Case: Ajantha Industries and Ors Vs. Central Board of Direct Taxes, New Delhi and Ors

The appellant No. 1 is a registered firm and appellants Nos. 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 Nellore District in the usual course. On January 23, 1973, the Central Board of Direct Taxes (briefly the Central Board) sent a notice to the appellants under section 127 ofthe Income-tax Act, 1961 (briefly 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, Hyderabad. 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 provision 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 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, dismissedThe appellants Letters Patent Appeal before the Division Bench of the High Court also met with the same fate. Hence, this appeal by special leave

Reasoning: This judgment was rendered by this court on December 21, 1956, and we find that in the 1961 Act section 127 replaced section 5(7A) 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 aware of the reasons which impelled the authorities to pass the order of 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 reasonsWe 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 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 a decision of the questionWe are clearly of opinion that the requirement of recording reasons under section 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 assesseeFor the reasons, which we have given above, we have to hold that the said decision is not correctThis 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 127(1), therefore, appliedWhen 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 expiatedIt 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 127(1) 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 assessee under section 127(1) of the Act. The above decision is, therefore, clearly distinguishableWe are, therefore, clearly of opinion that non-communication of the reasons in the order passed under section 127(1) is a serious infirmity in the order for which the same is invalid.