TMI Blog2006 (2) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed under section 127(2) of the Income-tax Act, 1961, transferring the cases of the Sahara group from their respective Assessing Officers at Lucknow to the Assistant Commissioner of Income-tax, Central Circle-6, New Delhi. Though the orders in respect of all the assesses have been passed individually and separately, which have been challenged in the writ petitions filed by them, since the ground of transfer and the questions of fact and law, which have been raised and require determination, are one and the same, we have proceeded to decide the petitions by one common order, with the consent of the parties' counsel. Writ Petition No. 5395 (MB) of 2005, M/s. Sahara Airlines Ltd. v. Director General of Income-tax (Inv.) is being taken as the leading petition. The pleadings exchanged in one or more writ petitions shall form the basis of challenge and defence in all the writ petitions. In all there are 48 assessees, out of which, six are individual assessees at Lucknow and the rest of the assesses are companies, firms or individuals. Out of these 48 assessees, 31 companies including six individual assessees are assessed at Lucknow, two are assessed at Kolkata, nine at Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 996, which application, according to the petitioner could not have been taken into consideration as on transfer of the cases in pursuance of the aforesaid application of 1996 to New Delhi vide order dated December 9, 1996, making it effective from May 1, 1997, the petitioner requested that the cases of the petitioner may be assessed at Lucknow, which prayer was accepted by the Central Board of Direct Taxes, which cancelled the earlier order of transfer vide order dated April 29,1997. It was further pleaded that the cases of the group were transferred to the Central Circle at Lucknow in the year 1991 and despite more than 14 years having lapsed since the group cases were centralized, despite request for decentralization of cases at Lucknow, the cases have not been so far decentralized and now out of the blue, it is proposed that the cases of the assessee-petitioner be transferred to Central Circle, New Delhi. The reply also indicated that the assessee would be facing a lot of inconvenience as the entire activities of the assessee are centralized at Lucknow, which is the command office of the assessee and all the books of account and movement of staff from Lucknow to New Delhi time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be achieved by shifting the centralization of cases from Lucknow to Delhi inasmuch as the cases are already centralized in Central Circle-1, Lucknow, which means that a co-ordinated enquiry is already being conducted at Lucknow and by shifting the centralization to New Delhi, no useful purpose can be achieved. The observation made in the notice regarding the inter-lacing and interconnection of funds and the business activities amongst the various entities was again said to be a sweeping observation, and thus was avoided from being categorically replied. (i) After considering the reply of the petitioners, the impugned order of transfer was passed on July 29, 2005. The order of transfer passed under section 127(2) of the Act takes into consideration the various objections raised by the petitioners and holds that the Sahara group consists of several companies, firms and individuals, which are presently assessed to tax at various places, including at Lucknow, Delhi and Kolkata. After centralization of some of the cases of the group at Lucknow in 1991, the group has, over a period of time, diversified its business activities, which are now spread across cities and towns of the coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main thrust of attack to the impugned orders is as follows: (i) The Commissioner, while taking proceedings for passing an order under section 127(2), acts as a quasi-judicial authority and his decision cannot be treated as a purely administrative action, which would necessarily require an objective consideration of the issues and laying down of reasons, which are germane to the question involved, namely, the transfer of cases from one place to another. (ii) The requirement of affording opportunity of hearing means an effective opportunity and not merely an eye-wash and that recording of reasons would also necessarily mean that the validity of the same and reasonableness thereof, can be subjected to judicial scrutiny. (iii) There was no justification for transferring the cases from Lucknow to New Delhi as a group of cases was already being assessed with the Central Circle at Lucknow right from the year 1991 and, therefore, the transfer of all the cases from Lucknow is an arbitrary action (out of 31 assessees/petitioners at Lucknow, only 18 are being assessed with the Central Circle, including six individuals from the year 1991/1993 and the rest of the assessees at Lucknow are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein, namely, opportunity of hearing to the assessee and recording of reasons for the transfer. "127.