TMI Blog2002 (7) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... ated at Panipat. Anand Co., i.e., petitioner No. 7, is a partnership firm comprising petitioners Nos. 1 and 2. It is stated to be engaged in carrying out trading activities in handloom products. Its business premises are stated to be located at Panipat. The facts narrated above have not been disputed in the written statement filed on behalf of the respondents. All the petitioners were regularly assessed to income-tax at Panipat by the Assistant Commissioner of Income-tax, Panipat, as well as by the Income-tax Officers of Wards Nos. 1 and 4. From the facts depicted in the foregoing paragraph, it is apparent that petitioners Nos. 1 to 4 are individuals, being members of one family, whereas petitioners Nos. 5 to 7 are partnership concerns comprising petitioners Nos. 1 to 4. The books of account relating to the business activities of petitioners Nos. 5 to 7 are stated to be maintained and kept in the business premises of the three firms at Panipat itself. The factum of residence of the petitioners at Panipat, the location of their business premises at Panipat and the maintenance of books of account at Panipat, are also not disputed. Rakesh Mahajan is the brother of Rajesh Mahajan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l hearing with the Commissioner of Income-tax, Rohtak, if they so desired. Since the present controversy pertains to the interpretation of section 127 of the Act, it is considered appropriate to extract the aforesaid provision hereunder: "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 Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othing "has been found during the course of search and seizure operations, which warrant any connection between two family groups". It would be pertinent to mention that in the written objections dated January 31, 2001, it was conceded that Rajesh Mahajan was one of the directors of Mahajan Industries Ltd. and Pan Foods Ltd. It was, however, pointed out that he had no hand whatsoever in the conduct of day-to-day affairs of the business of the said companies. In this behalf, it was asserted that Rajesh Mahajan had less than four per cent, shares in the two companies. It was also clarified that the status of his shares had remained the same without "any significant change" for the last more than 30 years. According to learned counsel these facts were sufficient to depict lack of involvement of Rajesh Mahajan in the business ventures controlled by Rakesh Mahajan. In order to show that Rajesh Mahajan had no control/interest in the aforesaid two firms, it was also pointed out that he (Rajesh Mahajan) was not paid any remuneration or salary for being a director, and further that, he was not even paid fees for attending board meetings. After examining the issue under reference, the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioners from Panipat to the Deputy Commissioner of Income-tax, Central Circle 20, New Delhi. The instant notices dated July 12, 2001, besides making a reference to Civil Writ Petition No. 7819 of 2001 and the order passed therein; were indistinguishable from the notices issued earlier (on January 4, 2001). The petitioners responded to the notices dated July 12, 2001, through a communication dated July 19, 2001. In the short communication dated July 19, 2001, the petitioners recorded their serious concern by stating that the liberty granted by the High Court was being misconstrued by the respondents. It was pointed out that the notices dated July 12, 2001, did not express any ground/justification for the transfer of assessment proceedings of the petitioners, from Panipat to New Delhi. On the merits, the petitioners continued to rely on the reply dated January 31, 2001 (submitted in response to the previous notice dated January 4, 2001), and, therefore, enclosed the said reply with the com munication dated July 19, 2001. As on the earlier occasion, the Commissioner of Income-tax, Rohtak, granted a personal hearing to the petitioner on July 20, 2001. Rajesh Mahajan, (petitioner No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was a basis and material on the record to show that there is connection between Rakesh Mahajan and Rajesh Mahajan group of cases. The other groups already having been transferred, it becomes imperative that the cases are also transferred to Central Circle, New Delhi, so the meaningful and co-ordinated enquiries could be made. It would not be out of place to mention here that search operations were conducted on the basis of suspected concealment by persons of these groups. 5. Accordingly, the contention of the assessee that there was no connection between these two groups does not sustain on the basis of scrutiny of the facts available on record. As regards the second contention of the assessee that they are being assessed to tax at Panipat, it may be mentioned here that when transfer of a case is effected in the interest of proper investigation, inconvenience caused to the assessee would not matter. The convenience of an assessee could not override the needs of the Revenue for better investigation as has been held by the Allahabad High Court in the cases of Bhatia Minerals v. CIT [1993] 200 ITR 591; Mahesh Chand Vishan Swarup v. CIT [1991] 187 ITR 177; Mangal Chand and Sons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show-cause notice do not constitute a valid basis for the transfer of assessment proceedings as it does not detail the express reasons/basis for the contemplated action. Learned counsel for the petitioners has also made an alternative submission to the second contention. Alternatively, learned counsel for the petitioners contended that