Mentioning “decentralization of cases” not sufficient Reason for transfer of cases u/s 127 –Supreme Court dismissed SLP of Income Tax Department
ABCAUS Case Law Citation:
ABCAUS 2649 (2018) (11) SC
The Hon’ble Supreme Court has dismissed the Special Leave Petition ( SLP ) of the Income Tax Department against the judgment of the High Court which had held that Mentioning “decentralization of cases” was not sufficient Reason for transfer of cases u/s 127(2)(a) of the Income Tax Act, 1961 (the Act).
The Hon’ble Supreme Court had dismissed the SLP on both delay as well as on merits
The assessee was a company registered under Companies Act, 1956.
It was aggrieved by the order informing that transfer of its income tax cases. The assessee company filed a Writ Petition in the High Court contending that before exercising power under Section 127(2) of Income Tax Act, 1961 ( the Act ), it is mandatory on the part of authority concerned to record reasons for transferring assessment cases from one jurisdiction to other and also to give opportunity of hearing.
It was urged that no reason had been recorded at all. It was submitted that the said order was passed in utter violation of natural justice and without assigning any reason which is a condition precedent for exercising power of transfer under Section 127 of the Act.
The Hon’ble High Court observed that power of transfer had been exercised under Section 127(2)(a) according to which, order of transfer can be passed after complying two requirements; (i) after giving Assessee a reasonable opportunity of hearing wherever it is possible to do so; and (ii) recording of reasons for doing so.
The Hon’ble High Court opined that as per Statute, the “opportunity of hearing” is necessary in such cases where it is possible to do so meaning thereby it is not necessary to be observed invariably in each and every case, whenever orders transferring cases are passed. However, second requirement that ‘reasons’ shall be recorded is applicable in all the cases irrespective of the fact whether order of transfer has been passed after giving opportunity of hearing or not.
The Hon’ble High Court as per the Act, ‘reasons’ shall not only be recorded by Competent Authority but, reasons must be communicated to Assessee, otherwise very purpose of recording reasons would be frustrated.
The Hon’ble High Court opined that when it is said that order shall be passed after recording reasons, reasons cannot be recorded and kept in file but the order itself must contain reasons for transfer and communicated to Assessee.
The Hon’ble High Court observed that in various authorities wherein validity of order of transfer under Section 127(2)(a) has been dealt with consensus view is that opportunity of hearing, if not afforded, or reasons not recorded, order of transfer would be bad. However, no authority was quoted wherein the phrase “wherever it is possible to do so“, had been considered in the context of Section 127(2) of the Act or how and in what manner, the aforesaid phrase would dilute or mitigate, otherwise mandate of legislature, of affording a reasonable opportunity of being heard to Assessee before passing order of transfer.
However the Hon’ble High Court noted that a similar phrase “as far as possible” had been used in several statutes and considered by it, time and again.
Relying on several authorities including Constitution Bench judgment, the Hon’ble High Court opined that in normal course, an assessee is entitled to be assessed by Assessing Officer having jurisdiction but there is no such vested right in an assessee to be assessed by a particular Assessing Officer. The Competent Authority may transfer a matter from one Assessing Officer to another, may be having effect of change of place also but that will not affect any substantial right of Assessee.
The Hon’ble High Court rejected the contention that mere non opportunity shall vitiate order of transfer for the reason that Statute does not make requirement of opportunity mandatory but it is subject to condition “wherever it is possible to do so” and in a given case, the mere fact that notice was not given to Assessee, will not vitiate order if the circumstances do justify such non affording of opportunity.
The Hon’ble High Court held that a careful reading of Section 127(2)(a) leads no manner of doubt that requirement of “reasonable opportunity” to assessee is subjected and conditional i.e. “whenever it is possible to do so” department may proceed to pass an order of transfer without giving such opportunity.
The Hon’ble High Court clarified that when a phrase has actually been used by Legislature in a statute, Court cannot either ignore it or omit or render it redundant by reading that in every case an opportunity is must, else order of transfer would be rendered bad. The words used by legislature have to be read and given due meaning and effect and that is the basic principle of interpretation. Each and every word used by legislature has some meaning or consequence and whenever an statute is considered, every word must be given its logical meaning and consequence unless there appears to be some inconsistency or conflict resulting in consequences to be disturbing or there are other compelling reasons showing that some part does not convey the same meaning as it ought to be or the same is redundant or is inconsistent with rest of the provisions.
The Hon’ble High Court firther observed that the reason mentioned in the order was “decentralization of cases”. The Department sought to explain that the said reasons should be taken a “sufficient reason”.
The Hon’ble High Court opined that Requirement of reason under Section 127 has a basic condition that before causing some inconvenience or prejudice to Assessee, Competent Authority passing order of transfer must show, from order of transfer, a conscious application of mind on its part that transfer order is not a mechanical exercise
The Hon’ble High Court further clarified that requirement of reasons does not mean that order must contain a detailed discussion on several grounds for justifying order of transfer, but requirement of statute stands satisfied if from a bare reading of order, any person of ordinary prudence may come to know as to what is the reason which has prevailed in the mind of Competent Authority to exercise power of transfer and such reason or ground is not flimsy, imaginary, whimsical. It must disclose that patently, logic and prudence has been applied before passing it.
The Hon’ble High Court opined that there was no substantial compliance of Section 127(1)(a) in that any reason had been given in the impugned order.
Hence the Hon’ble High Court allowed the writ petition to the extent and the impugned order passed by Principal Commissioner of Income Tax in case of the petitioner was set aside.