M/S.ZODIAC DEVELOPERS PVT LTD vs. PRINCIPAL COMMISSIONER OF INCOME TAX-8

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WP/869/2016HC Bombay18 April 2016Author: HON'BLE SHRI JUSTICE M.S. SANKLECHA, HON'BLE SHRI JUSTICE A. K. MENON15 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the petition succeeds and the impugned order dated December 21, 2015, is set aside. The Court found that the show-cause notice was bereft of particulars, making it impossible for the petitioner to effectively respond, thus breaching the principles of natural justice. Merely providing documents without indicating the inferences drawn therefrom does not satisfy the requirement of natural justice. Furthermore, the impugned order was a non-speaking order as it failed to deal with the petitioner's crucial submissions. These submissions highlighted that only 3 out of 78 flats were sold to members of the Jhaveri Group, and transferring the petitioner's case to Aurangabad based on this limited transaction, while the petitioner had no other connection to Aurangabad and faced significant hardship, was arbitrary. The Court distinguished the cited precedents, stating that in this case, the order was not only non-speaking but also arbitrary, and the show-cause notice lacked the necessary details, unlike in the cited cases. The Court emphasized that the purpose of a personal hearing and the opportunity to respond is to enable the authority to consider whether the transfer is warranted in the facts and circumstances.

What were the facts?

The petitioner, M/s. Zodiac Developers Pvt. Ltd., a builder and developer in Mumbai since AY 1996-97, challenged an order dated December 21, 2015, passed by the Principal Commissioner of Income Tax under Section 127(2) of the Income Tax Act, 1961. This order transferred the petitioner's case from Mumbai to ACIT, Central Circle, Aurangabad. The initial proposal for transfer was based on the alleged centralization of the Jhaveri Group for coordinated investigation and administrative convenience. The petitioner denied being part of the Jhaveri Group, stating its principal place of business and directors' residences were in Mumbai. A previous writ petition challenging a similar transfer order was quashed by the High Court on June 18, 2015, due to breaches of natural justice, as the order relied on a Directorate of Income Tax (Investigation) letter not provided to the petitioner and was non-speaking. A fresh notice was issued on July 2, 2015.

What were the issues?

1. Whether the show-cause notice dated July 2, 2015, issued for transferring the petitioner's case from Mumbai to Aurangabad, complied with the principles of natural justice by adequately informing the petitioner of the reasons for the proposed transfer and the inferences drawn from any supporting documents. - Assessee's contention: The show-cause notice was vague, merely stating "coordinated investigation along with other connected cases for Administrative convenience," making it impossible to respond effectively. The subsequent order failed to address the petitioner's submissions regarding the limited connection to the Jhaveri Group (only 3 out of 78 flats sold) and the hardship caused by the transfer. - Revenue's contention: Providing seized documents to the petitioner before the impugned order was sufficient compliance with natural justice. The transfer was necessitated by coordinated investigation and administrative convenience. 2. Whether the impugned order dated December 21, 2015, passed by the Principal Commissioner of Income Tax, was a speaking order that dealt with the petitioner's submissions and the reasons for the transfer. - Assessee's contention: The order was non-speaking as it did not address the petitioner's detailed submissions about the limited transaction with the Jhaveri Group, the lack of business connection, and the hardship. The reliance on the Jhaveri Group's assessment in Aurangabad for selling just 3 flats was arbitrary. - Revenue's contention: Not explicitly recorded, but impliedly, the order was justified based on the grounds of coordinated investigation and administrative convenience.

Which sections of the Income-tax Act were involved?

Section 127(2)

AI-generated summary — verify with the full judgment below

869-16-wp.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURI ICTION WRIT PETITION NO. 869 OF 2016 M/s. Zodiac Developers Pvt. Ltd. .. Petitioner v/s. Principal Commissioner of Income Tax­8, Mumbai .. Respondent Mr. S.C. Tiwari a/w Ms. Rutuja Pawar for the petitioner Mr. Nirmal Mohanty for the respondent

CORAM : M.S. SANKLECHA &

A.K. MENON, J.J.

