JUDGMENT
1. M/s. Vijay Kumar Gauri Shanker, a registered partnership firm--with Pradeep Kumar Agarwal and Vijay Kumar Agarwal as its partners and Murlidhar Agrawal (father of these partners) and Prashant Kumar Agrawal son of the aforesaid Vijay Kumar Agarwal have filed present writ petition under Article 226 of the Constitution of India. All the petitioners are closely related being father, son and grandson (hereinafter called as "the petitioner"). The firm is engaged in sale of chemicals, namely, caustic soda, sodium hydro sulphate and maze starch, etc., and petitioner No. 1 and other petitioners have been submitting their return at Kanpur and assessed by the competent authority under the Income-tax Act, 1961 (called "the Act"). The Commissioner of Income-tax-I, Kanpur, vide impugned order dated January 23, 2004 (annexure 3 to the writ petition), exercising powers under Section 127(2) of the Act, transferred the assessment cases of the petitioners (particulars given in the schedule contained in the impugned order itself) from Kanpur to New Delhi.
2. Being aggrieved the petitioners have filed the present writ petition claiming writ, order or direction in the nature of certiorari to quash the impugned order of transfer dated January 23, 2004, and also a writ, order or direction in the nature of mandamus to restrain the Assistant Commissioner of Income-tax, Central Circle-9, Range-4, New Delhi/ respondent No. 2 from proceeding with the case in pursuance of its notice under Section 153A of the Act dated March 1, 2004 (annexure 4 to the petition).
3. Initially, the said Commissioner of Income-tax-I, Kanpur, served notices dated January 9, 2004/annexure 1 to the writ petition upon the petitioners to submit explanation, filed collectively as annexure 1 to the writ petition.
4. The relevant extract of the aforesaid notices dated January 9, 2004, for convenience is reproduced below :
Sub : Transfer of your record from Kanpur to New Delhi :
A search and seizure operation under Section 132(1) of the Income-tax Act was conducted on July 2, 2003 in the Shikhar Gutka group of cases.
In connection with the centralisation of your case from the Additional Commissioner of Income-tax, Range-2, Kanpur, to the Assistant Commissioner of Income-tax, CC-9, New Delhi. You are requested to attend before the learned Commissioner of Income-tax-I, Kanpur, along with your explanation, if any, on January 16, 2004 at 11.30 a.m.
5. In reply to the above notices petitioners filed before the Commissioner of Income-tax-I, Kanpur, somewhat identical replies dated January 16, 2004 (filed collectively as annexure 2 to the writ petition), contending, inter alia, that search was conducted on July 2, 2003, at their business offices, factories and residences situate in Kanpur as well as their premises at Delhi, search was conducted at two factories at Kanpur in which two of the petitioners were the directors ; all business organisations were situated at Kanpur except Pradeep Kumar Agrawal who had established a factory in Delhi and who had temporarily shifted to Delhi; one of the petitioners, Muralidhar Agrawal, was 74 years old whose health did not permit him to travel here and there and it was "inconvenient" to the petitioners to go to Delhi every time for assessment proceedings which shall be also detrimental to their business activities in case their cases were transferred to Delhi.
6. The Commissioner of Income-tax, however, did not find favour with the aforesaid explanation and passed the impugned order dated January 23, 2004, the relevant extract of which reads :
In exercise of the powers conferred to Sub-section (2) of Section 127 of the Income-tax Act, 1961, and all other powers enabling me in this behalf, I, the Commissioner of Income-tax-I, Kanpur, hereby transfer the cases, particulars of which are mentioned in columns 1 to 4 of the schedule appended below from the Assessing Officer mentioned in column 5 to the Assessing Officer mentioned in column 6 thereof.
