Allahabad High Court
Trimurti Fragrances P. Ltd. vs Commissioner Of Income-Tax And Anr. on 23 February, 2006
Equivalent citations: (2006)203CTR(ALL)470, [2006]283ITR547(ALL)
Bench: A.K. Yog, Prakash Krishna
JUDGMENT
1. Heard Shri Ravi Kant, senior advocate, and Shri R.S. Agrawal, advocate, on behalf of the petitioner, and Shri Shambhu Chopra, advocate, and D. Awasthi, advocate for the respondents.
2. For convenience, we may note the salient facts of the case in order to appreciate the dispute between the parties and the legal issues to be decided by this Court. M/s. Trimurti Fragrances P. Ltd. (called "the petitioner"), is the firm operating from Kanpur, and assessed at Kanpur and engaged in manufacturing and selling tobacco production, popularly known as gutkha under brand name of "Shikhar Gutkha". There are other firms and individuals who are also dealing with the said brand-product and operating from Kanpur. Pradeep Kurnar Agrawal, who is one of the partners of M/s. Vijay Kumar Pradeep Kumar (petitioner of Writ Petition No. 756 of 2005) admittedly has its factory/office and residence at Delhi. The said Pradeep Kumar is also a director in M/s. Trimurti Fragrances P. Limited, the petitioner in the present case.
3. A search and seizure operation under Section 132(1), Income-tax Act (for short "the Act"), was conducted both at Kanpur and Delhi on July 2, 2003, at the sites belonging to the petitioners of the group of writ petitions, (viz., (1) W. P. No. 755/2005 : Virendra Kumar Jain v. CIT; W. P. No. 756 of 2005 Vijay Kumar Pradeep Kumar v. CIT [2006] 283 ITR 541 (All); (2) W. P. No. 55 of 2006 R.K. Agarwal v. CIT; W. P. No. 56 of 2005; N.K. Agarwal v. CIT and W. P. No. 57 of 2006; Y.K. Agarwal v. CIT ). The admitted facts on record have been noted by us in our judgment dated February 16, 2006 in Civil Miscellaneous Writ Petition No. 428 of 2004; Vijaykumar Gauri Shankar v. CIT [2006] 283 ITR 524 (All) and Civil Miscellaneous Writ Petition No. 1808 of 2004 : Sanjay Kapoor v. CIT. The aforesaid Pradeep Kumar Agrawal and others owning and managing the business of the petitioners are closely related to each other, there are inter se transactions and even handsome cash in crores was recovered from the premises of Pradeep Kumar Agrawal, which according to him belonged to his father, Murlidhar Agrawal.
4. The Commissioner of Income-tax II, Kanpur issued notice under Section 127(2)(a) of the Act dated February 16, 2004 (annexure I to the writ petition) addressed to the petitioner, the relevant extract of which reads :
A search and seizure operation under Section 132(1) of the Income-tax Act was conducted in M/s. Shikhar Gutka group of cases on July 2, 2003.
In connection with the centralisation of your case from the Additional Commissioner of Income-tax, Range-6, Kanpur, to the Additional Commissioner of Income-tax-Central Circle-9, New Delhi, under the Additional Commissioner of Income-tax, Central Range-4, New Delhi, you are requested to attend before the learned Commissioner of Income-tax-II, Kanpur, along with your explanation, if any, on February 20, 2004 at 11.30 a.m.
5. The director of the petitioner-company, Pradeep Kumar, submitted his reply dated February 20, 2004, stating that seizure and search operation, conducted at business offices/factories and residences situate in Kanpur and Delhi belonged to his brother and nephew (both living at Kanpur) and himself (Pradeep Kumar); that he had also established a factory at Delhi, that he had shifted temporarily to Delhi with the head office at Kanpur, that all of them were assessed at Kanpur ; that their income-tax counsel was at Kanpur, that it was not practically feasible to shift the staff and attend day to day proceedings of the Department at Delhi. In the said reply, details of 17 assessees were given including the names of the petitioner of this writ petition and group of writ petitions (details earlier).
