Thanthi Trust Vs. Income-tax Officer - Court Judgment

Mohan, J.

1. All these matters raise one and the same question of law. Therefore, we propose to deal with them under a common judgment.

2. The facts leading to the writ appeals are as follows: The appellant is a trust know as Thanthi Trust. This was created under an instrument of declaration of trust dated March 1, 1954. The purpose of the trust was to found Daily Thanthi Newspaper as an organ of educated public opinion for the Tamil reading public to disseminate news and ventilate opinions on all matters of public interest through the said newspaper. The appellant trust is an assessee on the file of the respondent. Its permanent account number is P.A. No. 47,005-AZ-5117. The trust had been claiming exemption under section 4(3)(i) of the Indian Income-tax Act, 1922, from the assessment year 1955-56 onwards in respect of its income. Though there were several proceedings in relation to the claim for exemption, ultimately, the Income-tax Officer upheld the appellant's claim for exemption for the assessment years 1955-56 to 1961-62. After the coming into force of the Income-tax Act, 1961, exemption was gain claimed by the appellant under section 11 of this Act on the basis of the original trust deed. The claim for exemption was upheld by the concerned Income-tax Officer for the year 1962-63 to 1967-68. For the assessment year 1968-69, the Income-tax Officer issued a notice under section 143(2) of the Act calling upon the appellant to produce its books of account relevant to the assessment year and also for the earlier years. This necessitated the appellant to file Writ Petition No.611 of 1969 contending that the said notice was without jurisdiction. During the pendency of this writ petition, the Income-tax Officer issued notices dated May 23, 1969, to the petitioner under section 148 of the Income-tax Act, 1961 (for short 'the Act'). It was proposed to reopen the assessment for the earlier assessment years 1965-66 to 1967-68. It was stated that the officer has reason to believe that there has been escarpment of income chargeable to tax for the relevant assessment years. The appellant filed Writ Petitions Nos. 1557 to 1559 of 1969 questioning the validity of the said no ices issued under section 148 of the Act. Later, the Income-tax Officer, Special Investigation Circle issued similar notices to the appellant under section 148 of the Act proposing to reassess the income for the assessment years 1956-57 to 1961-62. Thereupon, the appellant filed Writ Petitions Nos. 3352 to 3357 of 1969 raising the same grounds as were urged in Writ Petitions Nos, 1557 to 1559 of 1969. This court by order dated December 21, 1972, disposed of the writ petition holding that the reopening of the assessments for the assessment years 1956-57. 1958-59, 1960-61 and 1962-62 was not valid. However, the reopening of the assessments for the assessment years 1957-58, 1959-60, 1965-66, 1966-67 and 1967-68 was valid. The assessments in respect of the other years are pending at various stages.

3. It is at this stage that the Income-tax Officer issued two notices dated November 17, 1978, under section 148 of the Act proposing to reopen the assessment for the assessment years 1969-70 and 1973-74. The appellant was called upon to file a return and produce all the documents and the necessary accounts. The validity of these notices was challenged in the writ petitions.

4. Before the learned single judge (Ramanujam J), it was argued that because there was no efficacious remedy under the Act, resort had to be had under article 226 of the Constitution of India. It was further urged that the mere change of opinion will not enable the issue of notices under section 148(2) of the Act. The statutory provisions have not been properly complied with. The assessments for the years 1969-70 and 1973-74 are still pending in appeal before the Tribunal. Therefore, the question of reopening the assessment does not arise. The object of issue of notices was to have a roving enquiry which is not permissible in law.

5. The learned judge, on going through the notices, held that it was purported to be under section 143(2) of the Act. It merely called upon the appellant-petitioner before him to produce certain account books in connection with the assessment year 1969-70. Actually, the notice under section 148 of the Act was issued on March 4, 1978. The petitioner before him had kept quiet on all these days. Therefore, he cannot challenge the consequential notice. In this view, the notice issued for the assessment year 1969-70. Which was impugned in Writ Petition No. 10840 of 1981, could not be challenged. The pendency of the appeal would be a bar to the reopening of the assessment. In this view, the learned single judge dismissed both the writ petitions (Writ Petitions Nos. 10480 of 1981).

6. Writ Appeal No. 539 of 1981 is directed against Writ Petition No. 10480 of 1981, while Writ Appeal No. 540 of 1981 is directed against Writ Petition No. 10841 of 1981.

7. To continue the narration of facts, it has already been continued that the deed of declaration of trust was made on March 1, 1954. A supplementary deed was executed by the donor on June 28, 1961, directing that the surplus income of the trust should be utilised only for educational purposes. The appellant filed C.S. No. 90 of 1961 by way of originating summons in the High Court. The High Court held that the trustees were bound by the supplementary deed and, therefore, the entire income had to be spent for the purposes mentioned in the supplementary deed. On March 17, 1969, after the transfer of file from the Third Income-tax Officer, City Circle-II, to the Income-tax Officer, Special Investigation Circle, notices were issued under section 143(2) of the Act to produce the books of account. Accordingly, the account books were produced for the assessment years 1965-66 to 1967-68. As noticed above, writ petitions have been filed for the years 1956-57 and 1961-62 as well as for the years 1965-66 to 1967-68. As seen above, the reopening of assessments for the assessment years 1956-57, 1958-59, 1960-61 and 1961-62 came to be quashed. However, the proposal to reassess was upheld in respect of the years 1957-58, 1959-60, 1965-66, 1966-67 and 1967-68. This was by order dated December 21, 1972, to which we had made reference earlier. In the said order. It was noticed that in respect of the assessment year 1957-58, one of the main reasons given is the suppression of sales of newspaper to the extent of Rs. 4,00,000 which is stated to have been discovered from the figures given by the Audit Bureau of Circulation. Therefore, the notice under section 147(a) of the Act for the said assessment year was upheld. Likewise for 1958-60. The said judgment is reported in Thanthi Trust v. ITO : [1973]91ITR261(Mad) .

8. From September 3, 1976, to September 13, 1976, there was a search of the appellant's business premises and the officers seized the books of account. On November 4, 1976, action under section 132(5) was dropped though there was no specific order to that effect. Notices dated March 5, 1979, and March 15, 1980, came to be issued under section 148 of the Act for reopening the assessment for the years 1970-71 and 1971-72. Concerning these two years, the appeals are stated to be pending. The appellant filed a writ petition in the Delhi High Court. By judgment dated March 23, 1987, the High Court directed the income-tax authorities to return the seized books of account and documents within a week from the date of receipt of the said judgment. It was further directed that since the books of account and the documents have been seized by the income-tax authorities, the appellant-petitioner before that court was unable to file the requisite return as required under section 12A read with section 139 of the Act. Hence, one year's, time was granted to file the return, the one year period reckoned from the date the books of account and the documents seized were returned. This judgment is reported in Jameson and Magrudar Co. Pvt. Ltd. v. ITO : [1987]167ITR77(Cal) .