DATED  : 18th APRIL, 2016. Oral Judgment : ­ (Per M.S. Sanklecha, J.)

1.

This petition was admitted and Rule issued on 14th March, 2016. At the request of the Counsel, the petition was expedited and fixed for hearing on 16th April, 2016. Thus, the petition was partly heard on 16th April, 2016 and concluded today.

2.

This   petition   under   Article   226   of   the   Constitution   of   India challenges the order dated 21st December, 2015 passed by the Principal Commissioner   of   Income   Tax.     The   impugned   order   passed   under Section 127(2) of the Income Tax Act, 1961 (the Act) transfers the petitioner's case from an Income Tax Officer in Mumbai to A.C.I.T. Uday S. Jagtap 1 of 15 CNR No : HCBM020001492016 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc Central Circle­1, Aurangabad.

3.

Brief facts :­ (a) The petitioner carries on business of Builders and Developers i.e. constructing flats for Sale in and around Mumbai.   The petitioner is being   assessed   to   income   tax   in   Mumbai   since   Assessment   Year 1996­97. (b) By a communication dated 6th January, 2015, the Commissioner of Income Tax­8, Mumbai issued a show­cause notice to the petitioner proposing to transfer the petitioner's case under Section 127(2) of the Act from Mumbai to A­CIT, Central, Circle, Aurangabad.    The basis for the proposed transfer is centralization of Jhaveri Group for purposes of co­ordinated investigation along with other cases and Administrative convenience. (c) On 27th  January, 2015, the petitioner responded to the show­ cause notice inter alia pointing out that its principal place of business is in Mumbai with even its Directors residing and being assessed to tax at Mumbai. Further, it does not belong to Jhaveri Group of Companies. Therefore, the petitioner's case need not be transferred from Mumbai to Aurangabad.  In any event, to respond more appropriately the details of the evidence for transfer the petitioner's income tax proceedings from Uday S. Jagtap 2 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc Mumbai to Aurangabad was sought. (d) In response, the Commissioner of Income Tax by letter dated 6th February, 2015 inter alia pointed out  during a search on the petitioner by the Directorate of Income Tax (Investigation), Nagpur, documents were recovered which would require further investigation along with that of  Jhaveri Group of Companies, Auranbagad who are assessed at Aurangabad. (e) On 16th  February, 2015, the petitioner by its reply pointed out that no search was carried out at its premises.   Further, it did not belong to the Jhaveri Group nor are they in any way related to them. The only connection with the Jhaveri Group was the fact that flats in a building constructed by them were booked by the members of the Jhaveri Group.  This would not make them a part of Jhaveri group.  In the above view, the petitioner requested for the withdrawal of the proposal to transfer the petition's case to Aurangabad. (f) On 18th  February, 2015, the Principal Commissioner of Income Tax passed an order under Section 127(2) of the Act transferring the petitioner's case from from Mumbai to Aurangabad.   The basis of the transfer as recorded in the order dated 18th February, 2015 was letter from D.I.T. (Investigation) Nagpur, which purports to record that the search and seizure was carried out in the premises of the petitioner, Uday S. Jagtap 3 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc which is related to the Jhaveri Group.     In the above view, for the purpose   of   co­ordinated   investigation,   the   petitioner's   case   was transferred from Mumbai to A­CIT, Central Circle, Aurangabad. (g) Being aggrieved, the petitioner challenged the order dated 18th February, 2015 before this Court by filing Writ Petition No.1204 of 2015. By an order dated 18th June, 2015, this Court quashed and set aside   the   order   dated   18th  February,   2015   passed  by   the   Principal Commissioner of Income Tax under Section 127(2) of the Act.  This on the ground that the order relied upon a letter from Directorate of Income Tax (Investigation), Nagpur for the purposes of transferring the petitioner's case  from Mumbai  to Aurangabad even  without having made   the   same   available   to   the   petitioner.       This   resulted   in   the petitioner not making appropriate submissions with regard to the letter from the Directorate of Income Tax (Investigation), Nagpur.  Thus, in breach of principles of natural justice.     Further the order dated 18th February, 2015 was found by this Court to be a non­speaking order for the reason it did not deal with the submissions made by the petitioner. However, the Revenue was given liberty to pass a fresh order after following the principles of natural justice.

