Income-Tax Officer And Ors. vs Chiranji Lal Ramji Das
1976 Latest Caselaw 9 Del

JUDGMENT

(Civil Writ No. 782 A-D of 1966)

1. Petitioner-firm, Chiranji Lal Ramji Dass, by means of this petition under Articles 226 and 227 of the Constitution of India has prayed for the issuance of a writ quashing notice dated March 21, 1966, under Section 148 of the Income-tax Act, 1961 (hereinafter referred to as "the Act of 1961").

2. The petitioner-firm was carrying on business as a commission agent in the status of a Hindu undivided family during the accounting period (Dewali year 1947-48) pertaining to the assessment year 1949-50. The Hindu undivided family remained joint in status and business up to November 13, 1955, where after the profits arising from the business were assessed in the status of a registered firm. Previously, the head office was at Bhiwani with branch offices at Narnaul, Bikaner, Loharu and Jaipur. After 1955, the business is carried on with head office at Bhiwani and branches at Jaipur, Bikaner, Delhi and Narnaul. On March 21, 1966, Income-tax Officer, Central Circle III, Delhi, issued the following notice under Section 148 of the Act of 1961 to the petitioner :

"Whereas I have reason to believe that your income chargeable to tax for the assessment year 1949-50 has escaped assessment within the meaning of Section 147 of the Income-tax Act 1961.

1. therefore, propose to

reassess __________ recompute

the income for the said assessment year and I hereby require you to deliver to one within 30 days from the date of the service of this notice, a return in the prescribed form of your income in respect of which you are assessable for the said assessment year.

2. This notice is being issued after obtaining the necessary satisfaction of the Central Board of Revenue."

3. On receipt of the above notice the petitioner filed a return stating that notice under Section 148 was illegal and no income had escaped assessment. It was added that the income of the petitioner was the same as assessed originally. In a further communication, it was stated that the return was being filed under protest and that notice under Section 148 was barred by time. A number of notices under Section 143(3) of the Act of 1961 were thereafter sent by the Income-tax Officer to the petitioner. The petitioner thereupon filed the present petition dated September 27, 1966, challenging the validity of the notice under Section 148. Respondents imp leaded in the petition are the Income-tax Officer, respondent No. 1, the Commissioner of Income-tax, respondent No. 2, Central Board of Direct Taxes, respondent No. 3, and Union of India through Secretary, Ministry of Finance, respondent No. 4. The original petition was amended and on October 12, 1966, the petitioner filed a petition containing additional grounds.

4. The petition has been resisted by respondents Nos. 1 to 3 and the affidavit of Shri V.S. Rastogi, Income-tax Officer has been filed in opposition to the petition. According to the affidavit filed on behalf of the respondents, notice under Section 148 was validly issued on the basis of information coming into the possession of the Income-tax Officer that by reason of the omission or failure on the part of the assessed to disclose fully and truly all material facts, necessary for the assessment, income over rupees one lakh chargeable to tax had escaped assessment for the assessment year 1949-50.

5. Before dealing with the contentions advanced, it would be necessary to reproduce the relevant provisions of the Act of 1961 as well as those of Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the "Act of 1922"). The relevant portion of Section 34 of the Act of 1922, as it stood immediately prior to its amendment by the Finance Act, 1956, was in the following terms :

"34. (1) 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 of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, 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, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss, or depreciation allowance has been computed.

he may in cases falling under Clause (a) at any time within eight years and in cases falling under Clause (b) at any time within four years of the end of that year, serve on the assessed, or, if the assessed is a company, on the principal officer thereof a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; 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:

Provided that-

(i) the Income-tax Officer shall not issue a notice under this sub-section, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice...."

6. Amendments were made in Section 34 with effect from April 1, 1956, by the Finance Act of 1956.

7. The time limit of eight years for cases falling under Clause (a) of Sub-section (1) was removed and the following provisions were substituted for the existing proviso in Sub-section (1):

"Provided that the Income-tax Officer shall not issue a notice under Clause (a) of Sub-section (1)-

(i) for any year prior to the year ending on the 3Ist day of March, 1941 ;

(ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March, 1941 ;

(iii) for any year, unless he has recorded his reasons for doing so, and, in any case falling under Clause (ii), unless the Central Board of Revenue, and, in any other case, the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice......"