9. We will now set out the tabular statement as to the subject-matter of the writ petitions:

___________________________________________________________________Assessment Completion of Reopening Proceedingsyear original notice No.assessment___________________________________________________________________1969-70 19-4-1972 4-3-1978 W.A. 539 of 1981againstW.P. 10840 of 19811970-71 28-3-1973 5-3-1979 W.P. 1222 of 19791971-72 26-2-1975 13-3-1980 W.P. 1742 of 19801972-73 27-3-1975 24-3-1981 W.A. 1828 of 1987againstW.P. 2297 of 19821973-74 31-12-1975 4-3-1978 W.A. 540 of 1981againstW.P. 10841 of 1981___________________________________________________________________

10. It is under these circumstances that the writ petitions have been filed. The prayers in Writ Petitions No. 1222 of 1979, 1742 of 1980 and 2297 of 1981 are identical, viz., for the issue of a writ of prohibition. As for as Writ Appeals Nos. 539 and 540 of 1981 are concerned, the prayer in the Writ Petitions Nos. 10840 and 10841 of 1981 is for the issue of a mandamus restraining the respondent from proceeding with the notices dated November 17, 1981, calling upon the petitioner earlier to file returns of income for the assessment years 1969-70 and 1973-74, respectively, and from making any reassessment.

11. In all these writ petitions, the stand taken is that is not a case in which section 147(a) could be invoked because there was no fault on the part of the assessee to file a true and full return. By reason of subsequent information, if something comes to the knowledge of the authority, the proper section will be section 147(b). These safeguards are vital in character and they cannot be lightly default with. The issue of notice a colourable exercise of power. The object of the notice is nothing but to have a roving enquiry.

12. In the counter-affidavits, the stand taken is uniform, in that, by reason of the search conducted in the business premises of the appellant certain incrementing materials were found on the basis of which it came to light that the return filed was not true and full. Therefore, where there is an escapement and the failure to return the income came to be established on the persual of the ABC newsprint stock register, certainly, the authority is well within its jurisdiction to invoke section 147(a) of the Act. It is incorrect to contend that there is any colourable exercise of power. Nor again could it be urged that the object is to conduct a roving enquiry. In any event, when there are adequate remedies available under the Act, there is no justification for the petitioner to resort to the writ jurisdiction of this court under article 226 of the Constitution of India.

13. Dr. Debi Pal, after taking us through the chronology of events, draws our attention to section 147 of the Act. It is his submission that the power under the said section could be exercised subject to section 148(2). Section 148(2) requires recording of reasons. Where the proposed notice is beyond four years, the Commissioner must satisfied, and that satisfaction must be recorded for reaching his conclusion. For 1969-70, the argument, of learned counsel runs as follows: If at the time of the original assessment, the assessing authority had knowledge of the stock register, this reason cannot be held to be valid. It is clear in this case, the reconciliation statement was filed. In fact, ABC newsprint stock register was in the full knowledge of the assessing authority. The assessing authority did not require the appellant to produce the register. If, subsequently the Department by reason of the alleged information gathered during the search, formed any belief that any income is stated to have escaped, such escapement of the income, even if there be any such escapement, is in consequence of the information which information was acquired subsequent to the completion of the assessment. Therefore, section 147(a) cannot be invoked. In support of this submission, he cites the decision in ITO v. Madnani Engineering Works Ltd. : [1979]118ITR1(SC) . That was a case where the loans were held to be fictitious and not genuine. It was held that the assessee had produced all the relevant accounts and documents. Therefore, the escapement is not due to the omission on the part of the assessee to file a return truly and fully. The ratio of that judgment will squarely apply to this case. To similar effect is the decision in CIT v. Burlap Dealers Ltd. : [1971]79ITR609(SC) . In CIT v. M. P. R.Peria Karuppan Chettiar : [1969]71ITR601(Mad) , it was held that where the loans had been taken under hundies in the bogus names, the assessee is not bound to oblige the Income-tax Department by informing that they are bogus. There is enough compliance with law if they have been shown in the return.

14. In the case on hand, the counter-affidavit definitely takes the stand that it has become necessary to investigate the case in depth in order to bring to tax the income secreted from the books. Certainly this is not the purpose for which section 147 is intended because the grounds for issue of notice under section 147(a) must have a live link or close nexus. It has been so laid down in ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) , again in Indian Oil Corporation v. ITO : [1986]159ITR956(SC) , where excess administrative expenses were claimed at 40% and later it turned out to be bogus, namely, 10%, the Income-tax Officer having allowed the excess claim at 40% cannot, on the basis of the subsequent information, hold that the earlier assessment was wrong. This is because the expenses relating to administrative changes, though claimed at a higher figure, was all the while within the knowledge of the assessing authority.

15. In the same way, in Ganga Saran and Sons P. Ltd., v. ITO [1982] 130 ITR 1 , where remuneration was paid to the manger and a sizable portion towards remuneration was siphoned off as gift and it was held to be a subterfuge, nevertheless section 147(a) would not apply since that came to the knowledge of the assessing authority by means of subsequent information. In the light of the case law, if the notices are analysed, it will be clear that the very basis of reopening was the subsequent information. If. Under law, the assessee cannot delve into the mind of the income-tax authorities and so long as the return filed is true and full, merely because there is is escapement, section 147(a) cannot be invoked.

16. As a matter of fact, after the return came to be filed, if any further information was required, the assessee could have been called upon either under section 143(2) or even thereafter to give particulars under section 142. That is the scheme underlying these provisions. This has been succinctly pointed out in Modi Spg. and Wvg. Mills v. ITO : [1975]101ITR637(All) . The same ratio has been adopted by the Madhya Pradesh High Court also as seen from Smt. Kanchanbai v. CIT : [1979]117ITR367(MP) . Therefore, the submission is that there was no obligation on the part of the appellant to produce the stock register as the figures of the Audit Bureau of Circulation were known to the assessing authority at the time of the original assessment. The decision in Thanthi Trust v. ITO : [1973]91ITR261(Mad) makes it very clear, yet another case that was cited in this behalf was Gemini Leather Stores v. ITO : [1975]100ITR1(SC) , where the amounts received by drafts were not disclosed. From this, it will be clear that it is not in every case if there is an escapement, straightway section 147 could be invoked. What is important to be noted is, whether it is on account of the failure to disclose or on account of subsequent information. If it is the latter, certainly, it is not open to the authority in invoke section 147(a). If, in the light of the case law, the notices are analysed, they do not answer the test and the omission cannot, by any stretch of imagination, be held to be attributable to the appellant.

17. For the assessment year 1970-71, the reasoning in relation to discovery of promissory notes cannot be used for invoking section 147 because they are time-barred promissory notes. Looked at from this point of view there is no rational nexus.

18. The suspense registers were produced for 1971-72. Even if excessive commission was paid to relations, it would not matter unless it had been siphoned off by the trust. That is not the case of the Department. For the assessment year 1972-73 and 1973-74, the same grounds are urged. It is not the concern of the appellant as to what inference of facts or law the authority has to make, any subsequent information will fall under section 147(b) and not under section 147(a). Therefore, this is a clear case in which the notices which do not spell out the grounds which have a live link or rational nexus for reopening under section 147 of the Act are sought to be used against the appellant-the writ petitioner in the other cases. If such notices are without jurisdiction, prohibition should issue.

19. Mrs. Nalini Chidambaram, learned standing counsel for the Department, refers to the judgment of Ramanujam J., rendered in Writ Petition No. 10840 of 1981 and submits that in so far as what came to be challenged were notices under section 142 and not under section 147(a), that reasoning will hold good.

20. In cannot be claimed as of right that in every case where notices under section 147 are challenged. The appellant would be entitled to know the reasoning. Law does not cast an obligation on the Department to provide the appellant with the reasoning. The Department is obliged to produce the concerned file before the court so that the court can satisfy itself whether the reasons recorded are germane. As a matter of fact, in case of this kind, all that the court is required to see is (1) whether there is a prima facie case for reopening the assessment; (2) whether there are materials. But that does not mean that the adequacy of the materials can be gone into; and (3) whether there had been any arbitrary exercise of power or whether there any extraneous matters taken into consideration.

