Millenniun Houseware vs. CIT (Gujarat High Court)

Q whether the s. 127(2) transfer order is invalid for want of reasons referred to Full Bench

The CIT, Valsad, passed an order u/s 127(2) centralizing the assessee’s case from Vapi to Surat “to facilitate coordinated and effective investigation”. The assessee challenged the order on the ground that as no reasons were given in the s. 127(2) order (though given in the affidavit-in-reply), the s. 127(2) order had to be struck down as per Ajanta Industries vs. CBDT 102 ITR 281 (SC). The department relied on Arti Ship Breaking vs. DIT 244 ITR 333 (Guj) where it was held that Ajanta Industries was no longer good law and reasons were not required to be stated in the order. HELD by the Court:

In Ajantha Industries vs. CBDT 102 ITR 281 (SC), it was held that the requirement of recording reasons u/s 127(1) is mandatory and non-communication thereof is not saved by showing that the reasons exist in the file. However, in Arti Ship Breaking 244 ITR 333 (Guj) this law was not followed on the basis that in two subsequent decisions it was held non-communication of reasons recorded by the authority would not vitiate the proceedings. This view of the division bench does not appear to be correct because the said later two decisions related to irregularities in course of disciplinary proceedings which had nothing to do with s. 127 conferring power of transfer. Accordingly, it cannot be said that Ajantha Industries has lost its force in view of those two subsequent decisions. Accordingly, the matter has to be referred to a larger bench to consider the following question:

“Whether the decision of the three-judge-bench of the Supreme Court in the case of Ajantha Industries reported in [1976] 102 ITR 281 so far as it lays down the law that the requirement of recording reasons under section 127(1) of the Income tax Act is a mandatory direction under the law and non-communication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee is still a good law in view of the subsequent decisions of the Supreme Court in the cases of Managing Director, ECIL v. B. Karunakar, AIR 1994 SC 1074, and State Bank of Patiala v. S. K. Sharma, AIR 1996 SC 1669 as held by a Division Bench of this court in the case of Arti Ship Breaking vs. Director of Income Tax (Investigation) and others reported in (2000) 244 ITR 333.”