1. These are three similar writ petitions whereby the petitioners have challenged the validity of the notices issued by the ITO,under Section 147(b) of the I.T. Act, 1961 (hereinafter referred to as ' the Act '). One set of arguments has been made with respect to all these petitions as the points involved in them are identical. Consequently, we propose to dispose of them by a common order.
2. First, we shall take the facts of Writ Petition No. 1177 of 1974. This petition is by Purushottam Das Bangur and pertains to the assessment year 1969-70 (financial year ending on March 31, 1969). During the said accounting year, the petitioner derived income from dividends on shares, share of profit from M/s. Ranganath Purshottam Das Bangur, director's fee and commission, interest on debentures and bank deposits. The assessee-petitioner alleged that he had suffered long-term capital loss on sale of certain bonus shares. The ITO, 'C' Ward, Jodhpur, by his order dated December 15, 1970 (annex. A), assessed the petitioner for the said assessment year on a total income of Rs. 1,98,381. He held, inter alia, that the petitioner had made no fresh purchase of shares during the year but had sold certain shares of Maharaja Shree Umaid Mills Ltd., between the period March 5, 1969, and March 30, 1969, at the price quoted in the official report and quotations of the Calcutta Stock Exchange Association Ltd., and had thereby incurred a loss of capital gains (long-term nature) of Rs. 1,57,792, which would be carried forward. Aggrieved by the assessment order on certain other points with which we are not concerned, the assessee-petitioner filed an appeal before the AAC of Income-tax, Range A, Jaipur, who by his order dated June 14, 1971 (annex. B), dismissed the appeal. Thereafter, by his order dated October 14, 1971, the ITO rectified his order dated December 15, 1970, under Section 154 of the Act. However, on March 28, 1974, the petitioner received a notice dated March 27, 1974, under Section 147 of the Act (annex. C) from the ITO, C-Ward, Jodhpur, whereby the petitioner was informed that the ITO had reason to believe that the assessee's income chargeable to tax for the assessment year 1969-70 had escaped assessment and, therefore, the assessing authority proposed to reassess the income for the said assessment year and, therefore, he required the assessee to deliver to him a return in the prescribed form of his income for the said year. The assessee, by his letter dated April 6, 1974 (annex. D), addressed to the ITO, objected to the issuance of the said notice on the ground that the proposed reassessment proceedings were wholly without jurisdiction and, therefore, the notice may be withdrawn and, thereafter, filed the present writ petition in this court on April 22, 1974, challenging the validity of the notice.
3. Writ Petition No. 1182 of 1974 is filed by Rang Lal Bangur and also pertains to the assessment year 1969-70, The material facts in this case are also the same and so also the impugned notice dated March 27, 1974 (annex. C).
4. The petitioner in Writ Petition No. 57 of 1975 is also Rang Lal Bangur, but the assessment year is 1971-72 (financial year ending March 31, 1971). The material facts of this petition are also the same except, that the impugned notice in this case is dated October 22, 1944 (annex. E).
5. All the writ petitions have been opposed by the assessing authority, who has filed identical counters, but for the sake of convenience, we shall refer to the documents contained in Writ Petition No. 1177 of 1974 only. In the counter-affidavit filed by Shri D. R, Gupta, ITO, B-Ward, Jodhpur, who was the assessing authority and who had also issued the impugned notice, it is averred that during the assessment proceedings, it was brought to his notice on behalf of the assessee that between March 5, 1969, and March 31, 1969, he had sold 1,800 shares of Maharaja Shree Umaid Mills Ltd., Pali, out of which 200 shares were shown as having been sold to M/s. Magni Ram Bangur & Company at the rate of Rs. 84 per share and the remaining 1,600 shares were shown as having been sold to Kamla & Company Ltd., Deedwana, out of which 300 shares were sold at Rs. 85 per share and the remaining 1,300 shares at the rate of Rs. 84 per share. As the purchase price of these 1,800 shares was higher than the sale price, the assessee claimed long-term capital loss of Rs. 1,59,360 on the sale of these 1,800 shares. He goes on to state that it was represented to him on behalf of the assessee that the shares of Maharaja Shree Umaid Mills Ltd, were regularly quoted in the stock exchange and that the sale was effected by the assessee at the prevalent market rate. A share quotation list was also shown to him and, in these circumstances, he accepted the version given by the assessee without making any further inquiry regarding the market rates of the shares, as, at that time, there was no material before him to suspect that the fair market value of the shares was higher than the sale price given out by the assessee. He has further stated that on March 26, 1974, he received a letter through Shri C. S. Jain, IAC, Jodhpur Range, Jodhpur, from