Ajantha Industries & Ors Vs.
Central Board of Direct Taxes, New Delhi & Ors [1975] INSC 303 (5 December
1975)
GOSWAMI, P.K.
GOSWAMI, P.K.
MATHEW, KUTTYIL KURIEN UNTWALIA, N.L.
CITATION: 1976 AIR 437 1976 SCR (2) 884 1976
SCC (1)1001
ACT:
Income Tax Act, 1961-Section 127(1)-Recording
of reasons and communication thereof is mandatory-Non- communication to the
assessee is violative of the principles of natural justice-Purport of recording
of reasons.
HEADNOTE:
The appellants were assessees under the Income
Tax Act under the jurisdiction of the Income Tax officer, Nellore since a
number of years on 23-1-1973, the Central Board of Direct Taxes sent a notice
to the appellants under s. 127(1) of the Income Tax Act proposing to transfer
their case files for facility of investigations" from the respective
Income.
Tax Officer Nellore to the Income Tax Officer
'B' Ward, Special Circle. II, Hyderabad and called for objections, if any, to
the proposed transfer within fifteen days of the receipt of the notice. Despite
their representations objecting to the transfer, the Central Board ordered the
transfer on 26-7-1973. The validity of the order was questioned before the
Andhra Pradesh High Court by an application under Article 226 of the
Constitution on the ground of violation of principles of natural justice
inasmuch as neither the reasons were given. nor communicated in the said order.
The writ petition was dismissed by a single
Judge holding that mere failure to communicate the reasons which were found by
him to have been recorded in the files, to the appellants was not fatal. The
Letters Patent Appeal before the Division Bench failed. Allowing the appeal by
special leave and rejecting the contentions of the Revenue. namely.
(a) that the reasons given in the notice
under s. 127(1) calling for objections, namely, "facility for
investigations can be read a part of the impugned order.
(b) that recording of the reasons in the
file, although not communicated to the assessee, fully meets the requirements
of s. 127(1) and (c) that the orders under s. 127 (1) being "purely
administrative in nature, it was not necessary to give the assessee, an
opportunity to be heard and there was consequently no need to record reasons
for the transfer, the Court ^
HELD:(1) Unlike s. 5(7A) of the 1922 Act, s.
127(1) of the Income Tax Act, 1961, requires reasons to be recorded prior to
the passing of an order of transfer. Once an order is passed transferring the
case file of an assessee to another area, the order has to be communicated.
Communication of the order is an absolutely
essential requirement since the assessee is then immediately made aware of the
reasons which impelled the, authorities to pass the order of transfer. The
Legislature has imposed the requirements of show-cause notice and also
recording of reasons to avoid a great deal of inconvenience and the monetary
loss if a case file is transferred from the usual place of residence or office
where originally assessments are made to a distant place. [888A, 889A-B] (2)
The reason for recording of reasons in the order and making these reasons known
is to enable an opportunity to the assessee to approach the High Court under
its writ jurisdiction under Article 226 of the Constitution or even the Supreme
Court under Article 136 of the Constitution in an appropriate case for
challenging the order, inter alia, either on the ground it is mala fide or
arbitrary or that it is based on irrelevant and extraneous considerations,
irrespective of the result of such a writ or special leave application.
[889C-D] 885 (3) Recording of reasons and disclosure thereof is not a mere
formality. The requirement of recording reasons under s. 127 (1) of the Income
Tax Act is a mandatory direction under the law and non-communication thereof is
not saved by showing that the reasons exist in the files although not
communicated to the assessee. [889-E] Pannalal Binjraj and Another v. The Union
of India and Others, [1957] 31 I.T.R. 565, applied.
Sunanda Rani Jain v. Union of India and
Others, [1975] 99 I.T.R. 391, overruled.
Shri Pragdas Umar Vaishya v. Union of India
and others, [1967] 12 Madhya Pradesh Journal 868, discussed.
(4) When law requires reasons to be recorded
in a particular order affecting prejudicially the interest of any person, who
can challenges the order in Court, it ceases to be a mere administrative order
and the vice of violation of the principles of natural justice on account of
omission to communicate the reasons is not expiated. [890-C] Kashiram
Aggarwalla v. Union of India and others, [1965] 56 I.T.R. 14, not applicable.
S. Narayanappa and others v. Commissioner of
Income- tax, Bangalore, [1967] 63 I.T.R. 219, distinguished.
(5) In the insant case, non-communication of
the reasons in the order passed under s. 127(1) of the Income Tax Act, 1961 is
a serious infirmity in the order and it is invalid. [890-G]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 724 of 1975.
(Appeal by Special Leave from the judgment
and order dated the 12th September, 1974 of the Andhra Pradesh High Court at
Hyderabad in Writ Appeal No. 626. of 1974) A. Subba Rao for the appellant.
G. C. Sharma and S.P. Nayar for the
respondents.
