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Judgment
B.C. Patel, J.—By filing this petition the petitioner has prayed this Court to quash and set aside the notice, dt. 29th July, 1998, issued under
s. 127(1) of the IT Act, 1961, (hereinafter referred to as ""the Act""), and order, dt. 9th December, 1998, passed under s. 127(2) of the Act being
illegal, arbitrary and violative of Art. 14 of the Constitution of India and further prayed that the proceedings initiated against the petitioner
subsequent to the order of transfer be quashed and set aside being without jurisdiction.
Initially the learned counsel appearing for the petitioner submitted that the petitioner is engaged in the business of diamond cutting the polishing
and when the premises was searched only a mere sum of Rs. 310 was found by the raiding party. The learned counsel contended that the poor
assessee was subjected to process of transfer of the case.
It appears that the petitioner is a resident of Jasdan town. Search took place at the residence and business premises of the assessee on 24th
September, 1997, and the raiding party found out a mere sum of Rs. 310 from the assessee. The Addl. Director of Investigation 3(2),
Ahmedabad, had issued summons dt. 11th November, 1997 and 12th January, 1998, for procuring certain information. The CIT issued notice
under s. 127(1) of the Act on 16th July, 1998, for transfer of the case from the AO, Rajkot, to the Dy. CIT (Inv) Circle-I, Bhavnagar, vide
Annexure ""A."", The petitioner by reply, dt. 3rd August, 1998 vide Annexure ""B"" submitted his written objection to the proposed transfer of his
case from Rajkot to Bhavnagar. He pointed out that he was regularly assessed at Rajkot and had no taxable income. He pointed out that for the
asst. yrs. 1990-91, 1991-92 and 1992-93 returns were filed on 26th February, 1998. He raised objection on the ground that Jasdan is hardly 50
kms away from Rajkot and it is convenient to him to attend Income Tax matters at Rajkot. If the case is transferred to Bhavnagar it would cause
undue hardship, financial as well as physical. He pointed out that his business also will be adversely affected. It appears that thereafter the case was
transferred to Investigation Circle, Bhavnagar, and by notice dt. 24th June, 1999, vide Annexure ""D"" the petitioner was called upon to submit the
return. Thereafter again on 16th July, 1999 (at p. 78), in reply to his grievance it was pointed out that the CIT, Rajkot, has passed the reasoned
order under s. 127(2) of the Act on 9th December, 1998 assigning his case to the Investigation Circle, Bhavnagar, and he was requested to file the
return. It seems that thereafter again some objections were raised. However, the AO made assessment order on 30th September, 1999 and it is
thereafter on 13th December, 1999 petition came to be filed.
Relying on the judgment of the Supreme Court in the case of Ajantha Industries and Others Vs. Central Board of Direct Taxes, New Delhi and
Others, the learned counsel Mr. Patel appearing for the assessee submitted that when case is transferred it is mandatory not only to record the
reasons but to serve the order passed under s. 127(1) of the Act to the assessee. In the said case the Supreme Court pointed out as under :
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 of s. 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 Art. 226 of the Constitution of India or even this Court under Art. 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
and extraneous considerations. Whether such a writ or special leave application ultimately fails is not relevant for the decision of a question.
We are clearly of opinion that the requirement of recording reasons under 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.
Thus, it is clear that it becomes the duty of the officer of transferring the case under s. 127(1) of the Act to record the reasons for transferring
the case and to communicate the same to the assessee.
On behalf of the Revenue the Dy. CIT, Investigation Circle, Bhavnagar filed affidavit-in-reply along with copy of order, dt. 9th December,
1998. He pointed out in para 4 that the order is a speaking order. The reason for transferring the case was the requirement of indepth investigation
and coordinated action along with more than 30 other cases including that of M/s. Bhavani Gems group where searches were conducted under s.
132 of the Act on 25th April, 1997. It is also pointed out that the decision is not arbitrary. When a raid carried out at the place of Bhavani Gems
group the said material was found as a result of which the premises of the petitioner came to be raided.