4.

Consequent to the above, on 2nd July, 2015 a notice was issued to Uday S. Jagtap 4 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc the petitioner proposing to transfer the petitioner's case from Mumbai to Aurangabad under Section 127(2) of the Act.   The basis for the transfer   was   co­ordinated   investigation   along   with   other   connected cases for Administrative convenience.  No reference was made to the letter from the Directorate of Income Tax (Investigation), Nagpur which was relied upon earlier.

5.

On 14th July, 2015, the petitioner filed its reply to the show­cause notice inter alia pointing out as under :­ (a) It is in the process of constructing a building comprising of 78 flats at Vile Parle (W), Mumbai.  Many of the flats are booked by during the construction stage. (b) 3 out of 78 flats in the building being constructed have been booked for sale to the persons belonging to the Jhaveri Group.  These persons   appear   to   reside   in   Mumbai   but   are   assessed   to   tax   in Aurangabad due to business being at Aurangabad.  Similarly, other flats have been booked by the persons who have business interest at places other than Mumbai such as Pune etc. (c) It has no business connection with Jhaveri Group (i.e. purchasers of 3 flats from Aurangabad) or does it have any business activity in Aurangabad. Uday S. Jagtap 5 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc (d) There is  no  relationship  between  the  Jhaveri  Group  and  the petitioner, save and except the purchase of 3 flats in the building being constructed by members of the Jhaveri Group. (e) The transfer of the cases would cause them acute hardship as all its activities are centered around Mumbai coupled with no connection to Aurangabad. (f) Lastly,   the   co­ordinated   investigation   and   Administrative convenience for transfer of the case from Mumbai to Aurangabad is only  for  the   purpose  of   sale   of  3   flats   out   of  78   flats   to   persons belonging to the Jhaveri Group who are assessed in Aurangabad.   The Assessing   Officer   situated   in   Bombay   is   competent   to   assess   the petitioner in respect of its income.     Thus, no transfer of the case is made out.

6.

Thereafter,   on   3rd  November,   2015,   at   the   personal   hearing granted to the petitioner by the Commissioner of Income Tax, two pages of seized documents namely 72 and 74 along with the statements of one Abhishek Jhaveri and one Mr. Vipul Rajnikant Khona dated 20th August, 2014 and 14th  October, 2014 respectively were given to the petitioner.     Consequent   to   receipt   of   these   documents   on   24th November,   2015,   the   petitioner   filed   a   further   reply   resisting   the Uday S. Jagtap 6 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc proposed transfer of the petitioner's case from Mumbai to Aurangabad. In its reply the petitioner further pointed out that it appears that the entire basis of transferring the case are two loose papers discovered while carrying out search of the Jhaveri Group.   In the circumstances, it would be unreasonable to transfer the entire assessment juri iction of the petitioner's to Aurangabad.

7.

On 21st December, 2015, the Principal Commissioner of Income Tax passed the impugned order transferring the petitioner's case from Mumbai to Aurangabad.    This essentially, on the ground that one of the buyers namely Abhishek Jhaveri had become a witness for the Department having admitted  to paying cash money to the petitioner. It is on the basis of the above admission that investigation is required to be done in the case of the petitioner and for that purpose it would be necessary to transfer the petitioner's case from Mumbai to Aurangabad.

8.

