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East Coast Commercial Company Ltd. Vs. Income-tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberAppeal No. 407 of 1976
Judge
Reported in[1981]128ITR326(Cal)
ActsIncome Tax Act, 1961 - Sections 131, 147, 148, 148(2), 149(1), 151 and 297(2)
AppellantEast Coast Commercial Company Ltd.
Respondentincome-tax Officer and ors.
Appellant AdvocateDebi Pal, ;Pranab K. Pal and ;Manisha Seal, Advs.
Respondent AdvocateSuhas Sen and ;Ajit K. Sengupta, Advs.
Cases ReferredPrashar v. Vasantsen Dwarkadas
Excerpt:
- c.k. banerjee, j.1. this appeal is against the judgment and order dated the 22nd september, 1976, passed by the court below discharging the rule and dismissing a writ petition made by the appellant under article 226 of the constitution challenging a notice dated 20th march, 1969, under section 148 of the i.t. act, 1961, issued by the lto, 'c' ward, companies district-i, calcutta, the respondent no. 1.2. the appellant, m/s. east coast commercial co. ltd., is a company. it carries oh business, inter alia, in jute, gunny and shares and also derives income from property, dividends and interest on securities. the income-tax assessment of the appellant for the assessment year 1952-53, the relevant accounting period being from 17th july, 1950, to 29th october, 1951, was completed by c.r. nair,.....
Judgment:

C.K. Banerjee, J.

1. This appeal is against the judgment and order dated the 22nd September, 1976, passed by the court below discharging the rule and dismissing a writ petition made by the appellant under Article 226 of the Constitution challenging a notice dated 20th March, 1969, under Section 148 of the I.T. Act, 1961, issued by the lTO, 'C' Ward, Companies District-I, Calcutta, the respondent No. 1.

2. The appellant, M/s. East Coast Commercial Co. Ltd., is a company. It carries oh business, inter alia, in jute, gunny and shares and also derives income from property, dividends and interest on securities. The income-tax assessment of the appellant for the assessment year 1952-53, the relevant accounting period being from 17th July, 1950, to 29th October, 1951, was completed by C.R. Nair, the then ITO, Companies District-I, Calcutta, on the 29th March, 1957, under Section 23(3) of the Indian I.T. Act, 1922. The appellant had filed its balance-sheet and profit and loss account for the said year along with the return. In the course of the said assessment, pursuant to directions of the assessing ITO, the appellant submitted particulars and statements relating, inter alia, to its purchase and sale of jute of the value of Rs. 50,000 and above, which showed sale of jute by the appellant to Assam Jute Traders amounting to Rs. 25,99,133-11-3. The said statements showed that the appellant had no transaction in P.D.Os. or in shares with and did not purchase any jute from the Assam Jute Traders. In the assessment proceedings Mr. D.N. Sharma, advocate, and Ramnath Tulsyan, the accountant of the appellant, appeared before the assessing ITO as the authorised representatives of the appellant and produced bills, vouchers and other relevant documents as required by him. The assessing ITO also discussed the case with the said representatives of the appellant and thereafter completed the assessment.

3. The appeal by the appellant against the said assessment to the AAC of Income-tax. Range-I, Calcutta, was disposed of along with other appeals for other assessment years by a consolidated order dated the 23rd March, 1962.

4. The appeal by the revenue to the Income-tax Appellate Tribunal against the said order of the AAC was disposed of by the Tribunal by an order dated the 13th February, 1964, upholding the order of the AAC. The revenue thereafter came up in a reference before the court on certain questions of law which were disposed of by this court on the 12th February, 1969.

5. In the meantime a summons under 131 of the I.T. Act, 1961, dated the 13th July, 1967, issued by the respondent No. 1 was served on the appellant calling upon it to produce its books of account and documents for the financial year relevant to the assessment year 1952-53 and dividend payment register, which had been produced before the assessing ITO in the course of the assessment for the said assessment year. By a letter dated 1st August, 1967, the appellant contended that as no proceedings for the year relevant to the said assessment year were pending at the time and as the said books related to a period of more than three years from the previous year relevant to the then current assessment year, respondent No. 1, therefore, had no competence to issue the said summons and ask for production of the said books. By a letter dated the 28th July, 1967, respondent No. 1 again asked for the production of the said books by the 4th August, 1967, which was also not complied with by the appellant. Thereupon by an order dated the 4th September, 1967, respondent No. 1 levied a penalty of Rs. 500 under 131(2) of the I.T. Act, 1961. The appeal by the appellant against the said order of penalty is pending before the AAC.

6. By a letter dated 18th January, 1960, respondent No. 1 asked the appellant to furnish full details of all its transactions of sale and purchase of jute and in P.D.Os. and shares with Assam Jute Traders. The appellant has denied that it purchased any jute from or had any transaction in P.D.Os. or shares with Assam Jute Traders. Thereafter, the appellant received the impugned notice dated the 20th March, 1969, issued by respondent No. 1 under Section 148 of the I.T. Act, 1961, which is set out below :

'Dated: the 20-3-1969

To

The P.O.

M/s. East Coast Commercial Co. Ltd.,

25A, Theatre Road, Calcutta.

Whereas I have reason to believe that your income chargeable to tax for the assessment year 1952-53 has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961.

1. Therefore, propose to reassess the income less depreciation allowance for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of your income for the said assessment year.

2. This notice is being issued after obtaining the necessary satisfaction of the Central Board of Revenue.

Sd/- H. S. Serna

Income Tax Officer, 'C ' Ward,

Calcutta. '

7. The appellant apprised respondent No. 1 of its difficulties in submitting the return within the short time allowed by the impugned notice and asked for extension of time for submission of the return. By a letter dated the 1st May, 1969, the appellant challenged the authority and jurisdiction of respondent No. 1 to issue the impugned notice and called upon him to cancel and/or withdraw and/or rescind the same, and thereafter filed the writ petition herein under Article 226 of the Constitution challenging the said impugned notice.

8. In the court below respondent No. 1 filed an affidavit-in-opposition affirmed on the 9th June, and in answer thereto an affidavit-in-reply on behalf of the appellant was filed, affirmed by Madan Gopal Kedia on the 2nd July, 1970, to which an affidavit of Ramnath Tulsyan, affirmed on the 2nd July, 1970, was annexed. Respondent No. 1 with the leave of the court also filed a supplementary affidavit, affirmed on the 23rd March, 1973, and in answer thereto a supplementary affidavit-in-reply on behalf of the appellant was filed affirmed by Krishna Kumar Kedia on the 28th May, 1973.

9. At the hearing of the said writ petition the reasons recorded by respondent No. 1 under Section 148(2) of the I.T. Act, 1961, for reopening the said assessment under Section 147 of the said Act was produced and placed before the court which is set out below:

'(L) Recorded reasons,Office of the Income-tax Officer,Companies District: I, C-Ward, P-7, ChowringheeSquare, Calcutta.Dated 4-2-69.No. C-I/E-3/C,

The Secretary C.B.D.T.

(through proper channel).Sub: Mfs. East Coast Commercial Co. Ltd.--Assessment for the assessment year 1952-53--Reopening Under Sections 147. Proposed for.

10. On receipt of information from an informer to the effect that the assessee-company entered into bogus transaction of purchase and sale of jute worth lakhs of rupees with M/s. Assam Jute Traders, a proprietary concern of one Sri Ramnath Tulsyan, an employee of the company, with a view to reducing its tax liability, in the account year relevant to the assessment year 1952-53, a summons Under 131 was issued to the said Sri Ramnath Tulsyan. In his deposition Sri Tulsyan has admitted that he was the proprietor of M/s. Assam Jute Traders. I have also seen from the audited statements in respect of the business done in the name of M/s. Assam Jute Traders that the total sales of the latter are Rs. 26,33,416 as against its purchases of Rs. 25,99,133. The entire transactions made are with the assessee-company, M/s. East Coast Commercial Co. Ltd. Further examination revealed that this party did not have a godown of its own to store its goods nor did it incur any expenses on transportation of the jute goods. In the light of those facts it would appear that M/s. Assam Jute Traders was merely a device employed by the assessee-company to reduce the incidence of tax. A summons Under 131 was issued to the assessee-company requiring it to produce its books of account for the year 1952-53. The company did not comply on various pretexts. Once again a letter was issued by me on 20th January, 1969, asking that compliance be made. This reluctance on the part of the management to face the enquiry in this regard is a clear pointer that all is not above board.

11. Since there is reason to believe that the assessee's income exceeding Rs. 50,000 for the assessment year has escaped assessment, the C.B.D.T's approval is sought to reopen the assessment for the assessment year 1952-53 Under Section 147(a). Proposal in the prescribed from is being sent herewith.

Sd/- H. S. Serna

Income-tax Officer, C-Ward,

Companies Dist. I, Calcutta.'

12. There is no dispute that by the impugned notice the said assessment for the assessment year 1952-53 was sought to be reopened under Section 147(a) of the I.T. Act, 1961. The law is well settled that the ITO would have jurisdiction to reopen an assessment under Section 147(a) of the I.T. Act, 1961, if the following two conditions precedent were fulfilled: (i) The ITO should have reason to believe that income of the assessee for the year in question has escaped assessment, and (ii) he should also have reason to believe that the income has so escaped by reason of omission or failure of the assessee to disclose fully and truly all material facts necessary for the assessment for that year. Here we are not concerned with the case of failure of the assessee to make a return of income.

13. The learned counsel for the appellant contended before us that none of the above two conditions precedent, which conferred jurisdiction on respondent No. 1 to reopen the said assessment and to issue the impugned notice for that purpose, were fulfilled. Apart from a bald statement, that respondent No. 1 had reason to believe that the appellant's income exceeding Rs. 50,000 had escaped assessment, there are no materials whatsoever in the recorded reasons from which it could be said that any income of the appellant had escaped assessment or any income had escaped assessment due to any failure on the part of the appellant to disclose any material facts or that income exceeding Rs. 50,000 escaped assessment. In the recorded reasons the respondent No. 1 merely recorded an information received by him from an informer that the appellant entered into bogus transaction of purchase and sale of jute worth lakhs of rupees with M/s. Assam Jute Traders. It would appear from the records that the appellant did not purchase any jute from Assam Jute Traders but only sold certain quantity of jute which was fully disclosed by the appellant to the assessing ITO at the time of its assessment. The assessing ITO made specific enquiries, inter alia, with regard to sale and purchase of jute by the appellant and statements containing full particulars thereof were furnished to him by the appellant, where the sale of jute to Assam Traders worth Rs. 25,99,133-11-3 was duly shown. The assessing ITO was satisfied as to the genuineness of the said transaction. It was not necessary for the appellant to disclose the identity of the proprietors of each and every concern with which it had transactions unless specific enquiries with regard thereto were made by the assessing ITO. There was nothing wrong in the appellant selling jute to its employee, Ramnath Tulsyan, the proprietor of Assam Jute Traders. The figures of sale to Assam Jute Traders and the figures of sale by Assam Jute Tracers were found by respondent No. 1 from the audited statement of his business produced before respondent No. 1 by Ramnath Tulsyan in response to summons under 131 of the Act. There is no basis for the summaries made by respondent No. 1 that the entire transactions of Assam Jute Traders were with the appellant. At the very first opportunity in para. 12 of the affidavit-in-reply filed on behalf of the appellant it has been categorically denied that Assam Jute Traders ever sold jute to the appellant or that the appellant purchased any jute from Assam Jute Traders, which could not be done earlier as the said allegation was made for the first time in the affidavits-opposition filed by respondent No. 1. No inference could be drawn from the fact that Assam Jute Traders did not have any godown or did not incur any expense for the transportation of jute. Ramnath Tulsyan has also denied, in his affidavit, having sold any jute to the appellant. The profit Tulsyan made from the said transaction was admittedly Rs. 34,283.10 which is also accepted by respondent No. 1 both in the recorded reasons as well as in para. 11 of his affidavit-in-opposition. It was further urged that there being no proceeding pending, the respondent No. 1 had no power or authority or jurisdiction to issue summons under 131 of the I.T. Act, 1961, and the appellant was justified in refusing to comply with the same. The letters written by respondent No. 1 to produce documents and to furnish details of certain transactions were also without any power or authority and the appellant was justified in refusing to comply with the same. Thus no adverse inference could be drawn therefrom as was purported to be done by respondent No. 1. In support of the said contention reliance was placed on a decision of a Division Bench of this court in Dwijendra Lal Brahmachari v. New Central Jute Mills Co. Ltd. : [1978]112ITR568(Cal) , where it was held that the officers mentioned in 131 of the I.T. Act, 1961, have been vested with powers to make orders under that section provided that the orders made would be relevant for the purpose of deciding the case pending before them.

14. It was urged that respondent No. 1 was not powerless to make further enquiry because of non-compliance by the appellant with the summons issued under 131. He could approach the Director or the Deputy Director of Inspection or the Commissioner or the Assistant Commissioner of Income-tax for authorisation under Section 132 of the I.T. Act, 1961, to enter and search the appellant's place of business or office and seize the necessary books of accounts and other documents or he could himself under Section 133A of the said Act enter the place of business or office of the appellant and inspect the necessary books of account or other documents and call for all necessary Information.

