Prakash Narain, J.
1. By this petition under Article 226 of the Constitution of India, the petitioner challenges the issue of a notice under Section 148 read with Section 147 of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), by the ITO. It has been prayed that holding the issue of the said notice to be illegal and without jurisdiction the same may be quashed and a writ of prohibition or in the nature of prohibition be issued to the respondents restraining them from taking any action under the impugned notice including making of reassessment of the petitioner's total income. It has also been prayed that the respondents be restrained from issuing any further notice under Section 142 or under Section 143 of the Act for the purpose of making reassessment and such other or further orders be passed as may be appropriate in the case.
2. The assessment year in question is 1962-63. According to the petitioner, it is a partnership firm carrying on business of commission agents in dry fruits, katha and kirana goods at Delhi. The firm and its partners are regularly assessed to income-tax since 1962-63. The last completed assessment is for the assessment year 1972-73, The financial year of the firm for the relevant period is from October 24, 1960, to November 6, 1961. For the said year, the firm filed its return of income on July 9, 1962, before the ITO, District B-IX, declaring an income of Rs. 81,646. The income returned is said to have been duly supported bythe balance-sheet and the trading and profit and loss account. During the assessment proceedings, the petitioner claims, it filed before the ITO details of all the expenditure debited to the profit and loss account, including the details of interest paid to creditors from whom loans had been taken by the firm. The loans taken by the firm were also disclosed along with the names of parties from whom the said loans were taken. Letters issued by creditors of the firm were also produced along with other relevant records. Repayment of loans, to the extent paid, was also disclosed. It is claimed that after thorough scrutiny of the accounts of the petitioner and evidence produced in support of the return, the ITO framed an assessment under Section 143(3) of the Act by an assessment order dated July 29, 1963. The ITO determined the total income of the firm, i.e., the petitioner, as Rs. 85,402 without taking any exception to the genuineness of any of the loans disclosed by the petitioner. He allowed full interest paid by the firm to its creditors and claimed it as expense in the profit and loss statement. On October 24, 1966, the petitioner received a notice dated October 6, 1966, under Section 148 read with Section 147(a) of the Act for the assessment year 1962-63, from the ITO, District III, Ward 'L', alleging that the ITO had reasons to believe that by reason of omission or failure on the part of the firm to disclose fully and truly all materials necessary for its assessment for the year 1962-63, income chargeable to tax has escaped assessment for that year. It is contended that the said notice did not give any indication as to what material in the possession of the ITO had persuaded him to formulate the reason for the belief postulated by the notice nor did the notice give any indication as to what income was alleged to have escaped assessment which the petitioner was required to declare for reassessment. The petitioner under protest submitted a return in the prescribed form on January 21, 1966, declaring therein the same total income as was declared earlier, viz., Rs. 81,646. Nothing further was heard from the ITO till August 2, 1969, and the petitioner presumed that since it had filed its return under protest, the ITO had reconsidered the whole situation. It was, however, under a wrong belief because it received a notice under Section 143 of the Act fixing a date for personal appearance. At the hearing the petitioner was called upon to produce evidence in support of a deposit of Rs. 10,000 appearing in the books of the firm in the name of Ghanshyam Dass Megh Raj. Evidence was produced but the ITO was not satisfied. He thereupon reassessed the total income of the petitioner by an order dated August 26, 1969, and added back to the total income originally assessed the said sum of Rs. 10,000 as income from undisclosed sources. Thus, the total income was reassessed at Rs. 95,402 instead of Rs. 85,402. On March-28, 1970, the petitioner received another notice under Section 148 read with Section 147 of the Act from the ITO alleging that he had reason to believe that byreason of omission or failure on the part of the firm to disclose truly and fully all material facts necessary for its assessment for the year 1962-63, the income chargeable to tax had, escaped assessment for that year. The petitioner-firm was once again called upon to file return of income in the prescribed form within 30 days of the receipt of the notice. This notice also stated that it had been issued alter obtaining the necessary permission of the CIT-II, respondent No. 2 herein. This is the impugned notice and a true copy of it filed on the record bears no date (annex, 'G' to the petition). The petitioner once again submitted its return declaring its total income to be Rs. 81,646 under protest. A notice under Section 142(1) of the Act dated April 12, 1973 (annex.'G-I' to the petition) was served on the petitioner. As the petitioner was of the view and contended that the ITO had no jurisdiction to issue the said notice under Section 142 or Section 143 of the Act it submitted a letter of protest dated May 30, 1973, and also called upon the ITO (respondent No. 1) to indicate the reasons inducing him to take action under Section 147(a) of the Act (annex. 'H' to the petition). Not getting a satisfactory reply the petitioner has moved this court to quash the impugned notice under Section 148 read with Section 147 of the Act and all further proceedings in consequence thereof.
