Patna H.C : The petitioner-firm has prayed for the issuance of a writ in the nature of certiorari or mandamus or any other appropriate writ for quashing the notice issued by respondent No. 2 under s. 148 of the IT Act and subsequent action taken in pursuance of the aforesaid notice. The relevant assessment year is 1973-74. It is the case of the petitioner that the notice has been issued under s. 148 without any justification and is without jurisdiction.

High Court Of Patna : Ranchi Bench

Narang Brothers vs. CIT

Section Art. 226, Art. 147(a), Art. 148

Asst. Year 1973-74

B.P. Singh, J.

Civil Writ Jurisdiction Case No. 293 of 1982

1st April, 1988

Counsel Appeared

Pawan Kumar & R.K. Marathia, for the Petitioner : Debi Prasad & K.K. Jhunjhunwalla, for the Respondents

B.P. SINGH, J.:

The petitioner-firm has prayed for the issuance of a writ in the nature of certiorari or mandamus or any other appropriate writ for quashing the notice issued by respondent No. 2 under s. 148 of the IT Act and subsequent action taken in pursuance of the aforesaid notice. The relevant assessment year is 1973-74. It is the case of the petitioner that the notice has been issued under s. 148 without any justification and is without jurisdiction.

2. The case of the petitioner is that it is an assessee under the IT Act and is regularly assessed by the ITO concerned under s. 143(3) r/w s. 182(1) of the IT Act (hereinafter to be referred to as ” the Act “). Its case is that in the course of the assessment proceedings, the petitioner-firm had filed its profit and loss account before the ITO which disclosed payment of commission to persons who had transacted business on behalf of the petitioner amounting to Rs. 81,000 odd. This amount was shown in the purchase account. Moreover, the IT authorities made queries about the names and details of the persons to whom the commission had been allowed and in response thereto, the petitioner had filed a detailed reply giving particulars of the persons to whom commission was paid and the rate at which such commission was paid. Their case is that the ITO, after being satisfied that such commission had been paid, allowed the same in accordance with law and completed the assessment. However, the petitioner was surprised to receive a notice dated January 22, 1980, issued by the ITO stating that during the course of the asst. yr. 1974-75, books of account of the earlier years, namely, asst. yrs. 1972-73 and 1973-74, were called for under s. 142(1) of the Act and upon examination, it was found that sums of Rs. 1,13,699 and Rs. 81,145, respectively, which were debited to the sales account were fictitious amounts representing payment of commission. It was, therefore, stated in the notice that the ITO had reason to believe that on account of omission or failure on the part of the assessee to disclose fully and truly all facts necessary for the asst. yrs. 1972-73 and 1973-74, income chargeable to tax amounting to Rs. 1,13,699 and Rs. 81,145, respectively, had escaped assessment in the relevant years. The petitioner was asked to show cause why proceedings should not be initiated under s. 147(a) of the Act. The petitioner showed cause and stated that the books of account for the two assessment years referred to in the notice had never been called for under s. 142(1) of the Act and, therefore, it was wrong to state in the notice that such books of account had been called for and they reveal that any income had escaped assessment. It was reiterated that the ITO concerned had seen the statements filed by the petitioner during the course of the assessment proceedings for those years. The petitioner further stated in its objection that for the asst. yrs. 1974-75 and 1975-76, the ITO had disallowed the payment of commission and the matter went up to the Tribunal, Patna Bench, Patna. By order dated October 22, 1980, the Tribunal deleted the addition and held that the commission paid to the persons concerned were genuine. It was stated that Kiran Kumar Arya & Vijay Kumar Chang were genuine persons to whom commission was paid in the earlier years, that is, asst. yrs. 1972-73 and 1973- 74. In respect of the asst. yr. 1975-76 as well, the AAC, Dhanbad, in appeal preferred by the petitioner- firm set aside the addition of an amount of Rs. 40,264 which was the amount representing payment of commission disallowed by the ITO. The case of the petitioner was that merely because a different ITO took a different view of the materials on record, there was no justification for issuance of a notice under s. 148 of the Act for initiation of proceedings under s. 147(a) of the Act. Various authorities of the Supreme Court and the High Courts were cited in support of the plea of the petitioner-firm.