8. The Act of 1961 came into force on April 1, 1962. Sub-section (1) of Section 297 of the Act of 1961 repealed the Act of 1922. Clause (d) of Sub-section (2) of "that section provided :

"297. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),--......

(d) where in respect of any assessment year after the year ending on the 31st day of March, 1940,--

(i) a notice under Section 34 of the repealed Act had been issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed ;

(ii) any income chargeable to tax had escaped assessment within the meaning of that expression in Section 147 and no proceedings under Section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under Section 148 may, subject to the provisions contained in Section 149 or Section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly."

9. Section 34 of the Act of 1922 has been split up into Sections 147 to 153 in the Act of 1961. Section 147 provides :

"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 153 referred to as the relevant assessment year)...... "

10. Explanation 2 of that section reads as under :

"Production before the Income-tax Officer of 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 within the meaning of this section."

11. According to Section 148, the Income-tax Officer, before making the assessment, reassessment or recomputation under Section 147, shall serve a notice on the assessed 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.

12. Sub-section (1) of Section 149 has a material bearing and 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. "

13. Section 151 is in the following words ;

"(1) No notice shall be issued under Section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice.

(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.

14. The first contention which has been advanced on behalf of the petitioner is that the Act of 1922 prescribed a period of eight years for the issue of notice under Section 34 of the Act for cases falling under Clause (a) of Sub-section (1) of that section and as that period for the assessment year 1949-50 expired on March 31, 1958, the Income-tax Officer cannot take the benefit of the extended period of limitation of sixteen years as prescribed by Section 149 of the Act of 1961. It is urged that Section 297(2)(d)(ii) should not be construed as might have the effect of reviving rights of the Income-tax Officer to reopen assessment which rights had become extinguished and barred under the old Act. Reference in this context is made to the case of J.P. Jani, Income-tax Officer v. Induprasad Devshanker Bhatt decided by the Supreme Court on August 20, 1968. In this case their Lordships affirmed the judgment of the Gujarat High Court whereby a notice under Section 148 of the Act of 1961 issued by the Income-tax Officer had been quashed. Reference on behalf of the petitioner has also been made to the case of Darshan Singh Chawla v. Income-tax Officer (Civil Writ No. 65D of 1966) decided by Kapur J. on August 12, 1966. In the case of Induprasad Devshanker Bhatt the amount of escaped income was determined by the Income-tax Officer to be Rs. 89,000 while in the case of Darshan' Singh Chawla (Civil Writ No. 65D of 1966) it was decided to be Rs. 72,136-11-0. As the notice under Section 148 of the Act of 1961 in the above two cases was issued after the expiry of eight years, it was held that the notice was illegal and liable to be quashed. To quote the words of their Lordships of the Supreme Court--See. :

"......it must be held that on a proper construction of section 97(2)(d)(ii) of the new Act, the Income-tax Officer cannot issue a notice under Section 148 in order to reopen the assessment of an assessed in a case where the right to reopen the assessment was barred under the old Act at the date when the new Act came into force."

15. In my opinion, the petitioner cannot derive much assistance from the above two authorities, because, according to the affidavit filed on behalf of the respondents the escaped income in the case of the petitioner was more than one lakh of rupees for the assessment year 1949-50. So far as the escaped income of over a lakh of rupees is concerned, the Act of 1922 prescribed no period of limitation. It, therefore, cannot be said that the Income-tax Officer by issuing notice under Section 148 to the petitioner is trying to reopen an assessment in a case the right to reopen the assessment has become barred under the old Act. The dictum laid down in the above two cases, in the circumstances, would clearly be not applicable.

16. It has next been argued on behalf of the petitioner that there is no cogent material on the record to indicate that income had escaped assessment by reason of omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for assessment relating to the assessment year 1949-50. In this respect I find that before the Income-tax Officer can exercise jurisdiction under Clause (a) of Section 147 of the Act of 1961 or its corresponding provision under Clause (a) of Sub-section (1) of Section 34 of the Act of 1922 and issue notice under the provisions of the Act, two conditions must be satisfied : (i) the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax had been underassessed, and (ii) he must have reason to believe that such an underassessment had occurred by reason of either (a) omission or failure on the part of the assessed to make a return of his income (under Section 139 of the Act of 1961 or Section 22 of the Act of 1922, as the case may be), or (b) omission or failure on the part of the assessed to disclose fully and truly all the material facts necessary for the assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer acquires jurisdiction to issue notice under Section 148 of the Act of 1961 or Section 34 of the Act of 1922. Ramaswami J., speaking for the court, observed in the case of S. Narayanappa v. Commissioner of Income-tax :

"But the legal position is that if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under Section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act Is not a justiciable issue. It is of course open for the assessed to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessed but not the sufficiency of the reasons for the belief. Again the expression 'reason to believe' in Section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith ; it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under Section 34 of the Act is open to challenge in a court of law." (See Calcutta Discount Co. Ltd. v. Income-tax Officer ."

