Punjab-Haryana High Court
Rajesh Mahajan And Ors. vs Commissioner Of Income-Tax on 31 July, 2002
Equivalent citations: (2004)186CTR(P&H)428, [2002]257ITR577(P&H)
Author: J.S. Khehar
Bench: J.S. Khehar
JUDGMENT J.S. Khehar, J.
1. Rajesh Mahajan (petitioner No. 1), Sangeeta Mahajan (petitioner No. 2, and wife of petitioner No. 1), Pranab Mahajan (petitioner No. 3, and son of petitioner No. 1) and Smt. Kamal Saroj (petitioner No. 4, and mother of petitioner No. 1) are stated to have partnership interests in Mahajan Exports (petitioner No. 5), Maspar (petitioner No. 6) and Anand Co. (petitioner No. 7).
2. Mahajan Exports, i.e., petitioner No. 5, is a partnership firm comprising petitioners Nos. 1 to 3. It is stated to be engaged in the business of manufacture and export of handloom products. Its factory a well as the head office are stated to be located at Panipat (although it is acknowledged that it has one small sales office at Delhi). Masper, i.e., petitioner No. 6, is a partnership firm comprising petitioners Nos. 1 and 2. It is also stated to be engaged in the business of manufacture and export of handloom products, its factory as well as head office are stated to be located at Panipat. Anand Co., i.e., petitioner No. 7, is a partnership firm comprising petitioners Nos. 1 and 2. It is stated to be engaged in carrying out trading activities in handloom products. Its business premises are stated to be located at Panipat. The facts narrated above have not been disputed in the written statement filed on behalf of the respondents.
3. All the petitioners were regularly assessed to income-tax at Panipat by the Assistant Commissioner of Income-tax, Panipat, as well as by the Income-tax Officers of Wards Nos. 1 and 4. From the facts depicted in the foregoing paragraph, it is apparent that petitioners Nos. 1 to 4 are individuals, being members of one family, whereas petitioners Nos. 5 to 7 are partnership concerns comprising petitioners Nos. 1 to 4. The books of account relating to the business activities of petitioners Nos. 5 to 7 are stated to be maintained and kept in the business premises of the three firms at Panipat itself. The factum of residence of the petitioners at Panipat, the location of their business premises at Panipat and the maintenance of books of account at Panipat, are also not disputed.
4. Rakesh Mahajan is the brother of Rajesh Mahajan (petitioner No. 1). Rakesh Mahajan along with his family members are stated to control Mahajan Overseas Ltd., which has its registered office at E-1 and E-2, South Extension, Part-11, New Delhi. Likewise, Rakesh Mahajan and his family members also control Mahajan Industries Private Ltd. and Pan Foods Ltd. The registered office of the latter two concerns being the same address as that of Mahajan Overseas Ltd. While Mahajan Overseas Ltd. and Mahajan Industries Pvt. Ltd. are engaged in the property business, Pan Foods Ltd. is engaged in the business of manufacture of food products such as jams/ketchups, etc. The aforesaid concerns which are controlled by Rakesh Mahajan and his family members are stated to be assessed to income-tax at Delhi, by the Deputy Commissioner of Income-tax, Central Circle-20, New Delhi. The aforesaid facts pertaining to the business concerns of Rakesh Mahajan and his family members have been drawn from the averments made in the writ petition. None of the aforesaid averments have been disputed in the written statement.
5. Search and seizure operations under Section 132 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), were conducted on August 29, 2000. The aforesaid search and seizure operations were conducted for detection of income-tax evasion. During the course of the said search and seizure operations, Mahajan House, Panipat, and business ventures of the concerns referred to above located at Industrial Area, Panipat, Mahajan House, E-1 and E-2, South Extension, Part-II, New Delhi, and B-81, Greater Kailash-I, New Delhi, were targeted. After the search and seizure operations, the Commissioner of Income-tax, Rohtak, issued individual notices dated January 4, 2001, to the petitioners in exercise of powers vested in him under Section 127 of the Act requiring them to submit their objections, if any, to the transfer of the proceedings pending against them under the Income-tax Act from the Assistant Commissioner of Income-tax (Investigating Circle), Panipat, to the Deputy Commissioner of Income-tax, Central Circle 20, New Delhi. The aforesaid action was proposed to be taken in order to "make co-ordinated enquiry and investigations" into the financial affairs of Rajesh Mahajan (petitioner No. 1), Rakesh Mahajan (brother of petitioner No. 1), and their family members. The petitioners were also permitted to avail of a personal hearing with the Commissioner of Income-tax, Rohtak, if they so desired.
6. Since the present controversy pertains to the interpretation of Section 127 of the Act, it is considered appropriate to extract the aforesaid provision here-under :
"127. (1) The Director-General or Chief Commissioner or 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 or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him.
(2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Director-General or Chief Commissioner or Commissioner, --
(a) where the Directors-General or Chief Commissioners or Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Director-General or Chief Commissioner or Commissioner from whose jurisdiction the case is to be transferred 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, pass the order ;
(b) where the Directors-General or Chief Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Director-General or Chief Commissioner or Commissioner as the Board may, by notification in the official Gazette, authorise in this behalf.
(3) Nothing in Sub-section (1) or Sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place.
(4) The transfer of a case under Sub-section (1) or Sub-section (2) may be made at any stage of the proceedings, and shall not render necessary the reissue of any notice already issued by the Assessing Officer or Assessing Officers from whom the case is transferred."
7. In response to the notices dated January 4, 2001, the petitioners submitted written objections dated January 31, 2001. In the written objections filed by the petitioners, it was, inter alia, pleaded that the business/financial dealings of Rajesh Mahajan and his family members (i.e., petitioners Nos. 1 to 4) are separate and distinct from the business/financial dealings of Rakesh Mahajan and the members of his family. It was also pointed out that the trading activities in which the petitioner Rajesh Mahajan and his family members are involved, are totally distinct from the trading activities relating to the concerns controlled by Rakesh Mahajan and his family members. It was also pointed out that the books of account and other documents relating to the business activities of Rajesh Mahajan and his family members were maintained and retained at Panipat, whereas, the books of account and other documents of the business concerns of Rakesh Mahajan and his family members were maintained and retained at New Delhi. Referring to the search and seizure operations conducted on August 29, 2000, it was specifically stated that nothing "has been found during the course of search and seizure operations, which warrant any connection between two family groups". It would be pertinent to mention that in the written objections dated January 31, 2001, it was conceded that Rajesh Mahajan was one of the directors of Mahajan Industries Ltd. and Pan Foods Ltd. It was, however, pointed out that he had no hand whatsoever in the conduct of day-to-day affairs of the business of the said companies. In this behalf, it was asserted that Rajesh Mahajan had less than four per cent, shares in the two companies. It was also clarified that the status of his shares had remained the same without "any significant change" for the last more than 30 years. According to learned counsel these facts were sufficient to depict lack of involvement of Rajesh Mahajan in the business ventures controlled by Rakesh Mahajan'. In order to show that Rajesh Mahajan had no control/interest in the aforesaid two firms, it was also pointed out that he (Rajesh Mahajan) was not paid any remuneration or salary for being a director, and further that, he was not even paid fees for attending board meetings.
8. After examining the issue under reference, the Commissioner of Income-tax, Rohtak, by an order dated April 24, 2001, transferred all income-tax proceedings pending against the petitioners at Panipat to the Deputy Commissioner of Income-tax, Central Circle 20, New Delhi. The order dated April 24, 2001, was made operational with effect from May 1, 2001. The relevant part of the order dated April 24, 2001, is being extracted hereunder :
"In exercise of power conferred by Sub-section (1) of Section 127 of the Income-tax Act, 1961, read with Clause (a) of Sub-section (2) thereof (43 of 1961), Section 8 of the Wealth-tax Act, 1957, and Section 7 of the Gift-tax Act, 1958, and all other powers enabling me in this behalf, I, the Commissioner of Income-tax, Rohtak, hereby transfer the cases particulars of which are mentioned in column 2 of the Schedule appended below from the Assessing Officer mentioned in column 4 of the Schedule for co-ordinated investigation in group cases/connected cases.
Notices providing opportunity of being heard were issued on January 15 2001 and January 31, 2001. On the date of hearing, Shri Rajesh Mahajan and Shri R.C. Gupta, chartered accountant, counsel for the assessee appeared and filed a written submission objecting the proposed transfer of cases to the Deputy Commissioner of Income-tax, Central Circle 20, New Delhi. Submissions made by the assessees carry no weight, hence the same are rejected."
