TMI Blog1969 (11) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1962-63. In pursuance of the said notice, she submitted returns of income for six assessment years 1959-60 to 1964-65 and claimed that the construction of the house was started in 1958 and completed before 31st March, 1961, and further claimed that her income be spread over these years. In the course of the assessment proceedings for these years, the petitioner was examined and also other factors were taken into account and the explanation of the petitioner's wife was accepted. Her income for these years was assessed and the tax determined. Thereafter, the Income-tax Officer, M.P.P. Circle "A " Ward, Hyderabad, the respondent herein, issued the impugned notice 133-R/61-62 dated 24th November, 1965. This notice was preceded by another notice, G. I. No. 133/61-62, dated 5th November, 1965, in which the petitioner was informed that since his wife apparently has no independent source of income, the investment made by her in the house in all probability must have belonged to him, and that he, therefore, proposed to initiate action under section 147 of the Act to reopen his assessment from 1961-62 onwards and to include therein the investment of the construction of the house and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is necessary to read section 147 of the Act so far as it is relevant for our purposes : " 147. 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 1.- For the purposes of the section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefrom. A close reading of the said notice would disclose that the information in the possession of the respondent is about the completion of the house by the end of the financial year 1960-61, i.e., before 31st March, 1961. That was a fact which was asserted by the petitioner's wife and accepted by the Income-tax Officer, C-III Ward. The second fact mentioned in the notice, namely, that the investment was that of the petitioner's wife was also accepted by the concerned officer, although no proof of the actual gift made by her father at the time of marriage was forthcoming. Still it was on that basis that the house was treated to have been constructed by her and the income therefrom was treated to be her income and she was assessed to tax. It is not as if the identity of the assessee therein was not disclosed. In fact the officer concerned knew that the petitioner herein was the husband of the assessee and the petitioner was also present before the officer during the enquiry. On these two facts the conclusion which the respondent came to was that in all probability the investment of the house must have flowed from the petitioner. This is neither a necessary nor an inevitable con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Rajahmundry, that in order that the Income-tax Officer may exercise jurisdiction under section 147 of the Act, where the jurisdiction is exercised under clause (a) or clause (b) he must have reason to believe that any income chargeable to tax has escaped assessment. The expression "reason to believe" in section 34 (corresponding to section 147) of the Income-tax Act, does not mean a purely subjective satisfaction on the part of the Income-tax Officer. That belief must be held in good faith ; it cannot be merely a pretence. To put it differently, it is open to the court to examine the question 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. To this limited extent, the action of the Income-tax Officer, in starting proceedings under section 34 of the Act, is open to challenge in a court of law. Keeping this principle in view, we have to examine the facts of the instant case. As already pointed out, the Income-tax Officer while, on the one hand, holding that the investment made by the petitioner's wife is her own investment and the income derived ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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