B.C. Misra, J.
(1) This writ petition is directed against a notice of the Income-Tax-cum-wealth Tax Officer, Ward Viii, New Delhi dated 29th March, 1966 issued under section 148 of the Income-Tax Act, 1961 for the assessment year 1957-58 intimating that the Income-Tax Officer had reason to believe that the income of the petitioner for the said assessment had escaped assessment and he proposed to re-assess the same and that the notice had been issued after obtaining the necessary satisfaction of the Commissioner of Income-Tax.
(2) The previous year of the petitioner is calendar year 1956 and the assessment year is 1957-58. For the year in dispute, the petitioner was assessed to income-tax by order dated 10th September, 1958. By this order, the amount of interest claimed by the petitioner on account of loans had been allowed. During this year, the petitioner had 'Parted a restaurant known as Gaylord Restaurant, Bombay and it had taken loans from the Delhi office as well as other parties. In the balance sheet, the petitioner had shown the liability of loans on Hundies and otherwise to the extent of Rs. 1,09,400. Details of the loan account as well as the names of lenders were furnished while in respect of Hundi account, it was mentioned that the petitioner had taken Rs. 25,000 from Nand Lal Chhugamal and Company. The inerest paid to that concern was also shown. It appears that at some later stage, details of the loans on Hundies from Nand Lal Chhugamal brokers were filed. It contained the names of 10 parties from whom Rs. 5,000 each had been borrowed on various dates between 28th August, 1956 and 14th December, 1956. They are shown in Annexure 'B' filed with the counter-affidavit, or the subsequent assessment year 1959-60, there were 14 items of loans from various parties. Perhaps there is one party which is common to both the lists, namely. Parmanand Deepchand Hinduja, but no dispute has been raised in its respect and we arc not concerned with it. One material party to notice was Sobraj Dhanrajmal from whom two items of Rs. 5,000 each were borrowed on 9th April, 1958 which figured in the subsequent assessment years. This party was felt to be a bogus money-lender by the Income-Tax Officer, Shri Balwant Singh, who asked for the sanction of the Commissioner of Income-Tax to initiate proceedings under section 148 of the Income-Tax Act for the assessment year 1957-58 which was granted vide Annexure 'C' which has resulted in the impugned notice.
(3) The petitioner has filed the writ petition challanging the said notice and has contended that it had furnished to the Income-Tax Officer a detailed statement showing the amounts borrowed on Hundies drawn by the petitioner and even the names of the parties from whom loans were taken had been disclosed and that the petitioner had furnished all the primary facts and that the notice was illegal and invalid and there was no valid ground for re-opening the case and that no reasonable material had been placed before the Commissioner of Income- Tax and he had accorded the sanction mechanically.
(4) The writ petition has been opposed on behalf of the respondents. They have filed three affidavits in opposition. The first affidavit dated 28th September, 1966 has been sworn by Shri Krishan Lal, Income- Tax Officer, District VIII. In paragraph 2, it is admitted that Gaylord Restaurant at Bombay (being a newly opened concern of the petitioner) had borrowed Rs. 1,09,400 from various parties at Bombay and Delhi which was clearly borne out from the balance-sheet, but it was not clear whether the whole amount had been borrowed against Hundis or only apart and that it could not be confirmed that the amount of Rs. 50,000 had been borrowed against Hundies. It was further stated that no separate statement regarding the Hundi loans had been filed by the petitioner, but only a statement showing details of loans amounting to Rs. 1,09,400 had been furnished during the course of assessment proceedings and 'in this statement furnished by the petitioner, the names of parties and the amounts of loans borrowed were also mentioned'. It is further stated that it was not denied that the details of the loans had been furnished by the asscssee. It was asserted that the notice under section 148 for the assessment year 1957-58 had been served or the asscssee on 30th March. 