1. This is an application for the issuance of a writ or any appropriate direction restraining the 2nd respondent herein not to hold any enquiry pursuant to the notice dated September 23, 1983, issued under section 148 of the Income-tax Act, 1961.
2. The brief facts are as follows : The assessee herein filed a return under the relevant provisions of the Income-tax Act for the assessment year 1975-76 on August 20, 1975. The assessment was completed on March 21, 1977, and the assessee was assessed on a total income of Rs. 18,539. On September 23, 1983, i.e., after a period of six years and six months, the Income-tax Officer had issued a notice under section 148 on the ground that the assessee failed to disclose fully and truly certain material facts necessary for his assessment for that year and that certain income chargeable to tax has escaped assessment. The assessee was asked to show cause as to why reassessment cannot be made. Pursuant to the said notice, the assesee filed a return on October 24, 1983, showing the very same income, which was assessed earlier. He also made a request to indicate the reasons that prompted the Department for issuing the notice. Since, there was no reply, he sent a reminder on November 14, 1983, which also met with the same fate, whereupon he filed the present writ petition challenging the notice dated September 23, 1983, as void and without jurisdiction.
3. The main contention of Mr. Sreerama Rao, the learned counsel for the assessee, is that there was no material on the basis of which the Income-tax Officer could have reasonably entertained a belief that certain income had escaped assessment due to suppression of material facts by the assessee.
4. In the counter-affidavit filed on of the Department, this allegation is denied. It is stated that the Excise Officers of Cuttack Division organised a search of the Madras-Howrah Mail on April 15, 1974, that during the search operations, they recovered 6,930.100 grams of primary gold from Sri Lankalapalli Prabhakara Rao and Sri Kolla Nanaji, both belonging to Srikakulam, that the said two persons gave statements that the gold belonged to the assessee herein, that on the basis of the said statements, the Collector of Central Excise and Customs conducted an enquiry, that by his order dated October 1, 1977, the Collector of Central Excise and Customs held that the gold seized from the above two persons belongs to Sri Perla Krishna Rao, the assessee herein, and that the ordered confiscation of the prilnary gold that was seized and levied a penalty of Rs. 6,00,000. It is also mentioned in the counter-affidavit that, on appeal, the appellate authority (Gold Control Administrator), by his order dated June 28, 1981, confirmed the inding that the assessee was the owner of the gold, that the appellate authority also confirmed the order of confiscation and reduced the penalty from Rs. 6,00,000 to Rs. 3,00,000 and that, on the basis of these two orders, the Income-tax Officer had reason to believe that certain income had escaped assessment due to the failure of the assessee to mention these facts. It is further stated in the counter-affidavit that the impugned notice was issued after obtaining the necessary sanction from the Commissioner of Income-tax.
5. To appreciate the point involved, it is necessary to refer to section 147(a) of the Income-tax Act, 1961, which reads as follows :
'147. If -
(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an aseessee 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.'
6. It is unnecessary to quote clause (b) of the said section, as it is common case that the impugned notice was issued under clause (a). A reading of clause (a) of section 147 shows that, for issuing a notice, the Income-tax Officer must have reason to believe that certain income had escaped assessment due to the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Whether he has reason to believe or not depends upon the existence of some material. If there is some material on which the belief could be reasonably based, it is not for this court to consider whether that material is sufficient or not. But if there is no material whatsoever, the Income-tax Officer would have no jurisdiction to initiate proceedings under section 147 of the Act. We have read the counter-affidavit and examined the connected file. The sole ground on which the impugned notice was issued was that the Collector of Central Excise, in his adjudication order dated October 1, 1977, found that the gold weighing 6,930.100 grams seized from the above two persons by the Central Excise officials belonged to the assessee and that the said order was confirmed on appeal by the Gold Control Administrator. In fact, the proposals sent up by the Income-tax Officer to the Commissioner of Income-tax also mentioned these facts. But it appears from the counter-affidavit itself that these orders were set aside in revision by the Government of India, by its order dated October 7, 1982. Apparently, the Income-tax Officer was not aware of this fact and this is more true because, in his proposals to the Commissioner of Income-tax for obtaining his sanction, the Income-tax Officer refers to this matter and says that a revision is pending against these orders, while, in fact, by the time he sent up these proposals, the revision was disposed of and the matter ended in favour of the assessee and the orders levying penalty were set aside. It may be relevant to notice a few observations in the order of the Central Government dated October 7, 1982 :
'It cannot be said that the case against Krishna Rao is established beyond reasonable doubt. There is no evidence brought on record by the Collector on the basis of which it could be said that the facts narrated in the statements of Prabhakara Rao and Nanaji have been corroborated in mateIial particulars.... there could be only suspicion about the involvelment Krishna Rao and nothing more. It is well established that suspicioncion however grave, cannot be sllbstituted for proof. In the circumstances, Government are inclined to accept the proposition urged on behalf of Krishna Rao that the evidence against him does not take the case beyond the realm of suspicion...'
7. With these observations, the revision petition was allowed and the orders of the Collector of Central Excise and the Gold Control Administrator were set aside. The effect of his order would be that there was no order of the Collector of Central Excise or the appellate authority (Gold Control Administrator) existing in law. Since the impugned notice was issued only on the basis of the orders of the Collector of Central Excise and the Gold Control Administrator, which do not exist in the eye of law, the impugned notice cannot be sustained and it must be held that it is based on no material.
8. It is submitted by Mr. Suryanarayana Murthy, the learned standing counsel for the Department, that the proceedings regarding confiscation of gold are still pending and the enquiry in regard to the ownership of the gold is in progress. As and when such enquiry is completed, it is open to the Government to take such appropriate action in accordance with law and in accordance with the findings arrived at the enquiry. But, so far as the present notice is concerned, we are of the view that it cannot be upheld and it must be held to be void as it is based on no valid material.
9. For the foregoing reasons, we quash the impugned notice. The writ petition is accordingly allowed. No costs.