21. Then again, it is settled law that even if one of the reasons is good out of the several reasons stated for reopening, the notice has to be upheld. Therefore, it is submitted that it is not open to the appellant's counsel to comment upon the reasons which the court alone can scrutinize. In other words, article 226 cannot be utilised to find out the correctness of the reasoning. There are adequate remedies available. Hence, the remedy of the writ petitioner is misconceived. In support of this argument, learned counsel cites K. Mohammed Hussain v. CIT : [1981]132ITR866(Mad) , VXL India Ltd. v. ITO , CIT v. A. Raman and Co. : [1968]67ITR11(SC) . Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) and CIT v. Mahalakshmi Textiles Mills Ltd. : [1975]100ITR360(Mad) .

22. Merely because there was subsequent information, it does not mean that section 147(a) ceases to apply. It has been so held in CIT v. Mahalakshmi Textiles Mills Ltd. : [1975]100ITR360(Mad) . Again, in Jameson and Magrudar Co. Pvt. Ltd. v. ITO : [1987]167ITR77(Cal) , it has been ruled that if our of the several grounds seeking to reopen an assessment, one ground is good, the notice has to be upheld. In Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) , it has been held that in view of the subsequent disclosure when it came to light that large accretions had not been disclosed when it came to light that large accretions had not been disclosed in the original return, that was enough to reopen the assessment. The decision in D.L.F. Housing and Construction P. Ltd., v. Union of India : [1983]142ITR347(Delhi) (Delhi, is an authority for the proposition that if there has not been full disclosure, section 147(a) of the Act could be invoked. In any even, the notice in relation to the assessment year 1973-74 is well within four years. There is no ground at all for the appellant to approach this court. In a case even where there is no prima facie ground, the appellant was relegated to the assessing authority, as seen from the decision in R.L. Traders v. Union of India : [1986]158ITR824(Delhi) . In fine, therefore, it is submitted that there is no lack of jurisdiction; that there has been escapement of assessment is clear; that such an escapement is due to the non-disclosure and that at this stage of mere proposal to reassess, there is no justification for interference.

23. Dr. Debi Pal in his reply would submit that the decision CIT v. A. Raman and Co. : [1968]67ITR11(SC) , can have no application to the facts of the present case, because that was a case under section 147(b). In that case, the reason that it was a substitute was not accepted by the Supreme Court. In all the rulings of the Supreme Court which had been cited by learned counsel for the appellant, the court had examined the reason whether there was a live or a close nexus. Therefore, the reason can be examined only for the purpose of finding this out. The same principle was adopted in Kantamani Venkata Narayana and Sons v. First Addla. ITO : [1967]63ITR638(SC) . In Thanthi Trust v. ITO : [1973]91ITR261(Mad) , for four years, notices were issued. If the jurisdiction of the authority to invoke section 147 is challenged, the reasons will have to be disclosed as laid down in Gemini Leather Stores v. ITO : [1975]100ITR1(SC) , Madhya Pradesh Industries Ltd., v. ITO : [1970]77ITR268(SC) and ITO v. Madnani Engineering Works Ltd. : [1979]118ITR1(SC) . The reason why the appellant did not choose to cite various High Court decisions is that the law has been clearly laid down by the Supreme Court. In CIT v. Standard Motor Products of India Ltd. : [1983]142ITR877(Mad) , it is categorically laid down that if there is a Supreme Court decision on a point, there is no necessity to follow the High Court.

24. Citing Madhya Pradesh Industries Ltd. v. ITO : [1965]57ITR637(SC) , it is urged that the notices for the assessment years 1969-70 and 1973-74 have not been challenged as wrong. The prayer itself is one for prohibition. Therefore, there cannot be any delay. Even if there were any delay, that cannot be against the appellant. The authorities in this regard are P. C. Doshi v. Seventh ITO : [1967]65ITR187(Bom) and Smt. Suniti Devi Jaipuria v. ITO : [1971]79ITR391(Cal) . Further, if there is lack of jurisdiction, no question of delay would arise as laid down in Calcutta Discount Co. Ltd., v. ITO : [1961]41ITR191(SC) . In P. C. Doshi v. Seventh ITO : [1967]65ITR187(Bom) , the delay of four years was held not to matter. Lastly, it is submitted that materials were available to the assessing authority at the time of assessment and hence section 147(a) could not be invoked.

25. Having regard to the above submissions, the following questions emerge for our consideration:

(1) What is the law in relation to invocation of power. Under section 147(a) of the Act

(2) Whether the reason given in the notices could be held to be tenable

(3) Whether the writ petitions are maintainable

(4) Whether there is delay

Section 147 of the Income-tax Act, 1961, confers jurisdiction to reopen the escaped assessment under two contingencies. The provision with regard to issue of notice is contained in section 148. But before the issue of notice, reasons will have to be recorded. The time-limit for the issue of such a notice is provided under section 149 of the Act. In cases falling under clause (a) of section 147, eight years should not have elapsed from the end of the relevant assessment year. However, if it is more than Rs. 50,000 then sixteen years. In cases falling under clause (b), four years is the limitation reckoned from the end of the relevant assessment year.

26. It requires to be carefully noted that this section is subject to section 151 of the Act. In cases after the expiry of eight years, the satisfaction must be that of the Board. Where it is after the expiry of four years, it is the satisfaction of the commissioner. Here again, it has to be on reasons recorded. It is in this background that the relevant case law will have to be seen to ascertain when exactly the assessee failed within the meaning of section 147(a) of the Act. This becomes material because there is a vital difference between cases falling under section 147(a) and section 147(b). Under section 147(a), the jurisdiction is conferred when the assessee commits default. But section 147(b) relates to a case where notwithstanding there being no default, if some subsequent information comes to the knowledge of the authorities, the escapement of assessment can be brought to book. The case law is uniform in that the statutory safeguards are not to be viewed lightly.

27. It has been held in ITO v. Madnani Engineering Works Ltd. [1978] 118 ITR 1 (headnote) thus:

'In the original assessment of the respondent for the assessment year 1959-60 completed on August 23, 1960, certain interest paid by it to creditors from which it claimed to have borrowed monies on hundis was allowed as deductible expenditure. Subsequently on January 25, 1968, i.e., after a lapse of four years from the end of the assessment year, a notice was issued by the Income-tax Officer to reopen the assessment of the respondent on the ground that the transactions of loan represented by the hundis were bogus and no interest was paid by the respondent to any of the creditors and interest was wrongly allowed. The respondent challenged the validity of the notice by filing a writ petition in the High Court. On December 5, 1968, the Income-tax Officer in his counter-affidavit declined to disclose the facts on the ground that if such facts were disclosed, it would cause great prejudice to the interests of the Revenue and would frustrate the object of reopening the assessment. Thereafter, he filed a further affidavit on January 27, 1970, stating that in the course of the assessment of the respondent for the assessment year 1963-64 it was discovered that various items shown as loans against the security of hundis in the respondent's books of account for the assessment year 1959-60 were in fact fictitious and credits against the names of certain persons, viz., A.G. R, M and D, were found not to be genuine, and that in that premise it appeared to the Income-tax Officer that the respondent had failed to disclose fully and truly all material facts necessary for its assessment and by reason of such failure a portion of its income had escaped assessment. A single judge of the High Court dismissed the writ petition, but on appeal a Division bench of the High Court allowed the petition and quashed the notice. On appeal to the Supreme Court:

Held, affirming the Division Bench of the High Court, (i) the stand taken by the Income-tax Officer in his first affidavit dated December 5, 1968, was obviously untenable because the existence of reason to believe on the part of the Income-tax Officer was a justiciable issued and it was for the court to be satisfied whether in fact the Income-tax Officer had reason to believe that income had escaped assessment by reason of failure of the respondent to make a full and true disclosure.

