Sabyasachi Mukharji, J.
1. In this application the notice under Section 148 of the Income-tax Act, 1961, dated the March 30, 1970, in respect of the assessment year 1961-62 is the subject-matter of challenge. The assessee is a registered partnership firm. It was contended that there was no material for reopening. In answer to the rule nisi in the affidavit-in-opposition it was stated on behalf of the respondent that for the assessment year 1961-62 the firm had filed return of income on February 22, 1962, disclosing an income of Rs. 80,006. The income-tax assessment of the petitioner-firm for the assessment year 1961-62 was completed on March 28, 1962, on a total income of Rs. 83,649 in the status of a registered firm. The partners of the said firm at the relevant time were Sugan Chand Patwari, Chandanmull Agarwalla, Hulasi Debi and Rukmini Debi. On October 16, 1965, all the partners of the petitioner-firm filed disclosure petitions under Section 271(4A) of the Income-tax Act before the Commissioner of Income-tax, West Bengal III. In the said disclosure petitions it was admitted that the personal funds belonging to the aforesaid four partners were invested in the books of account of the petitioner-firm for the accounting year 2017 Rama Navami, relevant to the assessment year 1961-62, in the names of various bogus parties. Thereafter, proceedings were initiated against the petitioner-firm. It was stated that from the disclosure petitions it would appear that fictitious and false entries were made in the books of the assessee-firm. The reasons as recorded under Clause (a) of Section 147 of the Income-tax Act, 1961, for obtaining sanction were produced before me and the said reasons were to the following effect:
'The books of accounts of the assessee for the relevant previous year contained several credits in the shape of hundi loans. Subsequent information revealed that those loans were not genuine and the assessee also filed disclosure petitions before the Commissioner of Income-tax under Section 271(4A) covering those loans. From the statements filed before the Commissioner of Income-tax and at the time of assessment for subsequent years' income it was noticed that peak credit of such bogus loans reached maximum during the previous year for the assessment year 1961-62, namely, Rs. 2,00,000. According to the assessee's own admission at a later stage and various informations received, these unexplained credits represented the assessee's secreted income for the assessment year 1961-62 which escaped assessment. I have, therefore, reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year 1961-62, income chargeable to tax has escaped assessment.'
It appears that the reasons were, firstly, that there were false entries in the books of account of the assessee. Even if there were materials for coming to the conclusion that there were false entries, such a conclusion does not warrant the formation of the belief that the income of the assessee had escaped assessment as a result of such false entries. On the other hand, the confessions and admissions of the partners indicated that it was the case of the partners that they had introduced undisclosed income into the partnership firm in the bogus names of some third parties. Therefore, if anybody's income has escaped assessment, it was the income of the partners and not the income of the firm. On the material that the partners had introduced moneys into the partnership firm in the fictitious names, in my opinion, it cannot be said that there were materials for forming the belief that income of the partnership firm had escaped assessment due to failure or omission on the part of the assessee. In this connection, reliance may be placed on the observations of the Division Bench of the Bombay High Court in the case of Narayandas Kedarnath v. Commissioner of Income-tax : 22ITR18(Bom) It further appears that in obtaining sanction from the Commissioner it was represented that the assessee had made a confession. That is incorrect. The assessee had not made any confession. The partners of the assessee-firm had made confessions. If the Commissioner was induced to accord sanction on the ground that the assessee had made confession disclosing the undisclosed income, in my opinion, it can be said that sanction was not properly given. In the aforesaid view of the matter, it must be held that conditions precedent for initiating the proceedings were not fulfilled and the impugned notice must be set aside and quashed. The respondents are restrained from giving effect to the same.
2. The rule is made absolute.
3. If in the meantime pursuant to the said notice any reassessment proceeding has been completed the same is also quashed and set aside. There will be no order as to costs.
4. There will be a stay of operation of this order for a period of six weeks.