Shri S. M. Bagai, Deputy Director, Directorate of Inspection (Investigation), Special Cell, New Delhi, dated March 21, 1974, along with some annexures and also a telegram by Shri Bagai from Calcutta giving certain information regarding the shares of Maharaja Shree Umaid Mills Ltd., Pali, which had been collected by the said director, Shri S. M. Bagai. The telegram by Shri Bagai from Calcutta indicated that on inquiries he had found that the shares of the said company were not regularly quoted in the stock exchange. Copies of the letter dated March 21, 1974, along with the annexures and the telegrams have been submitted by the opposite party and marked Ex. A-1 to Ex. A-7. Shri Gupta goes; on to state that he applied his mind to the aforesaid information and it appeared to him that the quotation of the shares of the mills at the Calcutta Stock Exchange was a result of certain manipulated trans-actions within the Bangur group itself. He, therefore, calculated the fair market value of the shares at Rs. 250 per share on the relevant dates as against Rs. 84 and Rs. 85 per share. His case is that it was in consequence of the aforesaid information received by him on March 26, 1974, that he formed the reasonable belief that the fair market value of the shares was far more than the sale price and the so-called market quotations shown by the assessee at the time of the original assessment were manipulated ones as a result of which the income chargeable to tax had escaped assessment. It is, however, clear from the affidavit of Shri Gupta that he decided to take action under Section 147(b) of the Act, and after recording the reasons, as required by Section 148(2) of the Act, he issued the impugned notice. Thus, even though the notice is silent on the point whether it was under Clause (a) or Clause (b) of Section 147, it is now the admitted case of the assessing authority that the impugned notice was issued under Section 147(b) of the Act.
6. Therefore, the short point that we are called upon to decide is whether the impugned notice issued by the assessing authority under Section 147(b) is legal and valid
7. Section 147(b) reas as under :
' 147. Income escaping assessment.--If--......
(b) notwithstanding that; there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax 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 (hereafter in Sections 148 to 153 referred to as the relevant assessment year)......'
8. Dr. Pal, learned counsel for the petitioner, has urged that the ITO had no information in his possession so as to lead him to believe that the income chargeable to tax had escaped assessment. It is only the opinion of Shri Bagai contained in the letter, Ex. A-1, but based on no material, that has led to the issuance of the impugned notice. In this connection, he has submitted that the impugned notice has been issued on account of a vague feeling and suspicion entertained by Shri Bagai as well as the ITO, that the quoted value of the shares was not the prevalent market value. Such a vague feeling and suspicion, it is urged, cannot give rise to a belief based on reasonable ground. It is submitted that there was no error in the original assessment proceedings and that the ITO had not committed any error of law in making the quoted value of the shares as the basis for determining the prevailing market value. He has argued that the ITOdid not apply his mind to the facts of the case but issued the notice merely on the basis of Shri Bagai's letter dated March 21, 1974. It is submitted by him that the notice for reopening the assessment has been given only on the ground that the alternative method of valuing the shares on the basis of break-up value should have been adopted instead of quoted value. It is argued that the break-up value of the shares, was before the ITO even in the course of assessment proceedings and, therefore, there was no new information subsequent to the assessment which could have given rise to a reasonable belief in the mind of the ITO that the income had escaped assessment. It is also the contention of Dr. Pal that information must be as to the facts and not to the conclusion arrived at by any authority.
9. In the course of arguments, learned counsel for the revenue submitted that the capital gains from the sale of shares in question is taxable under Section 52(2) of the Act. Consequently, according to the revenue, there has been under-assessment and this is what led to the issuance of a notice under Section 148 of the Act.
10. Section 45(1) of the Act deals with capital gains. It provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 53, 54, 54B and 54D, be chargeable to income-tax under the head ' Capital gains ', and shall be deemed to be the income of the previous year in which the transfer took place. Section 48 provides the mode of computation and deductions under the head ' Capital gains '. It reads as under :
' 48. The income chargeable under the head ' Capital gains ' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :
(i) expenditure incurred wholly and exclusively in connection with such transfer ;
(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto.'