none of the reasons expressed in the impugned order can be accepted as a valid basis for transfer of the pending income-tax proceedings from Panipat to New Delhi, as the reasons expressed in the impugned order have no relevance with the ultimate decision arrived at by the income tax authorities. It is further asserted that the reasons expressed in an order finally passed under section 127 of the Act must take into consideration the objections raised by the assessee, otherwise, the mandate of the statute to record reasons (whenever possible) will not be satisfied. In this behalf, the lament of the petitioners is that the reasons recorded in the impugned order have no nexus with the final decision, and further that the objections raised by them have not been duly considered. Before one can embark on the issues raised, it would be essential to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity proposes to take action under section 127 of the Act to the petitioners. The second contention is based on the other essential components of the rules of natural justice, namely, that the concerned authority must record reasons (whenever possible) for finally taking action contemplated under section 127 of the Act. The alternate submission to the second contention is based on the third step described in the preceding paragraph, namely, the reasons recorded by the concerned/competent authority in the decision finally taken, all objections raised by the assessee must be dealt with, additionally, the reasons recorded in the final order must have direct bearing/nexus with the object sought to be achieved. I shall now endeavour to deal with the first contention: In Nasir Ahmed v. Asst. Custodian-General, Evacuee Property, AIR 1980 SC 1157, the apex court held that a notice which merely repeated the statutory language without giving any facts and other particulars, is insufficient and inadequate for an effective response. It is, therefore imperative that the notice issued to an affected party discloses the grounds on which the action is proposed to be taken, in clear, specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. ITO [1993] 204 ITR 29 (Karn); Shivajirao Angre v. CIT [1986] 158 ITR 162 (MP) and Power Controls v. CIT [2000] 241 ITR 807 (Delhi) wherein different High Courts have opined that it is not sufficient merely to mention that the proposed transfer is to facilitate detailed and co-ordinated investigations. In so far as the first contention of learned counsel for the petitioners is concerned, the challenge is to the validity of the show-cause notices issued to the petitioners under section 127 of the Act. There can be no dispute about the fact that the notices dated July 12, 2001, extracted above do not disclose the basis which prompted the authorities to initiate action (to transfer assessment proceedings of the petitioners from Panipat to New Delhi) under section 127 of the Act. The only reason for transfer of proceedings expressed in the notices issued to the petitioners was "...in order to make co-ordinated enquiries and investigations..." and nothing beyond that. In view of the decisions, noticed hereinabove, the aforesaid reason expressed in the notices issued to the petitioners is not acceptable in law. The notices in the instant case merely repeated the statutory language w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings (from Panipat to New Delhi), from the notices dated July 12, 2001, rather than filing detailed objections, they should have required the authorities to inform them of the reasons which prompted them (the authorities) to initiate action under section 127 of the Act against them (the petitioners). Having not done so, and having accepted the notices dated July 12, 2001, as valid notices, and having filed detailed objections to the said notices and also having participated in the personal hearing granted to them by the Commissioner of Income-tax, Rohtak, on July 20, 2001, it is not now open to the petitioners to raise the plea that the notices issued to them were defective. While deliberating upon the first contention, raised by learned counsel for the petitioners, I have carefully examined the notices dated July 12, 2001, issued to the petitioners. I have also carefully gone through the objections raised by the petitioners. As against the first notices issued under section 127 of the Act dated January 4, 2001, the petitioners submitted their objections through a communication dated January 31, 2001. After this court intervened in the matter by passing an order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 127 of the Act, were benefit of reasons, it is not appropriate at this stage to accept the aforesaid contention. Procedural norms are devised to protect a person proceeded against; it is not open to such person to base his claim on violation of such procedure, if he has waived such requirement either expressly or by his conduct. In the instant case, on the basis of the facts noticed above, it is inevitable to conclude that by filing detailed objections dated January 31, 2001, the petitioners by their conduct expressly waived the right now claimed by them. Moreover, it is now evident that the petitioners have not been deprived of an effective response since the pleas raised in the objections dated January 31, 2001, constitute a complete reply to the reasons which have been disclosed in the impugned order dated July 26, 2001. As a matter of fact, in terms of ground realities, the petitioners cannot be stated to have suffered any prejudice on account of non-communication of reasons in the notices dated July 12, 2001. The ultimate object of the rule of audi alteram partem is to ensure a fair hearing