Case Note & Summary
By this writ petition, a non-resident Indian assessee challenged an order dated 3 July 2019 passed by the Commissioner of Income Tax (International Taxation)-3, Mumbai under Section 127(2) of the Income Tax Act, 1961, transferring his case to the ACIT (Central) Circle, Goa. The petitioner had been residing in Hong Kong since 2001 and conducted business through entities in Hong Kong and British Virgin Islands, with income from investments in India and outside. He had been filing income tax returns as an NRI since 2001, and assessments including for Assessment Year 2018-2019 had been completed. The background involved a search and seizure action under Section 132 on 27 July 2017 in the case of Salagaocar Group of Companies. An intimation dated 20 June 2019 was issued to the petitioner stating that his case was identified for centralization with ACIT (Central) Circle, Goa because he was 'connected' with the Salagaocar Group, and calling for objections. The petitioner replied on 28 June 2019, explaining that his only transaction with the Salagaocar Group was the purchase of iron ore by his BVI companies before 2012, that he had stopped dealing with the Group in June-July 2012, and that his assessments were completed. He objected that the show cause notice disclosed no reasons or grounds for the alleged connection, reserved his right to file a further reply after such details were communicated, and requested a personal hearing. Despite this, the Commissioner passed the impugned order on 3 July 2019 without granting a hearing and without dealing with the objections, merely observing that the objection regarding hardship was not acceptable because the petitioner was connected to the Salagaocar Group. The core legal issues before the Bombay High Court were whether the show cause notice satisfied the requirement of reasonable opportunity under Section 127(2)(a), whether personal hearing was mandatory, and whether the notice was defective for being issued under the wrong provision and by the wrong authority. The petitioner argued that the vague notice prevented him from effectively defending the transfer, while the Revenue contended that the petitioner was connected to the Salagaocar Group and had been raided, so he was aware of the connection. The Court held that under Section 127(2)(a), a transfer order can be passed only after giving the assessee a reasonable opportunity of being heard and after recording reasons. A reasonable opportunity requires the show cause notice to contain sufficient details enabling the assessee to know the grounds for transfer. The notice merely stating 'connected to this group' without specifying how was vague and inadequate. The Court relied on Om Shri Jigar Association v. Union of India, (1994) SCC Online Guj. 77, observing that issuance of show cause notice is a preliminary step and not an empty formality. The Court also found that the notice was issued under Section 127(1) though the applicable provision was Section 127(2)(a), and it was issued by the Income Tax Officer (HQ) rather than the Commissioner exercising the power, showing non-application of mind. Furthermore, the Commissioner failed to deal with all objections and denied the requested personal hearing. Accordingly, the impugned order was quashed and set aside. Respondents were directed to re-transfer the file and PAN card to the original Assessing Officer by 27 September 2021, with the Goa office restrained from further action until re-transfer. The Court left it open to respondents to take steps in accordance with law, provided that any fresh show cause notice gives full details and the petitioner is granted a personal hearing after filing reply. All rights and contentions were kept open.
Headnote
A) Income Tax - Transfer of Cases - Reasonable Opportunity of Being Heard - Income Tax Act, 1961, Sections 127(2)(a) and 127(1) - A show cause notice issued prior to transfer of a case under Section 127(2)(a) must contain sufficient details enabling the assessee to know the grounds for transfer; a vague statement that the assessee is 'connected' with a searched group is inadequate. In this case, the intimation dated 20 June 2019 merely stated that the petitioner was connected to the Salagaocar Group without specifying how, and the petitioner's request for details went unanswered, depriving him of effective opportunity to object. Held: Reasonable opportunity requires disclosure of grounds; order quashed for violation of natural justice (Paras 5-8). B) Income Tax - Transfer of Cases - Personal Hearing - Income Tax Act, 1961, Section 127(2)(a) - Where the assessee specifically requests a personal hearing before a transfer order is passed, the authority exercising power under Section 127(2)(a) must grant such hearing, and denial thereof vitiates the order. The petitioner requested a personal hearing in his reply dated 28 June 2019, but the Commissioner passed the impugned order on 3 July 2019 without any hearing. Held: Failure to grant personal hearing when requested violates the statutory requirement of reasonable opportunity of being heard; transfer order invalid (Paras 5, 7-8). C) Income Tax - Transfer of Cases - Defective Show Cause Notice - Income Tax Act, 1961, Sections 127(1), 127(2)(a) - The show cause notice in this case was issued under Section 127(1) although the applicable provision for transfer between non-subordinate officers was Section 127(2)(a), and the notice was issued by the Income Tax Officer (HQ), not by the Commissioner exercising the power. This demonstrated non-application of mind and rendered the notice defective. Held: Notice issued under wrong provision and by wrong authority is invalid, and the subsequent order based on such notice is unsustainable (Paras 5-6). D) Income Tax - Transfer of Cases - Recording Reasons and Dealing with Objections - Income Tax Act, 1961, Section 127(2)(a) - The Commissioner is required to record reasons for transfer and deal with all objections raised by the assessee; merely stating that the objection regarding hardship is not acceptable because the assessee is connected with a group is insufficient. The impugned order failed to address the petitioner's points about lack of disclosed connection, cessation of dealings in 2012, shareholding, and personal hearing. Held: Non-application of mind and failure to address all objections vitiates the transfer order; respondents were directed to provide full details and grant personal hearing in any fresh proceedings (Paras 5-8, 10).
Issue of Consideration
Whether the order dated 3 July 2019 transferring petitioner's case under Section 127(2) of the Income Tax Act, 1961 was valid when the show cause notice was vague, issued under the wrong provision by the wrong authority, and personal hearing was denied.
Final Decision
Writ petition disposed. The impugned transfer order dated 3 July 2019 was quashed and set aside. Respondents were directed to re-transfer the file and PAN card of the petitioner back to the original Assessing Officer on or before 27 September 2021, and the concerned office in Goa was restrained from taking any further action on the petitioner's case until such re-transfer. Respondents were left free to take steps as advised in accordance with law, but any fresh show cause notice must provide all details to the petitioner and after reply a personal hearing must be granted. All rights and contentions of the petitioner were kept open.
Law Points
- Section 127(2)(a) of Income Tax Act requires reasonable opportunity of being heard and recording reasons
- show cause notice must contain sufficient details enabling assessee to know grounds
- vague notice stating only 'connected' insufficient
- personal hearing must be granted when requested
- notice must be issued by competent authority and under correct provision
- commissioner must deal with all objections
- issuance of show cause notice is not empty formality
- transfer order without compliance quashed.
