High Court Of Calcutta
P.S. Housing Finance (P) Ltd. & Anr. vs. Union Of India & Ors.
Section 127
Mrs. Indira Banerjee, J.
Writ Petn. No. 503 of 2006
26th July, 2006
Counsel Appeared :
J.P. Khaitan, Asok Kumar Bose & Ms. Anupa Banerjee, for the Petitioners : Sidhartha Chatterjee, for the Respondents
JUDGMENT
Mrs. Indira Banerjee, J. :
In this writ application the petitioner has challenged an order dt. 7th March, 2006, of the CIT, Kol-IV, Kolkata, being respondent No. 1, issued in exercise of powers under s. 127(1) and (2) of the IT Act, 1961, transferring the case of, inter alia, the two petitioners to the Dy. CIT, Central Circle-22, Mumbai, under the CIT, Central, Mumbai.
2. Petitioner No. 1 is a private limited company incorporated in the State of West Bengal. The petitioner has had its registered office in Kolkata, ever since its incorporation in 1988. Petitioner No. 1 is engaged in the business of real estate development and has since its inception been assessed to tax at Kolkata, where its registered office is situate. Petitioner No. 2, it is claimed, is a director and shareholder of petitioner No. 1 and carries on business through the agency and/or instrumentality of petitioner No. 1.
The board of directors of petitioner No. 1 comprise four directors, including petitioner No. 2, all of whom, reside in Kolkata. The directors of petitioner No. 1, including in particular petitioner No. 2 are assessed to tax in Kolkata, as individual assessees.
According to the petitioners, both petitioner No. 1 and petitioner No. 2 have all along and till the asst. yr. 2005-06 filed their IT returns in Kolkata.
Petitioner No. 2, it is alleged, was a non-executive director of one Pioneer Embroideries Ltd., of Mumbai from 2001 till 2005. On 24th Sept., 2004, the ITOs searched the residence of petitioner No. 2 in Kolkata and seized some documents and papers.
In the course of the search conducted at the residence of petitioner No. 2, the respondent IT authorities came to learn that petitioner No. 2 was a director of the said Pioneer Embroideries Ltd. Subsequently, the office of the said Pioneer Embroideries Ltd. of Mumbai was searched and a computer hard disc impounded. Fifteen months after the search and impounding of documents, the petitioners received identical notices dt. 23rd Feb., 2006, with regard to the proposal to transfer the income-tax files of the petitioners to Mumbai under s. 127 of the IT Act.
By two several letters both dt. 28th Feb., 2006, the petitioners objected to the transfer and requested a week’s time for detailed submissions. The hearing before respondent No. 1 was adjourned till 7th March, 2006. On 6th March, 2006, the petitioners filed detailed objections to the proposal for transfer.
In the objections, the petitioners specifically pointed out that the registered office of the petitioner company was at Kolkata, all of its directors were assessed to tax at Kolkata and the company had no business activity anywhere in Maharashtra, nor any business connection or financial transaction with Pioneer Embroideries Ltd., or any of its group of companies and/or sister-concerns. The petitioners also pointed out that the petitioner had only been a non-executive director of Pioneer Embroideries Ltd., and that apart from petitioner No. 2, no other director ever had any connection with Pioneer Embroideries Ltd., or any of its group companies. Petitioner No. 2, in his objection, pointed out that he had since 2001 been non-executive director of Pioneer Embroideries Ltd., and had not attended a single meeting of the board of directors of the said company and did not draw any remuneration from the said company. Petitioner No. 2 in his individual objection, made a categorical assertion that the materials seized upon search of his residence, related to his own personal transactions and was in no way related with Pioneer Industries Ltd., or its group concerns.
5. On 20th March, 2006, however, the petitioners received an order dt. 7th March, 2006, under s. 127(2) of the IT Act transferring the cases, inter alia, of petitioners Nos. 1 and 2 from Kolkata to Mumbai with immediate effect. By the said impugned order, the case of one M/s J.J. Textiles Ltd., was also transferred to Mumbai. The reasons for the transfer, as disclosed in the impugned order are extracted hereinbelow : “It may be stated that since inter- station transfer of jurisdiction was involved in these cases, an opportunity was given to the assessees to show cause why jurisdiction over these cases may not be transferred to Mumbai.
As regards the case of J.J. Textiles Ltd., it was stated on behalf of the assessee that pursuant to the order dt. 15th Jan., 2004, of the Bombay High Court, J.J. Textiles Ltd., has been merged with Pioneer Embroideries Ltd., with appointed date as 1st April, 2004. It was further stated that there is no objection to the proposal to transfer the case records of J.J. Textiles Ltd., to the Dy. CIT, Central, Circle-22, Mumbai.
As regards the cases of P.S. Housing Finance (P) Ltd., and Shri Surendra Kumar Dugar, this transfer was proposed on the ground that none of the two has any business connection with Pioneer Embroideries group and Baid group, which were searched by the Investigation Wing at Mumbai.
The matter was considered by me. It may be mentioned that the Chief CIT, Central-II, Mumbai, informed me that these cases were proposed to be centralised at Mumbai for the following reasons : ‘Shri Surendra Dugar—Shri Surendra Dugar is a director of M/s PEL and during the course of search action at his residential premises at Kolkata his statement was recorded wherein inter alia he has admitted his undisclosed income of Rs. 3,17,000 on account of sale proceeds of 500 gms. of gold, which was found to be not recorded in the books of account.