15. It was contended that after receipt of the information from the informer, respondent No. 1 wanted to make further enquiry to ascertain if there was any truth or substance in the information given by the informer and for that purpose he issued the said summons under 131 of the Act and wrote the letters dated 28th July, 1967, and 18th January, 1969. Respondent No. 1 wanted to investigate if any income of the appellant for the said year had escaped assessment and if there was any failure on the part of the appellant to disclose any material facts necessary for its assessment for the said year. As the appellant lawfully refused to produce the documents called for by respondent No. 1, he inferred that as the appellant was reluctant to produce the said documents as 'all was not above board' which was merely a matter of suspicion or at best a suspicious circumstance. It is clear that respondent No. 1 could not have formed and did not form any belief that any income of the appellant for the said year had escaped assessment or that even if any income had escaped assessment the same was due to any failure of; the appellant to disclose any material facts. Thus there was no existence the conditions precedent for the issue of the impugned notice. In any event the materials on which the assessment was sought to be reopened did not have nexus or connection with the formation of the belief by respondent No. 1.

16. In support of the above contention reliance was placed on a decision of a single judge of this court in Asoka Marketing v. ITO : [1978]111ITR783(Cal) . That was a case of reopening of an assessment under 147 of the I.T. Act, 1961. In the recorded reasons the ITO recorded that the assessee had collected, inter alia, excess sales tax on which income-tax had not been paid, the exact amount whereof accumulated in each year was not known as the books of account of the assessee had been seized by the Company Law Board, which was the subject-matter of an injunction from this court, but the surplus in each year was not likely to be less than Rs. 50,000. Upon consideration of the said recorded reasons it was held that the recorded reasons did not amount to the formation of a belief that any income escaped assessment even on an over-generous interpretation of the said recorded reasons in favour of the revenue and there was nothing which could be construed as amounting to the formation of any belief by the ITO that income had escaped assessment and there was also nothing in the recorded reasons to show that the ITO formed any belief that income escaped assessment by reason of any omission or failure on the part of the assessee to disclose fully and truly all relevant facts for that particular year which was a fatal infirmity to the impugned notice.

17. It was urged that it was mandatory that reasons should be recorded by the ITO and sanction of the GBDT or of the Commissioner, as the case may be, should be obtained on the basis of the reasons so recorded for the initiation of proceedings for reopening an assessment by the issue of a notice. The ITO, only upon compliance with the said mandatory provisions, could assume jurisdiction to initiate the proceedings for reopening of an assessment and any non-compliance therewith vitiated the proceedings. The statutory provisions in reject hereof were the same both under the Indian I.T. Act, 1922 (hereinafter referred to as the ' old Act') and the I.T. Act, 1961.

18. In support of the contention reliance was placed on a decision of the Supreme Court in Union of India v. Rai Singh Deb Singh Bist : [1973]88ITR200(SC) . Here the, Supreme Court held that as the ITO did not produce the order of the CBR granting sanction for the initiation of proceedings under Section 34(1)(a) of the Indian I.T. Act, 1922, it was not possible to come to the conclusion that the facts necessary to confer jurisdiction on the ITO to proceed under Section 34(1)(a) had been established,

19. It was urged that in the recorded reasons the conclusion arrived at by respondent No. 1 was that Assam Jute Traders was merely a device employed by the appellant to reduce its incidence of tax and even if that was true there was no illegality in such device and the appellant was entitled to adopt any device to avoid incidence of tax or to diminish its tax liability. There is no rule that a businessman is not bound to make maximum profits.

20. In support of the contention reliance was placed on a decision of the Supreme Court in CIT v. A. Raman & Co. : [1968]67ITR11(SC) . Here the Supreme Court observed that an assessee is not prohibited from avoiding his tax liability by so arranging his commercial affairs that the charge of tax is distributed by taking resort to a device so as to divert the income before it accrues or arises to him. Effectiveness of such device depends not upon considerations of morality but on the operation of the I.T. Act. While legislative injunction in taxing statutes cannot be violated, it may be lawfully circumvented.

21. It was urged that no case had been made out by respondent No. 1 either in the recorded reasons or in his aflidavit-in-opposition that the income arising from the sale of jute by Assam Jute Traders was the income of the appellant or the same came back to or was received by the appellant nor it is alleged that Assam Jute Traders was a benamidar of the appellant or had acted as the nominee or agent of the appellant or that there was any evasion of tax by the appellant or that there was any omission or failure on the part of the appellant to disclose fully and truly any facts material to the said assessment. The mere fact that Ramnath Tulsyan, the proprietor of Assam Jute Traders, was the accountant of the appellant could not lead to the inference or belief that the income arising from the jute purchased by Assam Jute Traders from the appellant and sold by Assam Jute Traders was the income of the appellant and no such case has been made out by respondent No. 1. The appellant had disclosed all primary facts and answered all queries made and furnished all papers, documents and particulars called for by the assessing ITO including sale of jute worth Rs. 25,99,133 to Assam Jute Traders with its address, who, therefore, with full knowledge of the said transaction drew his conclusions from the said facts and materials. There was no duty cast on the appellant to advise the assessing ITO as to what inferences should be drawn from the said facts and materials. Respondent No. 1, on the information given to him by the informer, is seeking to reopen the very same transaction merely on a change of opinion by purporting to draw an inference on the same facts contrary to those drawn by the assessing ITO, which is not permissible. In support of the above contentions reliance was placed on the following decisions:

(1) CIT v. Bhanji Lavji : [1971]79ITR582(SC) . Here, the Supreme Court observed that it was not for the assessee to satisfy the ITO that there was no concealment with regard to any question and it was for the ITO, if that issue was raised, to establish that the assessee had failed to disclose fully and truly any facts material to the assessment whereby any amount has escaped assessment.

(2) CIT v. Burlap Dealers Ltd. : [1971]79ITR609(SC) , where the Supreme Court observed (pp. 612, 613):

'......if the assessee has disclosed primary facts relevant to the assessment, he is under no obligation to instruct the Income-tax Officer about the inference which the Income-tax Officer may raise from those facts......

but where on the evidence and the materials produced the Income-taxOfficer could have reached a conclusion other than the one which he hasreached, a proceeding under Section, 34(1)(a) will not lie merely on theground that the Income-tax Officer has raised an inference which he maylater regard as erroneous.

The assessee had disclosed his books of account and evidence from which material facts could be discovered : it was under no obligation to inform the Income-tax Officer about the possible inferences which may be raised against him. It was for the Income-tax Officer to raise such an inference and if he did not do so the income which has escaped assessment cannot be brought to tax under Section 34(1)(a).'

(3) ITO v. Madnani Engineering Works Ltd. : [1979]118ITR1(SC) . Here the assessment of Madnani Engineering Works Ltd., the assessee, for the assessment year 1959-60, was duly completed and interest paid to certain hundi creditors was allowed as deductible expenditure. After over seven years the said assessment was sought to be reopened under Section 147(a) of the I.T. Act, 1961, and a notice under Section 148 of the said Act was issued by the ITO. The assessee made a writ petition to this court challenging the said notice. The reasons recorded by the ITO who filed an affidavit stating that the reasons for reopening the said assessment were that in the course of the assessment of the assessee for the assessment year 1963-64, it was discovered and found that various items shown as loans against hundis in the previous year relevant to the assessment year 1959-60 were fictitious and not genuine and thus it appears that the assessee had failed to disclose fully and truly all the material facts for its assessment whereby a portion of its income had escaped assessment. On these facts the Supreme Court held as follows (p. 5):

'The assessee discharged the obligation that lay upon it by disclosing its books of account and evidence from which material facts could be discovered and it was for the ITO to decide whether the documents produced by the assessee were genuine or false. Here also the respondent produced all the hundis on the strength of which it had obtained loans from creditors as also the entries in the books of account showing payment of interest and it was for ITO to investigate and determine whether these documents were genuine or not. The respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the ITO that the hundies and the entries in the books of account produced by it were bogus......All that the ITO stated in his affidavit was that he discovered that the transactions of loan against the security of hundies were not genuine and that the credits against the names of certain persons who were alleged to have advanced loans were bogus. The ITO merely stated his belief but did not set out any material on the basis of which he had arrived at such belief so that the court could decide for itself whether there was any material on the basis of which the ITO could reasonably entertain such belief. We are, therefore, not at all satisfied on the affidavit that the ITO had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make a true and full disclosure of the material facts.' (4) Panchanan Hati v. CIT : [1978]115ITR336(Cal) . In this case the assessment of Panchanan Hati, the assessee, was reopened under Section 147(a) of the I.T. Act, 1961, and the reasons recorded for the same by the ITO was that in the course of investigation at subsequent stages it was revealed that there were cash credits in the assessee's books of hundi loans in the names of bogus parties who had subsequently confessed before the department that they acted as name-lenders for third parties' accounts and those material facts necessary for assessment were kept concealed by the assessee in his assessment. A Division Bench of this court, to which one of us was a party, observed as follows (p. 346):

'The ITO believed that the subsequent confessional statement of the creditor was concealed by the assessee. It, however, appears to us that it was clearly impossible for the assessee to have disclosed this confession which was made subsequently to the authorities and not to the assessee and was not in existence during the original assessment.

No doubt the assessee could himself have confessed at the original assessment that the loans disclosed by him were not genuine. But, in our opinion, that would not be a material fact within the meaning of Section 147(a)......we are of the opinion that the ITO had no reasonable ground to believe that there was a failure on the part of the assessee to disclose fully or truly all material facts whereby any income of the assessee escaped assessment. It appears to us that the assessee had disclosed all primary facts within his knowledge at the original assessment which were duly considered by the ITO concerned.'

22. It was next urged on behalf of the appellant that admittedly the profit arising from the transaction of Assam Jute Traders was, at the highest, Rs. 34,283, being the difference between the sale price and the purchase price of the jute and, in the assessment of Ramnath Tulsyan, the said profit, after giving the allowable deductions, was computed at Rs. 11,330. Thus, in any event, respondent No. 1 could not and did not have any reason to believe that the income of the appellant chargeable to tax for the said year which is alleged to have escaped assessment was exceeding Rs. 50,000.

23. It was next contended that in granting its sanction the CBDT was required to examine the reasons reported by the ITO and to come to an independent decision thereon and it could not act mechanically in the matter of according its sanction, and although none of the two conditions precedent required to be fulfilled for the initiation of the proceedings for reopening of the said assessment and for the issue of the impugned notice were fulfilled, yet, the CBDT recorded its satisfaction and accorded its sanction for the issue of the impugned notice on the basis of the said recorded reason. There was total non-application of mind and abuse of independent decision by the CBDT in the matter. In support of the contention reliance was placed on a decision of the Supreme Court in Johri Lal (HUF) v. CIT : [1973]88ITR439(SC) , where the Supreme Court held that the Commissioner or the Board of Revenue in granting sanction will have to examine the reasons given by the ITO and to come to an independent decision and they should not act mechanically.

24. It was next contended that with regard to the jute sold by the appellant to Assam Jute Traders the information given by the informer to the respondent No. 1 was that Madan Gopal Kedia had sold the said jute at a higher price and pocketed the profits, and even if the said information was correct the money so pocketed by Madan Gopal Kedia could not be said to be the income of the appellant which had escaped assessment and, if at all, the same was the income of Madan Gopal Kedia which escaped his assessment. In support of the contention reliance was placed on a decision of a single judge of this court in Suganchand Chandanmal v. ITO : [1976]105ITR743(Cal) , where Sabyasachi Mukharji J. observed as follows (p- 745):

'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 had 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 the income of the partnership firm had escaped assessment due to failure or omission on the part of the assessee.'

25. It was urged that in para. 2 of this supplementary affidavit respondent No. 1 has alleged that the informer was connected with the appellant from 1943 to 1951, and left the service of the appellant in June, 1951, while in para. 3 of the said affidavit it is alleged that the said informer gave information to respondent No. 1 in January and June, 1968, that is, 17 years after he had left the services of the appellant. The said informer is alleged to have told that the ruling price of jute during the years 1950 and 1951, had shot up from Rs. 30 to 40 per maund. . There is no statement by respondent No. 1 that he ever tried to test the veracity of the said allegations of the said informer by ascertaining or even trying to ascertain the price of jute prevailing during the said period. Apart from noting the allegation made by the informer that the, appellant had entered into bogus transactions of sale and purchase of jute with Assam Jute Traders, respondent No. 1 did not record in the recorded reasons that he believed or had reason to believe that the said transaction was bogus. Even if the said recorded reasons are construed in a manner most favourable to respondent No. 1 it merely shows that he had a vague feeling that the transaction of the appellant with Assam Jute Traders was not beyond suspicion. He did not even come to a prima facie conclusion that the said transaction was not genuine.