(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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would meet the requirement of recording of reasons in the order. The reasons, so recorded, have to be relevant and germane to the issues raised which can be supported by documentary evidence or such evidence, as may be available, but if the reasons are absurd or non-existent, mere recording or statement of reasons would not be sufficient to hold the order valid for compliance with the requirement of recording reasons. But the sufficiency or adequacy of material for recording such reasons, may not be a factor to raise a plea of quantitative insufficiency of material, so as to make the reasons recorded arbitrary or bad. In regard to the opportunity being afforded to the petitioners, it is apparent and there is no serious dispute also that the notices as required to be issued to the petitioners giving the grounds for the proposed transfer and affording an opportunity of hearing, were issued and served, to which the petitioners responded not only by filing objections but also additional objections and they were also afforded personal hearing before passing of the order. However, an attempt has been made to impress that full opportunity could not be said to have been afforded as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies had entered into joint ventures with the sister concerns for joint development of housing projects, that too from the own record of the company, would not mean that the petitioners were not afforded any opportunity to rebut the entries of the balance-sheet or the details of such joint venture projects with the sister concerns and profit sharing ratio shown therein. A few of the joint ventures which are quoted therein, are Sahara States, Hyderabad with co-ventures (i) Sahara India Commercial Corporation Ltd. assessed at Kolkata; (ii) Sahara India Corporation Ltd. assessed at Delhi; and (iii) Sain Processing and Weaving Mills Ltd. assessed at Delhi and also Sahara States, Bhopal with co-ventures (i) Sahara India Commercial Corporation Ltd.; (ii) Sahara Airlines Ltd.; and (iii) Sahara India International Corporation Ltd. From the above details, it implies that Sahara India Financial Corporation Ltd. holds the balance 7.5% shares in both these joint venture projects. The details also show on examination of the balance-sheet of M/s. Sahara India (Firm) for the assessment year 2003-04 the following transactions. (i) The firm has shown receipt of Rs. 250.45 crores as rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Amby Valley which is located near Lonawala. During the course of the assessment for the assessment year 1999-2000 of M/s. Sahara India (Firm), it was noticed that M/s. Sahara India Commercial Corporation Ltd. has mobilized funds through M/s. Sahara India (Firm) as under: (i) Optionally convertible debentures (Sahara 10) Rs.20,83,54,000 (ii) Optionally convertible debentures (Sahara 14) Rs.3,30,03,07,000 (iii) Equity shares of Rs. 10 each at a premium of Rs. 90 per share Rs.36,42,47,000 (iv) Preference shares Rs.16,83,000 Total Rs.3,87,45,91,000 The above examples were given to illustrate the inter-lacing and inter-connection of funds amongst the different entities of the Sahara group. During the course of the arguments, Sri Rakesh Dwivedi, learned senior advocate, did admit that the inter-lacing and inter-connection of funds and the business activities is a part of business and no exception can be taken thereto, as each and every entry stands explained or would be explained, as required. Sri Dewan, who initially submitted that inter-lacing is nothing but in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Recording of reasons in support of a decision on a disputed claim by a quasi-judicial authority ensures that the decision is reached according to law and is not the result of caprice, whim or fancy or reached on grounds of policy or expediency. A party to the dispute is ordinarily entitled to know the grounds on which the authority has rejected his claim". In the case of Power Controls v. CIT [2000] 241 ITR 807 (Delhi) and in particular para. 19 of the report, the court observed that"... though it may neither be possible nor desirable to confront the assessee with the entire material on record necessitating transfer of case to a particular Assessing Officer for co-ordinated investigation but in order to provide a reasonable and proper opportunity to him to make an effective representation, as contemplated in section 127(2), some basic summary of facts, giving some broad idea of the reason for the transfer of the case must be indicated in the show-cause notice itself". Their Lordships in the aforesaid case clarified in para. 22 of the report 37 that "... we (their Lordships) are not holding for a moment that 'administrative convenience' and/or 'co-ordinated investigation' ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emently urged from the side of the petitioners that the order impugned is being sought to be defended by giving explanation in the counter affidavit, though such explanation or reasons do not find mention in the order itself. Reliance has also been placed upon the case of Commissioner of Police v. Gordhandas Bhanji, AIR 1952 SC 16 in support of the plea that a public order, publicly made, in exercise of a statutory authority cannot be construed in the light of the explanation subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to affect the action and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself. In the case of Hindustan Petroleum Corporation Ltd. v. Darius Shapur Chenai [2005] 7 SCC 627, the Supreme