Case Analysis: Sanjay Gandhi Memorial Trust V. Cit – Part I
Issue: Whether the assessments of the petitioners could be transferred to the Central Circle by way of the impugned orders passed under Section 127 of the Income Tax Act, 1961 (hereinafter be referred to as ‘the Act’) without sanction of the Central Board of Direct Taxes (‘CBDT’).
Brief Facts
The set of writ petitions involves five charitable trusts and three individuals, including Sonia Gandhi, Rahul Gandhi, and Priyanka Gandhi Vadra, as well as the political party Aam Aadmi Party (AAP). They have challenged transfer orders issued under Section 127 of the Income Tax Act, which transferred their jurisdiction from one Income Tax Officer to another within Delhi.
The lead writ petition, Writ Petition (C) 3535 of 2021, pertains to the Sanjay Gandhi Memorial Trust. The trust was established to provide health services, education, and employment opportunities in rural Uttar Pradesh. It manages various institutions, including the Sanjay Gandhi Hospital, Indira Gandhi School and College of Nursing, Indira Gandhi Institute of Paramedical Sciences, Indira Gandhi Technical Institute, and Rajiv Gandhi Computer Shiksha Kendra. The trust is registered as a charitable institution under Section 12A of the Act, and its charitable purpose has not been questioned by the revenue authorities until the Assessment Year 2017-18.
The Finance Act of 2018 introduced the concept of E-assessment into the Income Tax Act, and the Central Government was authorized to establish a scheme for conducting such assessments. On September 12, 2019, the E-assessment Scheme, 2019 was implemented through two notifications. The scheme aimed to minimize personal interaction between taxpayers and tax officials, and on August 13, 2020, the Faceless Assessment Scheme was launched by the Prime Minister to further streamline the tax system. This approach eliminates all communication and interaction between the Assessing Officer and the Assessee, and it uses an automated mechanism to assign Assessing Officers.
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On September 23, 2019, the petitioners in this action received a notification for a scrutiny assessment for the Assessment Year 2018–19 under Section 143(2) of the Act. Later, on August 13, 2020, two notifications were released that further emphasised the objective of anonymous, easy, and seamless assessments. These notifications amended the earlier notifications pertaining to the E-assessment Scheme.
These writ petitions present a common legal question in addition to contesting the transfer orders. The petitioners contend that it is arbitrary and against their rights for one Income Tax Officer’s authority to be transferred to another inside Delhi. Because it includes well-known political leaders, charity trusts, and the introduction of new assessment procedures meant to simplify the tax code, the case is extremely important.
The National e-Assessment Centre sent a letter to the petitioner on October 14, 2020, stating that the Faceless Assessment Scheme will be used to finish their outstanding E-assessment for the Assessment Year 2018–19. The National e-Assessment Centre then sent letters to the petitioner on November 23 and December 30, 2020, in accordance with Section 142(1) of the Act, asking certain documents and information for the continuing assessment processes. The petitioner responded with these requests.
But on January 8, 2021, the Commissioner of Income Tax (Exemption), New Delhi, issued an order under Section 127 of the Act, shifting the petitioner’s jurisdiction from the Deputy Commissioner of Income Tax (Exemption), New Delhi, to the Deputy Commissioner of Income Tax, Central Circle-27, New Delhi, while the E-assessment was still in progress. Better coordination, a thorough investigation, and a significant evaluation of the cases were cited as the reasons for the move, which had the previous consent of CCIT(C) Delhi.
Following the transfer, the National e-Assessment Centre requested more information for the current E-assessment procedures for the Assessment Year 2018–19 through notices sent on January 13 and January 25, 2021, in accordance with Section 142(1) of the Act. On February 3, 2021, Respondent No. 4 (Deputy Commissioner of Income Tax, Central Circle-27) issued another notice under Section 142(1) of the Act to the petitioner for the same assessment year.
Through the present petition, the petitioner challenges the order passed on January 8, 2021, under Section 127 of the Act, and the notice issued on February 3, 2021, by Respondent No. 4 under Section 142(1) of the Act. The petitioner contests the validity of the transfer order and the subsequent notices, raising legal objections against them.
Arguments Advanced
Gandhis and Five Charitable Trusts
Mr. Arvind Datar, the learned Senior Counsel representing Mrs. Sonia Gandhi, Mr. Rahul Gandhi, and Mrs. Priyanka Gandhi Vadra, as well as the five charitable trusts, argued that the concept of the Faceless e-assessment Scheme was introduced in the Budget speech of 2019. He explained that the scheme aims to eliminate personal interaction in assessments and appeals, with assessments being processed based on written submissions and in electronic mode. The location of assessment and the Assessing Officer would remain unknown under this scheme.
He mentioned that the Central Board of Direct Taxes (CBDT) issued guidelines in September 2020, mandating the compulsory selection of returns for complete scrutiny under the Faceless Assessment Scheme for the financial year 2020-21. He noted that, as per the guidelines, all assessments would now follow the Faceless Assessment procedure, except for cases related to international taxation and those assigned to the Central Circle. Cases involving income-tax raids or searches typically fall under the jurisdiction of the Central Circle, according to CBDT circulars.