3. The petitioner challenges the impugned notice and consequent proceedings on the following grounds :
(a) Respondent No. 1, the ITO, has no jurisdiction to take action under Section 147 of the Act for making a reassessment or to issue a notice under Section 142 of the Act because reasons for formation of the belief on the part of respondent No, 1 that income has escaped assessment have not been shown to exist and it has not been shown that the formation of such belief itself is by reason of omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for making a correct assessment on the previous occasion. It is submitted that since all primary facts necessary for the purposes of making assessment on the previous occasion were fully and truly disclosed by the petitioner during the course of the original assessment proceedings, respondent No. 1 has no jurisdiction to initiate reassessment proceedings under Section 147(a) of the Act. In the alternative, it is contended that escapement of income for purposes of assessment, if any, as alleged, was not owing to any omission or failure on the part of the petitioner to disclose fully and truly all the material facts necessary for the purpose of assessment on previous occasions and, if at all, could only be so owing to something else. If that be correct, as has been contended by the petitioner in its letter of protest dated May 30, 1973, it was obligatory on the part of the ITO to point out specifically the fact or facts which were required to be disclosed by the petitioner but were notdisclosed by it fully and truly and also establish that such fact or facts were materially necessary for the making of the assessments on the previous occasion.
(b) If there was suspicion by respondent No. 1, on the basis of some information that he may have received that genuineness of the creditors mentioned by the petitioner earlier was doubtful and the loans advanced by the creditors to the petitioner were not genuine loans then the provision that would be attracted would be Section 147(b) of the Act and not Section 147(a) which has been invoked.
(c) That Clauses (a) and (b) of Section 147 of the Act operate in separate fields and are given distinct jurisdiction. Respondent No. 1 could not proceed under Section 147(a) of the Act merely if the material information came into his possession subsequent to the making of the original assessment creating doubts about the escapement of some income or on the genuineness of the loans. Distinction is made between an inferential fact that is a fact which will be now determined after weighing the pros and cons of the evidence on record and primary fact which it is contended was necessary to exist before Section 147(a) of the Act could be invoked.
(d) That the impugned notice issued under Section 148 of the Act, if it has been issued at the instance of and under instructions from higher or other authorities, then the same would be vitiated in law.
4. The petitioner contends that it has no adequate alternative remedy available against the type of harassment to which it is being subjected and, thereforee, prays for the issue of writs as noticed earlier.
5. In reply the respondents have filed an affidavit of Shri Hari Shankar who at the relevant time was 1he ITO, Special Circle-VII, New Delhi. An affidavit of Shri Harihar Lal, then CIT, has also been filed. According to the affidavit of the ITO there is no want of jurisdiction in the issue of the impugned notices. It is asserted that, in the year 1966, information was received that M/s. Ghanshyam Dass Megh Raj in whose names credits and deposits for Rs. 10,000 stood as on May 9, 1961, in the books of the petitioner constituted a havala entry to show a bogus credit. It was not a genuine transaction. During the relevant time hundi brokers had come forward in the market who allowed credits to be made in the books of assesseds even though there were no valid credits made for the amounts and they were allowed to be squared up by cross-transactions. This matter was investigated by the ITO through hundi circle constituted to go into the genuineness of the transactions of the hundi brokers. As a result of this it was found that there were a large number of parties who allowed their names to be given for the purpose of credits in the books of the assesseds, resulting in the escapement of undisclosed income from being taxed. The petitioner's case was a similar one in which hundi brokers had lent theirnames. In consequence, the petitioner's assessment was reopened on January 6, 1966, and on November 21, 1966. This resulted in Rs. 10,000 being added back to the taxable income by a second order of assessment being formulated on August 26, 1969. Thereafter, in March, 1970, the ITO states, he received information that in addition to Ghanshyam Dass Megh Raj there were other hundi brokers as well who had lent names for bogus credits to the petitioner to the extent of Rs. 57,500. Accordingly, he submitted a proposal to the CIT under Section 147(a) to reopen the assessment of the petitioner for the assessment year 1962-63. This report was considered by the CIT, Delhi-II, and after obtaining his sanction a notice under Section 148 of the Act was issued to the petitioner on March 18, 1970, under Section 147(a) of the Act. The ITO contends that the notice is valid as the petitioner failed to disclose fully and truly all material facts necessary for assessment of its income for the relevant year and show that seven persons in whose names the credits stood were bogus hundi brokers who had only given havala benefits to it for reduction of the incidence of tax. It is pleaded that if the petitioner had disclosed that the said persons had only given their names for the purpose of credits in the books of the petitioner without having actually advanced loans this would have considerably affected the incidence of tax. thereforee, the action taken under Section 147(a) of the Act was competent and Section 147(b) of the Act, was not attracted. The ITO disputes that the CIT had not applied his mind in giving the requisite sanction. It is further pleaded that it was not necessary for the ITO to indicate in the notice the material in his possession which was relevant to formulate the reason for the belief or to state what income had escaped assessment. The CIT has stated in his affidavit that he duly considered the report of the ITO in an objective manner and then accorded approval for commencing proceedings against the petitioner.
