P.P. Naolekar, C.J.
1. The basic fundamental facts, relevant for the purposes of adjudication of the questions involved in all these twelve appeals are similar and, therefore, all the matters are decided by a common order.
2. To better understand the questions involved and for convenience, we shall refer to the facts in Civil Rule No. 6491 of 1998 (Eveready Industries India Ltd. v. Joint CIT (Assessment) ), which are, as stated by the petitioner, that Namdang Tea Company (India) Limited was incorporated under the Companies Act, 1956, having its registered office at Guwahati. The said company owned two tea estates, namely, Namdang Tea Estate and Boga-pani Tea Estate, both situated in the State of Assam. The said company was carrying on the business of growing green tea leaves in its own tea gardens and manufacturing black tea out of the said green tea leaves grown by it as well as others and further selling it in India and abroad. Under the scheme of arrangement, the tea business of the said company was transferred to Mcleod Russel (India) Limited. Subsequently, under a scheme of arrangement, the said Mcleod Russel (India) Limited merged with Eveready Industries India Limited with effect from April 1, 1996, and that is how the writ petition is filed by the petitioner company.
3. For the assessment year 1991-92, Namdang Tea Company (India) Limited, filed its return showing an income of Rs. 41,82,030. Along with the said return, the company filed the profit and loss account and the audited balance-sheet, as provided under the Companies Act, 1956, and the audit report and other relevant documents and papers. The company then received a notice under Section 142(1) and another notice under Section 143(2) of the Income-tax Act, 1961 (hereinafter for convenience shall be called as 'the Act of 1961'), both dated January 24, 1992. Then the company received a letter dated July 28, 1993, requiring the company to furnish substantial details/documents/information, covering a list of 30 matters. The company in compliance therewith furnished the information asked for. Thereafter, the Assessing Officer required the company to furnish certain further information and documents. The same were also supplied by the company in the course of hearing. The Assessing Officer thereafter made the assessment under Section 143(3) of the Act of 1961, computing the total income of the company at Rs. 1,16,55,470.
4. Aggrieved by the assessment order, the company preferred an appeal before the Commissioner of Income-tax (Appeals), Guwahati. The appeal was partially allowed. Aggrieved by the appellate order of the Commissioner of Income-tax (Appeals), the Department filed an appeal before the Income-tax Appellate Tribunal, Guwahati Bench. A cross-objection was also filed by the company.
5. The company received a notice dated October 30/November 2, 1998, from the Assessing Officer under Section 148 of the Income-tax Act, 1961, alleging that the income of the company for the assessment year 1991-92 had escaped assessment within the meaning of Section 147 of the Act and that he proposes to assess/reassess the income of the said company. The company addressed a letter to the assessing authority contending, inter alia, that no income of the company for the assessment year in question had escaped assessment and such escapement of assessment, if any, was not by reason of any omission and/or failure on the part of the company either to file any return or to disclose fully and/or truly all primary and/or material facts necessary for the assessment of the said company and, therefore, the condition precedent for invoking the power under Section 147 read with Section 148 of the Act of 1961 was not fulfilled. The sine qua non for exercising the power under Section 147/148 of the Act having not been present, the Assessing Officer had no jurisdiction to issue the notices. The company had also filed the return under protest.
6. Thereafter, the petitioner received a notice dated December 3/4, 1998, from the Assessing Officer under Section 142 of the Act requiring the petitioner to furnish a return under Section 142(1) of the Act of 1961 and also to produce or cause to be produced before him the books of account, etc., relevant to the assessment year. The petitioner at this stage has moved a petition before the High Court under Article 226 of the Constitution of India challenging the notices issued by the Assessing Officer under Section 147 read with Section 148 of the Act of 1961. The High Court admitted the petition and issued notices to the respondent Department.
