Kamaljeet S. Ahluwalia vs Union of India (UOI)

Ajay Rastogi, J.—Since common controversy has been raised in a bunch of instant petitions, hence heard together at joint request and they are being finally disposed of at admission stage by common order.

Main controversy raised herein for consideration relates to common order dated 26-9-2010, by which Commissioner of income tax, Jaipur (I) in exercise of powers u/s 127(2) of income tax Act, 1961 ("IT Act") transferred income tax cases of Petitioners (Kamaljeet section Ahluwalia-CWP-13411/2010, Pawan Ahluwalia-CWP-13303/2010, Prashant Ahluwalia-CWP-13299/ 2010, M/s Kamaljeet S. Ahluwalia-CWP-13410/ 2010, M/s Kaype Enterprises -CWP-13277/2010, M/s Kamal Sponge Power & Steel Ltd.-CWP-13272/2010 & Smt. Indu Ahluwalia-CWP-13280/ 2010) from Dy. Commissioner of income tax, Circle-2, Jaipur to DC/ACIT, Rourkela (Orissa).

Facts being common to the controversy raised in instant bunch of petitions are being taken note out of CWP-13411 /2010 (KJS Ahluwalia v. Union of India). The Petitioners are regular income tax Assessees having held their Permanent Account Numbers (PAN) and got their income tax assessments made every year on having filed income tax returns in the office of Dy. Commissioner of income tax Circle-II, Jaipur and indisputably they are members of Ahluwalia group.

It has come on record that a search and seizure operation u/s 132 of income tax Act was carried out in Ahluwalia group including their assets on 12-11-2009 by investigation wing of income tax Department at Bhubneshwar- during which, as alleged, they made a disclosure of Rs. 150 crores of concealed income. It was alleged that there were evasion of income tax by Ahluwalia Group and to ensure co-ordination & cooperation in proper investigations of evasion of income tax, it was proposed to centralize cases of Ahluwalia group vide letter dated 8-12-2009 (Ann. R/1) whereby request of centralization was made by Addl. Director, of income tax (In) Unit-1, Bhubneshwar to the Chief Commissioner of income tax Bhubneshwar -pursuant to which the matter vide letter dated 15-12-2009 (Ann. R/3) was referred to the Commissioner of income tax Sambalpur to take up the matter with the CIT, Jaipur Rajasthan for centralization of the cases with AC/DC (IT) Rourkela circle and accordingly, after taking report, the Commissioner of income tax Sambalpur sent a report vide letter (Ann. R/4) to the Commissioner of income tax Jaipur on 23rd/30th December, 2009 that under the circumstances stated in its report, centralization of all the Assessees under Asstt. Dy. Commissioner of income tax Rourkela is necessary for co-ordinated investigation and proper assessment. Pursuant thereto, a notice dated 11-1-2020 (Ann. R/5) was served upon KJS Ahluwalia that a proposal of centralization of cases of present Petitioners from DCIT-II Jaipur to AC/DC (IT), Rourkela has been received; and Petitioner (KJS Ahluwalia) was called upon in exercise of powers u/s 127(2) of income tax Act.

It is a matter of record that notice dated 11-1-2010 being addressed to KJS Ahluwalia at 65, Gopalbari, Jaipur was served upon him only and whole proceedings in regard to centralization of all the cases of Petitioners/Assessees (mentioned in notice, itself) were initiated by serving notice only upon KJS Ahluwalia on the premise that he is the person taking care of cases of Ahluwalia group as representative on behalf of Assessees (Petitioners herein) and no individual notice indisputably was issued to the respective Assessees referred to in the notice dated 11-1-2010.

However, KJS Ahluwalia submitted objections pursuant to the notice dated 11-1-2010 and objections raised vide his reply dated 16-1-2010 (Ann. R/6) were sent for comments to the Commissioner of income tax, Sambalpur whose comments were again sent to KJS Ahluwalia, to which he submitted detailed objections in counter; and after affording him an opportunity of hearing and taking note of final comments sent vide letter dated 2-9-2010 from Director of income tax (Inv.), Bhubneshwar, the Commissioner of income tax Jaipur-I after being satisfied vide common order dated 26-9-2010 took its decision to transfer income tax cases of KJS Ahluwalia group of assets/Petitioners from Assessing Officer (DCIT Circle-II Jaipur) to AC/DC-IT, Rourkela. It is the cause of grievance of Petitioners for approaching this Court by way of a bunch of instant petitions.