6. The contentions of the ITO and the Commissioner have been traversed by the petitioner in two separate affidavits filed by way of rejoinder. The earlier pleas taken by it have been reiterated.
7. The relevant parts of Section 147 read as under :
'147. If-
(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessed to make a return under Section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has; been no omission or failure as mentioned in Clause (a) on the part of the assessed, the Income-tax Officer has in consequence of information in his possession reason to believe that 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 or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 353 referred to as the relevant assessment year).....'
8. Section 148 of the Act reads as under :
'148. (1) Before making the assessment, reassessment or recompilation under Section 147, the Income-tax Officer shall serve on the assessed a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.
(2) The Income-tax Officer shall, before issuing any notice under this Section, record his reasons for doing so.'
9. The relevant part of Section 149 of the Act reads as under :
'149. (1) No notice under Section 148 shall be issued,--
(a) in cases falling under Clause (a) of section 147-
(i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under Sub-clause (ii);
(ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year;
(b) in cases falling under Clause (b) of section 147, at any time after the expiry of four years from the end of the relevant assessment year.'
10. The relevant part of Section 151 of the Act reads as under :
'151.....
(2) No notice shall be issued under Section 148 after the expiry of four years from the end of the relevant assessment year, unless the Commissioner is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice.'
11. It is not in dispute that the impugned action attracts Section 151 of the Act. The proposal that was submitted by the ITO to the Commissioner on March 7, 1970, inter alia, reads :
'I am herewith enclosing a proposal for the assessment year 1962-63 for reopening the assessment already completed on the basis of the audit objection received from the CIT Office, vide their letter No. IA/Spl. Cir. VII/69-70/416 dated 6th March, 1970.
The above loans were originally accepted by the Income-tax Officer as genuine, in the original assessment, as the assessed filed the details at the time of the original assessment.'
12. The Commissioner on this proposal recorded 'Yes' against the column reading 'whether the Commissioner is satisfied that it is a fit case for theissue of notice under Section 148'. Along with this report is attached a document which reads as under :
'Due to the failure on the part of the assessed to disclose fully and truly all the materials relevant for the assessment year 1962-63, income to the extent of Rs. 58,000 has escaped assessment. Permission may be accorded to reopen the assessment for including the income escaped.'
13. From the report submitted to the Commissioner and his sanction noticed above and the affidavit of the ITO it is apparent that some investigation was carried out by the revenue authorities on the existence of bogus hundi brokers, who were allegedly lending their names to the assessed. On the basis of this investigation, a list was circulated to the various ITOs of hundi brokers who were allegedly indulging in the malpractices. On audit objection and acting on this list, the ITO moved the Commissioner and issued the impugned notice. The Commissioner in recording his satisfaction acted on. the list that his department bad circulated to the various ITOs. The question, thereforee, that arises for consideration is whether the action of the ITO in the manner taken could be taken under Section 147(a) of the Act. It is not in dispute that Section 147(b) of the Act is not being relied upon by the revenue.