9. The petitioners impugned the order dated April 24, 2001, by filing Civil Writ Petition No. 7819 of 2001. The said writ petition was disposed of by an order dated June 1, 2001. The operative part of the aforesaid order is being reproduced hereunder :
"At the hearing Shri Sawhney stated that the impugned order will not be acted upon and fresh order will be passed only after giving notice and opportunity of hearing to the petitioners.
In view of the statement made by Shri Sawhney the writ petition is disposed of as infructuous with liberty to the concerned officer to pass fresh order after complying with the rules of natural justice and requirement of statutory provisions."
10. In furtherance of the liberty granted to the respondents by the order passed in Civil Writ Petition No. 7819 of 2001, notices dated July 12, 2001, were issued by the Commissioner of Income-tax, Rohtak, under Section 127 of the Act, proposing once again, to transfer all assessment proceedings pending against the petitioners from Panipat to the Deputy Commissioner of Income-tax, Central Circle 20, New Delhi. The instant notices dated July 12, 2001, besides making a reference to Civil Writ Petition No. 7819 of 2001 and the order passed therein; were indistinguishable from the notices issued earlier (on January 4, 2001).
The petitioners responded to the notices dated July 12, 2001, through a communication dated July 19, 2001. In the short communication dated July 19, 2001, the petitioners recorded their serious concern by stating that the liberty granted by the High Court was being misconstrued by the respondents. It was pointed out that the notices dated July 12, 2001, did not express any ground/ justification for the transfer of assessment proceedings of the petitioners, from Fanipat to New Delhi. On the merits, the petitioners continued to rely on the reply dated January 31, 2001 (submitted in response to the previous notice dated January 4, 2001), and, therefore, enclosed the said reply with the communication dated July 19, 2001. As on the earlier occasion, the Commissioner of Income-tax, Rohtak, granted a personal hearing to the petitioner on July 20, 2001. Rajesh Mahajan, (petitioner No. 1) and R. C. Gupta, chartered accountant, represented all the petitioners during the course of the said personal hearing.
11. The Commissioner of Income-tax, Rohtak, by an order dated July 26, 2001, transferred all proceedings under the Income-tax Act pending against the petitioners from Panipat to the Deputy Commissioner of Income-tax, Central Circle 20, New Delhi. Through the instant petition, the petitioners have impugned the aforesaid order dated July 26, 2001. In the order dated July 26, 2001, the reasons for not accepting the objections raised by the petitioners opposing the transfer of the proceedings pending against them under the Income-tax Act from Panipat to New Delhi have been depicted in paras. 4 to 6, which are being reproduced hereunder :
"4. I have considered the submissions made by Shri Rajesh Mahajan and have gone through the written submissions contained in the letter dated January 13, 2001. The search operations in the two groups of Rakesh Mahajan and Rajesh Mahajan were conducted simultaneously. It was admitted by Shri Rajesh Mahajan that the statements of the assessees whose cases were proposed to be transferred under Section 127 were recorded by the investigation wing as part of the enquiries being made in regards to the business affairs of the both groups. It was admitted that Shri Rajesh Mahajan was one of the directors and shareholder of Mahajan Industries Pvt. Limited and also connected with Pan Food. As per information, Shri Rajesh Mahajan is also one of the trustees of Shri Ram Lal Mahajan Charitable Trust, which is running Mother and Child Health Centre at D-59, Defence Colony, New Delhi. Further Shri Rajesh Mahajan and Rakesh Mahajan, both are having their offices at Mahajan House, E-l and E-2, New Delhi. As per information, Shri Rajesh Mahajan is one of the signatories to various resolutions passed by the trust of Shri Ram Lal Mahajan Charitable Trust. It is reported that the seized papers of Mahajan Overseas Ltd. and Mahajan Exports are intermingled with Mahajan Industries Pvt. Ltd. and Pan Foods. Shri Rajesh has inseparable interest in Pan Foods Limited and Mahajan Industries Pvt. Ltd., which has already been cent-
ralised. As per the information, Shri Rajesh Mahajan and his family also stays at B-81, Greater Kailash-I, New Delhi, and on the date of search, he was stated to be present at Mahajan House. Therefore, undoubtedly, there was a basis and material on the record to show that there is connection between Rakesh Mahajan and Rajesh Mahajan group of cases. The other groups already having been transferred, it becomes imperative that the cases are also transferred to Central Circle, New Delhi, so the meaningful and co-ordinated enquiries could be made. It would not be out of place to mention here that search operations were conducted on the basis of suspected concealment by persons of these groups.
5. Accordingly, the contention of the assessee that there was no connection between these two groups does not sustain on the basis of scrutiny of the facts available on record. As regards the second contention of the assessee that they are being assessed to tax at Panipat, it may be mentioned here that when transfer of a case is effected in the interest of proper investigation, inconvenience caused to the assessee would not matter. The convenience of an assessee could not override the needs of the Revenue for better investigation as has been held by the Allahabad High Court in the cases of Bhatia Minerals v. CIT [1993] 200 ITR 591; Mahesh Chand Vishan Swamp v. CIT [1991] 187 ITR 177; Mangal Chand and Sons v. CBDT [1985] 155 ITR 344 (Cal) ; Shri Rishikul Vidyapeeth v. Union of India [1982] 136 ITR 139 (Raj). In fact the assessees mentioned above do not have any vested right to be assessed at a particular place.
6. The contention of these assessees that there is no connection between these two groups can be looked only when these cases are investigated by an Assessing Officer assessing both groups. Further, these assessees also stand to benefit as cross verification can be made by the Assessing Officer in the Central Circle from assessment records without requiring the presence of these assessees."
12. The contentions raised by learned counsel for the petitioners are being summarised hereunder :
The first contention of learned counsel for the petitioners is that the notices dated July 12, 2001, requiring the petitioners to file objections against the transfer of proceedings pending under the Income-tax Act from Panipat to New Delhi were invalid and unacceptable in law as the notices did not disclose the reasons/basis on which the concerned income-tax authorities had founded their opinion (to transfer the assessment proceedings of the petitioners from Panipat to New Delhi). It is submitted that a fair opportunity to file objections against the proposal of transfer of proceedings must be preceded by disclosure of reasons. In the absence of reasons for transfer of assessment proceedings, the petitioners cannot be deemed to have been afforded a reasonable opportunity for filing objections and/or an effective opportunity of hearing. It is submitted that the authorities have merely superficially and mechanically complied with the provisions of Section 127 of the Act, without complying with the mandate of Section 127 of the Act in letter and spirit.
The second contention of learned counsel for the petitioners is that the impugned order dated July 26, 2001, merely disclosed that the transfer of assessment proceedings of the petitioners from Panipat to New Delhi was for a co-ordinated investigation of the concerns managed by Rajesh Mahajan (petitioner No. 1) and his family members, and Rakesh Mahajan (brother of petitioner No. 1) and his family members, and for better tax administration. According to learned counsel for the petitioners, the terminology used in the impugned order is unacceptable in law. In this behalf, it is asserted that the reasons recorded in the show-cause notice do not constitute a valid basis for the transfer of assessment proceedings as it does not detail the express reasons/basis for the contemplated action.
13. Learned counsel for the petitioners has also made an alternative submission to the second contention. Alternatively, learned counsel for the petitioners contended that none of the reasons expressed in the impugned order can be accepted as a valid basis for transfer of the pending income-tax proceedings from Panipat to New Delhi, as the reasons expressed in the impugned order have no relevance with the ultimate decision arrived at by the income-tax authorities. It is further asserted that the reasons expressed in an order finally passed under Section 127 of the Act must take into consideration the objections raised by the assessee, otherwise, the mandate of the statute to record reasons (whenever possible) will not be satisfied. In this behalf, the lament of the petitioners is that the reasons recorded in the impugned order have no nexus with the final decision, and further that the objections raised by them have not been duly considered.
