TMI Blog1976 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by appellant No. 2 (Income-tax Officer, E Ward, Hundi Circle, Calcutta) (hereinafter referred to as the appellant) for the purpose of reopening the assessment of the income of the respondent for the assessment year 1958-59. The respondent was assessed for the assessment year 1958-59 under section 23(3) of the Indian Income-tax Act, 1922, on June 14, 1960. His total income was assessed to be Rs. 37,872. While making the assessment the Income-tax Officer 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 satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, and also hundi loan credit in the name, Mohansingh Kanyalal, who has since confessed he was doing only name-lending. In the original assessment these credits were not investigated in detail. As the information regarding the bogus nature of these credits is since known, action under section 147(a) is called for to reopen the assessment and assess these credits as the undisclosed income of the assessee. The assessee is still claiming that the credits are genuine 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 he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso been advanced by Dr. Pal that the material on the basis of which the Income-tax Officer initiated these proceedings for reopening the assessment did not have a rational connection with the formation of the belief that the assessee had not made a true disclosure of the facts at the time of the original assessment. Before dealing with the points of controversy, it would be useful to reproduce the relevant provisions of the Act. Sections 147 and 148 which deal with 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, at any time after the expiry of four years from the end of the relevant assessment year." Section 151 pertains to the sanction for issue of notice and reads as under: "151. Sanction for issue of notice.--(1) No notice shall be issued under section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. (2) No notice shall be issued 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by 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 cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee's omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year; nor could it be said that he, as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that year. We are not satisfied that 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched,. which would warrant the formation of the belief relating to escapement of the income of the assessee. from assessment. The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment 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 ass ..... 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