7. The respondents to the petition, namely, (1) Joint Commissioner of Income-tax (Assessment), Special Range-II, Guwahati, (2) Commissioner of Income-tax, Guwahati, and (3) Union of India, through the Secretary, Government of India, Finance Department, Ministry of Finance, New Delhi, filed counter by way of an affidavit, dated October 8, 1999. The affidavit has been sworn by Shri J.C. Pegu, Joint Commissioner of Income-tax, Special Range-II, Guwahati, who was the Assessing Officer. The details of the affidavit filed shall be referred to subsequently. In a nutshell, the contention of the Department was that the proceedings have been initiated on the basis of an enquiry conducted by an outside authority and relying on that enquiry, the present notices have been issued. The Assessing Officer has reason to believe that income has escaped assessment due to failure and/or omission on the part of the assessee to disclose the materials necessary for the purpose of assessment. In the order sheets, the Assessing Officer has recorded the reasons which led to his belief that income chargeable to tax to the tune of Rs. 27,25,600 had escaped assessment within the meaning of Section 147 of the Act during the assessment year on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of his income in the assessment proceedings under Section 143(3) of the Act. An additional affidavit has been filed by Shri J. C. Pegu, the Assessing Officer, on November 29, 1999, disclosing the reasons for initiating action under Section 147 read with Section 148 of the Act and for the impugned notices. The details of the reasons shall be referred to subsequently.
8. Thus, it is the stand of the Department that there was reason to believe by the Assessing Officer that income chargeable to tax has escaped assessment for the assessment year and further, that income chargeable to tax has escaped assessment for the assessment year in question by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the assessment year, and, therefore, the exercise of the powers under Section 147, and consequent issuance of notice under Section 148 of the Income-tax Act, 1961, is in accordance with law.
9. The learned single judge, on appreciation of the relevant case law and the facts of the case, allowed the writ petitions by holding that, in his opinion, in
the facts and circumstances of the case, the Assessing Officer in fact had no reason to believe that any income of the assessee chargeable to tax has escaped assessment and the initiation of the proceedings under Section 147 read with Section 148 of the Income-tax Act, 1961, was without jurisdiction. Aggrieved by the said orders, the Revenue filed the present writ appeals.
10. It is submitted by learned counsel for the appellants that the impugned notices have been issued on the basis of the information sent with the letter dated June 30, 1998, to the Commissioner of Income-tax, Guwahati, and that the reasons recorded by the Assessing Officer clearly indicate that there was material on record on the basis of which he arrived at the conclusion that there was reason to believe that income of the assessee for the relevant assessment year has escaped assessment. On the other hand, it is urged by counsel for the respondents that the assessing authority's jurisdiction to issue the notices exercising powers under Section 147/148 of the Income-tax Act, 1961, depends on the fact, whether in the facts and circumstances of the case the Assessing Officer can be said to have a reason to believe that any income of the assessee chargeable to tax had escaped assessment for the relevant assessment year ; and on the facts found, there is no material evidence on record on the basis of which the Assessing Officer could have arrived at such conclusion, and, further, the reason to believe does not mean a purely subjective satisfaction on the part of the Assessing Officer, the reason must be held in good faith and cannot be merely a pretence. It is further contended that the escaped assessment, if any, should be on account of the fact that the assessee has not produced before the assessing authority at the relevant time true and correct statement of facts necessary for the assessment of his income. On this basis, it is urged that the case is not made out by the Department for issuance of notice under Section 148 of the Act.
11. It may be stated at the outset that for the assessment years 1991-92, 1992-93 and 1993-94, i.e., in nine writ petitions, the notices under Section 148 of the Income-tax Act, 1961, have been issued after the expiry of four years from the end of the relevant assessment year and, therefore, those nine cases shall be governed by the proviso, read with Explanations 1 and 2 to Section 147 of the Income-tax Act, 1961. The relevant provisions are reproduced hereinafter :
'147. Income escaping assessment, --If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.
Explanation 1.-- Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : --
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(c) where an assessment has been made, but--(i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.
148. Issue of notice where income has escaped assessment.--(1) Before making the assessment, reassessment or recomputation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed ; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139.
(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.'