1966 and the same had been issued after obtaining the approval of the Commissioner of Income- Tax and that it was issued to assess the Hundi loans amounting to Rs. 25,000 which was considered to be bogus. The grant of the writ has been opposed. This affidavit had not been filed by the Income- Tax Officer or who had initiated proceedings for re-opening of the assessment. Consequently a second affidavit in opposition dated 16th November, 1973 has been sworn by Shri Balwant Singh, Inspecting Assistant Commissioner who was the Income-Tax Officer concerned. In paragraph 3, the basis of the reasonable belief of the officer concerned has been disclosed and a detailed reference to it will be made hereinafter. At the moment it would suffice to say that the ground disclosed is that one Sobhraj Dhanrajmal was, during the course of assessment for the subsequent year 1959-60, found to be a bogus money-lender. Along with this affidavit, details of the loan Account have been filed. Annexure 'B' contains a list of the craditors for the assessment year in dispute, while Annexure 'B', Ii part, contains a list of the creditors for the next assessment year 1959-60. Annexure 'C' is a copy of the report of the deponent to the Commissioner of Income Tax for initiating proceedings and it contains the Commissioner's older. A rejoinder to the counter-affidavit had also been filed. After the arguments in the writ petition had been concluded, the respondents moved an application lor filing an additional counter-affidavit which has been allowed by my order dated 8th February, 1974 on payment of costs. In this way, a third counter-affidavit, being an additional affidavit dated 20th December, 1973 has been sworn by Shri Balwant Singh. In paragraph 2, he has given further information with regard to the basis of his plea, detailed reference to which would also be made hereinafter. Suffice it to say for the moment that in this affidavit, a new story has been given to the effect that in respect of another concern namely, Pure Ice Cream, two of the partners are common with the petitioner-firm and that investigation for the subsequent years disclosed that the party had allowed the credit of seven parties to be added to its income and that some of these names were common with the names of the creditors of the petitioner for the year in dispute. A rejoinder to the said affidavit has been filed on behalf of the petitioner. It has been seriously contended that the reasons now given in the third affidavit in opposition were never submitted to the Commissioner of Income-Tax and they are irrelevant and afterthought and that the parties from which the petitioner had borrowed money were genuine and that they are members of the Shikarpuri Shroffs' Association which had been recognised by the department as genuine parties.
(5) After the filing of the last affidavit, I have heard the arguments of the parties in the writ petition over again. The proposed action has been taken under clause (a) of section 147 of the Income-Tax Act, 1961, the material portion of which read as follows :
'147.Income escaping assessment. If
(A)the Income-Tax Officer has reason to believe that by reason of the omission of 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 * * * *
HEmay, subject to the provisions of section 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 * * * *. Explanationn 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 (XI of 1922) ; or
(B)where such income has been assessed at too low a rate; or computed.
ExplanationN2. 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.'
(6) Section 149 prescribes the time-limit for action under (i) as 8 years from the end of the year, while the time-limit under clause (ii) is longer. Section 148 of the Act requires that before making the assessment, reassessment or computation under section 148, 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 under sub-section (2) of section 139 and that as provided by sub-section (2), the Income-Tax Officer shall, before issuing any notice under this section, record his reasons for doing so. Sub-section (2) of section 151 requires that no notice under section 148 shall be issued after the expiry of 4 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 ftt case for the issue of such notice.