(ii) That the respondent had produced in the original assessment proceedings all hundis on the strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest and it was for the Income-tax Officer to investigate and determine whether these documents were genuine or not; the respondent could not be said to have failed to awake a true and full disclosure of the material facts by not confessing before the Income-tax Officer that the hundis and the entries in the books of account produced by it were bogus.

CIT v. Burlop Dealers Ltd. : [1971]79ITR609(SC) , applied.

(iii) That, as the Income-tax Officer had in the second affidavit merely stated his belief but not set out any material on the basis of which he had arrived at such belief, there was nothing on the basis of which court could be satisfied on the affidavit that he had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make a true and full disclosure of the material facts.

(iv) That, therefore, the notice of reassessment was void.'

28. The point to be noted as far as this decision is concerned is that the respondent-assessee has produced the relevant materials because it was stated at page 5 thus:

'It will thus be seen that according to this judgment, there was no obligation on the assessee to disclose that the partnership agreement produced by it was bogus and that the entries made by it in its books of account were false. The assessee discharged the obligation which lay upon it by disclosing its books of account and evidence from which material facts could be discovered and it was for the Income-tax Officer to decide whether the documents produced by the assessee were genuine or false. Here also the respondent produced all the hundis on the strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest and it was for the Income-tax Officer to investigate and determine whether these documents were genuine or not. The respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the Income-tax Officer that the hundis and the entries in the books of account produced by it were bogus, we do not see any distinction at all between Burlop Dealers' case : [1971]79ITR609(SC) and the present one and the language of section 147(a) being identical with that of section 34(1)(a), the ratio of the decision in Burlop Dealers, case must govern the decision of the present case. We must, therefore, hold that there was no failure on the part of the respondent to disclose fully and truly all material facts necessary for it assessment and the conditions for the applicability of section 147(a) was not satisfied.'

29. CIT v. Burlop Dealers Ltd. : [1971]79ITR609(SC) , which was relied on, is a case wherein it was held that where a wrong inference was made at the original assessment, the assessee was not obliged to inform the officer of probable inference that may be raised on facts disclosed. It was further held (headnote):

'The respondent had disclosed its books of account and evidence from which material facts could be discovered: it was under no obligation to inform the Income-tax Officer about the possible inference that might be raised against it. It was for the officer to raise such an inference and if he had not done so in the original assessment, the income that escaped assessment could not be brought to tax under section 34(1)(a).'

30. This case dealt with the corresponding provision under the old Act. At page 612 of the above decision, it was held:

'We are of the view that under section 34(1)(a) if the assessee has disclosed primary facts relevant to the assessment, he is under no obligation to instruct the Income-tax Officer about the inference which the Income-tax Officer may raise from those facts. The terms of the Explanation to section 34(1) also do not impose a more onerous obligation. Mere production of the books of account or other evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within the meaning of section 34(1), but where, on the evidence and the materials produced, the Income-tax Officer could have reached a conclusion other than the one which he has reached, a proceeding under section 34(1)(a) will not lie merely on the ground that the Income-tax Officer has raised an inference which he may later regard as erroneous.'

31. In ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) , it was held at page 448 thus:

'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 has 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. 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 as have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, 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 an assessment even if the information ins wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretense.

The powers of the Income-tax Officer to reopen an 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 assessee has escaped assessment. The underlying reason for that is that instance 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, finally about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action it 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 assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case.'

32. The headnote in Indian Oil Corporation v. ITO : [1986]159ITR956(SC) is sufficient for our purpose:

'There must be materials to come to the conclusion that there was 'omission or failure to disclose fully and truly all material facts necessary for the assessment of the year'. This postulates a duty on every assessee to disclose fully and truly all material facts necessary for the assessment. Therefore, the obligation is to disclose facts; secondly. Those facts should be material; thirdly, the disclosure must be full and, fourthly, true. What facts are material and necessary for assessment will differ from case to case. In every assessment proceedings, for computing or determining the proper tax due from the assessee, it is necessary to know all the facts which held the assessing authority in coming to the correct conclusion. From the primary facts in his possession whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inference as to certain other facts. But, on the primary facts, it is for the taxing authority to draw inferences; it is not necessary for the assessee to draw inferences for him.'

33. In Ganga Saran and Sons (P.) Ltd., v. ITO : [1981]130ITR1(SC) , it requires to be noted that the original business was carried on at Delhi by one Deo Dutt Sharma. The same was taken over by the assessee-company. The said Deo Dutt Sharma was appointed as director to manage the Delhi business. In the original assessment, the salary, commission and bonus paid to Deo Dutt Sharma were allowed to be deducted. When it was proposed to reassess the same as escaped turnover under section 147(a) because Deo Dutta Sharma had given substantial amounts as loans to the managing director and gifts to his near relatives and drew only smaller amounts to himself, it was held at page 11 as follows:

'It is well-settled as a result of several decision of this court that two distinct conditions must be satisfied before the Income-tax Officer can assume jurisdiction to issue notice under section 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income-tax Officer would be without jurisdiction. The important words under section 147(a) are 'has reason to believe' and these words are stronger than the words 'is satisfied', the belief entertained by the Income-tax Officer 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. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the Income-tax Officer in coming to the belief, but 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(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income-tax Officer could not have 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. And the notice issued by him would be liable to be struck down as valid'.

34. On this reasoning it was further held at page 13 thus:

'We may point out that, in fact, the statements of account of Deo Dutt Sharma with the assessee for the relevant accounting year as also the previous years were with the Income-tax Officer at the time of the original assessment and these statements of accounts clearly showed that out of the amount of remuneration credited to his account, he had made a gift of Rs. 12,550 to the son of Ganga Saran Sharma on July 31, 1957, and given a loan of Rs. 2,25,000 to Ganga Saran Sharma on August 25, 1958, and the Income-tax Officer was fully aware that Ganga Saran Sharma was the managing director of the assessee. It is possible, and we may assume it in favour of the Revenue, that the subsequent gifts made by Deo Dutt Sharma to the wife and daughters-in-law of Ganga Saran Sharma were not disclosed to the Income-tax Officer at the time of the original assessment, but these gifts being subsequent to the relevant accounting year, the assessee was not bound to disclose the same to the Income-tax Officer. Moreover, it is difficult to appreciate how the assessee could be said to be under an obligation to disclose to the Income-tax Officer in the course of its assessment as to how a director who was in sole charge of the management of the business of the assessee and who was being paid remuneration for the services rendered by him to the assessee, had utilised the amount of remuneration received by him. We do not think it possible to sustain the conclusion that the assessee omitted or failed to disclose fully and truly and material facts relating to its assessment.'

