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Assistant Commissioner of Vs. O.P. Gupta - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(2000)75ITD123(Delhi)
AppellantAssistant Commissioner of
RespondentO.P. Gupta
Excerpt:
1. these five appeals are by the revenue and the five cross objections by the assessee are inter-connected and involve common ground. for the sake of convenience, they are considered together and decided by this consolidated order.2. the common ground in all the five appeals by the revenue is as under:-- on the facts and in the circumstances of the case, the learned cit(a) has erred in quashing the assessments on the ground that notices were not validly served and there was no valid assumption of jurisdiction by the assessing officer.3. assessments for the assessment years 1979-80 to 1983-84 were originally completed under section 143(3)/144 of the income-tax act, 1961 on a total income of rs. 7,211, rs. 13,570, rs. 10,240, rs. 12,690 and rs. 13,750. subsequently, the assessments were.....
Judgment:
1. These five appeals are by the revenue and the five cross objections by the assessee are inter-connected and involve common ground. For the sake of convenience, they are considered together and decided by this consolidated order.

2. The common ground in all the five appeals by the revenue is as under:-- On the facts and in the circumstances of the case, the learned CIT(A) has erred in quashing the assessments on the ground that notices were not validly served and there was no valid assumption of jurisdiction by the Assessing Officer.

3. Assessments for the assessment years 1979-80 to 1983-84 were originally completed under Section 143(3)/144 of the Income-tax Act, 1961 on a total income of Rs. 7,211, Rs. 13,570, Rs. 10,240, Rs. 12,690 and Rs. 13,750. Subsequently, the assessments were reopened under Section 147(a) of the Act on the ground that cash credits shown in the name of Smt. Bhagwani Devi and M/s. Jagdamba Finance Corporation were found to be not genuine as the creditors were merely name lenders as held by Assessing Officer in the case of M/s. Metal House assessed by the ITO, Ward-14 (4), New Delhi M/s. Jagdamba Finance Corporation could not prove the capacity to advance heavy loans to M/s. Metal House and the credit in the name of M/s. Jagdamba Finance Corporation was held to be not genuine in the case of Metal House. In view of this information the action under Section 147(a) of the Act was taken by the Assessing Officer with the prior approval of the CIT. Ultimately, reassessments were made by adding the unexplained cash credits and interest thereon at Rs. 6,14,975, Rs. 6,10,218, Rs. 8,47,870, Rs. 7,21,870 and Rs. 17,71,680 for the five years respectively.

4. Aggrieved the assessee preferred first appeal before the learned CIT(A). It was submitted before him on behalf of the assessee that the proceedings under Section 147(a) of the Act were unjustified and without jurisdiction as the pre-requisites laid down under Section 147 were not satisfied in the case. It was contended that the assessee had made full and true disclosure of all material facts before the Department with the original return and in the course of assessment proceedings and therefore, the provision of Section 147(a) could not be invoked in the case. Complete disclosure had been made of the cash credit as well as the interest paid and the Assessing Officer had passed the original assessment orders after due consideration of all the facts. It was submitted that there was no fresh credit in the name of Smt. Bhagwani Devi in any of the five years in question and the sum of Rs. 12,000 appearing as her credit in the books was the old balance carried forward from the assessment year 1979-80. As regards the cash credit in the name of M/s. Jagdamba Finance Corporation it was stated that this was an old creditor although there was accretion in its credit balance year after year. Referring to the judgments referred in ITO v. Dwarka Dass & Bros. [1981] 131 ITR 571/[1982] 8 Taxman 99 (Delhi), Indian Oil Corpn. v. ITO [1986] 159 ITR 956/26 Taxman 336 (SC), it was argued before the learned CIT(A) that there was no value to disclose the fully and truly all basic facts.

5. It was further submitted before the learned CIT(A) that there was no material for formation of belief that income had escaped assessment.

Reliance was placed in this connection on the decision in ITO v.Lakhmani Mewal Das [1976] 103 ITR 437/448 (SC) and S.P. Agarwalla v.ITO [1983] 140 ITR 1010/5 Taxman 299 (Cal). Again it was submitted that the learned CIT(A) had not passed any order under section 263 of the Act though the notice to that effect had been issued.

6. It was further submitted before the learned CIT(A) that there was no proper and valid service of notice under Section 148 in the case. Shri Mohan Lal Gupta had died and left behind two legal heirs namely wife Smt. Bhagwani Devi and son Shri O.P. Gupta. Notices were required under the law to be served to both the legal heirs but notice under Section 148 was served only on the deceased's son Shri O.P. Gupta and not on Smt. Bhagwani Devi. It was argued that since the notice was not properly and validly served, the impugned assessments were illegal and invalid and were liable to be quashed. Reliance was placed on the decisions in First Addl. ITOv. Mrs. Suseela Sadanandan [1965] 57 ITR 168 (SC), ITO v. Sudhir KumarBhose [1972] 84 ITR 60 and K. AshokKumarv.CJT[1986] 162 ITR 543/29 Taxman 173 (Kar.).

7. The learned CIT(A) was satisfied and convinced with the aforesaid submissions and contentions. He observed that from the perusal of the reasons recorded for the issue of notice under Section 148 it was clear that the Assessing Officer had invoked the provisions of Section 147(a) of the Act in all the five years in question. He held that the Assessing Officer was not justified in invoking the provisions of Section 147(a) of the Act because there was no material for the formation of belief that by reasons of assessee' failure to disclose fully and truly all material facts, income chargeable to tax had escaped assessment for the assessment years in question. The mere fact that there were certain cash credits did not lead to the conclusion that there was failure to disclose true particulars of income or that income to the extent of cash credit had escaped assessment. All that the Assessing Officer had in his possession was some general information in the form of happening in the case of Metal House which did not have any direct nexus with the transaction specifically in question. Thus there was no material with the Assessing Officer to justify the reopening of the assessment in any of the five years in question. In this view he drew support from the decisions of the Hon'ble Delhi High Court in Dwarka Dass &Bros. 's case (supra) and Calcutta High Court's decision in S.P. Agarwalla's case (supra).

8. The learned CIT(A) further observed that it was a well settled that the obligation on the part of the assessee was to disclose material facts and the Assessing Officer had to draw inferences on the primary facts. In other words, it was not necessary for the assessee to draw inferences for the Assessing Officer. He added that if we look at the documents that were accompanying the returns filed by the assessee for the assessment years in question, it would appear that the assessee had discharged its obligation to disclose all the primary facts relating to the credit as well as interest payments thereon. It could not be therefore held that there was failure to disclose fully and truly all basic facts on the part of the assessee.