The grievance of the petitioner is that the ITO did not appreciate the correct legal position and served a, notice upon the petitioner on March 11, 1981, under s. 148 of the Act.

The petitioner has further contended in the writ petition that it again filed objections on April 2, 1981, contending that there had been no escapement of income for the asst. yr. 1973-74. It was contended that no reason had been recorded for initiation of proceedings under s. 147(a) of the Act. However, since the notice issued against the petitioner was not withdrawn, the petitioner has approached this Court for the quashing of the notice and the initiation of proceedings under s. 147 (a) of the Act. A counter-affidavit has been filed on behalf of the respondents which is affirmed by the ITO, Ward-D, Dhanbad. It is stated on behalf of the respondents that in the profit and loss account submitted by the petitioner, the purchase account disclosed a sum of Rs. 23,98,538 as inclusive of the rebate and commission, but without furnishing such details separately. The ITO concerned had not made any query about the names and details of the persons to whom commission had been paid by the assessee, nor was any such list as alleged in the writ petition filed before the ITO. It is then stated that a notice under s. 142(1) of the Act was issued in the course of the assessment proceeding for the asst. yr. 1974-75 on December 11, 1975, which was served on the petitioner on December 16, 1975, calling for the books of account of the last four years. It is submitted that in the facts and circumstances of the case, proceedings for reassessment under the Act were legal and justified and was not based on a mere change of opinion, as alleged by the petitioner. The question as to whether there was an omission or failure on the part of the assessee to disclose fully and truly all material facts is a question of fact and could not be gone into in a writ application. The notice had been issued in accordance with law after complying with all the requirements of the Act including the sanction of the CIT for initiating proceeding under s. 147(a) of the Act. In this view of the matter, there was no question of granting the relief prayed for in the instant writ application and the contentions raised by the petitioner-firm were untenable in law.

In exercise of writ jurisdiction under Arts. 226 and 227 of the Constitution of India, particularly in a case like the present, this Court will not investigate disputed questions of fact. I will, therefore, proceed on the basis of the admitted facts alone. In view of the express denial by the respondent that the petitioner had filed detailed statements in respect of the assessment years in question disclosing the persons to whom payments were made by way of commission, I must proceed on the basis that no such statement was called for or filed before the ITO who completed the assessment for the asst. yr. 1973-74. It is not disputed that the books of account were produced and this fact is also mentioned in the order of assessment, annexure 2. The other fact which is in dispute is as to whether a notice under s. 142(1) was issued to the petitioner for production of the books of account for the last four assessment years when the assessment for the asst. yr. 1974-75 was being made. The respondents have contended that the books of account were called for by issuance of a notice under s. 142(1) of the Act while the petitioner has denied this fact. In view of the clear averments in the counter-affidavit which also disclosed the particulars of such notice, I will proceed on the assumption that the books of account for the assessment years in question were called for by the IT authorities and the impugned notice was issued after the books of account were received and examined by the ITO. Before dealing with the merits of the rival submissions, I consider it necessary to reproduce in extenso the notice issued to the petitioner-firm dated January 22, 1981, which has been annexed as annexure 3 to the writ application. The notice reads as follows: ” During the course of hearing for the asst. yr. 1974-75, books of account for the earlier two years, i.e., for the asst. yrs. 1972-73 and 1973-74, were called for under s. 142(1) of the IT Act, 1961, and the same were examined. It was found that sums of Rs. 1,13,699 and Rs. 81,145 were debited to the sales account as fictitious commission during the years 1972-73 and 1973-74, respectively. I have reason to believe that by reason of omission or failure on your part to disclose fully and truly all material facts necessary for your assessment for the asst. yrs. 1972-73 and 1973-74, income chargeable to tax amounting to Rs. 1,13,699 and Rs. 81,145 for the asst. yrs. 1972- 73 and 197374, respectively, have escaped assessment for these two years referred to above. You are to show cause why proceedings under s. 147(a) should not be initiated for the asst. yrs. 1972-73 and 1973-74. Compliance is required on or before January 29, 1981, failing which adverse inference will be drawn.”