Court observed that" ... When an order is passed by a statutory authority, the same must be supported either on the reasons stated therein or on the grounds available therefor in the record. A statutory authority cannot be permitted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a that the transfer of cases is in the administrative convenience and Delhi is having a better infrastructure, as urged by counsel for the respondents, though has been raised in the arguments does not find place in the counter affidavit in the specific terms. But it is clear that the order for transferring the cases to one single officer at a particular place has been passed for co-ordinated investigation and assessment and, therefore, such a place would be chosen by the Commissioner only if it is administratively convenient and there is required infrastructure for the purpose. The reasons thus flow from the order as well as from the record, as has been held in the case of Hindustan Petroleum Corporation Ltd. [2005] 7 SCC 627. In regard to the plea that the order suffers from acute unreasonableness as it takes into consideration, the application dated October 17, 1996, moved by the petitioners themselves for transfer of the cases from Lucknow to New Delhi, the following facts are essential in understanding the issue and also to find out that whether the reference to the aforesaid application was wholly irrelevant, which has the effect of vitiating the order and, if not, the ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cknow to Noida. After the aforesaid order of transfer passed on the own request of the petitioners, which was passed on the practical difficulties, which were being faced by the petitioners, the petitioners appear to have moved an application on April 19,1997, that in case the Department is having difficulty in transferring the cases to Delhi, the Sahara group would have no objection, if they were to be assessed at Lucknow. The order of transfer dated November 20, 1996, passed by the Central Board of Direct Taxes was cancelled vide order dated April 29, 1997, and the cases were again transferred to Lucknow. On May 18, 1997, the registered office of the company, Sahara India Financial Corporation Ltd., was also resolved to be transferred from Noida to Lucknow, for which necessary formalities were done with the Registrar of Companies. It has been specifically pleaded and contended by Sri Anil Dewan that the earlier order of transfer was cancelled, because of the difficulty being faced by the Department in dealing with the cases at New Delhi, on the request so made by the petitioners. The fact that the transfer order dated November 20, 1996, was cancelled because of the difficulti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace for making a co-ordinated assessment for the purpose of just and correct assessment and collection of tax, it cannot be said that he was mainly swayed by the said fact or that it was wholly an irrelevant consideration. The conduct of the petitioners shows that they themselves were not sure as to whether they should be assessed at Lucknow or at Delhi and, therefore, the Commissioner was fully justified to provide a place for assessment under one officer at his own discretion after taking into account the various factors necessary for the purpose. It is not the order nor the case of the Department that since the petitioners had moved an application in the year 1996 for transfer of the cases, therefore, on that application, the cases are being transferred, rather the relevance of the said application has been limited to the extent of making a reference to the facts given in the order with respect to various activities of the Sahara group of companies at New Delhi and the request of the petitioners themselves regarding the request for transfer of cases from Lucknow to New Delhi. It is also relevant to mention that as per the own pleading of the petitioners, which has been str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from New Delhi to Lucknow, but the order does not show any such reason as to why such an order cannot be passed nor it discloses the reasons for making an order of transfer vice versa. While elaborating the aforesaid argument, it has also been stated that the petitioners would have no objection if all the cases are transferred from New Delhi to Lucknow, Central Circle, a fact which has been specifically stated in the writ petition also. A corollary to the aforesaid statement is that the reasons for transfer of cases to New Delhi are absolutely arbitrary, perverse and do not get support from various documents which have been relied upon by the Commissioner, besides being factually incorrect. Before proceeding to test the reasons and their alleged arbitrariness or illegality, it would be appropriate to put the record straight and see the case of the petitioners, which they have taken in reply to the notice issued against the proposed transfer of cases from Lucknow to New Delhi and whether such a plea of concession for transferring the cases from New Delhi to Lucknow was ever taken before the Commissioner. In their replies dated July 5, 2005, and July 11, 2005, the petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred at Lucknow specifically in the letter to the Director General of Income-tax (Inv.) North, Lucknow on August 18, 2005, is in the following