9. The learned CIT(A) further observed that the service of notice under Section 148 to the deceased's son Shri O.P. Gupta and non-service of the notice to the deceased is widow Smt. Bhagwani Devi made the reassessment proceedings in the case as invalid. He added that it was necessary for the Assessing Officer to issue notices to all the legal representatives because the estate of deceased could not properly be represented by one of the legal representatives. The expression legal representative under Section 159 means legal representative. Thus if there are more than one legal representative of the deceased person all must be impleaded to make representative of the estate complete. In the present case, the other legal representative was the widow of the deceased namely Smt. Bhagwani Devi in whose name the estate duty order was passed on 19-9-1985. Since the notice under Section 148 was not served on all the legal representatives the learned CIT(A) held that reassessments proceedings were not validly initiated for any of the five years in question. He, therefore, also held that there was no valid assumption of the jurisdiction by the Assessing Officer in this case.

9A. In view of the above, the learned CIT(A) quashed the asstts. in all the five years and allowed the assessee's appeals.

9B. Aggrieved the revenue has come up in second appeal before this Tribunal.

10. The learned DR submitted that the reassessment proceedings initiated in the case under Section 147(a) of the Act were proper and justified because the cash credit in the name of M/s. Jagdamba Finance Corporation were found to be bogus because M/s. Jagdamba Finance Corporation was found to have no capacity to advance loans and it was only a name lender. She added that the Assessing Officer in this case was also assessing the case of M/s. Metal House wherein he had found that the cash credit shown in the name of Jagdamba Finance Corporation in the books of M/s. Metal House were not genuine because M/s. Jagdamba Finance Corporation did no have the capacity to advance the loans. With that knowledge in mind and on that basis the Assessing Officer had reason to believe in the present case to hold that the cash credit in the name of M/s. Jagdamba Finance Corporation in the books of the present assessee were also bogus and the present assessee had furnished inaccurate particulars of his income in the returns filed and as such the provisions of Section 147(a) were attracted in the assessee's case.

11. The learned DR further submitted that from the mere production of books of account before the Assessing Officer, it could not be said that the assessee had discharged the burden of making full and true disclosure. In this connection, she referred to Explanation 2 of Section 147 that if the assessee disclosed certain evidence he could not be deemed to have disclosed other evidence which might be capable of being discovered by the Assessing Officer by the necessary investigation. In this connection she referred to the Supreme Court decision in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 and in IAC v. VIP Industries Ltd. [1991] 191 ITR 661.

12. The learned DR further submitted that there was valid assumption of jurisdiction by the Assessing Officer under Section 147(a), read with Section 148 of the Act as the assessee had failed to disclose full and true material facts relating to the aforesaid cash creditor. She further submitted that the Assessing Officer had properly recorded reasons and the existence of belief about the non-disclosure of full and true material facts. She pointed out that the Assessing Officer had recorded that as per information received certain creditors were name lenders. She contended that the re-opening of the assessment under Section 147 was or were valid grounds. She added that the assessee was given ample opportunity to produce the books of account and prove the genuineness of the cash credit but no compliance was made and non-co-operative attitude was adopted by the assessee. The impugned re-asstts, were therefore eventually completed ex parte under Section 144 with the addition of the unexplained cash credit and interest thereon. She argued that considering the totality of the facts and circumstances of the case, the learned CIT(A) was not justified in quashing the assessments.

13. The learned DR submitted that from the facts and circumstances of the case, it was evident that there were reasons to believe that the assessee had failed to make full and true disclosure of income in his return and action under Section 147(a) of the Act was warranted in the case. She contended that sufficiency of the reason was not to be examined at the time of initiating action under Section 147(a). It was not required that before initiating action under Section 147(a), investigation and verification of the information should be made. She relied on the decisions in Lakhmani Mewal Das 'case (supra), R.Dalmiav. Union of India [1972] 84 ITR 616 (Delhi), Ram Prasad v. ITO [1995] 82/199 (All.) and CIT v. Ashok Cement Ltd. She also relied on the decision in Jagdish Prasad v. CIT[1976] 104 ITR 214 (All.) and Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC) in support of her contention that application of Section 147(a) was justified.

14. The learned DR further submitted that the learned CIT(A) had erred in quashing the assessments on the ground that there was no valid assumption of jurisdiction. She contended that by giving such finding the learned CIT(A) had held that there was no failure or omission on the part of the assessee. She argued that such finding was contrary to facts on record and was therefore wrong. She urged that the revenue's appeal should be considered in this light also.

15. The learned DR filed paper book containing copies of the order sheet, proposals under Section 147(a) for approval of CIT, letter dated 5-5-1989 of ITO Ward-14(4), New Pelhi addressed to ACIT, Circle-14(1), New Delhi regarding loan to M/s. Jagdamba Finance Corporation treated as bogus in the case of M/s. Metal House for assessment year 1982-83 etc. She submitted that though the letter of ITO Ward-(14), New Delhi to ACIT, Circle-14(1), New Delhi regarding loan of M/s. Jagdamba Finance Corporation to M/s. Metal House as referred to above was dated 5-5-1989 and the date of proposal under Section 147(a) for the assessment year 1980-81 to 1983-84 was 31-3-1989 i.e., the proposal under Section 147(a) was prior to the information letter dated 5-5-1989. The Assessing Officer had knowledge about the case of M/s.

Metal House because he was also assessing the case of Metal House and therefore he had reason to believe even prior to the receipt of formal letter dated 5-5-1989 from ITO Ward-14(4) that the cash credit shown in the name of M/s. Jagdamba Finance Corporation in the books of the present assessee were bogus and in that context there was reason to believe that the present assessee had not made full and true disclosure of material facts in the returns filed by him. With that knowledge in mind the proposal sent by the Assessing Officer on 31-3-1989 was proper and justified and it could not be said that the proposal under Section 147(a) was sent by the Assessing Officer on 31-3-1989 without the existence of reasons to believe that the assessee had not made full and true disclosure of material facts in his returns. She added that as regards the assessment year 1979-80, the proposal under Section 147(a) was sent on 6-7-1989 i.e., after the date of the letter of ITO ward 14(4) referred to above. Therefore, in the assessment year 1979-80 even the formal information was in possession of the Assessing Officer at the time of sending the proposal under Section 147(b) of the Act. She, therefore, contended that the learned CIT(A) was unjustified and wrong in quashing the assessments.

