Jurisdiction Transferred without Following S.127 of Income Tax Act: Himachal Pradesh HC quashes Assessment [Read Order]

The High Court of Himachal Pradesh, quashed the assessment order passed by the Baddi officer for Assessment Year 2009–10, holding that the transfer of jurisdiction was made without following the mandatory procedure under Section 127 of the Income Tax Act, 1961.

Deluxe Enterprises, petitioner-assessee, was set up by Mr. Vivek Bhalla in Delhi in 1997 and was allotted a PAN with a registered office in Dwarka, New Delhi. In 1999, he started a manufacturing unit in Nalagarh, Himachal Pradesh, and began operations in December that year.

His income was assessed by the Delhi officer under Section 143(3) for earlier years. However, in September 2010, the Income Tax Officer in Baddi issued notices for the assessment year 2009–10 and later passed a best judgment assessment under Section 144 in December 2011, without addressing the question of jurisdiction or considering his written reply.

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The petitioner argued that he had been filing returns in Delhi for several years and was assessed there, so the Baddi officer could not take over the case without a proper transfer under Section 127 of the Act. He filed appeals before the Commissioner of Income Tax(Appeals)[CIT(A)], Shimla, and later before Income Tax Appellate Tribunal(ITAT) Chandigarh, but both were dismissed.

The department stated that the PAN had been issued in 1999 with the Himachal Pradesh address and fell under the jurisdiction of ITO, Parwanoo. Therefore, scrutiny was rightly done based on the PAN, and there was no need to issue a transfer notice.

In response, the petitioner claimed the jurisdiction was changed without notice and reiterated that he had consistently filed returns from a Delhi address and was assessed by the Delhi officer earlier.

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The Division bench of Tarlok Singh Chauhan(Judge) and Rakesh Kainthla(Judge) heard both parties and reviewed the case records. It found that the petitioner had been filing income tax returns with one officer (respondent no. 4) since the beginning, assessments had also been completed by the same officer, including for the year 2003–04.

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The case was later handled by a different officer (respondent no. 5) without following the procedure under Section 127 of the Income Tax Act. This section required giving the taxpayer a hearing and recording reasons before transferring a case. The department admitted it had not followed this process.

The court rejected the department’s claim that the new officer alone had authority. It held that the change of officer and transfer of records required proper legal procedure, which was not done. The Court emphasized that skipping this step violated natural justice.

As the petitioner had objected to the jurisdiction, the issue should have been addressed after hearing the petitioner and giving reasons for the transfer.

The Court allowed the appeal and writ petition, and quashed the assessment orders. However, it clarified that fresh proceedings could still be initiated by following the proper legal route.

To Read the full text of the Order CLICK HERE

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