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TMI Blog1982 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... -63 were reopened by the ITO under s. 147(a) of the I.T. Act, 1961. The assessment year 1960-61 is not under reference. So far as the facts relevant for the assessment year 1959-60 are concerned, the same have been set out by the Tribunal in its order as follows: During the original assessment proceedings, the assessee filed the return of income in January, 1960, along with the balance-sheets and profit and loss account. The balance-sheets show unsecured loans from the creditors other than the banks at a figure of Rs. 9,08,800. The Income-tax Officer had apparently scrutinised the balance-sheet as is clear from his noting against the entry in the balance-sheet of Rs. 9,08,800. The Income-tax Officer had scribbled the following remarks on the face of the balance-sheet against this particular item. Details given, ledger accounts filed to be reported : On going through the miscellaneous folder for the assessment year 1959-60, one finds that the copies, of accounts of the creditors had been filed with the Income-tax Officer by the assessee. The address of many of the creditors had been furnished. During these assessment proceedings, the Income-tax Officer had issued a questionnai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e given for issue of notice under section 147(a)/148. 2. The Commissioner recorded his satisfaction or sanction to the initiation of these proceedings. The ITO noticed that the assessee had taken a number of loans on hundies and that these hundi credits represented the concealed income of the assessee. He found that the peak credit of the hundi loans reached Rs. 10 lakhs on 17th January, 1962, and that an amount of Rs. 2 lakhs was introduced between July, 1958, and December, 1958. He was of the opinion that these loans were of the same nature as loans surrendered by the shareholders of the assessee-company under the Voluntary Disclosure Schemes. He called upon the assessee to explain the true source and nature of these credits and when the assessee did not reply to the query letter, he had proceeded to add back the amount of Rs. 2 lakhs as income from other sources along with the interest thereon. The Appellate Assistant Commissioner noticed that the transaction impugned by the Income-tax Officer had practically been transacted in cash as, even where the cheques had been issued, they were only bearer cheques. As the transactions in respect of these loans had taken place in cash a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been rightly made. He also tried to distinguish the Supreme Court decision relied upon by the assessee from the facts obtaining before us. " After noting the aforesaid contentions, the Tribunal, observed, inter alia, as follows: " We have heard the rival contentions advanced by both the sides at length and we, are inclined to agree with the submissions made by the assessee's representative that the reassessment proceedings were not validly initiated. The necessary condition to be satisfied for the reopening of the assessment under section 147(a) is that the Income-tax Officer must have reason to believe that income has escaped the assessment owing to the failure of the assessee to furnish material particulars. This belief on the part of the Income-tax Officer must not be founded on suspicion, rumour, gossip or caprice. It is no doubt trite law that sufficiency of the reasons in such circumstances is not justifiable. However, the Supreme Court has laid down on more than one occasion that it is open to us to look into the reasons given by the Income-tax Officer to find out whether the Income-tax Officer had prima facie reasons to believe that there was an escapement of income on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in the statement in which the Income-tax Officer has recorded his reasons to indicate that the hundi creditors were all bogus. There is no reference to the confessions made by the hundi bankers or to any information that those hundi creditors were bogus. The mere ipsi dixit of the Income-tax Officer that some income is concealed and that he has reason to believe that the income has escaped assessment would not by itself confer jurisdiction on him to reopen the assessment. The facts are very close to the Supreme Court decision in the case of Sheo Nath Singh [1971] 82 ITR 147. We may also refer to the unreported decision of the Calcutta High Court relied upon by the departmental representative and point out that in that case also, the assessment proceedings were struck down by the High Court by following the decisions of the Supreme Court referred to above. In the case before the Calcutta High Court, the Income-tax Officer had even mentioned that there was information regarding the bogus nature of the credits which had since been known. Even then the Calcutta High Court held that the proceedings were bad as the important safeguards provided in sections 147 and 151 were lightly tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with their addresses and income-tax file numbers. Confirmatory letters had also been filed. In the circumstances similar to those obtaining for the assessment year 1961-62, the Income-tax Officer reopened the proceedings for the assessment year 1962-63 for reasons recorded by him in a separate sheet which is almost identical to that for the earlier years except for the amount mentioned therein. . During the reassessment proceedings, the Income-tax Officer proceeded on the peak basis and found that there was a peak of Rs. 9,20,000 on 18th December, 1961. Deducting the amount of Rs. 3,25,000 taxed in the earlier years, he added the sum of Rs. 5,95,000 along with another cash credit in the name of New India Saw Mills. The interest on these loans was also disallowed. The Appellate Assistant Commissioner found that the peak was Rs. 4,20,000 on 30th October, 1961. As for the loans appearing thereafter, he excluded all the loans transacted through cheques on the strength of the bank certificates and reduced the addition of Rs. 3,85,000. The assessee's representative contested before the Tribunal the validity of the reassessment proceedings and further criticised the Appellate Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings for the assessment year 1963-64 though in the reassessment orders the ITO had mentioned that the reassessments were resorted to in the course of the assessment proceedings for the assessment year 1963-64. Similarly, there was no reference in these reports to any confession, if any, made by the creditors or to any information that the creditors were name-lenders. Apart from the ipsi dixit of the officer what the Tribunal described, the reasons given by the ITO in the reports had no nexus or relation to the belief entertained by him, whatever materials might or might not have existed in support of the ITO's belief that the conditions in s. 147(a) were not satisfied. In these circumstances, the Tribunal held that there were no reasons, in view of the well-settled principles of law for the reassessment. The grounds for reopening assessment under s. 147(a) of the I.T. Act, 1961, are well settled. There must be some reasons or materials existing before reopening which have a rational nexus to the formation of the belief by the ITO. There has been either non-disclosure or failure to disclose truly or fully all material facts or concealment of income as a result of which there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drew our attention to several authorities in aid of the proposition that all the facts or all the materials need not be stated by the ITO in his report to the Commissioner or need not be recorded prior to the reopening. In aid of his submission he drew our attention to the observations of the Supreme Court in the case of Calcutta Discount Co. v. ITO [1961] 41 ITR 191, and he relied on the observations of the Supreme Court at p. 203. He also drew our attention to the observations of this court in the case of H. A. Nanji Co. v. ITO [1979] 120 ITR 593. In aid of the same proposition, he relied on some observations of this court in the case of ITO v. Mahadeo Lal Tulsian [1977] 110 ITR 786, some observations of the Gauhati High Court in the case of Assam Forest Products (P.) Ltd. v. CIT [1977] 110 ITR 558, and also to the decision of the Allahabad High Court in the case of Phool Chand Bajrang Lal v. ITO [1977] 110 ITR 834. He also relied on the observations of this court in the case of ITO v. Mahadeo Lal Tulsyan [1978] 111 ITR 25, and also the observations of the Madras High Court in the case of Asa John Devinathan v. Addl. CIT [1980] 126 ITR 270, also the observations of the Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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