26. In support of the above contention reliance was placed on a decision of the Supreme Court in Chhugamal Rajpal v. S. P. Chaliha : [1971]79ITR603(SC) . This was a case of reopening of the assessment of the assessee, Chhugamal Rajpal, under 147 of the I.T. Act, 1961, and a notice under Section 148 of the said Act was issued to the assessee by the ITO. The assessee challenged the said notice in a writ petition before the Patna High Court which was dismissed in limine; the assessee appealed to the Supreme Court. Before the Supreme Court the order sheet recording the reasons of the ITO under Section 148(2) of the Act was not produced but a report of the ITO to the Commissioner for his sanction under 151(2) of the Act for the issuance of the notice under Section 148 of the Act was produced. The reasons for the reopening of the said assessment as disclosed from the said report was that the ITO received certain communication from the Commissioner, Bihar and Orissa, wherefrom it appeared to him that certain amounts shown by the assessee as loans on hand are from several persons and were bogus and the said hundi creditors were name-lenders and, therefore, proper investigation regarding those loans was necessary and the amount of escapement involved amounted to Rs. 1,00,000. The Supreme Court considered the said report and observed as follows (p. 607) :

'In his report the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under Section 148. The material that he had before him for issuing notice under Section 148 is not mentioned in the report. In his report he vaguely refers to certain communications received by him from the Commissioner of Income-tax, Bihar & Orissa. He does not mention the facts contained in those communications. All that he-says is that from those communications ' it appears that these persons (alleged creditors) are name-lenders and the transactions are bogus'. He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfil the requirements of 151(2). What that provision requires is that he must give reasons for issuing a notice under section 148. In other words he must have some prima facie grounds before him for taking action under Section 148. Further, his report mentions : 'Hence proper investigation regarding these loans is necessary '. In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under Section 148.........Further, the report submitted by him under 151(2) does not mention any reason for coming to the conclusion that it is a fit case for the issue of a notice under Section 148. We are also of the opinion that the Commissioner has mechanically accorded permission.........We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under Section 148. The important safeguards provided in Sections 147 and 151 were lightly treated by the Income-tax Officer as well as by the Commissioner.'

27. It was next urged that in para. 1 of his affidavit Ramnath Tulsyan has categorically stated that in the course of the said assessment proceedings of the appellant the assessing ITO made queries and requested the Appellant to furnish the details of purchase and sale of jute pursuant to which the appellant, inter alia, filed statements showing the details of sale and purchase of jute over Rs. 50,000 and the fact of sale of jute by the appellant to Assam Jute Traders was fully explained to the said ITO who on due consideration of all the primary and relevant facts was fully satisfied about the genuineness of the transactions and in para. 14 of the petition the appellant has categorically stated that at the time of the said assessment the representative of the appellant had full discussion with the assessing ITO regarding the source of income of the appellant and all material evidence relating thereto including transactions in pucca delivery orders and in jute, gunny and shares were produced before him and being fully satisfied, on due consideration of all those materials and other evidence, he computed the total income of the appellant and there was no omission or failure on the part of the appellant to disclose the primary facts necessary and material for the said assessment. These statements remain uncontroverted as no affidavit has been filed by the assessing ITO denying the same. Respondent No. 1 not being the assessing ITO, denial of any of the said statement by him is wholly unacceptable and unsustainable as he was nowhere in the picture at the time when the said assessment was made. In support of tge above contention reliance was placed on the following decisions:

(1) Smt. Minoti Holder v. ITO : [1978]115ITR471(Cal) . Here the assessment of the assessee, Minoti Halder, was sought to be reopened under Section 147(a) of the I.T. Act, 1961, and a notice under Section 148 of the said Act was issued by the ITO which was challenged by the assessee in a writ petition before this court. In the recorded reasons for reopening the said assessment disclosed by the ITO before this court it was stated that a current account with the Bank of India in the name of M/s. Calcutta Plywood Manufacturing Company, a proprietary concern of the assessee, was not produced at the time of the original assessment which showed deposits far in excess of the turnover of the said business. The writ petition was verified by an affidavit of the husband of the assessee wherein it was stated that during the assessment proceedings the husband of the assessee appeared before the assessing ITO and produced before him the books of account and other relevant materials including the said bank account and the entries appearing therein were discussed with him. No affidavit was filed by the assessing ITO controverting the said statements and a Single Bench of this court, therefore, held that it must, therefore, be accepted that bank pass books were in fact produced and there was no failure or omission on the part of the assessee to disclose fully and truly all material facts for the purpose of assessment and the condition precedent for the issue of the notice had not been fulfilled.

(2) Metal Distributors Lid. v. ITO : [1978]115ITR608(Cal) . In this case the assessee made a writ petition in this court under Article 226 of the Constitution challenging a notice under Section 148 of the I.T. Act, 1961, issued by the ITO. The ground for issue of the said notice and reopening of the assessment under Section 147(a) of the said Act was that the ITO had reason to believe that by reason of omission or failure of the assessee to disclose the memorandum and articles of association at the time of the original assessment, its income chargeable to tax had escaped assessment. In the petition specific averment was made that the said document was produced before the assessing ITO at the time of the original assessment which was, however, denied by the ITO in his affidavit although he was not the assessing ITO. A Single Bench of this court held that as no affidavit was filed by the assessing ITO denying the case of the assessee that the said document was produced before him at the time of the original assessment there was no failure or omission on the part of the assessee.

28. It was next contended that the respondent No. 1 has sought to make improvements and embellishments on the recorded reasons by introducing new allegations so as to make out a case for reopening of the said assessment so that the impugned notice could be sustained and has, therefore, alleged in para. 11 of his first affidavit, firstly, that it has transpired that the petitioner-company entered into bogus transactions of purchase and sales of jute amounting to several lakhs of rupees with M/s. Assam Jute Traders of which one R. N. Tulsyan was said to be the proprietor, and; secondly, that Assam Jute Traders was brought into existence with the purpose of reducing the profits in order to avoid taxation which are not at all found in the recorded reasons. The only fact which is noted by respondent No. 1 in the recorded reasons is that the informer informed him that the appellant had entered into bogus transactions in jute and not that respondent No. 1 believed in or accepted such information as true or correct.

29. While on behalf of the appellant it was urged that the court could not rely or act on any new or fresh allegation made by the ITO in his affidavit filed in court to uphold a proceeding for the reopening of an assessment, on the other hand it was contended on behalf of the respondents that the recorded reasons might be cryptic or might not contain all the reasons for the reopening and further reasons could, therefore, be disclosed in the affidavit and the court could rely thereon to judge whether the reopening of the assessment was proper or not.

30. Strenuous and elaborate arguments were, therefore, made before us on the question as to how far and to what extent the court could rely and act on the affidavit of the ITO filed before the court which might not strictly conform to the reasons recorded by the ITO under Section 148(2) of the new Act corresponding to the first portion of Clause (iii) of the first proviso to Section 34 of the old Act.

31. On behalf of the appellant it was contended that under Section 151 of the new Act corresponding to the second portion of Clause (iii) of the first proviso to Section 34 of the old Act, the satisfaction of the CBDT (under the old Act the CBR) or of the Commissioner had to be based only on the said recorded reasons and on no other material. The affidavit that may be filed by the ITO before the court is not a document which had been or could be considered by the Board or by the Commissioner in according their satisfaction for initiating proceedings for the reopening of the assessment. Thus, the initiation of such proceedings or the issue of the notice, therefore, now cannot be justified or upheld on the materials or reasons or grounds disclosed in such affidavit which may be a good piece of evidence before the court but no evidence at all before the Board or the Commissioner, who had no opportunity to look into or consider such affidavit in according the satisfaction. It was urged that whenever the Supreme Court or the High Court has proceeded on the affidavit filed before it by the ITO, there was no dispute that such affidavit was not in conformity with the recorded reasons or that any new materials or reasons or grounds which were not stated in the recorded reasons were introduced in such affidavit and, therefore, the courts proceeded on such affidavit filed by the ITO. It was also contended that the report of the ITO to the Board or to the Commissioner giving therein the brief reasons for taking action for reopening an assessment was not the same thing as the reasons recorded under the provisions of the statute. The recorded reasons had nevertheless to be sent to the Board or to the Commissioner for obtaining their satisfaction thereon, whether the report was sent or not by the ITO.

32. On behalf of the respondents it was contended on the other hand that the recording of reasons by the ITO and the sanction of the Board or the Commissioner were riot quasi-judicial acts but were merely administrative acts and, therefore, the recorded reasons may be in a cryptic form and it may not record all the materials or grounds or reasons which the ITO had in his mind for the initiation of proceedings for the reopening of the assessment but he could clarify the same in his affidavit setting out therein the circumstances under which he formed the necessary belief and he could also tell the court in his affidavit what he omitted to say in his report to the Board or to the Commissioner, as the case may be, and the courts have always accepted and acted upon such affidavit. Therefore, the submission of a report by the ITO is not a statutory form but has been adopted by the I.T. Dept. for convenience and the recorded reasons are invariably annexed to the report as the reasons to be stated under item No. 7 of the report, and the satisfaction of the Board or the Commissioner, as the case may be, is accorded on the said recorded reasons which forms part of the report. Whenever the court had asked for production of the recorded reasons the said report was invariably produced before the court and the court had always accepted and looked into such report as the recorded reasons were also accepted by the assessee it was further urged on behalf of the respondents that in the court below the distinction between the report and the recorded reasons which is now sought to be made was not raised on behalf of the appellant. On behalf of the parties reliance was placed on the following decisions in support of their respective contentions which are dealt with in chronological order :

1. Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) . This was a case of reopening of an assessment under Section 34(l)(a) of the Indian I.T. Act, 1922, where the Supreme Court made the following observations (pp. 203, 205):

'It has to be remembered, however, that in sending a report to the Commissioner, the Income-tax Officer might not fully set out what he thought amounted to a non-disclosure, because it is conceivable that the report may not be drawn up carefully and may not contain a reference to all the non-disclosures that operated on his mind. We have, however, on the record an affidavit sworn by the same Income-tax Officer who started the Section 34 proceedings, It is reasonable to expect that in this affidavit which was his opportunity to tell the court what non-disclosure he took into consideration he would state as clearly as possible the material facts in respect of which there had not been in his view a full and true disclosure......

To ascertain whether the Income-tax Officer could have had in mind any non-disclosure as a ground for thinking that by reason of such non-disclosure an under-assessment had occurred--apart from what was mentioned in the affidavit--we enquired from the respondent's counsel whether he could suggest any other non-disclosure that might have taken place. Mr. Sastri suggested two. One is that the sales had not been disclosed; the other that the memorandum and articles of association of the company had not been shown. This suggestion is against the record and we have no hesitation in repelling it.'

2. S. Narayanappa v. CIT : [1967]63ITR219(SC) . This was also a case of reopening of an assessment under Section 34(1)(a) of the Indian I.T. Act, 1922, where the Supreme Court observed as under (p. 222):

'The proceedings for assessment or reassessment under Section 34(1)(a) of the Income-tax Act start with the issue of a notice and it is only after the service of the notice that the assessee, whose income is sought to be assessed or reassessed, becomes a party to those proceedings. The earlier stage of the proceeding for recording the reasons of the Income-tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not quasi-judicial. The scheme of Section 34 of the Act is that, if the conditions of the main section are satisfied, a notice has to be issued to the assessee containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22. But, before issuing the notice, the proviso requires that the officer should record his reasons for initiating action under Section 34 and obtain the sanction of the Commissioner who must be satisfied that the action under Section 34 was justified.' 3. Kantamani Venkula Narayana and Sons v. First Addl, ITO : [1967]63ITR638(SC) . This was also a case, of reopening of an assessment under Section 34(1)(a) of the Indian I.T. Act, 1922, where the existence of the belief of the ITO under the said section was challenged. The following observation was made by the Supreme Court (pp. 642, 643):

'It is clear from the affidavits filed in the court of first instance that the Income-tax Officer had received information relying upon which he had reason to believe that the assessee had not disclosed fully and truly all material facts necessary for the assessment and in consequence of non-disclosure of that information, income chargeable to tax had escaped assessment...... The averments made by the Income-tax Officer in his affidavit which have been accepted by the court of first instance prima facie establish that the Income-tax Officer had reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, income chargeable to income-tax has escaped assessment.' 4. Jamna Lal Kabra v. ITO : [1968]69ITR461(All) . This was a case of reopening of an assessment under Section 147(a) of the I.T. Act, 1961. A single judge of the Allahabad High Court observed as under (pp. 464, 466):

' Before proceeding to make the assessment or reassessment under 147, the Income-tax Officer is required by Section 148 to serve a notice on the assessee. Sub-section (2) of Section 148 obliges the Income-tax Officer before issuing any notice under the section to record his reasons for doing so. Now no notice can be issued by the Income-tax Officer unless, as required by Section 151, the Board is satisfied that it is a fit case for issue of such notice in a case where notice has to be issued after the expiry of eight years from the end of the relevant assessment year, and in a case where the notice has to be issued after the expiry of four years from the end of the relevant assessment year, unless the Commissioner is satisfied that it is a fit case for issue of such notice. But whether it is the Board or the Commissioner, the satisfaction must proceed on the reasons recorded by the Income-tax Officer.

