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TMI Blog2008 (4) TMI 452X X X X Extracts X X X X X X X X Extracts X X X X ..... M. V. Seshachala for the appellants. A. Shankar for the respondent. JUDGMENT The judgment of the court was delivered by 1. DEEPAK VERMA J. - Heard Sri M. V. Seshachala, learned counsel for the appellants and Sri A. Shankar, learned counsel for the respondent. This order shall also govern disposal of I. T. A. Nos. 105 of 2002 and 106 of 2002. which are for the assessment years 1989-90, 1990-91 and 1993-94, respectively, arising out of common order passed by the Income-tax Appel late Tribunal. It has not been disputed before us that in all the aforesaid appeals, which are at the instance of the Revenue, common questions of law have been formulated, which are required to be adjudicated by this court. 2. These appeals under section 260A of the Income-tax Act, 1961 (hereinafter referred to in short as "the Act"), are at the instance of the Revenue against the order dated October 30, 2001 passed by the Income-tax Appellate Tribunal, Bangalore Bench "C" in I. T. A. Nos. 545 to 552/Bang/2000 for the aforesaid assessment years. The appeals before the Tribunal were at the instance of the assessee against the consolidated order passed by the Commissioner of Income-tax (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidual delivering the income by way of insurance commission, income from house property, etc. During the course of search, the following valuables were seized by the Department: Rs. (i) Cash 9,00,000.00 (ii) Pawned gold articles 9,47,584.00 (iii) Pledged NSCs 45,70,843.00 (iv) F.D.Rs. 9,24,300.00 It has not been disputed before us that pursuant to the search conducted in the premises of the assessee, he had made declarations/statements under section 132(4) of the Act on August 23, 1994, and again on September 28, 1994. He later on retracted the said statements mentioning therein that the same were obtained under duress and coercion and he did not understand the implication of the same. In the letter of retraction addressed by the assessee to the Department, he further went on to state that on the dates of his recording statements, he was not keeping well. Retractions were made by the assessee on October 18, 1994 and December 17, 1994. By the later retraction he further elaborated the circumstances under which he was required to make the earlier statement under section 132(4) of the Act and reiterated his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and proceeded to reject the appeals on the merits. 10. Further feeling aggrieved by the said orders passed by the Commissioner of Income-tax (Appeals), he was constrained to prefer appeals before the Income-tax Appellate Tribunal. The said appeals having been allowed by the Tribunal and the findings having been recorded in favour of the assessee, now these appeals are before us at the instance of the Revenue, as mentioned hereinabove under section 260A of the Act. 11. We have accordingly heard learned counsel for parties at length and perused the records. 12. The basic and foremost question that crops up for consideration before this court is as to what will be the evidentiary value of the statements of the assessee, recorded under section 132(4) of the Act, which were admittedly retracted by him, even before issuance of notice to him under section 148 of the Act. 13. Learned counsel for the appellants-Revenue Sri M. V. Seshachala submitted that once the statement was given by the assessee, there is no provision in the Act to retract the same. Hence, the Tribunal could not have proceeded on the basis that the assessee had retracted his statements given under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 132 of the Act. In fact, similar prayer was already made by the assessee as far back as on December 7, 1994. Since cognizance of this retraction had not been taken by the Assessing Officer, the assessee was constrained to approach the Deputy Commissioner of Income-tax for necessary direction under section 144A of the Act. On this, an order came to be passed by the Commissioner on March 16, 1998, and the Assessing Officer was issued the following directions: "(a) to afford another opportunity of being heard to the assessee before finalising reassessment proceedings with reference to the disclosure made under section 132(4) and seized material, etc., and complete the said assessment for the said assessment year on the basis of his finding; (b) in case, the assessee fails to furnish satisfactory evidence in support of his retraction of disclosure under section 132(4) notwithstanding another opportunity provided to him (vide (a) above), the Assessing Officer is directed to complete the reassessment for the assessment year as per his proposal, vide reference above. The assessee has undertaken to furnish all particulars on or before March 23, 1998." 16. The Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Narayanappa v. CIT [1967] 63 ITR 219 (SC) (ii) Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC) ; and (ii) GKN Driveshafts ( India ) Ltd. v. ITO [2003] 259 ITR 19 (SC). 21. In the case of S. Narayanappa v. CIT [1967] 63 ITR 219, the Supreme Court dealing with section 34(1) (a) of the Indian Income-tax Act, 1922, has held as under (headnote): "The expression 'reason to believe' in section 34 does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section." 22. It has been further held in the said judgment that those reasons must be sufficient for a prudent man to come to the conclusion that the income had escaped assessment. In this regard, it has been held that two of the following conditions must be fulfilled before a case is sought to be reopened, namely, (1) the first condition is that the Income-tax Officer must have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T [1996] 217 ITR 1 (Guj) (iii) H. Noronha v. ITO [1982] 133 ITR 199 (Karn) (iv) Chhugamal Rajpal v. S. P. Chaliha [1971] 79 1TR 603 (SC) (v) Equitable Investment Co. (P.) Ltd. v. ITO [1988] 174 ITR 714 (Cal); (vi) Hindustan Lever Ltd. v. R. B. Wad/car [2004] 268 ITR 332 (Bom); (vii) Indian Oil Corporation v. ITO [1986] 159 ITR 956 (SC) (viii) Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 1TR 1 (SC) (ix) Unreported judgment of this court passed by learned single judge in (W. P. No. 11573/1989, decided on January 11, 1991) - A. Nagappa v. Asst. CIT. Mangalore. (x) Appellate judgment passed by the Division Bench in W. A. No, 928/1991 (decided on March 19, 1991) - Asst. CIT v. A. Nagappa, Mangalore . 27. In the matter of Madnani Engineering Works Ltd. [1979] 118 ITR 1, it has been held as under by the apex court (page 5): "We may also point out that though it was contended in the writ petition that the Income-tax Officer could have no reason to believe that any part of the income of the respondent had escaped assess ment by reason of its failure to make a full and true disclosure of material facts, the Income-tax Officer did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment or alternatively not withstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in con sequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year." 32. The Calcutta High Court in the matter of Equitable Investment Co. (P.) Lid. v. ITO [1988] 174 ITR 714, has examined all the previous judgments of the Supreme Court and the High Court on the issue, to come to the following conclusion (page 727): "Accordingly, in our opinion, it is not open to the Commissioner to support the notice under section 148 on the basis of material which does not find place in the report." 33. Confronted with an identical fact situation, the Bombay High Court in the matter of Hindus tan Lever Ltd. [ 268 ITR 332 has held as under (page 338): "It is needless to mention tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have led the appellant to entertain reasons to believe that income chargeable to tax had escaped assessment for the relevant assessment year. It is imperative that the reasons should have a rational and relevant nexus to the formation of such belief. We do not find such nexus." 36. The Supreme Court had the occasion to consider this aspect of the matter in Ganga Saran and Sons P. Ltd. [1981] 130 ITR 1, wherein it has dealt with the situation beautifully by holding as under (page 11): "It is well settled as a result of several decisions of this court that two distinct conditions must be satisfied before the Income-tax Officer can assume jurisdiction to issue notice under section 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income-tax Officer would be without jurisdiction. The important words under section 147(a) are 'has reason to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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