6. The Commissioner of Income-tax-II, Kanpur, by means of the impugned order dated February 22, 2005/annexure 3 to the writ petition transferred the case of the petitioner from the Assessing Officer at Kanpur to the Assessing Officer, New Delhi; the relevant portion of which reads :
In exercise of the power conferred by Sub-section (2) of Section 127 of the Income-tax Act, 1961, and all other powers enabling me in this behalf, I, the Commissioner of Income-tax-II, Kanpur, hereby transfer the case, particulars of which are mentioned in columns (1) to (4) of the Schedule appended below, for coordinated investigation (other cases of this group already centralised by the learned Commissioner of Income-tax-I, Kanpur, with the Deputy Commissioner of Income-tax, Central Circle-9, New Delhi, vide his order dated January 23, 2004) from the Assessing Officer mentioned in column (5) to the Assessing Officer mentioned in column (6) thereof.
7. Being aggrieved, M/s. Trimurti Fragrances P. Ltd. has filed the above petition contending, inter alia, amongst others, that the petitioner company has no concern with the firm known as "Vijai Kumar Gauri Shankar" except that its director, Pradeep Kumar Agrawal also happens to be a partner of the firm "M/s. Vijay Kumar Gauri Shankar" ; that the petitioner company had opened a section of it in Delhi with a view to promote sales in North India even though the entire sales and other activities of the company were finalised at Kanpur; that notice dated February 16, 2004/ annexure 1 to the petition was a blank notice as it spells out no reasons necessitating transfer of the cases in question, the petitioner has however submitted his reply dated February 20, 2004/annexure 2 to the petition and that the Commissioner of Income-tax has passed the impugned order of transfer dated February 22, 2005, which is a "laconic non-speaking order" wherein no reasons have been indicated which impelled the authority to exercise power under Section 127(2) of the Act and consequently the petitioner was in the dark as to why the cases have been transferred from Kanpur to Delhi. It is contended that before passing the impugned order the Commissioner of Income-tax was under an obligation to afford reasonable opportunity of hearing and to record reasons for his decision to transfer the cases from Kanpur to Delhi.
8. On the contrary the respondents have appeared in defence by filing counter affidavit (sworn by Parmatma Prasad Jaiswal--the then Income-tax Inspector in the office of the Commissioner of Income-tax-II, Kanpur); paras. 12,14,17,18, 20, 24 and 30 of the counter affidavit are relevant. The respondent department has endeavoured to demonstrate that Pradeep Kumar Agrawal (one of the partners in the firm M/s. Vijay Kumar Gauri Shankar) is the director of the company, M/s. Trimurti Fragrances P. Limited; the director/partner of the assessees in question (Shikhar Gutkha Group) are closely related to each other, Pradeep Kumar Agrawal has his business establishment and also resides at Delhi; search and seizure operation in the premises of M/s. Shikhar Gutkha group took place on July 12, 2003, due. Notice is given before passing the impugned order which clearly indicates that said action was taken to centralise the cases since all the assessees had cross transactions and were closely related with each other : centralisation of cases was proposed as that of expediency in order to conduct proper enquiry in an efficacious manner ; the Commissioner of Income-tax-I, Kanpur, had already centralised six cases (i.e., with case of M/s. Vijai Kumar Gauri Shanker, Murlidhar Agrawal, Pradeep Kumar Agrawal, Prashant Agrawal and Sanjay Kapoor dealt with by the Assistant Commissioner, Income-tax, New Delhi), and the case of the petitioner/ M/s. Trimurti Fragrances P. Limited also needed to be centralised with the said assessing authority at Delhi for co-ordinated investigation. In the last, vide para. 24 of the counter affidavit it is pleaded that Shri Ganesh Chaudhary, FCA, attended the hearing on February 20, 2004, who filed written submissions before the Commissioner of Income-tax-11, Kanpur, and hence proper opportunity of hearing was afforded to the assessee.
9. A rejoinder affidavit has also been filed reiterating the facts already mentioned in the petition and contended that Ganesh Chaudhary, FCA, was not in the full knowledge of facts of the case hence reasonable opportunity was not afforded (see paras. 10 and 19 of the rejoinder affidavit sworn by Anil Kumar Kyal).
10. The salient features of the aforementioned cases are that the partners, directors and individuals whose cases are the subject matter of assessment are closely related or otherwise having close business relation indulging in commercial transaction having cross entries. It is also not disputed that one of them, Pradeep Kumar Agrawal admittedly has his factory and residence at Delhi.
