Twin Conditions U/S 127 Of Income Tax Act For Transferring Assessee's Case From One Officer To Another Are Mandatory: Himachal Pradesh HC

Section 127 stipulates that the Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter and after recording his reasons for doing so, transfer any case from Assessing Officer subordinate to him to any other Assessing Officer also subordinate to him.

A division bench of Justices Tarlok Singh Chauhan and Rakesh Kainthla observed,

“The twin conditions to be complied with by the respondents for transferring the case of the appellant/petitioner from respondent No.4 to respondent No.5 are: (i) the assessee should have been given a reasonable opportunity of being heard and (ii) the reasons for transfer should have been recorded.”

In the case at hand, the Appellant-assessee was aggrieved by the scrutiny assessment proceedings initiated against him by the Income Tax Officer at Himachal Pradesh.

It was the Appellant's case that he had been regularly filing his income tax returns at Delhi. He submitted that the AO at Himachal's Baddi framed the assessment under section 144 and made additions without first deciding the preliminary issue of jurisdiction.

Since his appeals came to be rejected by both the Commissioner of Income Tax (Appeals) at Shimla and the Income Tax Appellate Tribunal bench at Chandigarh, he approached the High Court.

It was contended that once the Appellant was being assessed by the Assistant Commissioner of Income Tax at Delhi, the Officer at Baddi had no authority to issue notices to him under Section 143(2) read with Section 142(1) of the Act.

Appellant further submitted that his income tax record was originally with the officer at Delhi, which was unilaterally transferred to the officer at Himachal, without first putting him to notice under Section 127 of the Act.

The Department on the other hand contended that the PAN of Appellant's firm was generated as far back as in 1999 with the AO Code of Himachal's Parwanoo and the Appellant's industrial undertaking exists within his jurisdiction.

The selection for scrutiny proceedings is PAN based and the principal place of business is Baddi in Himachal Pradesh; Case of the appellant could not have been picked up for scrutiny assessment by any officer at Delhi as his PAN belonged to Baddi jurisdiction, it was contended.

At the outset, the High Court observed that the Department had not denied that the Appellant had filed the income tax returns at Delhi.

“Once that be so, obviously the income tax returns of the appellant/petitioner which were originally with respondent No.4 could not have been unilaterally transferred to respondent No.5 without complying with the provisions of Section 127 of the Act,” it said.

The Court rejected the Department's contention that Section 127 was not attracted to the instant case as it was the officer at Himachal alone who had the authority to issue notices.

“Such stand of the respondents is simply not tenable as it virtually amounts to putting the cart before the horse and additionally being judge in its own cause, reason being that the respondents would first contend that one of the respondents i.e. respondent No.4 did not have the jurisdiction, which stand is vetoed by respondent No.4 thereafter and this would form the basis of claiming that it was respondent No.5 alone, who had authority and jurisdiction to issue notice. Raising the question and thereafter answering by the respondents themselves cannot furnish a ground sufficient enough to come to conclusion that the provisions of Section 127 of the Act are not attracted in the instant case. This question had essentially to be decided by taking recourse to Section 127 of the Act and not otherwise.”

Court cited Anand Chauhan vs. The Commissioner of Income Tax (2015) wherein the High Court had held that the requirement of recording reasons under Section 127 (1), is a mandatory direction under the law and noncommunication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee.

Stating that a “valuable right” of the Appellant is involved in the matter, the Court allowed the appeal and set aside the impugned proceedings.

“When he (appellant) objected to jurisdiction of the assessing officer and transfer of his case, which obviously could not have been adjudicated upon without affording an opportunity of hearing and disclosing to him the reasons for not accepting his point of view,” it finally held.

Appearance: Appellant in person; Mr. Balram Sharma, Dy. SGI with Mr. Rajiv Sharma, Advocate for respondent No.1 in CWP No.6575 of 2014; Mr. Ishan Kashyap, Advocate for respondent in ITA No.23 of 2017 and for respondents No. 2 to 5 in CWP No. 6575 of 2014

Case title: M/s Deluxe Enterprises v. Income Tax Officer

Case no.: ITA No. 23 of 2017 alongwith CWP No.6575 of 2014

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