The   petitioner   challenged   the   impugned   order   dated   21st December, 2015 and in support thereof submits as under :­ (a) The impugned order dated 21st December, 2015 transferring the petitioner's case from Mumbai to Aurangabad is an order in breach of principles of natural justice inasmuch as the show­cause notice issued Uday S. Jagtap 7 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc to the petitioner does not indicate the basis of the transfer save and except stating that the same is necessary for co­ordinated investigation and Administrative convenience. (b) The   impugned   order   dated   21st  December,   2015   is   a   non­ speaking order inasmuch as it does not consider and deal with the petitioner's objections as recorded in its letter dated 14th July, 2015. (c) The impugned order dated 21st December, 2015 seeks to transfer the petitioner's case from Mumbai to Aurangabad on a completely new and different ground than that recorded in its show­cause notice dated 6th January, 2015 and 6th February, 2015 which led to the order dated 18th February, 2015. The order dated 18th February, 2015 was set aside by  this   Court  as   it   relied  upon   a   letter   from   D.I.T.   (Investigation) Nagpur to transfer the petitioner's case from Mumbai to Aurangabad, without   having   given   the   petitioner's   an   opportunity   to   meet   the contents of the aforesaid communication.

9.

Mr.   Mohanty,   learned   Counsel   for   the   Revenue   submits   as under :­ (a) The order dated 21st December, 2015 is a speaking order as the same   has   been   passed   after   giving   reasonable   opportunity   to   the petitioners and considering the submissions made by the petitioners; Uday S. Jagtap 8 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc (b) over­ride   the   need   of   the   Revenue   for   detailed   and   co­ordinated February,   2015   transferring   the   petitioner's   case   from   Mumbai   to Aurangabad on the basis of a letter of D.I.T. (Investigation), Nagpur informing the Commissioner of Income Tax that a search and seizure operation was carried out in respect of the petitioner who in turn is related to the Jhaveri group of Aurangabad.  The aforesaid order dated 18th February, 2015 of the Commissioner of Income Tax was set aside as copy of the aforesaid intimation was not given to the petitioner by the Uday S. Jagtap 9 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc Revenue.   Further,  the   petitioner's   submissions /   objections   to the   proposed   transfer   was   not   considered   in   the   order   dated 18th  February, 2015. This   Court   while   setting   aside  the  order dated 18th February, 2014 by an order dated 18th June, 2015 granted liberty   to   the   Revenue   to   pass   a   fresh   order   after   following   the principles of natural justice.

11.

We find that consequent thereto neither the show­cause notice nor the impugned order dated 21st December, 2015 make any reference to   the   communication   received   from   D.I.T.   (Investigation),   Nagpur. The Revenue has also filed its affidavit­in­reply and the respondent has not mentioned the reason as to why no reliance is being placed upon the communication received from D.I.T. (Investigation), Nagpur for the purposes   of   transferring   the   petitioners'   case   from   Mumbai   to Aurangabad.  In the above circumstances, we asked Mr. Mohanty the reason why the Revenue is not now placing reliance upon the letter received from D.I.T. (Investigation), Nagpur.  Mr. Mohanty informs us that the letter from D.I.T. (Investigation), Nagpur was not correct and therefore, not relied upon any further.   We find this attitude of the Revenue strange, as the letter from D.I.T. (Investigation), Nagpur was the basis of seeking to transfer the petitioner's case from Mumbai to Uday S. Jagtap 10 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc Aurangabad.   In all fairness, once the letter from D.I.T. (Investigation), Nagpur was incorrect, the proposal to transfer the proceedings ought to have been withdrawn.  Further, this should have been pointed out to the Court when the order dated 18th  June, 2015 was passed.   Thus, there would have been no occasion to leave the issue open for the Revenue to pass a further order after following the principles of natural justice.  The attitude of the Revenue seems to be once a transfer under Section 127(2) of the case is proposed, come what may, they would transfer the case.

12.

