The Punjab and Haryana High Court has held that setting aside an income tax search and seizure operation does not automatically invalidate an independent order transferring the taxpayer’s assessment jurisdiction under Section 127 of the Income Tax Act, 1961 and refused to quash notices issued under Sections 142 and 148 by the assessing authority to whom the case had been transferred.
The Bench of Justice Ashwani Kumar Mishra and Justice Kuldeep Tiwari protected the taxpayer’s right to challenge assessment orders passed during the pendency of the petitions, directing that the appropriate appeals be entertained on merits without objections regarding delay.
The appellant/assessee is a Panchkula businessman operating under the name M/s Chemical Resources. The Income Tax Department initially conducted a survey under Section 133A, which was subsequently converted into search and seizure operations at his residential, office and business premises between September 6 and September 8, 2016.
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The assessee challenged the conversion in an earlier writ petition. In those proceedings, the High Court noted that he had cooperated with the authorities and voluntarily disclosed cash amounting to ₹2,09,89,090 kept in a safe. He had handed over the keys and explained that the money represented an advance received in a business transaction.
The Court also found that the summons issued to him were vague and that the requisite satisfaction regarding non-cooperation or a bona fide suspicion of concealed income had not been recorded.
On May 22, 2019, the High Court quashed the impugned action and directed that consequential benefits flow to the taxpayer. According to the present judgment, that decision attained finality following dismissal of the Department’s appeal before the Supreme Court.
The subsequent litigation concerned notices dated March 30, 2021, under Section 142(1), and March 31, 2021, under Section 148, issued by the DCIT/ACIT, Central Circle-II, Chandigarh.
A connected petition challenged notices dated March 7, 2022, under Section 142 for assessment years 2016–17 and 2017–18. The judgment also records that the Section 142 notices in dispute concerned assessment years 2016–17, 2017–18 and 2018–19.
The taxpayer argued that these proceedings violated the earlier judgment quashing the search. His central contention was that the transfer of his case from Panchkula to Chandigarh had resulted from the search and therefore could not survive its invalidation.
The Department had issued a notice on December 15, 2016, proposing to centralise Goel’s case with Central Circle-II, Chandigarh. He initially objected to the proposal.
On January 4, 2017, the Principal Commissioner of Income Tax, Panchkula, passed an order under Section 127(2)(a), transferring jurisdiction from DCIT Circle, Panchkula, to DCIT/ACIT, Central Circle-II, Chandigarh.
The order cited administrative convenience and coordinated investigation. It also recorded that, following discussion, the taxpayer’s authorised representative had conveyed no objection to centralisation.
The High Court emphasised that this transfer order had never been challenged. Even in the present writ petitions, there was no prayer seeking its quashing.
The taxpayer argued that once the search had been declared unlawful, all proceedings flowing from it—including the jurisdictional transfer and subsequent notices—became unsustainable.
He relied on the principle that when the foundation of an action is removed, the superstructure built upon it must fall. He also cited decisions concerning proceedings undertaken by authorities lacking jurisdiction.
Addressing the recorded consent to centralisation, his counsel submitted that the no-objection had been obtained under duress and was inconsistent with his earlier written objections.
The Department countered that Section 127 conferred an independent administrative power. It argued that the transfer could not be treated as a direct legal consequence of the search merely because it facilitated investigation following that search.
The High Court accepted the Department’s position, holding that the transfer of jurisdiction under Section 127 is an administrative action that may be undertaken for administrative convenience or in the public interest.
The Bench explained that the provision independently empowers the competent authority to transfer a case. Its exercise does not become a direct consequence of search and seizure merely because the two actions are factually connected.
The Court acknowledged that facilitating the investigation arising from the search could have formed part of the administrative reasons for centralisation. Nevertheless, the transfer retained its character as a separate administrative decision.
It therefore held that invalidation of the search did not automatically render the January 4, 2017 transfer order illegal.
The Bench also examined the scope of the earlier direction granting consequential benefits.
It held that such relief covers the direct and natural consequences of quashing the challenged action. It does not automatically extend to an independent administrative order passed in separate proceedings merely because a connection can be established through reasoning.
In the context of search proceedings, the Court referred to the statutory framework under Sections 153A and 153B. It distinguished action directly dependent on a search from the separate power to transfer assessment jurisdiction under Section 127.
Accordingly, the earlier judgment could not be read as having automatically nullified the transfer order.
The High Court declined to accept the taxpayer’s attempt to dispute the consent recorded in the transfer order through the present challenge to subsequent notices.
It observed that if the representative’s consent had been imposed or obtained involuntarily, the taxpayer could have challenged the January 4, 2017 order in appropriate proceedings.
Having failed to do so, he could not indirectly assail that order by arguing that it necessarily fell with the search proceedings.
The absence of a specific challenge to the transfer order was therefore a material consideration in rejecting the jurisdictional objection.
In support of its reasoning, the Court referred to Supreme Court decisions in Pooran Mal v. Director of Inspection (Investigation) and Income Tax Officer v. U.K. Mahapatra & Co.
The Bench explained that even where a search violates Section 132, material gathered during it is not automatically rendered inadmissible and may be used before income tax authorities, subject to law.
It also referred to the Rajasthan High Court’s decision in Commissioner of Income Tax v. Kamal and Company, which recognised the use of material collected during an illegal search or survey.
Drawing an analogy, the Bench reasoned that quashing a search likewise did not automatically invalidate a separate administrative transfer of jurisdiction.
The Court distinguished the Bombay High Court’s decision in Commissioner of Income Tax-I v. Lalitkumar Bardia. In that case, the Section 127 transfer order itself had been quashed, leaving the transferred assessing authority without jurisdiction to issue the subsequent notice.
Here, the transfer order continued to operate and had not even been challenged.
The Bench similarly held that the authorities relied upon orders passed without inherent or territorial jurisdiction and did not assist the taxpayer on the facts of this case.
The High Court concluded that the transfer to Central Circle-II, Chandigarh, was an independent administrative action. The subsequent notices under Sections 142 and 148 could not be quashed on the ground that they violated the earlier judgment setting aside the search.
Both writ petitions were dismissed without an order as to costs.
However, the Bench noted that the petitions had remained pending since 2021 and 2022 and that assessment orders and other orders had been passed during that period pursuant to the disputed notices. It therefore permitted the taxpayer to challenge those orders through appropriate appeals, which must be considered on merits without objections regarding delay.
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