It is a matter of record that M/s KJS Ahluwalia (CWP-13410/2010) besides being an individual Assessee, is a proprietary Firm and at the same time, KJS Ahluwalia (CWP-13411 /2010) is also one of the working Directors of M/s Kamal Sponge Power & Steel Ltd.-CWP-13272/2010. As regards Petitioner-Assessees (M/s Kaype Enterprises-CWP-13277/ 2010, Indu Ahluwalia-CWP-13280/2010, Prashant Ahluwalia-CWP-13299/ 2010 & Pawan Ahluwalia-CWP-13303/2010), KJS Ahluwalia might be representing their cases, as alleged by Respondents but they all are individual Assessees and nothing has been placed on record that these Assessees at any point of time had authorized KJS Ahluwalia to represent or having executed any power of attorney for acting on their behalf to deal with income tax cases regarding transfer of their assessments before the Assessing Officers or the Department of income tax.

Counsel for Petitioners submits that show-cause notice served upon individual Petitioner (KJS Ahluwalia) was completely laconic and does not disclose reasons/justification for which the Department of income tax took decision to transfer their income tax cases from Jaipur to Rourkela - in absence whereof, opportunity to submit objection pursuant to impugned notice served as required u/s 127(2) of income tax Act has been denied and their action is in violation of Article 14 of the Constitution.

Counsel further submits that the show-cause notice was served only upon KJS Ahluwalia alone, and not upon individual Assessee, thus the very proceedings initiated and the decision taken by the authority to transfer the cases of the Assessee Petitioner from Jaipur to Rourkela are not justifiable and deserves to be set aside.

Counsel has further urged that order dated 26-9-2010 impugned is vitiated also on the premise of it having been passed under duress and pressure of Chief Commissioner of income tax, Bhubneshwar - though detailed correspondence in this regard has been placed on record by the Respondents but it reflected that the authority competent has not applied its independent mind while taking decision impugned for transferring the cases of Petitioners in exercise of powers u/s 127(2) of income tax Act.

Counsel further urged that Respondent has utterly failed to establish any reasonable basis or cause for transferring their income tax cases from the jurisdiction of Respondent-4 to Respondent-5, which according to him is in violation of powers vested in the assessing authority u/s 127(2)(a) and Section 132 of income tax Act. It has been urged that the authority while taking decision for transferring cases has misrepresented the department about the facts.

As regards Petitioners (M/s Kaype Enterprises-CWP-13277/2010, Smt. Indu Ahluwalia CWP-13280/2010, Prashant Ahluwalia-CWP-13299/ 2010 and Pawan Ahluwalia-CWP-13303/2010), Counsel submits that they are individual Assessees and no notice was individually served upon either of them and KJS Ahluwalia was never authorised by each of them to act on their behalf - in absence of serving notice and affording opportunity individually to the Assessees (Petitioners, ibid), the decision taken in transferring income tax cases of these four Petitioners is in clear violation of Section 127(2) of income tax Act.

Counsel further submits that the power can be exercised u/s 127(2)(a) by the authority only after the agreement being arrived at between the assessing authority to whom such Assessing Officers are subordinate, the authority from whose jurisdiction the case is to be transferred after giving the Assessee a reasonable opportunity of being heard in the matter, and after recording reasons for doing so, may pass the order of transferring the cases; and according to Counsel, indisputably in instant cases, individual notice has not been served upon these four Petitioners, and their right of audience which is a cardinal principle of administrative law that no one should be condemned un-heard, has been violated and transferring their income tax cases, has certainly caused prejudice and such action of Respondents is also in violation of Section 127(2) of income tax Act.

Counsel lastly urged that in the facts (supra), very process initiated by the authority from whose jurisdiction, cases are to be transferred and serving him a notice before passing final order in the facts of instant case was completely farce and in fact the decision impugned was taken by the higher authority to transfer the cases and the authority competent i.e., Commissioner in the instant case has not applied his independent mind while examining the objections raised by KJS Ahluwalia; thus in the facts of instant case, valuable right of Petitioners submitting individual defence for being examined by the authority has become an empty formality and the decision communicated to the Petitioner (KJS Ahluwalia) deserves to be set aside.