35. In the decision in Gemini Leather Stores v. ITO : [1975]100ITR1(SC) , it is held (headnote):

'In proceedings for the original assessment of the appellant firm though the appellant did not disclose certain transactions evidenced by certain drafts, the officer himself discovered the facts relating thereto but by oversight did not bring the amounts represented by the drafts to tax as the income of the appellant. Subsequently, the Income-tax Officer issued a notice under section 147(a) of the Income-tax Act, 1961, with a view to assessee the amounts as the appellant's the High Court held that the Income-tax Officer did not apply his mind to the question whether the amounts could be treated as part of the total income of the appellant and as the appellant did not disclose the source of those amounts which were not recorded in the account books, all the conditions for invoking the jurisdiction under section 147(a) were present. On appeal to the Supreme Court: Held, reversing the decision of the High Court, that after discovery of the primary facts relating to the transactions evidenced by the drafts, it was for the officer to make the necessary enquiries and draw proper inference as to whether the amounts represented by the drafts could be treated as part of the total income of the appellant. This the officer did not do. It was plainly a case of oversight and it could not be said that income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the appellant to disclose fully and truly all material facts. He could not, thereafter, taken recourse to section 147(a) to remedy the error resulting from his own oversight.'

36. These cases cited on behalf of the appellant made two thing clear. (1) For invocation of jurisdiction under section 147(a) of the Act, the escapement must be because of the omission on the part of the appellant. (2) The reasons to be recorded must have a live link or a close nexus.

37. As against this, the Revenue cited before us the following cases to contend that under writ jurisdiction, it is neither feasible nor desirable to go into the correctness of the reasoning or the sufficiency thereof so long as there is a prima facie case to reopen. In K. Mohammed Hussain v. CIT : [1981]132ITR866(Mad) , where one of us, sitting in the Bench with Ramanujam J., held at page 867 as follows:

'The petitioner's contention that Kumaraswami Mudaliar before his death and later the receiver had disclosed all necessary and material particulars for deciding the question of status and that the assessing authority had no power to go back on his earlier assessment on the question of status, involves investigation of facts as to what were the materials that were produced before the Income-tax Officer at the first instance when the assessment was first made in the status of an individual. Further, the petitioner has come to this court even at the stage of issue of a notice and before the actual proceedings are taken, it is always open to the petitioner to put forward his objections and convince the second respondent who issued the notice under section 147 of the Income-tax Act that there is no room for making a revised assessment as proposed by him and that he, having decided earlier the status, cannot change his opinion and make a revised assessment on the estate of Kumaraswami Mudaliar in the status of a Hindu divided family.

We have to, therefore, hold that this writ petition is premature. Further, the matter involves investigation of facts. The proper thing for the petitioner is to go before the second respondent and put forward his objections and if ultimately and adverse orders are passed against him by the second respondent, he can challenge that order in appropriate proceedings.'

38. In the decision in VXL India Ltd., v. ITO it is held (headnote):

'Whether there is any material or information in the possession of the Income-tax Officer which is sufficient to invoke the provisions of section 147 of the Income-tax Act, 1961, viz., whether income chargeable to tax has escaped assessment, has to be decided under the provisions of the Act itself and not by way of a writ petition under article 226 of the Constitution, it has to be decide dint the assessment proceedings after considering the objections raised by the assessee before the Income-tax Officer, the appellate or other authorities.

In the instant case, the writ petition was dismissed with liberty to the appellant to raise all questions that were open to it under law before the assessing authorities, including the question of jurisdiction or of the condition precedent for invoking the provisions of section 147.'

39. In CIT v. A. Raman and Co. : [1968]67ITR11(SC) , in dealing with the meaning of the expression information under section 147(b) of the Act, it was held that the High Court in exercise of its jurisdiction under article 226, has power to set aside a notice under section 147(b) if the condition precedent to the exercise of the jurisdiction does not exist. The court may, in exercise of its powers, ascertain whether the Income-tax Officer had in his possession any information; the court may also determine whether from the information the Income-tax Officer may have reason to believe that income chargeable to tax has escaped assessment. But the jurisdiction of the court extends no further. Whether on the information in his possession he should commence proceedings for assessment or reassessment, must be decided by the Income-tax Officer and not by the High Court. The Income-tax Officer alone is entrusted with the power to administer the Act; if he has information from which it may be said, prima facie, that he had reason to believe that income chargeable to tax had escaped assessment, it is not open to the High Court exercising powers under article 226 of the Constitution to set aside or vacate the notice for reassessment on a reappraisal of the evidence.

40. In this case, it requires to be carefully noted by us that the jurisdiction of the High Court had not been completely excluded. In Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) , it was held by the Supreme Court thus (headnote):

'In proceedings under article 226 of the Constitution of India challenging the jurisdiction of the Income-tax Officer to issue a notice under section 34(1)(a), the High Court is only concerned to decide whether the conditions which invested the Income-tax Officer with power to reopen the assessment did exist: it is not within the province of the High Court to record a final decision about the failure to disclose fully and truly all material facts bearing on the assessment and consequent escapement of income from assessment and tax.'

41. In CIT v. Mahalakshmi Textiles Mills Ltd. : [1975]100ITR360(Mad) , it has been held:

'These decisions indicate that if the materials coming to the knowledge of the Income-tax Officer or gathered by him subsequent to the original assessment showed that the statement made by the assessee at the stage of the original assessment proceedings cannot be true or full, then he is entitled to initiate proceedings under section 34(1)(a) notwithstanding the fact that he has accepted the statements of the assessee made at the stage of the original assessment without further scrutiny, we are not inclined to agree with the Tribunal that in this case the Income-tax Officer has tried to make good his deficiency in the original assessment. Admittedly, the materials gathered by the Income-tax Officer which formed the basis of the reassessment were not there at the stage of the original assessment. He had no opportunity to consider these materials at that stage. There is, therefore, no question of any deficiency in his original assessment. It is in view of the materials gathered subsequently after the original assessment, the reassessment had been initiated on the ground that from those materials it is reasonable to infer that the statement made by the assessee regarding the credit in the name of Thenappa Chettiar cannot be true. We are of the view that, on the materials, the initiation of proceedings under section 34(1)(a) was justified.'

42. This case related to the discovery of subsequent information.

43. In D.L.F. Housing and Construction P. Ltd., v. Union of India : [1983]142ITR347(Delhi) , it has been held (headnote):

'For the assessment year 1960-61, the assessment of the assessee was completed by the Income-tax Officer on a total income of Rs. 5,04,449. Before the completion of the statement, the Income-tax Officer sought certain clarifications in regard to the purchase of some land by the assessee. The assessee explained that it had originally, jointly with the firm, entered into an agreement to purchase land from the vendor at the rate of Rs. 1,025 per bigha, but eventually had entered into an agreement with the vendor for purchasing the same land at Rs. 1,350 per bigha, that the total purchase price was Rs. 21,93,058, that a sum of Rs. 5,50,000 was paid by way of earnest money to the vendor, a sum of Rs. 6,10,958 was paid in cash and for the balance sum of Rs. 10,30,000 negotiable hundis were given, which were duly dischanged. However, a doubt arose in the mind of the Income-tax Officer as to why the assessee should purchase the land at a higher price, but the Income-tax Officer accepted the explanation of the assessee and made no additions to the income. The Income-tax Officer called upon the assessee to produce its account books and cash vouchers in discharge of the liability of Rs. 10,30,000, which, according to the assessee, was furnished to the Income-tax Officer. Thereafter, the Income-tax Officer issued notice under section 147(a) read with section 148 of the Income-tax Act, 1961, for reopening the assessment of the assessee by relying on the affidavit of the vendor in which he had stated he had received only a sum of Rs. 19,00,654 towards the purchase price of the land and not the entire sale price of Rs. 21,93,058 and also on the grounds that independent inquiries revealed that the market rates were much below the alleged purchase price of Rs. 1,350 per bigha, that the purchase price had been inflated to the extent of Rs. 2,92,404 and income to that extent had been concealed by the assessee and that a cash loan of Rs. 10,30,000 from the vendor was found in the books of the assessee, but the same did not appear in the books of the vendor, which led to the conclusion that the amount represented income of the assessee from undisclosed sources. On a writ petition filed by the assessee challenging the notice of reassessment issued by the Income-tax Officer, the assessee contended that at the time of the original assessment he had disclosed fully and truly all necessary facts and had produced all vouchers, receipts and payments, that the Income-tax Officer was fully aware that the vendor was also an assessee and could have verified the transaction by reference to the vendor's books, and that the mere fact that the vendor went back upon the transaction and alleged that he had received only a sum of Rs. 19,00,654 could not constitute material on the basis of which the assessment could be reopened.

