B. S. Dhillon, J. - The petitioner filed the income-tax return for the asst. yr. 1968-69 giving the full facts of the case and also showing that list of sundry creditors, the name of Bharat House from whom the amount had been received. Complete copies of account of the transaction of M/s. Bharat House, confirming the above transaction, were also filed before the ITO. The ITO, did not believe the certificate issued by M/s. Bharat House before him and he called Sh. Ranjit Singh of M/s. Bharat House, u/s 131 of the IT Act, 1961, (hereinafter referred to as the Act) and after recording the statement, the ITO was satisfied about the transaction and the assessment was thereafter completed. The department did not file any appeal against the order of the ITO, but instead the petitioner filed the first appeal before the AAC and the second appeal before the Tribunal as regards the other items of income mentioned in the return. Subsequently notice dated 13th December, 1971, copy of which is Annexure H with the writ petition, u/s 148 of the Act, has been issued to petitioner wherein it has been stated that the ITO has reason to believe that the assessees income chargeable to tax for the asst. yr. 1968-69 has escaped assessment within the meaning of s. 147 of the Act and that the assessee should appear before the ITO in respect of the assessment for the said asst. yr. This notice has been sought to be impugned in this writ petition.
2. In the return filed on behalf of the respondent the material facts which have been stated in the earlier part of this judgment, have not been controverted. However, it has been averred that consequent upon a search and seizure carried out at the business premises of Shri Ranjit Singh of M/s. Bharat House certain documents along with certain diaries etc. were taken possession of. After scrutiny of the seized material the ITO, Special Circle, Ward E, recorded the statement of Shri Ranjit Singh on 29th November, 1971, copy of which is Annexure R-A with the return. In that statement, Shri Ranjit Singh made it clear that he had been deriving his income from name lending business only thus enabling the parties whom he apparently had advanced loans to introduce their own money in their books of account in the garb of apparently genuine loans from him. It has been averred that it was on the basis of this statement that the ITO issued the notice.
3. The legal proposition is no more in dispute. It is well settled that if there is some material which has nexus with the matter in issue on the basis of which the ITO has issued a notice, in that case, the adequacy or inadequacy or sufficiency or insufficiency of material cannot be gone into by this Court, but if the material relied upon has no nexus with the matter in issue, in that case, the issuance of notice by the ITO will be without jurisdiction. Reference in this connection may be made to decision of their Lordships of the Supreme Court in ITO & Ors. v. Lakhmani Mewal Das.
4. It is in view of the above legal proposition that the facts of the case have to be seen that the facts of the case have to be seen as to whether the statement of Shri Ranjit Singh, copy of which is Annexure R-A with the return, furnishes any basis to the ITO to have reason to believe that the assessment for the year in question has escaped assessment and that the same is by reason of omission or failure on the part of the assessee to make the return u/s 139 of the Act. We have carefully read the statement of Shri Ranjit Singh and we find that statement is general in nature. The purport of the statement is that he was carrying on business of cloth merchant in the name and style of M/s. Bharat House in Chaura Bazar, Ludhiana, since 1952 and since 1964, he was also deriving income from interest from parties in consideration of his lending his name thereby enabling them to introduce monies in their books of account in the guise of apparently genuine loans from him. The statement nowhere mentions that all loans appearing in his name in the books of different firms are mentioned in that fashion. The statement only shows that he had been deriving income from interest in the manner stated by him in the return. As observed earlier, the ITO had earlier recorded the statement of Shri Ranjit Singh and he having accepted the same passed an order which was not challenged by the Revenue. The statement nowhere mentioned either in general or in particular that the loan shown in the account books of the assessee in the name of Ranjit Singh, was not in fact a loan and that the said entry was in the same fashion as he mentioned in his statement. It is well settled that the ITO must have reason to believe and it is not merely on suspicion that he can reopen the assessment which was made many years ago. From what has been stated above, we are of the opinion that the only material, i.e. the statement of Ranjit Singh, copy of which is Annexure R-A, does not have any connection with the loans shown in the name of Shri Ranjit Singh in the case of the assessee, the present petitioner.
5. For the reasons recorded above, this writ petition is allowed with costs and the impugned notice is hereby quashed.
S. S. Dewan, J. - I agree.