TMI Blog1984 (10) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... above assessment years have been filed on the record of the writ petitions. Later on, the jurisdiction in the case of the petitioner was transferred to the Income-tax Officer, Central Circle I, New Delhi. The Incometax Officer, Central Circle I, issued notices dated September 17, 1979, for the assessment years 1963-64 to 1965-66 and 1967-68 to 1969-70 and dated January 25, 1980, for the assessment year 1970-71, under section 148 of the Act proposing reassessment of the petitioner's total income for the assessment years 1963-64 to 1965-66 and 1967-68 to 1970-71 on the ground, as indicated in the said notices under section 148, that the Income-tax Officer had reasons to believe that income chargeable to tax for the said assessment years had escaped assessment within the meaning of section 147 of Act. It was also stated that the said notices under section 148 were being issued after obtaining necessary satisfaction of the Central Board of Direct Taxes, respondent No. 2. The petitioner made a request for information, if any, in the possession of the Income-tax Officer leading to the formation of a belief on the part of the Income-tax Officer that income assessable for the said y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned there that Rs. 35,000 was appearing in the name of this party in the books of M/s. Hasan Ali Fizza Ali who came forward for a settlement after the brokers were summoned with the books of a/c. Further the name of this party also appears at Serial No. 52 in the list circulated by the D.I., vide Circular No. AP/Misc/(5)/DI/63-64 dated 29-8-64. 5. M/s. Nand Ram Das 5,000 The name of this party Kanhaiya Lal appears at Serial No. 84 of page N-5 of printed list circulated by the D.I. --------------------------------------------------------------------------------------------------------------------------------------------------- As these deposits are not genuine, the conclusion is irresistible that the deposits in the name of these persons represent the income of the assessee company from undisclosed sources which has to be assessed for the assessment year 1963-64, in view of the provisions of section 68 of the Income-tax Act, 1961. I have, therefore, reasons to believe that on account of omission or failure of the assessee company to disclose fully and truly all material facts necessary for its assessment for the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (XI of 1922); or (d) where excessive loss or depreciation allowance has been computed. Explanation 2.-Production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section." The statutory provisions make it plain that two conditions must co-exist before the Income-tax Officer acquires jurisdiction to form the belief that income has escaped assessment and then issue notice under section 148, namely, the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment and, secondly, he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee either to make a return under section 139 for the assessment year to the Income-tax Officer or to disclose fully or truly all material facts necessary for his assessment for that year. Both these conditions are co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear from the original assessment that the credits were investigated in detail. It is now recorded in I the reasons that in view of the enquiries made in the cases of some of the depositors named therein, it is apparent that the cash deposits in their names in the books of account of the assessee are not genuine. There is no enquiry except the appearance of the names of the depositors in the list of bogus hundi brokers and bankers. There is no material to form the belief that these deposits are not genuine, more so, in the face of the investigation of the credits having been made at the time of the original assessment. Besides stating the contents of the information received by him in the reasons for the inclusion of the names of the depositors in the list of bogus hundi brokers and bankers, there is no further reason as to how his belief or tentative conclusion had been arrived at. In Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC) at p. 607, the reasons recorded were as under : " Daring the year, the assessee has shown to have taken loans from various parties of Calcutta. From D.I.'s Inv. No. A/P/Misc. (5) D.I./ 63-64/5623 dated August 13, 1965, forwarded to this off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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). " In that case before the Supreme Court, the named persons are stated to be known money-lenders. One of the alleged money-lenders was one Mohansingh Kanayalal. He also made a confessional statement on the basis of which his assessment was reopened. The Supreme Court, while upholding the majority view of the Calcutta High Court striking down the notice of reassessment, observed (at p. 447): "We may now deal with the first ground mentioned in the report of the Income-tax Officer to the Commissioner of Income-tax. This ground relates to Mohansingh Kanayalal, against whose name there was an entry about the payment of Rs. 74, annas 3 as interest in the books of the assessee, having made a confession that he was doing only name-lending. There is nothing to show that the above confession related to a loan to the assessee and not to someone else, mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubt contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. But there must be a live link or close nexus in the material before the Incometax Officer and the belief which he has to form regarding the escapement of the income of the assessee from assessment. There is no indication in the material that the name-lending was in connection with the loans involved in the assessments under consideration in the cases before me. There is nothing to show that the material which was before the Income-tax Officer related to the deposits/loans to the assessee. Mr. Wazir Singh, on the other hand, has relied upon the two decisions of the Calcutta High Court, namely, Murarka Paints and Varnish Works Ltd. v. ITO [1978] 114 ITR 480 and H. A. Nanji Co. v. ITO [1979] 120 ITR 593, to urge that the names of the creditors are included in the list of bogus hundi brokers and bankers and, therefore, there was material before the Income-tax Officer to come to a tentative conclusion that the deposits are not genuine. In the first case, the assessee showed in his return for the relevant assessment year a loan of Rs.1,10,000 alleged to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the tentative belief that in respect of the relevant years, the hundi creditors of the assessees disclosed by him whose names appeared in the list, were bogus creditors. This fact could be ascertained only by a mere comparison of the list of bogus creditors with the creditors disclosed by the assessee in the course of the assessment. This was a fresh material which came into the possession of the Incometax Officer after the assessment and for that reason the reopening of the assessment was upheld by the Calcutta High Court. Later on, the judgment in Nanji's case [1979] 120 ITR 593 (Cal) was itself distinguished by the Calcutta High Court in S. P. Agarwalla v. ITO [1983] 140 ITR 1010. It was noticed that in Nanji's case [1979] 120 ITR 593 (Cal), not only there was a confessional statement of, the hundi creditors but also some of the hundi creditors of the assessee had specifically confessed that they had been mere name-lenders for the purported loans which were entered in the books of account of various assessees including the assessee concerned for the assessment year in question. The facts in the case of Lakhmani Mewal Das [1976] 103 ITR 437 (SC) and the cases before me are al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution has power to set aside a notice issued under section 147 of the Act if the condition precedent to the exercise of the jurisdiction does not exist. It is the duty of the court, in exercise of its powers, to ascertain whether the Income-tax Officer had in his possession any information or material. The court may then determine whether that information is correct and the Income-tax Officer could have reason to believe that income chargeable to tax had escaped assessment. As, in this case, I have formed the opinion that the condition precedent to the exercise of jurisdiction by the Incometax Officer did not exist as there is no indication that the name-lending was in connection with the loans involved in the assessment under consideration or there was nothing to show that it related to a loan of the assessee, the condition precedent was lacking. I, therefore, exercise my jurisdiction under article 226 of the -Constitution of India to quash the impugned notices. For the above reasons, the writ petitions succeed and are allowed. The impugned notices are quashed. On the facts and circumstances of the case, I make no order as to costs. - - TaxTMI - TMITax - Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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