Held, that the Income-tax Officer had, at the time of the original assessment, no reason to doubt the purchase price as stated by the assessee, but when he came across the statements and accounts of the vendor, he had reason to believe that the assessee's income had escaped assessment by reason of his wrongly stating the material facts as to the purchase price. The only method by which the Income-tax Officer could satisfy himself, as to the correctness or otherwise of the statement of the vendor. Was by initiating reassessment proceedings and examining and cross-examining the assessee and the vendor in the course of the reassessment proceedings. The reassessments could not become invalid merely because even at the time of the original assessment, the Income-tax Officer did not compare the account of the assessee with that of the vendor. The Income-tax Officer had material on the basis of which he could have entertained a reasonable belief that income had escaped assessment by reason of the omission of failure on the part of the assessee to disclose fully and truly all material facts at the time of the original assessment, and the notice issued for reassessment was valid.'

44. On facts it was found therein that there was no true and full disclosure.

45. In R. L. Traders v. Union of India : [1986]158ITR824(Delhi) , it has been held (headnote):

'The jurisdiction to reopen an assessment is circumscribed by the conditions laid down in section 147(a) of the Income-tax Act, 1961. Certain facts have to exist to show that the assessment can be reopened. The existence of such reasons and a direct nexus between those reasons and the alleged evasion is a condition precedent for reopening the assessment.

The Income-tax Officer issued notices reopening the assessment of the petitioner under section 147(a) read with section 148 on the ground that during the course of some other proceedings, it was discovered that being was being sold through commission agents to havala agents at an under invoiced rate and that the petitioner had also been selling to these commission agents at an underinvoiced rate. The petitioner filed a writ petition challenging the reassessment notice on the ground that the material which the Income-tax Officer had was too vague and uncertain to connect the petitioner with any under invoicing or alleged concealment of income and, therefore, there was insufficient material for the Income-tax Officer to have 'reason to believe' that income had escaped assessment: Held, that where there were disputed facts, it was not easy to ascertain what was the material and what was the nexus. Unless the material appearing against the assessee was examined by the court n detail, it would not be easy to ascertain whether the reasons actually existed for reopening the assessment. It was difficult to decide what was relevant in a writ petition and that the Income-tax Officer could decide the question as a preliminary issue during the proceedings for reopening the assessment and then the assessee could appeal if he was aggrieved.'

46. In this case, Because there were disputed facts which were not easy to ascertain and what was the material and what was the nexus, it was directed to be decided as a preliminary issue.

47. No doubt, in some of the cases cited by the Revenue, the matter was relegated to the Revenue. But we do not think that that could be the universal rule in all cases. As rightly urged by Dr. Debi Pal, the jurisdiction of this court is limited to find whether there is a live link or a reasonable nexus. For that limited finding at least. The reasons could be examined. No doubt, the income-tax authorities are not bound to furnish the assessee with the file containing the reasons. But in this case, the reasons have been furnished and copy therefore has also been given to the appellant. All that he wanted at our hands is to examine whether the reasons contained in the notices, which are more or less identical in language, have a live link or a close nexus. According to him, as to what is the scheme of the Act with regard to the obligation on the part of the assessee to furnish the return with true and full particulars and also such other information can be gathered from Modi Spg. and Wvg. Mills v. ITO : [1975]101ITR637(All) , it has been held:

'The scheme underlying these sections seems to indicate that to begin with, at the time of filing of return, an assessee was merely required to furnish the particulars of his income in the prescribed form. In other words, he was to truly and fully supply the information sought for in various columns of the prescribed form of return. If the Income-tax Officer felt that the information conveyed, as per the prescribed form, was correct and was sufficient for making an assessment order, he could proceed to assess the persons filling the return on its basis. At that stage, no question of the assessee furnishing any information other than that required to be furnished in the prescribed form of return could arise. Accordingly, if the assessee truly and fully disclosed all information required to be supplied in the prescribed form of return, no question of his failure to disclose any other particulars of his income at that stage could arise, the next stage in the process of making an assessment was where a return in the prescribed form had been filed but the Income-tax tax Officer felt that although the information conveyed by the return was sufficient for making an assessment order, but before that information could be acted upon, the assessee should be required to verify the same by producing evidence. In such circumstances, he could require the assessee to produce evidence in support of his return. Here again, the assessee was required to produce evidence only in support of the statements made by him in the prescribed form of return and there was no obligation upon him to convey any other or further information or to produce evidence in support of any other matter which may ultimately be found to be relevant for the purpose of making an assessment in his case. There could yet be a third stage where the Income-tax Officer felt that not only the information conveyed in the return required verification but also a that it was not sufficient for making an assessment order. In such a case, he was required to specify the points and to ask the assessee to produce evidence on those points. He could also require the assessee to produce some particular evidence having a bearing on that point. It is at the stage when the assessee was required by the Income-tax Officer to elucidate some particular point that the assessee had again been obliged to disclosed all primary facts truly and fully in respect of that point. Till this stage was reached, there was no obligation on the assessee to disclose or produce evidence in respect of the points other than those in respect of which the assessee was, as provided in the prescribed form of return, obliged to furnish full and true information. In our opinion, so long as in the assessment proceedings the third stage was not reached, the assessee could not be blamed or held liable for not disclosing some information which till then he was not required to furnish in the prescribed form but which ultimately was found to be relevant in connection with his assessment.'

48. From the above, it is clear that there are three stages: (1) To file the return as required under the Act and supply all the information sought for in the various columns in the prescribed form of return. (2) Should the income-tax authorities feel that the information was not sufficient, they could require the assessee to produce evidence in support of his return. This is under section 143(2) of the Act. (3) Then again, at the third stage, the Income-tax Officer could require the assessee to produce some particular evidence which has a bearing on that particular point, this is under section 142 of the Act. This ruling has been followed by the Madhya Pradesh High Court as seen from Smt. Kanchanbai v. CIT : [1979]117ITR367(MP) , wherein it was held (headnote):

'It is well-settled that to confer jurisdiction on the Income-tax Officer under section 147(a) of the Income-tax Act, 1961, two conditions are to be satisfied: (i) the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment, and (ii) he must also have reason to believe that such escapement has occurred by reason of either (a) omission or failure on the part of the assessee to make a return of his income under section 139 of the Act, or (b) omission of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice under section 148 read with section 147(a) of the Act. What facts are material and necessary for assessment will differ from case to case.