14. Section 147(a) of the Act postulates that the ITO before invoking this provision must have reason to believe that by reason of omission or failure on the part of an assessed to make a return under Section 139 of the Act or to disclose fully and truly all material facts necessary for his assessment income chargeable to tax has escaped assessment for a particular year. The present case is not a case of omission or failure on the part of an assessed to make a return. According to the respondents, the case falls within the ambit of the assessed not fully and truly disclosing all material facts necessary for his assessment resulting in taxable income escaping assessment. The belief of the ITO must be based on material facts disclosing that the assessed did not fully and truly disclose his income. The belief cannot be on the basis of inferences. A distinction that has to be kept in mind is that the belief must be based on primary facts and not inferential facts and the material facts must be relevant to full and true disclosure. In other words if an inference is to be drawn from disclosures made that the disclosures are not full or true, it would be a different thing from the belief being based on full and true facts not being disclosed. The terms of Section 147(a) postulate that there must be positive grounds for belief before issue of notice The grounds cannot be created during assessment. The affidavit of the ITO states that the grounds for his belief were the audit report or the names circulated by the department. Acting on the basis of that report the ITO may have formed an opinion that some income of the petitioner has escaped assessment but that would be a case which may fall under Section 147(b) of the Act but not under Section 147(a) of the Act.
15. There are two parts of Section 147(a), One is that the ITO must bona fide have reason to believe. The other is that the reason to believe must be by reason of the omission or failure on the part of the assessed to make a return under Section 139 of the Act or to disclose fully and truly all material facts necessary for assessment. The reason to believe must have a rational connection or relevant bearing on the formation of the belief. There must be a direct nexus between the material coming to the notice of the ITO and the formation of this belief that specified income has escaped assessment in a particular year because of the failure of the assessed to disclose fully and truly all material facts. If the facts disclosed are earlier accepted as true but there is possibility of those facts being disbelieved later on it will not fall within the ambit of the assessed's default in fully and truly disclosing all material facts.
16. Sections 147 and 148 of the Act, have been the subject-matter of a number of judicial pronouncements and the interpretation is no longer in doubt.
17. In Chhugamal Rajpal v. S. P. Chaliha : [1971]79ITR603(SC) notice issued under Section 147 read with Section 148 was under challenge. The assessed had produced its books of account and had also filed a statement giving the full names and addresses of the various creditors from whom it had borrowed on hundis during the accounting year in question. Assessment was completed after enquiry. Thereafter, notice under Section 148 of the Act was issued initiating reassessment proceedings. The assessed filed a writ petition in the High Court challenging the validity of the notice, inter alia, on the ground that the requirements of Section 151(2) were not complied with. The High Court, dismissed the petition. In the Supreme Court, during the hearing of the appeal, the revenue was directed to produce the records to show compliance with the provisions of the Act. The report submitted by the ITO to the Commissioner and the latter's orders were produced. In his report the ITO 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, thereforee, proper investigation regarding the loans taken by the appellant was necessary. No other material was mentioned in the report indicating the ITO's reason for coming to the conclusion that it was a fit case for issuing notice under Section 148. On this report, the Commissioner, against the question, 'whether the Commissioner is satisfied that it is a fit case for the issue of notice under Section 148', merely noted 'Yes' and affixed his signature there under. In the circumstances it was held that the ITO had not come to a prima facie conclusion that the loan transactions to which he referred were not genuinetransactions. He appeared to have only a vague feeling that they might be bogus transactions. Such a conclusion did not fulfill the requirements of Section 151(2). Under that section, he had to give reasons for issuing a notice under Section 148. He should have some prima facie grounds before him for taking action under Section 148. His conclusion that there was a case for investigating the truth of the alleged transactions was not the same thing as saying that there were reasons for the issue of the notice. The Commissioner had mechanically accorded permission. Thus, the important safeguards provided in Sections 147 and 151 were lightly treated by the ITO and the Commissioner, The ITO could not have had reason to believe that income had escaped assessment by reason of the appellant-firm's failure to disclose material facts and if the Commissioner had read the report carefully he could not have come to the conclusion that this was a fit case for issuing a notice under Section 148. The notice issued under Section 148 was, thereforee, held to be invalid.