14. Before one can embark on the issues raised, it would be essential to interpret Section 127 of the Act so as to determine the essential procedural requirement incorporated therein. It is apparent from Section 127 of the Act extracted above, that the Legislature intended that the rules of natural justice should be complied with before the competent/concerned authority, passed an order transferring assessment proceedings from one officer to another or from one place to another. This is evident from the use of the phrase ". . . after giving the assessee a reasonable opportunity of being heard in the matter ..." in Subsection (1) of the said provision. Indeed, the audi alteram partem rule is the first principle of every civilised jurisprudence. A person against whom any action is sought to be taken, or a person whose rights or interests are to be affected, should be given a reasonable opportunity to defend himself. The first essential component of a fair opportunity's, the communication of reasons on which the action contemplated is to be taken. Any proceedings initiated with-
out effective notice delineating the basis for the contemplated action would violate the rules of natural justice. Informing the party whose rights and interest are to be affected of the reasons which have prompted the authority to initiate action against him, is a sine qua non for a fair hearing. The next step is to afford the affected party a chance to respond to the proposed/contemplated action. This can be done by allowing the assessee, who is to be adversely affected by the proposed action under Section 127 of the Act, to file objections against the contemplated action. This constitutes the second step envisaged by Section 127(1) of the Act. The third step arises only if the objections raised by the assessee are overruled (as in the present case). The third step requires the recording of reasons by the concerned/competent authority before taking the final decision. While passing the final order, the concerned/competent authority must deal with all the objections raised by the assessee, otherwise, the mandate requiring the authority to record reasons would be reduced to an empty formality.
15. In so far as the present controversy is concerned, the first contention of learned counsel for the petitioners is based on the first essential component of a fair hearing noticed above, namely, the communication of the reasons/basis on which the concerned/competent authority proposes to take action under Section 127 of the Act to the petitioners. The second contention is based on the other essential components of the rules of natural justice, namely, that the concerned authority must record reasons (whenever possible) for finally taking action contemplated under Section 127 of the Act. The alternate submission to the second contention is based on the third step described in the preceding paragraph, namely, the reasons recorded by the concerned/competent authority in the decision finally taken, all objections raised by the assessee must be dealt with, additionally, the reasons recorded in the final order must have direct bearing/nexus with the object sought to be achieved.
16. I shall now endeavour to deal with the first contention (noticed in para. 12 (page 587) above) :
In Nasir Ahmed v. Asst. Custodian-General, Evacuee Property, AIR 1980 SC 1157, the apex court held that a notice which merely repeated the statutory language without giving any facts and other particulars, is insufficient and inadequate for an effective response. It is, therefore imperative that the notice issued to an affected party discloses the grounds on which the action is proposed to be taken, in clear, specific and unambiguous terms. One cannot also lose sight of the decision rendered by the Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851, wherein it observed as under (page 858):
"The second equally relevant matter is 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."
17. The notices issued under Section 127 of the Act dated July 12, 2001, have been collectively appended to the writ petition as annexure P-4. One of the notices is being extracted hereunder :
"Search and seizure operation under Section 132 of the Income-tax Act, 1961, was conducted in Mahajan group of cases on August 29, 2000. Your being connected case of the abovementioned group and in order to make coordinated enquiries and investigations, it is proposed to transfer your case from the Income-tax Officer, Ward No. 4, Panipat, to the Deputy Commissioner of Income-tax, Central Circle 20, New Delhi.
In view of the decision of the High Court of Punjab and Haryana at Chandigarh Civil Writ Petition No. 7819 of 2001, dated June 1, 2001, giving the concerned officer liberty to pass fresh orders, you are requested to let me know if you have any objection to the proposed transfer. In this connection, you are hereby offered an opportunity of being heard in my office at Aaykar Bhawan, Rohtak, on July 20, 2001, at 11.00 a.m. in person or through an authorised representative. If nothing is heard from you till that, it will be presumed that you have no objection to the transfer of your case."
18. The only reason discernible in the notices issued to the petitioners calling upon them to file objections is ". . . in order to make co-ordinated enquiries and investigation . . ." of the two groups (comprising the families of Rajesh Mahajan and Rakesh Mahajan). As against the solitary reason depicted in the notices issued to the petitioners, learned counsel for the petitioners invited the attention of this court to the decisions rendered in Vijayasanthi Investments Pvt. Ltd. v. Chief CIT [1991] 187 ITR 405 (AP); Saptagiri Enterprises v. CIT [1991] 189 ITR 705 (AP); Y. Moideen Kunhi and Co. v. ITO [1993] 204 ITR 29 (Karn); Shivajirao Angre v. CIT [1986] 158 ITR 162 (MP) and Power Controls v. CIT [2000] 241 ITR 807 (Delhi) wherein different High Courts have opined that it is not sufficient merely to mention that the proposed transfer is to facilitate detailed and co-ordinated investigations.
19. In so far as the first contention of learned counsel for the petitioners is concerned, the challenge is to the validity of the show-cause notices issued to the petitioners under Section 127 of the Act. There can be no dispute about the fact that the notices dated July 12, 2001, extracted above do not disclose the basis which prompted the authorities to initiate action (to transfer assessment proceedings of the petitioners from Panipat to New Delhi) under Section 127 of the Act. The only reason for transfer of proceedings expressed in the notices issued to the petitioners was "... in order to make co-ordinated enquiries and investigations ..." and nothing beyond that. In view of the decisions, noticed hereinabove, the aforesaid reason expressed in the notices issued to the peti tioners is not acceptable in law. The notices in the instant case merely repeated the statutory language without giving any facts and other particulars and thus must be deemed to be insufficient inadequate for an effective response from the affected assessees. Since the notices did not inform the petitioners of the basis for taking the impugned action against them, the same are obviously contrary to the legislative intent expressed in the mandate of Section 127(1) of the Act and as such are liable to be set aside as not acceptable in law.
20. Ordinarily, any action based on such an illegality, as noticed above, would have to be set aside without any further thought. The question to be considered in the present case is whether, merely because the notices issued to the petitioners dated July 12, 2001, did not record the specific reasons for the proposed transfer of assessment proceedings, would it be justified to strike down as illegal and invalid the impugned order dated July 26, 2001 ? According to learned counsel representing the respondents, it is too late in the day now for the petitioners to challenge the validity of the impugned order dated July 26, 2001, on the basis of an infirmity in the notices dated July 12, 2001. In this behalf, it is contended by learned counsel for the respondents that the petitioners fully understood the basis of the proposed action and, therefore, filed detailed objections. In their objections, the petitioners raised all conceivable pleas, which could have been available to them. In this behalf, learned counsel for the respondents also vehemently contended that detailed reasons have been narrated in the impugned order of the Commissioner of Income-tax, Rohtak, dated July 26, 2001, and the objections filed by the petitioners dated January 31, 2001, deal with all the reasons which have weighed with the concerned/competent authority to pass the final order. Additionally, it is pointed out that all the grounds raised in the present writ petition (for controverting the reasons mentioned in the impugned order dated July 26, 2001) were raised by the petitioners in their objections, therefore, it is clear that the petitioners were very well aware of the reasons/basis on account of which, the authorities were contemplating the transfer of assessment proceedings (from Panipat to New Delhi) ; and effectively responded to the same. It is further contended that if the petitioners could not decipher the exact basis for the proposed transfer of assessment proceedings (from Panipat to New Delhi), from the notices dated July 12, 2001, rather than filing detailed objections, they should have required the authorities to inform them of the reasons which prompted them (the authorities) to initiate action under Section 127 of the Act against them (the petitioners). Having not done so, and having accepted the notices dated July 12, 2001, as valid notices, and having filed detailed objections to the said notices and also having participated in the personal hearing granted to them by the Commissioner of Income-tax, Rohtak, on July 20, 2001, it is not now open to the petitioners to raise the plea that the notices issued to them were defective.
