This appeal of assessee is directed against order dt. 3rd Dec., 2004 passed by CIT(A)-XVI, New Delhi for asst. yr. 1998-99. first ground of appeal relates to validity of notices issued under s. 148 of IT Act, 1961. Briefly stated facts are that original assessment in this case was completed under s. 143(3) of Act on 28th Sept., 2000 at income of Rs. 3,61,830. perusal of deduction under s. 80-IA claimed by assessee reveals that certain incomes, which did not form part of business income, have been included in business income resulting in excess claim of deduction under s. 80-IA of IT Act. Accordingly, notice under s. 148 was issued to assessee within provisions of s. 147 of IT Act, 1961. In response to above notice, assessee firm filed written submissions on 9th April, 2003 whereby it was claimed that deduction under s. 80-IA was claimed correctly and requested that proceedings initiated under s. 148 may be dropped. assessee also filed return of income at Rs. 3,59,981 claiming deduction under s. 80-IA of Rs. 9,48,43,743. However, AO after having rejected said request of assessee proceeded to examine claim of deduction under s. 80-IA. AO held that interest earned from Vikas Cash Certificates (VCC) as income from other sources and accordingly reduced claim of deduction under s. 80-IA of Act. On appeal before CIT(A), assessee has submitted that notice under s. 148 for assessment/reassessment can be issued if AO has reason to believe that income chargeable to tax has escaped assessment . income for asst. yr. 1998-99 had rightly been processed under s. 143 and assessed under s. 143(3) on returned income. interest of Rs. 12,98,970 earned on VCC attributed to its Silvassa unit and has rightly been taken by assessee as business income. AO, therefore, has no reason to believe that income has escaped assessment. Further, notice under s. 148 appears to have been issued due to change of opinion on part of AO. This is against provisions of s. 147 of Act. As various Courts have held that in circumstances, provisions of s. 148 are not attracted. assessee has also taken support from decision in case of CIT vs. Kelvinator of India Ltd. (2002) 174 CTR (Del)(FB) 617: (2002) 256 ITR 1 (Del)(FB), Jindal Photo Films Ltd. vs. Dy. CIT & Anr. (1999) 154 CTR (Del) 355: (1998) 234 ITR 170 (Del) as well as decision in case of CIT & Anr. vs. Foramer France (2003) 185 CTR (SC) 512: (2003) 264 ITR 566 (SC), Saradbhai M. Lakhani vs. ITO (1998) 145 CTR (Guj) 110: (1998) 231 ITR 779 (Guj) and Mercury Travels Ltd. vs. Dy. CIT (2003) 179 CTR (Cal) 314: (2002) 258 ITR 533 (Cal). CIT(A) after having considered submissions of assessee has upheld action of AO in issuing notice under s. 148 of Act by observing as under: "4.3 I have considered facts as mentioned in impugned assessment order and submissions of appellant. While I have to agree that, as held in various cases cited by appellant, that in cases where there is mere change of opinion, AO would not be justified in reopening case under s. 148, but in instant case this argument is not applicable. In original assessment income of appellant had been under assessed on account of fact that certain incomes that did not qualify for deduction under s. 80-IA, had been allowed this benefit, even though they had not been derived from industrial undertaking of appellant. Such escaped income had to be brought to tax and there was no change of opinion, but merely detection of excess deduction granted to appellant, on basis of which AO had reason to believe that its income has escaped assessment. There was therefore no infirmity in AO s action in taking recourse to s. 147/148 to withdraw deduction granted in excess. This ground therefore fails and is dismissed." Before us, learned counsel for assessee has submitted that assessee is engaged in manufacture of industrial generators and allied products. assessee is entitled to deduction under s. 80-IA of Act being industrial undertaking situated within Union Territory of Dadra and Nagar Haveli. deduction under s. 80-IA of IT Act has already been allowed in asst. yrs. 1996-97, 1997-98 and in original asst. yr. 1998-99. interest of Rs. 12,99,917 earned on VCC is attributable to Silvassa unit had already been taken by assessee. assessee (sic AO) has, therefore, no reason to believe that income chargeable to tax has escaped assessment. notice under s. 148 appears to have been issued due to change of opinion on part of AO. He has further submitted that even though true disclosure was made by assessee and all material facts were placed on record when assessment under s. 143(3) was framed and after considering all material assessment under s. 143(3) was framed and after considering all material facts on record, deduction under s. 80-IA were allowed as claimed by assessee. Later on, after receipt of internal audit objection, AO issued notice under s. 148 solely on basis of audit objection. He has further argued that audit objections cannot be treated as information received subsequent to assessment framed for purpose of reopening of