It is clear that the Income-tax Officer is bound to record the reasons for issuing a notice under Section 148. The requirement is mandatory. Before the assessment can be had, the Income-tax Officer must issue a notice under Section 148 and before that notice can be issued, he must record his reasons for doing so and must also upon those reasons obtain the satisfaction of the Board or the Commissioner. The recording of the reasons is, in my opinion, a prerequisite to the assumption of jurisdiction by the Income-tax Officer for initiating the proceedings, for assessing or reassessing the income which has escaped assessment. Those reasons are of particular significance when action is taken under Clause (a) of 147 because they indicate the reasons which the Income-tax Officer has in mind for believing that income has escaped assessment for an assessment year by reason of one or the other default of the assessee specified in that clause. Sub-section (2) of Section 148 requires the Income-tax Officer to record his reasons for issuing a notice under that section and it is necessarily envisaged that he will record all the reasons he has in mind. This consideration acquires importance when the question is raised as to what were the reasons on the basis of which the Income-tax Officer invoked the jurisdiction conferred under Clause (a) of 147. To justify action by reference to Clause (a) of 147 it is not open to the Income-tax Officer, in my opinion, to refer to reasons other than those recorded by him pursuant to Sub-section (2) of Section 148...... An attempt has been made in the counter-affidavit filed by the Income-tax Officer to support the validity of his action by pointing out that the petitioner misled the Income-tax Officer by withholding the fact that the building and the machinery had not been partitioned and that the impression conveyed all along by the petitioner was that all the assets had been partitioned. That is a case completely inconsistent with the reasons recorded by the Income-tax Officer... ...As I have pointed out above, the Income-tax Officer must be confined to the reasons given by him to support the validity of his action under Clause (a) of 147.'

5. Sowdagar Ahmed Khan v. ITO : [1968]70ITR79(SC) . This was a case of reopening of an assessment under Section 34(l)(a) of the Indian I.T. Act, 1922, and one of the contentions was that there was no material before the ITO on which he could form his belief that any income had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully or truly any material facts, and thus the requisite for the issue of a notice under Section 34(1)(a) being not fulfilled, the ITO had no jurisdiction to issue the notice. The Supreme Court noted that before the issue of notice the ITO wrote letters to the assessee informing the assessee of the bogus cash credits appearing in the account of the assessee and required the assessee to furnish an explanation as to why they should not be treated as concealed business income of the assessee for the respective assessment years and observed as follows (p, 84):

'In paragraph 7 of the counter-affidavit in the High Court the Income-tax Officer controverted the allegation of the assessee that all material facts were fully and truly disclosed at the original assessment stage. It was asserted by the Income-tax Officer that the assessee had failed to disclose the existence of the bank account in the name of his father-in-law, benami for the benefit of the assessee and to disclose fully and truly the basic facts in respect of the sources of the alleged cash credits. In the context of these facts we are of opinion that there was some material before the Income-tax Officer on which he formed the prima facie belief that the assessee had omitted to disclose fully and truly all material facts and in consequence of such. non-disclosure income had escaped assessment.' 6. Madhya Pradesh Industries Ltd. v. ITO : [1970]77ITR268(SC) . This was a case of reopening of an assessment under Section 34(1)(a) of the Indian I.T. Act, 1922. The Supreme Court noted its decisions in Calcutta Discount Co. Ltd. : [1961]41ITR191(SC) and Kantamani Venkata Narayana and Sons : [1967]63ITR638(SC) and observed as under (p. 276 of 77 ITR):

'In those cases, the company in its writ petitions had repudiated the assertion of the Income-tax Officer that he had reason to believe that due to the omission or failure on the part of the company to give material facts, some income had escaped assessment. Under those circumstances one would have expected the officer who issued the notices under Section 34(1)(a) to file an affidavit setting out the circumstances under which he formed the necessary belief. We were told that one Mr. Pandey had issued the notices in question. That officer had not filed any affidavit in these proceedings. The proceedings recorded by him before issuing the notices have not been produced nor his report to the Commissioner or even the Commissioner's sanction has not been produced. Hence, it is not possible to hold that the Income-tax Officer had any reason to form the belief in question or the reasons before him were relevant for the purpose.' 7. Chhugamal Rajpal v. S.P.Chaliha : [1971]79ITR603(SC) . In this case the assessment of the assessee was sought to be reopened under 147 of the I.T. Act, 1961, and a notice under Section 148 of the said Act was issued by the ITO to the assessee. Before the Supreme Court only the report submitted by the ITO to the Commissioner and the order of the Commissioner were produced but the order sheet regarding the reasons of the ITO as required by Section 148(2) was not produced. The Supreme Court set out, inter alia, the said report of the ITO, column 7, whereof requires the ITO to give : 'Brief reasons for starting proceedings under 147 (indicate the items which are believed to have escaped assessment)'. The said brief reasons, which were appended to the said report overleaf, were considered by the Supreme Court and the Supreme Court observed as follows (pp. 607, 608):

'In his report the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under Section 148. The material that he had before him for issuing notice under Section 148 is not mentioned in the report. In his report he vaguely refers to certain communications received by him from the Commissioner of Income-tax, Bihar & Orissa. He does not mention the facts contained in those communications. All that he says is that from those communications ' it appears that these persons (alleged creditors) are name-lenders and the transactions are bogus '. He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfil the requirements of 151(2). What that provision requires is that he must give reasons for issuing a notice under Section 148. In other words he must have some prima facie grounds before him for taking action under Section 148...... We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either Clause (a) or Clause (b) of 147. Therefore, he could not have issued a notice under Section 148. Further, the report submitted by him under 151(2) does not mention any reason for coming to the conclusion that it is a fit case for the issue of a notice under Section 148. We are also of the opinion that the Commissioner has mechanically accorded permission,' 8. CIT v. T. 5. PI. P. Chidambaram Chettiar : [1971]80ITR467(SC) . This was a case of reopening of an assessment under Section 34(1)(a) of the Indian I.T. Act, 1922. Here the assessee's father had lent certain amounts on a mortgage bond. A suit filed on the said mortgage bond by the mortgagees was compromised and a decree was passed for a certain amount in full satisfaction of the mortgage debt. In the course of assessment of the assessee as the karta of the HUF, the ITO received information from another ITO that the mortgagor had paid Rs. 1,50,000 to the mortgagee which was not included in the compromise decree. On enquiry by the ITO the assessee denied such receipt. The ITO noted such denial by the assessee and also stated that further investigations should be made in the matter. He, however, completed the assessment on the ground that it should not be held up pending further investigation. Subsequently the ITO made further enquiries and came to believe that Rs. 1,50,000 escaped assessment by reason of the omission by the assessee to disclose fully and truly all material facts necessary for the said assessment and issued a notice under Section 34(1)(a) pursuant whereto the assessee filed a return similar to that which was filed earlier and denied receipt of the said sum of Rs. 1,50,000. The ITO rejected the assessee's plea and completed the assessment by treating the same as income of the assessee. On appeal the AAC set aside the order of the ITO directing him to re-do the assessment after giving the assessee an opportunity to cross-examine the parties on the basis of whose statements the ITO had concluded that the said sum of Rs. 1,50,000 was paid by the mortgagor to the mortgagee. Thereafter, further investigation was made by the ITO when the accounts of the mortgagor were produced and certain witnesses were also examined in the presence of the assessee to prove the said payment and an assessment was again made by treating the said sum as income of the assessee, which was affirmed in appeals both by the AAC and the Tribunal. There was a reference to the High Court of Madras at the instance of the assessee and ultimately the matter came up before the Supreme Court in appeals both at the instance of the legal representatives of the assessee who had died in the meantime and of the revenue. On these facts the Supreme Court held that the proceedings under Section 34(1)(a) were valid and the assessee had failed to place fully and truly all the material facts before the ITO at the time of the original assessment.

9. H.A. Nanji & Co. v. ITO [1973] TLR 561. This was an application by the assessee in this court under Article 226 of the Constitution of India challenging the reopening of its assessment under 147 of the I.T. Act, 1961, by the issue of a notice under Section 148 of the said Act which was heard by a single judge of this court and on behalf of the assessee reliance was placed on the decision of the Allahabad High Court in the case of Jamna Lal Kabra v. ITO : [1968]69ITR461(All) . The learned judge distinguished and did not agree with the views expressed by the Allahabad High Court in Jamna Lal's case : [1968]69ITR461(All) on the ground that in that case the decision of the Supreme Court in Calcutta Discount Co.'s case : [1961]41ITR191(SC) , which laid down that the report of the ITO to the Commissioner, may not fully set out what he thought amounted to a non-disclosure, because it is conceivable that the report may not be drawn up, carefully and may not contain a reference to all the non-disclosures that operated on his mind, and he could disclose to the court in his affidavit all the non-disclosures that he took into consideration for reopening the assessment and, further, that it was not necessary to record all the reasons as Section 148(2) of the Act did not say so and observed (p. 569 of [1973] Tax LR):

'I am, therefore, of the opinion that apart from the reasons disclosed in the recorded reasons the revenue is entitled to rely on the statement made in the affidavit provided, however, such statements in the affidavit are not inconsistent with the reasons recorded. The assessee, of course, is always entitled to establish before the court that the reasons which have been stated in the affidavit were not there before the issue of the notice under Section 148 of the Income-tax Act, 1961; but it cannot be said when an assessee challenges any proceedings under Section 148 of the Income-tax Act in the court on the ground that there were no reasons, the revenue was not entitled to refer to any additional reasons in the affida-vit-in-opposition apart from the reasons recorded under Section 148(2) of the Income-tax Act, 1961, provided, however, the court is satisfied that the reasons were there before the notice was issued.' An unreported decision of another single judge of this court in Matter No. 64 of 1975 intituled Kanhaiyalal Maloo v. 1TO, where the learned judge followed the decision of the Single Bench of this court in H. A, Nanji & Co, [1973] TLR 567 (Cal).

ITO v. Madnani Engineering Works Ltd. : [1979]118ITR1(SC) . In this case the assessee had shown in its accounts certain cash credits as money borrowed on hundis and paid interest to the lenders which were allowed in its agreement. Subsequently the ITO sought to reopen the said assessment under Section 147(a) of the I.T. Act, 1961, and issued a notice under Section 148 of the said Act. The assessee challenged the said notice in a writ petition before this court. The ITO at first refused to disclose the reasons for reopening the said assessment but subsequently filed an affidavit stating his reasons for seeking to reopen the said assessment. The learned single judge who heard the said writ petition accepted the said reasons as good and valid reasons for reopening the said assessment and dismissed the writ petition. On appeal by the assessee a Division Bench of this court took a contrary view and allowed the appeal and quashed the notice under Section 148 of the I.T. Act, 1961. The ITO appealed to the Supreme Court.

The Supreme Court observed as follows (pp. 5, 6):

' Here also the respondent produced all the hundis on the strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest and it was for the ITO to investigate and determine whether these documents were genuine or not. The respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus......We must, therefore, hold that there was no failure on the part of the respondent to disclose fully and truly all material facts necessary for its assessment and the condition for the applicability of Section 147(a) were not satisfied......All that the ITO stated in his affidavit was that he discovered that the transactions of loan against security of hundis were not genuine and that the credits against the names of certain persons who were alleged to have advanced loans were bogus. The ITO merely stated his belief but did not set out any material on the basis of which he had arrived at such belief so that the court could decide for itself whether there was any material on the basis of which the ITO could reasonably entertain such belief. We, are therefore, not at all satisfied on the affidavit that the ITO had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make a true and full disclosure of the material facts.' 12. H.A. Nanji & Co. v. ITO : [1979]120ITR593(Cal) . This is a decision of a Division Bench of this court in appeal from the decision of a single judge of this court in H.A. Nanji & Co. [1973] TLR 567, affirming the said decision of the Single Bench. The Division Bench observed as follows (p. 606 of 120 ITR):

'It appears that since the satisfaction of the Commissioner on the recorded reasons that the case is a fit one for issue of notice is mandatory, it is obvious that the affidavit cannot disclose facts which travel beyond the ambit and scope of the recorded reasons. Though it is not necessary to state all the facts in the disclosed reasons, the genesis of the facts stated in the affidavit must have spme place in the reasons, however brief or short it may be. In a given case where the recorded reasons refer to only fictitious loans in short, it may not be necessary to state all such loans which the ITO had in his mind. But the ITO cannot be heard to say in his affidavit that he had in mind also at the time of recording reasons the suppression of sales committed by the assessee in his return since such facts were not before the Commissioner to ensure that the case is a fit one for issue of notice under 147. The courts have laid down that by the affidavit the ITO may always clarify the position fully about the material facts he had in his mind at the time of recording reasons but facts in the affidavit, as it appears to us, which even by implication had no place in the recorded reasons for issuing notice cannot be accepted as forming part thereof. There is, however, no dispute over the proposition that once the assessment is validly reopened, the entire assessment again becomes open for scrutiny in respect of all categories of matters relevant for assessment.