Respondents have filed reply to the writ petition and it has been inter alia averred that after the search operation being carried out u/s 132 of income tax Act in cases of KJS Ahluwalia group by investigation unit at Bhubneshwar - in course whereof, huge evasion of tax and concealed assets came into notice of investigating unit and in these circumstances, to ensure co-ordinated investigation, proper assessment and non-evasion of tax, the proposal to centralize the cases pertaining to Ahluwalia group was made by ADIT (Inv.) unit-I (1), Bhubneshwar. It has been averred that after the authorities competent were in agreement, Commissioner of income tax, Jaipur from whose jurisdiction cases were to be transferred, served a notice upon KJS Ahluwalia; however, whatever details having been referred to (supra) have never been raised while submitting objections inasmuch as he never raised any objection that he is not representing on behalf of other individual Assessees of Ahluwalia group; contrarily, at all stages, reply and written objections were being submitted to the show-cause notice served - details whereof have been placed on record which indicates that he was representing all the Assessees being members of KJS Ahluwalia group and after affording opportunity of hearing as required by law, the authority finally took decision to transfer their cases assigning detailed reasons vide order impugned; and it is only after final order being passed regarding centralization and transfer of cases of members of KJS Ahluwalia group, for the first time, in instant petitions, objection has been raised by other Assessees that notices have not been individually served upon each of them and once KJS Ahluwalia appeared and contested on behalf of all the Assessees (Petitioners herein) of KJS Ahluwalia group be considered to be adequately represented and the notice being served upon KJS Ahluwalia may be treated to be notice being served upon all members of KJS Ahluwalia despite being individual Assessees. Counsel for the Revenue submits that once KJS Ahluwalia represented on behalf of all other members of KJS Ahluwalia group, the requirement of Section 127(2) was complied with made in its true spirit. Detailed correspondence has been placed on record to show the due application of mind of the competent authority regarding examining the objections submitted by KJS Ahluwalia were taken note of after comments being obtained from Commissioner/ Director of income tax, Bhubneshwar from whose jurisdiction cases were to be transferred, and after being satisfied, order was passed transferring the income tax cases.

Counsel for the revenue further submits that compliance of statute provided u/s 127(2) has been made and it is not the fundamental right of the Assessee to be assessed at any particular place of having their principal place of business which has no nexus so far in regard to invoking powers u/s 127 of income tax and the venue for assessment has to be governed by statute. Counsel submits that once the decision has been taken by competent authority to exercise powers in the interest of the Revenue and for proper adjudication of tax liability and collection whereof, action cannot be said to be arbitrary which may call for interference more so when the mandate of Section 127(2)(a) has been complied with by the authority in its true spirit and the action being in conformity with law, it does not call for interference in limited scope of judicial review under Article 226 of the Constitution.

This Court has considered rival contentions advanced at the Bar and with their assistance, examined the material on record. Before dealing with contentions raised, it has been considered appropriate to have brief resume of provisions relevant for deciding controversy raised herein. Section 124 of income tax Act prescribes jurisdiction of Assessing Officer in respect of an Assessee on the principles and grounds stated therein; whereas Section 127 is an exception to the provisions contained in Section 124, Section 127 (1) & (2) of income tax Act ad infra:

Power to transfer cases.-- (1) The Director General or Chief Commissioner or 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 or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him.

(2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Director General or Chief Commissioner or Commissioner,--

(a) where the Directors General or Chief Commissioners or Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Director General or Chief Commissioner or Commissioner from whose jurisdiction the case is to be transferred 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, pass the order;

(b) where the Directors General or Chief Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Director General or Chief Commissioner or Commissioner as the Board may, by notification in the Official Gazette, authorize in this behalf.

Explanation.--In Section 120 and this Section, 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.

Section 127 as envisaged confers power to transfer cases of an Assessee at the discretion of competent authority that it is necessary to do so after affording a reasonable opportunity of hearing and record of reasons for doing so.

However, such discretion is not guided nor controlled by provisions of Section 124 which defines jurisdiction in normal circumstances while Section 127 is attracted only when it is felt by the Commissioner or the Central Board of Direct Taxes or the authority competent and is a sequel to the aforesaid principle if the authority comes to the conclusion that it is in the interest of the Revenue or for proper adjudication of tax liability or collection thereof, then transferring income tax case of an Assessee can be ordered for facilitating the task of effective investigation and for best and co-ordinated assessment. However, it goes without saying that discretionary powers vested u/s 127(2) has to be exercised keeping in mind the in-built restraint that such an action should not be taken arbitrarily or for any extraneous reason or with malice but only with a view to get correct assessment of tax being computed wherein by and large, paramount considerations to be taken note of are that the choice of place where the cases are to be transferred is fully within the domain of transferring authority since the Assessee can have no choice to ask for a particular officer or a particular place for the assessment to be made when power u/s 127(2) is to be exercised.