16. The learned DR submitted that even if the case was not covered under Section 147(a) but the same was treated to be covered under Section 147(b) of the Act. The learned CIT(A) was not justified in quashing the assessments altogether. It was a question of irregularity in invoking the provisions of Section 147(a) instead of provisions of Section 147(b) of the Act. She contended that this irregularity should have been condoned and the Department should have been given an opportunity to remove the irregularity. Similarly, the learned DR contended that the non-issue of notice under Section 148 to all the legal heirs could not be made as a ground for quashing the assessments because this was also a rectifiable irregularity. She also relied upon the Supreme Court decision in CIT v. Jai Prakash Singh [1996] 219 ITR 737 and Kapur Chand Shrimal v. CIT[1981] 131 ITR 451/7 Taxman 6 (SC).

She further submitted that on several dates the legal heir Shri O.P.Gupta communicated with the Department but he did not mention that the notice should be served on both the legal heirs. He only contended before the Assessing Officer that the proceedings were not valid on account of non-issue of notice under Section 148 to the other legal heirs. She stated that as per the Income-tax records which were available to the Assessing Officer, complete list of all the legal heirs was not before him. She therefore, contended that the impugned assessments could not be quashed on the ground of non-issue of 148 notices to all the legal heirs.

17. The learned counsel for the assessee, on the other hand supported the order of the learned CIT(A). He submitted that the action initiated by the Assessing Officer under Section 147(a) was without any material and was without valid jurisdiction. He pointed out that the proposal under Section 147(a) for the assessment years 1980-81 to 1983-84 were sent for approval of CIT on 31 -3-1989 whereas the letter of ITO Ward-14(4) addressed to the ACIT, Circle-14(l), New Delhi regarding the loan of-M/s. Jagdamba Finance Corporation treated as bogus in the case of M/s. Metal House was dated 5-5-1989. He, therefore, contended that on the date of proposal under Section 147(a) there was no information or material to show that the cash credits in the name of M/s. Jagdamba Finance Corporation in the books of the present assessee were bogus and that the present assessee had not made full and true disclosure of material facts in his returns. He further submitted that even otherwise the information that cash credit in the name of M/s. Jagdamba Finance Corporation had been treated as bogus in the assessment of M/s. Metal House could not be considered as the proper basis for initiating action under Section 147(a) in another case i.e., in the case of the present assessee. There was no nexus between the two inasmuch as M/s. Jagdamba Finance Corporation had not given any statement saying that the loan appearing in its name in the books of the present assessee was not genuine etc. In this connection, the learned counsel informed that the assessment in the case of M/s. Metal House was completed by the Assessing Officer ex parte under Section 144 treating the cash credit in the name of M/s. Jagdamba Finance Corporation as unexplained. Again the said assessment in the case of M/s. Metal House was set aside by the learned CIT(A) after which no fresh assessments were made in the case of M/s. Metal House for the assessment years 1982-83 and 1986-87 and no additions had been made therein. He, therefore, contended that even the ex parte finding of the Assessing Officer in the case of M/s.

Metal House regarding the loan in the name of M/s. Jagdamba Finance Corporation had become non-existent. The learned counsel took us through the copy of order in the case of M/s. Metal House and pointed out that the addition for unexplained cash credit in the name of M/s.

Jagdamba Finance Corporation was made by the Assessing Officer and in that case without giving reasonable opportunity and without examining the relevant facts of the case. He, therefore, contended that on such unsubstantiated fact there could be no valid initiation of proceedings under Section 147(a) because it was not a case of material information but it was only a case of initiating action on suspicion.

18. The learned counsel further submitted that the allegations of nondisclosure of full and true material facts in the return was unjustified and without any basis. He stated that the assessee had furnished the details of cash creditors amount of loans and interest thereon etc. Thus the assessee that made full and true disclosure about the cash credits in the name of M/s. Jagdamba Finance Corporation and other creditors. He contended that it was not the duty of the assessee to point out inferences to the Assessing Officer from the primary facts disclosed with the return. It was for the Assessing Officer to draw inferences from the primary facts disclosed by the assessee with the return. He, therefore, contended that there was no case for action under Section 147(a) of the Act because the assessee was not guilty of non-disclosure of full and true material facts with the return. He relied on the decisions in Bengal Luxmi Cotton Mills Ltd. v. ITO[1973] 87 ITR 618 (Cal.), Lakhmani Mewal Das' case (supra) and Indian Oil Corpn. 's case (supra).

19. The learned counsel further submitted that the assessee had disclosed primary facts regarding the cash credits in the name of M/s.

Jagdamba Finance Corporation showing the amount of loan and interest thereon. He contended that it was not the duty of the assessee to disclose whether the creditor had the capacity to give the loan in question. He added that the disclosure about the capacity of the creditor was not a primary fact but it was an inferential fact. He argued that the initiation of proceedings under Section 147(a) on the ground that M/s. Jagdamba Finance Corporation was found to be not having capacity to give the loan to M/s. Metal House was therefore not proper and justified. In this connection, he cited the decisions in Shiv Lal Kanhayalal v. CIT[1986] 162 ITR 548 (Punj. & Har.), Ranchi Handloom Emporium v. CIT[1999] 235 ITR 604 (Pat.) and ITO v. Panama P.Ltd. [1974] 97 ITR 210 (Cal.).

20. The learned counsel further submitted that the case was not covered under Section 147(a) as explained above. However, power under Clause (b) of Section 147 could have been exercised on the basis of information received regarding the alleged bogus cash credit in the name of M/s Jagdamba Finance Corporation but since notice under Clause (b) of Section 147 had to be issued within a period of 4 years the notice itself was beyond the time provided under the law. He, therefore, contended that the learned DR's submission to treat the notice as notice under Section 147(b) in case, the case was found to be not covered under Section 147(a) was superfluous and meaningless. He contended that since notice under Section 148 had been issued after expiry of the prescribed period of four years, the same could not be treated as notice under Section 147(b) of the Act.

21. The learned counsel further submitted that the issue of notice under Section 148 was also not warranted by the facts and circumstances of the case. The said notice was issued without there being materials on record for such action and without there being any basis for reasonable belief to initiate such action in the case. He pointed out that the show cause notice under section 263 of the Act was issued in the case but the proceedings were dropped and finally no action was taken by the CIT under section 263 of the Act. He contended that the implied effect of this was that the assessment orders were not erroneous being prejudicial to the interest of the revenue. He further contended that the subsequent issue of notice under Section 148 in the case after lapse of more than 2 years from the date of show cause notice under section 263 indicated that there was change of mind for which also there was no sufficient justification. He argued that the assessee could not be made victium of change of mind of the authorities.