It was further pointed out that even assuming for the sake of argument that the order was not served to the petitioner-assessee, but the record
makes it clear that it is the case of block assessment proceedings and the assessee was shown the order passed under s. 127 which has been
noted not only by the petitioner himself but by his advocate also on 30th August, 1999. The xerox copy of a letter dt. 23rd August, 1999, 30th
August, 1999, was placed before us. Reading the same it transpires that the assessee addressed a letter to CIT, Bhavnagar and AO wherein he
has answered the questions raised by the AO in his notice. The assessee conveyed that he was filing reply keeping his right open.
It is pointed out that the AO has shown the order under s. 127(2) of the Act dt. 9th December, 1998, assigning the case to the AO to the
assessee and his advocate and in the margin noting has been made and signed by the advocate in this behalf in a letter dt. 23rd/30th August, 1999.
In the affidavit-in-reply it is clearly averred that the fact of receiving the order has also been accepted by the assessee in his letter dt. 23rd/30th
August, 1999. Even before this assessee wrote letter, dt. 13th July, 1999 stating that he has not received the copy of the order but it seems
immediately thereafter reply is given (p. 28) wherein the assessee has been informed that the order has been passed. These two documents are
placed before us and it is clear that the order was passed and that was within the knowledge of the assessee. So far as the reasons are concerned,
this Court need not examine the same in detail at this stage more particularly when the assessment order has been already passed against which the
assessee has already preferred appeal. In the instant case, assessee has allowed the procedure being completed without challenging the order and
after the assessment order is made and has already preferred an appeal this petition is filed.
Section 124 of the Act refers in the jurisdiction of the AO. It was open for the assessee when he came to know that the said order is passed to
move the CIT under s. 124(2) of the Act who exercises powers under s. 263 of the Act or to move this Court immediately thereafter.
Sub-s. (3) of s. 124 of the Act being relevant is reproduced hereunder :
Section 124(3)
No person shall be entitled to call in question the jurisdiction of an AO :
(a) where he has made a return under sub-s. (1) of s. 139 after the expiry of one month from the date on which he was served with a notice under
sub-s. (1) of s. 142 or sub-s. (2) of s. 143 or after the completion of the assessment whichever is earlier;
(b) where he has made no such return, after the expiry of time allowed by the notice under sub-s. (1) of s. 142 or under s. 148 for the making of
the return or by the notice under the first proviso to s. 144 to show cause why the assessment should not be completed to the best of the judgment
of the AO, whichever is earlier.
It is required to be noted that the petitioner was assisted by a legal practitioner. It was known to them that the assessment is required to be
completed under ss. 158A and 158B of the Act and, therefore, it was essential for the petitioner to move the Court before time expired or before
the assessment is made.
Earlier, Mr. Bhatt appearing for the Revenue, submitted that from the xerox copy of original file it appears that even the assessee appeared and
raised objection and after hearing with the consent of the assessee the assessment order is made which has been recorded. Earlier Mr. Bhatt
submitted before us from the file of the office of the Asstt. Director, Income Tax, Ahmedabad, that there was an assessment order covering
19,47,580 diamonds worth Rs. 12,34,775. The assessee, namely Bhavani Gems group made payment of Rs. 1 crore and after considering the
relevant material and statements recorded the concealed income of the group was estimated at Rs. 49,19,94,900 and undisclosed income was Rs.
2,55,26,614. We have seen the original file and are satisfied that the officers have exercised their powers considering the situation. Even after the
notice it was certain that the assessee in the instant case was heard and he raised objections and they were considered and noted in the file. Even
from the file it transpires that some persons were from Bhavnagar, some persons from Rajkot, etc. and considering the facts and circumstances the
order has been passed.
Mr. B. B. Naik, learned advocate, submitted that once the assessee has submitted to the jurisdiction of the officer and permitted the AO to
complete the assessment, he could not be permitted to raise grievance after the assessment order is made. Had the petitioner approached this
Court even before the assessment order position would have been quite different. In the instant case, from the facts of the case, it is established
that the order was passed and communicated to the assessee and he has permitted the AO to complete the assessment. In view of the facts and
circumstances of the case, we do not find any merit in the petition and hence this petition is rejected. Notice is discharged. No order as to costs.