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TMI Blog1992 (11) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... he consecutive assessment years 1957-58 to 1959-60, the Income-tax Officer made assessments under section 143(3) of the Act on the assessee, a registered firm, at Rs. 4,03,952, Rs. 1,27,210 and Rs. 1,17,553, respectively. At the stage of the original assessments, the assessee claimed having taken hundi loans to the tune of rupees two lakhs from various parties during the accounting year 1956-57 relevant to the assessment year 1957-58. The said loans were accepted to be genuine in the original assessments and the interest liability having been claimed by the assessee on such loans, was allowed for all these years by the Income-tax Officer. Later, the Income-tax Officer was of the view that income relating to these years had escaped assessment and he, therefore, issued notices under section 148 with a, view to framing reassessments under section 147(a) of the Act. In the assessments made under section 143(3)/148 of the Act, the Income-tax Officer commonly observed: During the course of assessment proceedings for succeeding years it was found that the assessee took hundi loans from several parties and these loans were not genuine." That was why the Income-tax Officer issued notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer came to know that some of the parties in whose names the hundi loans were shown in the assessee's books had admitted before the Income-tax Officer at Bombay that they were not giving any genuine loans but were only lending their names". This is how the additions made in the assessment orders by the Income-tax Officer were upheld by the Appellate Assistant Commissioner. The assessee then carried the dispute in second appeal before the Appellate Tribunal. The Tribunal called upon the Departmental representative to furnish copies of the reasons as, recorded by the Income-tax Officer in his proposal made to the Commissioner of Income-tax for each year for initiating action under section 147(a) of the Act. The proposals made to the Commissioner of Income-tax containing identical reasons for initiating proceedings under section 147(a) were then furnished by the Departmental representative before the Tribunal which, except the variation in the figures of income originally assessed, are couched similarly as follows : " During the year under consideration, the assessee had taken hundi loans which (sic) have been proved to be fictitious.The assessee was also allowed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147(a)/148 of the Act for all these years were invalid. The answer to this question will not detain us for long as sufficient guidelines have been given by the Supreme Court in this behalf in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437. In Lakhmani Mewal Das' case, the original assessment for the assessment year 1958-59 was made on the respondent on June 14, 1960, under section 23(3) of the Indian Income-tax Act, 1922, after allowing deduction of a sum of Rs. 10,494 towards interest to certain creditors. On March 14, 1967, the respondent received a notice dated March 8, 1967, issued by the appellant under section 148 of the Act stating that he has reason to believe that the respondent's income 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 then challenged the validity of the proceedings initiated under section 147(a) before the Calcutta High Court under article 226 of the Constitution. The appellant then filed an affidavit stating that one Mohansingh Kanyalal who was shown as one of the creditors of the assessee had since confessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all, material facts. It is no doubt true that the, court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time, we have 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 Supreme Court was of the view that no proceedings under section 147 could be taken up if the information is wholly vague, indefinite, far-fetched and remote and that the reason for the formation of the belief must be held in good faith and should not be a mere pretence. Let us apply the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced by the Income-tax Officer in his report which was sent to the Commissioner of Income-tax in the form of proposal seeking approval nor has it been elaborated anywhere else. Therefore, it cannot be ascertained as to what was the precise statement of the Bombay party in so far as the instant assessee is concerned. The Appellate Tribunal was, therefore, absolutely right in holding that the proposal sent by the Income-tax Officer to the Commissioner of Income-tax was wholly vague and ambiguous and, on the basis of the reasons recorded by the Income-tax Officer, no reasonable belief could be had that the income of the assessee in the years under consideration had escaped assessment. The reasons as set out by the Income-tax Officer in his proposals sent to the Commissioner of Income-tax are nothing but a mere pretence to invoke section 147/148 of the Act and, therefore, the proceedings initiated under section 147/148 by the Income-tax Officer were rightly cancelled by the Appellate Tribunal.
In the result, we answer both the questions in the affirmative, that is, in favour of the assessee and against the Revenue. There will be no order as to costs. X X X X Extracts X X X X X X X X Extracts X X X X
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