11. Section 52, the heading of which is ' Consideration for transfer in cases of understatement ', reads thus :
'52. (1) Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under Section 45, the full value of the consideration for the transfer shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer.
(2) Without prejudice to the provisions of Sub-section (1), if in the opinion of the Income-tax Officer, the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent. of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer :
Provided that this sub-section shall not apply in any case-
(a) where the capital asset is transferred to the Government, or
(b) where the full value of the consideration for the transfer of the capital asset is determined or approved by the Central Government or the Reserve Bank of India and the adequacy of the full value of the consideration so determined or approved is not questioned by the assessee,'
12. As stated above, the case of the revenue is that the fair market value of the shares transferred by the assessee as on the date of the transfer exceeded the full market value of the consideration declared by the assessee in respect of the transfer of the shares by an amount of not less than fifteen per cent. of the value so declared and, therefore, the full value of the consideration for such capital asset shall, with the previous approval of the IAC, be taken to be its fair market value on the date of its transfer. The ITO has assessed the fair market value of the share at Rs. 250. Dr. Pal's contention is that for ascertaining the fair market value of a capital asset, the ITO should have resorted to the provisions of Section 55A, under which the ITO may refer the valuation of the capital asset to a Valuation Officer. It is submitted that, in the present case, no reference has been made to the Valuation Officer for ascertaining the fair market value of the shares.
13. The question regarding the method of calculation of the value of the shares came up before the Supreme Court in CWT v. Mahadeo Jalan : 86ITR621(SC) in which, after discussing a number of authorities on the point, their Lordships summed up as follows (p. 633) :
' An examination of the various aspects of valuation of shares in a limited company would lead us to the following conclusions :
(1) Where the shares in a public limited company are quoted on the stock exchange and there are dealings in them, the price prevailing on the valuation date is the value of the shares,
(2) Where the shares are of a public limited company which are not quoted on a stock exchange or of a private limited company the value is determined by reference to the dividends, if any, reflecting the profit-earning capacity on a reasonable commercial basis. But, where they do not, then the amount of yield on that basis will determine the value of theshares. In other words, the profits which the company has been making and should be making will ordinarily determine the value. The dividend and earning method or yield method are not mutually exclusive ; both should help in ascertaining the profit-earning capacity as indicated above. If the results of the two methods differ, an intermediate figure may have to be computed by adjustment of unreasonable expenses and adopting a reasonable proportion of profits.
(3) In the case of a private limited company also where the expenses are incurred out of all proportion to the commercial venture, they will be added back to the profits of the company in computing the yield. In such companies the restriction on share transfers will also be taken into consideration as earlier indicated in arriving at a valuation.
(4) Where the dividend yield and earning method break down by reason of the company's inability to earn profits and declare dividends, if the set-back is temporary, then it is perhaps possible to take the estimate of the value of the shares before set-back and discount it by a percentage corresponding to the proportionate fall in the price of quoted shares of companies which have suffered similar reverses.
(5) Where the company is ripe for winding up then the break-up value method determines what would be realised by that process.
(6) As in Attorney-General of Ceylon v. Mackie  2 All ER 775 a valuation by reference to the assets would be justified where as in that case the fluctuations of profits and uncertainty of the conditions at the date of the valuation prevented any reasonable estimation of prospective profits and dividends.
In setting out the above principles, we have not tried to lay down any hard and fast rule because ultimately the facts and circumstances of each case, the nature of the business, the prospects of profitability and such other considerations will have to be taken into account as will be applicable to the facts of each case. But, one thing is clear : the market value, unless in exceptional circumstances to which we have referred, cannot be determined on the hypothesis that because in a private limited company one holder can bring it into liquidation, it should be valued as on liquidation by the break-up method. The yield method is the generally applicable method while the break-up method is the one resorted to in exceptional circumstances or where the company is ripe for liquidation but none the less is one of the methods.'