terms. If at all it is proposed to centralized all the cases the same may be centralized at Lucknow where the assessee has paraphernalia and the man-power to co-operate with the Department in the assessment proceedings. This letter, besides being addressed to the Director General, who had not passed the order for transfer, was written after the impugned order was passed on July 29, 2005. The stand of the petitioners before the Commissioner was that the proposed transfer is bad and is not justified nor is legal, which is based on factually incorrect information, ignoring the centralization of the cases at Lucknow and the competence of the Central Circle, where the group of companies is being assessed under a single officer and, therefore, the proposal of transfer be dropped. All the pleas raised in the reply were in fact, challenges to the proposed transfer and not for suggesting that the cases from New Delhi be transferred to Lucknow and if it is done so, the petitioners would have no objection. The reply, in fact, made a grievance of not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the cases are transferred to Lucknow and assailed the reasons for transferring the cases to New Delhi. In a group where several companies, firms, institutions and individuals are the assessees and having common directors and partners etc., in one or the other company or firm and where there are inter-corporate transactions and borrowings and where inter-corporate loans are provided and where there is an element of inter-lacing of funds and intermixing of activities with other entities, it is necessary for the correct, proper and just assessment of tax and for collection thereof, to get the assessment made under one single officer. This would not only be convenient to the Department in making assessment of tax but would also be beneficial to the assessees while participating in the assessment proceedings. The best co-ordinated investigation and assessment would require that all the cases are considered by an officer, who can have his access to the record of all the assessees and proper investigation could be made. This will also be less time consuming and more transparent and apparent. In view of the clear stand of the petitioners that there cannot be any objection to the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrol is effected, namely, where the head and brain of the company is situated. Since the controlling office and the command office of the group is at Lucknow, therefore, Lucknow would be the principal place of business for the purpose of determining jurisdiction. In response, it has been submitted that the principal place of business for the purpose of section 124 would mean, where the business activities and operations of the company are being undertaken and not merely where the headquarters or the registered office is situated. It has further been argued that in any case considerations for passing an order under section 127(2) are entirely different than the requirement of section 124, which provision, in effect, would not be attracted when considering the applicability of section 127(2). The determination of jurisdiction under section 124 and under section 127(2) has different connotations and a different purpose. Considerations, therefore, also differ and there cannot be a valid defence for the assessee for challenging the order passed under section 127(2) on the ground that the assessment should be made at a place where the assessees/group companies are having their prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances, whereas section 127 can be attracted only when it is felt by the Commissioner or the Central Board of Direct Taxes or the authority competent that it is proper or appropriate to exercise power under the said provision in the interests of the Revenue and for proper adjudication of the tax liability or collection thereof. Thus, as a sequel to the aforesaid principle, it follows that the transfer of cases can be ordered for facilitating the task of effective investigation and for best and co-ordinated assessment. The discretion to pass such an order has to be exercised keeping in mind the inbuilt restraint that such an action should not be taken arbitrarily or for any extraneous reason or with an ulterior motive but only with a view to get the correct assessment of tax done, wherein by and large, the factors, which may be taken into account, are that the business of the assessee group is scattered and its activities are not confined at one particular place but at different places and it is necessary to have the assessment under one single authority, who may require access to all the records, which if seen together and cross-checked, may clear out and give the correct pictur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much significance i.e. whether it is taken as administrative exercise of power or quasi-judicial exercise of power. In the case of Ajantha Industries v. CBDT [1976] 102 ITR 281 (SC); [1976] 1 SCC 1001, the apex court was dealing with a case, wherein the reasons were not communicated and it was said that failure to communicate the reasons for passing an order under section 127 makes the order bad. The apex court in the aforesaid case observed as under: "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." The infirmities as found by the apex court in the aforesaid