and also to ensure that there is no failure of justice. An order passed in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances permit, before any order of transfer under section 5(7A) of the Act is made by the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, and notice is given to the party affected and he is afforded a reasonable opportunity of representing his views on the question and the reasons of the order are reduced, however, briefly to writing..... There is no presumption against the bona fides or the honesty of an assessee and normally the income-tax authorities would not be justified in refusing to an assessee a reasonable opportunity of representing his views when any order to the prejudice of the normal procedure laid down in section 64(1) and (2) of the Act is sought to be made against him, be it a transfer from one Income-tax Officer to another within the State or from an Income-tax Officer within the State to an Income-tax Officer without it, except of course where the very object of the transfer would be frustrated if notice was given to the party affected. If the reasons for making the order are reduced however briefly to writing it will also help the assessee in appreciating the circumstances which make it necessary or desirable for the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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." Paragraphs 4 to 6 of the order dated July 26, 2001, have already been extracted hereinabove. The contents of the aforesaid paragraphs certainly lead to the conclusion that detailed reasons for taking action against the petitioners under section 127 of the Act have been enumerated therein. In the aforesaid circumstances, it is not possible for this court to accept the second contention, i.e., that the impugned order is bereft of the reasons/basis which had weighed with the authorities for transferring the assessment proceedings pending against the petitioners under the Income-tax Act from Panipat to New Delhi. Now, I shall deal with the alternative plea to the second contention raised on behalf of the petitioners: Learned counsel, for the petitioners as well as the respondents, have invited the attention of this court to the factual contents narrated in paragraph 4 of the impugned order, which expresses the following reasons for the transfer of income-tax assessment proceedings of the petitioners from Panipat to New Delhi: ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so connected with Pan Foods Limited. Both these companies belong to Rakesh Mahajan group. In this connection, it may be clarified that Rajesh Mahajan, petitioner No. 1 is the real brother of Rakesh Mahajan. Being a real brother, his name is associated with Mahajan Industries Pvt. Ltd. as a director. He is only an ornamental director. He does not take part in any business, financial or managerial activities of the companies. He has no role to play whatsoever in the day-to-day conduct of their business affairs. His share capital is nominal and his nominal shareholding is continuing without any alteration or addition practically for the last three decades as follows: ------------------------------------------------------------------------------------- Total number of Percentage shares Share held Rajesh Name of the company shares of the held by Rajesh Mahajan company Mahajan and others ------------------------------------------------------------------------------------- Pan Foods Ltd. 243500 2.58 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date of the search. The fact of the matter is that the offices of Rajesh Mahajan and Rakesh Mahajan are located in entirely separate and independent premises on the first floor of Mahajan House and have nothing in common. The site map of both the offices is enclosed to demonstrate their independent location. So far as Rajesh Mahajan, petitioner No. 1 is concerned, the office of only one of the companies, namely Mahajan Overseas Private Limited, is located in those premises. So far as his main offices pertaining to his main business are concerned, they are all at Panipat. So far as Mahajan Overseas Private Limited is concerned, it is assessed at Delhi and there is no dispute with regard to its place of assessment or transfer. So far as the Rakesh Mahajan group is concerned, the offices of Mahajan Industries Private Ltd. and Pan Foods Pvt. Limited are located separately and independently in those premises and that there is nothing in common between the two offices. Their employees are separate, their establishment and office equipment are separate, even their reception and entrances are separate and independent of each other. Separate premises bear separate sign board/boards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the loose papers belong ------------------------------------------------------------------------------------- A Rajesh Mahajan (book bundles serial Nos. 1-9) Rakesh Mahajan (book bundles 10-39) ------------------------------------------------------------------------------------- Photo copy of the respective seizure memos of the office premises at Mahajan House, NDSE, Part-II New Delhi, are enclosed marked as annexures P-7.1 to 7.9. The fact that there is no intermingling is further established by supply of the photo copies of the seized documents to both the groups separately and independently on the basis of the seized memos as indicated in this paragraph. Therefore, it is wholly incorrect and highly pretentious on the part of respondent No. 1 to allege that the seized documents are intermingled while the state of affairs is just to the contrary. (f) It is further alleged that Rajesh Mahajan has inseparable relation with Pan Foods and