14. In CWT v. K. M. Desikar : 92ITR101(Mad) it was held that Sections 7(1) and 7(2) of the W.T. Act, 1957, provide two alternative modes of valuation in relation to the business assets of an assessee. In the case of an assessee who is a dealer in shares, the WTO has a discretion either to value the shares on the basis provided in Section 7(1) or on the alternative basisprovided for under Section 7(2)(a). If the WTO at the time of the original assessment exercises his discretion by adopting the basis provided under Section 7(2)(a), it is not open to him later on to reopen the assessment merely because the tax effect will be more if the basis provided for under Section 7(1) is adopted.
15. In CIT v. Simon Carves Ltd. : 105ITR212(SC) in the original assessment of a non-resident company carrying on businevss as construction engineers, for the assessment year 1959-60, the ITO invoked Rule 33 of the Indian I.T. Rules, 1922, and applying one of the three methods permitted therein, computed its income through or from certain contracts (business connection) in India. Subsequently, the ITO reopened the assessment under Section 147(b) of the I.T. Act, 1961, by applying a different method permissible, and determined the income. In these circumstances, the Supreme Court observed as follows (p. 218) :
' The question with which we are concerned is whether it would be a case of income escaping assessment if the Income-tax Officer adopts a method of computation which is permissible under the law but which method results in lower tax liability compared to the other method which too is permissible in law. According to the learned additional Solicitor-General, the adoption of a method, even though permitted by Rule 33, which results in lower tax liability of the assessee compared to the other method mentioned in the rule would warrant the conclusion that income has escaped assessment and as such Section 147 of the Act of 1961 would get attracted. After giving the matter our earnest consideration, we find it difficult to accept the above contention. It was open, as already mentioned, to the Income-tax Officer at the time of making the original assessment, to adopt one of the three methods mentioned in Rule 33 for computing the taxable income of the assessee. Discretion was vested by Rule 33 in the Income-tax Officer for the purpose of making his choice of the methods, and the same was to be exercised in a proper and judicious manner. There is nothing before us to show that the discretion was not exercised by the said officer in a proper or judicious manner. It is also not suggested that the Income-tax Officer was actuated by some oblique motive. From the mere fact that the method selected by him was such as resulted in lower tax liability to the assessee compared to the liability which would have resulted from the adoption of the other method, it would not follow that the discretion was not exercised in a proper and judicious manner. The taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not in a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against theassessee. We are wholly unable to subscribe to the view that unless those authorities exercise the power in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed not to have exercised it in a proper and judicious manner.'
16. From the discussion contained in the aforesaid decisions, it is clear that there are alternative methods for finding out the prevailing market rate of the value of shares. One method is the 'yield value method'. Another method is the ' break-up value method '. It has to be decided on the facts and circumstances of each case which method should be adopted. As observed by their Lordships in Mahadeo Jalan's case : 86ITR621(SC) the general principle of valuation in a going concern is the yield on the basis of which average maintainable profits subject to adjustment, etc., which the circumstances of any particular case may call for. It appears from the conclusions arrived at in that case that where the company is ripe for winding up then the break-up value method determines what would be realised by that process. However, as observed by their Lordships, the shares, the transfer of which is not restricted, may be sold on the stock exchanges for which there is official market quotation. Where shares in a company are bought and sold on the stock exchange, ordinarily, the price at which the shares are changing hands in the ordinary course of business is usually their true value. These quotations generally reflect the value of the assets having regard to several factors which are taken into consideration by persons, who transact business on the stock exchange and buy shares and want to invest their money in any particular share or shares. Even where they are quoted on the stock exchange, the quotations do not depend entirely upon the yield or dividend declared as there are several factors which are taken into consideration which affect and determine the quotations. It is not necessary here to delve into the factors which a buyer, who wants to purchase them, considers as determining the price which the buyer is willing to pay and which the seller is willing to receive.
17. However, among the factors which govern the consideration of the buyer and the seller where the one desires to purchase and the other wishes to sell, the break-up value of a share as on liquidation hardly enters into consideration where the shares are of a going concern. The basic yield method in cases where shares are quoted and transactions take place on the share market may not be different, but where shares are not quoted, it is, in these latter cases, that the yield must be determined after taking into account various other factors.