22. The learned counsel further submitted that the CIT(A) had granted approval to the proposal under Section 147(a) in mechanical manner inasmuch as he had not applied his mind to the facts of the case and existence of reasons for the proposed action under Section 147(a) rather he had just put his signature on the Assessing Officer's proposal under Section 147(a) of the Act. He argued that such mechanical approval of proposal vitiated the action under Section 147 in this case making the proceedings improper and invalid.

23. The learned counsel further submitted that the proposal under Section 147(a) was sent to the CIT for approval on 31 -3-1989 but on that date there was no material on record to warrant such proposal. He pointed out that the letter of ITO, Ward-14(4) regarding bogus cash credit in the name of M/s Jagdamba Finance Corporation in the books of M/s Metal House itself was dated 5-5-1989 i.e., after the date of the proposal under Section 147(a) of the Act. He also referred to the entry dated 31-3-1989 in the order sheet and contended that these entries did not indicate any material or reason to warrant under Section 147(a) in the case. He argued that the mental knowledge of the Assessing Officer because he was also assessing the case of M/s Metal House could not be a substitute for the existence of materials and reasons on record for taking action under Section 147(a). He pointed out that the entry in the order sheet dated 31-3-1989 clearly indicated that the Assessing Officer simply followed the CIT(A)'s direction and not his own belief for sending proposal under Section 147(a). He further pointed out that the proposal under Section 147(a) was sent on 31-3-1989 and the notice under Section 147 was also issued on the same date which also indicated that the Assessing Officer had gone about the whole case in mechanical and hurried manner without application of his own mind and without his own belief for action under Section 147(a) in the case. In this connection he also referred to letter dated 27-2-1989/ 31-3-1989 of CIT-XIV New Delhi addressed to ITO, Ward-14(4) in which observations of the CIT-IX as under and were communicated to the Assessing Officer:-- In view of the circumstances the case may be reopened under Section 147(") if there are any facts which were not disclosed truly and fully by the assessee.

He submitted that the aforesaid observations read with the order sheet entry dated 31-3-1989 would give clear indication that the Assessing Officer had followed the directions of the learned CIT and he had not issued notice under Section 148 on his own belief.

24. The learned counsel further submitted that Explanation 2 to Section 147 was not applicable because in the present case the assessee had disclosed fully and truly all the material facts. He contended that it was incorrect for the revenue to argue that where an assessee though disclosed all the material facts yet if the Assessing Officer had not chosen to make any enquiry it could be held to be clothing the Assessing Officer with the valid jurisdiction to reopen the proceedings under Section 147(a) of the Act. For this he relied on Supreme Court decision in Indian & Eastern Newspaper Society v. CIT[1979] 119 ITR 996, 1004. He argued that it was not a case where it had been 'found' as was the case in Phool Chand Bajrang Lal's case (supra) and 119 ITR 667 (sic). It was a case only where the Assessing Officer had drawn inferences while making the asstt. in the case of M/s. Metal House that in his opinion M/s. Jagdamba Finance Corporation did not appear to have sufficient creditworthiness. This was a mere inference and not a material fact which could be said to have been found to conclude even prima facie that loan taken from such creditor had not been taken to hold that the assessee had not disclosed true and correct facts. He added that in the case of M/s. Jagdamba Finance Corporation regular and valid assessment had been made and nowhere it had been held that such a concern was bogus, dummy or existed on paper only. He further added that the assessment in the case of M/s. Metal House was also set aside and therefore, it could not be said even otherwise anything had been 'found' all that can be said was that the Assessing Officer suspected that the cash credit in the name of M/s. Jagdamba Finance Corporation was bogus, but that suspicion could not be treated as substitute for materials and reasons to believe that action under Section 147(a) was warranted in the case. For this he relied on Supreme Court decision in Indian Oil Corpn. 's case (supra).

25. The learned counsel further submitted that M/s Jagdamba Finance Corporation, prop. Shri Ramesh Chand Goel was a genuine concern and was assessed to income-tax by ITO, Distt-VT(1) Addl. New Delhi. He added that assessment for assessment year 1977-78 was completed in the case under Section 143(3)/148 on 19-3-1984 assessments upto the assessment year 1984-85 were also completed. He further added that this concern was advancing loans to various parties out of deposits received from various parties. Thus the sources were also explained which had been duly considered by the Assessing Officer in that case. He contended that action taken by the Assessing Officer under Section 147(a) without verifying facts was unwarranted, arbitrary and illegal. He further contended that there was no merit in the additions for unexplained cash credits.

26. We have given careful consideration to the submissions and contentions of the rival parties before us and the materials on our file. The Assessing Officer initiated proceedings under Section 147(a) of IT Act for the five assessment years in question with a view to assess the alleged escaped income on account of alleged bogus cash credit which had been accepted as genuine in the original assessments.

The basis of the action by the Assessing Officer was the information that cash credit in the name of M/s. Jagdamba Finance Corporation had been treated as bogus in the case of M/s. Metal House and in the name of same M/s. Jagdamba Finance Corporation, cash credit had been shown by the present assessee which had been accepted in the original assessments. In order to arrive at a conclusion as to whether the action taken by the Assessing Officer under Section 147 in this case was proper and justified on the basis of materials on record, the provisions of law, and the decided case laws it is necessary that we first look at the provisions of Section 147 of the Act as they stood during the period relevant to the assessment year in question. The provisions of Section 147 as they stood prior to the amendment by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989 were as under:-- (a) the Assessing Officer has reason to believe that, by reasons of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Assessing 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 (b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 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 (hereinafter in sections 148 to 153 referred to as the relevant assessment year).

Explanation:--For the purposes of this section, the following shall be deemed to be cases where income chargeable to tax has been under-assessed; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922(11 of 1922); or (d) where excessive loss or depreciation allowance has been computed.

Explanation 2: Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section.