assessment. reliance in this regard has been placed upon decision in case of Indian & Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190: (1979) 119 ITR 996 (SC), CIT vs. Lucas T.V.S. Ltd. (2001) 168 CTR (SC) 311: (2001) 249 ITR 306 (SC), CIT vs. Nabe Shah (2005) 279 ITR 383 (All), CIT vs. Mettur Chemical & Industrial Corporation (2000) 242 ITR 119 (Mad). He has further argued that since assessment has been framed under s. 143(3) and not under s. 143(1), issue of notice under s. 148 on basis of internal audit report would amount to change of opinion which is not permissible in law. reliance is placed on decision in case of CIT vs. Kelvinator of India Ltd. (supra). learned counsel has further submitted assessee has disclosed fully and truly all material facts for his assessment. Thus, he has contended that impugned notice under s. 148 is not legally sustainable. On other hand, learned Departmental Representative has argued in support of impugned order while relying upon order of AO/CIT(A). He has relied upon decision in case of Consolidated Photo & Finvest Ltd. vs. Asstt. CIT (2006) 200 CTR (Del) 433: (2006) 281 ITR 394 (Del). reliance is also placed upon decision in case of Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 210 CTR (SC) 30: (2007) 291 ITR 500 (SC) wherein it has been held that taxing income escaping assessment in case of intimation under s. 143(1)(a) is covered by main provision of s. 147 as substituted w.e.f. 1st April, 1989 and initiating reassessment proceedings in case of intimation would be covered by main provision of s. 147 and not proviso thereto, only one condition has to be satisfied. Failure to take steps under s. 143(3) will not render AO powerless to initiate reassessment proceedings when intimation under s. 143(1)(a) has been issued. It may be mentioned that this decision is of no help to Revenue as assessment in instant case has been made under s. 143(3) of Act. reliance is also placed by learned Departmental Representative on decision in case of Inductotherm India (P) Ltd. vs. James Kurian, Asstt. CIT (2007) 212 CTR (Guj) 195: (2007) 294 ITR 341 (Guj) wherein it has been held that there is no bar under provision of Act, 1961, for parallel proceedings in consequence of notice under s. 148 and notice under s. 263. This decision is also not relevant to matter. We have heard parties and perused record of case. assessee derives income from business of manufacture and sale of industrial generators. return of income filed by assessee was processed under s. 143(1)(a) and subsequently assessment was framed under s. 143(3) wherein income of interest of Rs. 12,99,917 earned on VCC attributable to its Silvassa unit (Union Territory of Dadra and Nagar Haveli) was treated as business income and deduction on said interest income was allowed under s. 80- IA of Act. Later on audit party of Revenue Department expressed view that deduction under s. 80-IA in respect of income from interest on VCC had been wrongly allowed by observing that it has been judicially held [Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50: (1978) 113 ITR 84 (SC)] that use of term "derived from" in relevant provision of Act (s. 80-IA) indicates restricted meaning given by legislature to cover only profits and gains directly accruing from conduct of business of undertaking. On receipt of aforesaid objection of audit party AO formed opinion that deduction under s. 80-IA claimed by assessee revealed that certain incomes, which do not form part of business income, had been included in business income, resulting in allowing excess claim of deduction under s. 80- IA of IT Act. Therefore, excess claim of deduction under s. 80-IA has escaped assessment. Accordingly, notice under s. 148 was issued to assessee, validity of which is under consideration before us. It may be mentioned that before proceedings for reassessment can be initiated, certain jurisdictional conditions have to be complied with and if assessee demonstrates that these jurisdictional conditions have not been complied with, notice issued under s. 148 of Act has to be held to be illegal and has to be quashed. Under old provision of s. 147, separate cls. (a) and (b) laid down circumstances under which income escaping assessment for past assessment year could be assessed or reassessed. To confer jurisdiction under s. 147(a) two conditions were required to be satisfied fully, AO must have reason to believe that income profits or gains chargeable to income-tax have escaped assessment, and secondly, he must also have reason t o believe that such escapement has occurred by reason of either omission or failure on part of assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were condition precedent to be satisfied before AO could have jurisdiction to issue notice under s. 148 r/w s. 147(a). But under substituted s. 147 (w.e.f. 1st April, 1989) existence of only first condition suffices. In other words if AO has reason to believe that income has escaped assessment, it confers jurisdiction to reopen assessment. It is, however, to be