12. From a bare reading of the provisions of Section 147 of the Income-tax Act, 1961, it is seen that the Assessing Officer can exercise the powers under Section 147 read with Section 148 of the Income-tax Act, 1961, if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. The proviso to Section 147 gives authority to the Assessing Officer to assess or reassess the assessee for the escaped income after the expiry of four years from the end of the relevant assessment year if he has reason to believe that the assessee has not disclosed fully and truly all material facts necessary for his assessment for the assessment year. For all the assessments or reassessments undertaken by the assessing authority exercising the powers under Section 147 of the Act of 1961, it is necessary that the assessing authority has reason to believe that any income chargeable to tax has escaped assessment and for the assessment/reassessment in respect of the assessment years after the expiry of four years from the end of the relevant assessment year, the assessing authority must be further satisfied that it is on account of the fact that the assessee has not disclosed fully and truly all material facts necessary for the assessment of the relevant assessment year. Section 148 of the Act requires issuance and service of notice on the assessee in the prescribed form, verified in the prescribed manner setting forth such other particulars as may be prescribed, by the assessing authority before making the assessment/reassessment or recomputation. Section 148(2) lays down the precondition for issuance of the notice under the section, which is, recording of the reason by the Assessing Officer for doing so. The service of the notice prescribed by Section 148 of the Act for the purpose of commencing proceedings for reassessment is not a mere procedural formality, it is a precondition of the initiation of the proceedings for assessment under Section 147 of the Income-tax Act, 1961.
13. While construing Section 34 of the Indian Income-tax Act, 1922, which is analogous to the present section, in the matter of Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) , the Supreme Court has held that to confer jurisdiction under Section 34 of the Indian Income-tax Act, 1922, to issue notice in respect of assessment beyond the period of four years but within the period of eight years from the end of the relevant assessment year, two conditions are to be satisfied. First, the Income-tax Officer must have reason to believe that income chargeable to tax had been underassessed and the second condition is that he must have reason to believe that the underassessment has occurred by reason of either (1) omission or failure on the part of the assessee to make a return of his income, or (2) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year.
14. In S. Narayanappa v. CIT : [1967]63ITR219(SC) , the apex court held that if there is a reasonable ground for the Income-tax Officer to believe that there has been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue notice under Section 34 of the Indian Income-tax Act, 1922 ; and the sufficiency or adequacy of the ground so found are not matters for the court to investigate.
15. In ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) , the apex court has held that the reason for the formation of the belief contemplated by Section 147(a) of the Income-tax Act, 1961, for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the opinion. 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. The court further held that 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 the assessment. At the same time, it is to be borne in mind that it is not any and every material, howsoever vague and indefinite or distant, remote or far-fetched, which would warrant the formation of the belief relating to escapement of the income from the assessment.
16. In ITO v. Madnani Engineering Works Ltd. : [1979]118ITR1(SC) , the Supreme Court has held that whether there is existence of reason to believe on the part of the assessing authority is a justiciable issue and it is for the court to be satisfied whether in fact the Income-tax Officer had reason to believe that income chargeable to tax had escaped assessment by reason of failure of the assessee to make a full and true disclosure.
17. In Ganga Saran and Sons P. Ltd. v. ITO : [1981]130ITR1(SC) , the apex court has stated that the words and the phrase used, 'has reason to believe', in the first part of Section 147 of the Act were stronger than the word 'satisfied'. The belief entertained by the assessing authority must not be arbitrary or irrational. It must be reasonable, or, in other words, it must be based on reasons which are relevant and material. It is again reiterated by the court that of course the courts are not called upon to investigate into the adequacy or sufficiency of the reasons which have weighed with the assessing authority in coming to the belief, but, at the same time, the court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under Section 147 of the Act. If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed in fact and law could reasonably entertain the belief, the conclusion would be inescapable that the assessing authority had no reason to believe that any part
of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts.
18. In Coca-Cola Export Corporation v. ITO : [1998]231ITR200(SC) , the Supreme Court while interpreting Section 147 of the Act held that there was no ground for the Income-tax Officer to assume jurisdiction under Section 147 of the Act on the basis of some letters which were wholly irrelevant and could not be treated as information to the Income-tax Officer to initiate reassessment proceedings.