Mr. Datar argued that none of the assessees involved in the present writ petitions had undergone any raid or search, yet their cases were being transferred to the Central Circle. He contended that such transfers are contrary to statutory provisions and tainted by legal malice. He highlighted that the notifications issued on September 12, 2019, allowed transfers from the National e-Assessment Centre only to the Assessing Officer with jurisdiction over the case. However, this provision was amended by a notification on August 13, 2020, requiring prior approval from the CBDT for transfers.
According to Mr. Datar, in these writ petitions, the requirement of prior approval from the CBDT was completely violated, and the transfers should have been made only to the Assessing Officer, not the Central Circle. He argued that these notifications have a statutory character and cannot be altered or changed by any circular issued by the CBDT. Even if the power of transfer exists, he contended that the conditions prescribed in the circulars have not been met in any of the cases, thus precluding further transfer to the Central Circle.
Mr. Datar also disputed the respondents’ reliance on the Supreme Court’s decision in Kashiram Agrawalla vs. Union of India and Ors., stating that the present writ petitions concerned new notifications issued under Sections 143(3A) and 143(3B) of the Act. He pointed out that the justification for the transfers based on the Sanjay Bhandari group of cases lacked factual details, and no connection between these appeals and the Sanjay Bhandari cases had been provided.
Lastly, he argued against guilt by association or guilt due to relationship, asserting that the transfer of Mr. Robert Vadra’s case should not dictate the transfer of the Gandhis’ and the trusts’ cases. He cited the Supreme Court’s judgment in Chintalapati Srinivasa Raju vs. Securities and Exchange Board of India to support his contention
Aam Aadmi Party’s Contentions
Mr. Amar Dave, the counsel representing the Aam Admi Party, argued that the Faceless Assessment Mechanism incorporated in the provisions of the Act itself grants specific rights to the assessee, and any deviation from providing the benefits of this mechanism should be strictly construed. He listed several statutory rights embedded in the Faceless Assessment Mechanism, including dynamic and team-based assessment, multiple layers of scrutiny, automated assignment of cases, opportunity for the assessee to respond before finalizing the assessment order, and minimal physical interface with tax officers.
Mr. Dave contended that the deprivation of these rights would prejudice the assessee. He emphasized that Section 143(3A) and Section 143(3B) of the Act clearly outline the transparent mechanism provided to the assessee under this special scheme. The scheme incorporates various specialized units and checks and balances, ensuring efficiency, transparency, and accountability in the assessment process.
He argued that these additional rights granted by the statute cannot be taken away unless specifically provided for, and any exercise of power under Section 127 of the Act should consider the nature and scope of the prevailing assessment mechanism. He asserted that the Faceless Assessment Mechanism alters the interpretation of transfer under Section 127, and the previous judgment in the Kashiram Agarwalla case is no longer applicable.
Mr. Dave concluded that considering the unique nature of the Faceless Assessment Mechanism and the purpose and scope of the special scheme, the transfer of cases within or between cities should be interpreted differently. He contended that the ratio of the Kashiram Agarwalla judgment does not apply after the introduction of this special scheme.
Solicitor General and Additional Solicitor General
In this case, the learned counsel for the Aam Admi Party argued that the Faceless Assessment Mechanism, incorporated in the provisions of the Act, provides various statutory rights to the assessee, such as dynamic and team-based assessment, multiple layers of scrutiny, automated case assignment, draft assessment order with an opportunity for the assessee to respond, and minimal physical interaction. He emphasized that any deprivation of these rights would adversely affect the assessee. The counsel contended that the earlier judgment in Kashiram Agarwalla’s case has no bearing after the introduction of the special Faceless Assessment Mechanism.
On the other hand, the Solicitor General argued that the transfer of cases within the same city under Section 127 of the Act, which was done for better coordination, effective investigation, and meaningful assessment, does not require recording reasons or providing a reasonable opportunity to the assessee. He relied on various judgments stating that the power of transfer under Section 127 is an administrative power based on tax assessment and collection exigencies and does not violate the assessee’s right to a fair assessment. He also mentioned that the determination of the venue of assessment should prioritize the interests of tax collection and adjudication over the convenience of the assessee.
The Solicitor General further contended that the power to transfer cases under Section 127 of the Act still exists even after the introduction of the Faceless Assessment Scheme, as the relevant notifications do not interfere with this power. He argued that faceless assessment is not a vested right and certain classes of cases are excluded from the scheme as provided in the notifications. The Jurisdictional Assessing Officer continues to exercise concurrent jurisdiction even when the assessment function is outsourced to the Faceless Assessment Officer.
The Solicitor General concluded that the allegations of malice require substantial proof, and the petitioners have failed to demonstrate any malice on the part of the revenue. He argued that the petitions should be dismissed as they lack merit.
Author: Abhishek Singh, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing.