The Judgment of the Court was delivered by
GOSWAMI, J. The appellant No. 1 is a registered firm and appellants 2 and 3 are
the only two partners of that firm. They are assessees under the Income-tax
Act. Their assessments have been made for a number of years in Nellare District
in the usual course. On January 23, 1973, the Central Board) sent a notice to
the appellants under section 127 of the Income-tax Act, 1961 briefly the Act)
proposing to transfer their case files "for facility of
investigation" from the respective Income-tax Officer at Nellore to the
Income-tax Officer, B Ward Special Circle Ii, Hyderabad, By this notice they
were also asked to submit in writing if they had any objection to the proposed
transfer within 15 days of receipt of the notice. The appellants made their
representation objecting to the transfer and on July 26, 1973, the Central
Board passed the impugned order transferring the cases from Nellore to
Hyderabad.
There is no provison of appeal or revision
under the Act against such orders of transfer. The appellants, therefore,
preferred an application under article 226 of the Constitution before the High
Court of 886 Andhra Pradesh questioning the validity of the order chiefly on
the ground of violation of the principles of natural justice inasmuch as no
reasons were given nor communicated in the said order. The learned single Judge
after having called for the relevant file found that certain reasons were
recorded by the Central Board prior to the passing of the impugned order and
held that mere failure to communicate the reasons to the appellants was not
fatal to the order. The writ petition was, therefore, dismissed.
The appellants' Letters Patent Appeal before
the Division Bench of the High Court also met with the same fate. Hence this
appeal by special leave.
The short question that arises for
consideration is whether failure to record the reasons in the order which was
communicated to the appellants is violative of the principles of natural
justice for which the order should be held to be invalid.
Section 5(7A) was the corresponding section
in the Income-tax Act, 1922 (briefly the old Act). The section may be set out:
"The Commissioner of Income-tax may
transfer any case from one Income-tax Officer subordinate to him to another,
and the Central Board of Revenue may transfer any case from any one Income-tax
Officer to another.
Such transfer may be made at any stage of the
proceedings, and shall not render necessary the re- issue of any notice already
issued by the Income-tax Officer from whom the case is transferred".
The successor section under the Income-tax
Act, 1961 is section 127 and the same may be set out:
"Transfer of cases from one Income-tax
Officer to another:- (1) The 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
Income- tax Officer subordinate to him to another also subordinate to him, and
the Board may similarly transfer any case from one Income- tax Officer to
another.
Provided that nothing in this sub-section
shall be deemed to require any such opportunity to be given where the transfer
is from one Income- tax Officer to another whose offices are situated in the
same city, locality or place.
(2) The transfer of a case under sub-section
(1) may be made at any stage of the proceedings, and shall not render necessary
the re-issue of any notice already issue by the Income-tax Officer from whom
the case is transferred.
887 Explanation:-In this section and in
sections 121 and 125, the word 'case' in relation to any person whose name is
specified in any order or direction issued there under, means all proceedings
under this Act in respect of any year which may be pending on the date of such
order or direction or which may have been completed on or before such date, and
includes also all proceedings under this Act which may be commenced after the
date of such order or direction in respect of any year".
The section was amended by section 27 of
Finance (No. 2) Act, 1967, and section 127 since then stands as under:
(1) "The Commissioner may, after giving
the assessee a reasonable opportunity of being heard in the matter, where ever
it is possible to do so, and after recording his reasons for doing so, transfer
any case from any Income-tax Officer or officers also subordinate to him and
the Board may similarly transfer any case from any Income-tax Officer or
Income-tax Officers to any other Income-tax Officer or Income-tax Officers.
Provided that nothing in this subsection
shall be deemed to require any such opportunity to be given where the transfer
is from any Income-tax Officer or Income-tax Officers to any other Income-tax
Officer or Income-tax Officers and the offices of all such Income- tax Officers
are situated in the same city, locality or place:
Provided further that where any case has been
transferred from any Income-tax officer or Income-tax Officers to two or more
Income-tax Officers, the Income-taxers to whom the case is so transferred shall
have concurrent jurisdiction over the case and shall perform such functions in
relation to the said case as the Board or the Com- missioner (or any Inspecting
Assistant Commissioner authorised by the Commissioner in this behalf) may, by
general or special order in writing, specify for the distribution and
allocation of the work to be performed".
(2) The transfer of a case under subsection
(1) may be made at any stage of the proceedings, and shall not render necessary
the reissue of any notice already issued by the Income-tax Officer or
Income-tax Officers from whom the case is transferred.
Explanation:-In this section and in sections
121, 123, 124 and 125, the word 'case' in relation to any person whose name is
specified in any order or direction issued thereunder means all proceedings
under this Act in respect of any year which may be pending on the date of such
order or direction or which may have been completed on or before such date, and
includes also all proceedings under this 888 Act which may be commenced, after
the date of such order or direction in respect of any year."
Unlike-section 5(7A) section 127(1) requires reasons to be recorded prior to
the passing of an order of transfer.
The impugned order does not state any reasons
whatsoever for making the order of transfer.
It is submitted on behalf of the Revenue by
Mr. Sharma that reasons were communicated to the assessees in the notice
calling for objection against the proposed transfer.