From the above, it is clear that action under Section 147(a) would be justified only when the Assessing Officer has reason to believe that by reasons of the omission or the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that year income chargeable to tax had escaped assessment for that year. The reason to so believe therefore must be based on concrete material and not merely on suspicion, unsubstantiated information or vague information. It is also necessary that such reasons must be recorded by the Assessing Officer in writing before initiating action under Section 147(a) of the Act. In the present case, as noted by the Ld. CIT (Appeals) at page 4 of the impugned appellate order, the reasons recorded by the Assessing Officer for initiating action under Section 147(a) of the Act were as under:-- The regular assessment in this case was completed under Section 143(3) on an income of Rs. 13,570 on 1-2-1985. There are cash credits in the name of the following parties:--2. M/s. Jagdamba Finance Corpn., Rs. 5,30,000 --------------- For failure on the part of the assessee to file true particulars of his income, I have reason to believe that income to the extent of Rs. 5,42,000 has escaped assessment in terms of Section 147(a).

Further as noted by the Ld. CIT (Appeals) at page 5 of the impugned appellate order, the reasons recorded for assessment year 1979-80 were as under:-- Regular assessment in this case was made vide order under Section 143(3), dated 1-2-1985 at a total income of Rs. 7,211. Subsequently on scrutiny of balance-sheet, profit & loss account, and statement of computation of income filed alongwith the return indicated that the following cash credits appear on liabilities side of the balance-sheet. The assessee had also claimed interest on these cash credits which was allowed.Name of the creditor Amount Intt. shown to have been paid/payable.Smt. Bhagwani Devi Rs. 12,000 Rs. 1440M/s. Jagdamba Finance Rs. 5,55,000 Rs. 39,324Corporation As per information now received vide letter dated 5-5-1989 from ITO Ward-14(4), New Delhi the creditors appeared to be a name lender only and is indulging in hawala business. In the case of M/s. Metal House assessed by ITO ward-14(4), New Delhi M/s. Jagdamba Finance Corporation could not prove their capacity to advance such a big loan and credit in their names was not held to be genuine. Under the above circumstances, credit of Rs. 5,55,000 in the books of my assessee appears to be bogus and is merely a camouflage for the assessee's own concealed income. I have, therefore, reasons to believe that for failure on the part of the assessee to disclose full particulars of his income. An income to the extent of Rs. 6,08,364 has escaped assessment within the meaning of Section 147(a).

27. In the course of hearing of appeal before us, the learned DR filed paper book in which copies of the order sheet for the assessment years in question were filed. From these papers it is noted that the Assessing Officer had recorded the following reasons on 31-3 -1989 for taking action under Section 147(a) and issue of notice under Section 148 for the assessment years 1980-81 to 1983-84 as under:-- CIT's letter regarding taking action under Section 147(a) received and placed on file.

Proposal sent to CIT for issue of notice under Section 148 for the assessment year 1980-81 to 1983-84.

Proposal received duly approved from the CIT & notice under Section 148 issued for the assessment years 1980-81 to 1983-84 & sent by Regd. Post.

28. From the aforesaid extract of the Assessing Officer's order on order sheet it can be concluded that the reasons recorded were not based on concrete materials and cogent information regarding the genuineness of the cash credits shown by the present assessee. There was no material or concrete information on record showing direct link or nexus with the cash credit appearing in the name of M/s. Jagdamba Finance Corporation in the books of the assessee firm. The fact that the cash credits in the name of M/s. Jagdamba Finance Corporation had been treated as bogus in the case of M/s. Metal House did not establish a direct link or nexus with the cash credit appearing in the name M/s.

Jagdamba Finance Corporation in the books of the present assessee.

There was no material on record to show that M/s. Jagdamba Finance Corporation had given any statement disowning the cash credit appearing in its name in the books of the present assessee firm. Neither there was any concrete material or information that the Assessing Officer of M/s. House had also examined other loans advanced by M/s. Jagdamba Finance Corporation including the cash credits in the books of the present assessee firm, and had found that the sources of these loans by M/s. Jagdamba Finance Corporation were also unexplained and therefore should be treated as bogus. Neither there was any letter or communication from the Assessing Officer assessing the case of M/s.

Jagdamba Finance Corporation itself information the Assessing Officer that he had found that M/s. Jagdamba Finance Corporation was a sham concern, a name lender in which the loans advanced were found to be bogus as there were no sources thereof. There was none of these information on record of the Assessing Officer on the basis of which proper and valid action under Section 147 could have been initiated in the case. The information about the cash credits in the name of M/s.

Jagdamba Finance Corporation as recorded in the order sheet was therefore not the proper reasons or basis for coming to the belief that income had escaped assessment in the case.

29. Another important aspect of the case to be noted is that the order sheet entry as above shown that the Assessing Officer had sent proposal under Section 147(a) for approval of CIT on 31-3-1989 and after his approval the notice under Section 148 was also issued on 31-3-1989.

It is an admitted fact that the Assessing Officer of the present case received information from ITO Ward-14(4), New Delhi regarding loan of M/s. Jagdamba Finance Corporation having been treated as bogus in the case of M/s. Metal House, by the letter dated 5-5-1989. Thus on 31-3-1989 i.e., the date on which the proposal under Section 147(a) was sent for approval of CIT the letter dated 5-5-1989 of ITO Ward-14(4), New Delhi was not on record of the Assessing Officer and therefore, the notice under Section 147(a) was issued without this information being on his file. In the order sheet entry dated 31-3-1989 the Assessing Officer had mentioned CIT letter dated 27-2/31-3-1989. Thus the basis of the issue of notice under Section 147(a) was the said letter of the CIT. In the said letter the following communication was sent to the Assessing Officer:-- In view of the circumstances, the case may be reopened under Section 147(a) if there are any facts which were not disclosed truly and fully by the assessee.

From the perusal of the aforesaid communication from the office of the CIT, it is clear that no concrete material or information was sent to the Assessing Officer for his consideration about the feasibility of invoking Section 147(a) in the case. The CIT had earlier issued show cause notice under section 263 in the case but finally no action was taken under section 263. The aforesaid communication from the CIT to the Assessing Officer did not indicate any specific material or information from the file of 263 notice for consideration of the Assessing Officer in the present case. Thus it is evident that letter dated 27-2-1989/ 31 -3-1989 of CIT did not constitute any concrete material or information on the basis of which notice under Section 147(a) of the Act could have been warranted in the case. From this it can only be concluded that the Assessing Officer followed the said letter of CIT as a direction and he sent the proposal under Section 147(a) without his independent judgment in the case. Such an action on the part of the Assessing Officer was not proper and valid under the provisions of Section 147 of the Act. Under Section 147 the Assessing Officer is required to come to his own independent judgment and belief based on reasons and concrete material that income had escaped assessment. For this there must be concrete material or information on his record. As mentioned above, even the letter dated 5-5-1989 of ITO Ward-14(4) was not on the record of the Assessing Officer when he sent the proposal under Section 147(a) of the Act on 31-3-1989. Thus it can reasonably be concluded that the Assessing Officer had sent the proposal under Section 147(a) without reason to believe that income had escaped assessment.