(7) These provisions of law have received consideration in a number of judicial authorities. In Calcutta District Company Limited vs . Income-Tax officer, Companies District I Calcutta and another : 41ITR191(SC) . The report construing section 34 of the preceding Income-Tax Act shall that the conditions specified in the statute constituted jurisdictional fact which clothed the Income- Tax officer with the jurisdiction and power to re-open the assessment. In this case, their lordships considered in detail the expression ' omission' or failure on the part of the assessed to disclose -fully and truly all material facts necessary for the assessment In truly all material facts necessary for the assessment. In judgment with regard to the conclusion based on the facts of the case. With regard to the expression 'reason to believe' there was no dissent and his Lordship observed that the said expression postulates belief and existence or reasons for the belief and the belief must be held in good faith ; it cannot be merely a pretence and the expression docs not mean a purely subjective satisfaction of the Income- Tax officer : the forum of decision as to the existence of reasons and the belief is not in the mind of the Income-Tax officer and the existence of the belief and the reasons for the belief but not the sufficiency of the reasons, will be justifiable, but the expression predicates that the Income-Tax officer holds the belief induced by the existence of reasons for holding such belief and that it contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons including the belief; in other words, the Income-Tax officer must on information at his disposal, believe that income has been under-assessed by reason of failure fully and truly to disclose all material facts necessary for assessment and as such a belief may not be based on mere suspicion and it must be founded upon information; the Court is not concerned with the question whether the materials may be regarded by a Court before which a dispute is raised, to be sufficient to sustain the belief entertained by the Income- Tax officer. In Kantamani Venkate. Narayana and sons vs . First Additional Income-Tax officer. : 63ITR638(SC) the Supreme Court held that in proceedings under Article 226 of the Constitution challenging the jurisdiction of the Income-Tax officer to issue a notice under section 34(1)(a), the High Court was only concerned to decide whether the conditions which invested the Income- Tax officer with power to reopen the assessment did exist and it was not within the province of the High Court to record a final decision about the failure to disclose fully and truly all material facts bearing on the assessment and consequent escapement of income from assessment and tax. In Commissioner of Income-Tax Gujarat vs . A. Raman and Company : 67ITR11(SC) , the Supreme Court observed that the expression 'information' in section 147(b) must mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment and that the High Court exercising jurisdiction under Article 226 of the constitution has power to set aside a notice issued under the said provision if the condition precedent to the exercise of the jurisdiction does not exist : the Court may in exercise of its powers, ascertain whether the Income-Tax officer had in his possession any information : the Court may also determine whether from the information the Income-Tax officer may have reason to believe the income chargeable to tax has escaped assessment, but the jurisdiction of the Court does not extend any further and the Income-Tax officer alone is entrusted with the power to administer the Act. In Elplunstone Picture Place vs . Union of India and another : 74ITR115(Patna) , (4) the High Court of Patna held that in considering the question of the existence of material for the belief of the Income-Tax officer that income had escaped assessment, the Court could go into the question whether the material was relevant or irrelevant and in cases where the material could not at all be a basis for the belief, the notice issued under section 148 had to be struk down. In Chhugamal Rajpal vs . S. P. Chaliha : 79ITR603(SC) on the records being produced under the directions of the Supreme Court, it appeared that the Income-Tax officer in his report had referred to certain communications received by him from the Commissioner from which it appeared that the creditors of the assessed were name-lenders and the loan transactions were bogus and that thereforee, the proper investigation regarding the loans taken by the assess was necessary, but the Income-Tax officer did not mention in the report the material he had before him and his reason for coming to the conclusion that this was a fit case for issue of a notice and on this report, the Commissioner against the question 'whether the Commissioner was satisfied that it was a fit case for issue of notice under section 148', merely noted 'yes' and affixed his signatures there under. In these circumstances, the Supreme Court held that the Income-Tax officer had not even come to a prima fade conclusion that the loan transactions to which he had referred were not genuine transactions and he appeared only to have a vague feeling that they might be bogus transactions and such a conclusion did not fulfill the requirements of section 151(2) and under that section he had to give reasons for issuing a notice under section 148; the Income-Tax officer should have some prima facie grounds before his for taking action under section 148 and his conclusion that there was a case for investigating the truth of the alleged transactions was not the same thing as saying that there were reasons for the issue of the notice and that the Commissioner had mechanically accorded permission and so the important safeguards provided in sections 147 and 151 had been lightly treated by the officer and the Commissioner and so the notice issued under section 148 was held to be invalid. In Sheo Nath Singh vs . Appellate Assistant Commissioner of Income-Tax : 82ITR147(SC) the report of the Income-Tax officer to the Commissioner for sanction to re-open the assessment contained two reasons, namely the assessed was at the relevant time a Managing Director in about a dozen limited companies along with 'Oberois' was believed to have made some great profits which were not offered for assessment and secondly the assessed was believed to have received a sum of Rs. 22 lacs from ' Oberois' and this sum or at least a part of it represented his income which had escaped assessment. The Supreme Court in these circumstances held that the two reasons given for the belief by the Income- Tax officer hopelessly failed to satisfy the requirements of law. The Court further observed that the expression 'reason to believe' suggested that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-Tax officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour and that the Income-Tax officer would be acting without jurisdiction if the reason for his belief that the conditions were satisfied did not exist or were not material or relevant to the belief required by the statutory provision. The Court further observed that the Court could always examine that aspect though the declaration or sufficiency of the reasons for the belief could not be investigated by the Court.