17. In the present case I find that although Shri V.S. Rastogi, Income-tax Officer, in his affidavit has asserted that "notice under Section 148 was validly issued on the basis of information coming to the possession of the Income-tax Officer that by reason of omission or failure on the part of the assessed to disclose fully and truly all material facts accessory for the assessment income chargeable to tax had escaped assessment for the assessment year 1949-50", he has nowhere indicated the material on the basis of which he could form the belief that there had been omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment for the year 1949-50. The affidavit filed on behalf of the respondents is absolutely silent in this respect and in the absence of such a material it is difficult to hold in favor of the respondents about the existence of such a belief. In any case it cannot be said that the belief was held by the Income-tax Officer in good faith and was not merely a pretence, because the court can go into this matter only if the reasons for such a belief are placed before the court. As stated in S. Narayanappa's case , it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. Although the Income-tax Officer in the present case seeks to reopen the assessment of the assessment year 1949-50 by means of a notice issued in 1966, ho has in his affidavit given no inkling of the reasons for his belief that there had been omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment for that year.

18. Mr. Kirpal, on behalf of the respondents Nos. 1 to 3, has urged that it was not necessary for the Income-tax Officer to refer to the material in his affidavit because such material is indicated by notices dated July 15, 1966, August 3/4, 1966, and August 22/27, 1966, which were: issued by the Income-tax Officer to the petitioner. The last two of them purported to be under Section 143(3) of the Act of 1961. The provision under which notice dated July 15, 1966, was issued has not been specified but it is stated by Mr. Kirpal that that notice too was under Section 143(3) of the above mentioned Act. In these notices the Income-tax Officer called upon the petitioner to furnish information and explanation in respect of a number of matters. Although there are indications in these notices that certain income had escaped assessment, there is nothing in these notices to show that the income had escaped assessment by reason of omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment of the assessment year 1949-50. The mere fact, that income had escaped assessment would not also lead to the conclusion that this was due to omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment. In case this view was accepted in a case like the present only one condition would have to be satisfied, namely, that income chargeable to tax had escaped assessment, and the second condition that the above escapement was due to omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment for that year would be rendered unnecessary. This view, as would appear from the above, is not warranted by law. Indeed, their Lordships of the Supreme Court in a recent case, Modi Spg. & Wvg. Mills Co. Ltd. v. Income-tax Officer [1970] 75 ITR 367 (Civil Appeal Nos. 890-892 of 1968 decided on February 10, 1969), had to remand the case to the High Court because the High Court, while dismissing the writ petitions praying for the quashing of notices under Section 148 of the Act of 1961, considered the question as to whether the income had escaped assessment but did not consider whether the income had escaped assessment by reason of omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for assessment.

19. Mr. Kirpal, on behalf of the respondents, has argued that the facts of the present case are similar to those of S. Narayanappa . This contention, in my opinion, is not well founded, because in the cited case it was discovered that the item of house property acquired long before the relevant accounting year had been suppressed by the assessed. No such suppression or omission on the part of the assessed has been shown in the present case.

20. The respondents had to show that there was material with the Income-tax Officer at the time he issued notice dated March 21, 1948, under Section 148 of the Act of 1961, on the basis of which he could have reasonably formed the belief that the income in the assessment year 1949-50 had escaped assessment by reason of omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment. Notice under Section 143(3) would normally not contain such material as the object of issuing such notice is only to ask for further evidence on specified points for making proper assessment. The Income-tax Officer, at the stage of issuing notice under Section 143(3), is not concerned with past failure or omission on the part of the assessed to disclose material facts. Keeping in view the scope and object of notice under Section 143(3) of the Act of 1961 as well as the contents of the notices under that section referred to by Mr. Kirpal, I am of the view that the respondents have failed to show any material on the basis of which the Income-tax Officer could have formed the belief that the income had escaped assessment because of the omission or failure on the part of the assessed to disclose fully and truly all material facts.

