Case Analysis: Sanjay Gandhi Memorial Trust V. Cit – Part-2

Observations

Constitution Bench In Kashiram Aggarwalla (Supra) Has Authoritatively Interpreted As Well As Outlined The Scope And Ambit Of Section 127 Of The Act:

The court notes that at the time the impugned orders were passed, the Faceless Assessment Scheme was governed by these notifications, not Section 144B of the Income Tax Act. The court considers the scope and interpretation of Section 127 of the Act, which deals with the power of transfer. The Supreme Court’s Constitution Bench has previously established that transfer orders under Section 127 are administrative orders made for administrative convenience. There is no requirement to record reasons or provide a reasonable opportunity to the assessee when the transfer is within the same city. High courts have consistently held that transfer for coordinated investigation is a valid reason for such administrative orders. Therefore, the court concludes that transfer orders under Section 127 do not affect any fundamental or legal right of the assessee, and the courts usually do not interfere with the exercise of such power.

Central Circle Jurisdiction Is Not Confined To Search Cases

As per the Hon’ble Court, the jurisdiction of the Central Circle is not limited to search cases alone. The Central Circle also has jurisdiction over non-search cases where coordinated investigation is deemed necessary. This is clarified in a circular dated 25th April 2014, which states that there are no restrictions on transferring non-search cases to the Central circle.

Power Under Section 127 Of The Act Is In No Manner Trammelled Upon Or Negated By The Two Notifications Each Dated 12th September, 2019 And 13th August, 2020

Hon’ble Court also observed the relationship between Section 127 of the Income Tax Act and the introduction of the E-assessment and Faceless Assessment Scheme. It states that despite the implementation of these schemes, the jurisdictional Assessing Officer continues to exercise concurrent jurisdiction alongside the Faceless Assessing Officer. The power to confer concurrent jurisdiction on multiple Assessing Officers is granted under Section 120(5) of the Act. The E-assessment and Faceless Assessment Schemes clarify that once a case is selected for scrutiny, it is assigned to the National e-Assessment Centre for assessment, and after assessment, the electronic records are transferred back to the Jurisdictional Assessing Officer.

The Court also mentions that the E-assessment and Faceless Assessment Schemes do not modify Section 127 of the Act, and therefore, the powers under that section continue to apply in an unmodified manner. The Notifications issued for these schemes authorize the National e-Assessment Centre to transfer the case of the assessee to the Assessing Officer having jurisdiction over the case at any stage of assessment, specifically from the Faceless Assessing Officer to the Jurisdictional Assessing Officer who holds concurrent jurisdiction.

It further clarifies that the power of transfer under the E-assessment and Faceless Assessment Schemes is limited to the facilitation of assessment proceedings and does not include the power to transfer a case from the Jurisdictional Assessing Officer to the Central Circle. The power of transfer under Section 127 of the Act is different and can be exercised at any stage, even when there is no pending proceeding. The transfers mentioned in the Notifications are specific to the assessment process, whereas Section 127 allows for transfers irrespective of the assessment stage.

The argument that the “prior approval” requirement of the CBDT (Central Board of Direct Taxes) has been violated is considered untenable since the transfers under consideration in the writ petitions fall under Section 127 of the Act and not under the aforementioned Notifications.

In conclusion, the power to transfer cases under Section 127 of the Income Tax Act remains intact even after the introduction of the E-assessment and Faceless Assessment Scheme. The Faceless Assessment Scheme does not diminish this power when transferring cases between Assessing Officers who are not exercising concurrent jurisdiction.

Reliance Placed By Petitioners Upon The Guidelines Dated 17th September, 2020 Is Misplaced

The Hon’ble Court addresses the submission made by the petitioners regarding Section 127 of the Income Tax Act and its requirement for transfer orders to be made only if there is seized material pertaining to an assessee. The court considers this submission untenable in law. It also states that the reliance placed on the guidelines dated September 17, 2020, by the petitioners is misplaced. These guidelines are specifically for the compulsory selection of returns for complete scrutiny during the fiscal year 2020-21 and do not limit or control the power of transfer under Section 127 of the Act.

As per the Court, Paragraph 3 of the guidelines clearly states that cases selected for compulsory scrutiny by the international taxation and central charges, following the prescribed guidelines, will continue to be handled by these charges. This reaffirms the statutory scheme’s position that cases transferred to the Central Circle are not required to be assessed in a faceless manner

No Assessee Has Any Fundamental Or Vested Legal Right To Be Assessed By A Faceless Assessing Officer By Virtue Of Amendment Of Sections 143(3a) And 143(3b)

The court expresses the opinion that no assessee possesses a fundamental or vested legal right to be assessed by a Faceless Assessing Officer based on the amendments to Sections 143(3A) and 143(3B) of the Income Tax Act. The court highlights two key points to support this view.