(8) An analysis of the aforesaid authorities shows that the Court, in exercise of writ jurisdiction, can examine the existence of the material and the formation of a belief of a reasonable person upon reasonable grounds, but the Court has no jurisdiction to examine the declaration or the sufficiency of the reasons for the belief. However, if the conditions alleged by the Income-Tax officer as existing for the formation of the belief did either not exist or were not relevant, then the Income-Tax officer would be lacking any jurisdiction to reopen the assessment.
(9) In the instant case, the reasons for the belief entertained by the Income-Tax Officer concerned are detailed in his report io the Commissioner of Income-Tax Annexure 'C'. Before I proceed to its consideration, I feel sorry to make one comment. Annexure 'C' which was filed along with the second affidavit in opposition, and the correctness of which has been sworn by Shri Balwant Singh in his previous affidavit, is not the correct copy. It has been sworn to be a true copy and the copy itself has been certified as true copy by another Income-Tax Officer, Company Circle-11. I find that this is not a true copy. Annexure 'C' contains 12 heads of entries, answers to some of which are blank. The order and the signature of the Commissioner appear on the front page against item 10 which does not deal with the subject. The reasons of the Income-Tax Officer are numbered at 7 and placed under item II. When the counsel for the petitioner in the course of arguments commented that the Commissioner had applied his mind mechanically and had not even read the reasons of the Income-Tax Officer given on the reverse of the document, Mr. Dhebar pointed out that the form which was previously used and on which the report in the instant case had been made, was different. Mr. Dhebar then produced a copy of the report of the Income-Tax Officer in this case which is contained in a form containing only 9 entries. It, thereforee, appears that the report which was certified as true and filed in the Court along with the affidavit had been written out on a different form than the one actually used at the time and the same has been carelessly certified to be true. The material answers against the entries in the two forms are not different, but a greater care is certainly called for on the part of public authorities to certify documents as true, particularly when they are being filed in a Court of justice. I have allowed Mr. Dhebar, counsel for the respondents, to file the correct copy under his certification.
(10) The reason given by the Income-Tax Officer in this report are as follows:
'THEassessed took loans against Hundies through M/s. Nand Lal Chhaganmal and Company, brokers. Some Hundi bankers have already given a statement that they never gave genuine loans to any party. Thus bogus loans estimated at Rs. 25.000.00 during this year have escaped assessment and are assessable in the hands of the assessed. This was not disclosed at the time of original assessment.'