18. In ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) , the Supreme Court upheld the judgment of the majority in a Full Bench decision of the Calcutta High Court : [1975]99ITR296(Cal) . In this cs.se, the assessed was assessed on the basis of his return filed under Section 23(3) of the Indian I.T. Act, 1922, for the assessment year 1958-59 on June 14, 1960. While making the assessment, the ITO allowed deduction of a sum of Rs. 15,991 by way of expenses paid by the assessed. These expenses included a sum of Rs. 10,494-4-3 paid by the assessed by way of interest on loans. The assessments were finalised after enquiry and scrutiny of the books of accounts, bank statements and other necessary documents of the assessed. On March 14, 1967, the respondent received a notice dated March 8, 1967, issued by the ITO under Section 148 of the Act stating that he had reason to believe that the assessed's income which was chargeable to tax for the assessment year 1958-59 had escaped assessment within the meaning of Section 147 of the Act. It was further stated that a notice was being issued after obtaining the necessary satisfaction of the CIT. The assessed was called upon to submit a return within 30 days of the receipt of the notice. The assessed through his counsel wrote to the revenue that there was no material on which the ITO could be said to have had reason to believe that the assessed's income had escaped assessment and, thereforee, the condition precedent for the assumption of jurisdiction was not satisfied. The ITO was called upon to furnish all material on which he had chosen to believe that income had escaped assessment. As there was no response to this protest a petition under Article 226 of the Constitution was filed challenging the impugned notice, on grounds somewhat similar, to the grounds taken in the present petition before me. The ITO in his affidavit, inter alia, stated:
'Subsequent on the assessment for the assessment year 1958-59, it was discovered, inter alia, that some of the loans shown to have been taken and interests alleged to have been paid thereon by the petitioner during the relevant assessment year were not genuine. If necessary, I crave leave to produce before the hon'ble judge hearing the application, the relevant records on the basis of which the said Income-tax Officer had reason to believe that the income of the petitioner escaped assessment as aforesaid at the hearing of the application.'
19. During the hearing of the petition in the High Court the revenue was directed to produce its record. According to the report made to the petitioner, there were hundi loans, credits in the names of certain parties who were said to be name-lenders and also hundi loan credits in the name of a particular party who was alleged to have confessed that, he was doing name-lending. In the original assessment of the assessed, these credits were not investigated in detail. It was said that as the information regarding the bogus nature of these credits was since known, action under Section 147(a) was called for to reopen the assessment and assess the credits as the undisclosed income of the assessed. The report clarified that the assessed was still claiming the credits as genuine in the assessment proceedings for a future year. The Commissioner's sanction was solicited to reopen the assessment for the year 1958-59. The High Court found that according to the report the assessed was not being charged with omission to disclose all facts. He was being charged for having made an untrue disclosure because the assessed had stated that he had received certain sums of money from certain persons as loans when, in fact, he had not received any sum at all from those persons. According to the later information of the revenue the contention of the assessed regarding deposit of loan and payment of interest was not true. The majority followed the Supreme Court's decision in Chhugamal Rajpal's case : [1971]79ITR603(SC) and quashed the notice. The ITO appealed to the Supreme Court. After noticing the various provisions of the Act, namely, Sections 147, 148 and 151 of the Act, the Supreme Court observed as under : [1976]103ITR437(SC)
'It would appear from the perusal of the provisions reproduced above that two conditions have to be satisfied before an Income-tax Officer acquires jurisdiction to issue notice under Section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (1) the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessed (a) to make a return under Section 139 for the assessment year to the Income-tax Officer, or (b) to disclose fully and truly material factsnecessary for his assessment for that year. Both these conditions must coexist in order to confer jurisdiction on the Income-tax Officer. It is also imperative for the Income-tax Officer to record his reasons before initiating proceedings as required by Section 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. We may add that the duty which is cast upon the assessed is to make a true and full disclosure of the primary facts at the time of the original assessment, production before the Income-tax Officer of the 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 contemplated by law. The duty of the assessed in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessed to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.
The grounds or reasons which lead to the formation of the belief contemplated by Section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessed from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, thereforee, not a justiciable issue. It is, of course, open to the assessed 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 assessed 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 rot 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.'
20. On facts, it was held that the case was similar to Chhugamal Rajpal's case : [1971]79ITR603(SC) and the principles enunciated therein applied with full force. It was held (p. 448): 'As stated earlier, 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 assessed from assessment 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 assessed 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.