30. It is manifest from the perusal of, the provisions of Section 147(a) that to confer the jurisdiction under Section 147(a) of the Act two conditions were required to be fulfilled (i) that the Assessing Officer must have reason to believe that income, profit & gains chargeable to tax had been under-assessed or escaped assessment and (ii) that he must have reason to believe that such escapement or under-assessment was occasioned by reasons of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that year. As observed by the learned CIT(A) in the impugned appellate order the assessee had furnished the details of the cash credits including the cash credit in the name of M/s Jagdamba Finance Corporation alongwith the returns filed, and in the course of the original assessment proceedings. After due consideration of those details, the cash credits were accepted as genuine in the original assessments. Thus it would appear that the assessee had disclosed all the primary facts relating to cash credits as well as interest payment thereon. The duty of the assessee was to furnish these primary facts and it was not his duty to draw inferences for the Assessing Officer from these primary facts and place before him i.e., it was not the duty of the assessee to state before the Assessing Officer that these cash credits could be treated as bogus. It was for the Assessing Officer to examine these primary facts and material and to make enquiry if necessary and then draw the appropriate inferences about the genuineness or otherwise of the primary facts disclosed by the assessee. It can be said that in the course of original assessment the Assessing Officer had applied his mind to these primary facts and then found that the cash credits were genuine. Therefore, on the facts and in the circumstances, of the case, it cannot be said that the assessee had not disclosed fully and truly all material facts necessary for the assessment for that year.

31. The Delhi High Court in the case of Dwarka Dass & Bros, case (supra) held that since there was no live connection or link established between the information or the fact that in the possession of the ITO and the genuineness of the particular loans recorded in the assessee's books, the action of the Assessing Officer under Section 147(a) was not justified. The facts of the case and the findings of the court as given in the Head Note are reproduced below for the complete appreciation of the judgment:-- At the time of the original assessment of the assessee all the facts relating to the loans recorded in the assessee's books were fully disclosed and the ITO accepted their genuineness. Therefore, the revenue authorities had carried out certain investigations and discovered the existence of bogus hundi brokers who were lending their names to assessees and circulated a list of the hundi brokers who indulged in such malpractice. The internal audit party discovered that some of the creditors whose loans had been accepted in the assessee's case fell within this category and raised an audit objection.

On the basis of this information, the ITO issued a re-assessment notice under Section 147(a) of the Income-tax Act, 1961. A Single Judge of the High Court, on the assessee's writ petition, quashed the notice. On appeal to a Division Bench: Held: affirming the decision of the single judge, that there was Assessing Officer live connection or link established between the information or the facts in the possession of the ITO and the genuineness of the particular loans recorded in the assessee's books. The mere fact that the names of the some of the creditors figured in a list made out by the department was too general and vague to lead to an inference regarding the truth or otherwise of the loans recorded by the assessee.

By the Court: "If there had been any material connecting the specific credits in the assessee's books and leading to an inference of their non-genuineness the position may be different. But where all that the ITO has got is some general information that certain creditors are not genuine money lenders but only name lenders and there is nothing to connect the particular cash credits appearing in the books of the assessee with any definite statement or confession or the like made by the creditor or some one else in respect of the assessee's transaction specifically in question, it is not possible to hold that the conditions precedent for action under Section 147(a) had been fulfilled.

32. The Patna High Court - Ranchi Bench in the case of Ranchi Handloom Emporium (supra) held that the notice of reassessment under Section 147 issued in the case was not valid and was liable to be quashed because the assessee had disclosed primary facts regarding the loans and it was for the Assessing Officer to draw his inferences and conclusions on the basis of such facts. The assessee had discharged the onus and it was for the Assessing Officer to investigate the correctness or otherwise the assessee's case to accept or reject the same at the time of original assessment. Merely because the Assessing Officer now seem to doubt the credit-worthiness of the creditors, it could not be ground for reassessment proceedings.

33. The Supreme Court in the case of Lakhmani Mewal Das (supra) held that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation of his belief that there was escapement of income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. The reason for the formation of belief must be held in good faith and should not be a mere pretence. It is not any and every material howsoever vague and indefinite or distant, remote and far-fetched which would warrant the formation of belief relating to escapement of income of the assessee from assessment. It will be imperative to reproduce the head note for the facts of this case and the findings of the Supreme Court for better appreciation of the applicability of this judgment to the present case as under:-- The reasons for the formation of the belief contemplated by Section 147(a) of the Income-tax Act, 1961 for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening of the assessment.

At the same time we have to bear in mind that it is not any and every material, howsoever, vague and indefinite or distant, remote and farfetched which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words 'definite information' which were there in section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in Section 147 of the Act of 1961 would not lead to the conclusion that action can now be taken for reopening the assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence.

The original assessment for the assessment year 1958-59 was made on the respondent after allowing deduction of a sum of Rs. 10,494 towards interest to certain creditors. Thereafter, by a notice under Section 148 of the Income-tax Act, 1961 dated March 8, 1967 served on the respondent on March 14, 1967 the ITO sought to reopen the assessment. In his report made in February, 1967 to the Commissioner for reopening the assessment of the respondent for the assessment year 1958-59 after four years under Section 147(a) of the IT Act, 1961, two reasons were mentioned (i) that M.K. who was shown to be one of the creditors of the respondent had since confessed that he was doing only name lending; and (ii) that N.M., D.K.N., B.S. and others whose names too were mentioned in the list of the creditors of the respondent were known name lenders. The respondent thereupon 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 assessment for the year had escaped assessment by reason of the respondent's failure to disclose material facts, and 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, held that the preconditions for the exercise of jurisdiction under Section 147 were not fulfilled. On appeal: Held, affirming the decision of the High Court, on the facts, (i) that the second ground could not have led to the formation of the belief that the income of the respondent chargeable to tax had escaped assessment for the assessment year 1958-59 because of failure of the assessee to disclose fully and truly all material facts; (ii) that since there was nothing to show that the confession of M.K. related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the respondent, in the first ground the live link or close nexus which should be there between the material before the ITO and the belief which he was to form was missing or in any event too tenuous to provide legally sound basis for reopening the assessment.