At the time of issue of notice it is not incumbent on the ITO to come to a conclusive finding that income has escaped assessment by reason of the omission or failure of the assessee to disclose fully and truly all material facts necessary for the relevant assessments. Such belief obviously at that stage is a tentative belief on the materials before him to be examined and scrutinised on such evidence as may be available in the proceedings for reassessment. But as we have seen there must be some grounds for the reasonable belief that there has been a non-disclosure or omission to file a true or correct return by the assessee resulting in escapement of assessment or in under-assessment. Such belief again must be in good faith, not a mere pretence or change of opinion on inferential facts or facts extraneous or irrelevant to the issue but must have a rational connection or live link or relevant bearing on the formation of the belief.'

13. Prafulla Kumar Dutta v. Ganesh Chandra Bose, : AIR1973Cal106 , where a Full Bench of this court observed as follows (p. 111(2)):

'if a Division Bench has held contrary to the clear unambiguous finding of the Special Bench and has on the plea of interpretation of the Special Bench decision held contrary to what has been held by the Special Bench, a subsequent Division Bench is entitled to ignore the decision of the Division Bench and rely on the clear and unequivocal pronouncement of law in any Special Bench decision. ' 14. Dr. G. Sarana v. University of Lucknow, : (1977)ILLJ68SC , This was a case where the appellant appeared before the selection board with full knowledge of the members constituting the board and what might be their attitude towards him and having taken a chance of favourable recommendation in his favour could not turn round and question the constitution of the board when its decision was unfavourable to him.

15. State of U.P. v. Ram Chandra Trivedi, : (1977)ILLJ200SC , where the Supreme Court laid down as under (p. 2556):

' ...even in cases where a High Court finds any conflict between the views expressed by larger and smaller Benches of this court, it cannot disregard or skirt the views expressed by the larger Benches. The proper course for a High Court in such a case, as observed by this court in Union of India v. K. S. Subramanian (Civil Appeal No. 212 of 1975 decided on July 30, 1976), to which one of us was a, party, is to try to find out and follow the opinion expressed by larger Bences of this court in preference to those expressed by smaller Bences of the court which practice, hardened as it has into a rule of law, is followed by this court itself. ' 16. Mohinder SingK Gill v. Chief'Election Commissioner, : [1978]2SCR272 . Here the Supreme Court observed as follows (head note): 'When a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought put.'

33. From the above decisions relating to the reopening of assessment either under Section 34 of the Indian I.T. Act, 1922, or under 147 of the I.T. Act, 1961, it appears that whenever the Supreme Court relied on the affidavit filed by the ITO before the court there was no controversy that the reasons given by the ITO in such affidavit were not in conformity with or were contrary to the reasons recorded by him for reopening the assessment, and it further appears that although in those cases where the recorded reasons were not produced before the court below or before the Supreme Court yet neither the court nor the assessee asked for production of the recorded reasons. It is true that Section 148(2) of the I.T. Act does not say that the ITO shall record all the reasons which he had in his mind for reopening the assessment or for formation of his belief that income of the assessee had escaped assessment or has been under-assessed on account of the assessee not having made full and true disclosure of his income but the section does not also say that the ITO would record only some of the reasons and keep the others up his sleeves to be disclosed before the court if his action is ever challenged in a court of law. The recording of reasons in our opinion is not an idle formality but is a mandatory requirement of the statute casting a duty and obligation on the ITO to record his reasons for issuing a notice for reopening an assessment and the CBDT or the Commissioner, as the case may be, being satisfied that it is a fit case for issue of such notice solely on the basis of the said reasons recorded, accords its sanction to the issue of such, notice.

34. The observations made by the Supreme Court in the case of Calcutta Discount Co. [1961] 41 ITR 191 were made with regard to the report of the ITO to the Commissioner and not with regard to the recorded reasons.

35. In H.A. Nanji & Co. : [1979]120ITR593(Cal) , the Division Bench has not noticed the same.

36. In Chhugamal Rajpal [1971] 79 ITR 603 the Supreme Court made a clear distinction between the recorded reasons and the said report of the ITO and observed that the order sheet recording the reasons by the ITO as required by 149(2) of the I.T. Act, 1961, was not produced before the Supreme Court but only the report submitted by him to the Commissioner was produced. The form of the report has been set out by the Supreme Court. From the wordings of item No. 7 of the said form it appears that the brief reasons for starting the proceedings for reopening mentioned therein might not be the same thing as the reasons recorded under Section 1(2) of the said Act. In item No. 7 of the said report it is clearly stated that the ITO has to give his brief reasons for starting proceedings under 147 indicating the items which are believed to have escaped assessment, although it might be said, that for avoiding duplication of work, the ITO may in certain cases annex a copy of the reasons recorded by him to the said report under item No. 7 of such report. If the ITO gives his brief reasons in accordance with item No. 7 of the said report separately, he has nevertheless to send a copy of the reasons recorded by him for obtaining sanction under Section 151 of the Act as such sanction is given not on the basis of such report but on the basis of the reasons recorded under Section 148(2) of the Act. There is no provision in the Act for such report and, as admitted by the learned counsel for the respondents, the forms and the report have been improvised by the I.T. Dept. for convenience. If the ITO disclosed further or additional reasons in his affidavit before the court which are not stated in the recorded reasons such further or additional reasons would not, therefore, be before the Board or the Commissioner for their consideration for the purpose of according their sanction.

37. The I.T. Act does not provide that for the issue of a notice under Section 34 of the old Act or Section 148 of the new Act satisfaction of the court was necessary but such satisfaction under the statute had to be that of the Board or of the Commissioner, as the case might be. Thus, if any additional reasons were disclosed by the ITO in his affidavit before the court in support of his action in reopening the assessment on which the court might be satisfied as to the validity of the proceedings, that would not, in our opinion, validate the proceedings, if the reasons recorded under Clause (iii) of the first proviso to Section 34(1) of the old Act or 148(2) of the new Act were not sufficient for the initiation of the proceedings or for the grant of a sanction by the Board or the Commissioner, as the case might be. The ITO, however, in his affidavit filed in court could explain or elaborate or clarify the reasons recorded by him but could not thereby introduce new grounds or new reasons or new materials which were not to be found in the recorded reasons either expressly or by necessary implication.

38. The Division Bench of this court in H.A. Nanji & Co. : [1979]120ITR593(Cal) did not advert to the above aspect of the matter and did not notice the distinction made by the Supreme Court in Chhugamal Rajpal : [1971]79ITR603(SC) between the report of the ITO and the recorded reasons.

39. In the recorded reasons respondent No. 1 merely noted the information received by him from the informer. He also noted that he found from Ramnath Tulsyan when he appeared before him in response to a summons under 131 of the new Act and produced certain papers and documents. Respondent No. 1 also noted that he issued summons under 131 of the new Act to the appellant and also wrote several letters asking the appellant to procure certain books and documents relating to the previous year relevant to the assessment year 1952-53 which were not complied with by the appellant. It was for respondent No. 1 to draw his own conclusion from the facts and materials recorded by him. The prima facie conclusions which he drew from the said facts and materials were that the Assam Jute Traders was merely a devise employed by the appellant to reduce its incidence of tax and in view of the refusal of the appellant to comply with the summons under 131 of the new Act and with the requisitions contained in the letters written to the appellant he further concluded that the reluctance on the part of the appellant to face an enquiry in the matter indicated that all was not above board. It appears that respondent No. 1 had merely a vague feeling or suspicion that there might be something wrong with the said transactions of the appellant with the Assam Jute Traders. He, therefore, wanted to make an investigation in the matter and for that purpose issued summons under 131 of the new Act to Ramnath Tulsyan but although Ramnath Tulsyan appeared before him and produced his papers and documents pursuant to the said summons, respondent No. 1 found very little from Ramnath Tulsyan which could afford him any reason for the formation of the belief that any income of the appellant for the said assessment year had escaped assessment. The other steps taken by respondent No. 1 for such investigation was service of summons under 131 of the new Act and issue of letters to the appellant asking for production of certain books and documents and because of the refusal of the appellant to comply therewith respondent No. 1 merely suspected that all was not above board. Respondent No. 1 has not drawn any prima facie conclusion that the said transactions of the appellant with the Assam Jute Traders were bogus or not genuine. The conclusion drawn by respondent No. 1 does not fulfil either the requirements of 148(2) or of Section 151(1) of the new Act. The said sections require that the ITO must give his reasons, that is, he must have some prima facie grounds for taking action under 147 and for the issue of a notice under Section 148 of the new Act. The recorded reasons do not contain any grounds or reasons which could lead to the conclusion that it was a fit case for the issue of a notice under Section 148 of the new Act. We do not find that respondent No. 1 had any material before him which could fulfil the requirements of Section 147(a) of the new Act so as to enable him to issue the impugned notice under Section 148 of the new Act.

40. The reasons recorded by respondent No. 1 also do not contain any grounds or reasons for the formation of his belief that income of the appellant exceeding Rs. 50,000 escaped assessment. There is no nexus or connection between the facts recorded and formation of such belief, if any.

41. There are also no facts or materials from which it could be inferred that there was any failure on the part of the appellant to disclose any material facts and that due to such failure on the part of the appellant any income of the appellant had escaped assessment.

42. In paras. 3 and 14 of the petition the appellant has categorically stated that at the original assessment for the assessment year 1952-53, detailed particulars and statements relating to its dealings with various companies including Assam Jute Traders were furnished to the assessing ITO and the books of account and the relevant bills, vouchers and other documents were produced and the representatives of the appellant, namely, Mr. D. N. Sharma, advocate, and Ramnath Tulsyan, the accountant of the appellant, had full discussions with the assessing ITO with regard to the transactions of the appellant including those with Assam Jute Traders, who upon examination of the materials produced before him was satisfied about the said transactions and accordingly completed the assessment. The said allegations have, however, been denied by respondent No. 1 although he was not the assessing ITO. Respondent No. 1 could not have any knowledge as to what transpired before the assessing ITO in the original assessment. The only person who could have dealt with the said allegations made by the appellant was C. R. Nair, the assessing ITO, and not H. S. Serana, the respondent No. 1. . There is no affidavit by the said assessing ITO denying or disputing the said allegations made by the appellant. There is also an affidavit by Ramnath Tulsyan corroborating the said statements made in the petition. The respondents obtained leave of the court to make a further affidavit and pursuant thereto a supplementary affidavit was filed which was again made by respondent No. 1. No affidavit was made by the assessing ITO dealing with the said affidavit of Ramnath Tulsyan. The said allegations made in the petition and in the said affidavit of Ramnath Tulsyan not having been controverted by the assessing ITO by filing an affidavit, it must, therefore, be accepted that all relevant documents and papers including the said statements were produced by the appellant before the assessing ITO and the authorised representatives of the appellant had discussions in the matter with the assessing ITO.

43. It follows, therefore, that in the original assessment the appellant disclosed before the assessing ITO all the primary facts necessary for the said assessment and discharged the obligations that lay upon it by disclosing and producing its books of account and other evidence and documents from which all the material facts could be discovered. It was for the assessing ITO to make further enquiry if he was not satisfied with the books, papers and documents produced by the appellant and to find out whether the transactions shown by the appellant were genuine or false. No duty is cast upon the appellant to inform the assessing ITO as to who were the owners or proprietors of the various concerns to whom jute was sold or from whom jute was purchased by the appellant or with whom it had the other transactions. The appellant could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the assessing ITO that its transactions with Assam Jute Traders were bogus or not genuine. Respondent No. 1, if at all, has merely stated his belief that the income of the appellant exceeding Rs. 50,000 has escaped assessment but he has not set out any materials on the basis whereof he formed such belief. Even construing the recorded reasons in a manner most favourable to the respondents there is nothing in the recorded reasons to indicate that respondent No. 1 had any reasons to believe that there was any failure on the part of the appellant to disclose fully and truly all material facts necessary for its assessment for the assessment year 1952-53.

44. The CBDT also in giving its sanction to the initiation of the proceedings under 147 of the new Act did not apply its mind and acted in a perfunctory manner and accorded its permission mechanically. 11 the Board had only gone through the recorded reasons carefully then it could not have come to the conclusion on the materials before it that it was a fit case for taking action under Section 147(a) and for the issue of a notice under Section 148 of the new Act. The important safeguards enjoined in Sections 147 and 151 of the new Act were not given their due consideration by respondent No. 1 as well as by the Board.

45. We are, therefore, of the opinion that the conditions precedent for the initiation of the proceedings under 147 of the new Act and for the issue of the impugned notice under Section 148 of the said Act have not been fulfilled and the impugned notice is, therefore, invalid and unsustainable and should be quashed.

46. Our above view is sufficient to dispose of this appeal but since arguments have been made on other aspects of the matter we, therefore, feel it proper that we deal with the same.

47. It was contended on behalf of the appellant that respondent No. 1 had neither any right nor any power nor any jurisdiction to reopen the said assessment either under the new Act or under the old Act.