Scope of Section 5 (7A) of income tax Act, 1922 (Old Act) being almost same corresponding provisions as contained in Section 127 of income tax Act, 1961 was examined by Apex Court in Ajantha Industries and Others Vs. Central Board of Direct Taxes, New Delhi and Others, and it was observed ad infra:

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 considerations, 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 u/s 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.

Aforequoted principles have consistently followed by various High Courts regarding scope of Section 127 (1) & (2) of income tax Act and what has been observed by Apex Court clearly mandates that it is mandatory to record reasons since it is not a mere formality and contravention whereof being in violation of principles of natural justice on account of omission to communicate the reasons is not expiated. A series of decisions were cited by Counsel for the Petitioners on the principle of reasons being not communicated under the order impugned passed u/s 127(2) of income tax Act or reasonable opportunity of hearing being not afforded to the Assessee or that final order not setting part of reasons for communicating to the Assessee, the act in that eventuality was held to be bad in law and could not be said to be in conformity with statutory requirement as provided u/s 127(2) of income tax Act.

In a recent decision, Delhi High Court in ATS Infrastructure Ltd. Vs. Commissioner of Income Tax, , had an occasion to examine scope of order passed by the authority in exercise of powers u/s 127(2) of income tax Act and taking note of earlier judgments of Apex Court and also of various High Court and it has been observed ad infra:

In this conspectus and analysis of the law it will be relevant to note that - firstly there is no fundamental right of an Assessee to be assessed at a particular place, u/s 124 the assessment must be carried out at the principal place of business but when powers u/s 127 are invoked, territorial nexus becomes irrelevant. Secondly, the determination of the venue of the assessment would be governed by the greatest effectivity for collection of taxes. Thirdly, the decision to transfer cases cannot be capricious or mala fide. If the venue is changed from year to year, or periodically for no apparent reason, it would not manifest an instance of exercise of power which is not available, but an example of an abuse of power in the manner in which it is exercised. Fourthly, whilst the convenience of the Assessee should be kept in mind, it would always be subservient to the interests of adjudication and collection of taxes.

When these tests are applied to the cases on hand, the decision to transfer the cases from Jaipur to Rourkela pursuant to order impugned dated 26-9-2010, in the opinion of this Court, becomes unassailable. The order finally passed by Commissioner of income tax, Jaipur (I) in exercise of powers u/s 127(2) of income tax Act clearly indicates that after the first notice was served upon KJS Ahluwalia (Petitioner), his objections were taken note of and sent to Commissioner of income tax, Sambalpur and after the reply was received, it was again sent to him who again file reply raising further objections, which was again sent to the Commissioner of income tax, Sambalpur and Director of income tax (Inv.), Bhubneshwar where search had taken place on 12-11-2009 and it was finally observed that main business activities of Assessee is of iron ore mining being carried out at Rourkela in Orissa and none of brothers associated with mining activities of the group ordinarily resides at Jaipur and the day to day affairs of the iron mines are at Barbil and resides at Rourkela and Barbil in Orissa. The authority in the order impugned has summed up ad infra.

(a) The main business activity of Assessee is of Iron Ore Mining and same is being carried out mainly at Barbil (Orissa).

(b) None of the brother associated with mining activities of the group ordinarily resides at Jaipur, Shri Prashant Ahluwalia who manages the day to day affairs of the iron mines at Barbil resides at Rourkela and Barbil in Orissa.

(c) Huge expenditures under the head "Rejects Removal" has been claimed in the P & L account of the mining concerns and on examination of statements of some of the parties recorded under Sections 131 and 133A of the income tax Act, by the ADIT (Inv.), unit-1 (1), Bhubneshwar put a ''question mark on the genuineness of these expenses as some of the parties at Kolkata, Hyderabad and Bangalore, in whose names these expenses have been shown have denied to give services to the Assessee and they have admitted that they have acted as entry provider only. The names of such parties are not disclosed here as the investigation/assessment is yet to be completed and disclosure may adversely affect the further proceedings of the department. The ADIT (Inv.) has also given a chart in one case where the money channelized back to the one of the company of the Assessee in form of share application.

