Reopening of assessment u/s 147 - reason to believe - Income Tax - 492/CBDT

INSTRUCTION NO. 492/CBDT Dated : April 1, 1973 Section(s) Referred: 147 Statute: Income - Tax Act, 1961 Several instructions have been issued to the officers regarding the necessity of submitting proposals for reopening assessments u/s 147 after taking into account various observations of the High Courts and Supreme Court. In this connection attention is invited to Board's letters F.No. 64/21/67-IT(inv.) dated 21.1.1967, F.No.5/229/69-IT(Inv.) dated 27.10.1969 and F.No. 289/66/71-IT(Inv.) dated 12.1.1972. Inspite of these instructions it is seen that proposals for reopening assessments received by the Board from the Commissioners do not sometimes meet the requirements of law. When this is the position regarding proposals sent to the Board there is reason to believe that proposals sent by; Income-tax Officers to Commissioners for sanction by the latter are equally defective. Sanction for starting proceedings u/s. 147(a) or (b) on the basis of such proposals very often results in loss of revenue because these proceedings are sometimes quashed by the High Courts or Supreme Court. 2. Attention of all the Commissioners and I.T.Os. is therefore invited to certain very important observations made by the Supreme Court in two recent cases. 3. In the case of Chugamal Rajpal vs. S.P. Chaliah and others (79 ITR 603) , the I.T.O. in his report to the Commissioner referred to communications received by him from the latter from which it appeared that certain creditors were name lenders and the loan transactions were bogus and that therefore proper investigation regarding the loans taken by the assessee was necessary. He did not mention in the report the material he had before him and his reason for coming to the conclusion that this was fit case for issuing notice u/s. 148. On this report the Commissioner, against the question "whether the Commissioner is satisfied that it is a fit case for the issue of a notice u/s.148 " merely noted "yes" and affixed his signature thereunder. In this case the Supreme Court held that the notice u/s 148 was invalid. Observations of the Supreme Court were as under:- " The Income-tax Officer had not even come to a prima facie conclusion that the loan transactions to which he referred were not genuine transactions: he appeared to have only a vague feeling that they might be bogus transactions. Such a conclusion did not fulfill the requirements of section 151(2). Under that section he had to give reasons for issuing a notice under section 148. He should have had some prima facie grounds before him for taking action under section 148. His conclusion that there was a case for investigating the truth of the alleged transactions was not the same thing as saying that there were reasons for the issue of the notice. The Commissioner had mechanically accorded permission. The important safeguards provided in sections 147 and 151 were lightly treated by the Officer and the Commissioner. The Income-tax Officer could not have had reason to believe that income had escaped assessment by reason of the appellant-firm's failure to disclose material facts and if the Commissioner had read the report carefully he could not have come to the conclusion that this was a fit case for issuing a notice under section 148. The notice issued under section 148 was therefore invalid". 4. In the case of Sheonath Singh Vs. A.A.C. (Central), Calcutta and others (82 ITR 147) the Income-tax Officer in his report to the then Central Board of Revenue had stated as under:- " The assessee who is or was at the relevant time a managing director in about a dozen limited companies along with 'Oberois' is believed to have made some great profits which were not offered for assessment. The assessee is believed to have received a sum of Rs.22 lakhs from Oberiois' and this sum or at least part of which represents income which has escaped assessment". The Supreme Court's observations in this case were as follows:- "The two reasons given for the belief formed by the I.T.O. hopelessly failed to satisfy the requirements of section 34(IA). The so-called reasons were stated to be beliefs thus leading to an obvious self-contradiction. There was no material or fact which had been stated on which any belief could be founded of the nature contemplated by section 34(IA) and the notices were liable to be quashed. The words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officers would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court". 5. The above two decisions of the Supreme Court may be brought to the notice of all officers under you.