Satish Chandra, C.J.
1. While hearing the appeal filed by the assessee in respect of the assessment year 1968-69, the AAC found that the ITO had allowed entertainment expenses in excess of the statutory limit of Rs. 5,000. He further noticed that entertainment expenses were debited not only under the head 'Entertainment expenses account' but in other accounts as well. He sent a note to the ITO to check up the position with respect to the assessment year 1966-67 and to take appropriate action for disallowing the excess. Thereupon, the ITO issued notice seeking to reopen the assessment under section 147(b) of the I.T, Act. After hearing the assessee, he held that the assessee had been allowed Rs. 6,514 by way of entertainment expenses which was'in excess of the limit of Rs. 5,000 by Rs. 1,514. This sum of Rs. 1,514 was hence disallowed. As the assessment had been reopened, the ITO looked into other matters and made additions of disallowance under other heads also.
2. The assessee appealed. The AAC held that the ITO was in error in treating certain expenses to be entertainment expenses. The entertainment expenses totalled Rs. 3,394 only and they were less than the allowable limit of Rs. 5,000. The addition of Rs. 1,514 was deleted. With respect to other items, he upheld the ITO's order in part. Aggrieved, the assessee went to the Tribunal. The Tribunal held that this was not a case of change of opinion. The ITO had information in his possession on the basis of which he could proceed to take steps under Clause (b) of Section 147. It allowed the assessee's appeal in part with respect to some of the items which had been added back or disallowed by the ITO.
3. At the instance of the assessee, the Tribunal has referred, for our opinion, the following questions of law :
' (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Appellate Assistant Commissioner's note in the proceedings for the assessment year 1968-69 to the effect that certain items of expenditure in the nature of entertainment expenditure were shown by the assessee under other heads which were required to be disallowed under section 37(2A) constituted an infprmation within the meaning as taken by the Income-tax Officer under section 147(b) for reopening the assessment for the assessment year 1966-67 were valid ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the supplementary assessment in spite of the fact that the additions for which the assessment proceedings were reopened had been deleted by the Appellate Assistant Commissioner and confirmed by the Tribunal to rope in some other items of income which had originally escaped assessment '
4. It is settled that if the ITO has jurisdiction to reopen an assessment then the entire assessment is at large and the ITO can look into items other than those on the basis of which the proceedings were reopened (See V. Jaganmohan Rao v. CIT : 75ITR373(SC) ). The relevant and material question, therefore, is whether the ITO had information in his possession within the meaning of Clause (b) of Section 147. Section 147(b) says if the ITO has, in consequence of information in his possession, reason to believe that income has escaped assessment, he may assess or reassess such income. The ITO must have reason to believe on the basis of information in his possession. The information may be factual or legal. It cannot be equated with suspicion or conjecture (See ITO v. Eakhmani Mewal Das : 103ITR437(SC) ). The question, therefore, is whether the note of the AAC, the basis on which the ITO acted, could constitute information. The note related to the state of affairs as found by the AAC in relation to the year 1968-69. There is nothing to indicate that the AAC had books of account for the assessment year in question (1966-67) before him. There is nothing to suggest that there was any connecting link in relation to the assessee's method of maintaining the accounts. The AAC found that the entertainment expenses were mentioned in accounts other than the one meant for it in the year 1967-68. He thereupon suggested to the ITO to verify it in relation to earlier years. It is evident that the AAC had no factual information in relation to the year 1966-67. Because of the state of affairs in the assessee's books of account for the year 1968-69 his suspicions were aroused and he promptly conveyed his suspicion to the ITO. The ITO had no material in his possession. He acted on the suspicion conveyed to him by the AAC. It is apparent that the ITO based his belief only on suspicion. In view of the settled law, suspicion cannot constitute a valid ground for initiating proceedings under section 147(b). The notice issued under section 147(b) was hence without jurisdiction. Consequently, the entire proceedings as well as the order will fall as being bad for want of jurisdiction.
5. We, therefore, answer both the questions referred to us in favour of the assessee and against the department. The assessee will be entitled to costs which are assessed at Rs. 200.