Mahajan Industries Private Limited, the two companies belonging to the Rakesh Mahajan group. This statement is the farthest from the truth. Shri Rajesh Mahajan has absolutely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tually uncontroverted. In order to afford a further opportunity to learned counsel for the respondents, the case was adjourned from time to time to enable him to justify the action on the basis of reasons indicated in the impugned order dated July 26, 2001. Having availed of the opportunity granted by this Court, learned counsel for the respondents produced only a communication dated March 9, 2001, addressed by the Deputy Director of Income-tax (Investigation), New Delhi, to the Director of Income-tax (Investigation), New Delhi. Since the aforesaid communication has been relied upon on behalf of the respondents, it is necessary to reproduce the relevant extract thereof: "I strongly recommended that the cases mentioned in the said letter should also be centralised at Delhi for the following reasons: (1) As per his own admission, Sh. Rajesh Mahajan is the director of Pan Foods Ltd., and Mahajan Industries (P.) Ltd. Being a functional director, it is unconceivable that Sh. Rajesh Mahajan has no role whatsoever in the day-to-day affairs of running of these companies. (2) Sh. Rajesh Mahajan is also one of the trustees of Ram Lal Mahajan Charitable Trust, which is running Mother a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in the letter dated March 9, 2001, which do not find mention in the impugned order dated July 26, 2001, must be deemed to have been excluded by a conscious application of mind. Reliance on the letter dated March 9, 2001, therefore, does not at all further the claim of the respondents. Moreover, the letter dated March 9, 2001, does not show how any of the reasons recorded in the order dated July 26, 2001, are relevant for the transfer of income-tax assessment proceedings of the petitioners from Panipat to New Delhi. Realising the aforesaid predicament, learned counsel for the respondents took recourse to an easy way out by contending that it is not necessary for the income-tax authorities to decipher with precision the connection between the business or financial dealings of the family of Rajesh Mahajan (petitioner No. 1) and Rakesh Mahajan (brother of petitioner No. 1) and his family members, at the present juncture, and further that it is sufficient if the authorities at this stage can show that a reasonable and bona fide belief was entertained by the concerned/competent authority, that there are financial dealings between the family groups of Rajesh Mahajan and Rakesh Mahajan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uneration or salary on account of his being a director of the said companies, and further that he was also not paid any fee for attending board meetings. On the basis of the aforesaid facts, it was sought to be asserted that the connection of petitioner No. 1 with the aforesaid two companies (controlled by Rakesh Mahajan and his family members) was merely ornamental in nature. Despite the afore said facts having been pointed out in the objections, the authorities, passed the impugned order dated July 26, 2001. Now, again in para. 23(b) of the writ petition, the petitioners have reite rated the factual position indicated in the objections dated January 31, 2001. It has been expressly mentioned that petitioner No. 1 holds 2.58 per cent. shares in Pan Foods Ltd. and 4.02 per cent. shares in Mahajan Industries Pvt. Ltd. and that his holdings in the said companies have remained almost unaltered for the last three decades. It has again been reiterated that he (petitioner No. 1) has never taken part in business, financial or managerial activities of the afore said two companies. On the basis of the aforesaid facts, it is asserted by learned counsel representing the petitioners that the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh Mahajan (brother of petitioner No. 1) and his family members, yet the respondents have not been able to show any financial nexus between the two. In the background of the foregoing discussion, in my view, the mere fact that petitioner No. 1 is a director of one or more companies controlled by Rakesh Mahajan (brother of petitioner No. 1) cannot be a valid justification for transfer of income-tax assessment proceedings from one place to another, specially in the absence of material indicating involvement in financial dealings with the said companies. (ii) Another reason given for the transfer of income-tax assessment proceedings from Panipat to New Delhi is that Rajesh Mahajan (petitioner No. 1) is also one of the trustees of Ram Lal Mahajan Charitable Trust, which is running Mother and Child Health Centre in New Delhi. In so far as the aforesaid reason is concerned, in the instant writ petition, in para. 23(c), it has been asserted on behalf of petitioner No. 1 that he was nominated as a trustee in Ram Lal Mahajan Charitable Trust, merely on account of the fact that the trust was created by his grandfather. It is pointed out that the trust is actually being run by Dr. Nalini M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s". To further authenticate the aforesaid factual position, the petitioners have appended a site plan as annex ure P-6 with the writ petition. This has been done in order to demonstrate that the offices of Rajesh Mahajan (petitioner No. 1) and Rakesh Mahajan (brother of petitioner No. 1) were located separately, and further to establish that, the different business concerns of Rakesh Mahajan (brother of petitioner No. 1), were also located separately from one another. So far as the instant assertion made by the petitioners