48. To appreciate the arguments advanced on behalf of the appellant in that behalf, it is necessary to set out the relevant portions of Sections 297, 147 and 149 of the new Act and/or Section 34 of the old Act prior to and after its amendment by the Finance Act, 1956, and by the Indian I.T. (Amend.) Act, 1959.

1. I.T. Act, 1961.

'297. Repeals and savings.--(1) The Indian Income-tax Act, 1922 (XI of 1922), is hereby repealed.

(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act),--...

(d) where in respect of any assessment year after the year ending on the 31st day of March, 1940,--...

(ii) any income chargeable to tax had escaped assessment within the meaning of that expression in 147 and no proceedings under Section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under Section 148 may, subject to the provisions contained in 149 or Section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly....' '147. If--

(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or......'

'149. (1) No notice under Section 148 shall be issued,--(a) in cases falling under Clause (a) of 147--

(i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under Sub-clause (ii);

(ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year;........ '

2. Indian I.T. Act, 1922: .

Section 34, prior to its amendment by the Finance Act, 1956 :

' 34. Income escaping assessment.--(1) If--

(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed..........

he may in cases falling under Clause (a) at any time within eight years and in cases falling under Clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act, shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section:

Provided that--

(i) the Income-tax Officer shall not issue a notice under this sub-section, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice;......... '

Section 34, after its amendment by the Finance Act, 1956:

' 34. Income escaping assessment.--(1) If--

(a) The Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or......

he may in cases falling under Clause (a) at any time and in cases falling under Clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section:

Provided that the Income-tax Officer shall not issue a notice under Clause (a) of Sub-section (1)--

(i) for any year prior to the year ending on the 31st day of March, 1941 ;

(ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March, 1941 ;

(iii) for any year, unless he has recorded his reasons for doing so, and, in any case falling under Clause (ii), unless the Central Board of Revenue, and in any other case, the Commissioner, is satisfied on such reasons recorded that it is a fit case for the issue of such notice.........'

3. Amendment of Section 34 of the Indian I.T. Act, 1922, made by the Indian I.T. (Amend.) Act, 1959:

'2. Amendment of Section 34.--In Section 34 of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the principal Act), after Sub-section (3), the following sub-section shall be inserted, namely:--

'(4) A notice under Clause (a) of sub-section (1) may be issued at any time notwithstanding that at the time of the issue of the notice the period of eight years specified in that sub-section before its amendment by Clause (a) of Section 18 of the Finance Act, 1956 (18 of 1956), had expired in respect of the year to which the notice relates '.'

'4. Saving of notices, assessments, etc., in certain cases.--No notice issued under Clause (a) of Sub-section (1) of Section 34 of the principal Act at any time before the commencement of this Act and no assessment, reassessment or settlement made or other proceeding taken in consequence of such notice shall be called in question in any court, tribunal or other authority merely on the ground that at the time the notice was issued or at the time the assessment or reassessment was made, the time within which such notice should have been issued or the assessment or reassessment should have been made under that section as in force before its amendment by Clause (a) of Section 18 of the Finance Act, 1956 (18 of 1956), had expired.'

49. The Indian I.T. (Amend.) Act, 1959, came into force with effect from the 13th March, 1959.

50. Prior to the said Amendment Act of 1959, Sub-section (4) of Section 34 of the Indian I.T. Act, 1922, as well as the said saving clause as introduced by Section 4 of the said Amendment Act, were introduced by the Indian I.T. (Amend.) Ordinance, 1959, which came into force on the 17th January, 1959.

51. On behalf of the appellant, it was urged that as the original assessment was made tinder Section 23(3) of the old Act on the 29th March, 1957, long before the coming into operation of the new Act, the same was, therefore, sought to be reopened by respondent No. 1 under the new Act in exercise of the powers conferred on him under Section 297(2)(d)(ii) of the new Act.

52. It was submitted that in cases falling under Section 297(2)(d)(ii) of the new Act all the sections of the new Act need not be literally applied but only such of the sections as were relevant would be applicable with suitable modifications, if necessary. In the recorded reasons respondent No. 1 has alleged that the income which is alleged to have escaped assessment is over Rs. 50,000 but from the facts stated in the reasons recorded and also from the affidavits of respondent No. 1 it would appear that if any income did at all escape assessment the amount thereof would only be Rs. 34,283, being the difference between the purchase price of the jute at Rs. 25,99,133 by Assam Jute Traders and the sale price thereof at Rs. 26,33,416 which was much less than Rs. 50,000.

53. The said assessment was sought to be reopened under Section 147(a) of the new Act long after eight years had elapsed from the end of the said assessment year and, therefore, the reopening of the said assessment was not sustainable under 149(1)(a)(i) of the new Act. The notice of reopening of the said assessment could not also be issued by the ITO under Section 34 of the old Act, as the reopening was sought to be made after the lapse of eight years from the end of the relevant assessment year. As the amount which is alleged to have escaped assessment did not or was not likely to amount to Rs. 1 lakh or more, therefore, under Section 34(1)(a) read with Clause (ii) of the first proviso thereto, the said assessment could not be reopened after eight years from the end of the relevant assessment year which expired on the 31st March, 1961, Thus, the reopening of the assessment was bad both under the new Act as well as under the old Act.

54. It was further urged that Section 297(2)(d)(ii) of the new Act being the only provision which could be applicable to the instant case, if the reopening had become barred under the old Act, it could not be reopened under the new Act by the issue of a notice under Section 148 of the new Act by taking recourse to Section 297(2)(d)(ii) of the new Act, as the said section could not revive proceedings which had already become barred under the old Act.

55. Before the amendment of the old Act in 1956, by the Finance Act of 1956, the ITO could reopen an assessment under Section 34(1)(a) of the old Act at any time within eight years. The first proviso to the said section was substituted by a new first proviso by Section 18 of the Finance Act, 1956, whereby Clause (ii) of the said proviso was introduced limiting the power of the ITO to reopen an assessment after the expiry of eight years from the end of the relevant assessment year, only if the amount of the escaped income exceeded or was likely to exceed Rs. 1 lakh or more, and if such amount was less than Rs, 1 lakh, then the assessment could be reopened only within eight years. The cumulative effect of the said amendment by the Finance Act, 1956, which came into force on 1st April, 1956, was, firstly, if the escaped income was Rs. 1 lakh or more, the assessment could be reopened at any time under Section 34(1)(a) but if it was less than Rs. 1 lakh, it could be reopened under Clause (ii) of the new first proviso only within eight years. The said amendment was not given retrospective effect. To obviate the difficulties created by the above provision, Sub-section (4) was inserted in Section 34 by Section 2 of the Indian I.T. (Amend.) Act, 1959, which sought to validate the reopening of an assessment where an income amounting to Rs. 1 lakh or more escaped assessment in respect of assessment years, the period of eight years in respect whereof had elapsed prior to 1st April, 1956,

56. It was also urged that the above question was not one of mere limitation which might not be decided in writ petition but was a question intimately connected with the jurisdiction of the ITO to initiate proceedings for the reopening of an assessment and to issue notice for that purpose, be it under Section 34 of the old Act or under Sections 147 and 148 of the new Act. It was submitted that the appellant could not take this ground in the petition specifically as the reasons for initiating the proceedings for reopening of the said assessment were not disclosed by the ITO earlier. No proceeding for reopening of an assessment after the expiry of eight years from the end of the assessment year, the assessment in respect whereof is sought to be reopened, could be initiated by the ITO under the old Act unless the income which escaped assessment amounted to or was likely to amount to Rs. 1 lakh or more so as to enable him to issue a notice under Section 34(1)(a) of the old Act which was a condition precedent to the initiation of the proceeding and issue of a notice for reopening of the assessment. As soon as the recorded reasons were disclosed by the ITO, the point that the ITO had no jurisdiction to initiate the proceeding for reopening the said assessment and to issue the impugned notice for the said purpose was taken specifically in the affidavit-in-reply, which was also urged in the court below. This is a pure question of law and in any event a point taken in the affidavit-in-reply cannot be ignored by the court particularly when it was alleged to be argued at the hearing. The respondents had full notice of the said point taken by the appellant in the affidavit-in-reply and had ample opportunity to deal with the same in the supplementary affidavit affirmed by respondent No. 1. The court below erred in holding that the above point was a pure question of limitation. It was also urged on behalf of the appellant that unless specific provision was made either expressly or even by necessary implication abrogating the provisions contained in the first proviso to Section 34(1) of the old Act the same could not be ignored under the new Act so as to enable the ITO to reopen an assessment which could not be reopened under the provisions of Section 34 of the old Act. Section 297(2)(d)(ii) of the new Act did not either expressly or even by necessary implication authorise the ITO to reopen an assessment completed under the old Act and reopening whereof could not be done under the old Act as the time for reopening such assessment under the old Act had long expired.

57. In support of the above contentions reliance was placed on behalf of the appellant on the following observations :

1. Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) , where the Supreme Court made the following observations (p. 206):

'Learned counsel seems to suggest that as soon as the Income-tax Officer has reason to believe that there has been under-assessment in any year he has jurisdiction to start proceedings under Section 34 by issuing a notice provided eight years have not elapsed from the end of the year in question, but whether the notices should have been issued within a period of four years or not is only a question of limitation which could and should properly be raised in the assessment proceedings. It is wholly incorrect, however, to suppose that this is a question of limitation only not touching the question of jurisdiction. The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an underassessment has resulted from non-disclosure he shall have jurisdiction to start proceedings for reassessment within a period of eight years; and where he has reason to believe that an under-assessment has resulted from other causes he shall have jurisdiction to start proceedings for reassessment within four years. Both the conditions, (i) the Income-tax Officer having reason to believe that there has been under-assessment and (ii) his having reason to believe that such under-assessment has resulted from non-disclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of four years.'

2. Nathalal Dhanjibhai v. K. P. Majumdar, 1TO : [1966]59ITR615(Guj) . Here on the 23rd January, 1957, the ITO issued a notice under Section 34(1) of the Indian I.T. Act, 1922, for the reopening of the assessment of the assessee for the assessment year 1950-51 and the reassessment was completed by adding the sum of Rs. 35,502 as income of the assessee from undisclosed sources. In appeal by the assessee against the said reassessment the AAC directed assessment of the said amount in the assessment year 1949-50. Pursuant to such direction the ITO issued another notice on the assessee under Section 34(1) of the said Act on the 16th December, 1968. The said notice was issued with the permission of the Commissioner. The assessee challenged the validity of the said notice, inter alia, on the ground that the same being issued after the expiry of eight years after the end of the relevant assessment year was bad and as such the reopening could be made after the expiry of eight years only if the income escaped was or was likely to be Rs. 1 lakh or more. Admittedly, the impugned notice was issued after the expiry of eight years from the end of the relevant assessment year. It was, inter alia, urged on behalf of the revenue that the impugned notice was saved by Sub-section (4) of Section 34 inserted by the Indian I.T. (Amend.) Act, 1959. The Gujarat High Court observed as follows (p. 621):

'Section 4 of Act 1 of 1959, inter alia, provides that no notice issued under Clause (a) of Sub-section (1) of Section 34 at any time before the commencement of Act 1 of 1959 shall be called in question in any court, tribunal or other authority, merely on the ground that at the time the notice was issued, the time within which such notice should have been issued under that section as in force before its amendment by Clause (a) of Section 18 of the Finance Act, 1956 (XVIII of 1956), had expired. But it will be noticed that in Sub-section (4), the crucial words are 'that at the time of the issue of the notice the period of eight years specified in that sub-section (i.e. Sub-section (1)) before its amendment by Clause (a) of Section 18 of the Finance Act, 1956, had expired in respect of the year to which notice relates'. It is clear that Sub-section (4) relates to cases to which Sub-section (1) of Section 34, as it stood prior to April 1, 1956, applied and to which there was a time-limit of eight years, and not to cases to which that sub-section, as amended by the 1956 Act, whereby the time-limit was removed, applied. Corresponding words are also to be found in Section 4 of Act 1 of 1959. That section also provides that no notice issued under Section 34(1)(a) shall be questioned merely on the ground that at the time it was issued, the time within which it should have been issued had expired 'under that section, as in force before its amendment by Clause (a) of Section 18 of the Finance Act, 1956 (XVIII of 1956)'. Reading these two provisions together makes it fairly clear that the intention of the legislature in enacting these two provisions was to save notices issued after the lapse of eight years after the assessment year, which period applied under Section 34(1) which was in force before April 1, 1956. That being the position, neither of these two provisions would apply to the present case where the assessment, year being the year 1949-50, the eight year period lapsed in 1957-58, i.e., after the enactment of Act XVIII of 1956 under which there was no time-limit whatsoever in respect of notices issued under Section 34(1)(a).' 3. Third ITO v. M. Dawodar BHat : [1969]71ITR806(SC) . In this case, the Supreme Court construed the scope and effect of Section 297(2)(j) of the I.T. Act, 1961, vis-a-vis, the provisions of the Indian I.T. Act, 1922, and observed as under (p. 813): 'But in a case falling within Section 297(2)(j) of the new Act, for example, in a proceeding for recovery of tax and penalty imposed under the old Act, it is not required that all the sections of the new Act relating to recovery and collection should be literally applied but only such of the sections will apply as are appropriate in the particular case and subject, if necessary, to suitable modifications. In other words, the procedure of the new Act will apply to the cases contemplated by Section 297(2)(j) of the new Act mutatis mutandis.'