21. While deliberating upon the first contention, raised by learned counsel for the petitioners, I have carefully examined the notices dated July 12, 2001, issued to the petitioners. I have also carefully gone through the objections raised by the petitioners. As against the first notices issued under Section 127 of the Act dated January 4, 2001, the petitioners submitted their objections through a communication dated January 31, 2001. After this court intervened in the matter by passing an order dated June 1, 2001, in C. W. P. No. 7819 of 2001, fresh show-cause notices dated July 12, 2001, were issued to the petitioners under Section 127 of the Act. While responding to the subsequent notices dated July 12, 2001, the petitioners in their own wisdom relied upon the objections filed on January 31, 2001 (to the earlier show-cause notices dated January 4, 2001). As already stated above, while responding to the subsequent notices dated July 12, 2001, along with their covering letter dated July 19, 2001, the petitioners enclosed the earlier objections dated January 31, 2001. The petitioners did not agitate that they did not understand the exact purport or basis for initiating the contemplated action under Section 127 of the Act. One cannot lose sight of the fact that in the covering letter dated July 19, 2001, the petitioners did mention that the determination of the authorities to transfer proceedings was not based on any justification. In my view, the words and expressions used in the covering letter dated July 19, 2001, cannot be taken to mean that the petitioners did not understand the basis of transfer of their assessment proceedings (from Panipat to New Delhi). If they did not understand the basis on which the proceedings were proposed to be transferred, it would not have been possible for them (the petitioners) to submit detailed objections. If the petitioners had any objection about the validity of the notices dated July 12, 2001, the appropriate and opportune moment thereof, was at that very stage, i.e., before filing objections. The petitioners did not avail of the said opportunity. Having responded to the notices (dated July 12, 2001) by filing detailed objections (dated January 31, 2001), along with covering letter dated July 19, 2001), it is implicit that the petitioners accepted the validity of the notices issued to them. In their detailed objections, the petitioners raised all conceivable pleas available to them. In fact, the same pleas (which were raised in the written objections filed on January 31, 2001) have not been raised in the instant writ petition. Therefore, although, ordinarily it would have been just and proper to quash the notices dated July 12, 2001, if the petitioners had approached this court at the opportune stage (i.e., after they had received the notices, but before responding to them) by asserting that the notices issued under Section 127 of the Act, were bereft of reasons, it is not appropriate at this stage to accept the aforesaid contention. Procedural norms are devised to protect a person proceeded against; it is not open to such person to base his claim on violation of such procedure, if he has waived such requirement either expressly ,or by his conduct. In the instant case, on the basis of the facts noticed above, it is inevitable to conclude that by filing detailed objections dated January 31, 2001, the petitioners by their conduct expressly waived the right now claimed by them. Moreover, it is now evident that the petitioners have not been deprived of an effective response since the pleas raised in the objections dated January 31, 2001, constitute a complete reply to the reasons which have been disclosed in the impugned order dated July 26, 2001. As a , matter of fact, in terms of ground realities, the petitioners cannot be stated to have suffered any prejudice on account of non-communication of reasons in the notices dated July 12, 2001. The ultimate object of the rule of audi alteram partem is to ensure a fair hearing and also to ensure that there is no failure of justice. An order passed in violation of a procedural norm ought to be set aside only where it occasions prejudice and not otherwise. The first contention raised on behalf of the petitioners is, therefore, liable to be rejected on both counts, i.e., waiver and lack of prejudice.
22. I shall now deal with the second contention (noticed in para. 12 (page 587) above) :
The second contention advanced on behalf of the petitioners directly targets the impugned order dated July 26, 2001. The assertion made on behalf of the petitioners is that even the impugned order does not disclose the reasons which had weighed with the authorities for transfer of assessment proceedings of the family members of Rajesh Mahajan (petitioner No. 1) from Panipat to New Delhi. Learned counsel for the petitioners has invited the attention of the court to the decision rendered by the Supreme Court in Ajantha Industries v. CBDT [1976] 102 ITR 281, wherein it has been held that the requirement of recording reasons under Section 127(1) of the Act for the transfer of a case from one Income-tax Officer to another is mandatory. The noncommunication of the reasons to the assessee cannot be justified by showing that the reasons exist on the file although the same were not communicated to the assessee. It has been clearly and categorically concluded by the apex court in the aforesaid judgment that recording of reasons and disclosure thereof to the assessee are not merely an idle formality, pointed attention of the court was invited to the following observations recorded in the aforesaid judgment (page 284) :
"Unlike Section 5(7A), Section 127(1) 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 assessee 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 that Section 5(7A) of the old Act came for consideration in Pannalal Binjraj v. Union of India [1957] 31 ITR 565 (SC), 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 5(7A) 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 fides 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 64 (1) and (2) of the Act is sought to be made against him, be it a transfer from one Income-tax Officer to another within the State or from an Income-tax Officer within 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 are 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 5(7A) of the Act and it will also help the court in determining 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 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 requirement of Section 127(1). We are unable to accept this submissions.
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.
We are clearly of opinion that the requirement of recording reasons under Section 127(1) is a mandatory direction under the law and noncommunication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee."
23. Paragraphs 4 to 6 of the order dated July 26, 2001, have already been extracted hereinabove. The contents of the aforesaid paragraphs certainly lead to the conclusion that detailed reasons for taking action against the petitioners under Section 127 of the Act have been enumerated therein. In the aforesaid circumstances, it is not possible for this court to accept the second contention, i.e., that the impugned order is bereft of the reasons/basis which had weighed with the authorities for transferring the assessment proceedings pending against the petitioners under the Income-tax Act from Panipat to New Delhi. Now, I shall deal with the alternative plea to the second contention raised on behalf of the petitioners (noticed in para. 12 (page 587) above) :
Learned counsel, for the petitioners as well as the respondents, have invited the attention of this court to the factual contents narrated in paragraph 4 of the impugned order, which expresses the following reasons for the transfer of income-tax assessment proceedings of the petitioners from Panipat to New Delhi :
(i) Rajesh Mahajan was one of the directors and the shareholders of Mahajan Industries Pvt. Ltd. and also connected with Pan Foods Ltd.
(ii) Rajesh Mahajan is also one of the trustees of Ram Lal Mahajan Charitable Trust, which is running Mother and Child Health Centre at D-59, Defence Colony, New Delhi.
(iii) Rajesh Mahajan (petitioner No. 1) and Rakesh Mahajan (brother of petitioner No. 1) both are having their offices at Mahajan House, E-1 and E-2, South Extension, Part-II, New Delhi. Rajesh Mahajan is one of the signatories of various resolutions passed by the trustees of Ram Lal Mahajan Charitable Trust.
(iv) Seized papers of Mahajan Overseas Ltd. and Mahajan Exports during the course of the action initiated under Section 132 of the Act reveal that papers of Mahajan Overseas Ltd. and Mahajan Exports are intermingled with Mahajan Industries Pvt. Ltd. and Pan Foods Ltd.
(v) Rajesh Mahajan (petitioner No. 1) has inseparable interests in Pan Foods Ltd. and Mahajan Industries Pvt. Ltd.
(vi) Rajesh Mahajan (petitioner No. 1) and his family members also reside at B-81, Greater Kailash-I, New Delhi.
24. In order to project the instant plea, learned counsel for the petitioners has primarily based his submission on the averments made in para. 23 of the writ petition and the response thereto. It would, therefore, be essential to extract herein para. 23 of the writ petition and its reply.
25. Para. 23 of the writ petition :
"23. That the utter frivolity and baselessness of the order dated July 26, 2001 (annexure P-1), is self-evident from the following :
(a) That respondent No. 1 has stated in the said order that the inquiries made by the Investigating Wing were with regard to the business affairs of both the groups. This fact is factually incorrect. The true fact is that the Investigating Wing itself treated the two groups separate from each other and issued on March 12, 2001, two separate questionnaires ; one for each group independently of the other. Even a cursory glance over these questionnaires would have revealed to respondent No. 1 that no inquiry is made from the petitioners, namely, Rajesh Mahajan group and cases about the matters relating to the other group, namely, Rakesh Mahajan group and the vice-versa.
(b) That it is also stated in the said order that Shri Rajesh Mahajan is one of the directors of the Mahajan Industries Private Ltd. and is also connected with Pan Foods Limited. Both these companies belong to Rakesh Mahajan group. In this connection, it may be clarified that Rajesh Mahajan, petitioner No. 1 is the real brother of Rakesh Mahajan. Being a real brother, his name is associated with Mahajan Industries Pvt. Ltd. as a director. He is only an ornamental director. He does not take part in any business, financial or managerial activities of the companies. He has no role to play whatsoever in the day-to-day conduct of their business affairs. His share capital is nominal and his nominal shareholding is continuing without any alteration or addition practically for the last three decades as follows :
Name of the company Total number of shares of the company Percentage shares held by Rajesh Mahajan and others Share held Rajesh Mahajan Pan Foods Ltd.
1243500 2.58 per cent.
32115 Mahajan Industries Pvt. Ltd.
50000 4.02 per cent.