It is, therefore, manifest that the reasons
given 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 section 5(7A) of the old Act came for consideration in Pannalal
Binjraj and Another vs. The Union of India and others and this Court observed
at page 589 as follows:- "......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 fide 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 against him, be it a
transfer from one Income- tax Officer to another within their State or from an
Income-tax officer with in the State to an Income-tax Officer without it,
except of course where the very object of the transfer would be frustrated if
notice was given to the party affected. If the reasons for making the order
reduced however briefly to writing it will also help the assessee in
appreciating the circumstances which make it necessary or desirable for the
Commissioner of Income-tax or the Central Board of Revenue, as the case may be,
to transfer his case under section 5(7A) of the Act and it will also help the
Court in deter mining the bona fides of the order as passed if and when the
same is challenged in Court as mala fide or discriminatory. It is to be hoped
that the Income-tax authorities will observe the above procedure wherever
feasible".
This judgment was rendered by this Court on
December 21, 1956, and we find that in the 1961 Act section 127 replaced
section 5(7A) 889 where the legislature has introduced, inter alia, the
requirement of recording reasons in making the order of transfer. It is
manifest that once an order is passed transferring the case file of an assessee
to another area the order has to be communicated. Communication of the order is
an absolutely essential requirement since the assessee is then immediately made
are of the reasons which impelled the authorities to pass the order transfer.
It is apparent that if a case file is transferred from the usual place of
residence or office where ordinarily assessments are made to a distant area, a
great deal of inconvenience and even monetary loss is involved, That is the
reason why before making an order of transfer the legislature has ordinarily
imposed the requirement of a show-cause notice and also recording of reasons.
The question then arises whether the reasons are at all required to be
communicated to the assessee. It is submitted, on behalf of the Revenue, that the
very fact that reasons are recorded in the file, although these are not
communicated to the assessee, fully meets the requirement section 127(1). We
are unable to accept this submission.
The reason for recording of reasons in the
order and making these reasons known to the assessee is to enable an
opportunity to the assessee to approach the High Court under its writ
jurisdiction under article 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 based on irrelevant and
extraneous condonations 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.
Mr. Sharma drew our attention to a decision
of the Delhi High Court in Sunanda Rani Jain vs Union of India and others,
where the learned single Judge has taken a contrary view. For the reasons,
which we have given above, we have to hold that the said decision is not
correct.
The appellant drew our attention to a
decision of this Court in Shri Pragdas Umar Vaishya vs.Union of India and Other
where rule 55 of the Mineral Concession Rules, 1960, providing for exercise of
reversional power by the Central Government was noticed. It was held that under
rule 55 the Central Government in disposing of the revision application must
record its reasons and communicate these reasons to the parties affected
thereby. It was further held that the reasons could not be gathered from the
nothings in the files of the Central Government. Recording of reasons and
disclosure thereof is not a mere formality.
890 Mr. Sharma drew our attention to a
decision of this Court in Kashiran Aggarwalalla vs. Union of India and other.
It is submitted that this Court took the view
that orders under section 127(1) are held in that decision to be purely
administrative in nature" passed for consideration of convenience and no
possible prejudice could be involved in the transfer. It was also held therein
that under the proviso to section 127(1) it was not necessary to give the
appellant an opportunity to be heard and there was consequently no need to
record reasons for the transfer.
This decision is not of any assistance to the
Revenue in the present case since that was a transfer from one Income-tax
Officer to another Income-tax Officer in the same city, or, as stated in the
judgment itself, in the same locality" and the proviso to section 127(1),
therefore, applied.
When law requires reasons to be recorded in a
particular order affecting prejudicially the interests of any person, who can
challenge the order in court, it ceases to be a mere administrative order and
the vice of violation of the principles of natural justice on account of
omission to communicate the reasons is not expiated Mr. Sharma also drew our
attention to a decision of this Court in S Narayanappa and Others vs.
Commissioner of Income-tax, Bangalore where this Court was dealing with section
34 of the old Act. It is clear that there is no requirement in any of the
provisions of the Act or any section laying down as a condition for the
initiation of the proceedings that the reasons which induced the Commissioner
to accord sanction to proceed under section 34 must also be communicated to the
assessee. The Income-tax Officer need not communicate to the assessee the
reasons which led him to initiate the proceedings under section 34. The case
under section 34 is clearly distinguishable from that of a transfer order under
section 127(1) of the Act. When an order under section 34 is made the aggrieved
assessee can agitate the matter in appeal against the assessment order, but an
assessee against whom an order of transfer is made has no such remedy under the
Act to question the order of transfer. Besides, the aggrieved assessee on
receipt of the notice under section 34 may even satisfy the Income-tax Officer
that there were no reasons for reopening the assessment. Such an opportunity is
not available to an assesse under section 127(1) of the Act. The above decision
is, therefore, clearly distinguishable.
We are, therefore, clearly of opinion that
non- communication of the reasons in the order passed under section 127(1) is a
serious infirmity in the order for which the same is invalid. The judgment of
the High Court is set aside. The appeal is allowed and the orders of transfer
are quashed. No costs.
S.R. Appeal allowed.
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