For the assessment years 1956-57, 1957-58 and 1958-59, the assessee who derived income from money-lending business, was originally assessed as an individual on May 30, 1960, at the time of original assessments, the assessee had submitted a list of the parties from whom interest was received by the assessee. The assessee did not maintain any books of account and no inquiry was made at the time of the original assessments regarding the source of investments made by the assessee. Subsequently. The Income-tax Officer got information that the assessee had been in possession of substantial quantity of gold which was sold by the assessee, that the amount of sale proceeds was invested in money-lending business and as the Income-tax Officer had reasonable grounds to believe that income liable to tax had escaped assessment, he initiated reassessment proceedings under section 147(a) of the Act, after obtaining the sanction of the Commissioner of Income-tax for each of the three assessment years. The assessee filed returns under protest challenging the legality of the reassessment proceedings and contended that she had received ornaments from her father and father-in-law. The Income-tax Officer did not accept the version of the assessee and the amount obtained by the assess but sale or ornaments was added to the assessee's income from undisclosed sources. On appeals, both the Appellate Assistant Commissioner and the Tribunal affirmed the order of the Income-tax Officer. On a reference.

Held, that the assessee had produced before the Income-tax Officer at the time of original assessments a list of persons to whom moneys had been advanced by the assessee and the amounts of interest received from them. At the time of filing of her returns for the relevant assessment years, the assessee was not required to furnish information regarding the source of the capital invested in money-lending business and the Income-tax Officer had, at no stage, required the assessee to furnish the information. Therefore, there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for her assessment for the relevant assessment years and the condition precedent for the exercise of powers under section 147(a) of the Act was not fulfilled. The Income-tax Officer was, therefore. Not justified in reopening the assessments under section 147(a) of the Act for any of the years'.

49. Thus, on point No. 1 we conclude that the jurisdiction of this court is not completely shut out, but is still available to determine the limited questions, namely, whether there is a live link or a close nexus to the notices. With this, we go on to examine the notices issued for the various assessment years.

50. In the case of the assessee which came up before this court earlier and reported in Thanthi Trust v. ITO : [1973]91ITR261(Mad) , it was held at page 286 thus:

'It prima facie appears to us that some of the reasons set out above almost amount to a change of opinion in respect of certain items and there can be no question of the non-disclosure by the assessee leading to the escapement of income in relation to those items. However, it is not necessary for us to see whether all the reasons set out for each year by the Income-tax Officer in his reports are tenable. If at least one of the grounds in respect of each of the years in such as to lead to a prima facie and reasonable belief that income has escaped assessment in that year by reason of the non-disclosure of the primary facts by the assessee, the jurisdiction of the Income-tax Officer t initiate reassessment proceedings under section 147(a) cannot be successfully questioned. Therefore. We have to consider whether there exists at least one reason which would form the basis for the belief entertained by the Income-tax Officer with reference to each of the years.'

51. It is true as rightly contended by Mrs. Nalini Chidambaram appearing for the Revenue, that even if one of the reasons is sufficient, that will be enough to uphold the validity of the notice, she is fortified in relying on the decision in Jameson and Magrudar Co. P. Ltd., v. ITO : [1987]167ITR77(Cal) , in which it has been held thus (headnote):

'If a notice is issued on more than one ground, and one of the grounds is sufficient to uphold the validity of the notice, then even if the other grounds are not sustainable, it will not make the notice bad.

The Income-tax Officer issued notice to the assessee under section 148 of the Income-tax Act, 1961, for the assessment year 1971-72 on the grounds, (i) that in consequence of information received from the Revenue audit, it was found that deductions under section 80K, 80L and 80M had been wrongly allowed and no deductions could be allowed in view of the provisions of section 80A(2) since there was no gross total income within the meaning of section 80B(5), the net result being a minus figure and loss had been carried forward due to incorrect dedications; (ii) that excess relief under section 80J had been allowed due to incorrect computation of capital employed; (iii) that travelling allowance disallowable under section 37(3) read with rule 6D of the Income-tax Rules, 1962, had not been disclosed in the return; (iv) that the assessee paid compensation on account of short production of controlled cloth which was in the nature of penalty and should have been disallowed; and, hence, the Income-tax Officer had reasons to believe that on account of the failure of the assessee to disclose fully and truly all material facts necessary for its assessment and also in consequence of information in the possession of the Income-tax Officer, the assessee's income had escaped assessment. The question arose whether the condition precedent for assumption of jurisdiction for initiation of proceedings in respect of income escaping assessment had been fulfilled or not;

Held, that the information that the Income-tax Officer had allowed the deductions under section 80K, 80L and 80M before considering the depreciation, would clothe the Income-tax Officer with jurisdiction to issue the notice. Therefore, the reopening of the assessments was valid.'

52. It is in the light of this, we will examine the notices.

53. For the assessment year 1969-70, ABC newsprint stock register which contains account from July 1, 1967, to June 30, 1971, on a comparison with the financial statements filed for the purpose of income-tax, shows huge difference between closing stock and the purchase. Therefore, the difference in stock, in the absence of explanation, must have been purchased with undisclose income, the advertisement deposit account contained receipt of lump sums in the assessment year also. This position is at variance with the explanation offered by the appellant. In the assessment year 1970-71, the amounts representing the income of the appellant have not been properly accounted for. The plea of the appellant is that at the time of original assessment, the assessing authority had full knowledge about the existence of the ABC newsprint stock register. The accounts for the year ended June 30, 1969 (Sales Demand Statement), state as follows:

'Add: Rs.Total demand as per accounts 95,28,197Total demand as per ABC reconciliation 95,23,7804,417'

54. Further, it is seen from Thanthi Trust v. ITO : [1973]91ITR261(Mad) itself, that the authority was aware of the figures furnished by the Audit Bureau of Circulation. It is stated at page 287 thus:

'For the year 1959-60, out of the many reasons given, one relates to the suppression of sales of newspaper to an extent of Rs. 53,552 as per the figures furnished by the Audit Bureau of Circulation and another relates to the lending of a sum of Rs. 10,000 to one Sankaralinga Iyer, outside the books of the accounts the trust. These grounds, if established, would came within the purview of section 147(a).

For the year 1960-61 the tree grounds set out are: (1) investment in allied concerns of the founder; (2) deduction of interest of Rs. 51,931 on overdrafts wrongly allowed; and (3) suppression of sales of newspaper to an extent of Rs. 11,479 said to have been found out on information furnished by the Audit Bureau of Circulation.'

55. Therefore, where the reconciliation statement relating to the sales which shows the total demand as per ABC reconciliation. The assessing authority could have called upon the appellant to furnish that particulars. We do not think this contention is well-founded. Therefore, applying the ruling of the Allahabad High Court in Modi Spg. and Wvg. Mills v. ITO : [1975]101ITR637(All) and Smt. Kanchanbai v. CIT : [1979]117ITR367(MP) , which succinctly set out the scheme of the Act, which extracts we have extracted above, this is not case of an assessee failing to furnish true and full return. Unless the assessee was called upon, there was no obligation on the part of the assessee to produce any further material, nor can the assessee delve in the mind of the authority to find out what inference could be drawn either on facts or on law.

56. As regards the advertisement charges, the finding of the appellate authority for the year 1970-71 may now be extracted:

'As pointed out by the Commissioner of Income-tax (Appeals) in respect of the same addition, the additions rest on surmises and suspicions. The explanation which was originally given was subsequently changed but the fact remains that the balances have been adjusted to revenue account in 1972-73 and offered as income. This has been accepted by the Department, in the face of this development, the variation in the explanation loses its significance. Having assessed the same in a subsequent year. The Income-tax Officer cannot subject it to assessment in the current year when it retained the character of deposit and when there is no positive material with the Income-tax Officer to show that the canvassers only settled the bills, but not made deposits or advances. In addition, the appellant has furnished the following details in respect of the advertisement income and advertisement deposit balance.

