Full Judgment Text
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PETITIONER:
AJANTHA INDUSTRIES AND ORS.
Vs.
RESPONDENT:
CENTRAL BOARD OF DIRECT TAXES,NEW DELHI & OTHERS
DATE OF JUDGMENT05/12/1975
BENCH:
GOSWAMI, P.K.
BENCH:
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 impugn ed 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
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^
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]
JUDGMENT:
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
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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 brietly 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, Hyaderabad, 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 In come-
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
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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 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 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
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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
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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
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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.
891