2008It may be added that Shri Rajesh Mahajan does not derive any remuneration or salary from these companies as a director. He does not even draw any fees for attending the meetings of the board of directors.
If the contention of respondent No. 1 were to be taken to its logical end, then, the case of every shareholder and every director irrespective of whether he has any business connections or not, should be centralised with that of the company. If that were to be so, then the cases of all the directors and all the shareholders all over India should be centralised with all their respective companies. Not only that, all the companies wherever they may be registered in the country, will also have to be centralised at one place. Such a chaotic state is not envisaged under the provisions of Section 127 of the Act.
(c) That it is also stated by respondent No. 1 in his impugned order that Shri Rajesh Mahajan is also a trustee of Ramlal Mahajan Trust which is running a Mother and Child Health Centre at Defence Colony, New Delhi, and that he is also a signatory of various resolutions passed by the trust. It may be clarified here that Shri Ramlal was the name of the grand father of Rajesh Mahajan and Rakesh Mahajan. The charitable trust was set up more than thirty years ago. He being one of the members of the family, continues to be a trustee. The trust is run by Dr. Nalini Mahajan, wife of Rakesh Mahajan. Shri Rajesh Mahajan has no hand in the conduct of the affairs of the trust. Neither he, nor any one of his concerns, nor any one of the petitioners to this writ petition, ever entered into any financial or business transactions with the said trust. Therefore, the conclusion merely by virtue of petitioner No. 1 being a nominal trustee, that both the groups become connected for the purpose of co-ordinated inquiries and investigation is wholly illogical, unfair, unjust and arbitrary.
(d) That it is stated by respondent No. 1 that Shri Rajesh Mahajan and Rakesh Mahajan are having their offices at Mahajan House, E-1 and E-2/ South Extension, New Delhi, and that Shri Rajesh Mahajan was also present at Mahajan House on the date of the search. The fact of the matter is that the offices of Rajesh Mahajan and Rakesh Mahajan are located in entirely separate and independent premises on the first floor of Mahajan House and have nothing in common. The site map of both the offices is enclosed to demonstrate their independent location. So far as Rajesh Mahajan, petitioner No. 1 is concerned, the office of only one of the companies, namely Mahajan Overseas Private Limited, is located in those premises. So far as his main offices pertaining to his main business are concerned, they are all at Panipat. So far as Mahajan Overseas Private Limited is concerned, it is assessed at Delhi and there is no dispute with regard to its place of assessment or transfer. So far as the Rakesh Mahajan group is concerned, the offices of Mahajan Industries Private Ltd. and Pan Foods Pvt. Limited are located separately and independently in those premises and that there is nothing in common between the two offices. Their employees are separate, their establishment and office equipment are separate, even their reception and entrances are separate and independent of each other. Separate premises bear separate sign board/boards of the respective concerns. A site map of the offices of the concerns at the respective premises is enclosed and marked annexure P-6 to this writ petition.
It may be further clarified that Shri Rajesh Mahajan was present at the time of search in his premises and not in the premises of the other group. However, Shri Rakesh Mahajan was not present in his office premises at the time of the search because he was present at his residence during the course of search and seizure operations there.
(e) It is also alleged by respondent No. 1 that the seized papers of Mahajan Overseas Limited and Mahajan Exports are mingled with Mahajan Industries Pvt. Ltd. and Pan Foods Limited. This is factually, incorrect, rather entirely the other way round. The fact of the matter is that the seized documents were recovered separately from both the offices of the respective groups. However, owing to the pre-meditated notion which the search party carried with them from the Income-tax Department, a common panchnama was prepared in the name of Mahajan Industries Pvt. Ltd., Pan Food Limited and Mahajan Overseas Limited. But, even this common panchnama reveals the truth that the documents seized at the time of search are not intermingled at all. On the contrary, separate annexures were prepared for various documents recovered from the respective offices of the two groups. This can be demonstrated with the help of the following chart :
Annexure No. Group of which it relates C Rakesh group O
-do.-
X
-do.-
2-6 Rajesh group Even the loose papers for which a single annexure is prepared, the items relating to the companies of two groups are bundled separately, and are clearly indicated at separate serial numbers in annexure A as follows :
S. No. of annexure (seizure memo) Name of company to which the loose papers belong A Rajesh Mahajan (book bundles serial Nos. 1-9) Rakesh Mahajan (book bundles 10-39) Photo copy of the respective seizure memos of the office premises at Mahajan House, NDSE, Part-II, New Delhi, are enclosed marked as annexures P-7.1 to 7.9.
The fact that there is no intermingling is further established by supply of the photo copies of the seized documents to both the groups separately and independently on the basis of the seized memos as indicated in this paragraph.
Therefore, it is wholly incorrect and highly pretentious on the part of respondent No. 1 to allege that the seized documents are intermingled while the state of affairs is just to the contrary.
(f) It is further alleged that Rajesh Mahajan has inseparable relation with Pan Foods and Mahajan Industries Private Limited, the two companies belonging to the Rakesh Mahajan group. This statement is the farthest from the truth. Shri Rajesh Mahajan has absolutely nothing to do with Mahajan Industries Pvt. Ltd. or Pan Foods Limited, except holding minor equity and being an ornamental director without any financial or pecuniary involvement.
(g) It is also alleged that Shri Rajesh Mahajan was staying at B-81, Greater Kailash Part-I, New Delhi. It is not clear as to how does his staying at that place establishes any business connection. The fact of the matter is that this flat is owned by Mahajan Overseas Limited and Smt. Sangeeta Mahajan, wife of Rajesh Mahajan who is one of the directors of the company, is allotted this flat for her residence where the family stays off and on when they visit Delhi. It is wholly irrelevant to refer to this fact in the context of establishing any business connection between the two groups."
26. Para. 23 of the written statement :
"23(a) and (b). The order under Section 127 of the Income-tax Act has been passed after considering all the material facts of the case (see paras. 4 and 5 of the order). The petitioners in these paras, have mentioned about the questionnaire said to have been issued by the Investigation Wing on March 12, 2001. No comments can be offered, as there is nothing on the record of the answering respondent.
(c) Detailed discussion in this regard has been made in the order under Section 127 of the Income-tax Act passed on July 26, 2001.
(d) As far as the allegation regarding alleged premeditated notions of the search already mentioned in this petition is concerned, no comments can be offered, as none of the respondents were members of the search party and, therefore, the allegations do not merit any consideration by this court.
(e and f) This issue has been discussed in detail in the order under Section 127 of the Income-tax Act passed on July 26, 2001.
(g) Similarly, the connection of Sangeeta Mahajan, petitioner No. 2, wife of petitioner No. 1 is also one of the directors of the company. As admitted in this para she is staying in Delhi, whereas the inconvenience, as alleged does not arise in her case if her case of assessment is transferred to Delhi. Besides, the fact that she is one of the directors of the company, i.e., Mahajan Overseas Limited."
27. It is evident from the pleadings that the assertions made in the writ petition in connection with the reasons which weighed with the income-tax authorities to transfer income-tax assessment proceedings from Panipat to New Delhi have remained virtually uncontroverted. In order to afford a further opportunity to learned counsel for the respondents, the case was adjourned from time to time to enable him to justify the action on the basis of reasons indicated in the impugned order dated July 26, 2001. Having availed of the oppor tunity granted by this court, learned counsel for the respondents produced only a communication dated March 9, 2001, addressed by the Deputy Director of Income-tax (Investigation), New Delhi, to the Director of Income-tax (Investigation), New Delhi. Since the aforesaid communication has been relied upon on behalf of the respondents, it is necessary to reproduce the relevant extract thereof ;
"I strongly recommended that the cases mentioned in the said letter should also be centralised at Delhi for the following reasons :
(1) As per his own admission, Sh. Rajesh Mahajan is the director of Pan Foods Ltd., and Mahajan Industries (P.) Ltd. Being a functional director, it is unconceivable that Sh. Rajesh Mahajan has no role whatsoever in the day-today affairs, of running of these companies.
