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TMI Blog1976 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... er allowed deduction of a sum of Rs. 15,991 by way of expenses claimed by the respondent. The expenses included Rs. 10,494 4 as. 3 ps. by way of interest. According to the respondent, he produced through his authorised representative all books of accounts, bank statements and other necessary documents in connection with the return. On March 14, 1967, the respondent received notice dated March 8, 1967, issued by the appellant under section 148 of the Act stating that the appellant had reason to believe that the respondent's income which was chargeable to tax for the assessment year 1958-59 had escaped assessment within the meaning of section 147 of the Act and that the notice was being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax. The respondent was called upon to submit within 30 days from the date of the service of the notice a return in the prescribed form of his income for the assessment year 1958-59. On May 2, 1967, the respondent through his lawyer stated that there was no material on which the appellant had reason to believe that the respondent's income had escaped assessment and, therefore, the condition precedent for the assumption of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment proceedings for 1962-63. Commissioner's sanction is solicited to reopen the assessment for 1958-59, under section 147(a)." All the three judges who constituted the Full Bench found that the assessee was not being charged with omission to disclose all facts: he was charged for having made an untrue disclosure because the assessee had stated that he had received certain sums of money from certain persons as loans when, in fact, he had not received any sum at all from those persons. It was also stated by the assessee at the time of the original assessment that he had paid interest to certain persons when, in fact, he had not, if the information received later was true. The duty of the assessee, it was held, was not only to make a full disclosure of all material facts, his duty was also to make a true disclosure of facts and not to mislead the assessing officer by disclosing certain things which did not represent facts. The High Court accordingly held that once an assessee infringes this rule, any subsequent discovery of fact by the assessing officer which would raise a reasonable belief in his mind that the assessee had not made a true and correct disclosure of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h income escaping assessment and issue of notice where income has escaped assessment read as under: "147. Income escaping assessment.--If --(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an 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 for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). Explanation l.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued under section 148 after the expiry of four years from the end of the relevant assessment year, unless the Commissioner is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice." The provisions of sections 147 to 153 of the Act correspond to those of section 34 of the Indian Income-tax Act, 1922. There have been some points of departure from the old law, but it is not necessary for the purpose of the present case to refer to them. It would appear from the perusal of the provisions reproduced above that two conditions have to be satisfied before an Income-tax Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (1) the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under section 139 for the assessment year to the Income-tax Officer, or (b) to disclose fully a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee but not the sufficiency of the reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason 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 formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law. (See observations of this court in the cases of Calcutta Discount Co. Ltd. v. Income-tax Officer and S. Narayanappa v. Commissioner of Income-tax, While dealing with the corresponding provisions of the Indian Income-tax Act, 1922). Keeping the above principles in view, we may now turn our attention to the facts of the present case. Two grounds were mentioned in the report made by the Income-tax Officer for reopening the assessment of the assessee-respondent with a view to show that his income had been under-assessed because o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Income-tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147. Therefore, he could not have issued a notice under section 148." Reference to the names of Narayansingh Nandalal, D. K. Naraindas, Bhagwandas Srichand, etc., in the report of the Income-tax Officer to the Commissioner of Income-tax in the instant case does not stand on a better footing than the reference to the three names in the report made by the Income-tax Officer in the case of Chhugamal Rajpal. We would, therefore, hold that the second ground mentioned by the Income-tax Officer, i.e., reference to the names of Narayansingh Nandalal, D. K. Naraindas, Bhagwandas Srichand, etc., could not have led to the formation of the belief that the income of the respondent-assessee chargeable to tax had escaped assessment for that year because of the failure or omission of the assessee to disclose fully and truly all material facts. All the three learned judges of the High Court, in our opinion, were justified in excluding the second ground from consideration. We may now deal with the first ground mentioned in the report of the Income-tax Officer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before ..... X X X X Extracts X X X X X X X X Extracts X X X X
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