are concerned, they could have easily been repudiated, if files and papers of various offices alleged to be located in the building under reference were found at locations other than those depicted in the site plan annexure P-6, during the search and seizure operations, Unfortunately, the respondents have not made any such assertion in their written statement. It is, however, significant to note that it has been alleged in response to the averments made in para. 23(d) of the writ petition that none of the respondents were members of the search party. It seems that the aforesaid excuse has been tendered in order to avoid a categoric response to the assertions made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to the impugned order dated July 26, 2001. Reference to the impugned order dated July 26, 2001, unfortunately takes us nowhere. Every assertion of fact in a petition, if not denied specifically or by necessary implication, or stated to be not admitted in the written statement, must be taken to be admitted. In the absence of express denial in the written statement, coupled with the absence of any reasons in the impugned order dated July 26, 2001, once again, the conclusion has to be the same, namely, that the instant reason cannot be considered as a valid justification for the transfer of income-tax assessment proceedings of the petitioners from Panipat to New Delhi. (v) It is alleged in the impugned order dated July 26, 2001, that Rajesh Mahajan (petitioner No. 1) has inseparable interests in Pan Foods Ltd. and Mahajan Industries Pvt. Ltd. It is pointed out that assessment proceedings of the aforesaid two companies have already been centralised, and as Rajesh Mahajan (petitioner No. 1) is associated with the aforesaid concerns; his assessment should also be conducted by the same officers. In response to the aforesaid reason expressed in the impugned order, it is contended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rakesh Mahajan (brother of petitioner No. 1) and his family members. There is again no effective response to the averments made in para. 23(g) of the writ petition. No explanation has been tendered even in the written statement, to show how the aforesaid residential accommodation is a relevant consideration. The instant reason expressed in the impugned order has not been shown to be relevant even during the course of arguments. The conclusion again is bound to be the same as has been drawn in respect of the reasons dealt with hereinabove. From the conclusions drawn above, it is clear that the reasons recorded in para. 4 of the impugned order dated July 26, 2001, are wholly irrelevant to the transfer of the assessment proceedings of the petitioners from Panipat to New Delhi. Although learned counsel for the respondents had principally and primarily placed reliance on para. 4 of the order dated July 26, 2001, to highlight the reasons which had weighed with the respondents for the transfer of assessment proceedings of the petitioners from Panipat to New Delhi, he had also referred to the contents of para. 5 thereof, to stress that the reasons expressed in para. 4 of the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to either in the impugned order, or even during the course of hearing, despite the liberty granted by this court. An order based on unconfirmed or uncorroborated belief of suspicion, even though the suspicion rests on the high pedestal of bona fides cannot stand the scrutiny of law. In addition to the factual position dealt with while examining the reasons recorded in the impugned order dated July 26, 2001, learned counsel for the petitioners vehemently contended that the action of the concerned/competent authority flows from a total non-application of mind. In this behalf, he has brought to the notice of the court some uncontroverted facts, namely, that the activities of the partnership firms over which petitioners Nos. 1 to 4 have control (depicted in para. 2 above) and the activities of the business ventures controlled by Rakesh Mahajan (brother of petitioner No. 1) and his family members (detailed in para. 4 above) clearly reveal that the trading activities of petitioners Nos. 1 to 4 are totally separate and distinct from the business activities of Rakesh Mahajan (brother of petitioner No. 1) and his family members. Additionally, it is pointed out that petitioners Nos. 1 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as the legal issues involved in this case can be summarised as under: Firstly, it is essential, that the show-cause notice issued under section 127 of the Act, discloses to the assessee the reasons/basis of the contemplated action in terms of the mandate of the rules of natural justice. Exceptions to this essential ingredient would be the same as the exceptions to the rules of natural justice. Secondly, an assessee has the right to file objections on the receipt of a show-cause notice issued under section 127 of the Act. In the absence of such liberty, the assessee cannot be stated to have been afforded a "reasonable opportunity" as is contemplated by the aforesaid provision. Thirdly, the reasons recorded in the final order passed under section 127 of the Act (by which the concemed/competent authority decides to execute the proposed action contemplated in the show-cause notice), must not only take into consideration the objections raised by the assessee, but the reasons recorded in the order must also have a direct nexus/bearing to the object sought to be achieved. Fourthly, belief/suspicion even though bona fide cannot be sufficient justification for taking reco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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