21. During the pendency of the writ petition the petitioner filed application for admission of additional evidence consisting of three documents. One of those documents is an order dated February 17, 1966, made by the Income-tax Officer under Section 132(5) of the Act of 1961, while the other is an order dated August 9/11, 1966, under Section 132(12) of the Act made by the Member, Central Board of Direct Taxes. The third document constitutes objections filed by the petitioner under Section 132(11) before the Central Board of Direct Taxes.

22. The admission of the above documents is objected to by Mr. Kirpal on behalf of the revenue. As I am of the view that the present petition can be duly disposed of without reference to the additional documents, I make no order for their admission. Further, as I find that the petition is being accepted on the ground that the revenue has failed to show any material on the basis of which the Income-tax Officer could form a belief that it was due to omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment and income had escaped assessment during the assessment year 1949-50, it is not necessary for me to deal with the other contentions raised on behalf of the petitioner.

23. I, therefore, accept the petition and quash the notice dated March 21, 1966, under Section 148 of the Income-tax Act issued by the respondent No. 1. The petitioner, in the circumstances, would be entitled to recover costs of the petition from respondents Nos. 1 to 3.

The department appealed.

JUDGMENT

Pritam Singh Safeer, J.

24. This Letters Patent Appeal is directed against the judgment of H.R. Khanna J, (as he then was), dated the 24th of March, 1969 by which Civil Writ No. 782 A/D of 1966 was disposed of.

25. The writ had been filed by the respondents to this appeal impugning a notice dated 21st March, 1966, issued under Section 148 of the Income-tax Act, 1961 (hereafter called "the Act"), and the prayer was that the notice be quashed and the proceedings being conducted in consequence thereof be discontinued.

26. The respondents were a Hindu undivided family-firm carrying on business as commission agents with head office at Bhiwani and branches at Delhi, Hazaribagh, Narnaul, Bikaner and other places. The said status of the firm continued till the 13th of November, 1955, when a partial partition took place. In paragraph 7 of the writ petition it was asserted that the income of the various branches was assessed as described therein and assessment for the year 1949-50 was made by an order dated 31st January, 1952. It was then stated in paragraph 8 of the writ petition that on 21st of March, 1966, a notice had been issued under Section 148 of the Act "on the unfounded allegation that the income chargeable to tax for the assessment year 1949-50 had escaped assessment within the meaning of Section 147 of the Act of 1961". After receiving the notice the respondents filed a return dated 25th April, 1966, in order to avoid an ex parte assessment. It is stated in paragraph 9 of the writ petition that there were inadvertent omissions of important legal objections and a revised return was filed on the 9th of September, 1966. A copy of the revised return was filed as annexure "D" with the writ petition. A note was made on the revised return to the effect: "Under protest. No income has escaped assessment. The notice under Section 148 is illegal and barred by time." The writ petition was later on allowed to be amended so as to contain further facts and grounds.

27. It is clear that the revised return dated 9th of September, 1966, itself contained two objections. The first was that the return was being filed under protest as no income had escaped assessment. That was a challenge to the applicability of Section 148 of the Act to the circumstances of the case. The second objection was that the notice under Section 148 was illegal and barred by time. As would appear from the judgment of the learned single judge, both the objections were ultimately urged at the hearing of the writ petition and were discussed in detail. Apart from the note made on the revised return, the respondents to this appeal sent objections to the income-tax authorities, a copy whereof was filed as annexure "F" with the writ petition. It was stated that the proceedings initiated were barred by limitation. In paragraph 15 of the writ petition it was stated :

"The Act empowers an Income-tax Officer to initiate proceedings under Section 148 read with Section 147 of the Act, 1961, when he has 'reason to believe' and 'not reason to suspect'. Before initiating proceedings he should have in his possession information which led him to the conclusion that income, profits and gains have escaped assessment."

28. We have reproduced the above from the writ petition for the reason that the learned single judge dealt with that aspect and one of the contentions raised again before us is that the petitioner, the present respondent before us, had not impugned the notice issued under Section 148 on the ground that the Income-tax Officer had no reason to believe that income chargeable to tax had escaped assessment for a particular year. The afore-quoted averment apart from repelling the contention goes to the extent of urging that before initiating the proceedings the Income-tax Officer should have had in his possession information which led him to the conclusion that income, profits and gains had escaped assessment.