18. Now, in the present case, the ITO made the following observations at the time of making the assessment :
' Shares which have been sold are all quoted on stock exchange at the prevailing market rates and are verified from the quotations lists. '
19. The assessee's case is that the quotation list was placed before the ITO at the time of assessment. It is further submitted that the shares of the company were regularly quoted on the Calcutta Stock Exchange. In support of this assertion the assessee has relied upon bye-laws 18 and 20 of the bye-laws of the Calcutta Stock Exchange which read as under :
' Quotations 18.--The prices of securities dealt in on the Exchange shall be collected and recorded daily under the authority of the Secretary. No quotation shall be allowed on any bargain unless made on the regular course and unless business in marketable amount of the security has been done by actual purchase and sale at that rate. Quotations of special or odd lots or cross-transactions, shall be marked as such. '
' Daily official list 20.--A Daily official list of prices shall be issued by the exchange for all working days. '
20. On the basis of the above quoted by'-laws, it is argued by Dr. Pal that it must be inferred that the shares of the company were regularly quoted on the Calcutta Stock Exchange. The case of the department, however, is that on inquiries, subsequent to the assessment, it appeared that the quotations of the shares of the company in the Calcutta Stock Exchange were as a result of certain manipulated transactions between the Bangur group itself. In other words, the stand of the revenue is that the ITO, in consequence of information in his possession, had reason to believe that the quoted value of the shares did not represent the prevailing market value. If that is so, then it would not be a case of change of opinion. On the other hand if there was no new material before the ITO, unknown to him previously, which could provide reasons for his belief under Section 147(b) of the Act, when he issued the impugned notice, it would undoubtedly be a case of mere change of opinion which, as is now well settled, cannot constitute a ground for reopening the assessment.
21. Let us, therefore, examine whether any information in the shape of new material came into the possession of the ITO subsequent to assessment so as to lead him to believe that income chargeable to income-tax had escaped assessment in the financial year relevant to the assessment year. In this connection the revenue has placed sole reliance on the letter, Ex. 1, dated March 21, 1974, by Shri S. M. Bagai (Dy. Director, Directorate of Inspection, Investigation, Special Cell) received by the ITO through Shri C. S. Jain, IAC, Jodhpur, and so also a telegram from Shri Bagai. It is important to note that according to the department itself the letter, Ex. A-1, was received by the ITO on March 26, 1974, and the impugned notice was issued the next day, i.e., on March 27, 1974. It is not the case of the department that, after receipt of the letter, the ITO made any furtherinquiries or collected any material before issuing the impugned notice. It is, therefore, necessary to closely examine the contents of the letter, Ex. A-1, which is reproduced below in extenso :
' S. M. Bagai,
Through special messenger
D.O. No. DI(I)/SCB(1)Inv/91-73-74/1847 Directorate of Inspection (Investigation), Special Cell, 4th Floor, Super Bazar, Connaught Circus,
New Delhi, dated the 21st March, 1974.
My dear Jain,
Sub.--Maharaja Shree Umaid Mills Ltd., Pali
I have received your D.O. No. C-Misc.(56)/73-74/229 dated 19th March, 1974, today through a special messenger enclosing a statement regarding transfer of shares of the captioned company and also statement regarding shareholding of that company on various dates. You have just confirmed to me on telephone that you have retained a copy of the statements for your own record.
2. I am enclosing herewith a statement containing certain financial information regarding the captioned company which has been extracted from the Bombay Stock Exchange Directory. According to this statement the paid up equity capital of the company is Rs. 72,00,000 divided into 72,000 shares of Rs. 100 each. The equity share data at page 2 of the enclosed statement indicates that the book value per equity share rose from Rs. 318.55 for the year ending 21st December, 1965, to Rs. 401, for the year ending 31st December, 1970. The earning per share rose from Rs. 8.37 per share to Rs. 44 per share during the above-mentioned period. The dividend percentage also rose from 2% to 10% for the same period. In spite of all these facts, the quotation of the shares in the Calcutta Stock Exchange fell from Rs. 168 per share to Rs. 85 per share during this period.
3. It is clear from these facts that the quotations appearing are as a result of certain mainpulated transactions between the group itself and cannot be said to reflect the fair market value of the shares of this company. This is also borne out from the fact that the share transfer register of the company, the extract of which you have given, shows transfers of a very small number of shares compared to 72,000 equity shares of the company.
4. The statements sent by you contain the names of several shareholders, both corporate as well as non-corporate of Didwana and Pali, whoappear to have been transferring the shares of this company at values far below the fair market value of the share. It would be worthwhile examining the asstt. records of their cases in order to consider the feasibility of action Under Section 52(2) of the Income-tax Act and Section 4 of the Gift-tax Act .