7. It was submitted on behalf of the petitioner that on the basis of the admitted fact, it is apparent that the ITO had no reason to believe that by reason of the omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment, income chargeable to tax had escaped assessment. The submission was that the notice issued does not disclose any material or ground to show that there had been any omission or failure on the part of the assessee as contemplated by s. 147(a) of the Act. All that the notice states is that upon examination of the books of account for the assessment year in question, the ITO had reason to believe that by reason of omission or failure on the part of the petitioner to disclose fully and truly all material facts, income chargeable to tax had escaped assessment. According to the petitioner, the notice discloses no ground whatsoever for issuance of the notice and might have been issued only on the basis of a different view of the matter though on the basis of the same material which was available to the ITO who completed the assessment for the assessment year in question. In support of its case, various authorities have been relied upon. Learned counsel for the petitioner relied upon a decision of the Supreme Court in CIT vs. Dinesh Chandra H. Shah (1971) 82 ITR 367 (SC), wherein it was held that the mere fact that the successor of the ITO who had made the original assessment had changed his opinion did not furnish a justifiable reason for taking action under s. 34(1)(b) of the Indian IT Act, 1922, which was similar to s. 148 of the IT Act, 1961. Learned counsel appearing on behalf of the respondent did not dispute this proposition of law which is well-settled, but contended that this was not a case of a mere change of opinion. The next case relied upon by the petitioner is ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC). There, the Supreme Court was dealing with a case in which the original assessment for the asst. yr. 1958-59 was made on the respondent after allowing deduction of a certain sum towards interest to certain creditors. Later, by a notice dated March 8, 1967, issued under s. 148 of the Act, the ITO sought to reopen the assessment and in his report made to the CIT, it was disclosed that there were two grounds for reopening the assessment, namely, that one of the creditors to whom interest is said to have been paid had since confessed that he was doing only name-lending; the second reason being that, other persons, whose names were mentioned in the list of the creditors of the assessee, were known name-lenders. The assessee filed a writ petition claiming that there was no material before the ITO on which he could have reason to believe that income chargeable to tax for the year had escaped assessment by reason of the respondent’s failure to disclose material facts. He stated that he had produced all books of account, bank statements and other necessary documents in connection with his return. The High Court, by a majority judgment (1975) 99 ITR 296 (Cal) (FB), held that the pre-conditions for the exercise of jurisdiction under s. 147 were not fulfilled. The majority judgment of the High Court was upheld by the Supreme Court. It found that the ground that some of the creditors were known name-lenders could not have led to the formation of the belief that the income of the respondent chargeable to tax had escaped assessment because of the failure of the assessee to disclose fully and truly all material facts. The other ground relating to the confession of one of the creditors that he was doing only name- lending did not show that it was related to a loan to the assessee, much less the loan which was shown to have been advanced by that person to the respondent. The Supreme Court, in so far as it is relevant for the instant writ petition, held that before an ITO can acquire jurisdiction to issue notice under s. 148 of the Act, two conditions have to be satisfied : firstly, the ITO must have reason to believe that income chargeable to tax had escaped assessment and, secondly, he must have reason to believe that such income had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist to confer jurisdiction on the ITO. It is also imperative for the ITO to record his reasons before initiating proceedings as required by s. 148(2) of the Act. The law casts a duty upon the assessee to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the ITO of the account books or other evidence from which material evidence could, with due diligence, have been discovered by the ITO, does not necessarily amount to disclosure as contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that, he is duty bound and it is for the ITO to draw the correct inference from the primary facts. It is not the responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference which appears subsequently

to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. So far as grounds or reasons are concerned, it was held that the grounds or reasons contemplated by s. 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there existed reasonable grounds for the ITO to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the Court to investigate. The sufficiency of grounds which induced the ITO is not a justiciable issue. The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression ” reason to believe ” does not mean a purely subjective satisfaction on the part of the ITO. It must be held in good faith and should not merely be a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. Rational connection postulates that there must be a direct nexus or alive link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the assessee because of his failure to disclose fully and truly all material facts.

8. It is, therefore, authoritatively settled that, while issuing a notice under s. 148 of the Act, the ITO must record his reasons for doing so. Those reasons are justiciable and must have a material bearing on the question of escapement of income of the assessee from assessment. It has also been held that mere production of the books of account or other evidence before the ITO from which material evidence could, with due diligence, have been discovered by the ITO, does not necessarily amount to disclosure contemplated by law. This aspect of the matter assumes importance in view of the plea raised by the petitioner that he had produced his books of account before the ITO who earlier completed the assessment for the assessment year in question and, therefore, there was no question of any escapement of income on the grounds or reasons which could lead to the formation of the belief contemplated by s. 147(a) of the Act.

