Civil Appeal No 724 of 1975
Appeal by Special Leave from the judgment and order dated the 12th September 1974 of the Andhra Pradesh High Court at Hyderabad in Writ Appeal No 626
of 1974 A Subba Rao for the appellant
G C Sharma and SP Nayar for the respondents
The Judgment of the Court was delivered by GOSWAMI J
The appellant No 1 is a registered firm and appellants 2 and 3 are the only two partners of that firm
They are assessees under the Income tax Act
Their assessments have been made for a number of years in Nellare District in the usual course
On January 23 1973 the Central Board sent a notice to the appellants under section 127 of the Income tax Act 1961 brietly the Act proposing to transfer their case files for facility of investigation from the respective Income tax Officer at Nellore to the Income tax Officer B Ward Special Circle Ii Hyaderabad By this notice they were also asked to submit in writing if they had any objection to the proposed transfer within 15 days of receipt of the notice
The appellants made their representation objecting to the transfer and on July 26 1973 the Central Board passed the impugned order transferring the cases from Nellore to Hyderabad
There is no provison of appeal or revision under the Act against such orders of transfer
The appellants therefore preferred an application under article 226 of the Constitution before the High Court of 886 Andhra Pradesh questioning the validity of the order chiefly on the ground of violation of the principles of natural justice inasmuch as no reasons were given nor communicated in the said order
The learned single Judge after having called for the relevant file found that certain reasons were recorded by the Central Board prior to the passing of the impugned order and held that mere failure to communicate the reasons to the appellants was not fatal to the order
The writ petition was therefore dismissed
The appellants  Letters Patent Appeal before the Division Bench of the High Court also met with the same fate
Hence this appeal by special leave
The short question that arises for consideration is whether failure to record the reasons in the order which was communicated to the appellants is violative of the principles of natural justice for which the order should be held to be invalid
Section 57A was the corresponding section in the Income tax Act 1922 briefly the old Act
The section may be set out The Commissioner of Income tax may transfer any case from one Income tax Officer subordinate to him to another and the Central Board of Revenue may transfer any case from any one Income tax Officer to another
Such transfer may be made at any stage of the proceedings and shall not render necessary the re issue of any notice already issued by the Income tax Officer from whom the case is transferred
The successor section under the Income tax Act 1961 is section 127 and the same may be set out Transfer of cases from one Income tax Officer to another 1 The 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 In come tax Officer subordinate to him to another also subordinate to him and the Board may similarly transfer any case from one Income tax Officer to another
Provided that nothing in this sub section shall be deemed to require any such opportunity to be given where the transfer is from one Income tax Officer to another whose offices are situated in the same city locality or place
2 The transfer of a case under sub section 1 may be made at any stage of the proceedings and shall not render necessary the re issue of any notice already issue by the Income tax Officer from whom the case is transferred
887 Explanation In this section and in sections 121 and 125 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
The section was amended by section 27 of Finance No  and section 127 since then stands as under 1 The Commissioner may after giving the assessee a reasonable opportunity of being heard in the matter where ever it is possible to do so and after recording his reasons for doing so transfer any case from any Income tax Officer or officers also subordinate to him and the Board may similarly transfer any case from any Income tax Officer or Income tax Officers to any other Income tax Officer or Income tax Officers
Provided that nothing in this subsection shall be deemed to require any such opportunity to be given where the transfer is from any Income tax Officer or Income tax Officers to any other Income tax Officer or Income tax Officers and the offices of all such Income tax Officers are situated in the same city locality or place Provided further that where any case has been transferred from any Income tax officer or Income tax Officers to two or more Income tax Officers the Income taxers to whom the case is so transferred shall have concurrent jurisdiction over the case and shall perform such functions in relation to the said case as the Board or the Com missioner or any Inspecting Assistant Commissioner authorised by the Commissioner in this behalf may by general or special order in writing specify for the distribution and allocation of the work to be performed
2 The transfer of a case under subsection 1 may be made at any stage of the proceedings and shall not render necessary the reissue of any notice already issued by the Income tax Officer or Income tax Officers from whom the case is transferred
