By TIOL News Service

CHENNAI, DEC 11, 2017: THE Issue is - Whether when there is a total exclusion of an opportunity u/s 127(1) & (2), the question of communicating the reasons of transfer cannot be insisted by Assessee, and hence the concept of post decisional hearing cannot be incorporated into Section 127. YES IS THE VERDICT.

Facts of the case:

The Assessee company engaged in the business of consultancy, falls within the jurisdiction of Dy CIT, Chennai, for purposes of assessment. During the subject year, the Enforcement Directorate conducted search operations in the office premises of Assessee company and the residences of its Directors u/s 37 of FEMA. Simultaneously, the Income Tax Department conducted a survey in the office premises of Assessee and the residences of its Directors in exercise of the powers u/s 133(A) of the Act. While the matters were at that stage, a notification was passed by the PCIT transferring Assessee's cases to a different Officer, who was within the City of Chennai. In the subject column of the impugned notification, it was stated as "Centralization of Search and Seizure cases in the group cases of Shri.A.M.Arun, M/s. Vasan Health Care (P) Ltd. The Counsel for Assessee contended that, the impugned notification suffers from errors apparent, as it had been issued u/s 127(2) without giving the assessee a reasonable opportunity of being heard in the matter and without recording the reasons.

It is submitted by Assessee's counsel that, if the assessee had been given an opportunity, they had valid reasons to object to the transfer, as they were in no way connected with the Search and Seizure cases relating to the group cases of Shri.A.M.Arun, M/s. Vasan Health Care (P) Ltd., except to the extent, owning certain shares in the Company and the assessee could not be considered as a group Company of M/s. Vasan Health Care (P) Ltd., and the entire proceedings, commencing from the survey proceedings, culminating in the impugned notification were ultra-vires of the provisions of the Act.

High Court held that,

++ as far as factual discrepancies are concerned, it has been stated in the notification that the assessee was given an opportunity u/s 127(2) to express objections. However, the Revenue's counsel fairly submitted that the said observation in the impugned notification is factually incorrect and it is admitted that no opportunity was granted to the assessee, as it is not required to be granted. Section 127(2) states that where the AO from whom the case is to be transferred and the AO to whom the case is to be transferred, are not subordinate to the same Principal Director General or Director General or Principal Chief Commissioner or Chief CIT or Principal CIT, certain procedures have to be adhered to. The Assessee's contention is that the entire process of transfer from Corporate Circle to Central Circle emanated from a letter addressed by the DGIT, TN & Puducherry, (i/c), Chennai to the Chief CIT, Chennai. Pursuant to which, the PCIT has issued the impugned notification and the case has been transferred to the Central Circle and the Principal Commissioners of Corporate Circle and Central Circle have not agreed to the transfer or in other words, the notification does not show any agreement. It is seen that the PCIT who issued the impugned notification falls within the jurisdiction of CCIT-1. Under the control of the PCIT, there are three ranges, namely, Corporate Range-1, Chennai, Non-Corporate Range-1, Chennai and Non-Corporate Range-2, Chennai. Under Corporate Range-1, Chennai, there are two circles namely, Corporate Circle-1(1), Chennai and Corporate Circle-1(2), Chennai. The Assessee's case has been transferred to Corporate Circle. Therefore, as per the organizational set up, the Chief CIT is required to be in agreement with his counterpart, who heads the Company Circle. The proposal for clubbing of assessee's case with the case of Vasan Health Care (P) Ltd., is pursuant to a letter issued by the DGIT (Investigation), Chennai addressed to the CCIT-1. It has been shown that DGIT (Investigation) TN & Pondicherry, is the Head of the Department within whose jurisdiction, the Principal Director of Income Tax (Investigation) functions;

