TMI Blog1983 (12) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... filed his return for the said assessment year 1969-70 before the ITO, " B " Ward, District III(I), Calcutta, land, according to the petitioner, he disclosed fully and truly all the primary facts and materials necessary for his assessment. In response to a notice under s. 143(2) of the I.T. Act, the petitioner's authorised representative also appeared before the said ITO and produced the requisite information and documents and books of account which were looked into and considered by the ITO. The petitioner further contends that brokers' memos, confirmations and bills in respect of share dealings, profit and loss account, balance-sheet, capital account, details of share accounts, etc., were also produced by the petitioner before the said ITO. By an order of assessment dated October 30, 1971, made under s. 143(3) of the I.T. Act, the said ITO had assessed the petitioner for the said assessment year 1969-70 on a total income of Rs. 249. The said assessment order has been annexed to the writ petition being annexure "A". It appears that the petitioner thereafter preferred an appeal challenging various additions and disallowances made by the ITO for the said assessment year before the AA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y omission or failure on the part of the petitioner to disclose primary facts truly and fully. The petitioner contends that the alleged belief that income had escaped assessment is merely a pretence and such contention has not been made in good faith. The petitioner contends that the notice was issued without any justification whatsoever and mechanically without application of mind and such notice must have been issued on irrelevant and extraneous material in order to start a probing and/or fishing proceeding, although such proceeding is not warranted in the facts of the case and is also not permissible in law. The petitioner also contends that the alleged reasons and or information, if any, have no rational connection, nexus and live link for the formation of the requisite belief as required under s. 147 of the I.T. Act. Dr. Pal appearing with Mr. Murarka contended that the reasons for belief contemplated in s. 147(a) of the I.T. Act for the reopening of the assessment must have a rational nexus or live link between the materials coming to the notice of the ITO and the formation of belief by him. In this connection, he referred to a decision of the Supreme Court made in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... later brought out. Referring to the said decision, the learned counsel for the petitioner contended that in the notice, no basis for the reasons have been disclosed and on the face of the notice, it is apparent that there was no valid reason for which the ITO concerned could objectively come to a view that income had escaped assessment and/or, there had been no full and complete disclosure of primary and relevant facts. The learned counsel for the petitioner also contended that in the affidavit-in-opposition filed on behalf of the Department, an attempt has been made to state certain facts to show that on the basis of such facts there was occasion to hold prima facie that income for the said assessment year had escaped assessment for want of relevant materials. The learned counsel for the petitioner has contended that although the facts set out in the affidavit-in-opposition cannot stand scrutiny, yet even assuming that, on such facts, a reasonable basis may be formed by the ITO, the existence of such material will be of no consequence if those materials were not taken into consideration by the ITO, but he issued the notice mechanically without reasonably forming any opinion. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said decision, the learned counsel for the petitioner contended that the assessee had disclosed primary and material facts by producing the accounts of the share transactions. There was no obligation on the part of, the assessee to instruct the ITO about the inference to be drawn by him in respect of such share transactions. The ITO, as a matter of fact, had accepted the account books of the petitioner-assessee and the genuineness of the share transactions on the basis of primary and relevant materials produced before him at the time of assessment. It is, therefore, not permissible to reopen the assessment on the ground that the inference which had been drawn earlier by the ITO was erroneous. The learned counsel for the petitioner also contended that a rational connection for the belief for reopening the assessment under s. 147(a) postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income. The learned counsel, therefore, contended that the notice, on the face of it, must be held to be bad on the finding that the statement that there are reasons to believ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that at the stage of forming the opinion, the existence of relevant materials on the basis of which a view can be objectively formed is all that is necessary and no firm opinion is also required to be formed. In another case, a Division Bench of this court has also held a similar view. Such decision has been made in the case of ITO v. Mahadeo Lai Tulsyan [1978] 111 ITR 25 (Cal). Mr. Maitra has contended that there can be no truthfulness in non-existing facts. Facts or materials placed by an assessee at the time of regular assessment must be based on true state of affairs and not on fictitious and imaginary materials. If the assessee has relied on a bogus hundi or hawala dealings or share transactions which in reality had not taken place, then such fictitious dealings cannot be held to be a true disclosure of material facts. He has contended that the decisions of the Supreme Court made in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 and Madnani Engineering Works Ltd.'s case [1979] 118 ITR 1, can be distinguished for the simple reason that the transactions disclosed by the petitioner-assessee at the time of regular assessment were not genuine transactions but were all imaginary a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the impugned notice has been issued mechanically without any relevant material at the time of issuing the said notice and the same has been issued for the purpose of starting a probing proceeding. After considering the contentions of the learned counsel appearing for the respective parties, it appears to me that the power of the ITO to reopen an assessment cannot be exercised arbitrarily and capriciously. The Supreme Court has clearly indicated in Lakhmani Mewal Das's case [1976] 103 ITR 437, that such power, though wide, is not plenary and the words of the statute are " reasons to believe " and not " reasons to suspect". The ITO, therefore, must act objectively on the basis of the materials placed before him that there was prima facie reason to believe that income had escaped assessment, Simply because a transaction is held fictitious in a subsequent assessment proceeding similar transaction in an earlier assessment year cannot be ipso facto held fictitious and on that score a reopening proceeding as contemplated in s. 147 of the I.T. Act cannot be made. At the same time, it should also be noted that mere disclosure of certain alleged facts will not ipso facto absolve the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. justice G.N. Ray, and His Lordship found as a fact that there were materials before the ITO on the basis of which such an opinion could be objectively formed by him and His Lordship gave liberty to the assessee to establish at a later stage that the opinion which was formed by the ITO for reopening the assessment proceeding was not correct. His Lordship further observed that it could not be 'contended that on the basis of the materials' on record such an opinion could not be formed objectively and that a probing or fishing proceeding was initiated mala fide and without application of mind. It was submitted that in view of the above findings of His Lordship, whether the principles laid down in the decisions cited by the petitioner before His Lordship were neither discussed nor considered by his Lordship did not really matter. Be that as it may, as at present advised, I find that the decision of G. N. Ray J. covers these two matters. The petitioner may, however, urge other points which have been raised by Mr. Bajoria before me, if so advised in subsequent proceedings that may be taken by the petitioner. Accordingly, no interference is called for by me and the rules are, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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