Two conditions have to be satisfied before an ITO acquires jurisdiction to issue notice under Section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of relevant year viz., (i) the ITO must have reason to believe that income chargeable to tax has escaped assessment, and (a) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under Section 139 for the assessment year to the ITO or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-existed to confer jurisdiction on the ITO. It is also imperative for the ITO to record his reasons before initiating proceedings as required by Section 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the ITO that it is a fit case for the issue of such notice. The duty which is cast upon the assessee is 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 will not necessarily amount to disclosure 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 his duty ends. It is for the ITO to draw the correct inference from the primary facts. It is no 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.

The ground or reasons which lead to the formation of the belief contemplated by Section 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 exist 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 induce the ITO is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Officer did not hold the belief that there had been such non-disclosure. 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. The reasons must be held in good faith. It cannot merely be a pretence, it is open to the court to examine whether that 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. To this limited extent, the action of the ITO in starting proceedings in respect of income escaping assessment is open to challenge in a court of law.

It will be observed from the above that the facts of the present case in so far as the action under Section 147 was concerned were found even much weaker than the facts of the aforesaid case of Lakhmani Mewal Das (supra). In that case, the creditor had confessed that he was doing name lending but in the present case there was no such confession by M/s. Jagdamba Finance Corporation. The Assessing Officer had merely relied upon the order of the Assessing Officer, in the case of another assessee namely M/s. Metal House where cash credit in the name of M/s.

Jagdamba Finance Corporation was treated as bogus. Thus in the present case there was no live link or direct nexus between the cash credit in the books of the present assessee and the order of the Assessing Officer in the case of M/s. Metal House. The information was totally vague and indefinite which could not be the proper basis for forming the belief that income had escaped assessment in the original assessment. Thus the aforesaid judgment of the Hon'ble Supreme Court in the case of Lakhmani Mewal Das (supra) was directly and intimately applicable to the facts of the present case.

34. The Supreme Court in the case of Indian Oil Corporation and Calcutta High Court decision in S.P. Agarwala 's case (supra) are also relevant to the present case. The reassessment proceedings in these cases were quashed on the ground that there were no material on record for the formation of belief that income had escaped assessment.

35. The learned DR had also relied on various judgments e.g., Delhi High Court decision in the case of JR. Dalmia (supra). The Supreme Court decision in the case of Phool Chand Bajrang Lal(supra), the Calcutta High Court decision in Bengal Luxmi Cotton Mills Ltd's case (supra) and the Supreme Court decision in VIP Industries Ltd. s case (supra) etc. The facts of these cases were distinguishable from the facts of the present case and therefore these judgments were not relevant and applicable to the present case.

36. In the case of R. Dalmia (supra) the Delhi High Court found that there was material on the basis of which notice under Section 147(1) could be issued in the case. The issue involved in this case was whether income earned was assessable in the hands of member or association of person. In view of material on record, it was held that the Deptt. was justified in initiating simultaneously proceedings both against the association of person as well as its members individually.

Thus the facts of this case were different from the facts of the present case.

37. The facts in the case of Phool Chand Bajrang Lal (supra) were also different from the facts of the present case. The Supreme Court observed that in the case that "acquiring fresh information, specific in nature and reliable in character, relating to a concluded asstt.

which went to expose the falsity of the statement made by the assessee at the time of original assessment was different from drawing fresh inference from the same facts and material available with the ITO at the time of original assessment proceedings. Where the transaction itself on the basis of subsequent information was found to be bogus transaction. The mere disclosure of said transaction at the time of original proceedings would not be said to be a disclosure of true and full facts and the officer would have jurisdiction to reopen the concluded assessment in such a case.

38. From the above it is clear that the facts of the aforesaid cases were different from the facts of the present case, inasmuch as, in that case fresh information, specific in nature and reliable in character had been found to prove the transaction as bogus. In the present case, there was no such material on record to show that the cash credits in the name of M/s. Jagdamba Finance Corporation as appearing in the books of the assessee were bogus.

39. In the case of Bengal Luxrni Cotton Mills Ltd. (supra) the Calcutta High Court observe that it was not for the Court at that stage to investigate whether those grounds were adequate or not. The High Court in the exercise of its writ jurisdiction was only to concern to see whether in facts there were some reasonable grounds for thinking that there had been any non-disclosure as regards any primary facts which could have material bearing on the question of under-assessment. In that case, depreciation on machinery was claimed and allowed in the original assessment but subsequently information was received that the machinery did not exist. On that information notice under Section 148 was issued in the case. Thus in that case, there was a specific information and material about under statement and therefore the action taken under Section 147 was held to be justified. There was no such specific information in the present case that the cash credit in the name of M/s. Jagdamba Finance Corporation were false or bogus.

40. In the case of VIP Industries Ltd. (supra) the notice under Section 148 was upheld by the Supreme Court because there was specific information that the payments of commission and part of the purchases claimed by the assessee and allowed in the original assessments were not genuine. Thus in that case notice under Section 148 was issued on receipt of specific information which showed that the facts disclosed in the original assessments were not true and correct on the other hand, in the present case, there was no specific information regarding the genuineness of the cash credit in the name of M/s. Jagdamba Finance Corporation.

41. In view of the above, we hold that the aforesaid judgments relied upon by the learned DR were not relevant and applicable to the facts of the present case.

42. It will be relevant to mention some more facts about M/s Jagdamba Finance Corporation revealed from the material placed on our file. M/s.

Jagdamba Finance Corporation Prop. Shri Ramesh Chand Goel was assessed to income tax by the ITO, Distt. VI(1), Addl. New Delhi assessments for the assessment year 1977-78 was completed in the case under sections 143(3) and 148 on 19-3-1984. Assessments upto assessment year 1984-85 were also completed. Copies of these assessment orders are placed on the file. From the discussion made in the asstt. order it is found that M/s. Jagdamba Finance Corporation was advancing loans to various parties out of the deposits received from various parties. This aspect of the case was duly considered by the Assessing Officer in the assessment. From these materials on record, it is clear that M/s.

Jagdamba Finance Corporation was assessed to tax and was found by the Assessing Officer assessing that concern as a genuine assessee. The Assessing Officer also found that M/s. Jagdamba Finance Corporation was receiving deposits and advancing loans. There was no whisper any where in that case that M/s. Jagdamba Finance Corporation was a sham party or a name lender and that the deposits and advances shown by it were bogus and not genuine. In the face of these orders of the Assessing Officer in the case of Jagdamba Finance Corporation merely on the basis of ex parte order in the case of M/s. Metal House treating the cash credits in the name of M/s Jagdamba Finance Corporation as bogus it could not reasonably lead to the belief that the cash credits in the name of M/s.