(11) Analysed, the report shows that some Hundi bankers had given a statement that they had never given genuine loans to any party. Naturally this must have reference to some of the Hundi bankers from which the petitioner had borrowed loans during the assessment year. Who those bankers were, is not clear from the report and this was, in approaching the Commissioner, left conveniently vague. I am, however, prepared to assume in favor of the department that along with this report, the relevant file of the assessed must also have been sent and so I am prepared to consider if there is anything on.the file to substantiate the report. The first affidavit in opposition does not disclose any further material, but the second affidavit, in opposition, being the previous affidavit of Mr. Balwant Singh, states as follows:
'(3)I say that the petitioners were assessed for the assessment year 1957-58, by Shri T. S. Bedi the then Income- Tax Officer on 10th September, 1958. At that time, it appears that the details of loans alleged to have been taken by the assessed were mentioned as per statement hereto annexed and marked 'A' (collectively). The said list shows that one M/s. Nand Lal Chhaganmal, Bombay appears to have advanced a loan of Rs. 25,000.00. I say that thereafter during the course of proceedings for assessment year 1960-61 the assessed had filed a list of loans raised in earlier years out of which some items related to the accounting year ending 31st December, 1956 relevant to the assessment year 1957-58. Hereto annexed and marked 'B' is a copy of the said names given. It appears that the names mentioned in 'B' were not disclosed at the time of assessment for 1957-58, and when the said names got disclosed, it appeared that some of the parties were going bogus Havala Business and that M/s. Nandlal Chhaganmal were not the depositors but only brokers. I say that when I made enquiries even in case of Nandlal Chhaganmal it appeared that they were brokers and not Hundi Bankers. It appears that subsequently assessed himself admitted that Nandlal Chhaganmal were not Hundi Bankers but the alleged Hundi Banker was Sobhraj Dhanrajmal etc. when questioned, Sobhraj Dhanrajmal denied having given any loan to the assessed through Nandlal Chhaganmal. 'This showed that the larger number of credits were 'bogus and the petitioners had not truly and fully disclosed all material facts necessary for his assessments for the assessment year 1957-58 and that income chargeable to tax had escaped assessment for that year. In pursuance of the above and having thus reason to believe that the income had escaped assessment and the petitioner had not disclosed fully and truly all material facts as aforesaid I submitted the proposal to the Commissioner on 28th March, 1966 and that the Commissioner after having considered the same was satisfied that it was a fit case for issue of notice under section 148 of the Act hereto annexed and marked 'C is a copy of the order of the Commissioner.'
(12) From the above affidavit, it is clear that the banker that is alleged to have made a statement was Sobhraj Dhanrajmal who had advanced the loan in April, 1958 for the assessment year 1959-60, but this is not the assessment year in dispute, for the relevant year was 1957-58. As is apparent from the list (the first part of Annexure 'B') no loan whatsoever had been taken from Sobhraj Dhanrajmal. Had the petitioner taken any loan from the said banker during the assessment year, it would certainly furnish a very good ground to the Income-tax Officer to entertain the required belief reasonably. Now it is found that none of the landers and creditors of the petitioner who had advanced Hundi loans in the previous year 1956 (for the assessment year 1957-58) had ever made any statement to the Income-Tax Officer or otherwise that they had not made advance of any genuine loan to any party. Reference to Sobhraj Dhanrajmal for a subsequent year and which does not occur in the previous year is, in my opinion, not relevant to afford a basis of forming a reasonable belief of the Income- Tax Officer that all Hundi loans in the year in dispute were bogus. Had any of the parties from whom loans had been taken by the petitioner in the year in dispute made a statement or had been found to be bogus, it would constitute a reasonable ground for the Income-Tax Officer to suspect the other parties as well but suspicion relation to any other party, with whom the petitioner had in the year in dispute absolutely no dealings, cannot constitute any valid or relevant basis for the formation of a reasonable belief by a reasonable officer in respect of the loans in the year in dispute.
(13) The respondents saw force of the argument and consequently they were led to file another affidavit in opposition. Paragraph 2 of the said affidavit dated 20th December, 1973 is reproduced below for ready reference:
'Isay that the petitioners have a sister concern named Pure Ice Cream with common partners Sarvshri P. L. Lamba and I. K. Ghei. The same Pure Ice Cream had shown credits in the names of seven parties out of the ten in the list mentioned in my affidavit as having advanced loans to the Pure Ice Cream. The investigation showed that the said seven common parties are bogus. This fact was confirmed as Pure Ice Cream subsequently in consequence of coming into force the voluntary disclosure scheme made a voluntary disclosure of their peak credits to the tune of Rs. 4,28,000.00 'which included credits shown in the name to the said seven parties. In consequence of the voluntary disclosure scheme they allowed the credits to be added to their income that is the credits alleged to have been given by the said seven parties were admitted to be the income of the said partners through Pure Ice Cream. I had just and fair reasons to believe that the names of the seven parties out of the ten were bogus and they had been mentioned in the list of the petitioners with a view to show false credits. The charater of the .said parties being bogus .and as not giving genuine loans but giving their names for credit became completely apparent. I say that in fact the disclosure by Pure Ice Cream was made two months after the passing of the order in the cases of petitioner as well as Pure Ice Cream for assessment year 1960-61. The result, thereforee, was that when I found the names of the said seven parties as having advanced loans for 1957-58. I had reason to believe that the parties were bogus and as such the income had escaped assessment. The names of the said seven parties out of ten are as under:
2.Ratanchand and Gobindram.