58. J. P. Jani, 1TO v. Induprasad Devshanker Bhatt : [1969]72ITR595(SC) . Here the assessment of the assessee for the assessment year 1947-48 was completed by the ITO on the 31st January, 1952. Subsequently, the ITO reopened the said assessment under Section 34(l)(a) of the Indian I.T. Act, 1922, and made a reassessment determining the total income of the assessee at Rs. 89,000 including the escaped income, which being challenged by the assessee in an appeal before the AAC, was set aside and quashed on the 5th January, 1953. In the meantime, the Indian I.T. Act (the old Act) had been repealed and the I.T. Act, 1961 (the new Act), had come into force with effect from 1st April, 1962. On the 4th January, 1963, the ITO issued a notice to the assessee to show cause why proceedings under Section 147(a) of the new Act should not be taken against him which was objected to by the assessee on the grounds that the same was time-barred Under the old Act and the new Act had no application. The ITO nevertheless issued a notice under Section 148 of the new Act on 13th November, 1963, and another notice dated 9th January, 1964, under Section 142(1) of the new Act. The assessee made a writ petition to the Gujarat High Court challenging the said notices. The High Court held that under Section 297(2)(d)(ii) of the new Act a notice under Section 148 of the new Act could not be issued by the ITO to reopen the assessment if the right to reopen the same was barred under the old Act on the date when the Act came into force and in the present case the reopening of the assessment was admittedly barred in Section 34(l)(a) of the old Act at the commencement of the new Act and quashed the impugned notices. The ITO appealed to the Supreme Court. The Supreme Court observed that Sections 147 to 151 referred to in Section 297(2)(d)(ii) of the new Act and Sections 151 to 153 were the provisions of the new Act corresponding to Section 34 of the old Act. In the new Act Section 34 of the old Act was split up into Sections 147 to 153 but 149 laid down different time-limits for issuing notices and in cases falling within Clause (a) of 147, corresponding to Clause (a), Sub-section (1) of Section 34. The Supreme Court held as under (pp. 601, 603):

'In our opinion, it is not permissible to construe Section 297(2)(d)(ii)of the new Act as reviving the right of the Income-tax Officer to reopen the assessment which was already barred under the old Act. The reason is that such a construction of Section 297(2)(d)(ii) would be tantamount to giving of retrospective operation to that section which is not warranted either by the express language of the section or by necessary implication. The principle is based on the well-known rule of interpretation that, unless the terms of the statute expressly so provide or unless there is a necessary implication, retrospective operation should not be given to the statute so as to affect, alter or destroy any right already acquired or to revive any remedy already lost by efflux of time... We consider that the language of the new section must be read as applicable only to those cases where the right of the Income-tax Officer to reopen an assessment was not barred under the repealed section. In our view the new statute does not disclose in express terms or by necessary implication that there was a revival of the right of the Income-tax Officer to reopen an assessment which was already barred under the old Act. This view is borne out by the decision of this court in S. S. Gadgil v. Lal and Co. : [1964]53ITR231(SC) .......In our dpinion the principle of this decision applies in the present case and it must be held that, on a proper construction of Section 297(2)(d)(ii) of the new Act, the Income-tax Officer cannot issue a notice under Section 148 in order to reopen the assessment of an assessee in a case where the right to reopen the assessment was barred under the old Act at the date when the new Act came into force. It follows, therefore, that the notices dated November 13, 1963, and January 9, 1964, issued by the Income-tax Officer, Ahmedabad, were illegal and ultra vires and were rightly quashed by the Gujarat High Court by the grant of a writ.'

59. On behalf of the respondents it was urged that for assuming jurisdiction under Section 34 of the old Act or under 147 of the new Act for initiating proceedings for the reopening of an assessment, the formation of the two beliefs, namely, that the assessee had failed to disclose fully and truly all material facts for the assessment and, secondly, due to such failure income had escaped assessment, were the two conditions precedent laid down by the Supreme Court. The Supreme Court has also laid down that for the exercise of jurisdiction for the reopening of an assessment under Section 34(1)(a) of the old Act or under Section 147(a) of the new Act the ITO has, firstly, to record his satisfaction and thereafter to obtain sanction of the Commissioner or the Board; as the case may be, and, lastly, he has to serve a valid notice on the assessee. It was submitted that after the ITO had formed his requisite beliefs as aforesaid, the other steps which had to be taken were merely procedural. The first proviso to Section 34(1)(a) also provides that the ITO shall not issue a notice unless the income that had escaped assessment amounted to or was likely to amount to Rs. 1 lakh or more. This is not a matter of formation of belief of the ITO and is a question of fact to be decided in the proceedings before the ITO after the assessment has been reopened. If it is less than rupees one lakh the proceedings would- not be sustained but if it is Rs. 1 lakh or more, then the proceedings would be sustained. This question, therefore, cannot be decided in a writ petition. The bar of eight years is a limitation on the power of the ITO to reopen an assessment if the income escaped is less than Rs. 1 lakh and as eight years have elapsed from the end of the relevant assessment year, the reopening is barred by time. Thus, the fact which had to be ascertained, whether the income which has escaped assessment is Rs. 1 lakh and whether the reopening of the assessment is barred by time under the first proviso to Section 34 of the old Act or not, cannot be gone into and decided in a writ petition.

60. It was urged that in this case the reopening of the assessment was not made by the ITO on account of escapement of the amount of difference between the purchase price and sale price of jute by Assam Jute Traders. The information on which the ITO acted was that there was defalcation of about Rs. 40 lakhs and the transaction between the appellant and the Assam Jute Traders was a bogus transaction and merely a device to reduce the incidence of tax of the appellant. Thus, the escapement of income for which the reopening was sought to be made was to the extent of several lakhs but as the ITO had reopened the assessment under 147 of the new Act he, therefore, recorded that the income escaped was more than Rs. 50,000 which satisfied the provisions of the new Act. It was urged that the new Act was not an Act amending the old Act but it repealed and replaced the old Act. The new Act contains many provisions which are definite departures from the provisions of the old Act. Under the old Act in reopening an assessment under Clause (b) of Sub-section (1) of Section 34 there was no necessity for the ITO to record his reasons but under the new Act for reopening an assessment both under Clauses (a) and (b) of 147 reasons have to be recorded. The time-limit for the issue of a notice under 149 of the new Act is also different from that under Section 34 of the old Act and the amount of escapement for which notice can be issued for reopening after the lapse of eight years is also reduced to Rs. 50,000 or more under the new Act in place of Rs. 1 lakh or more as provided in Section 34 of the old Act. There are also various other differences between the two Acts.

61. It was further urged that Section 297 of the new Act does not bring in expressly or even by implication the provisions of Section 34 of the old Act in the case of reopening of an assessment which had been made under the old Act, Even if Section 34 came into the picture the same did not in anyway affect the jurisdiction of the ITO to reopen the assessment under the new Act. It was next urged that even if it is ultimately found in the reassess-ment proceedings that the income which escaped assessment was less than Rs. 1 lakh, the present proceedings initiated under Section 147(a) of the new Act could not be stopped or restrained on the ground of bar of time. At this stage, it is not possible to presume or assume that the income which escaped assessment could be less or more than Rs. 1 lakh. The provisions of the Finance Act, 1956, or of the Indian I.T. (Amend.) Act, 1959, did not in any way affect the present reopening. The decisions cited on behalf of the appellant were clearly distinguishable.

62. It was lastly urged that in Calcutta Discount Co. 's case : [1961]41ITR191(SC) , the Supreme Court found that the ITO had no reason at all and did not form the necessary belief for reopening the assessment. It was only in the context of the arguments of Mr. Shastri appearing for the revenue that the time-limit for the issue of a notice as provided in Section 34 of the old Act question of limitation which could be raised only in an assessment proceeding (sic), that the Supreme Court observed that the scheme of the statute was that if the ITO had reason to believe that an underassessment had resulted from non-disclosure he would have jurisdiction to start proceedings for reassessment within a period of 8 years but if such under-assess-ment resulted from any other cause, such proceedings could be started within a period of 4 years only and, therefore, the conditions for reopening of the assessment in both the cases were jurisdictional facts and not merely a question of limitation. It was contended that the position would be different if there were materials for the formation of the belief by the ITO that there was non-disclosure of material facts by the assesseedue to which the income had escaped assessment. In case, if any dispute is raised as to the period for the issue of a notice for reopening of the assessment, that would be purely a question of limitation which should not be gone into in a writ petition.

63. In support of his contentions, the learned counsel for the respondents cited the following cases:

1. Lalji Haridas v. ITO : [1961]43ITR387(SC) . In this case, the appellant challenged in a writ petition the issue of a notice by the ITO fixing the date of hearing of the assessment procedings of the appellant for the assessment year 1952-53, inter alia, on the ground that the said assessment proceedings were barred by limitation under Section 34(3) of the Indian I.T. Act, 1922, and that the initiation of the said proceedings was, therefore, without jurisdiction and illegal. The Supreme Court held, that the question of limitation should be raised before the ITO and the same could not be legitimately agitated in writ proceedings.

S. S. Gadgil v. Lal and Co. : [1964]53ITR231(SC) . Here on March, 27, 1957, the ITO issued a notice under Section 34 of the Indian I.T. Act, 1922, for assessment of the assessee for the assessment year 1954-55 as an agent of certain non-resident parties. The assessee objected to such assessment, inter alia, on the ground that the action of the ITO under Section 34 was time-barred at the date of the issue of the notice, which, was rejected by the ITO relying on the first proviso to Section 34(1)(b)(iii) inserted by the Finance Act, 1956, on the ground that by the said amendment the time-limit was extended in clear and express terms so as to cover his action under Section 34 for the said assessment years and he completed the said assessment making the assessee liable for certain income as agent of the non-resident. The assessee filed a writ petition in the Bombay High Court challenging the said action of the ITO. The High Court held that the said notice dated March 27, 1957, was invalid and the proceeding under Section 34 was not maintainable. The ITO appealed to the Supreme Court. The Supreme Court made the following observations (p. 238):

'A proceeding for assessment is not a suit for adjudication of a civil dispute. That an income-tax proceeding is in the nature of a judicial proceeding between the contesting parties, is a matter which is not capable of even a plausible argument. The income-tax authorities who have power to assess and recover tax are not acting as judges deciding a litigation between the citizen and the State : They are administrative authorities whose proceedings are regulated by statute, but whose function is to estimate the income of the taxpayer and to assess him to tax on the basis of that estimate. Tax legislation necessitates the setting up of machinery to ascertain the taxable income, and to assess tax on the income, but that does not impress the proceeding with the character of an action between the citizen and the State......

Again the period prescribed by Section 34, for assessment is not a period of limitation. The section in terms imposes a fetter upon the power of the Income-tax Officer to bring to tax escaped income. It prescribes different periods in different classes of cases for enforcement of the right of the State to recover tax.'