19. From the aforesaid decisions of the highest court of the land, the propositions of law under Section 147 and Section 148 of the Income-tax Act, 1961, are settled, which are, that, to proceed under Section 147 of the Act, the Income-tax Officer must have reason to believe that income chargeable to tax has been underassessed and that in cases of assessment proceedings initiated after four years from the end of the relevant assessment year, he has reason to believe that such underassessment had occurred by reason of either (i) omission or failure on the part of the assessee to make a return of his income, or (ii) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year and these conditions are the sine qua non for exercise of jurisdiction by the authority for issue of notice of reassessment. The reason so given by the assessing authority for initiating proceedings for reassessment, exercising powers under Section 147 and Section 148 of the Income-tax Act, 1961, are justiciable. The court has jurisdiction and authority to satisfy itself whether, in fact, the assessing authority had reason to believe, taking into consideration whether the reason so given has a rational connection or relevance for formation of that belief. The rational connection postulated in these sections must have a direct nexus or live link with the material coming to the notice of the assessing authority and formation of his belief regarding escaped income. The adequacy and/or sufficiency of the reason given is not within the scrutiny of the court--once the court finds that there is nexus between the reason and the belief arrived at by the assessing authority.
20. In the backdrop of the above mentioned statement of law, we propose to examine the factual matrix of the case. In the writ petitions, the respondents herein have challenged the notices under Section 147 read with Section 148 of the Act, alleging therein that the assessing authority had no reason to believe that any income chargeable to tax has escaped assessment and that the assessee disclosed fully and truly all material facts necessary for his assessment for that assessment year. The Revenue filed two affidavits, as hereinabove mentioned, containing the reasons recorded by the Assessing Officer for taking the steps of issuing notice and reassessment under Section 147/148 of the Act. In the additional affidavit filed on behalf of the respondents on November 29,
1999, Shri J.C. Pegu, the Assessing Officer, has alleged in paragraphs 4 and 5, as under (see page 545 of [2000] 243 ITR) :
'4. That your deponent most respectfully begs to state that the enquiry officer on perusal of the D. O. letter dated June 11, 1998, of the Commissioner of Income-tax (CIT), West Bengal-II, Calcutta, communicated to the Commissioner of Income-tax, Guwahati, vide his letter F. No. Con/CIT-97-98/134, dated June 30, 1998, found that a survey was conducted by the Investigation Wing, Calcutta, at the instance of D. C., Range-7, towards the end of March, 1997, at the business premises of following companies :
(i) Gladiolai Estate (P.) Ltd. ;
(ii) Rohini Estate (P.) Ltd. ;
(iii) Gagan Properties (P.) Ltd. ; and
(iv) Smriti Properties (P.) Ltd.
21. It was found that huge payments were made to above parties by Williamson Magor group of companies for rendering services like cow dung supply, labour quarters repairing, fencing, etc. It was also found that these four above stated companies did not render the kind of service for which it was receiving payment. They claimed that they were getting the services rendered through other parties. A simultaneous survey was also carried out at the premises of following three parties who were supposed to have rendered services on behalf of the above mentioned four parties.
(i) B. S. Consultants (P.) Ltd. ;
(ii) Manoj Commercial Services (P.) Ltd. ;
(iii) Ajanta Commercial and Mercantile (P.) Ltd. During the survey a common director of the above mentioned three companies, namely, Shri B. S. Kathria admitted on oath that no service was rendered by the aforesaid three companies in the nature of supply of cow dung, repairing of labour quarters, fencing, etc., as claimed by the companies, namely, (i) Gladiolai Estate (P.) Ltd., (ii) Rohini Estate (P.) Ltd., (iii) Gagan Properties (P.) Ltd., (iv) Smriti Properties (P.) Ltd. Actually these transactions were merely accommodation entries and the amount paid through cheques were ultimately returned in cash after routing it through four or five bank accounts.
22. Out of the above transactions the assessee, Namdung Tea Company (India) Ltd., made the following payments to the undermentioned parties during the financial year 1990-91, relevant to the assessment year 1991-92.
Rs.
(i)
Rohini Properties (P.) Ltd.
13,96,000
(ii)
Gladiolai Estate (P.) Ltd.