The next case relied upon by the petitioner is ITO vs. Madnani Engineering Works Ltd. (1979) 12 CTR (SC) 144 : (1979) 118 ITR 1. In this decision, the Supreme Court was dealing with a case where an original assessment had been completed on August 23, 1960, and certain interest paid by the assessee to the creditors from whom the assessee claimed to have borrowed money on hundis was allowed as deductible expenditure. Subsequently, a notice was issued to the assessee on the ground that the transactions of loan represented by the hundis were bogus and no interest was paid by the assessee to any of the creditors and that interest was wrongly allowed. The assessee challenged the validity of the notice by filing a writ petition. In the counter- affidavit filed on behalf of the ITO, he declined to disclose the facts on the ground that if such facts were disclosed, it would cause great prejudice to the interest of the Revenue and would frustrate the object of reopening the assessment. In a further affidavit filed later, it was stated that in the course of the assessment of the respondent for the asst. yr. 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 asst. yr. 1959-60 were, in fact, fictitious and credits against he names of certain persons were found not to be genuine, and that in that premise it appeared to the ITO that the respondent had failed to disclose fully and truly all material facts for its assessment, and by reason of such failure, a portion of its income had escaped assessment. The Supreme Court held that the existence of reason to believe on the part of the ITO was a justiciable issue as it was for the Court to be satisfied whether in fact he had reason to believe that income had escaped assessment by reason of failure of the respondent to make a full and true disclosure. The stand of the ITO in not disclosing the facts was, therefore, untenable. It was further held that the respondent having produced in the original assessment proceedings all the hundis on the strength of which it claimed to have obtained loans from his creditors as also entries in the books of account showing payment of interest, it was for the ITO to investigate and determine whether those 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 ITO that the hundis and the entries in the books of account produced by it were bogus. It was also held that the affidavit filed on behalf of the ITO merely stated his belief but did not set out any material on the basis of which he had arrived at such belief and, therefore, there was nothing on the basis of which the Court could be satisfied that he had reason to believe that a part of the income of the assessee had escaped assessment by reason of its failure to make a true and full disclosure of the material facts. It was contended on the basis of this decision that the ITO must not merely express his belief, but must also disclose the materials on the basis of which he had arrived at such belief since those materials could be examined by the Court and were justiciable.

The next case upon which reliance was placed by learned counsel for the petitioner is Ganga Saran & Sons (P) Ltd. vs. ITO (1981) 22 CTR (SC) 112 : (1981) 130 ITR 1 (SC). While dealing with s. 147 of the Act, the Supreme Court observed as follows : “It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the ITO can assume jurisdiction to issue notice under s. 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 ITO would be without jurisdiction. The important words under s. 147(a) are ‘has reason to believe’ and these words are stronger than the words ‘is satisfied’. The belief entertained by the ITO 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 ITO 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 s.

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 ITO 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 invalid.”

In view of the settled position in law, I will now proceed to examine the facts of the instant case. It is not in dispute that the petitioner-firm was assessed to income-tax for the asst. yr. 197374, vide assessment order, annexure-2. The assessment order shows that the books of account and relevant records and documents were produced and examined by the ITO before making the order of assessment. Later, while the assessment for the asst. yr. 1974-75 was in progress, the ITO required the petitioner-firm to produce its books of account for the last four years and the petitioner-firm did produce its books of account including those for the asst. yrs. 1972-73 and 1973-74. After examining the books of account so produced, the impugned notice (annexure-3) was issued on January 22, 1981. The notice states that, after examination of the books of account for the earlier two years (asst. yrs. 1972-73 and 1973-74), it was found that the sums of Rs. 1,13,699 and Rs. 81,145, respectively, debited to the sales account represented fictitious commission paid during those two assessment years. The notice then states that the ITO had reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the asst. yrs. 1972-73 and 1973-74, income chargeable to tax amounting to Rs. 1,13,699 and Rs. 81,145 for the two assessment years, respectively, had escaped assessment. The petitioner was, therefore, called upon to show cause why a proceeding under s. 147(a) should not be initiated for the asst. yrs. 1972-73 and 1973-74.