11. Shri Ravi Kant, senior advocate, referred to the impugned order dated February 22, 2005, and submitted that it contains no reasons as required under Section 127(2) of the Act. In support of it emphasis is being laid on the fact that the object and reasons are altogether different things. According to the petitioner the expression co-ordinated investigation amounts to disclosing the "object" and not the "reasons". The other submission is that the convenience of the assessee is not only a relevant consideration but also deserves to be given due weight.
12. In support of the aforesaid contention he referred to the case of Pannalal Binjraj v. Union of India :
28. Nevertheless this power which is given to the Commissioner of Income-tax and the Central Board of Revenue has to be exercised in a manner which is not discriminatory. No rules or directions having been laid down in regard to the exercise of that power in particular cases, the appropriate authority has to determine what are the proper cases in which such power should be exercised having regard to the object of the Act and the ends to be achieved. The cases of the assessees which come for assessment before the income-tax authorities are of various types and no one case is similar to another. There are complications introduced by the very nature of the business which is carried on by the assessees and there may be, in particular cases, such widespread activities and large ramifications or interrelated transactions as might require for the convenient and efficient assessment of income-tax the transfer of such cases from one Income-tax Officer to another. In such cases the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, has to exercise its discretion with regard to the exigencies of tax collection. Even though there may be a common attribute between the assessee whose case is thus transferred and the assessees who continue to be assessed by the Income-tax Officer of the area within which they reside or carry on business, the other attributes would not be common. One assessee may have such wide-spread activities and ramifications as would require his case to be transferred from the Income-tax Officer of the particular area to an Income-tax Officer of another area in the same State or in another State, which may be called 'X'. Another assessee, though belonging to a similar category may be more conveniently and efficiently assessed in another area whether situated within the State or without it called 'Y'. The considerations which will weigh with the Commissioner of Income-tax or the Central Board of Revenue in transferring the cases of such asses-sees either to the area 'X' or the area 'Y' will depend upon the particular circumstances of each case and no hard and fast rule can be laid down for determining whether the particular case should be transferred at all or to an Income-tax Officer of a particular area. Such discretion would necessarily have to be vested in the authority concerned and merely because the case of a particular assessee is transferred from the Income-tax Officer of an area within which he resides or carries on business to another Income-tax Officer whether within or without the State will not by itself be sufficient to characterize the exercise of the discretion as discriminatory. Even if there is a possibility of discriminatory treatment of persons falling within the same group or category, such possibility cannot necessarily invalidate the piece of legislation.
29. It may also be remembered that this power is vested not in minor officials but in top-ranking authorities like the Commissioner of Income-tax and the Central Board of Revenue who act on the information supplied to them by the Income-tax Officers concerned. This power is discretionary and not necessarily discriminatory and abuse of power cannot be easily assumed where the discretion is vested in such high officials, (vide Matajog Dobey v. H.C. Bhari . There is moreover a presumption that public officials will discharge their duties honestly and in accordance with the rules of law. (vide People of the State of New York v. John E. Van De. Carr [1905] 199 US 552 : 50 L. Ed. 305). It has also been observed by this Court in A. Thangal Kunju Musaliar v. M. Venkatachalam Potti with reference to the possibility of discrimination between assessees in the matter of the reference of their cases to the Income-tax Investigation Commission that 'It is to be presumed, unless the contrary were shown, that the administration of a particular law would be done "not with an evil eye and unequal hand" and the selection made by the Government of the cases of persons to be referred for investigation by the Commission would not be discriminatory'.
13. The aspect of inconvenience is also dealt with by the apex court in the case of Pannalal Binjraj . Relevant paras. 32 and 33 on the aspect are reproduced at page 587 :
This argument of inconvenience, however, is not conclusive. There is no fundamental right in an assessee to be assessed in a particular area or locality. Even considered in the context of Section 64(1) and (2) of the Act this right which is conferred upon the asses-see to be assessed in a particular area or locality is not an absolute right but is subject to the exigencies of tax collection. The difference, if any, created in the position of the assessee qua others who continue to be assessed by the Income-tax Officer of the area in which they reside or carry on business is not a material difference but a minor deviation from the general standard and would, therefore, not amount to the denial of equal rights : (per Mukherjea, J., as he then was, in State of West Bengal v. Anwar All Sarkar [1952] SCR 284 at page 325. There is also the further fact to be borne in mind that this inconvenience to the assessee is sought to be minimised by the authority concerned transferring the case of such assessee to the Income-tax Officer who is nearest to the area where it would be convenient for the assessee to attend and if, on account of administrative exigencies this is not possible and the assessee requests that the examination of accounts or evidence to be taken should be in a place convenient to him, by the Income-tax Officer complying with the request of the assessee and holding the hearing at the place requested. We are bound to take this statement contained in para. 5 of the affidavit of Shri V. Gouri Shankar at its face value and if this is done as it should be, the assessee will not be put to any inconvenience or harassment and the proper balance between the rights of the subject and public interest will be preserved.