(2) Sh. Rajesh Mahajan is also one of the trustees of Ram Lal Mahajan Charitable Trust, which is running Mother and Child Hospital at D-59, Defence Colony, New Delhi. As per documents available with us, a huge amount of money has been siphoned off to Mahajan House from Mother and Child Hospital, repeatedly. Sh. Rajesh Mahajan being the trustee is also a collaborator in siphoning off the money from the hospital being run by the trust. Sh. Rajesh Mahajan and Sh. Rakesh Mahajan both are having their offices in Mahajan House, E-1 and 2, NDSE, Part-II, New Delhi. As per documents available, Sh. Rajesh Mahajan has been one of the signatories to the various resolutions passed by the trustees of Ram Lal Mahajan Charitable Trust. The seized paper of Mahajan Overseas Ltd. and Mahajan Exports are intermingled with Mahajan Industries (P.) Ltd. and Pan Foods Ltd.
(3) Mahajan Overseas Ltd. one of the companies being run by Sh. Rajesh Mahajan is providing not only the material support but also the clientele to Mahajan Exports as the main buyer of the product of Mahajan Exports is Mahajan Overseas Ltd., U. S. A. (4) In fact, all the business concerns, e.g., Mahajan Exports, Maspar, Goodwill Electronics and Engineering Co. (P.) Ltd., Anand Co. of Sh. Rajesh Mahajan are being run solely by him. Sh. Rajesh Mahajan has inseparable interest in Pan Foods Ltd. and Mahajan Industries (P.) Ltd.
(5) Some of the major concerns of Sh. Rajesh Mahajan, e.g., Mahajan Overseas Ltd. and Goodwill Electronics and Engineering Co. (P.) Ltd. are already being assessed at Delhi. Anand Co. has not filed any return till date and territorially its factory is situated in Delhi.
(6) Sh. Rajesh Mahajan and his family generally stay in Delhi at B-81, Greater Kailash, Part-I, New Delhi, and even on the date of search he was present in Mahajan House.
(7) It is emphasised that if at all it is decided that Sh. Rajesh Mahajan, his family members and the business concerns mentioned in the said letter are to remain at Panipat, this will be against the interest of centralised investigation and the Assessing Officer will have great difficulty in correlating the facts of the case.
Therefore, in a nutshell, the objection raised by Sh. Rajesh Mahajan against the centralisation of the case to Delhi should be rejected and the cases may be centralised in Delhi."
28. The communication extracted above is dated March 9, 2001. The impugned order was passed on July 26, 2001. It is, therefore, evident that the reasons contained in the letter dated March 9, 2001, which do not find mention in the impugned order dated July 26, 2001, must be deemed to have been excluded by a conscious application of mind. Reliance on the letter dated March 9, 2001, therefdre, does not at all further the claim of the respondents. Moreover, the letter dated March 9, 2001, does not show how any of the reasons recorded in the order dated July 26, 2001, are relevant for the transfer of income-tax assessment proceedings of the petitioners from Panipat to New Delhi. Realising the aforesaid predicament, learned counsel for the respondents took recourse to an easy way out by contending that it is not necessary for the income-tax authorities to decipher with precision the connection between the business or financial dealings of the family of Rajesh Mahajan (petitioner No. 1) and Rakesh Mahajan (brother of petitioner No. 1) and his family members, at the present juncture, and further that it is sufficient if the authorities at this stage can show that a reasonable and bona fide belief was entertained by the concerned/competent authority, that there are financial dealings between the family groups of Rajesh Mahajan and Rakesh Mahajan requiring a co-ordinated enquiry/investigation. After obtaining instructions, learned counsel for the respondents informed the court that the material seized during the course of the raid conducted on August 29, 2000, had not been scrutinised. It is indeed strange that despite the fact that the authorities were in possession of all the relevant files and documents seized on August 29, 2000, and despite the fact that this court restrained the income-tax authorities from passing any order to the prejudice to the petitioners as far as back on September 17, 2000, the respondents have failed to examine the seized record in their custody. In the absence of any record/material produced in the court, all the conclusions will necessarily have to be drawn only from the pleadings.
29. Transfer of income-tax assessment proceedings is a sensitive issue. It would not be proper for this court, therefore, to be swayed by impressions. It will be necessary to arrive at a concrete conclusion one way or the other. For this, it would be essential to examine whether the reasons indicated in the impugned order dated July 26, 2001, have any nexus to the ultimate decision arrived at by the authorities, i.e., to transfer income-tax assessment proceedings of the petitioners from Panipat to New Delhi. While examining the validity of reasons for the transfer of assessment proceedings, I shall first endeavour to deal with the, reasons indicated in para. 4 of the impugned order. Para. 4 of the impugned order has been extracted in para. 11 (page 585) hereinabove. My conclusions are as under :
(i) It is alleged that Rajesh Mahajan (petitioner No. 1) is one of the directors of Mahajan Industries Pvt. Ltd. and is also connected with Pan Foods Ltd. It was acknowledged by the petitioners in the objections filed by them on January 31, 2001, (in response to the notices for transfer of proceedings), that petitioner No. 1 is one of the directors of Mahajan Industries Pvt. Ltd. and also of Pan Foods Ltd., yet, it is contended that he had no hand whatsoever in the affairs of the aforesaid two concerns. It is specifically denied that he ever participated in any management, financial or administrative affairs of the said companies. In order to demonstrate lack of involvement, it was also alleged that the shareholding of petitioner No. 1 in the aforesaid two concerns was trivial. It was asserted that petitioner No. 1 did not draw any remuneration or salary on account of his being a director of the said companies, and further that he was also not paid any fee for attending board meetings. On the basis of the aforesaid facts, it was sought to be asserted that the connection of petitioner No. 1 with the aforesaid two companies (controlled by Rakesh Mahajan and his family members) was merely ornamental in nature. Despite the aforesaid facts having been pointed out in the objections, the authorities, passed the impugned order dated July 26, 2001. Now, again in para. 23(b) of the writ petition (extracted in para. 20 (page 594) above), the petitioners have reiterated the factual position indicated in the objections dated January 31, 2001. It has been expressly mentioned that petitioner No. 1 holds 2.58 per cent, shares in Pan Foods Ltd. and 4.02 per cent, shares in Mahajan Industries Pvt. Ltd. and that his holdings in the said companies have remained almost unaltered for the last three decades. It has again been reiterated that he (petitioner No. 1) has never taken part in business, financial or managerial activities of the aforesaid two companies. On the basis of the aforesaid facts, it is asserted by learned counsel representing the petitioners that the mere fact that petitioner No. 1 is a director of Mahajan Industries Pvt. Ltd or of Pan Foods Ltd. (not mentioned in the impugned order), cannot be a valid justification for transfer of assessment proceedings. The facts noticed in the objections dated January 31, 2001, and para. 23(b) of the writ petition, have not been disputed/denied in the written statement. The issue which arises for consideration, therefore, is whether income-tax assessment proceedings of an assessee can be transferred from one place to another merely on account of the fact that the assessee is a director of some company, which is subjected to assessment in a different city. If the aforesaid contention is taken to its logical end, the assessment proceedings of every individual (irrespective of his involvement in the affairs of a company, of which he is a director), can be transferred for the sake of centralisation to the place where the company (of which he is the director) is assessed. If that were so, in the case of an individual who is a director of more than one company, the assessment proceedings of all such companies, even if the companies operate in different States/cities, could be transferred to one place, along with the assessment proceedings of such an individual; all in the name of centralisation. The aforesaid action would obviously be absurd. Therefore, merely because a person is a director in a company, that cannot be sufficient justification for transfer of income-tax assessment proceedings. For transfer of proceedings it will have to be shown that in his capacity as a director, the assessee is also involved in financial dealings having a bearing on his own assessment of income-tax, or in the assessment of such company of which he is a director. In the instant case, petitioner No. 1 has emphatically insisted through the objections dated January 31, 2001 and again through averments made in para. 23(b) of the instant writ petition, that he has never taken part in any business, financial or managerial activities of the companies controlled by Rakesh Mahajan (brother of petitioner No. 1) and his family members. These facts have not been controverted. Despite the fact that in the raid conducted on August 29, 2000, the income-tax authorities seized all the files and papers of the business activities of Rajesh Mahajan (petitioner No. 1) and his family members and also those of Rakesh Mahajan (brother of petitioner No. 1) and his family members, yet the respondents have not been able to show any financial nexus between the two. In the background of the foregoing discussion, in my view, the mere fact that petitioner No. 1 is a director of one or more companies controlled by Rakesh Mahajan (brother of petitioner No. 1) cannot be a valid justification for transfer of income-tax assessment proceedings from one place to another, specially in the absence of material indicating involvement in financial dealings with the said companies.
