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TMI Blog1991 (4) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... e decree of the civil court was confirmed by this court by judgment dated October 26, 1970. The assessee did not Me any return of income under section 139 of the Act. However, he filed a return on February 17, 1972, i.e., after the period prescribed by section 139(4), disclosing an income of Rs. 3,599 on the compensation amount. On receipt of this return, the Income-tax Officer initiated proceedings under section 147(a) of the Act for the year ending on March 31, 1965, treating the return filed by the assessee as an invalid return. The reasons for taking action under section 147(a) could be seen from the letter addressed by the Income-tax Officer seeking sanction of the Commissioner. The Income-tax Officer stated therein that "the land in question is not agricultural land and has not been subjected to agricultural operations" and hence the capital gains were chargeable to income-tax. He also referred to the fact that the return filed by the assessee was an invalid return. After referring to these facts, he stated that he had reason to believe that the income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee to make a valid ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference separately. Before we take up the question for consideration, it is appropriate to advert briefly to the Full Bench decision of this court in Officer-in-charge (Court of Wards) v. CWT [1969] 72 ITR 552 and the judgment of the Supreme Court in CWT v. Officer-in-charge (Court of Wards) [1976] 105 ITR 133. The Full Bench of this court in. Officer-in-charge (Court of Wards) v. CWT [1969] 72 ITR 552, laid down certain principles for ascertaining whether a parcel of land is agricultural or non-agricultural in character. The Full Bench, inter alia, held that the actual user of the land for agriculture is one of the indicia for determining the character of the land as agricultural land. At the same time, the Full Bench held that neither actual cultivation of the land nor the nature of the products raised are decisive tests and that the capability of the land being put to agricultural use can also be taken into consideration. This judgment was the subject-matter of appeal before the Supreme Court in Civil Appeals Nos. 2552-2556 of 1969. The judgment is reported in CWT v. Officer-in-charge (Court of Wards) [1976] 105 ITR 133. The Supreme Court held that the land can be treated as ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 552, which held the field on the date of initiation of the proceedings in 1973, there was no scope to form the belief that the land in question was non-agricultural land, that the factum of pendency of appeal against the said judgment is no ground to ignore the said decision and that the legal position as laid down by the Full Bench of this court as on the date of initiation of the proceedings has to be taken into account irrespective of the reversal or modification of the judgment subsequently by the Supreme Court. The expression "reason to believe" occurring in section 34 of the old Income-tax Act (1922) corresponding to section 147 of the 1961 Act was interpreted by the Supreme Court in Sheo Nath Singh v. AA C of I. T. [1971] 82 ITR 147. The Supreme Court observed (p. 153): "There can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon the reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iciable 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." The Supreme Court explained that (p. 448) "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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Accountant Member). In the civil court's judgment, there is no comment on this part of the finding, though the civil court observed that there was no basis for fixing the value of the land at a low rate of Rs. 500 per acre. The revenue records (Pahani Patriks) indicate that, for some years preceding the date of acquisition, there was no cultivation at all and in, some years, grass was said to have been grown ... (vide para 6 of the Judicial Member's order). We cannot assume that these revenue records were not looked into by the Income-tax Officer before taking the decision to initiate proceedings under section 147(a). Nor is it expected of him to specifically spell out in the note recording reasons, the details of the material which he had examined in the course of preliminary examination or investigation. Having regard to these facts, we are unable to say that the Income-tax Officer had formed the belief without definite or relevant material before him or that the reasons given by the Income-tax Officer for the formation of belief had no material bearing on the question of escapement of income. The Income-tax Officer cannot be said to have acted on mere suspicion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of things, the answer to this question depends upon further probe. A definite finding could be arrived at only after a full-fledged enquiry in which the assessee will have his say. In that enquiry, the assessee may be able to prove that the land was being actually cultivated or that the land had potentiality of being put to agricultural use in which case the basis of the Income-tax Officer's observation will fall to the ground. But, that stage will come later. It is not in dispute that we have to see the state of facts obtaining on the date of formation of "belief" by the Income-tax Officer as a prelude to setting in motion the proceedings under section 147. If so, we are of the view that the Incometax Officer had some basis and some material which are neither irrelevant nor extraneous for forming the belief which he did before issuing the notice under section 147. In effect, if the Tribunal's view is to be accepted, we will be traversing the arena of sufficiency of the material and reasons and according to the well-settled interpretation of section 147(a), this cannot be permitted to be done. Though the Tribunal took note of the correct principles governing the interpretat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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