4.Bhagwandas and Sons.
5.Lilaram Kewalram and Sons.
7.Parmanand Deepchand Hinduja.'
THISaffidavit is after thought.
(14) Firstly Pure Ice Cream is an entirely different assessed and a different partnership concern, having only two common partners. Secondly, reliance is placed on voluntary disclosure of the said assessed in respect of a large amount for the assessment year 1960-61. Neither the file of the case, nor further particulars about this party or the disclosure scheme have been brought to the notice of the Court and we do not know what was the disclosure by the assessed and whether it had any bearing on the advances in dispute in the instant case. This affidavit again does not indicate that any of the bankers advancing money had admited that they had not advanced any genuine loans. The report made to the Commissioner does not make any reference to the case of Pure Ice Cream or to any voluntary disclosures. The report categorically states that some Hundi bankers had given a statement that they never gave genuine loan to any party. There is nothing contained in the third affidavit in opposition to substantiate this statement made in the report of the Income-Tax Officer to the Commissioner except to the extent of Sobhraj Dhanrajmal which has been discussed above. It is, thereforee, clear that the Income Tax Officer, at the time he formed the belief, did not have the disclosurcs made in the case of Pure Ice Cream at all his mind and he was only thinking of Sobhraj Dhanrajmal as the basis for forming such belief. His legal duty was not only to entertain a reason for belief but also to satisfy the Commissioner about the soundness of reasons recorded by him. If the Income-Tax Officer did not mention the aforesaid disclosure (for whatever it was worth) to his Commissioner at the appropriate time, surely, this is an afterthought.
(15) There is another circumstance which supports this conclusion. In the report to the Commissioner (Annexure 'C') the amount of bogus loans alleged to have escaped assessment is estimated to be Rs. 25,000.00. In the disputed year, the petitioner had borrowed on Hundies Rs. 50,000.00 from 10 parties at Rs. 5,0001- each. In the third affidavit in opposition, seven of those ten parties arc, on the basis of voluntary disclosure in the case of Pure Ice Cream, alleged to be bogus. If that were so, the amount at the rate of Rs. 5.000.00 each out of seven parties, would come to Rs. 35,000.00. In the report, the Income-Tax Officer has not asserted that Rs. 35..COO.00 but only Rs. 25,000.00 and (if so which) had escaped assessment. 1. thereforee, hold that the third affidavit in opposition is an afterthought and neither in fact nor in law furnished and valid ground for forming a reasonable belief required by law. It is obvious that the Commissioner of Income- Tax did not seriously consider the matter and had merely written 'Yes' against the front page of the appropriate column. While the reasons were written on the reverse page. The sanction, thereforee, suffers. from the infirmity pointed out by the Supreme Court in Chhugamal Rajmal's case (supra). In the view I am taking of the matter, it is not necessary to decide whether the petitioner had in he instant case fully and truly disclosed all materials necessary for its assessment for the disputed year. The petitioner asserts that it had made full and true disclosure and it is supported by the first affidavit in opposition, but this fact is disputed in the subsequent affidavits. However, it is not necessary to decide this point.
(16) My conclusion, thereforee, is that the Income-Tax officer did not have any reason to bona fide believe that any income chargeable to tax had escaped assessment. I also hold that the sanction of the Commissioner purporting to have been granted under section 151 of the Act is invalid and inaffective.
(17) As a result, I allow the writ petition and issue a writ of mandamus directing the respondents not to enforce the impugned notice under section 148 of the Act for the assessment year 1957-58. Nothing herein contained would prevent the appropriate authorities to take any action against the petitioner in respect of any other assessment year, in particular 1959-60 or in respect of any other notice, if any, issued to the petitioner according to law. Under the circumstances, the parties are left to bear their respective costs.