P.S. Housing Finance (P) Ltd.—During the course of search action at the residential premises of Shri Surendra Dugar at Kolkata, who is one of the directors of M/s PEL, it was found that he is the main person of M/s P.S. group of companies. Subsequently the Kolkata Directorate conducted a survey action at the office premises of M/s P.S. Housing Finance (P) Ltd., at Kolkata and impounded the computer data.’ Considering the above justification given by the Chief CIT, Central-II, Mumbai as also the fact that both these assessees were searched in connection with the search at Pioneer Embroideries group and Baid group, I have ordered the transfer of jurisdiction over these two cases to Mumbai.” Pursuant to the directions of this Court an affidavit-in-opposition has been affirmed on behalf of the respondent by one Bishnupada Chandra, being respondent No. 2.
The only reason disclosed in the affidavit-in-opposition appears to be the finding of the search conducted in the residence of petitioner No. 2 and the subsequent search in the office of Pioneer Embroideries Ltd., which revealed that petitioner No. 2 was a director of Pioneer Embroideries Ltd., as also the director of the petitioner company. Petitioner No. 2 allegedly admitted undisclosed income of Rs. 3,70,000 on account of sale proceeds of 500 gms. of gold which had not been recorded in his books of account.
The affidavit-in-opposition does not disclose any prima facie finding of nexus of the petitioner company with Pioneer Embroideries Ltd. So far as petitioner No. 2 is concerned the only nexus is that records impounded reveal that he had been a director of the Mumbai company.
Mr. J.P. Khaitan appearing on behalf of the petitioner submitted and, in my view, rightly that no business connection between petitioner No. 1 and Pioneer Embroideries Ltd., had been established, even prima facie.
As rightly pointed out by Mr. Khaitan, there is no finding, even prima facie, of the undisclosed income of petitioner No. 2 being related in any way to the business of Pioneer Embroideries Ltd. In any case, there was no connection at all between petitioner No. 1 and Pioneer Embroideries Ltd.
Mr. Sidhartha Chatterjee appearing on behalf of the respondent, on the other hand, submitted that transfer of accounts was necessary for the purpose of investigation. Mr. Chatterjee relied on a single Bench decision of this Court dt. 22nd March, 2006, in Writ Petn. No. 2350 (W) of 2006 and an order dt. 8th May, 2006, of the Division Bench in MAT No. 1948 of 2006, Bal Chand Purohit vs. CIT [reported at (2007) 211 CTR (Cal) 569—Ed.], dismissing the appeal from the said order dt. 22nd March, 2006.In Purohit’s case (supra) it was contended that the show-cause notice was not an effective notice and, therefore, was violative of principles of natural justice. The aforesaid contention was rejected by the learned single Judge. The order of the learned single Judge was upheld by the Division Bench.
The aforesaid judgments have no application in the facts and circumstances of this case, since it is not the case of the petitioner that they did not have opportunity to effectively show cause against the proposed transfer.
12. In the case of Ajantha Industries vs. CBDT 1976 CTR (SC) 79 : (1976) 102 ITR 281 (SC), cited by Mr. Khaitan, the Supreme Court held that once an order was passed transferring the case file of an assessee to another area, a great deal of inconvenience and even monetary loss was involved. Therefore, before making an order of transfer the legislature had imposed the requirement of a show-cause notice as also recording of reasons. The recording of reasons is essential to enable opportunity to the assessee to approach the High Court under its writ jurisdiction under Art. 226 of the Constitution of India.
13. When an order of transfer under s. 127 is passed notwithstanding objection thereto, the order is required to deal with the grounds of objection to the transfer as held by the Punjab & Haryana High Court in the case of Rajesh Mahajan vs. CIT (2004) 186 CTR (P&H) 428 : (2002) 257 ITR 577 (P&H) also cited by Mr. Khaitan. Mr. Khaitan also cited the common judgment of a Division Bench of the Allahabad High Court in the case of R. K. Agarwal vs. CIT (2006) 201 CTR (All) 520 : (2006) 283 ITR 532 (All) and two other similar writ applications reported in R. K. Agarwal vs. CIT (supra) where an order of transfer was set aside inter alia on the ground that the denial of the assessee concerned had not been considered and there was no evidence of connection of the assessee with the person alleged, for which the case of the assessee was being sought to be transferred from Allahabad to New Delhi.
14. In view of the judgment of the Supreme Court, the judgment of the Punjab & Haryana High Court and the judgment of a Division Bench of the Allahabad High Court referred to above, there can be no doubt that an order of transfer under s. 127 of the Act, is amenable to scrutiny under Art. 226 of the Constitution of India. In proceedings under Art. 226 of the Constitution of India, this Court might examine the reasons for transfer of a case, and if the reasons ex facie do not justify transfer, an order of transfer might be interfered with by this Court.
15. The petitioner company and Pioneer Embroideries Ltd., are distinct body corporates, separately assessed to income-tax. Even though petitioner No. 2 might be a director of the petitioner company as also Pioneer Embroideries Ltd., petitioner No. 2 is an individual assessee.
In the absence of any business connection between the petitioner company and Pioneer Embroideries Ltd. and in the absence of any finding that the valuables or documents seized from the residence of petitioner No. 2 had any relationship with Pioneer Embroideries Ltd. or any of its sister-concerns, there could be no question of transferring the case of the petitioners to Mumbai.
16. There can, however, be no doubt that the IT authorities might continue with the investigation, if any, against each of the petitioners.
17. The impugned order is set aside and quashed.
18. This order will, however, not prevent the respondent authorities from issuing a fresh order of transfer under s. 127 of the IT Act, 1961, transferring the case of petitioner No. 2 to Mumbai, in the event any real nexus is found between any articles or documents found in the residence of petitioner No. 2 and Pioneer Embroideries Ltd., or any of its sister concerns.
The writ application is disposed of.
[Citation : 290 ITR 316]