The notice which has been quoted in extenso earlier in this judgment only states that books of account for the two earlier years had been examined and it was found that the amounts mentioned in the notice which were debited to the sales account represented fictitious commission paid during those two years. The notice does not state that apart from the books of account, any other material had come to the knowledge of the ITO which provided reason to believe that income had escaped assessment. The only material on the basis of which such a belief was formed were the books of account for the two assessment years. As observed earlier, these very books of account were also produced before the ITO who had earlier completed the assessment. The notice, therefore, does not disclose any other material on the basis of which the ITO entertained the belief contemplated by s. 147(a) of the Act. Even in the counter-affidavit filed on behalf of the respondents, it has not been stated that any other material has come to the knowledge of the ITO which led him to form the necessary belief. The position that emerges is that in the books of account for the assessment year in question, an amount was shown in the sales account which included payment of commission. On the basis of those books of account, the predecessor ITO allowed the deduction. On the basis of the same books of account, without any other material whatsoever, the ITO issued the notice under s. 148 of the Act. In my view since the impugned notice does not disclose any other material which had come to the knowledge of the ITO issuing the notice under s. 148 of the Act, apart from the materials which were earlier produced before the ITO who completed the assessment, the only reason for the issuance of the notice under s. 148 of the Act was that the ITO issuing the notice differed from the opinion of his predecessor. This apart, the notice does not disclose why the ITO changed his opinion. Even the counter-affidavit is silent on this aspect of the matter. Thus, apart from the fact that no further material had come to the notice of the ITO who issued the notice under s. 148 of the Act, there is nothing in the impugned notice or counter-affidavit filed on behalf of the respondents to show the reason why the ITO held an opinion different from the one held by his predecessor who completed the assessment. The impugned notice, in my view, only makes mention of the belief but does not disclose the grounds or reasons for the formation of the belief contemplated by s. 147(a) of the Act. While it is said that the amounts shown as representing payment of commission were fictitious, nothing has been disclosed as to the basis on which such an inference was drawn, or the reason or ground on which such an opinion was formed leading to the belief that there had been escapement of income from assessment. In the absence of any reason or ground having been disclosed, either in the impugned notice or in the counter-affidavit filed on behalf of the respondents, it is not possible to examine whether the reason which impelled the ITO to issue the notice under s. 148 of the Act, is justifiable in law for issuance of such a notice. Assuming, therefore, that merely because the petitioner had produced its books of account before the ITO making the assessment, it did not preclude the ITO from issuing a notice under s. 148 of the Act if he had reason to believe that any income had escaped assessment by reason of the failure of the petitioner to make a full and true disclosure and it nevertheless cast a duty upon the ITO to record his reason before initiating proceedings as required by s. 148(2) of the Act. In any event, to satisfy the Court, such reason could have been disclosed at least in the counter-affidavit filed on behalf of the respondents. The grounds or reasons which led to the formation of the belief contemplated by s. 147(a) of the Act being justiciable, they must be disclosed so that when challenged, the Court may examine whether the grounds or reasons have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. The grounds or reasons must be reasonable and there must be a direct nexus or a live link between the material giving rise to the notice of the ITO and the formation of his belief. In the instant case, the notice, apart from stating the belief, does not disclose reasons or grounds on the basis of which the ITO entertained such belief. From the notice, it can only be gathered that on the basis of the same materials, the ITO issuing the notice under s. 148 of the Act formed an opinion different from the one formed by the ITO completing the assessment. It is, therefore, quite clear that neither of the two conditions mentioned in the case of Lakhmani Mewal Das (supra) that conferred jurisdiction on the ITO under s. 148 of the Act has been satisfied in the instant case. It must, therefore, be held that the ITO acquired no jurisdiction to issue the impugned notice under s. 148 of the Act.