mentioned that both conditions must be fulfilled if case falls within ambit of proviso to s. 147. said proviso states: "Provided that where assessment under sub-s. (3) of s. 143 of this section has been made for relevant assessment year, no action shall be taken under this section after expiry of four years from end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of assessee to make return under s. 139 or in response to notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year." instant case will fall within purview of proviso to s. 147 inasmuch as assessment for asst. yr. 1998-99 has been made under s. 143(3) and notice under s. 148 has been issued on 26th March, 2003 i.e., after expiry of four years from end of relevant assessment year. Therefore, AO must have reason to believe that assessee s income chargeable to tax has escaped assessment and, secondly, that reason to believe that said escapement occurred by reason either (a) omission or failure on part of assessee to make return of income under s. 139; or (b) omission or failure on part of assessee to disclose fully and truly all material facts necessary for his assessment of that year. It is well settled that expression reason to believe does not mean purely subjective satisfaction on part of AO. reasons must be held in good faith and must have rationale connection with or relevant bearing on formation of belief. It is not any or every material relevant bearing on formation of belief. It is not any or every material howsoever vague or far fetched which would warrant formation of belief relating to escapement of income of assessee. words omission or failure to disclose fully and truly all material facts necessary for his assessment for that year postulate duty on assessee to disclose fully and truly all material facts for his assessment. What facts are material and necessary for assessment will differ from case to case. When challenge is made to notice under s. 148 of Act, what Tribunal is required to examine is whether material exists on record for AO to form requisite belief. Mere change of opinion cannot form basis of reopening completed assessment. In case of CIT vs. Kelvinator of India Ltd. (supra) has held thus: "An order of assessment can be passed either in terms of sub-s. (1) of s. 143 or sub-s. (3) of s. 143. When regular order of assessment is passed in terms of sub-s. (3) of s. 143 presumption can be raised that such order has been passed on application of mind. It is well known that presumption can also be raised to effect that in terms of cl. (e) of s. 114 of Indian Evidence Act, 1872, judicial and official acts have been regularly performed. If it be held that order which has been passed purportedly without application of mind would itself confer jurisdiction upon AO to reopen proceeding without anything further, same would amount to giving premium to authority exercising quasi judicial function to take benefit of its own wrong. Hence, it is clear that s. 147 of Act does not postulate conferment of power upon AO to initiate reassessment proceedings upon mere change of opinion." learned Departmental Representative, however, has placed reliance upon subsequent decision of Hon ble Delhi High Court in case of Consolidated Photo & Finvest Ltd. vs. Asstt. CIT (supra) wherein Court after having considered law and facts came to conclusion that in principle mere change of opinion would be applicable only to situation where AO had conscious decision on matter in issue. It has held that it would have no application where assessment order does not record finding on aspect, which formed basis for reopening assessment. relevant observation reads as under: "(ii) That order passed by AO indicated basis on which income exigible to tax had in his opinion escaped assessment. assessment order did not address itself to question which AO proposed to examine in course of reassessment proceedings. There may be presumption that assessment proceedings had been regularly conducted but there could be no presumption that even when order of assessment was silent, all possible angles and aspects of controversy had been examined and determined by A O . principle that mere change of opinion could not be basis for reopening completed assessments would be applicable only to situations where AO had applied his mind and taken conscious decision on particular matter in issue. It would have no application where order of assessment did not address itself to aspect which was basis for reopening of assessment. Therefore, it was inconsequential whether or not material necessary for taking decision was available to AO either generally or in form of reply to questionnaire served upon assessee. What is important was whether AO had, based on material available to him taken view. Since he had not done so, reassessment could not be challenged on ground that it was based on change of opinion." It may however, be mentioned that subsequently, similar issue came up before another Division Bench of Delhi High Court in KLM Royal Dutch Airlines vs. Asstt. Director