TMI Blog2004 (3) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... 31, 2003, by which proceedings under section 147 of the Act have been initiated to reassess the income of the petitioner which is alleged to have escaped assessment. Before adverting to the dispute, the relevant facts may first be noticed. The petitioner claims to be carrying on trading business. He filed his return of income for the assessment year 1996-97 on March 31, 1998, declaring an income of Rs. 51,850. In the documents accompanying the return, he had disclosed he had earned long-term capital gains of Rs. 1,93,492 on sale of 5000 shares of Nilamber Holdings Ltd. These shares were shown to have been through M/s. Maheshwari Sons on March 24, 1994, for Rs, 17,750. The sale was also shown to have been made through the same party on May 25, 1995 for Rs. 2,12,750. The capital gain was computed by adopting the indexed cost of shares at Rs. 19,258, Income from capital gains was claimed to be exempt under section 54F of the Act, on account of the same having been invested in the construction of a residential house. The return stood accepted as no assessment under section 143(3) of the Act was made. The petitioner, thereafter, received the impugned notice under section 148 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttal, chartered accountant, on which the report of the 001 (Investigation) is based, are totally general in nature and do not specifically brand the transactions with the petitioner as bogus. He further submitted that Shri Parveen Mittal in his statement had merely stated that "more than 95 per cent. of the transactions from account were pertaining to bogus capital gains of shares which were given to different clients/assessee". Thus, it was pleaded, that even on the basis of this statement, it could not be concluded that all the transactions in the bank account of M/s. Maheshwari Sons were bogus. He, therefore, contended that it was incumbent upon the Assessing Officer to make further probe into the transactions relating to the petitioner before recording satisfaction that the same were bogus. In support of his contention, counsel placed reliance on the judgments of the Supreme Court in Chhugamal Rajpal v. S.P. Chaliha [1971] 79 ITR 603 and ITO v. Lakhmani Mewal Das [1976] 103 ITR 437. He also relied on the judgment of this court in CIT v. Narinder Nath Parveen Chand [1975] 101 ITR 7. We have heard counsel for the petitioner and have perused the relevant material. Before iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 nondisclosure. 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." It has been correctly pointed out by learned counsel for the petitioner that for forming a valid reason to believe about the escapement of income, there has to be some material before the Assessing Officer having a rational connection or live nexus with the formation of such belief. It is on this touchstone that the validity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the transactions of sale and purchase of shares alleged to have been transacted through M/s. Maheshwari Sons in this account were not genuine. Thus, the disclosure of these transactions with the original return cannot be said to be disclosure of "true" facts of the case. The petitioner cannot derive any support from the statement of Shri Parveen Mittal, chartered accountant, as in the information supplied with the original return, the transactions had not been shown to have been entered into through him. Even otherwise, in the face of the total denial of account-holder Shankar Hari Maheshwari, his statement cannot carry much weight. In Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC), the validity of a notice under section 148 of the Act in somewhat similar circumstances, had come up for consideration. In that case, the assessee at Azamgarh had claimed that it had borrowed a loan from a Calcutta company in the year 1962. The loan was stated to have been repaid in cash in 1968, but the interest thereon was paid during the assessment years 1963-64 to 1968-69 by cheques or by bank drafts. In order to prove the loan transaction, the assessee produced a copy of account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement made by the assessee at the time of the original assessment is different from drawing a fresh inference from the same facts and material which were available with the Income-tax Officer at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the 'true' and 'full' facts in the case and the Income-tax Officer would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness of the loan transaction but, in our opinion, his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the Income-tax Officer acquired reasons to believe that income charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account in the Punjab National Bank, Karol Bagh, Delhi, and had further stated that if there was such an account, it might have been opened by someone farzi in his name with which he had no concern. In view of this categorical stand, it was not necessary for the Assessing Officer to further confront him with any specific transaction in the said account for recording a prima facie satisfaction about the escapement of income. Thus, according to us, the present case is fully covered by the ratio of the judgment of the apex court in Phool Chand Bajrang Lal.'s case [1993] 203 ITR 456. We may also mention that counsel for the petitioner had also made an attempt to show that the view taken by the apex court in Phool Chand Bajrang Lal's case [1993] 203 ITR 456 was in conflict with its earlier view in Chhugamal Rajpal's case [1971] 79 ITR 603 (SC). He, therefore, contended that since Chhugamal Rajpal's case [1971] 79 ITR 603 (SC) was decided by a larger Bench of three judges, the ratio of Phool Chand Bajrang Lal's case [1993] 203 ITR 456 (SC) be not applied. There is no merit in this contention. As already noticed above, the Supreme Court in Phool Chand Bajrang Lal's case [1993] 203 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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