Jagdamba Finance Corporation in the books of the present case were also bogus which would warrant initiation of proceedings under Section 147(a) of the Act. In the light of the aforesaid judgments relied upon by the learned counsel and discussed in detail above, it can be said without hesitation that there was no reasonable ground for the Assessing Officer to form the belief that action under Section 147(a) was warranted in the case.

42A. We would also hold that for the same reasons and on given facts no valid proceeding could have been initiated in the case under the provisions of Section 147(b) as reproduced at page 16 ante. It would be seen that proceedings under Section 147(&) could be initiated if the Assessing Officer had in consequence of information in his possession reason to believe that income chargeable to tax had escaped asstt. for the asstt. year. Both in Clauses (a) & (b) of Section 147 the requisite condition for Section 1s that the Assessing Officer has reasons to believe that income chargeable to tax has escaped asstt. for the assessment year. .Under both these clauses, the reasons to believe must be based on concrete specific material or information having direct nexus or live link with the formation of belief that income had escaped asstt. It is not any and every material howsoever vague and indefinite or distant, remote and far-fetched which would warrant the formation of the belief about the escapement of income from asstt. The only difference is that while under Section 147(a) action can be taken if the escapement of income from asstt. was by reasons of the omission or failure on the part of an assessee to make return under Section 139 or to disclose fully and truly all material facts necessary for his assessment for that year, but action under Section 147(b) can be taken without such omission or failure on the part of the assessee. If the Assessing Officer has information in his possession showing escapement of income from asstt. We have already seen in the preceding pages that there was no concrete specific definite information in possession of the Assessing Officer for the formation of belief that income had escaped asstt. Hence action under Section 147(b) was not feasible.

Again the limitation period of 4 years under Section 149(1)(b) had also expired or 31-3-1989. Explanation 2 to Section 147 also does not help the Deptt. in this case because it neither does away with or dilutes the requirement of concrete specific definite material or information for the formation of belief that income had escaped asstt. The order sheet entry reproduced at pages 16-17 ante do not show the fulfilment of the requisite condition of Section 147(a)/(fc) and Explanation 2.

43. We would also like to mention that the perusal of the impugned assessment orders show that there was no merit in the addition on account of cash credits in the name of Smt. Bhagwani Devi and M/s.

Jagdamba Finance Corporation. The additions were made in ex parte assessment under Section 144 of the Act. No enquiries and verifications were made from the concerned creditors and from their income-tax files.

Even in ex parte assessment the Assessing Officer is required to do the home work before making the addition to the disclosed income. In this case, no home work was done by the Assessing Officer inasmuch as no enquiries and verifications were made from the creditors and from their files. As mentioned above, M/s. Jagdamba Finance Corporation was assessed to tax much before the impugned assessments in the present case were completed. Moreover, even in the course of asstt. proceedings no concrete material or evidence was brought on record to support the un-founded belief about the escapement of income in the original assessment as mentioned above. Thus it is a case where the Assessing Officer had failed not only at the time of initiating proceedings under Section 147(a) but also in bringing concrete material to support the impugned additions in the course of assessment proceedings. Thus even otherwise the impugned additions could not have been confirmed by the learned CIT(A) on the basis of the material on the file.

44. As regards the validity of the notice under Section 148 we are of the view that definitely the Assessing Officer was required to issue notice under Section 148 to all the legal heirs and the issue of notice under Section 148 only to Shri O.P. Gupta and not to Smt. Bhagwani Devi also rendered the notice as invalid. The requirement of Section 159 of the Act is that notice must be issued to all legal representatives. The caption of Section 159 is also as "legal representatives" and not legal representative.

45. We have considered the various decisions cited by the learned counsel for the assessee including the decision in Mrs. Suseela Sadanandan 's case (supra), Shiv Lal Kanhayalal's case (supra) and the decision relied upon by the learned DR including the decision in Jai Prakash Singh's case (supra) and Kapur Chand Shrimal's case (supra). We are of the view that the non-issue of 148 notice to the other legal heir was a irregularity for which asstt. could not have been quashed but the same could have been set aside for removing the irregularity by issuing 148 notice to all the legal heirs as required under the law.

The Supreme Court judgment in the case of Kapur Chand Shrimal (supra) is very specific on the point. The Supreme Court judgment in the case of Jai Prakash Singh (supra) is also relevant and applicable to the facts of the present case because in that case it was held that raising of objection by the legal representative for the first time in appeal that notice had been issued to all legal representatives was proper and entertainable but the assessment could be held only as irregular but not null and void.

46. On consideration of the facts and circumstances of the case, and the aforesaid reported decisions, we are of the view that the assessment was irregular for want of issue of notice under Section 148 to the other legal heir but it was not null and void and on that ground that asstt. was not liable to be quashed. Accordingly, the learned counsel's contention in this regard as mentioned above is rejected.

47. In conclusion the order of the learned CIT(A) quashing the assessment for the five asstt. years in question is upheld on the ground that there was no concrete material or information in the case on the basis of which the Assessing Officer could have reasons to believe that income had escaped assessment due to assessee's failure to disclose fully and truly all material facts necessary for the asstt.

for these years. Accordingly, the revenue's appeals are dismissed for the five assessment years from 1979-80 to 1983-84.

48. In the cross objections, for the assessment years 1979-80 to 1983-84 the assessee has mainly supported the order of the learned CIT(A). However, he also raised the following two objections which are common to all the five assessment years:-- 2. That the learned CIT(A) ought to have further held that even if the learned Assessing Officer had validly assumed jurisdiction by validly issuing the notice only on one of the learned L.Rs. even then as there was neither any omission to disclose fully and truly all material facts nor there was any escapement of the income of the assessee, the initiation of proceedings was totally arbitrary and thus untenable.

3. The learned CIT(A) has further erred in not disposing of all the grounds as were raised before him in the grounds of appeal.

49. We have heard the learned ARs of both the sides in respect of the cross objections. In so far as aforesaid No. 2 ground: in the cross objection is concerned, no specific finding is required by us because our finding in the revenue's appeal above will take care of the assessee's grievance and objection raised in Ground No. 2 of the cross objection as above.

50. As regards Ground No. 3 in the cross objection quoted above, we hold that since the learned CIT(A) had quashed the assessments holding that action under Section 147 was not proper and valid under the law.

It was not required of him to give finding on the merits of the addition. Accordingly, the cross objections are partly allowed.


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