Rajasthan High Court Quashes Section 127 IT Act Assessment Transfer Order for Being Arbitrary

In a sharp rebuke to the tax authorities, the Jodhpur Bench of the Rajasthan High Court has invalidated an order passed under Section 127 of the Income Tax Act, 1961 , which attempted to transfer assessment proceedings for Murliwala Agrotech Pvt. Ltd. . Declaring the transfer "arbitrary," the Court emphasized that tax authorities cannot repeatedly subject an assessee to a "shuttlecock" situation, especially when original grounds for transfer have long since evaporated.

A Repeated Legal Tug-of-War

The dispute stems from a long-running procedural battle. In a previous round of litigation in 2022, the Rajasthan High Court had already set aside a transfer order dated November 21, 2019, citing a fundamental failure to adhere to the principles of natural justice. The Court had explicitly directed the Revenue to provide a proper hearing before attempting any further transfers.

Despite this clear directive, the Revenue authorities initiated a fresh transfer process following a brief notice. On October 19, 2022, a new order was issued for the transfer of the case from Udaipur to Delhi. The petitioner, finding themselves back in the same position they were in years prior, challenged this second attempt, arguing that the Revenue’s conduct was both defiant and lacking in substantive justification.

The Court’s Reasoning

The Division Bench, comprising Chief Justice K.R. Shriram and Justice Ravi Chirania, observed that the factual circumstances had remained largely stagnant since the 2019 transfer attempt. The only notable change cited by the Revenue was a series of formal approvals, which the Court deemed insufficient to justify the movement of the case.

Furthermore, the Court pointed to the Revenue's own "faceless" assessment system, which was specifically designed to foster transparency and eliminate unnecessary physical transfers. The judges noted that the persistent drive to shift jurisdiction was not only unreasonable but fundamentally hindered the progress of an assessment that had already been pending for over six years.

Regarding the Revenue's justification centered on a search operation against the "Brindavan group," the Court highlighted a logical fallacy: the assessment of the Brindavan group had already been completed in December 2019. Consequently, the basis for maintaining the transfer—uniformity of assessment—had lost its relevance.

Key Observations

The judgment serves as a stern reminder of the limitations on administrative power in tax matters:

• On Judicial Propriety: "We do not approve the conduct of the Revenue for being rigid and adamant to transfer the case of petitioner from Udaipur to Delhi despite passing of the previous order by the co-ordinate Bench of this Court."
• On Procedural Fairness: "The Revenue must be more concerned with examining and deciding the issue strictly as per law instead of making the assessee a shuttlecock."
• On Arbitrariness: "When the faceless system has been put in place by the Revenue itself... the act of Revenue... is neither reasonable nor justifiable but rather arbitrary."

Final Verdict: A Reset of Proceedings

The High Court has quashed the October 19, 2022, transfer order and declared all adverse orders passed during the pendency of the writ petition as illegal. Crucially, the Court has permitted the Revenue to resume proceedings from the stage existing prior to the initial 2019 transfer orders.

While the Court maintained that the Revenue retains the right to take steps under Section 153C or other relevant provisions of the Income Tax Act, it made clear that such liberty is not a blank check for administrative harassment. The order reinforces the principle that procedural mechanisms under the Income Tax Act must serve the interest of justice and transparency, rather than becoming tools for administrative overreach.