(ii) Another reason given for the transfer of income-tax assessment proceedings from Panipat to New Delhi is that Rajesh Mahajan (petitioner No. 1) is also one of the trustees of Ram Lal Mahajan Charitable Trust, which is running Mother and Child Health Centre in New Delhi. In so far as the aforesaid reason is concerned, in the instant writ petition, in para. 23(c) (extracted in para. 20 (page 594 above), it has been asserted on behalf of petitioner No. 1 that he was nominated as a trustee in Ram Lal Mahajan Charitable Trust, merely on account of the fact that the trust was created by his grandfather. It is pointed out that the trust is actually being run by Dr. Nalini Mahajan wife of Rakesh Mahajan (brother of petitioner No. 1). It is further asserted that petitioner No. 1--Rajesh Mahajan has no hand in the conduct of the affairs of the trust. What is of significance, however, is that the petitioner has in unequivocal terms declared that neither they (petitioners Nos. 1 to 4) nor any of the concerns in which they have an interest (petitioners Nos. 5 to 7) have ever been involved in any financial or business transaction with the said trust. There is absolutely no denial to the aforesaid assertion in the written statement. In the absence of any response in the written statement or even during the course of arguments, (despite the fact that an opportunity was given to learned counsel for the respondents), it is natural to conclude that reference to Ram Lal Mahajan Charitable Trust, as one of the reasons indicated in the impugned order, is a mere ipse dixit at the hands of the authorities in order to satisfy the requirement of law. In the letter dated March 9, 2001 (extracted in para. 21 (page 599) above), it has expressly been noticed that "as per documents available with us, a huge amount of money has been siphoned off to Mahajan House from Mother and Child Hospital, repeatedly . . ." But the aforesaid assertion was surprisingly excluded from the reasons expressed in the impugned order. No such documents were relied upon either in the written statement or during the course of arguments. The only possible inference is that no such documents are available with the respondents. Thus viewed even the instant reason is irrelevant to the decision to transfer assessment proceedings from Panipat to New Delhi.
(iii) It is also asserted in the impugned order that Rajesh Mahajan (petitioner No. 1) and Rakesh Mahajan (brother of petitioner No. 1) have their business offices in the same building, i.e., Mahajan House, E-1 and E-2, South Extension, Part-II, New Delhi. While conceding the aforesaid factual position, in the objections filed by the petitioners on January 31, 2001, it was pointed out that all the offices in the aforesaid building were separate and independent of each other and had no interconnection. In addition to the facts indicated in the objections in para. 23(d) of the writ petition (extracted in para. 20 (page 594 above), it has been asserted that the offices of Rajesh Mahajan (petitioner No. 1) and Rakesh Mahajan (brother of petitioner No. 1) are located in "entirely separate and independent premises". To further authenticate the aforesaid factual position, the petitioners have appended a site plan as annex-ure P-6 with the writ petition. This has been done in order to demonstrate that the offices of Rajesh Mahajan (petitioner No. 1) and Rakesh Mahajan (brother of petitioner No. 1) were located separately, and further to establish that, the different business concerns of Rakesh Mahajan (brother of petitioner No. 1), were also located separately from one another. So far as the instant assertion made by the petitioners are concerned, they could have easily been repudiated, if files and papers of various offices alleged to be located in the building under reference were found at locations other than those depicted in the site plan annexure P-6, during the search and seizure operations. Unfortunately, the respondents have not made any such assertion in their written statement. It is, however, significant to note that it has been alleged in response to the averments made in para. 23(d) of the writ petition that none of the respondents were members of the search party. It seems that the aforesaid excuse has been tendered in order to avoid a categoric response to the assertions made in para. 23(d) of the writ petition. The aforesaid excuse, in my opinion, is wholly unjustified : those involved in the search and seizure operations are certainly officers/officials of the Income-tax Department itself, and all of them would, in all probability, be subordinates of the respondents themselves. Had there been a desire to obtain information to respond to the averments made in para. 23(d), there would have been no difficulty in view of the categoric and definite assertions made on behalf of the petitioners in their objections dated January 31, 2001, and in para. 23(d) of the writ petition which have not been . denied by the respondents, I am of the opinion, that the reason under consideration, has been recorded in the impugned order dated July 26, 2001, without any justification whatsoever.
(iv) Another reason indicated in the impugned order dated July 26, 2001, for the transfer of income-tax assessment proceedings is, that during search and seizure operations papers of Mahajan Overseas Limited and Mahajan Exports were found intermingled with the papers of Mahajan Industries Pvt. Ltd. and those of Pan Foods Ltd. As against the aforesaid, the case made out on behalf of the petitioners in para. 23(e) of the writ petition (extracted in para. 20 (page 594) above), is that all the seized documents were recovered separately from the offices of each of the concerns. Additionally, it is mentioned that separate annexures were prepared for various documents recovered from the respective concerns of the two groups. It is alleged that even loose papers for which a single annexure was prepared were kept in separate bundles ; and that bundles were maintained separately for the business concerns of Rajesh Mahajan (petitioner No. 1) and his family members on the one hand, and Rakesh Mahajan (brother of petitioner No. 1) and his family members on the other hand. In order to establish the aforesaid fact, it is asserted that the photocopies of the seized documents were supplied to both groups separately and independently on the basis of memos prepared during the search and seizure operations. In the written statement filed on behalf of the respondents to the averments made in para. 23(e), there is absolutely no response to the assertions made in para. 23(e) of the writ petition. The authorities in response to the averments made in para. 23(e) of the writ petition have been satisfied by merely making a reference to the impugned order dated July 26, 2001. Reference to the impugned order dated July 26, 2001, unfortunately takes us nowhere. Every assertion of fact in a petition, if not denied specifically or by necessary implication, or stated to be not admitted in the written statement, must be taken to be admitted. In the absence of express denial in the written statement, coupled with the absence of any reasons in the impugned order dated July 26, 2001, once again, the conclusion has to be the same, namely, that the instant reason cannot be considered as a valid justification for the transfer of income-tax assessment proceedings of the petitioners from Panipat to New Delhi.
(v) It is alleged in the impugned order dated July 26, 2001, that Rajesh Mahajan (petitioner No. 1) has inseparable interests in Pan Foods Ltd. and Mahajan Industries Pvt. Ltd. It is pointed out that assessment proceedings of the aforesaid two companies have already been centralised, and as Rajesh Mahajan (petitioner No. 1) is associated with the aforesaid concerns ; his assessment should also be conducted by the same officers. In response to the aforesaid reason expressed in the impugned order, it is contended that Rajesh Mahajan (petitioner No. 1) is only an ornamental director, without any financial and pecuniary involvement, in the companies referred to above. Despite the fact that the petitioners have conceded that petitioner No. 1 has minor equity holding in the two companies, it is submitted that merely because an individual is a shareholder in a company, that would not be sufficient justification for transfer of income-tax assessment proceedings, in the absence of the shareholder's involvement in any business or financial or managerial activities. An allied aspect has already been dealt with at serial No. (i) above, wherein I have examined whether on account of holding the position of a director in a company, by itself, i.e., in the absence of involvement in managerial, financial and administrative matters, it is justified to transfer income-tax assessment proceedings of such director to the place where the company (of which he is a director) is assessed. So far as the instant reason is concerned, it is based on shareholdings of petitioner No. 1 and his family members in the concerns controlled by Rakesh Mahajan (brother of petitioner No. 1) and his family members. For the parity of reasons indicated therein (at serial No. (i) above) specially in the absence of any denial of the assertions made in para. 23(f), my conclusion is the same as at serial No. (i) above.
(vi) Yet another reason has been given in para. 4 of the impugned order dated July 26, 2001, for the transfer of income-tax assessment proceedings, i.e., that Rajesh Mahajan and his family members also reside at B-81, Greater Kai-lash, Part-I, New Delhi. In so far as the aforesaid reason is concerned, in para. 23(g) of the writ petition (extracted in para. 20 (page 594) above), it has been asserted that the petitioners are not in a position to understand how/why their residence at B-81, Greater Kailash, Part-I, New Delhi, has been considered as a justification for transfer of income-tax assessment proceedings. It is conceded by the petitioners that the flat in question is owned by Mahajan Overseas Limited and Sangeeta Mahajan (petitioner No. 2 and wife of petitioner No. 1), being one of the directors of the said company, has been allotted the said flat for her residence. It is emphasised in para. 23(g) of the writ petition, that the instant fact is wholly irrelevant to establish involvement of the petitioners with the business activities of Rakesh Mahajan (brother of petitioner No. 1) and his family members. There is again no effective response to the averments made in para. 23(g) of the writ petition. No explanation has been tendered even in the written statement, to show how the aforesaid residential accommodation is a relevant consideration. The instant reason expressed in the impugned order has not been shown to be relevant even during the course of arguments. The conclusion again is bound to be the same as has been drawn in respect of the reasons dealt with hereinabove.