++ it is to be noted that a survey was conducted by the Investigation wing of the Dy DIT, Chennai. It is based on such survey, a proposal was sent to the DGIT (Investigation), Head of his Department, for centralization along with Vasan group. This report was forwarded by the Principal DIT (Inv.) to DGIT (Inv.). The DGIT (Inv.) requested the CCIT-1, Chennai, for centralization of the case of assessee from Corporate Circle to Central Circle to facilitate co-ordinated investigation. The PCIT, Chennai-1, passed the impugned notification transferring the case from Corporate Circle-1(1) to Central Circle-2(1), Chennai. Thus, the two Heads of Department viz., DGIT (Inv.) TN & P, under whom the Central Circle falls, as well as the Principal DGIT (Inv.) have concurred with the CCIT- 1, Chennai, under whom is the Principal CIT-I under whom the Corporate Circle functions. Thus, by virtue of chain of events, it is clear that the Heads of Department are in agreement with each other. Thus, the requirement u/s 127(2)(a) of the Act stands satisfied. The next contention is that sub-section (3) of Section 127, only obviates the opportunity to be given to the assessee before effecting an order or transfer, but does not dispense with the other two requirements viz., agreement between both the Commissioners and recording of reasons have not been dispensed with. So far as the agreement between both the Commissioners is concerned, this Court is satisfied for the reason recorded above that there has been agreement. Thus, it has to be seen as to whether when transfer has been effected by referring to sub-section (3) of Section 127 of the Act, should reasons to be recorded. Section 127(3) does not commence with a non-obstante clause, but rather it excludes certain procedure contemplated under sub-section (1) and sub-section (2) of Section 127, when both the transferee and transferor officers are situated in the same city, locality or place. The provision commences by stating "nothing in sub-section (1) or sub-section (2) shall be deemed to require any such opportunity to be given". Therefore, when there is a total exclusion of an opportunity, the question of communicating the reasons to the assessee cannot be insisted upon and that is not required under the statute. Therefore, the assessee cannot seek to read something into the statute, which is not found therein;

++ in the case of K.P.Mohammed Salim, the Court pointed out that the power of transfer infact provides for a machinery provision and it must be given its full effect and it must be construed in a manner so as to make it workable. It should be construed to effectuate a charging section so as to allow the authorities concerned to do so in a manner what for the statute was enacted. Further, in case of Pannalal Binjraj vs. Union of India - 2002-TIOL-1525-SC-IT-CB, it was observed that if the transfer is within the same city, no reasons are required to be recorded in writing and no opportunity need be given to the assessee. The counsel for assessee sought to distinguish the judgment by contending that it is a case of transfer for administrative convenience and not as in the instant case, where the case is to be clubbed along with the search and seizure case of M/s.Vasan Health Care Private Limited. The impugned notification states that the reasons for transfer is for centralization of search and seizure cases in the group of M/s.Vasan Health Care Private Limited. Obviously, centralization is part of an administrative process and the contention advanced by the assessee stating that the impugned notification is not administrative convenience does not merit consideration. The note file shows reasons have been recorded for transfer, upon perusal of the enclosures regarding the survey which was conducted on the assessee and investigation to be carried out along with other cases of the Vasan group. Apart from assessee's case, two other cases were requested for transfer, who are assessees on the file of ACIT Circle-1(1), Trichy and ITO Ward-1(4), Salem. The request for centralisation has emanated on account of search and seizure operations u/s 131 and survey u/s 133A, during which it is alleged that documents indicating bogus/inflated expenditure were found and some of the corresponding parties have confirmed the inflated/bogus expenditure was booked. Further, it is avered in the proforma for centralisation that on verification of facts and account statements among the cases is required, and centralisation of the case will facilitate smooth and easy proceedings;

++ the concept of post decisional hearing cannot be incorporated into Section 127, as it would amount to re-writing the statute. The statutes specifically exclude an opportunity to the assessee when the case stands transferred to an officer in the same city. Therefore, the request made by the petitioner for a post decisional hearing is of little avail. Having steered clear of the legal position, the assessee is not justified in stating that the transfer for the purposes of centralization is hardly a reason for transfer. The administrative exigencies and the manner in which, the investigation has to proceed are all matters into which this Court exercising power under Article 226 of the Constitution would refuse to probe and refrain itself from doing so, as it would be stepping into an arena, which is not called for especially when, the matter is at the threshold. Further, a plea of discrimination was raised by the assessee contending that cases pertaining to persons holding more than 5% shares with Vasan Health Care Private Limited, has not been transferred and cannot be a reason, as this Court cannot step into the realm of investigation and as pointed out, these issues are premature, as the impugned notification is an innocuous order of transfer and the assessee cannot be stated to be prejudiced. Thus, for all the said reasons, the assessee has not made out any case for interference.

(See 2017-TIOL-2542-HC-MAD-IT)