Firstly, Section 143(3A) of the Act states that the Central Government “may make a Scheme” to eliminate the interface between the Assessing Officer and the assessee. This implies that the government has the discretion to decide whether or not to implement a Faceless Assessment Scheme. Therefore, the argument that Faceless Assessment is a vested right fails to consider the language of the statute itself.

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Secondly, the court refers to Notification No.61/2019 dated September 12, 2019, which clarifies that the assessment under the Faceless Assessment Scheme is applicable to specific territorial areas, persons, incomes, or cases as specified by the Board. The court notes that there is no challenge to this clause or to the CBDT order dated August 13, 2020, which excludes Central Charges and International Taxation charges from the Faceless Assessment Scheme. Consequently, when parties are centralized through the exercise of legal power under Section 127 for coordinated investigation purposes, they are no longer assessed under the Faceless regime.

Furthermore, even in the case of Central Charges, the assessment proceedings are conducted through e-proceedings, eliminating the need for the assessee or their authorized representative to physically appear before the Assessing Officer for each hearing. The court concludes that transferring cases to the Central Circle does not cause prejudice to the assessees.

Undoubtedly, There Can Be No ‘Guilt By Association’ Or ‘Guilt Due To Relationship’, Yet In The Present Matters The Assessments Have Been Transferred For The Purposes Of Coordinated Investigation

The court acknowledges the principle established by the Supreme Court in the case of Chintalapati Srinivasa Raju vs. Securities and Exchange Board of India, which states that there should be no presumption of guilt based on association or relationship. However, in the present batch of writ petitions, the assessments of the petitioners have been transferred for the purpose of coordinated investigation and meaningful assessment.

The court emphasizes that these transfers do not violate the guidelines issued by the CBDT (Central Board of Direct Taxes), as they have been carried out to ensure better coordination and meaningful assessment of the cases, particularly in relation to individuals such as Robert Vadra, Sanjay Bhandari, and Satyendar Kumar Jain. No final conclusion has been or can be reached without providing the assessees a fair and adequate opportunity to explain any lack of connection to the aforementioned cases during the assessment proceedings. Therefore, there are no adverse civil consequences against the petitioners, rendering the judgment inapplicable to the present writ petitions.

The court clarifies that it has not relied on the original files provided by the respondents in the present batch of writ petitions, as there are sufficient justifications for the administrative decision to transfer the cases of the petitioners from the Jurisdictional Assessing Officer to the Central Circle.

The argument that the power of transfer under the notifications is a two-step process is untenable in law

The Court notes that the argument presented by the petitioners that the power to transfer cases under Section 127 of the Income Tax Act, after the implementation of the Faceless Assessment Scheme and related notifications, involves a two-step process is not valid. This is because the Principal Chief Commissioner or Principal Director General, as specified in Clause (2) of Notification No. 62/2019, has the authority to transfer the case back to the Jurisdictional Assessing Officer at any stage of the assessment to complete the assessment. On the other hand, the power under Section 127 of the Act allows for transfers at any stage, even if no assessment is pending. This distinction is evident from the definition of the term “case” in the Explanation to Section 127 of the Act.

Furthermore, the E-assessment and Faceless Assessment Scheme do not modify the power to transfer cases from one Assessing Officer to another Assessing Officer who holds non-concurrent charges under different Principal Commissioners of Income Tax. These schemes only enable the transfer of the case back to the Jurisdictional Assessing Officer, who retains the original jurisdiction while the assessment function is carried out by the Faceless Assessing Officer with concurrent jurisdiction. However, when a “case” is transferred under Section 127 of the Act, “all proceedings under this Act” are transferred. The power to transfer the “case” or “all proceedings under the Act” is not provided for in the aforementioned schemes. Additionally, the claim that the notifications dated 12th September 2019 and 13th August 2020 allow transfers initially only from the National e-Assessment Centre to the Jurisdictional Assessing Officer is legally untenable, as there may be cases where no assessment is pending before the Faceless Assessing Officer, yet the Assessee’s case is transferred to the Central Circle. Therefore, Section 127 of the Act, which permits transfers between Assessing Officers holding non-concurrent charges, remains unaffected and continues to apply in its original form.

Conclusion

In light of the aforementioned findings, the court concludes that the assessments of the petitioners have been lawfully transferred to the Central Circle through the orders issued under Section 127 of the Income Tax Act. Consequently, the current writ petitions and related applications are dismissed without any cost, and the interim orders previously issued by the court are vacated. It is important to note that the court has not examined the merits of the dispute between the parties, and they are free to present all their arguments and submissions before the relevant statutory authorities.

Author: Abhishek Singh, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or   IP & Legal Filing.