7. In para. 3(a) of the counter affidavit (sworn by one S. B. Singh, the then Income-tax Officer), filed on behalf of the Commissioner of Income-tax-I, Kanpur, it is stated that search and seizure operation was conducted under Section 132 of the Act at the business premises of M/s. Trimurti Fragrances P. Ltd. at Delhi as well as at Kanpur and its other concerns and family members and suppliers of raw material including packing materials ; it is disclosed as to how the petitioners are inter-related and that the different petitioners were, in fact, managing and carrying on business in different business names (collectively called the Shikhar Gutkha group). In para. 3(d) of the counter affidavit it is stated that during the course of search, cash of Rs. 5.5 crores was admittedly recovered at the Delhi premises belonging to Pradeep Kumar Agrawal who stated on July 3, 2003 (re. search on July 2, 2003), on oath under Section 132 that the said cash belonged to his father who was involved in speculation business. In para. 9 of the said counter affidavit it was again pleaded that the notice was issued under Section 127(2)(a) of the Act giving opportunity of hearing to the concerned and that the notice itself mentioned that the cases were transferred with an object of centralisation of cases relating to. Shikhar Gutkha group of the petitioners. Then again in para. 14 of the counter affidavit it is highlighted that there were contradictory statements made by different parties belonging to the Shikhar Gutkha group : Pradeep Kumar Agrawal, was resident of D-8, Preet Vihar, New Delhi, and also owned property at 2445 Hudson Lane, Kingsway Camp, Delhi : he had his factory-cum office on 11, Patparganj, Industrial Area, Delhi; the business of the Shikhar Gutkha group was shifted from Kanpur to Delhi in July, 2002, as per the statement of Pradeep Kumar Agarwal recorded during the search on July 2, 2003, the owners/management of M/s. Vijay Kumar Gauri Shankar/petitioner No. 1 as well as that of other concerns of the Shikhar Gutkha group--not disputed rather admitted; the premises owned by them at 304/305 Patparganj Industrial Area, Delhi, were given on rent to M/s. Mahaveer Grinding Company etc.
8. The petitioners filed rejoinder affidavit, sworn by Vijay Kumar Agrawal, denying the aforesaid allegations vide paras. 4 and 5 of the rejoinder affidavit wherein the petitioners have attempted to explain/clarify the factual position of ownership of different concerns but there is no denial of the basic features of the petitioners and other persons have close commercial connections and relationship.
9. Another counter affidavit (sworn by Roshan Lal) on behalf of respondent No. 2, Assistant Commissioner of Income-tax, New Delhi, has been filed and is on record wherein attempt is being made to show the gravity of the search and seizure operation apart from the fact that out of 26 cases of the group, 16 cases were already assessed at Delhi and according to the said respondents centralisation of cases under the impugned order was fully justified for proper and coordinated investigation.
10. We have heard at length and perused the record.
11. Learned Counsel for the petitioner invited our attention to the impugned order/notice dated January 23, 2004/annexure 3 to the petition (relevant extract reproduced above), laying emphasis that no reasons whatsoever find place in the said order.
12. A bare perusal of the impugned order dated January 23, 2004/annexure 3 to the writ petition showns that it contains no reason. There is no whisper or even iota of reasoning in the said impugned order even for the sake of apology of reasons. Mere reference to the power under which "six cases" mentioned in the schedule (pending at Kanpur) are sought to be transferred to New Delhi cannot take the place of reasons. Learned Counsel representing the Department does not dispute the said position. He, however, endeavoured to demonstrate that the mere fact that the reasons are not reflected in the impugned order does not vitiate the said order of transfer inasmuch as the order dated January 9, 2004/annexure 1 to the petition issued by the Commissioner of Income-tax, Kanpur, addressed to the petitioner clearly refers to the search and seizure operation conducted on July 2, 2003, in the Shikhar Gutkha group of cases informing that all cases were required to be transferred to New Delhi and for that purpose the petitioners were required to attend the office of the Commissioner of Income-tax-I, Kanpur, along with their explanation, if any. It is also pointed out that the petitioners in their reply dated January 16, 2004 (copies of which have been filed collectively as annexure 2 to the petition), admitted that the search was conducted on July 2, 2003, at the business offices, factories and residence situate in Kanpur and also on other establishments of the petitioner at Delhi; the petitioners-as individual, Hindu undivided family or the partner/directors of the firms and companies relating to them were closely related and one of them Pradeep Agrawal, was doing business and residing at Delhi; that sixteen cases out of 26 cases of this group were already assessed at Delhi; it was expedient for proper coordinated investigation to transfer the cases from Kanpur to Delhi and consequently an order to that effect was passed after affording reasonable opportunity of being heard to the petitioner.
13. Learned Counsel for the Department also laid emphasis upon the written statement given at Delhi by Pradeep Kumar Agrawal dated July 3, 2003 (annexure C.A. 1 to the counter affidavit of respondent No. 1), wherein Pradeep Kumar admitted that about six crores of rupees recovered from his premises at Delhi during the search belonged to his father-Murlidhar Agarwal/petitioner No. 2, who carried on speculative business. Learned Counsel for the Department also referred to the letter dated 18/19 November, 2003, written by the Joint Director of Income-tax at New Delhi, referring to the above fact and justifying action of consolidating the cases at New Delhi (annexure C.A. 4 to the counter affidavit of respondent No. 1). In continuation of the aforesaid argument it is being argued that the petitioners were fully aware of the reasons and had adequate and sufficient opportunity to submit their reply, which they did as is evident from the status of the record noted above. According to the Department if the reasons are not contained in the order, the same can be inferred and supplemented from the record.