5. The equity shareholders' list sent by you also gives the names of certain shareholders of Didwana, Pali and Jodhpur. The wealth-tax asstt. records of these persons will have to be examined to consider whether the value of shares returned by them for the purpose of their wealth-tax assessment is really the open market value of the shares at the relevant time. I shall be grateful if the information sent by me is passed on to the concerned WTOs, ITOs and GTOs, so that they may apply their mind to the facts of each individual case and take such appropriate action under the W.T. Act, I.T. Act, and the G.T. Act as they may deem fit.
6. I am also enclosing herewith a copy of D. O. addressed to I. A. C., Bikaner, who I believe has jurisdiction over Didwana. This may kindly be sent by special passenger to him. I am also sending one copy to him direct by post.
7. I am proceeding to Calcutta on the evening of 22nd and in case I get some more relevant information, I shall send the same to you and the I. A.C., Bikaner, directly. Meanwhile I would request you to kindly obtain the value of the shares of the company as on 31-3-1969 by the break-up method and by the maintainable profit method. These two values may be worked out on the basis of Circular No. 2(W.T.) of 1967 and communicated to me telegraphically C/o. Shri V. Subramanyan, IAC, Range XXI, Aayakar Bhawan, P-7, Chowringhee Square, Calcutta. You may also convey this information to the CIT, Rajasthan, and the IAC, Bikaner, so that the information reaches the concerned Wealth-tax Officers, Income-tax Officers and Gift-tax Officers, who would be concerned with the case of the other shareholders in Rajasthan.
(Sd.) S. M. Bagai,
Encl. : as above.
Shri C. S. Jain,
22. The first point brought out in this letter is that the book value per equity share rose from Rs. 318.55 for the year ending 31st December, 1965, to Rs. 401, for the year ending 31st December, 1970, and thus the earning per share rose from Rs. 8.37 to Rs. 44, per share during this period. The dividend percentage also rose from 2% to 10% for the same period. In spite of all these facts quotations of the share in the CalcuttaStock Exchange fell from Rs. 168 per share to Rs. 85 per share during this period. The other point made out in the letter is that the quotations appeared to be the result of certain manipulated transactions within the Bangur group itself and it cannot be said to reflect the fair market value of the shares of the company. In view of the aforesaid two facts, Mr. Bagai has observed in the letter that ' it would be worthwhile examining the assessment records of their cases in order to consider the feasibility of action under Section 52(2) of the Income-tax Act and Section 4 of the Gift-tax Act. '
23. The argument of Dr. Pal is that under Section 147(b) of the Act, the ITO must apply his mind to the information and must have his reason to believe it. In the instant case, argues Dr. Pal, there is complete non-application of the mind by the ITO and he merely carried out the wish of the superior authorities without probing into the matter at all. The contents of the letter would show that no investigation whatsoever was made by Shri Bagai or for the matter of that by anybody else to find out whether the quotations were a result of manipulated transactions by the assessee. He has submitted that the profits of the company had been invested by the company in purchasing up to date and sophisticated machinery and at any rate from the mere fact that the quotation of the shares in the Calcutta Stock Exchange fell is no ground for coming to the conclusion that the quotations were wrong and had been manipulated.
24. It does appear to us that a vague feeling or suspicion was entertained by Shri Bagai that the quoted value of the share may not be the prevailing market value. It will be noticed that what Shri Bagai wanted the ITO to do by this letter, was to make a further probe into the matter by application of his mind to the facts of the case. There is no direction or command contained in the letter for reopening the assessment. But it appears to us that the ITO took it to be almost as a command of a superior authority to reopen the assessment. In fact that letter, Ex. A-1, and the telegram do not contain any information received by him. That information is admittedly no other than the letter, Ex. A-1. There is neither evidence of manipulation, nor evidence of the collusive transaction referred to in the letter. Admittedly, no inquiries were made by the ITO after receipt of the letter, Ex. A-1, so as to constitute ' information' giving rise to a reasonable belief in the mind of the ITO. The mere fact that the quotation of the shares in the Calcutta Stock Exchange had fallen is not at all a clinching circumstance to give rise to a reasonable belief that the transactions were manipulated. At the most, this fact may have led Shri Bagai to suspect that the transactions may be manipulated but that, in our opinion, cannot constitute a material for forming a belief that income chargeable to tax has escaped assessment.