Explanation In this section and in sections 121 123 124 and 125 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 888 Act which may be commenced after the date of such order or direction in respect of any year
 Unlike section 57A section 1271 requires reasons to be recorded prior to the passing of an order of transfer
The impugned order does not state any reasons whatsoever for making the order of transfer
It is submitted on behalf of the Revenue by Mr Sharma that reasons were communicated to the assessees in the notice calling for objection against the proposed transfer
It is therefore manifest that the reasons given in that show cause notice namely facility of investigation can be read as a part of the impugned order although there is no mention of any reasons therein as such
We are unable to accede to this submission
It appears section 57A of the old Act came for consideration in Pannalal Binjraj and Another vs The Union of India and others and this Court observed at page 589 as follows  it would be prudent if the principles of natural justice are followed where circumstances permit before any order of transfer under section 57A 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 fide 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 641 and 2 of the Act is sought to be made against him be it a transfer from one Income tax Officer to another within their State or from an Income tax officer with in 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 reduced however briefly to writing it will also help the assessee in appreciating the circumstances which make it necessary or desirable for the Commissioner of Income tax or the Central Board of Revenue as the case may be to transfer his case under section 57A of the Act and it will also help the Court in deter mining the bona fides of the order as passed if and when the same is challenged in Court as mala fide or discriminatory
It is to be hoped that the Income tax authorities will observe the above procedure wherever feasible
This judgment was rendered by this Court on December 21 1956 and we find that in the 1961 Act section 127 replaced section 57A 889 where the legislature has introduced inter alia the requirement of recording reasons in making the order of transfer
It is manifest that once an order is passed transferring the case file of an assessee to another area the order has to be communicated
Communication of the order is an absolutely essential requirement since the assessee is then immediately made are of the reasons which impelled the authorities to pass the order transfer
It is apparent that if a case file is transferred from the usual place of residence or office where ordinarily assessments are made to a distant area a great deal of inconvenience and even monetary loss is involved 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 section 1271
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 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 condonations 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 under section 1271 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
Mr Sharma drew our attention to a decision of the Delhi High Court in Sunanda Rani Jain vs Union of India and others where the learned single Judge has taken a contrary view
For the reasons which we have given above we have to hold that the said decision is not correct
The appellant drew our attention to a decision of this Court in Shri Pragdas Umar Vaishya vs
Union of India and Other where rule 55 of the Mineral Concession Rules 1960 providing for exercise of reversional power by the Central Government was noticed
It was held that under rule 55 the Central Government in disposing of the revision application must record its reasons and communicate these reasons to the parties affected thereby
It was further held that the reasons could not be gathered from the nothings in the files of the Central Government
Recording of reasons and disclosure thereof is not a mere formality
890 Mr Sharma drew our attention to a decision of this Court in Kashiran Aggarwalalla vs Union of India and other
It is submitted that this Court took the view that orders under section 1271 are held in that decision to be purely administrative in nature passed for consideration of convenience and no possible prejudice could be involved in the transfer
It was also held therein that under the proviso to section 1271 it was not necessary to give the appellant an opportunity to be heard and there was consequently no need to record reasons for the transfer
This decision is not of any assistance to the Revenue in the present case since that was a transfer from one Income tax Officer to another Income tax Officer in the same city or as stated in the judgment itself in the same locality and the proviso to section 1271 therefore applied
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 Mr Sharma also drew our attention to a decision of this Court in S Narayanappa and Others vs Commissioner of Income tax Bangalore where this Court was dealing with section 34 of the old Act
It is clear that there is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under section 34 must also be communicated to the assessee
