High Court of Bombay at Goa Quashes Income Tax Transfer Order for Want of Reasons; Directs Fresh Order Complying with Mandatory Requirement of Section 127(1) of Income Tax Act, 1961. Co-ordinated Investigation Ground Must Be Supported by Specific Reasons Showing Why Transfer is Necessary.

Writ petition under Article 226 of the Constitution of India challenging the order of the Commissioner of Income Tax transferring the case from Goa to Delhi under Section 127(1) of the Income Tax Act, 1961.

The petitioner sought quashing of the transfer order and a direction to the respondent to not transfer the case or to pass a fresh order after recording reasons.

The transfer order did not contain any reasons apart from stating that it was for co-ordinated investigation, which the petitioner contended was insufficient and violated the mandatory requirement of Section 127(1) as interpreted by the Supreme Court in Ajantha Industries.

Whether the transfer order under Section 127(1) of the Income Tax Act, 1961, passed without recording reasons in the order, is valid in light of the decision of the Supreme Court in Ajantha Industries v. CBDT.

The petitioner submitted that the order passed under Section 127(1) without giving any reasons for transfer was void and violative of natural justice as held by the Supreme Court in Ajantha Industries and others v. Central Board of Direct Taxes and others (102 ITR 281). The revenue contended that transfer for co-ordinated investigation is permissible, relying on decisions of the Allahabad High Court in Trimurti Fragrances(P) Ltd, the Bombay High Court in One-up Shares and Stock Brokers(P) Ltd, and the Jharkhand High Court in Jharkhand Mukti Morcha.

The requirement of recording reasons under Section 127(1) of the Income Tax Act, 1961, is mandatory and non-communication of reasons in the order to the assessee is fatal, even if reasons exist in the file. While a transfer for co-ordinated investigation is permissible, the Commissioner must give specific reasons in the order why such transfer is necessary, and a mere statement that it is for co-ordinated investigation is insufficient. This is in consonance with the principles of natural justice and the decision of the Supreme Court in Ajantha Industries v. CBDT (1976).

The reason for recording of reasons in the order and making these reasons known to the assessee is to unable an opportunity to the assessee to approach the High Court under its Writ jurisdiction under Article 226 of the Constitution of India or even this Court under Article 136 of the Constitution of India in an appropriate case for challenging the order, inter alia either on the ground that it is mala fide or arbitrary or that it is based on irrelevant or extraneous considerations. We are clearly of the 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. In our view merely mentioning this reason that it is necessary to transfer it for co-ordinated investigation is not sufficient in view of the clear observation made by the Apex Court in the case of Ajanthan Industries (supra) where it has been mentioned that the reasons have to be recorded in the order and, as such, the commissioner ought to have given reasons why co-ordination investigation is necessary.

The petitioner filed Writ Petition No. 870 of 2012 challenging the transfer order under Section 127(1) of the Income Tax Act, 1961. The High Court issued Rule, made it returnable forthwith, and by consent heard the parties forthwith. No prior proceedings were recorded.

• Income Tax Act, 1961: Section 127(1), Section 127(2), Section 132(1)