25. In Smt. Nirmala Birla v. WTO  105 ITR 483 a similar question had arisen as to whether reopening of the assessment was justified on the ground that the market quotations were manipulated and based on collusive transactions. The court came to the conclusion that there was material before the officer, particularly in view of the internal application of his mind, on account of which it could not be held that the officer did not form his own belief. The learned Chief Justice, who wrote the leading judgment, has referred to a mass of evidence collected by the Special Cell of the Directorate of Inspection (Investigation), report of the Inspecting Officer of the Special Cell of the Company Law Board and other evidence collected by the ITO in support of his finding and held that there was enough material before the ITO to come to the conclusion that income had escaped assesment. However, in the present case, there is no such material on the record.
26. In Chhugamal Rajpal v. S. P. Chaliha : 79ITR603(SC) the ITO in his report referred to some communications received from the Commissioner from which it appeared that certain creditors of the assessee were mere name-lenders and the loan transactions were bogus and, therefore, proper investigation regarding the loans was necessary. It was observed by the Supreme Court that the ITO had not set out any reasons for coming to the conclusion that it was a fit case for issuing notice under Section 148 of the Act. The material that he had before him for issuing the notice had not been mentioned. The facts contained in the communication which had been received were only referred to vaguely and all that had been said was that from those communications it appeared that the alleged creditors were name-lenders and the transactions were bogus. It was held that from the report submitted by the ITO to the Commissioner, it was clear that he could not have had reasons to believe that income chargeable to tax had escaped assessment.
27. In Sheo Nath Singh v. AAC : 82ITR147(SC) the Supreme Court observed as follows (p. 153) :
' In our judgment, the law laid down by this court in the above case [Chhugamal Rajpal v. S. P. Chaliha : 79ITR603(SC) ], is fully applicable to the facts of the present case. There can be no manner of doubt that the words ' reason to believe ' suggest 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. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect thoughthe declaration or sufficiency of the reasons for the belief cannot be investigated by the court. '
28. In CIT v. A. Raman and Co. : 67ITR11(SC) it was held that the expression ' information ' in the context in which it occurs 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. It was further observed that the High Court exercising jurisdiction under Article 226 of the Constitution has power to set aside a notice issued under Section 147(b) of the I.T. Act, 1961, if the condition precedent to the exercise of the jurisdiction does not exist.
29. In Maharaj Kumar Kamal Singh v. CIT : 35ITR1(SC) it was observed that two conditions must be satisfied before the ITO can act under Section 34(1)(b) (which is equivalent to Section 147(b) of the Act of 1961) ; he must have information which comes into his possession subsequent to the making of the original assessment order, and that information must lead to his belief that income chargeable to tax has escaped assessment.
30. In ITO v. Lakhmani Mewal Das : 103ITR437(SC) the Supreme Court observed as follows (p. 448) :
' As stated earlier, the reasons for the formation of the belief must have a rational connection with 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 Income-tax Officer and the formation of his 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 Income-tax Officer on the point as to whether action should be initiated for reopening 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 far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment......Thepowers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are ' reason to believe ' and not ' reason to suspect'. '
31. Applying the tests laid down in the cases discussed above, we are of the opinion that there were no reasonable grounds for the ITO to believe that the quotations of the shares accepted by him at the time of original assessment were as a result of manipulated transactions between the assessee and the purchasers. There was no material before the ITO for forming a belief that income chargeable to tax had escaped assessment. It was justa vague feeling or suspicion entertained by Shri Bagai which could not be made the basis for issue of notice for reopening the assessment.