21. The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are 'reason to believe' and not 'reason to suspect'. The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessed has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, thereforee, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the Income-tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessed from assessmentbecause of the latter's failure or omission to disclose fully and truly all material facts was missing in the case.
22. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment.'
23. Several other decisions were cited by learned counsel for the petitioner but I need not notice all of them. I may, however, notice Rai Singh Deb Singh Bist v. Union of India : [1970]77ITR802(Delhi) decided by a Bench of this court. It was a case under the Indian I.T. Act, 1922, and though the similar provision in the Act of 1922, namely, Section 34, had the words 'definite information' which are not to be found in Section 147 of the Act, the principle is still the same. In this case it was held that the assessed had disclosed all the facts available with him. On the basis of that the assessment was finalised. The ITO was precluded from equating his inference or conclusion from subsequent facts and enquiries to material or primary facts within the meaning of Section 34(l)(a) of the Act of 1922. In my opinion, under Section 147 also, the ITO cannot be allowed to equate his inference from subsequent information to existence of primary facts giving him reason to believe that there has been an escapement of income from assessment. The Division Bench decision of this court, above referred to, was upheld by the Supreme Court in the case of Union of India v. Rai Singh Deb Singh Bist : [1973]88ITR200(SC) .
24. Mr. Kirpal, learned counsel for the respondents, referred to two decisions of the Calcutta High Court and one decision of the Madras High Court in support of his contention that if the assessed had not truly disclosed material facts which were the basis for earlier assessment, the ITO can invoke Section 147 and Section 148 of the Act and formulate valid belief on the basis of information with him belying the truthfulness of the earlier information or material supplied by the assessed. In ITO v. Mahadeo Lal Tulsian : [1977]110ITR786(Cal) , a Bench of the Calcutta High Court held that though it was clear from the material on the record that the assessed did disclose the hundi loans in the original assessment proceedings, this fact, by itself, did not lead to the conclusion that the escapement of assessment, if any, was merely the result of a different view taken by the successor-ITO. The assessed was required not only to make full disclosure of all facts relevant to the assessment but also a true disclosure thereof. It is wholly immaterial whether the ITO making the original assessment could or could not have found the same to be faked or not. When the successor ITO arrived at a conclusion that the assessed concealed a part of his income by falsely representing the same as loan at the time of the original assessment he was certainly not proceeding merely on change of his opinion or view. On the other hand, he was proceeding on actual facts as subsequently found out, leading to the conclusion that a part of the income escaped assessment dueto untrue disclosure of material facts. Thus, the Calcutta High Court was of the view that if the successor-ITO or even the same ITO, subsequently, is of the view that some of the material disclosed earlier was not truly disclosed a change in opinion of this type cannot be said to preclude action under Section 147(a) of the Act. The same view was expressed by the Madras High Court in the case of Varadarajulu Naidu v. CIT : [1978]111ITR301(Mad) and another Calcutta High Court decision in ITO v. Mahadeo Lal Tulsian : [1978]111ITR25(Cal) . It is urged that the distinction is true disclosure as against untrue disclosure. In my view, such an interpretation is contrary to the principles enunciated by the Supreme Court. Mere change of opinion with regard to the same facts will not bring the case within the ambit of Section 147(a) of the Act. Indeed, the Calcutta and the Madras High Courts do not seem to notice the rule laid down in ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) . The argument regarding true disclosure is fully discussed therein. The bogus nature of the transactions has to be found out during the first assessment and not in later assessments. If that was allowed, it would amount to change of opinion on the same facts. What is postulated is non-disclosure of full facts and untrue disclosure of full facts on the earlier occasion. The present case is that of suspected untruthful disclosure. In my view, the primary facts to arrive at the reason to believe did not exist in the present case. Indeed, the facts of the present case, as noticed earlier, are almost identical to Chhugamal Rajpal's case : [1971]79ITR603(SC) and the case of ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) .
25. In this view of the matter, the writ petition is accepted, the rule is made absolute and a writ is issued quashing the impugned notice under Section 148 read with Section 147 of the Act received by the petitioner on March 28, 1970, and notice dated April 12, 1973, issued by respondent No. 1, under Section 142(1) of the Act. I also issue a writ of prohibition restraining the respondents from taking any proceedings in pursuance of the notices quashed. The petitioner will be entitled to its costs. Counsel's fee Rs. 300.