AJANTHA INDUSTRIES AND ORS versus CENTRAL BOARD OF DIRECT TAXES, NEW DELHI & OTHERS

Citation: [1976] 2 S.C.R. 884 · Decided: 05-12-1975 · Supreme Court of India · Bench: KUTTYIL KURIEN MATHEW · Disposal: Appeal(s) allowed

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Judgment (excerpt)

A 
B 
c 
D 
884 
AJANTHA INDUSTRIES AND ORS. 
v. 
CENTRAL BOARD OF DIRECT TAXES, 
NEW DELHI & OTHERS 
December 5, 197.5 
[K. K. MATHEW, P. K. GOSWAMI AND N. L. UNTWALIA, JJ.] 
J11co111e Tax Act, 1961-Section 127(1)_.:_Recording of reasons and cdm-
munication thereof is mandatory-Non.communication to the cissessee is l"io/a-
tive of the principles of natural justice-Purport of recdrding of reasons. 
The appellants were assessees under the Income Tax Act under the juris-
diction of the Income Tax Officer, Nellore since a number of 
yean. On 
23-1-1973, the Central Board of' Direct Taxes sent a notice to the appellants. 
under s. 127(1) of the Income Tax Act proposing to transfer their case files 
"for facility of investigations" from the respective Income Tax Officer, Nellore 
to the Income Tax Officer 'B' Ward, Special Circle II, Hyderabad and called 
for objections, if any, to the proposed transfer within fifteen days of the receipt 
of the notice. 
Despite their reprnsentations objecting to the transfer, the Central 
Board. ordered the transfer on 26-7-1973. The validity or the order was ques-
tioned before the Andhra Pradesh High Court by an application under Article 
~26 of the Constitution on the ground of violation of principles of natural justice 
rnasmuch as neither the reasons were given nor communicated in tlie said. 
order. 
The writ petition was dismiilSed by a single Judge holding that mere failure 
to communicate the reasons which were found by him to have been recorded 
in the files, to the appellants was not fatal. The Letters Patent Appeal before 
the Division Bench failed. 
Allowing the appeal by special leave and rejecting 
E 
the contentions of the Revenue. namely. 
F 
G 
H 
(a) that the reasons given in the notice under s. 127(1) calling for objec-· 
tions; namely, "facility for investigations" can be read a9 a part of the impugn. 
ed order. 
(b) that recording of the reasons in the file, although not communicated to 
the assessee, fully meets the requirements of s. 127 (I) and 
(c) that the orders under s. 127 (!) being_ "purely administrative in nature,. 
it was not necessary to give the assessec an opportunity to be heard and there 
was consequently no need to record reasons for the transfer, the Court 
HELD: (l) Unlike s. 5(7A) of the J922 Act, s. 127(1) of the Income 
Tax Act, 1961, requires reasons to be recorded prior to the passing of an order 
of transfer. 
Once an order is passed transferring the case file of an assessee to 
another area, the order has to be communicated. Communication of the order 
is an absolutely essential requirement since the assessee is then immediately 
made aware of the reasons which impelled the authorities to pa9s the order of 
transfer. The Legislature bas imposed the requirements of show-cause notice 
and also recording of reasons to avoid a great deal of inconvenience and the· 
monetary loss if a case file is transforred from the usual place of residence or 
office where originally assessments are made to a distant place. 
[888A, 889A-B] 
(2) The reas<;m for recording of reasons in the order and making these 
reasons known is to enable an opportunity to The assessee to approach the Htgh 
Court under its writ jurisdiction under Article 226 of the Constitution or even 
the Supreme Court under Article 136 of the Constitution in an appropriate case 
for challenging the order, illter alia, either on the ground it _is m~/a fide or 
arbitrary or tllat it is based on irrelevant and extraneous constderahons, irres-
pective of the result of such a writ or special leave application. 
[889C-DJ 
•
r
AJANTHA INDUSTRIES V. CENTRAL BOARD OF tAXES 
885· 
(Goswami, /.) 
(3) Recording of reasons and disclosure thereof is not a mere formality. 
The requirement of recording reasons under s. 127 (1) of .the. Income Ta.x 
A.ct is a mandatory direction under the law and non-commumcat10n thereof is 
not saved by showing that the reasons exist in the files although not commu-
nicated to the assessee. 
[889-E] 
Pannalal Binjraj and Another v. Tl1e Union of India and Others, [1957] 31 
J.T.R. 565, applied. 
A. 
Sunanda Rani Jain v. Union of India and Others, [1975] 9'9 J.T.R. 391, over-
B• 
ruled. 
Shri Pragdas Umar Vaishya v. Union of India and others, [1967] 12 
Madhya Pradesh Journal 868, discussed. 
(4) When law requires reasons to be recorded in a particular order affec:C 
ing prejudicially the interest of any person, who can challenge t~e or.der m 
Court, it ceases to be a mere a

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