The Income tax Officer need not communicate to the assessee the reasons which led him to initiate the proceedings under section 34
The case under section 34 is clearly distinguishable from that of a transfer order under section 1271 of the Act
When an order under section 34 is made the aggrieved assessee can agitate the matter in appeal against the assessment order but an assessee against whom an order of transfer is made has no such remedy under the Act to question the order of transfer
Besides the aggrieved assessee on receipt of the notice under section 34 may even satisfy the Income tax Officer that there were no reasons for reopening the assessment
Such an opportunity is not available to an assesse under section 1271 of the Act
The above decision is therefore clearly distinguishable
We are therefore clearly of opinion that non communication of the reasons in the order passed under section 1271 is a serious infirmity in the order for which the same is invalid
The judgment of the High Court is set aside
The appeal is allowed and the orders of transfer are quashed
No costs
SR Appeal allowed


Summary:
The appellants were assessees under the Income Tax Act under the jurisdiction of the Income Tax officer Nellore since a number of years on 23 1 1973 the Central Board of Direct Taxes sent a notice to the appellants under section 1271 of the Income Tax Act proposing to transfer their case files for facility of investigations from the respective Income
Tax Officer Nellore to the Income Tax Officer B  Ward Special Circle
II Hyderabad and called for objections if any to the proposed transfer within fifteen days of the receipt of the notice
Despite their representations objecting to the transfer the Central Board ordered the transfer on 26 7 1973
The validity of the order was questioned before the Andhra Pradesh High Court by an application under Article 226 of the Constitution on the ground of violation of principles of natural justice inasmuch as neither the reasons were given
nor communicated in the said order
The writ petition was dismissed by a single Judge holding that mere failure to communicate the reasons which were found by him to have been recorded in the files to the appellants was not fatal
The Letters Patent Appeal before the Division Bench failed
Allowing the appeal by special leave and rejecting the contentions of the Revenue
namely
a that the reasons given in the notice under section 1271 calling for objections namely facility for investigations can be read a part of the impugn ed order
b that recording of the reasons in the file although not communicated to the assessee fully meets the requirements of section 1271 and c that the orders under section 127 1 being purely administrative in nature it was not necessary to give the assessee an opportunity to be heard and there was consequently no need to record reasons for the transfer the Court  HELD1 Unlike section 57A of the 1922 Act section 1271 of the Income Tax Act 1961 requires reasons to be recorded prior to the passing of an order of transfer
Once an order is passed transferring the case file of an assessee to another area the order has to be communicated
Communication of the order is an absolutely essential requirement since the assessee is then immediately made aware of the reasons which impelled the authorities to pass the order of transfer
The Legislature has imposed the requirements of show cause notice and also recording of reasons to avoid a great deal of inconvenience and the monetary loss if a case file is transferred from the usual place of residence or office where originally assessments are made to a distant place
888A 889A B 2 The reason for recording of reasons in the order and making these reasons known 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 the Supreme Court under Article 136 of the Constitution in an appropriate case for challenging the order inter alia either on the ground it is mala fide or arbitrary or that it is based on irrelevant and extraneous considerations irrespective of the result of such a writ or special leave application
889C D 885 3 Recording of reasons and disclosure thereof is not a mere formality
The requirement of recording reasons under section 127 1 of the Income Tax Act is a mandatory direction under the law and non communication thereof is not saved by showing that the reasons exist in the files although not communicated to the assessee
889 E Pannalal Binjraj and Another vs The Union of India and Others  applied
Sunanda Rani Jain vs Union of India and Others  overruled
Shri Pragdas Umar Vaishya vs Union of India and others 1967 12 Madhya Pradesh Journal 868 discussed
4 When law requires reasons to be recorded in a particular order affecting prejudicially the interest of any person who can challenges 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
890 C Kashiram Aggarwalla vs Union of India and others  not applicable
section Narayanappa and others vs Commissioner of Income tax Bangalore  distinguished
5 In the insant case non communication of the reasons in the order passed under section 1271 of the Income Tax Act 1961 is a serious infirmity in the order and it is invalid
890 G