Court holds isolated business transaction insufficient for inter-state transfer under Section 127 of Income Tax Act, directs coordinated investigation through Kolkata Assessing Officer
In a significant judgment delivered on October 13, 2026, the Calcutta High Court, presided over by Justice Smita Das De, set aside the Income Tax Department's order transferring the case of Loknath Prasad Gupta, Managing Director of Raja Udyog Private Limited, from Kolkata to Delhi. The transfer had been ordered under Section 127(2) of the Income Tax Act, 1961, ostensibly for coordinated investigation linked to a search and seizure operation involving the NML Group in Delhi.
The petitioner, a prominent FMCG company head with extensive business operations and assessments centered in Kolkata, challenged the transfer as arbitrary and without jurisdiction. The court meticulously examined the facts and found that the Revenue's decision was based solely on an isolated temporary business advance of Rs. 2.82 crore made by the petitioner in the financial year 2022-23 to GMZ Commodities India Pvt. Ltd., a company allegedly connected to the searched NML Group. This advance was returned within the same financial year through proper banking channels.
The Court emphasized that a single business transaction, without a structural or group nexus or cogent incriminating material linking the petitioner to the searched group, cannot justify shifting the petitioner's primary jurisdiction across states. The judgment highlighted the absence of any transaction during the financial year 2023-24 and noted that the petitioner had no business, financial, managerial, or shareholding ties with the NML Group. The Revenue's reliance on a survey report labeling the transaction as "accommodation entry" was found to be unsubstantiated, lacking documentary evidence, and contradicted by the petitioner's ledger and bank statements.
Referring to precedent judgments, the Court underscored that the power to transfer cases under Section 127 is a machinery provision that must be exercised judiciously and not arbitrarily. The Revenue must demonstrate a legitimate necessity for coordinated investigation and provide transparent and reasoned orders after affording a reasonable opportunity of hearing. Here, the Court found that the Revenue's order lacked proper application of mind, was disproportionate, and violated principles of natural justice.
While quashing the transfer order, the Court took care to protect Revenue's interest by directing the Income Tax Department in Delhi to forward all relevant seized materials and evidence to the Assessing Officer in Kolkata. The Kolkata Assessing Officer was empowered to initiate reassessment proceedings or invoke applicable provisions under the Income Tax Act as per law. The petitioner was also directed to cooperate fully with the local authorities and allowed to appear before Delhi investigation authorities through virtual mode, ensuring minimal inconvenience.
This judgment reiterates the need for a balanced approach in exercising statutory powers of transfer under the Income Tax Act, protecting taxpayers from arbitrary jurisdictional shifts while enabling the Revenue to conduct effective and coordinated investigations where legally justified.
Bottom Line:
Income Tax Act, 1961 Section 127 Transfer of assessee's case from Kolkata to Delhi for coordinated investigation - Mere isolated business transaction with entity connected to searched group, without establishing structural/group nexus or cogent incriminating material, is insufficient to justify inter-State transfer - Transfer order quashed; Revenue permitted to send materials to Kolkata Assessing Officer for investigation in accordance with law.
Statutory provision(s):
Income Tax Act, 1961 Section 127, Section 131(1A), Section 133(6), Section 147, Section 148
Loknath Prasad Gupta v. Union of India, (Calcutta) : Law Finder Doc Id # 2997150