33. It is, therefore, clear that the power which is vested in the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, under Section 5(7A) of the Act is not a naked and arbitrary power unfettered, unguided or uncontrolled so as to enable the authority to pick and choose one assessee out of those similarly circumstanced thus subjecting him to discriminatory treatment as compared with others who fall within the same category. The power is guided and controlled by the purpose which is to be achieved by the Act itself, viz., the charge of income-tax, the assessment and collection thereof, and is to be exercised for the more convenient and efficient collection of the tax. A wide discretion is given to the authorities concerned, for the achievement of that purpose, in the matter of the transfer of the cases of the assessees from one Income-tax Officer to another and it cannot be urged that such power which is vested in the authorities is discriminatory in its nature.
14. In para. 36 of the aforesaid judgment in Pannalal Binjraj , the Supreme Court has considered the aspect of observance of principle of natural justice which is not the issue of dispute in the facts of the instant case since the assessee was given a just and reasonable opportunity of placing his defence, place his view point to the objections against the proposed transfer before the cases in question were sought to be transferred. It is to be noted that the said judgment of Pannalal Einjraj , under the Indian Income-tax Act, 1922, i.e., before the commencement of the Income-tax Act, 1961. After enforcement of the Act, 1961, the language of the relevant Section 127 stood amended and noted by the court in its subsequent decisions which shall be referred to later.
15. In the reported case of Peacock Chemicals P. Ltd. v. CIT the court observed : It was proper that there should be co-ordination in investigation into the affairs of the various groups which may have a bearing on the income-tax proceedings.
16. The expression "co-ordinate" indicates that there is a need for interlinking various aspects of a group in order to facilitate and render proper income-tax assessment. The expression, by no stretch can be said to be vague in the matter of connected business groups or families. It is often convenient to centralise their cases because often these have a bearing on one another.
17. Their Lordships followed the decision of another Division Bench in the case of Bhatia Minerals v. CIT wherein it is held that (page 593) "proper and co-ordinated investigation is a good ground for transfer under Section 127 of the Income-tax Act, 1961."
18. In view of it, the order of transfer consolidating the cases cannot be said to be unreasonable or arbitrary. In the case of Bhatia Minerals this Court categorically referred to the decisions of the Andhra Pradesh High Court reported in Vijayasanthi Investments P. Ltd. v. Chief CIT and Saptagiri Enterprises v. CIT another view taken by the Madhya Pradesh High Court in the case of Sagarmal Spinning and Weaving Mills Ltd. v. CBDT [1972] 83 ITR 130.
19. Thus by taking a contrary view in the case of Maheshwari Lime Works v. CIT . It is also the court also noted that the Delhi High Court (sic) had also taken a view in consonance with the view taken by the Allahabad High Court in the case of Peacock Chemicals P. Ltd. .
20. Reference may also be made to the Division Bench of this Court in the case of Mahesh Chand Vishan Swarup v. CIT , wherein this Court observed (page 180) "We must emphasise that the ground of transfer is ensuring of proper and co-ordinated investigation. That ground was clearly stated in the show-cause notice" and on that basis dismissed the writ petition filed by the assessee.