32. Shri L. R. Mehta, learned counsel for the revenue, relied upon Asst. CED v. Nawab Sir Mir Osman Ali Khan Bahadur : 72ITR376(SC) in support of his contention that the opinion of Shri Bagai that the quotations appeared to be manipulated, constituted information within the meaning of Section 147(b) of the Act. That was a case under, the E.D. Act, 1953. The main dispute before the Asst. Controller related to the correct valuation of a loan deposited by the assessee with the Govt. of Hyderabad. The CBR expressed the view that the securities in question had not been overvalued but had been undervalued, but at the same time, the Board refrained from making the proposed enhancement in the value of the securities and confirmed the value adopted by the Asst. Controller. Thereafter, the E.D. Act was amended and the new Section 59, for the first time, gave power to the Controller to assess or reassess the property escaped in assessment. The Asst. Controller then issued a notice to the trustees in exercise of the powers conferred by Section 59 of the Act on the ground that property chargeable to estate duty had escaped assessment by reason of undervaluation. It was contended on behalf of the department that the opinion expressed by the CBR about the correct mode was ' information ' which led to the appellant entertaining a reasonable belief that the property assessed to estate duty had been undervalued. It was held that the opinion expressed by the Board of Revenue as to valuation was clearly ' information ' in the sense in which that expression has been held to have been used in these enactments. In our opinion, the rationale of that case has no application to the facts and circumstances of the present case. In the first place, the order of the Board of Revenue was an order passed inter partes by a Tribunal which was exercising quasi-judicial function. Therefore, the opinion of the Board expressed in the appeal filed by the trustees was held to constitute ' information '. Shri Bagai was not exercising any quasi-judicial function when he wrote the letter, Ex. A-1. Moreover, in that case, according to the Board, the face value of the securities being Rs. 4*50 crores, the market value should have been at the rate of 78 per cent. whereas the basis adopted by the Asst. Controller came to 52 per cent. only. Thus, Nawab Sir Mir Osman Ali Khan's case : 72ITR376(SC) has no application to the present case. That case was considered by their Lordships of the Supreme Court in Indian Eastern & Newspaper Society v. CIT : 119ITR996(SC) and their Lordships observed as follows (p. 1006) :
' The opinion of the Board represented its view as a quasi-judicial authority possessing jurisdiction to lay down the law. Although the Board did not enhance the valuation of the securities in the appellate proceedingbecause of the argument advanced by the appellant, none the less its observations amounted to information as to the law. It was not a case where the Board was functioning as an extra-judicial authority, performing administrative or executive functions, and not competent or authorised to pronounce upon the law. '
33. Learned counsel for the revenue also relied upon Kalyanji Mavji & Co. v. CIT : 102ITR287(SC) wherein the Supreme Court observed that a case, where income had escaped assessment due to oversight, inadvertence or mistake of the ITO, must fall within the meaning of Section 34(1)(b) of the Indian I.T. Act, 1922. It is pertinent to point out that this case was relied upon by the department in Indian & Eastern Newspaper Society's case : 119ITR996(SC) and their Lordships observed as follows (p. 1004) :
' Now, in the case before us, the ITO had, when he made the original assessment, considered the provisions of Sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The revenue contends that it is open to him to do so and on that basis to reopen the assessment under Section 147(b). Reliance is placed on Kalyanji Mavji & Co. v. CIT : 102ITR287(SC) where a Bench of two learned judges of this court observed that a case where income had escaped assessment due to the ' oversight, inadvertence or mistake ' of the ITO must fall within Section 34(1)(b) of the Indian I.T. Act, 1922. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the ITO discovers that he has committed an error in consequence of which income has escaped assessment, it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in Maharaj Kumar Kamal Singh v. CIT : 35ITR1(SC) CIT v. A. Roman & Co. : 67ITR11(SC) and Bankipur Club Ltd. v. CIT : 82ITR831(SC) and we do not believe that the law has since taken a different course. Any observation in Kalyanji Mavji & Co. v. CIT : 102ITR287(SC) suggesting the contrary, do not, we say with respect, lay down the correct law. '
34. Learned counsel for both the parties have cited a number of authorities on the point as to what constitutes ' information ' within the meaning of Section 147 of the Act, but we do not consider it necessary to discuss all of them, as, in our view, having regard to the state of law now settled by a series of decisions of the Supreme Court, we have come to the conclusion that, in the facts and eircumstances of the present case, it cannot be saidthat the ITO had, in his possession, information in consequence of which he could have reason to believe that income chargeable to tax had escaped assessment for the relevant assessment years. In this view of the matter, the ITO cannot be said to have acquired jurisdiction to issue the impugned notice.
35. The result is that we allow these writ petitions and quash the impugned notices issued by the ITO under Section 147 of the Act. But, in the circumstances of the case, we leave the parties to bear their own costs.