How Scrutiny Case Transfer by ITO to DC/AC Circle Suo Moto May Make Assessment Order Illegal !

It may just happen to you that you are filing your return with Income Tax Officer regularly. In one year , your total income went up and unfortunately , you received scrutiny notice u/s 143(2) from I.T.O . But one fine day , you are receiving a notice from the Assistant Commissioner of Income Tax (ACIT) or Deputy Commissioner of Income tax of the same range under same CIT asking you to appear or answer questions related to scrutiny. The enquiry with his office will reveal that since the income or loss crossed the limit  set as per CBDT instruction , case has been transferred by the ITO to ACIT/DCIT . So , now you are appearing before a new officer .

Similarly, many time even the DCIT/ACIT transfer the case to ITO invoking the same CBDT instruction that the income is less than Rs 30/20/15 Lakhs as the case maybe

This post is going to discuss why the suo-moto action by the officer may just turn the assessment order illegal and without jurisdiction.

In other words, the moot point is that whether the scrutiny case can be transferred by one officer to another without any order passed by Commissioner under section 127 , merely based on the CBDT instruction fixing jurisdiction based on quantum of total income ?

Monetary Limits Instruction for Assigning Cases to A.O

Read the latest CBDT instruction no 1/2011 which fixes jurisdiction of ITOs over cases where return income is  Rs 15 lakhs or less in cases of non-companies cases . However , in recent times , the CBDT has increased the amount to Rs 30 Lakhs in case of companies in metro cities and Rs 20 Lakhs in case of non metro cities.

INSTRUCTION NO. 1/2011 [F. NO. 187/12/2010-IT(A-I)], DATED 31-1-2011

References have been received by the Board from a large number of taxpayers, especially from mofussil areas, that the existing monetary limits for assigning cases to ITOs and DCs/ACs is causing hardship to the taxpayers, as it results in transfer of their cases to a DC/AC who is located in a different station, which increases their cost of compliance. The Board had considered the matter and is of the opinion that the existing limits need to be revised to remove the above mentioned hardship.

An increase in the monetary limits is also considered desirable in view of the increase in the scale of trade and industry since 2001, when the present income limits were introduced. It has therefore been decided to increase the monetary limits as under:

  Income Declared (Mofussil Income Declared
  areas) (Metro cities)
Corporate returns Upto Rs. 20 lacs Above Rs. 20 lacs Upto Rs. 30 lacs Above Rs. 30 lacs
Non-corporate returns Upto Rs. 15 lacs Above Rs. 15 lacs Upto Rs. 20 lacs Above Rs. 20 lacs

Metro charges for the purpose of above instructions shall be Ahmedabad, Bangalore, Chennai, Delhi, Kolkata, Hyderabad, Mumbai and Pune.

The above instructions are issued in suppression of the earlier instructions and shall be applicable with effect from 1-4-2011.

Transfer of Scrutiny Cases Without Order u/s 127 Illegal

Under Income Tax Act, the power of transfer of jurisdiction has been delegated  to Commissioner of Income Tax Act under section 127 . This provision clearly prescribes the manner of transfer of case in following situations :

  • From one A.O to another under same CIT
  • From one A.O to another A.O who is under different CIT within same CITY
  • From one A.O to another A.O who are under different CIT in different City

Now in case of same CIT, the A.Os are transferring the case to each other based on CBDT instruction which nowhere says that such action should be taken by the A.O. It merely suggests that the jurisdiction of assessing officer must be in accordance with the guidelines. It also never suppress or usurp the power of CIT to pass order u/s 127 or it also does not relieve CIT from passing the appropriate order u/s 127.

Kolkata High Court Order on Suo-Moto Transfer of Cases

The  practice of transferring the scrutiny cases by one A.O to another A.O without any transfer order u/s 127 of the I.T.Act was termed illegal by Kolkata High Court in its order dated 5th April 2010 in Writ Petition 1229 of 2009 in case of Smt Kusum Goyal vs ITO Wd 35(3) , Kolkata [2010] 329 ITR 283 (Calcutta)

Facts involved in the case were that the assessee was an insurance agent . She filed the return of income for the assessment year 2006-07 disclosing a total income of Rs. 4.56 lakhs from all sources. In respect of the assessment years 2007-08 and 2008-09 she had filed returns disclosing total income of Rs. 12.55 lakhs and Rs. 15.66 lakhs, respectively. The assessments for the assessment years 2007-08 and 2008-09 were yet to be completed. Subsequently, the A.O issued a letter/notice to the assessee intimating that  the assessment records including the records of the earlier years had been transferred to ACIT , Circle who was holding jurisdiction over the cases whose returned income was Rs. 10 lakhs and above.

The assessee then asked for  order of transfer u/s 127. Since, no reply was forthcoming, the assessee filed instant petition contending that act of transfer of her case was invalid as section 127 postulated that an order was required to be passed by the competent authority.

Here is the excepts of the order of HIgh Court

“The question which falls for consideration is whether under section 127 of the Act an Assessing Officer on his own can transfer an income tax file to another officer and whether an order is required to be passed.”

The court held as under

“It is evident that the respondent no.2 had sought to justify his action by stating that the jurisdiction automatically gets vested with the jurisdictional officer and no order under section 127 is required to be passed.In my view, the letter/notice dated 21st October, 2009 is patently illegal since it has been held in this judgement that in case of transfer within the same city, locality or place although the opportunity of hearing as postulated in section 127(1) and (2) has been dispensed with, other statutory formalities which includes issuing an order are required to be complied with.Similarly transfer of files for the assessment years 2007-2008, 2008-2009 and the earlier years as intimated in the letter/notice dated 30th July, 2009 issued by the respondent no.1 is also bad in law.The argument of the respondents that in case of intra city transfer no order is required to be passed, cannot be accepted in view of the settled position of law in Kashiram Aggarwalla (supra) and in S.L.Singhania (supra) wherein the validity of the orders were under challenge, meaning thereby an order recording transfer has to be on the records.Therefore, since it has been held in this judgement that it is imperative on part of the respondents to issue order under section 127(3), the letters/notices under challenge are set aside and quashed. The writ petition is allowed. Consequential proceedings are also set aside and quashed. Accordingly, the notice dated 6th January, 2010 regarding the penalty proceedings under section 271(1)(c) for the assessment year 2006-07 is also set aside and quashed. The application being G.A.No. 81 of 2010 is also allowed.


Whenever you find that your case which was in scrutiny , has suddenly been transferred to another A.O without any order , you must point out or ask the new A.O for an order u/s 127 . If there is no order u/s 127 transferring the case , the assessment order itself is illegal and likely to be quashed by higher judicial authority. So , do not forget to raise the point of law citing the Kolkata High court ( supra) before CIT(A) .

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