21. Learned Counsel on behalf of the petitioners, attempted to support their case by referring to the apex court judgment in the case of Canara Bank v. Debasis Das , wherein the hon'ble Supreme Court has reiterated the accepted basic principle of adherence to the principles of natural justice, which says that (page 570)" ... no one should be condemned unheard. Notice is the first limb of this principle. It must be precise and unambiguous. It should apprise the party determinatively of the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the case before any adverse order is passed against him. This is one of the most important principles of natural justice. It is after all an approved rule of fair play. The concept has gained significance and shades with time. When the historic document was made at Runnymede in 1215, the first statutory recognition of this principle found its way into the 'Magna Carta'. The classic exposition of Sir Edward Coke of natural justice requires to 'vocate, interrogate and adjudicate'. In the celebrated case of Cooper v. Wandsworth District Board of Works [1863] 143 ER 414 the principle was thus stated (ER page 420) :
Even God himself did not pass sentence upon Adam before he was called upon to make his defence. "Adam" (says God), "where art thou ? Hast thou not eaten of the tree whereof, I commanded thee that thou shouldest not eat ?".
22. Again in paras. 16, 19 and 23 of the said reported judgment, the apex court observed :
Para. 16 : "Principles of natural justice are those rules which have been laid down by the courts as being the minimum protection of the rights of the individual against the arbitrary procedure that may be adopted by a judicial, quasi-judicial and administrative authority while making an order affecting those rights. These rules are intended to prevent such authority from doing injustice." (page 571) Para. 19 : "Concept of natural justice has undergone a great deal of change in recent years. Rules of natural justice are not rules embodied always expressly in a statute or in rules framed thereunder. They may be implied from the nature of the duty to be performed under a statute. What particular rule of natural justice should be implied and what its context should be in a given case must depend to a great extent on the fact and circumstances . . . (page 572) Para. 23 : "As was observed by this Court we need not go into 'useless formality theory' in detail; in view of the fact that no prejudice has been shown. As is rightly pointed out by learned Counsel for the appellants, unless failure of justice is occasioned or that it would not be in public interest to dismiss a petition on the fact situation of a case, this Court may refuse to exercise the said jurisdiction (see Gadde Venkateswara Rao v. Govt. of A.P. ). It is to be noted that legal formulations cannot be divorced from the fact situation of the case. Personal hearing was granted by the appellate authority, though not statutorily prescribed. In a given case post-decisional hearing can obliterate the procedural deficiency of a pre-decisional hearing (see Charan Lal Sahu v. Union of India .
23. In the instant case admittedly notice was given. The petitioner had submitted his reply taking the plea of inconvenience in particular and thereafter, the impugned order dated February 22, 2005/annexure 3 to the writ petition has been passed wherein the concerned authority has specifically noted "for co-ordinated investigation". We find nothing wrong with the said order inasmuch as the petitioner had reasonable opportunity to place his case. Moreover, the petitioner has not been able to show any particular prejudice caused by transfer of the case in view of the attending facts and circumstances of the instant matter, wherein assessment is to take place with respect to a group of persons, common family members, business concerns having close interaction, and above all one of them resides at Delhi ; one of the directors/partners himself, admits that heavy "cash amount" was recovered from his premises at Delhi belongs to his father at Kanpur and that out of 26 cases of the same group in question, 16 cases were assessed at Delhi.
24. In the instant case, this Court takes notice of the fact that otherwise also the distance between Kanpur and Delhi can be covered within a few hours and that the persons involved are already having their business transactions and activities between Kanpur and Delhi. The inconvenience projected by the assessee in question cannot be said to be of that magnitude which could prevail over other relevant considerations.
25. In view of the above, we find that there has been sufficient compliance with principles of natural justice and the impugned order of transfer cannot be said to be arbitrary or devoid of any rationale or in any way based on irrelevant considerations. It is to be noted that there is no case of the petitioner that the impugned order of transfer suffers from bias or mala fides.
26. In that view of the matter, the impugned order of transfer dated February 22, 2005/annexure 3 to the writ petition does not suffer from any manifest error, apparent on the face of record, warranting the interference of this Court under Article 226 of the Constitution of India.
27. In view of the above, we find no substance in the contention raised by the petitioners in the writ petition. The impugned order of transfer under Section 127, suffers from no manifest error warranting interference by this Court, therefore, the writ petition stands dismissed. We make no order as to costs.
28. In the end Sri Bharat Ji Agrawal, senior advocate, raised apprehensions that limitation will be expiring on March 31, 2006. However, we find no basis for the same since there have been specific orders staying assessment proceedings and for the said period the statute provides for regulation of the period, which has been spent when the matter has been pending and stayed in the High Court. However, we clarify that the time taken from the date till the decision of the aforesaid writ petition be excluded for the purpose of calculating limitation.