Delhi HC Set Aside Income Tax Transfer Orders Passed for Mere Administrative Convenience & Coordinated Investigation: Mandates Speaking Order with Proper Reasons & DIN [Read Order]

The High Court of Delhi has set aside two transfer orders passed under Section 127(2) of the Income Tax Act, 1961, emphasising the importance of issuing speaking orders with proper reasons and adhering to the requirement of a Document Identification Number (DIN).

The case involved two petitioners, Kamlesh Kumar Jha and Sushma Jha, who challenged the transfer of their income tax cases from Deputy Commissioner of Income Tax (DCIT) Mumbai to DCIT, DCIT, Mumbai.

The petitioner assessees, represented by Ms Aabgina Chishti challenged the transfer orders arguing that the same are non-speaking orders and lacked proper reasons and Document Identification Number (DIN).

The petitioners argued that the transfer orders were non-speaking orders, as they did not contain any reasons for the transfer, in violation of the statutory requirement under Section 127(1) of the Income Tax Act.

It was also contended that the orders did not bear DIN, contravening the guidelines outlined in Circular No. 19/2019 issued by the Central Board of Direct Taxes (CBDT).

The respondent revenue, represented by Mr. Aseem Chawla, Ms. Pratishtha Chaudhary and Mr. Aditya Gupta argued that the transfer of income tax cases to DCIT, Mumbai, was necessary due to a coordinated investigation involving the Suumaya Group, which was based in Mumbai. However, the respondent did not wish to file counter-affidavits and intended to argue based on the existing court record.

The bench observed that the orders lacked proper reasoning and did not address the concerns raised by the petitioners in response to the transfer notice.

The Court cited the judgment in Ajantha Industries v. Central Board of Direct Taxes, wherein it was established that the requirement for recording reasons under Section 127(1) of Income Tax is mandatory and non-communication of these reasons renders the order invalid.

The bench further highlighted that the reasons for recording in the order and communicating them to the assessee are essential to enable them to challenge the order on grounds such as arbitrariness, mala fides or reliance on irrelevant factors. Therefore, the failure to communicate the reasons is a serious infirmity that invalidates the order.

In addition to the absence of proper reasoning, the Court pointed out that the transfer orders also did not comply with Circular No. 19/2019, which mandates the use of a DIN on all communications issued by tax authorities. The DIN is crucial for maintaining transparency and accountability in official correspondence.

The court emphasised that transfer orders should be issued with clear and specific reasons, as required by law.

In result, the division bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia set aside the transfer orders and also granted the Principal Commissioner of Income Tax the liberty to proceed with the transfer process, provided that it is done in accordance with the law and addresses the concerns raised by the petitioners. The Court emphasized that the mere use of phrases like “administrative convenience and coordinated investigation” without substantive reasons would not suffice.

To Read the full text of the Order CLICK HERE

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