30. From the conclusions drawn above, it is clear that the reasons recorded in para. 4 of the impugned order dated July 26, 2001, are wholly irrelevant to the transfer of the assessment proceedings of the petitioners from Fanipat to New Delhi.
31. Although learned counsel for the respondents had principally and primarily placed reliance on para. 4 of the order dated July 26, 2001, to highlight the reasons which had weighed with the respondents for the transfer of assessment proceedings of the petitioners from Panipat to New Delhi, he had also referred to the contents of para. 5 thereof, to stress that the reasons expressed in para. 4 of the impugned order are legally justified (in terms of judgments referred to in para. 5 of the impugned order). In so far as the assertions made in para. 5 of the impugned order are concerned, the same are clearly untenable in view of the categoric conclusion drawn in the preceding paragraph, that the reasons recorded in para. 4 of the impugned order have no relevance or nexus with the decision to transfer income-tax assessment proceedings, of the petitioners, from Panipat to New Delhi. Reliance had also been placed on the contents of para. 6 of the impugned order dated July 26, 2001, in order to justify the action of transfer of proceedings. As already noticed above, it was vehemently contended by learned counsel for the respondents that at the present juncture, it is not necessary for the income-tax authorities to decipher with precision, the connection between the business/financial activities of the families of Rajesh Mahajan (petitioner No. 1) and Rakesh Mahajan (brother of petition No. 1). In this behalf it was asserted that, at this stage it is sufficient if the respondents can show that the authorities entertain a bona fide belief that there is a financial nexus between the family groups of Rajesh Mahajan and Rakesh Mahajan. The aforesaid argument seems to be based on the contents of para. 6 of the impugned order, wherein it is stated that the actual connection between the two groups will be ascertained only when their cases are investigated by the officer assessing both groups. Can it be inferred from the contents of para. 5 of the impugned order that the concerned/competent authority at the time of passing the impugned order did not have any material to link the two family groups in so far as their financial dealings are concerned ? I am afraid, the answer can only be in the affirmative. The impugned order seems to suggest that a bona fide suspicion of financial dealings between the two assessees would be sufficient to transfer income-tax assessment proceedings under Section 127 of the Act. Suspicion despite being bona fide can under no circumstances be a valid justification for transfer of proceedings. Material showing financial nexus, however trivial, can only be a valid basis for transfer of income-tax assessment proceedings. Unfortunately not a single document showing any financial dealings between the two family groups referred to above has been referred to either in the impugned order, or even during the course of hearing, despite the liberty granted by this court. An order based on unconfirmed or uncorroborated belief of suspicion, even though the suspicion rests on the high pedestal of bona fides cannot stand the scrutiny of law.
32. In addition to the factual position dealt with while examining the reasons recorded in the impugned order dated July 26, 2001, learned counsel for the petitioners vehemently contended that the action of the concerned/competent authority flows from a total non-application of mind. In this behalf, he has brought to the notice of the court some uncontroverted facts, namely, that the activities of the partnership firms over which petitioners Nos. 1 to 4 have control (depicted in para. 2 above) and the activities of the business ventures controlled by Rakesh Mahajan (brother of petitioner No. 1) and his family members (detailed in para. 4 above) clearly reveal that the trading activities of petitioners Nos. 1 to 4 are totally separate and distinct from the business activities of Rakesh Mahajan (brother of petitioner No. 1) and his family members. Additionally, it is pointed out that petitioners Nos. 1 to 4 reside at Pani-pat; that their business activities are primarily located at Panipat (except for a small sales office of Mahajan Exports Ltd. which admittedly is located at New Delhi) and that their books of account are also kept and maintained at Panipat. On the other hand, Rakesh Mahajan (brother of petitioner No. 1) and his family members reside at New Delhi. The head offices of the companies which Rakesh Mahajan and his family members control, are located at New Delhi and as such, it is obvious that their books of account are also kept and maintained at New Delhi. Learned counsel re-emphasised the fact that search and seizure operations were conducted under Section 132 of the Act on the business and residential premises of both the family groups. Despite the fact that the authorities have been in possession of the entire records since August 29, 2000, no material could be placed on the records of this case to show any financial nexus between the two family groups. There is no denial of the factual position noticed in the instant paragraph. All the facts noticed above were duly highlighted in the objections filed by the petitioners. None of these facts has been dealt with while rejecting the objections of the petitioners. Other facts relevant to the impugned order have been noticed in the foregoing paragraphs while dealing with the validity/nexus of the reasons recorded in the impugned order dated July 26, 2001, these were also not taken into consideration while passing the final order. The facts and circumstances of the present case reveal that the competent authority just brushed aside the objections raised by the petitioners by recording that the "..... submissions made by the assessee carry no weight, hence the same are rejected . . ." It is, therefore, that this court had to perform the obligation, which was required to be discharged by the authority envisaged under Section 127(1) of the Act to determine whether or not there was justification in the objections raised by the petitioners. Since the competent authority did not deal with the objections raised by the petitioners while contesting the contemplated action notified in the show-cause notice, it is inevitable to conclude that the reasons recorded in the show-cause notice are not in conformity with the letter and spirit of the mandate of Section 127(1) of the Act delineated in para. 13 (page 587 above).
33. My conclusions in so far as the legal issues involved in this case can be summarised as under :
Firstly, it is essential, that the show-cause notice issued under Section 127 of the Act, discloses to the assessee the reasons/basis of the contemplated action in terms of the mandate of the rules of natural justice. Exceptions to this essential ingredient would be the same as the exceptions to the rules of natural justice.
Secondly, an assessee has the right to file objections on the receipt of a show-cause notice issued under Section 127 of the Act. In the absence of such liberty, the assessee cannot be stated to have been afforded a "reasonable opportunity" as is contemplated by the aforesaid provision.
Thirdly, the reasons recorded in the final order passed under Section 127 of the Act (by which the concerned/competent authority decides to execute the proposed action contemplated in the show-cause notice), must not only take into consideration the objections raised by the assessee, but the reasons recorded in the order must also have a direct nexus/bearing to the object sought to be achieved.
Fourthly, belief/suspicion even though bona fide cannot be sufficient justification for taking recourse to any of the actions contemplated under Section 127 of the Act. For a valid order under Section 127 of the Act, the reasons expressed must disclose an actual financial nexus justifying the action.
34. My conclusions on the controversy in hand, are as under :
Firstly, although, the show-cause notice issued to the petitioners under Section 127 of the Act did not disclose the reason for transfer of assessment proceedings of the petitioners from Panipat to New Delhi and were, therefore, liable to be set aside, however, since the petitioners had filed objections (through their communication dated January 31, 2001), they must be deemed to have waived their right of being informed of the reasons for the contemplated action. Moreover, since the petitioners did not suffer any prejudice in this case, the non-communication of reasons was not considered sufficient justification, calling for interference at the hands of this court.
Secondly, the impugned order dated July 26, 2001, clearly violates the legislative mandate of Section 127(1) of the Act, inasmuch as, it does not deal with the objections (dated January 31, 2001, submitted along with the covering letter dated July 19, 2001) raised by the petitioners in response to the show-cause notices (dated July 12, 2001) and, as such, it has to be concluded that the impugned order has been passed without due application of mind and is, therefore, clearly unsustainable in law.
Thirdly, the reasons recorded in the impugned order dated July 26, 2001, have been found to have no nexus with the object sought to be achieved, namely, that they are irrelevant to the transfer of income-tax assessment proceedings of the petitioners from Panipat to New Delhi. The impugned order is thus liable to be set aside on this count as well.
35. In view of the conclusions recorded above, the instant petition is allowed. The impugned order dated July 26, 2001, is set aside.
36. There shall however be no order as to costs.