Further, we find that the notice dated 21st December, 2015 issued consequent to the order of this Court dated 18th June 2015 is bereft of any particulars, save and except that the transfer is required for the sake of  co­ordinated investigation along with other connected cases for administrative convenience.  The show­cause notice does not indicate the reasons for the proposed  transfer.  Thus, making it impossible for the petitioners to effectively respond to the show­cause notice.    Mr. Mohanty, learned Counsel for the Revenue emphasized the fact that the two seized documents were given to the petitioner before passing of the   impugned   order   and   this   was   sufficient   compliance   with   the principles of natural justice.   We are unable to appreciate the above Uday S. Jagtap 11 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc submission.     It   is   the   show­cause   notice   which   must   refer   to   the documents   and   the   inferences   drawn   from   the   documents   by   the Commissioner of Income Tax supporting the proposed transfer.     By mere giving of the documents relied upon without the party knowing what inference is being drawn therefrom, the requirement of natural justice is not met.    This is so as the party is left guessing as to the inference drawn by the Commissioner of Income Tax from documents for proposing the transfer from Mumbai to Auranbagad.    This itself would lead to a breach of principles of natural justice.

13.

Moreover, we find that the impugned order does not deal with the petitioner's submissions as contained in its letter dated 14th  July, 2015 inter alia pointing out that only 3 flats out of 78 flats in the building being constructed in Vile Parle had been sold by the petitioner to   the   members   of   the   Jhaveri   Group.     In   case,   the   petitioner's assessments are to be transferred to the places where its customers (purchaser of its flats) are being assessed, then, the petitioner's cases would have to be transferred to at various places where its customers resides.  This is an impossibility.   Further, where transaction take place in the course of its business and a search takes place on such other persons   at   the   place   where   such   person   is   assessed,   it   would   not Uday S. Jagtap 12 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc necessarily result in the transfer of petitioner's case to the place where the person it is dealing with in the normal course is being assessed. The aforesaid submission as contained in letter dated 14th  July, 2015 has   not   even   been   adverted   to   in   the   impugned   order   dated   21st December, 2015. Nor was the fact that there would be inconvenience to the petitioner as emphasized in its subsequent letter dated 24th November, 2015 even adverted to in the impugned order much less dealt with.  Thus, the order itself is a non­speaking order.  The basic and  minimal   requirement   of   the   petitioner   being   given   a   personal hearing and the opportunity to respond to the proposed transfer is to enable the Authority to consider whether in the facts and circumstances of the case, the transfer of the case from Mumbai to Auranbagad is warranted.   Particularly,   bearing   in   mind   that   the   petitioner   has otherwise no connection with Aurangabad except for having sold 3 out of 78 flats in the building being constructed to the persons who are being assessed at Aurangabad.

14.

The reliance placed by the Revenue upon the order of the Punjab and Haryana   in  Kuantum Papers Ltd. (supra)   in which the Court refused to stop the transfer as it had come to a finding that the order sanctioning the transfer of the case under Section 127(2) of the Act Uday S. Jagtap 13 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc was an speaking order and not  mala fide  and / or arbitrary is not applicable in this case.  This is so as in the present facts the impugned order is not only a non­speaking order but is also arbitrary.    Similarly, the decision of Rajasthan High Court in  Rishikul Vidyapeeth (supra) relied upon by the respondent Revenue for sustaining the impugned order under Section 127(2) of the Act is inappropriate.   This for the reason that it was passed in the above case in the context of the petitioner therein not adverting in its objections to the reasons for the transfer disclosed in the show­cause notice issued to it.   This is not so in the present case.  In fact,  in this case the show­cause notice is itself bereft of particulars save and except merely co­ordinated investigation and   administrative   convenience   making   it   impossible   to   effectively respond.   Nevertheless,   the   petitioner   had   itself   pointed   out   the inconvenience which would be caused to it and the arbitrary nature of the transfer of petitioner's assessment to Aurangabad.  This objection was   not   appropriately   considered   and   dealt   with   in   this   case. Therefore, the aforesaid decision also has no application to the present facts.

15.

In   the   above   view,   the   petition   succeeds.     We   set   aside   the impugned order dated 21st  December, 2015 passed by the  Principal Uday S. Jagtap 14 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58

869-16-wp.doc Commissioner of Income Tax, Mumbai.

16.

Rule made absolute in the above terms.  No order as to costs.

(A.K. MENON, J.)

(M.S. SANKLECHA, J.) Uday S. Jagtap 15 of 15 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:07:58 Powered by TCPDF (www.tcpdf.org)

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