13,29,600
Total27,25,600
5. That the deponent most respectfully begs to state that in view of the above transactions and on scrutiny of the reasons the Assessing Officer had
reason to believe that income chargeable to tax to the tune of Rs. 27,25,600 has escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961, during the assessment year 1991-92 for the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment at the time of assessment proceedings under Section 143(3).'
23. From the aforesaid affidavit it is clear that the Revenue relies for its reason to believe on the fact that the Assessing Officer has perused the D. O. letter dated June 11, 1998, of the Commissioner of Income-tax, West Bengal-II, Calcutta, which was communicated to the Commissioner of Income-tax, Guwa-hati, by letter dated June 30, 1998, and found that a survey was conducted by the Investigating Wing, Calcutta, at the instance of D. C, Range-7, in March 1997, at the business premises of (1) Gladiolai Estate (P.) Ltd. ; (2) Rohini Estate (P.) Ltd.; (3) Gagan Properties (P.) Ltd.; and (4) Smriti Properties (P.) Ltd., and found that huge payments were made to these parties by the Wil-liamson Magor group of companies for rendering services like cow dung supply, labour quarters repairing, fencing, etc. These companies did not carry out the business of rendering the kind of services for which they had received payments. These companies claimed that the services were rendered through other parties. A simultaneous survey was carried out at the premises of three other parties, namely, (1) B. S. Consultants (P.) Ltd. ; (2) Manoj Commercial Services (P.) Ltd. ; and (3) Ajanta Commercial and Mercantile (P.) Ltd., who are alleged to have rendered the services on behalf of the abovementioned four parties and during the survey, the common director of these three companies, namely, Shri B. S. Kathria admitted on oath that no service was rendered by the aforesaid three companies in the nature of supply of cow dung, repairing of labour quarters, fencing, etc., as claimed by the four parties. Actually these transactions were merely accommodation entries and the amount paid through cheques were ultimately returned in cash after routing it through four or five bank accounts and, therefore, the assessing authority has reason to believe that income chargeable to tax has escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961.
24. In Chhugamal Rajpal v. S. P. Chaliha : [1971]79ITR603(SC) , the assessee submitted his books of account and also the statement giving full facts and particulars of the various creditors from whom it had borrowed on hundis during the accounting year in question. The assessment was completed after enquiry. Thereafter, the assessing authority issued a notice under Section 148 of the Income-tax Act, 1961, initiating reassessment proceedings for that year. In the notice, the Income-tax Officer alleged that it appears that the persons from whom the loans were taken are name lenders and that no loan in fact had been advanced to the assessee. The transactions are bogus. The assessee challenged the notice in the High Court, The High Court dismissed the writ petition. Allowing the appeal, the Supreme Court has found that in the report
of the assessing authority he referred to certain communications received by him from the Commissioner, from which it appeared that the creditors were name-lenders and the loan transactions were bogus and that, therefore, proper investigation regarding the loan taken by the assessee was necessary. He did not mention in the report the material which was before him and his reason for coming to the conclusion that this was a fit case for issuing notice under Section 148 of the Act. The Income-tax Officer had not even come to a prima facie conclusion that the loan transactions to which he referred were not genuine transactions. He has only a vague feeling that they might be bogus transactions. The officer should have some prima facie grounds before him for taking action under Section 148.