29. The judgment under appeal discloses that two principal contentions were raised before the court. The first was that the issuance of the notice under Section 148 was barred by time. The provisions contained in the old Act of 1922 were brought to the notice of the court and it was urged that Section 297 of the Act of 1961 could not be construed as reviving the rights of the Income-tax Officer to re-open assessment where the rights stood extinguished and barred under the old Act. After considering the cases relied upon by the respondent to the appeal the learned single judge came to the conclusion that no assistance could be derived from the authorities cited before him because, according to the affidavit filed on behalf of the present appellants (respondents to the writ petition), the escaped income in the case was more than Rs. 1 lakh for the assessment year 1949-50. It was noticed that in respect of the escaped income of over a lakh of rupees the Act of 1922 did not prescribe any period of limitation. It was held that the Income-tax Officer by issuing the notice under Section 148 of the Apt was not trying to re-open an assessment in a case where the right to re-open it had become barred under the old Act.

30. The finding on the first contention raised before the learned single judge has not been questioned before us. Even otherwise, we are in agreement with the same.

31. The main contention raised before us is that the learned single judge should not have held that the appellants had failed to substantiate the validity of the notice issued under Section 148 of the Act because the, Income-tax Officer, while issuing it had sufficient material before him on the basis of which he had reason to believe that by reason of omission or failure on the part of the assessed to make the return under Section 139 of the Act or to disclose fully and truly all material facts necessary for his assessment the income chargeable to tax had escaped assessment. The argument is that the Income-tax Officer had complied with the requirements of all the relevant provisions and the notice had been validly issued. This argument can best be appreciated in the light of the provisions concerned. Sections 147, 148, 149 and 151 in the Act are :

"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 153 referred to as the relevant assessment year).

Explanation 1.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:

(a) where income chargeable to tax has been under-assessed ; or

(b) where such income has been assessed at too low a rate; or

(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or

(d) when excessive loss or depreciation allowance has been computed.

Explanation 2.--Production before the Income-tax Officer of 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 within the meaning of this section."

"148. (1) Before making the assessment, reassessment or recomputation 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 tinder 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."

"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.

(2) The provisions of Sub-section (1) as to the issue of notice shall be subject to the provisions of Section 151.

(3) If the person on whom a notice under Section 148 is to be served is a person treated as the agent of a non-resident under Section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year."

"151. (1) No notice shall be issued under Section 148 after the expiry of eight years from the end of the relevant assessment year unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice.

(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."

32. The provisions, quoted above, on close scrutiny reveal that there are imperative obligations imposed by the statute and the prescribed conditions ought to pre-exist in order to justify the issuance of a notice under Section 148 of the Act. Section 149 prescribes the periods of limitation. Section 151 provides that no notice shall be issued under Section 148 after the expiry of eight years from the end of the relevant assessment year unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for issuing such a notice. It is imperative in terms of Section 151(1) of the Act that the Income-tax Officer must state the reasons to the Board in order to obtain a prior sanction for issuing the notice under Section 148 where eight years have expired as from the end of the relevant assessment year. In the present case, Section 151 was attracted and the notice issued stated that it had been issued after obtaining the satisfaction from the Board. It must, however, be appreciated that the satisfaction of the Board was a matter as between the Income-tax Officer and the Board. It was an inter-departmental and inter-statutory action preceding the issuance of the notice under Section 148 of the Act.

33. Section 148 in Sub-section (2) contains an imperative obligation that the Income-tax Officer must, before issuing the notice under the said provision, record his reasons for doing so. That is a condition precedent. After receiving the satisfaction of the Board, as required by Section 151, before issuing the notice under Section 148, the Income-tax Officer has to record his reasons for issuing the notice. The satisfaction accorded by the Board under Section 151 does not provide any substitute and the Income-tax Officer is not relieved of the obligation imposed by Section 148(2) which becomes imperatively necessary in order to establish on the record the reasons for which the Income-tax Officer may be issuing the notice under Section 148 of the Act.

34. It must be appreciated that where an assessment is sought to be reopened in terms of Section 147 of the Act, the assessed would be in the position as if no assessment had been made for the relevant year. The provisions, quoted above, contain in them the legislative care and anxiety that assessment, reassessment or recomputation under Section 147 may be made only after the requirements imposed by the statute as pre-requisites have been complied with. An examination of Section 147 itself leads to the conclusion that:

(a) Before acting under it the Income-tax Officer should have reason to believe that action is to be taken.

