Case Transfer Under Section 127 Upheld for Co-ordinated Investigation Despite Assessee’s Inconvenience

Case Transfer Under Section 127 Upheld for Co-ordinated Investigation Despite Assessee’s Inconvenience

Issue:

Whether an order transferring an assessee’s income tax assessment file from their original jurisdiction to another, particularly to a Central Circle following a search operation on a group of companies, is valid under Section 127 of the Income-tax Act, 1961, especially when the transfer is based on proper and co-ordinated investigation in public interest and the assessee was given an opportunity of hearing.

Facts:

A search operation was conducted under Section 132 of the Income-tax Act, 1961, on a group of companies by the Investigation Wing, Kolkata. As a result of this search, numerous incriminating documents were discovered in the Kolkata office, leading to the conclusion that the assessee was conducting lottery business operations within the jurisdiction of the Kolkata Central Circle. Consequently, a notice under Section 127 was issued to transfer the assessee’s income tax assessment file from the Assessing Officer (AO), Coimbatore, to the jurisdiction of the Kolkata Central Circle.

A Single Judge had previously held that while transferring a case from an assessee’s place of residence or business to another location might cause inconvenience, such a transfer is permissible in law if it is necessary in public interest for proper and co-ordinated investigation. It was noted that in a similar case to the assessee, the Supreme Court had upheld a High Court order which stated that where powers under Section 127 were invoked on grounds of administrative convenience and meaningful assessment, and the assessee was duly given an opportunity of hearing, the transfer of the assessee’s case did not require interference.

Decision:

Yes, the court held that following the aforesaid view (of the Supreme Court and Single Judge), there was no error or infirmity in the order of transfer of cases. The decision was in favor of the revenue.

Key Takeaways:

• Power to Transfer Cases (Section 127): Section 127 of the Income-tax Act grants the Principal Director General or Principal Commissioner, or any other authority specified, the power to transfer any case from one Assessing Officer to another.
• Grounds for Transfer: The primary grounds for such transfers often include “administrative convenience,” “proper and co-ordinated investigation,” and “meaningful assessment,” especially in search cases involving groups of entities spread across different jurisdictions. The public interest is a key underlying factor.
• Assessee’s Inconvenience vs. Public Interest: While the transfer might cause inconvenience to the assessee (e.g., increased travel costs, difficulties in representation), the law generally prioritizes the public interest in effective tax administration and investigation, particularly in complex search cases.
• Opportunity of Hearing: A crucial condition for the validity of a transfer order under Section 127 is that the assessee must be given a reasonable opportunity of being heard before the transfer is effected. This allows the assessee to present their objections.
• No Interference if Conditions Met: If the transferring authority has exercised its power on valid grounds (like co-ordinated investigation), the assessee has been given a hearing, and the order provides reasons, courts are generally reluctant to interfere with such administrative transfers, especially when higher courts have upheld similar transfers.
• Centralization of Cases: In search and seizure cases, it is common practice to centralize all assessment and investigation records of a group under a single Central Circle AO to ensure a comprehensive and cohesive investigation.
• Upholding Administrative Discretion: The decision supports the revenue’s administrative discretion in organizing assessments for effective tax collection and investigation.