Learned counsel appearing on behalf of the respondents has relied upon several judgments of various High Courts in support of the impugned notice issued under s. 148 of the Act. In my view, those judgments do not help the respondents at all and must be understood in the facts and circumstances of those cases. In A. Shanmugham Chetty vs. CIT (1987) 62 CTR (Mad) 80 : (1985) 154 ITR 331 (Mad), it was found that subsequent to the original assessment, there was an investigation and that investigation revealed certain facts which went to show that the amount shown as the cost of construction of two properties was far less than the actual cost incurred. There was, therefore, material for the ITO to form the requisite belief. In the instant case, no such material had been discovered or found to justify the issuance of the notice under s. 148 of the Act. Similarly, in the case of Biswanth Pasari vs. ITO (1987) 61 CTR (Cal) 143 : (1985) 154 ITR 419 (Cal), the High Court was satisfied that there were materials before the ITO on the basis of which an opinion could be objectively formed that true income had escaped assessment. Similarly, in CIT vs. Bihar Cotton Mills Ltd. (1986) 54 CTR (Pat) 80 : (1986) 160 ITR 275 (Pat), after the assessment was complete , one of the creditors made an admission before the Department that he had adopted a device for helping assessees to introduce their own secret purchases in their books of account in the name of fictitious persons, and that on getting such information, the ITO initiated proceeding under s. 147(a) of the IT Act, 1961. In this case also, therefore, there was material which had come to the notice of the ITO on the basis of which he formed the requisite belief justifying the issuance of a notice under s. 148 of the Act. Learned counsel for the respondents then drew my attention to the observation made by the Patna High Court in CIT vs. Surendra Kumar Bhadani (1986) 55 CTR (Pat) 80 : (1987) 164 ITR 323 (Pat), particularly, the observations made in the last paragraph of the judgment at page 337 of the report and the first paragraph at page 338. I do not understand how these observations support the case of the respondents since the High Court only observed that s. 34(1) placed no limit on the number of notices of reassessment that may be issued so long as they were within the time-limit specified in that section. No such question arises for consideration in the instant case.

Learned counsel for the respondents then referred to the decision in Aditya Mills Ltd. vs. Union of India (1985) 46 CTR (Raj) 121 : (1985) 156 ITR 113 (Raj). In this case as well, reasons had been disclosed by the Revenue and it appeared that after the assessment was completed in that case, the ITO came to possess information which gave him reason to believe that the sole selling agent was nothing but a dummy created by the petitioner as a device, and that the so-called sole selling agent had not rendered any service to the petitioner. These facts were revealed during survey and investigation conducted by the Department. This case is also distinguishable on the facts since the High Court was satisfied that there were reasons justifying the issuance of the notice under s. 148 of the Act, in view of the materials which came to the notice of the ITO in the course of survey and investigation conducted by the Department. In the instant case, no such material had come to his notice to justify the issuance of the impugned notice.

Lastly, it was urged on behalf of the respondents that instead of quashing the notice, the ITO should be directed to consider the objections and to decide the objections as regards jurisdiction as a preliminary issue, before making an order of reassessment. In support of this submission, reliance was placed upon a judgment of the Delhi High Court, R. L. Traders vs. Union of India (1986) 54 CTR (Del) 311 : (1986) 158 ITR 824 (Del). In that case, there were disputed facts and the Court did not find it easy to ascertain what was the material and what was the nexus.

The High Court was of the view that unless the material appearing against the assessee was examined by the Court in detail, it was not easy to ascertain whether reasons actually existed for reopening the assessment. In this view of the matter, it directed the ITO to decide the question as a preliminary issue during the proceeding for reopening the assessment. In the instant case, there is no dispute about the relevant facts. The notice issued by the ITO under s. 148 does not disclose any material on the basis of which the ITO formed the requisite belief. It only mentions that upon examination of the books of account, it was found that the amounts shown in the sales account represented fictitious commission during the year in question, and, therefore, the ITO had formed the requisite belief. Neither has any reason been given as to why and on what basis such a belief was formed, nor has any other material been disclosed to justify the existence of the belief. Even in the counter-affidavit filed on behalf of the respondents, no such reason or material has been disclosed. There is no dispute as to material facts in the instant case so far as they relate to the existence of the requisite belief. There is, therefore, no reason to send the matter back to the ITO to decide any question as a preliminary issue.

In this view of the matter, this writ application is allowed. I hereby quash annexure 3, the notice issued by respondent No. 2 dated January 22, 1981, issued under s. 148 of the Act. Since the notice has been quashed, all further proceedings that may have been taken in pursuance of the said notice are also quashed.

There will be no order as to costs.

[Citation : 173 ITR 409]

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