14. We have considered the respective contentions of the parties. In the case of Ajantha Industries v. CBDT , the apex court considered an identical issue, wherein on behalf of the Department it was argued that the reasons for facilitating investigation, mentioned/recorded elsewhere as record (but not in the order) can be read as part of the impugned order. The apex court did not find favour with the contention of the Department is its evident on reading pars. 9, 10, 11 and 15 of the aforesaid judgment quoted below (pages 285 and 286) :
9. 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 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 requirements of Section 127(1). We are unable to accept this submission.
10. 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 question.
11. We 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 assessee....
15. 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.
15. The aforesaid judgment is followed by the Division Bench of this Court in the case of P. K. Pehuja v. CBDT [1978] UPTC 384. Satish Chandra C.J., speaking for the Bench held : "The Central Board of Direct Taxes passed an order dated July 19, 1975, purporting to be under Section 127(1) of the Income-tax Act, 1961, transferring the cases under the Income-tax Act of the petitioner-assessee from the jurisdiction of the Income-tax Officer A-Ward, Marudabad, to the Income-tax Officer, District-1(2) Additional, New Delhi. The grievance of the petitioner is that the petitioner was not communicated the reasons, if any, which were recorded to sustain this order. Reliance has been placed on Ajantha Industries v. CBDT ; where the Supreme Court held that (headnote of ITR) 'the requirement of recording reasons under Section 127(1) of the Income-tax Act, 1961, for the transfer of a case from one Income-tax Officer to another, is a mandatory direction under the law and non-communication thereof to the assessee is not saved by showing that the reasons exist in the file, although not communicated to the assessee.' This case is applicable to the petitioner on all fours. The impugned order was patently erroneous in law."
16. Thereafter the Division Bench of this Court in Civil Miscellaneous Writ Petition No. 1120 of 2004, decided on April 7, 2005, considered the validity of an identical order of transfer in the case of Bansal Sharevests Services Ltd. v. CIT . Referring to an earlier Division Bench decision of this Court in the case of Vinay Kumar Jaiswal v. CIT , which had considered the decision of the Andhra Pradesh High Court in the case of V. K. Steel Industries P. Ltd., v. Asst. CIT and the apex court judgment in the case of Ajantha Industries , it held that no reasons whatever were mentioned in the order transferring the cases. The Division Bench in the case of Bansal Sharevests Services Ltd. referring to the case of Mohinder Singh Gill v. Chief Election Commissioner AIR 1978 SC 851 observed (page 337) "the apex court has held that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. As in the impugned order, no mention has been made to circular No. 225 dated September 20, 2001, and the various objections raised by the petitioner had not been dealt with, the impugned order cannot be sustained ...."
17. In view of the settled proposition of law declared by the apex court and this Court, the reasons must be incorporated in the order of transfer itself. It is to be appreciated that the statutory mandate to record the reasons in the transfer order is so as to obviate the possibility of authorities acting arbitrarily or without application of mind. The court will not decline to uphold an order, which is manifestly erroneous due to conspicuous absence of reasons, searching for or by finding reasons on record, as to be disclosed by the Department subsequently.
18. It is therefore, imperative upon the concerned authority while exercising power to transfer proceedings which may cause inconvenience and prejudice to the assessee to show conscious application of mind at the appropriate stage by recording reasons in the order itself. The order passed without application of mind cannot be justified by showing circumstances or material from the record to ascertain the same, as it will be in negation of the statutory condition to record reasons by the authorities itself.
19. Normally an order of transfer under the Income-tax Act can be challenged on the ground of its being arbitrary, erroneous and based on irrelevant and extraneous considerations and male fide. To check against the above, the officer in question against the record, the reasons was that the higher authority or the court to ensure that power has been exercised by due application of mind and not mechanically in stereo type manner. The decisions cited on behalf of the Department to the effect that the reasons can be supplemented are of the Guwahati, Rajasthan, Delhi, Andhra Pradesh and Madras High Courts. With respect to the view taken by other High Courts, we prefer to follow the decision of the apex court in the case of Ajantha Industries and of this Court in the case of P.K. Pehuja [1978] UPTC 384.
20. In view of the above, the impugned order dated January 23, 2004, and consequential notice dated March 1, 2004 (annexures 3 and 4, respectively, to the writ petition), cannot be sustained and, therefore, are quashed. We further direct the concerned competent authority to pass orders afresh if so advised in accordance with law.
21. The writ petition stands allowed.
22. No order as to costs.