Vague references to “incriminating material” without disclosing basis or specification of the evidence rendered the jurisdiction transfer order u/s 127(2) unsustainable – High Court
In a recent judgment, Calcutta High Court has held that vague references to “incriminating material” without disclosing basis or specification of the evidence rendered the order u/s 127(2) proposing transfer of jurisdiction over the assessee’s PAN as speculative and unsustainable.
ABCAUS Case Law Citation:
4609 (2025) (06) abcaus.in HC
Important Case Laws relied upon by Parties:
Pannalal Binjraj vs. Union of India AIR 1957 SC 397
Smt. Chandra Prabha Kushwaha & Ors. v. Commissioner of Income Tax and Anothers
Kashiram Aggarwalla vs. Union of India AIR 1965 SC 1028,
In the instant case, the Petitioner assessee had challenged the impugned show cause notice u/s 127(1) being flawed and in violation of the principles of natural justice.
The Revenue issued a summons under Section 131(1A) of the Income Tax Act, 1961 (“the Act”) directing the Petitioner to provide documents related to its transactions with one entity. The Petitioner, submitted its books of accounts, bank statements, and relevant agreements.
Subsequently, a show cause notice was issued under Section 127(1) of the Act, alleging that incriminating materials were found during search and survey operations conducted at the premises of said entities. The notice claimed that the Petitioner failed to account for the purchase of plot and made an unrecorded cash payment. Consequently, a transfer of jurisdiction over the Petitioner’s PAN was proposed.
The Petitioner maintained that the transaction for the purchase of the said plot was duly recorded in its books of accounts and the conveyance deed, with the purchase price aligning with the circle value for stamp duty purposes. The allegation of unaccounted cash payments was denied as baseless.
The Petitioner raised objections to the proposed transfer through letters requesting Revenue to disclose evidence supporting the allegations. Despite repeated requests, no evidence was provided.
However, in the impugned order The PCIT stated that the Petitioner failed to appear for a hearing. However, the Petitioner had informed via a letter that it received insufficient notice due to the Durga Puja holidays. A request for an extension and rescheduling was made but was disregarded, depriving the Petitioner of a fair opportunity to represent its case
It was contended by the Petitioner that the impugned order failed to address the Petitioner’s objections, cited vague and unsubstantiated reasons for the transfer and lacked compliance with procedural requirements, including agreement between jurisdictional Principal Commissioner.
Before the Hon’ble High Court, the Petitioner submitted that the purchase of the plot was duly recorded in its accounts and supported by the conveyance deed, which aligns with the circle value. The allegation of unaccounted cash payment was unsubstantiated and cannot form the basis for the proposed jurisdictional transfer.
It was submitted that PCIT failed to disclose any incriminating material or evidence justifying the allegations against the Petitioner, despite repeated requests. The absence of credible evidence rendered the allegations speculative and unsustainable.
It was further submitted that the Petitioner was denied a reasonable opportunity to respond to the allegations due to insufficient notice and the failure of Respondent No. 1 to reschedule the hearing. This constituted a gross violation of the principles of natural justice and procedural safeguards under Section 127 of the Act.
The Hon’ble High Court opined that transfer order issued under Section 127(2) was procedurally flawed, arbitrary, and violative of the principles of natural justice. The PCIT failed to adhere to the principles of natural justice. Despite the Petitioner’s detailed objections to the proposed transfer and a request for the disclosure of incriminating material, no opportunity of being heard was provided and the requested material was not furnished. The petitioner was not provided with a reasonable opportunity to respond to the allegations due to inadequate notice for the hearing scheduled, coinciding with the Durga Puja holidays. Despite a valid request for rescheduling, PCIT failed to accommodate the petitioner’s concerns, effectively depriving the petitioner of a fair chance to present its case. Such omissions violate the procedural safeguards enshrined under Section 127(2), rendering the transfer order invalid.
The Hon’ble High Court further held that the impugned order also lacked cogent reasoning and failed to address the specific objections raised by the petitioner. The allegations of unaccounted cash payments and irregularities in the transaction were vague and unsupported by any credible evidence. The respondent’s reliance on vague references to “incriminating material” without disclosing the basis or specifics of the evidence rendered the transfer order speculative and unsustainable.
The Hon’ble High Court opined that the argument of the Revenue that the transfer was necessitated for coordinated investigation and meaningful assessment holds merit only when supported by valid reasons and material evidence. In the instant case, the purported need for coordination was not substantiated by specific or credible evidence linking the Petitioner’s assessment to the alleged concealment of income by the partnership firm.
The Hon’ble High Court observed that in a case, Hon’ble Supreme Court had held that “we are not inclined to express any opinion on the merits of the issue as to whether the cases are required to be centralised since that has to be determined after following the procedure prescribed under section 127(2) of the Act. Moreover, the reasons have to be spelt out in the order which has been passed under section 127(2) of the Act which is admittedly not the case here.”
The Hon’ble High Court held that the impugned transfer order passed u/s 127(2) was legally unsustainable. All subsequent notices and actions taken by the respondent authorities, based on this invalid transfer, lacked jurisdiction.
Accordingly the writ petition was allowed and the transfer order was set aside.
Download Full Judgment Click Here >>
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