concemed/competent authority decides to execute the proposed action contemplated in the show-cause notice), must not only take into consideration the objections raised by the assessee, but the reasons recorded in the order must also have a direct nexus/bearing to the object sought to be achieved. Fourthly, belief/suspicion even though bona fide cannot be sufficient justification for taking recourse to any of the actions contemplated under section 127 of the Act. For a valid order under section 127 of the Act, the reasons expressed must disclose an actual financial nexus justifying the action. 34. My conclusions on the controversy in hand, are as under: Firstly, although, the show-cause notice issued to the....