Sabyasachi Mukharji, J.
1. The challenge in this case is to the notice issued under Section 148 of the I.T. Act, 1961, dated 23rd February, 1972. The impugned notice was issued for the assessment year 1963-64. It was contended, firstly, that there are no materials for the ITO to form the belief that there was any failure or omission on the part of the assessee to disclose fully or truly any material or relevant fact or that as a result of such failure the income of the assessee has escaped assessment. It was, secondly, contended that the Commissioner was not competent on the facts and circumstances of the case to grant sanction for reopening. It was urged that there was no application of mind by the Commissioner. In answer to the rule nisi issued in this case in the affidavit in opposition on behalf of the respondent it was stated, inter alia, as follows :
'(a) The original assessment for the assessment year 1963-64 was completed on 31st August, 1964, under Section 143(3) of the Act on a total income of Rs. 23,773. The assessee claimed to have received loans from various parties including loan of Rs. 25,000 from one Lachmi Narayan Atmaram (Bombay Office--Ram Gopal Nand Kishore) of P-36, India Exchange Place on 24th May, 1962, and of Rs. 35,000 from Goel Bros. of P-36, India Exchange Place on 10th May, 1962. Confirmation letters from the alleged creditors were filed and the assessment was completed accepting the assessee's claim about the genuineness of the said loans from the aforesaid two parties.
(b) Subsequent to the completion of the original assessment information was received that one Rangabeharilal Atmaram Goel carrying on business in the name of M/s. Ramgopal Nand Kishore, Bombay, and in other names in different places, confessed before ITO, Bombay, about carrying on bogus Hawala transaction in various names one of them being Lachmi Narayan Atmaram, Calcutta. Copy of the two confessional statements of the said Sri Goel dated 2nd February, 1970, and 16th February, 1971, is enclosed and marked together as annexure 'A'. It was also noticed that the confirmation letters in both the cases of Lachmi Narayan Atmaram and Goel Bros., filed by the assessee at the time of original assessment were signed by the same person. I crave leave to refer to the confirmation certificates filed at the time of hearing.
(c) On the basis of the above information proceedings under Section 147(a) of the Act were initiated as there was reason to believe that the loan shown at least in the name of Lachmi Narayan Atmaram in the books of accounts of the assessee of Rs. 25,000 was bogus and represented the. undisclosed income of the assessee. Notice under Section 148 of the Act was issued on 23rd February, 1972, after obtaining necessary sanction of the then CIT, West Bengal. Since the address of both Lachmi Narayan Atmaram and Goel Bros, was the same and the confirmation certificate in both the cases were signed by the same person, the ITO also presumed that the transaction in the name of Goel Bros, might also be the same party, the exact nature of which would be ascertained at the time of reassessment. A copy of the ITO's report dated 31st January, 1972, addressed to the CIT, West Bengal, and enclosed with the report in connection with the starting of proceedings under Section 147 for the assessment year 1963-64 is enclosed and marked as annexure ' B'.'
2. The report in connection with the starting of the proceedings by the ITO which was annexed to the said affidavit-in-opposition stated, inter alia, as follows:
'At the time of original assessment income of Rs. 25,000 from business has not been disclosed by the assessee. I have reason to believe that for this failure and/or omission on the part of the assessee to disclose fully and truly all material facts necessary for his assessment the above income has escaped assessment.'
3. It appears that along with the report on the 31st January, 1972, the ITO had forwarded a letter to the Commissioner in which it was stated as follows:
'It appears that the assessee had loan transaction with M/s. Laxminarayan Atmaram for a sum of Rs. 25,000 on 24-5-62. As the assessee has confessed stating that the transactions are not genuine I propose to re-open the case and formal proposal Under Section 147(a) is sent separately for your kind approval.
In this connection, I am to state that I find that this year the assessee had another transaction of Rs. 35,000 on 10-5-62 with M/s. Goel Bros, having its office at P-36, India Exchange Place, Calcutta-1, and the confirmation has been signed by the same person as that of Laxminarayan Atmaram whose office is also located at P-36, India Exchange Place, Calcutta-1. I presume that this transaction may also be of the same party, i.e., R. L. A. Goel, and there is every possibility that this transaction is also not genuine. As the full confession is not with me it is not possible to ascertain if this Goel Bros, is the benami concern of R. L. A. Goel. However, as both the transactions relate to the same year, viz., 1963-64, and if the assessment is reopened Under Section 147(a) for transaction with M/s. Lachminarayan Atmaram, at the time of reassessment the transaction with Goel Bros, may be looked into if the transaction is genuine or not.'
4. Therefore, the question is whether on these materials it could be said that there were materials to form the belief that the income of the assessee had escaped assessment as a result of the failure or omission on the part of the assessee to disclose either fully or truly any material or relevant fact. The confessions were alleged to have been made by one Rangabeharilal Atmaram. He had stated that he did certain fictitious transactions and certain genuine transactions. He did not state that all his transactions were fictitious. This is important to remember. He has further stated that he did his fictitious transactions in various names including the name of Lachminarayan Atmaram. He, however, had not stated that all the transactions of his in the name of Laxminarayan Atmaram were fictitious. The present petitioner had in the relevant assessment year a loan transaction of Rs. 25,000 allegedly with Laxminarayan Atmaram. The question is whether on the materials available it could be said that the ITO was justified in believing that the income of the assessee had escaped as a result of the failure or omission on the part of the assessee to disclose fully or truly a material or relevant fact. In view of the decisions of the Special Bench of this court in the case of Lakhmani Mewal Das v. ITO : 99ITR296(Cal) it must he held that the ITO did not have materials to form the requisite belief to fulfil the condition precedent for issue of the notice under Section 148 of the Act. It appears, further, that the Commissioner could not have been satisfied properly. In the letter to the Commissioner it was stated that the assessee had confessed. That is an incorrect statement. The assessee had not confessed. It shows that there was complete non-application of mind both by the ITO and the Commissioner concerned in this matter.
5. In the aforesaid view of the matter the challenge to the notice must be upheld and the impugned notice is hereby set aside. The respondents are restrained from giving any effect to the same. If in the meantime the assessment has been completed pursuant to the impugned notice the same is also quashed.
6. The rule is made absolute to the extent indicated above. There will be no order as to cots.