In a recent ruling, the Delhi High Court addressed the legality and validity of a search operation conducted at the premises of M/s. Zee Lab Group. The court’s decision, dismissing the writ petitions challenging the search operation, has implications for tax assessment and collection. This judgment follows the orders dated 20 February 2024 and 11 March 2024 issued under Section 127 of the Act, centralizing the assessee’s case for administrative convenience at DCIT, Central Circle, Karnal, Haryana in the matter of Dollar Gulati v. Principal Commissioner of Income Tax.
Facts
- The assessee was given an opportunity of hearing and provided a reply to the notice.
- The Revenue considered the objections raised by the assessee as per Section 127 of the Income Tax Act, 1961.
- In response to a notice under Section 131(1A) of the Act, the assessee furnished details of income earned since AY 2017-18.
- A show cause notice centralized the assessee’s case at DCIT, Central Circle, Karnal, Haryana for administrative convenience.
- The case of Dollar Gulati v. Principal Commissioner of Income Tax is the lead matter considered for factual analysis.
Issue
- The main issue before the court is regarding the legality and validity of the search operation conducted under Section 132 of the Act at the premises of M/s. Zee Lab Group on 11 April 2023.
Analysis
- Section 127 of the Income Tax Act allows for the transfer of cases from one Assessing Officer (AO) to another AO.
- The power of transfer under Section 127 is not provided for under specific schemes mentioned in the Act.
- Cases may be centralized in the interest of revenue, as per Board guidelines.
- The convenience of parties is considered, but coordinated investigation takes precedence over logistical difficulties.
- Territorial nexus becomes irrelevant when Section 127 powers are invoked.
- Opportunity of hearing may not be necessary when transferring a case between AOs in the same location.
- Reasons for transfer need not be exhaustive or specified in the Act.
- Proper and coordinated investigation can be a valid ground for transfer under Section 127.
- Assessees cannot choose their AO, and transfer reasons must not be arbitrary, perverse, or mala fide.
- Transfer of a case under Section 127 is an administrative power that exists even under e-assessment/faceless regimes.
- Section 127 powers must be exercised in public interest, ensuring fair application of mind and consideration of objections.
- Transfer can be made at any stage and does not require reissuing notices.
- The power to transfer aims to achieve the objectives of the Income Tax Act in the interest of proper tax assessment and collection.
- Transfer for coordinated investigation and administrative convenience is a valid ground under Section 127.
- The object of the Act must guide transfer decisions, ensuring the proper fulfilment of tax assessment objectives.
- Section 127 is a machinery provision aimed at advancing public interest and efficient tax collection.
- Transfer decisions must not be arbitrary, mala fide, or capricious, and should serve the fundamental purpose of tax assessment and collection.
- Transfer under Section 127 ensures the fulfillment of the Act’s objectives, public interest, and considerations of coordinated investigation.
- Power of transfer under Section 127 should be exercised following the principles of natural justice, providing a fair hearing to the assessee.
- The power of transfer can be exercised by high-ranking tax authorities, ensuring efficient tax administration and collection.
- Transfer decisions must be driven by public interest and the requirements of the Act, not by extraneous or flimsy grounds.
- Section 127 powers remain unaffected by e-assessment or faceless assessment schemes, allowing for the transfer of cases between different tax authorities.
- Transfer grounds can include coordinated investigation, administrative convenience, and effective tax assessment.
- The hierarchy of Income-tax authorities is structured to ensure proper tax assessment, and transfers may be necessary for better administration.
- Transfers may be made to centralize financial transactions and investigations, ensuring thorough and meaningful assessments.
- Public interest and tax collection exigencies must guide transfer decisions, outweighing the convenience of the assessee.
- Transfer decisions can be diverse and impossible to enumerate, depending on the circumstances and public interest considerations.
- The power under Section 127 aims to serve public interest, ensuring fair and effective tax administration and collection.
- Section 124 of the Act outlines the jurisdiction of Income Tax Officers over individuals conducting business or residing within specified territorial limits.
- Transfers under Section 127(1) are for administrative convenience and do not necessitate reasons or notice if within the same locality.
- The transfer of cases under Section 127(1) can occur at any stage of proceedings without re-issuing notices.
- Section 127 grants the Principal Director General or Commissioner the authority to transfer cases between subordinate Assessing Officers after providing a reasonable opportunity of being heard and recording reasons for the transfer.
- The Allahabad High Court held that ‘coordinated investigation’ is a valid ground for transfer under Section 127 of the Income Tax Act.
- The need for coordination in investigation of groups with various businesses was emphasized for proper income tax assessment.
- The Patna High Court upheld the power of transfer under Section 127 as a machinery provision, following relevant Supreme Court decisions.
- The Division Bench of the Bombay High Court stressed the importance of following principles of natural justice while exercising powers under Section 127.
- The territorial nexus becomes irrelevant when powers are invoked under Section 127, as the interests of adjudication and tax collection take precedence.
- Supreme Court emphasized the machinery nature of Section 127 and the public interest aspect in transfer of assessments for coordinated investigation.
- The controversy is analyzed through the lens of exercising the power of judicial review under Article 226 of the Constitution.
- The exercise of statutory powers by the authority is not deemed wholly arbitrary, irrational, without jurisdiction, or motivated by malice in this case.
Decision
- The court declines to interfere with the orders dated 20 February 2024 [W.P.C. 4086/2024] and 11 March 2024 [W.P.(C) 4054/2024] passed under Section 127 of the Act.
- The observations made are solely for the purpose of deciding the raised challenge and should not be taken as a judgment on the merits of the case.
- The writ petitions are dismissed, and all pending applications are disposed of.
Case Title: DOLLAR GULATI Vs. PRINCIPAL COMMISSIONER OF INCOME TAX & ORS. (2024:DHC:3630-DB)
Case Number: W.P.(C)-4054/2024
