Commissioner of Income Tax vs Smt. Paramjit Kaur

Ajay Kumar Mittal, J.—This reference u/s 256(1) of the Income Tax Act, 1961 (for short ''the Act'') has been made to this Court at the instance of the revenue by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for brevity ''the Tribunal'') arising out of its order dated 19-4-1996 in ITA No. 967 of (Asr.)/1995 relating to the assessment year 1989-90 raising the following question of law:

Whether, on the facts and in the circumstances of the case, the Id. ITAT is right in law in quashing the assessment order for the assessment year 1989-90 by holding that the notice u/s 148 is invalid?

2.The facts are that the assessee filed her original return declaring nilincome and the assessing officer on receiving the information fromSurvey Wing of the Income Tax department that Neta Metal Worksprepared a demand draft for a sum of Rs. 83,040 payable at Chandigarh in favour of M/s. Coal India Ltd., which was not accounted in the assessee''s books of account, issued a notice u/s 148 of the Act. The assessing officer after recording reasons framed assessment u/s 143(3) of the Act at an income of Rs. 83,040 on 2-9-1994. On appeal by the assessee, the first appellate authority upheld the validity of notice u/s 148 of the Act but set aside the assessment on the addition made by the assessing officer and remitted the matter to him to frame a fresh assessment after allowing reasonable opportunity of being heard to her. The assessee took the matter in second appeal and the Tribunal vide its order dated 19-4-1996 held that since the assessing officer had failed to incorporate material and its satisfaction for reopening the assessment, the same was invalid.

We have heard learned Counsel for the parties.

Section 147 of the Act defines the power and jurisdiction of the assessing officer for making an assessment or reassessment of escaped income. Section 148 of the Act, on the other hand, provides for initiation of the reassessment proceedings with issuance of a notice on the assessee concerned. Section 147 empowers the assessing officer to assess or reassess income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped assessment. The power conferred under this section is very wide, but at the same time it cannot be stated to be a plenary power. The assessing officer can assume jurisdiction under the said provision provided there is sufficient material before him. He cannot act on the basis of his whim and fancy, and the existence of material must be real. Further, there must be nexus between the material and escapement of income. The assessing officer must record reasons showing due application of mind before taking recourse to reassessment proceedings. Still further the assessing officer can assume jurisdiction for reassessment proceedings provided he has reasons to believe but the same cannot be taken recourse to on the basis of reasons to suspect.

An Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, , the Honble Supreme Court while interpreting the provisions of Section 147 of the Act held as under:

...the reasons for the formation of the belief must have a rational connection with or relevant 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 assess- ment 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 farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words ''definite information'' which were there in Section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in Section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, farfetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence.

The Tribunal while allowing the appeal of the assessee came to the conclusion that it was essential for the assessing officer before issuing notice to record his own satisfaction on the basis of material and should not have acted merely upon the information received from the survey circle. It was further noticed that the Dy. Commissioner (Appeals) had recorded that there was not sufficient evidence for making addition of Rs. 83,040 in the hands of the assessee and the matter was remanded to him to further investigate for connecting the amount of the draft with the escaped income of the assessee still it was held that the initiation of reassessment was valid. The Tribunal concluded that contradictory findings had been recorded by the Dy. Commissioner (Appeals) and held the reopening to be invalid.

It is undisputed that the assessing officer had initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft for a sum of Rs. 83,040 which was not accounted in the books of account of the assessee. The assessing officer had not examined and corroborated the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings. The assessing officer had thus acted only on the basis of suspicion and it cannot be said that the same was based on belief that the income chargeable to tax had escaped income. The assessing officer has to act on the basis of ''reasons to believe'' and not on ''reasons to suspect''. The Tribunal had, thus, rightly concluded that the assessing officer had failed to incorporate the material and his satisfaction for reopening the assessment and, therefore, the issuance of notice u/s 148 of the Act for reassessment proceedings was not valid.

In view of the above, the question of law referred to this Court is answered against the revenue and in favour of the assessee.