25. In the present case, the assessing authority has not mentioned as to whether except the letter written by the Commissioner of Income-tax, West Bengal, dated June 11, 1998, which was communicated to the Commissioner of Income-tax, Guwahati, he had any other material before him that the alleged payments were not in fact made and the amount paid in cheques was returned back in cash after routing it through four or five bank accounts. He has not mentioned as to when and by what transactions specific amounts which have been paid by cheques have been returned back in cash. There is no mention of any dates on which bank transactions between the four parties named in the affidavit and the assessee took place, not even the names of the banks allegedly involved. We also fail to understand when the said B.S. Kathria has no business transactions either with the assessee or the four parties named above, how can he say that the entries in the books of account about the transactions were made and the amount was paid in cheques merely to accommodate the assessee and that the amounts paid in cheques were ultimately returned in cash after routing it through four or five bank accounts. When the said Shri B.S. Kathria has no business transactions with the four parties named or the assessee, it is difficult to comprehend how he could know about the transactions which took place between those parties. In the absence of any material before the assessing authority that the amounts which have been paid through cheques to the four parties have been returned back in cash, we find it difficult to understand as to how the assessing authority could reach the conclusion that the transactions were bogus and the amount paid in cheques was returned back through cash transactions. In the absence of specific material before the assessing authority as to the transactions which had taken place between the assessee and the four parties named above and any material or record to prima facie satisfy the assessing authority that the amount paid by cheques were ultimately returned in cash after routing it through four or five bank accounts, there does not appear to be a link between facts found and the satisfaction arrived at by the assessing authority. The absence of mentioning relevant facts necessary for formation of opinion by the assessing authority in his order before issuing notice is explained when he has admitted in the additional affidavit that he had not made any independent enquiry for arriving at the prima facie conclusion that income of the assessee had escaped assessment. In the absence of application of mind to the facts alleged to have been found, the decision arrived at that income escaped assessment is not maintainable in law. We do not find that the assessing authority had any reason to believe that the income of the assessee escaped assessment, in the assessment proceedings for the relevant assessment year.
26. In most of the cases, the notices have been issued by the assessing authority exercising the powers under the proviso to Section 147 of the Act, whereunder reassessment can only be made if any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 139 or Section 148, or to disclose fully and truly all material facts necessary for his assessment for that assessment year. The case of the Department/appellants is based on the allegation that the assessee has failed to disclose fully and truly all material facts necessary for his assessment for that assessment year. In paragraph 2A of the affidavit dated October 8, 1999, filed by J. C. Pegu, Joint Commissioner of Income-tax, Special Range-II, Guwahati, for the Department, it is stated as under :
'. . . the deponent states that it is a fact that detailed enquiries were made at the time of assessment in the entire matter including the present issues involved were examined in details and after being satisfied the assessment was made. The materials on the basis of which the present impugned notice under Section 148 of the Income-tax Act has been issued was also examined at the time of assessment in details. However, the present reassessment proceedings have been initiated on the basis of that enquiry conducted by an outside authority and on the basis of that enquiry the present notice has been issued. The Assessing Officer had not made any independent enquiry and on the basis of the subsequent information received the assessing authority has reason to believe that income has escaped assessment due to failure and/or omission on the part of the assessee to disclose material facts necessary for the purpose of assessment.'
27. The aforesaid affidavit filed on behalf of the Department clearly disclosed that in the assessment proceedings the issue involved for taking action under Section 147/148 of the Income-tax Act, 1961, has been minutely scrutinised and the assessment order was issued only after examination of the entire controversy. In fact the materials on the basis of which the present notice under Section 148 of the Income-tax Act has been issued, was also the subject-matter of scrutiny before the assessing authority at the time of the assessment. There is no claim that the assessee has not produced all the relevant material, information before the assessing authority at the time of the assessment. The duty
of the assessee does not extend beyond making a full and true disclosure of primary facts. Once he has done so, his duty ends. It is for the assessing authority to draw the correct inference from the primary facts. It is not the responsibility of the assessee to advise the assessing authority with regard to the inferences which he should draw from the primary facts. If the assessing authority draws an inference which appears to him, subsequently, to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening the assessment. The power to reopen the assessment proceedings would only be available if the assessing authority has reason to believe that any income chargeable to tax had been underassessed and also that he has reason to believe that such underassessment had occurred by reason of either omission or failure on the part of the assessee to make a return of his income or omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. The affidavit filed on record clearly indicates that the assessee at the time of his assessment has presented before the assessing authority all the material and relevant facts. The assessing authority while assessing the income of the assessee has scrutinised those facts and made the order of assessment. On the face of these facts, we cannot reach the conclusion that the foundation is laid by the Department for exercising the powers under Section 147/148 of the Income-tax Act, 1961. The notice issued to the assessee by the Department and the further proceedings initiated exercising the powers under Section 147/148 of the Act, are quashed.
28. The appeals are dismissed. However, in the circumstances of the case, we do not impose any costs and the costs shall be borne by the respective parties.