(b) The Income-tax Officer's "reason to believe" must be based on the conclusion that the income chargeable to tax has escaped assessment for a particular year on account of the omission or failure on the part of an assessed to make a return under Section 139 or to disclose fully and truly all material facts necessary for his assessment.

35. What does the legislature really require ? The requirement is that the Income-tax Officer must have the material with him which should furnish the basis for his reason to believe that income chargeable to tax has escaped assessment on account of the omission or failure on the part of the assessed to make a true return under Section 139. He must have the material which should convince him that the assessed had not disclosed fully and truly all the material facts necessary for an accurate assessment. Unless the requisite material is there with the Income-tax Officer, he will not be having any judicial reason to believe that income chargeable to tax has escaped assessment for the precise year in respect of which he may issue notice under Section 148 of the Act. These provisions including Section 147 contain the conditions which must exist in order to give jurisdiction under Section 148 of the Act. Explanation 1 in Section 147 enumerates in Clauses (a) to (d) the cases in which it may be deemed that income chargeable to tax has escaped assessment. If the provisions in Clauses (a) to (d) in Explanation 1 in Section 147 are kept in view then it becomes clear that, the Income-tax Officer will conclude that he has reason to believe within the scope of Clause (a) of Section 147, after taking into consideration the provisions in Clauses (a) to (d) along with other circumstances. The judgment under appeal dealt with the affidavit filed on behalf of the respondents to the writ petition and found it unsatisfactory. The counsel appearing on behalf of the respondents to the writ petition urged :

"Mr. Kirpal, on behalf of the respondent Nos. 1 to 3, has urged that it was not necessary for the Income-tax Officer to refer to the material in his affidavit because such material is indicated by notices dated July 15, 1966, August, 3/4, 1966, and August 22/27, 1966, which were issued by the Income-tax Officer to the petitioner."

36. The attitude adopted was that respondents Nos. 1 to 3 to the writ petition were not prepared to show to the learned single judge the material on the basis of which the Income-tax Officer had the reason to believe that he should act in terms of Section 147 for issuing the notice under Section 148 and the counsel urged that although the notice under Section 148 had been issued on 21st March, 1966, the income-tax department was not prepared to show the material which existed before that date with the Income-tax Officer and that the learned judge was to confine himself to the averments in the notices subsequently issued to the respondents to this appeal. In that particular situation referring to those notices, the learned single judge observed (See page 147 supra):

"The last two of them purported to be under Section 143(3) of the Act of 1961. The provision under which notice dated July 15, 1966, was issued has not been specified but it is stated by Mr. Kirpal that that notice too was under Section 143(3) of the above-mentioned Act. In these notices the Income-tax Officer called upon the petitioner to furnish information and explanation in respect of a number of matters. Although there are indications in these notices that certain income had escaped assessment, there is nothing in these notices to show that the income had escaped assessment by reason of omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment of the assessment year 1949-50. The mere fact that income had escaped assessment would not, also lead to the conclusion that this was due to omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment."

37. We are of the view that the relevant materials should have been placed before the learned single judge on the basis of which the Income-tax Officer had acted under Sections 147 and 148 of the Act. The respondents to the writ petition could have only then shown justification for the issuance of the notice under Section 148 of the Act.

38. We are in agreement with the following observations made by the learned single judge in the judgment under appeal (See page 148 supra);

"The respondents had to show that there was material with the Income-tax Officer at the time he issued notice dated March 21, 1948, (sic) under Section 148 of the Act of 1961, on the basis of which he could have reasonably formed the belief that the income in the assessment year 1949-50 had escaped assessment by reason of omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment."

39. The learned single judge after hearing the parties rightly came to the conclusion that the revenue had failed to show any material on the basis of which the Income-tax Officer could form the belief that it was due to omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment of the income for the period concerned that any taxable income had escaped assessment.

40. No case has been made out before us justifying the stand of the department taken up before the learned single judge. If the Income-tax Officer had with him the requisite material for acting under Sections 147 and 148 of the Act there should have been no hesitation in disclosing the material to the learned single judge. The conclusion in the judgment under appeal was inevitable that the department had not been able to show any material on the basis of which the impugned notice had been competently issued under Section 148 of the Act. We do not find any justification for interfering with the judgment under appeal and dismiss the appeal without there being any order as to costs.