case do not exist in the present case, as the reasons in this case were duly communicated for passing the order under section 127(2). In Benz Corporation v. ITO [1998] 232 ITR 807, the Kerala High Court held that the "... Chief Commissioner of Income-tax had filed a counter affidavit stating certain facts and circumstances which were not disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties to Chennai but later on the report of the Assistant Commissioner of Income-tax, the cases were retransferred from Chennai to Kerala. The court while considering the power to transfer the cases did observe that while doing so, the convenience of the assessee cannot stand in the way but further held that the said power should not be exercised arbitrarily or on flimsy grounds, nor for extraneous or irrelevant considerations. The court further held that the said requirements can easily be assessed from the reasons given in the order as it is mandatory on the part of the officer to give such reasons under section 127 of the Income-tax Act. The order of transfer (retransfer) was quashed by the High Court considering the submissions of learned counsel for the petitioner that most of the assessments have been completed after transfer in the Chennai office, and the assessees have already transferred the registered office to Chennai and they are gradually closing down the business at Trivandrum. Further, the transfer of the registered office of Kerala Hotels P. Ltd. was approved by the Company Law Board and the certificate of incorporation with respect to the company at Chennai was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the principal business of the group is the mobilization of deposits, which is now spread over in all major cities of the country; housing projects of the Sahara group are being developed in 217 cities of the country with an investment running into several lakh crores of rupees which is being handled by M/s. Sahara India Commercial Corporation Limited, assessed at Kolkata; The airlines business of the group was being handled by M/s. Sahara Airlines Ltd. at New Delhi. The Sahara group has also made inroads in the media business and has started 24-hour TV channels, besides producing films and the business activities pertaining to the media business are being looked after by a group company at Mumbai and all the activities pertaining to the media business are concentrated outside Lucknow. Under the circumstances when the business activities of the Sahara Group and its offices are spread throughout the country and there is interlacing/inter-connection of funds and the business activities amongst various entities of the group, the choice of a venue looking to the business activities of the group by making an overall assessment, the order passed by the Commissioner cannot be held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel for the petitioners that transfer of cases from Lucknow to New Delhi is not mere inconvenience but is harassment, which according to him is repeated inconvenience being caused to the assessee. In Pannalal Binjraj's case [1957] 31 ITR 565 (SC) this argument of inconvenience, however, was held to be not conclusive. The court in the said case observed that "There is no fundamental right in an assessee to be assessed in a particular area or locality." Pannalal Binjraj's case [1957] 31 ITR 565 (SC) also says that the question as to whether one or the other of the authorities will proceed to assess a particular assessee has got to be determined not only having regard to the convenience of the assessee but also the exigencies of tax collection and that"... In order to assess the tax payable by an assessee more conveniently and efficiently it may be necessary to have him assessed by an Income-tax Officer of an area other than the one in which he resides or carries on business. It may be that the nature and volume of his business operations are such as require investigation into his affairs in a place other than the one where he resides or carries on business or that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are being assessed at New Delhi, besides several companies being assessed elsewhere, viz. Kolkata, Pune and Mumbai. Further it was the own case of the petitioners, which reflects from their application dated October 17, 1996, for transfer of cases, that the main business of the group was para-banking and not the business of air-taxi, which was a totally independent activity of M/s. Sahara Airlines and, therefore, even if there has been transfer of Sahara Airlines to some other airlines, it would hardly be a ground for holding the order bad or illegal. This court, taking into consideration the arguments raised, passed the 111 following order on the said application: "Sri Wasiquddin Ahmad learned counsel for the petitioner has very candidly submitted that he has moved this application for rehearing of the writ petition only to bring to the notice of this court the subsequent developments which have taken place after hearing of the writ petition was concluded and not for rehearing the petition. Sri Pradeep Agarwal says that no case for rehearing the matter is made out and further says that subsequent development cannot be a guiding factor for considering the validity of the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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