Particulars:

Acct. Year 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72-------------------------------------------------------------------Asst. Year 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74-------------------------------------------------------------------Adv. Income 2965304 3576001 42330134 5631567 7047772 7768658Adv. Dep.balance 151230 363456 788002 789222 90872 90447 The appellant points out that advertisement income offered for assessment has been on the increase and the balances in the advertisement account were not added for the assessment years 1968-69 and 1969-70. The appellant's contention is correct. There is nothing to suggest that the trust has resorted to the practice of suppression of income by treating the advertisement receipts as advertisement deposits. In fact, no serious omission of irregularity in respect of advertisement receipts has been pointed out by the Income-tax Officer. On the whole, the addition is no warranted and accordingly the Income-tax Officer is directed to delete the same after due verification of the facts that Rs. 7,00,350 has been adjusted to the revenue account in the assessment year 1972-73 and included in the income and the assessment accepting the above potion has been made. Subject to verification on the above point, the appeal is allowed.'

57. This affords a complete answer with regard to the omission or failure on the part of the appellant.

58. For the assessment year 1970-71, the first reasoning is in relation to ABC newsprint stock register about which we had already made a reference. The second reasoning is in relation to the two promissory notes, one dated April 21, 1969, for Rs. 1,30,000 executed by Pachaiyear Sugar Mills (P.) Ltd., and another dated January 1, 1970, executed by D. R Adityan for a sum of Rs. 69,200. According to Dr. Debi Pal these promissory notes are beyond three years and, therefore, the recovery of these promissory note amounts is not possible. Hence, there is no rational nexus or live link, He also relies in this regard on Sheo Nath Singh v. AAC : [1971]82ITR147(SC) , wherein it was held at page 153 as follows:

'In our judgment, the law laid down by this court in the above case a fully applicable to the facts of the present case. There can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstances evidence but not on mere suspicions, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied down not exist or is not material or relevant to aspect though the declaration or sufficiency of the reasons for the belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration of sufficiency of the reasons for the belief cannot be investigation by the court.'

59. We consider that this is not the correct way of approach. What is a pointed out is that. These loans have not been accounted for in the books of the assessee. The question of recovery does not come in. Therefore, this reason appears to be valid.

60. The next is the suspense register. Tha stand of the appellant is that the suspense register maintained by the appellant does not show any discrepancy in view of the following statements:

'SUSPENSE-CASH BALANCE

Madras Office ___________________________________________________________________Date Balance as per suspense register Balance as per book___________________________________________________________________Rs. Rs.30-6-1968 65,445.79 65,445.7930-6-1969 1,49,131.80 1,49,131.8030-6-1970 1,48,471.82 1,48,741.8230-6-1971 1,66,107.05 1,66,107.0530-6-1972 2,27,367.62 2,27,367.62'__________________________________________________________________

61. Here again, the suspense register is for the assessment year 1970-71 which shows huge discrepancy which came to light in the course of the assessment for the year 1974-75. Therefore, this is not a case of omission by the appellant. But a subsequent discovery which could have been discovered with due diligence or by calling upon the appellant to produce the relevant account books. Hence, for the assessment year 1974-75, that cannot projected as a reason. For the assessment year 1971-72, in addition to these two reasons, on other reasons that is given is sale of excessive wastage. The sale of wastage at 8.89% accounted for that year had year fully accepted by the income-tax authorities. The fact that in the subsequent year 1974-75, 5% came to be arrived at cannot constitute a ground for reopening. This squarely falls with the ratio of the Supreme Court decision laid down in India Oil Corporation v. ITO : [1986]159ITR956(SC) .

62. The ground is with regard to excessive commission, it is stated by the authorities that the sales were obviously to agents who are none other than the employees of the appellant and such excessive commission payments to these persons were not genuine. We find some difficulty in accepting this line of reasoning because unless it is clear that the payments to the employees of the appellant have been safeness off to the trust, there is no question of failure to render a true and full account. We think the ruling in Ganga Saran and Sons (P.) Ltd., v. ITO : [1981]130ITR1(SC) supports the appellant. For the assessment years 1972-73 and 1973-74, the same grounds have been urged. But as regards 1973-74, the notice issued is under section 147 of the Act which is well within four years. With regard to the other year, the law clearly lays down, that it must be within four years, if it is under section 147(a). In our view, on a very careful consideration, the notices for the assessment years 1969-70, 1971-72 and 1972-73 have to be held to be invalid because the reasons do not have a live-link or a close nexus. However, for 1970-71, we have to uphold the notice since in paragraph 3 of that notice reference is made to the two promissory notes which have not been brought into account. That will show that the appellant had not submitted a true and full return and this omission of the appellant had not submitted a true and full return and this omission of the appellant will confer jurisdiction on the officer. For the assessment year 1973-74, the notice, being well within time, will have to be upheld.

63. In view of the foregoing discussion. We hold that the writ petitions are maintainable for the limited purpose of deciding the jurisdictional issue.

64. We do not think the appellant could be denied the relief on the ground of delay. As matter of fact, we have already set out, the prayer in the Writ petitions leading to the writ appeals. In P. C. Doshi v. 7th ITO : [1967]65ITR187(Bom) , it has been held:

'Now, so far as the writ of prohibition is concerned, it cannot be said that the notices of demand suffer from a patent lack of jurisdiction. If the orders, in pursuance of which they have been issued, stand, no objection can be taken with regard to the consequential notices of demand. We may, however, agree with him that, in so far as the relief by way of writs of certiorari seeking to quash the orders made under sections 35(7) and 35(8) are concerned, he may be entitled to rely on the said decision provided he may be entitled to rely on the said decision provided he can satisfy us that there is a patent lack of jurisdiction on the part of the respondent in making the said orders. In the Privy Council case, Estate and Trust Agencies Ltd. v. Singapore Improvement Trust , relied on by him, it has been observed that an application for prohibition or certiorari is never too late as long as there is something left for it to operate upon. This observation was made in the context of a prayer for a writ of prohibition seeking to prevent the action of pulling down a building which was being done in consequence of an order, which was ultra vires the authority making it. The said decision, in our opinion, is consistent with the view which Mr. Justice S. T. Desai has taken in Madhavlal Sindhoo v. C. R. Idurkar : [1956]30ITR332(Bom) that, if there is a patent lack of jurisdiction, normally, the court will interfere and will not stay its hands merely on the ground of delay on the apart of the petitioner to come to the court.'

65. The decision in Smt. Suniti Devi Jaipuria v. ITO : [1971]79ITR391(Cal) , is also to the same effect. In Calcutta Discount Co. Ltd., v. ITO : [1961]41ITR191(SC) , it has been held

'Mr.Sastri next pointed out that at the stage when the Income-tax Officer issued the notices he was not acting judicially or quasi-judicially and so a writ of certiorari or prohibition cannot issue. It is well settled however that though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well-settled, will issue appropriate orders of directions to prevent such consequences.'

66. Therefore, for a writ of prohibition, we do not propose to deny the relief on the ground of delay. Accordingly, W.A. Nos. 539 and 540 of 1981 will stand allowed. W.P. Nos. 1742 of 1980 and 2297 of 1981 will stand allowed. W.P. No. 1222 of 1979 will stand dismissed. Since W.A. No. 1828 of 1987 is against an interlocutory order and the writ petition itself has been allowed. no further orders are necessary. There will be no order as to costs.