(d) Therefore, keeping in view of the above nature of discrepancies the physical inspection of mines and enquiries from various parties in whose name the expenses specifically "Removal of Rejects" have been books, would be required to be verified by Assessing Officer and it would be extremely difficult for Assessing Officer at Jaipur to conduct such enquiries/inspection.

(e) Further statements of key employees of Ahluwalia group in Orissa located in Orissa have been recorded during the investigation which will have immense importance in the assessment proceedings. The Assessing Officer may require to re-examine or allow cross examination of the same persons during the assessment stage and in that event, it would be highly disadvantageous for the Assessing Officer at Jaipur due to jurisdiction constraints. Further the Assessing Officer at Jaipur cannot personally examine on oath the key witness in the case u/s 131 of the income tax Act due to lack of jurisdiction beyond the limits envisaged in the CPC Act, 1908. The same difficulty may arise if it becomes imperative to examine other local persons who have aided in the tax evasion scheme, thus hampering the progress of investigation which ultimately would effect adversely passing of judicially sustainable assessment order. On the contrary, if the Assessing Officer is located in Orissa, he will not come across such difficulties.

The reasons aforesaid were recorded by the authority after affording an opportunity of hearing indisputably to KJS Ahluwalia and after taking note of the comments made available on record, the competent authority being satisfied took its decision to transfer income tax cases from Jaipur to Rourkela.

However, it is also not the case of Petitioner (KJS Ahluwalia) that the order has been passed by the authority for extraneous consideration or with ulterior motive; on the contrary, the decision impugned has been taken by the authority keeping in view the object of the enactment - in absence of there having any material on record imputing malice or irrelevant considerations or ulterior motive on the part of the authority for having arbitrarily transferred the cases in exercise of powers u/s 127 of income tax Act, this Court after having gone through the record does not find any manifest error being committed which may call for interference.

As stated (supra), indisputably notice was addressed to KJS Ahluwalia and served upon him only for transferring income tax cases of other members of Ahluwalia group who are indeed individual Assessees. It is available from record that KJS Ahluwalia is one of active Director of M/s Kamal Sponge Power & Steel Ltd. (CWP-13272/ 2010), M/s Kamaljeet Singh Ahluwalia (CWP-13410/2010 - proprietary Firm) besides being individual Assessee as KJS Ahluwalia (CWP-13411/2010) and is representing on their behalf in these three writ petitions, ibid., and at least notice served upon him can be construed to be notice served upon Assessees (KJS Ahluwalia, M/s Kamal Sponge Power & steel and M/s Kamaljeet Singh Ahluwalia); and opportunity of hearing being afforded regarding these troika Assessees ibid., while the authority passed order impugned dated 26-9-2010.

At the same time, it has not been controverted by the Respondents authority that the notice to the Assessees (Pawan Ahluwalia (CWP-13303 / 2010), Prashant Ahluwalia (CWP-13299/2010), Smt. Indu Ahluwalia (CWP-13280/ 2010) & M/s Kaypee Enterprises (CWP-13277/2010) despite individual Assessees, was never served and at no point of time, they were called upon at any stage in regard to centralization and transfer of their income tax cases from Jaipur to Rourkela. Whereas the defence of Respondents authority that Kamlajeet S. Ahluwalia was always representing all the Assessees; as such no individual notice to the Assessees was required to be served.

In the opinion of this Court, in absence of material on record about authorizing Kamaljeet S. Ahluwalia to represent on behalf of other Assessees named (supra) or holding power of attorney on their behalf and they being individual Assessees, their rights are seriously prejudiced in the absence of notice being individually served and opportunity of hearing being afforded to each of them, which is a mandate of law u/s 127(2) of income tax Act, the very order impugned regarding transfer of income tax cases qua Petitioners named (supra) is held to be not sustainable and deserves to be set aside.

Consequently, CWP-13277/2010 (M/s Kaypee Enterprises), CWP-13280/2010 (Indu Ahluwalia), CWP-13299/2010 (Prashant Ahluwalia) & CWP-13303/2010 (Pawan Ahluwalia) are allowed and impugned order dated 26-9-2010 qua each of them is quashed and set aside; however it would not preclude the Respondents, if advised, to initiate proceedings regarding transfer of their income tax cases, according to law.

However, CWP-13411/2010 (Kamal Jeet Singh Ahluwalia), CWP-13410/2010 (M/s Kamal Jeet Singh Ahluwalia) & CWP-13272/2010 (M/s Kamal Sponge Power & Steel Ltd.) fail and are hereby dismissed. No order as to costs.