Single Business Transaction Cannot Justify Income Tax Case Transfer: Calcutta High Court
The Calcutta High Court on 13 October held that a single business transaction, without evidence establishing a link between a taxpayer's business activities and a group under investigation, cannot justify transferring an income tax case to another city.
Justice Smita Das De allowed a petition filed by Loknath Prasad Gupta challenging the transfer of his income tax case from Kolkata to Delhi for a coordinated investigation into his alleged links with the NML Group. The Bench held:
“...The respondent authorities have not been able to demonstrate from the incriminating materials as to whether there was any element of interlacing of funds and interconnection of business activities with NML Group, at whose place the search was conducted. Such decision arrived at by the respondent authorities are not sustainable since the same has been decided arbitrarily, in excess of jurisdiction and without proper application of mind and is liable to be quashed and set aside.”
The dispute arose from a business advance of Rs. 2.82 crore that Gupta paid to GMZ Commodities India Private Limited in November 2022. He stated that the amount was transferred through banking channels and returned in full within the same financial year after the proposed transaction did not materialise.
The Income Tax Department sought to transfer Gupta's case to Delhi, alleging that the transaction was linked to the NML Group, which had been searched in December 2023. The Department argued that the transfer was necessary for a coordinated investigation into suspected accommodation entries.
Gupta challenged the transfer, submitting that he had been assessed in Kolkata for years and that his business records, tax consultants and legal advisers were based there. He denied having any business or financial connection with the NML Group beyond the transaction and argued that the authorities had not established any wider link to justify transferring his assessment.
The Court acknowledged the Department's right to investigate suspected tax evasion but found that the transfer order failed to establish any connection between Gupta's business activities and the NML Group that would justify shifting his assessment to Delhi.
It directed the Delhi authorities to send all relevant evidence, seized material and investigation reports to the Assessing Officer in Kolkata within four weeks. The Kolkata officer may independently examine the transaction and take action in accordance with law.
Further, the Bench directed Gupta to cooperate with the investigation and appear before the Delhi authorities through video conferencing whenever required. It ordered that no coercive action be taken against him for not appearing physically in Delhi during the intervening period.
Accordingly, the High Court quashed the transfer order and directed that Gupta's income tax case remain with the Assessing Officer in Kolkata.
For Petitioner: Senior Advocate J.P. Khaitan, Pratyush Jhunjhunwala and Sakshi Singhi
For Respondent: Taraknath Jaiswal