3. Lalji Haridas v. R. H. Bhatt : [1965]55ITR415(SC) . Here the ITO issued a notice on the assessee ufider Section 46(1 )(a) of the Saurashtra Income-tax Ordinance, 1949, corresponding to Section 34(1)(a) of the Indian I.T. Act, 1922. The ITO completed the assessment pursuant to the said notice, adding a large amount as income of the assessee. On appeal by the assessee, the AAC set-aside the said assessment and remanded the matter to the ITO for fresh assessment. Thereupon the ITO issued two notices asking the assessee to appear before him and to produce certain evidence. The assessee challenged the said notices as being barred by time in a writ petition before the Gujarat High Court and also preferred an appeal against the remand order before the Income-tax Appellate Tribunal. The matter ultimately went up before the Supreme Court and the Supreme Court observed as follows (p. 418):

'Mr. Pathak for the appellant attempted to argue that the notice issued against the appellant is, on the face of it, invalid, because it is barred by time. We did not allow Mr. Pathak to develop this point, because we took the view that a plea of this kind must ordinarily be taken before respondent No. 1 himself. The jurisdiction conferred on the High Court under Article 226 is not intended to supersede the jurisdiction and authority on the Income-tax Officers to deal with the merits of all the contentions that the assessee may raise before them, and so it would be entirely inappropriate to permit an assessee to move the High Court under Article 226 and contend that a notice issued against him is barred by time. That is a matter which the income-tax authorities must consider on the merits in the light of the relevant evidence.' 4. Pilani Investment Corporation Ltd. v. ITO : [1968]69ITR847(Cal) . Here the ITO issued a show-cause notice dated the 13th May, 1964, to the assessee proposing to apply and to make an order under Section 23A of the Indian I.T. Act, 1922, against the asseasee which was objected to by the assessee. The assessee thereupon made a writ petition in this court challenging the said notice contending that an order under Section 23A of the Act was an order of assessment or reassessment within the meaning of the Act including Section 34(3) thereof and under Section 34(3) the ITO ad no jurisdiction to make any order of assessment or reassessment after the expiry of four years commencing from 1st April, 1956, as the relevant assessment year ended on the 31st March, 1956, and the impugned notice having been issued after the expiry of the said time-limit was illegal and bad. A single judge of this court, relying on the decision of the Supreme Court in Lalji tiaridas v. R, H. Bhatt : [1965]55ITR415(SC) and Lalji Haridas v. ITO : [1961]43ITR387(SC) , observed as follows (p. 857) :

'The two decisions of the Supreme Court discussed above have set at rest any controversy on the question whether an Income-tax Officer has jurisdiction to deal with the question of limitation raised by an assessee. The statute had created a bar of limitation regarding assessment orders in certain cases. The statute has also given the income-tax authorities the power to make such assessment order in cases where the bar of limitation did not apply. It was for the income-tax authorities, therefore, to decide whether an assessment order could be made having regard to the contention raised on behalf of the petitioner. It is not, in my view, a case of inherent lack of jurisdiction. Indeed, it is the income-tax authorities alone who have the jurisdiction to come to a decision on the question of the bar of limitation and they must decide this question. The writ jurisdiction of this court cannot, in my view, be invoked for a decision in the matter in which the statute has expressly conferred jurisdiction upon the income-tax authorities.' 4. ITO v. R. M. Subramania Iyer [1970] 77 ITR 453. In this case, the assessee challenged in a writ petition before the Kerala High Court a notice issued by the ITO under 147 and another notice under Section 143(2) of the I.T. Act, 1961. One of the [grounds of attack to the said notices being that the same was barred by time, the High Court, relying on the decision of the Supreme Court in Lalji Haridas v. R. H. Bhatt : [1965]55ITR415(SC) , held that the said decision of the Supreme Court concluded the matter about the exercise of jurisdiction by the High Court under art, 226 of the Constitution such matters and the objection raised by the assessee should, therefore, be considered by the ITO and not by the High Court.

5. CIT v. B. R. Vasa : [1979]116ITR940(Cal) . Here the assessee, B. R. Vasa, had been assessed to income-tax for the assessment year 1947-48, the relevant previous year being the financial year ending on the 31st March, 1947. On the 29th March, 1964, the ITO issued a notice under 147 of the I.T. Act, 1961, for reopening the said assessment and the reassessment was completed by the ITO. The appeal by the assessee before the AAC failed. On further appeal by the assessee before the Tribunal, it was contended that the, reassessment was time-barred under Section 34 of the Indian I.T. Act, 1922, on the 21st March, 1962, and, therefore, the proceeding was not validly initiated. The Tribunal relying on the decision of the Supreme Court in J. P. Jani, ITO v. Induprasad Devshanker Bhatt : [1969]72ITR595(SC) upheld the contention of the assessee and allowed the appeal.

64. The revenue came up in a reference before this court. In the reference on behalf of the revenue it was contended that in J. P. Jani, ITO v. Induprasad Devshanker Bhatt : [1969]72ITR595(SC) before the Supreme Court it was admitted on behalf of the revenue that the right of the ITO to reopen the assessment for the year 1947-48 had become time-barred under the 1922 Act before the 1961 Act came into force and on that basis the Supreme Court held that it was not permissible to construe Section 297(2)(d)(ii) of the 1961 Act as reviving the right of the ITO to reopen the assessment already barred and such construction which was not warranted either by the express language thereof or by implication and held that the said reassessment was barred. It was further contended that the Supreme Court in that case did not consider or construe Section 34(4) of the 1922 Act which clearly indicated that a notice under Section 34(1)(a) of the 1922 Act could be validly issued up to the time when the new Act come into force.

65. The amicus curiae on the other hand cited another decision of the Supreme Court in S. C, Prashar v. Vasantsen Dwarkadas : [1963]49ITR1(SC) , where the Supreme Court considered s. 4 of the Indian I.T. (Amendment) Act, 1959, and Sub-section (4) of Section 34 of the Indian I.T. Act, 1922, introduced by the said Amendment Act of 1959, and held that Section 34(4) of the 1922 Act validated actions initiated after the Amendment Act of 1959 came into force and Section 4 of the said Amendment Act validated notices issued under Section 34(1)(a) of the 1922 Act as amended in 1948, including notices in respect of assessment years prior to March 31, 1956.

66. A Division Bench of this court which heard the said reference, to which one of us was a party, observed that in J. P. Jani's case : [1969]72ITR595(SC) , the Supreme Court did not consider the effect of Sub-section (4) of Section 34 of the 1922 Act and proceeded solely on the concession of the revenue that the proceedings for reopening was time-barred before the 1961 Act came into force and held as under (p. 947):

'By reason of the language of Sub-section (4) of Section 34 as it stood at the relevant time and in view of the majority judgment in S. C. Prashar, reopening of the assessment in the instant case under 147 of the I.T. Act, 1961, in our opinion, must be held to be valid. On the day the I.T. Act, 1961, came into force, that is, on the 1st April, 1962, it cannot be said that the right of the ITO to reopen the assessment in the instant case had become time-barred, as up to 31st March, 1962, the ITO concerned could have issued a notice under Sub-section (4) of Section 34. In that view of the matter Section 297(2Xd)(ii) of the later Act applies to the facts of this case. The relevant assessment year 1947-48 is an assessment year after the year ending on the 31st March, 1940. The reassessment has proceeded on the basis that in this assessment year an income chargeable to tax has escaped assessment within the meaning of that expression under 147 of the new Act and no proceedings under Section 34 of the repealed Act in respect of such escaped income was pending on the 1st April, 1962. Therefore, the ITO in the instant case was justified in issuing notice under Section 148 with respect to the escaped income in the assessment year 1947-48. '

67. In B. R. Vasa : [1979]116ITR940(Cal) , the assessment year concerned was 1947-48 and the eight year period for issue of a notice under Section 34(1)(a) of the 1922 Act expired on 31st March, 1962, at a time when Section 34 of the 1922 Act had not been amended by Section 18 of the Finance Act, 1956, introducing time-limits for assessment or reassessment under the said section under the first proviso to Sub-section (1) of Section 34 of the 1922 Act. By the Indian I.T (Amend.) Act, 1959, Sub-section (4) of Section 34 was introduced whereby the ITO was authorised to issue a notice under Section 34 even if the eight-year period had elapsed, before its amendment by Section 18 of the Finance Act, 1956, which came into force with effect from the 1st April, 1956, and by s. 4 of the said Amendment Act of 1959, notices issued before the commencement of the said Amendment Act of 1959 were saved from the time-bar for the issue of such a notice before the amendment of Section 34 by Section 18 of the Finance Act, 1956. This court in B. R, Vasa : [1979]116ITR940(Cal) , therefore, held that the notice under 147 could be issued under Section 34(4) as such notice was not time-barred on 31st March, 1962, as the same could be issued at any time even if eight years had elapsed before the amendment of Section 34 by Section 18 of the Finance Act, 1956.

68. In the case before us, however, the time-limit of eight years expired on 31st March, 1961, which could not have been saved by Section 34(4) of the old Act or by Section 4 of the Indian I.T. (Amendment) Act, 1959, as the time-limit of eight years did not expire before the amendment of Section 34 by the Finance Act, 1956. As the impugned notice had not been issued at or before the time when the Indian I.T. (Amendment) Act, 1959, came into force, therefore, Section 4 of the said Amendment Act has also no application to this case. Thus, the case of B. R. Vasa : [1979]116ITR940(Cal) does not help the respondents in this case.

69. Admittedly, no proceedings for reassessment for the said assessment year under Section 34 of the old Act, were pending at the commencement of the new Act. The assessment year concerned being the assessment year 1952-53, is an assessment year after the year ending on the 31st day of March, 1940. Thus, the conditions for reopening the assessment under 147 of the new Act as provided under Section 297(2Xd)(ii) are fulfilled unless, however, such reassessment had become time-barred under the old Act. We agree with the learned counsel for the appellant that Section 297(2)(d)(ii) of the new Act does not have the effect of validating or reviving a proceeding for reassessment, either expressly or even 'by implication, which had already become time-barred' under the old Act.

70. Here the ITO was admittedly proceeding under Section 297(2)(d)(ii) of the new Act and, therefore, he had taken recourse to 147 of that Act and issued the impugned notice under Section 148 of the said Act. Section 297(2)(d)(ii) specifically provides that all the provisions of the new Act shall apply to such proceedings. It is true that all the sections of the new Act need not be literally applied to such proceedings but only such of the sections as are appropriate in a particular case would be applicable, if necessary, subject to suitable modifications, but, in our opinion, on account thereof the time limit for issue of a notice as provided by 149 of the new Act cannot be modified so as to read in 149(1)(a)(ii) that the same would be only eight years and not sixteen years or the income which has escaped assessment would amount to or would be likely to amount to Rs. 1 lakh or more instead of Rs. 50,000 or more.

71. In J. P. Jani : [1969]72ITR595(SC) , there was an admission by the revenue that the amount of the income escaped was less than Rs. 1 lakh but in this case before us there is no such admission. Here respondent No. 1 proceeded under Section 297(2)(d)(ii) of the new Act which attracted and made applicable the provisions for reopening an assessment as contained in Sections 147 to 153 of the new Act. Respondent No. 1, therefore, proceeded under the said provisions of the new Act. 149(1)(a)(ii) of the new Act makes a departure from the provisions contained in Clause (ii) of the first proviso to Section 34(1) of the old Act, inter alia, in fixing a maximum time-limit of 16 years for assessment or reassessment of escaped income and that is also only if such escaped income amounts to or is likely to amount to Rs. 50,000 or more instead of an unlimited period for such assessment or reassessment under Clause (ii) of the first proviso to Section 34(1) of the old Act, if the amount of income escaped was Rs. 1 lakh or more. As respondent No. 1 proceeded under the new Act therefore, in accordance with the provisions contained in 148(2) read with Section 149(1)(a)(ii) of the new Act he recorded his reasons that he had reason to believe that the appellant's income exceeding Rs. 50,000 for the said assessment year had escaped assessment. Under the new Act, it was not necessary to record that the amount of income which escaped assessment was Rs. 1 lakh or more or any other amount exceeding Rs. 1 lakh. In the recorded reasons the income which escaped assessment is stated to be exceeding Rs. 50,000 and neither less than Rs. 50,000 nor more than Rs. 1 lakh.

72. It is well settled that for the purpose of initiating a proceeding for reopening an assessment the ITO need not come to a definite finding or conclusion as to the amount of escapement but he must have only reason to believe, no doubt on relevant materials, as to the amount which has escaped assessment and such belief must be bona fide. The amount, if any.which has actually escaped assessment has to be found and determined in the assessment or reassessment to be made by the ITO.

73. Thus, at the initial stage when merely a notice has been issued by the ITO for reopening of an assessment, it could not be said whether the reopening is time-barred or not on the ground that the amount of escapement was not such which entitled the ITO to issue such a notice, unless of course, the notice itself specifies the amount of escapement which on the face of it bars the jurisdiction and authority of the ITO to initiate the proceeding or to issue the notice for reopening the assessment.

74. Notice in the instant case, does not, in our opinion, suffer from any such defect.

75. In our opinion, the reasons as recorded, if the same were otherwise valid, do not contain any statement from which it could be inferred or deduced that the income of the appellant which escaped assessment was less than Rs. 1 lakh. We are also unable to accept the contention raised on behalf of the appellant that because the period of eight years within which the said assessment could be reopened or the notice for such reopening could be issued, had expired long before the coming into force of the new Act, the impugned notice could not be issued by respondent No. 1 under the new Act. Section 297(2)(d)(ii) has made the provisions of the new Act applicable for reopening of an assessment made under the old Act and if the conditions for such reopening under the new Act were fulfilled the reopening would be valid. Here, on the basis of the information received, respondent No. 1 recorded, firstly, that he had reason to believe that the income of the appellant for the said assessment year had escaped assessment and, secondly, that such escapement was due to failure of the appellant to disclose fully and truly all material facts necessary for the said assessment and, thirdly, the amount of income which escaped assessment exceeded Rs. 50,000. Thus, it will be seen that if the said reasons as recorded by respondent No. 1 were otherwise valid, the conditions for reopening the said assessment under the provisions of the new Act were fulfilled. The impugned notice having been issued in or about March, 1969, was received by the appellant on the 20th March, 1969, which was within 16 years from the end of the relevant assessment year, which expired on the 31st March, 1953. Thus, in our opinion, it could not be said that the impugned notice was barred by time and the respondent No. 1 had, therefore, no jurisdiction to issue the notice on that account.

76. On the view that we have taken it is not necessary to go into the question whether the time-limits fixed for reopening of an assessment were pure questions of limitation or were jurisdictional facts or conditions precedent or whether the court should go into that question in a writ petition or not.

77. The appellant succeeds in this appeal and the appeal is, therefore, allowed. There will, however, be no order as to costs.


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