of IT (2007) 208 CTR (Del) 33. In said case, Hon ble Court noted conflict between decision of Full Bench and Division Bench of Hon ble Delhi High Court and observed that since view expressed by Division Bench in Consolidated Photo & Finvest Ltd. (supra) cannot be reconciled with view of Full Bench in Kelvinator of India Ltd. (supra), it must be held that Division Bench did not lay down correct law. It may further be mentioned that in other decision of Delhi High Court in unreported case being IT Appeal No. 309 of 2006, CIT vs. Eicher Ltd. [reported at (2007) 213 CTR (Del) 57 Ed.] dt. 22nd May, 2007, Court has held thus: "Following view expressed in KLM Royal Dutch Airlines, we are of view that it would not be correct on our part to overlook decision of Full Bench in Kelvinator of India Ltd. and rely upon decision of Division Bench in Consolidated Photo & Finvest Ltd. That would be subversive of judicial discipline. discipline. In Hari Iron Trading Co. vs. CIT (2003) 183 CTR (P&H) 228: (2003) 263 ITR 437 (P&H), Division Bench of Punjab & Haryana High Court observed that assessee has no control over way assessment order is drafted. It was observed that generally, issues which are accepted by AO do not find mention in assessment order and only such points are taken note of on which assessee s explanations are rejected and additions/disallowances are made. We agree. Applying principles laid down by Full Bench of this Court as well as observations of Punjab & Haryana High Court, we find that if entire material had been placed by assessee before AO at time when original assessment was made and AO applied his mind to that material and accepted view canvassed by assessee, then merely because he did express this in assessment order, that by itself would not give him ground to conclude that income has escaped assessment, and, therefore, assessment needed to be reopened. On other hand, if AO did not apply his mind and committed lapse, there is no reason why assessee should be made to suffer consequences of that lapse." Thus, ratio in case of Kelvinator of India (supra) squarely applies to facts of instant case. Further, in Calcutta Discount Co. Ltd. vs. ITO (1961) 41 ITR 191, 201 (SC) it has been held that once all facts are before AO, he requires no further assistance by way of disclosure. It is for him to decide what inference of facts can be reasonably drawn and what legal inference has ultimately to be drawn. It is not for somebody else far less assessee to tell AO what inference, whether on facts or on law should be drawn. In case of Indian & Eastern Newspaper Society vs. CIT (supra), it has been held that opinion of audit party of IT Department on point of law cannot be regarded as information within meaning of cl. (b) and same cannot form basis of initiation of reassessment proceedings under s. 147(b). In case of CIT vs. Lucas T.V.S. Ltd. (1999) 155 CTR (Mad) 160: (1998) 234 ITR 296 (Mad), Hon ble Madras High Court has held thus: "An audit opinion in regard to application or interpretation of law cannot be treated by ITO as information for reopening assessment under s. 147(b) of IT Act, 1961. Held, that in instant case, apart from information furnished by audit party, ITO had no other information for reopening assessment as could be seen from reasons recorded by him for reopening assessment under s. 147(b) of Act. opinion expressed by audit party would go to show that they had pointed out to ITO that he failed to apply provisions contained in s. 35 of Act to facts arising in this case. This would amount to pointing out law and interpretation of provisions contained in s. 35, which is clearly barred in view of decision of Supreme Court in Indian & Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190: (1979) 119 ITR 996 (SC)." It may be mentioned that aforesaid decision of Madras High Court has been affirmed by Hon ble Supreme Court in case of CIT vs. Lucas T.V.S. Ltd. (supra). Thus, it is only where factual error or omission is brought to knowledge of AO by audit party, this will constitute information for purpose of s. 147 and reopening on basis of this information will be valid. In instant case it cannot be said that assessee has not disclosed fully and truly all material facts necessary for his assessment inasmuch as in return of income for asst. yr. 1998-99, assessee had claimed deduction of Rs. 9,48,43,743 which included interest income from VCC under s. 80-IA in respect of Silvassa unit. copy of statement of income, trading account, P&L a/c, audit report, etc. were appended with return. AO has initiated proceedings under s. 147/148 on basis of audit report wherein auditor has expressed opinion on point of law. Apart from information furnished by audit party, AO has no other information for reopening assessment. Therefore, in view of above legal position, initiation of reassessment proceedings under s. 147/148 on basis of aforesaid audit report in question as well as on basis of change of opinion is not legally sustainable. Hence, same is quashed. assessment framed on basis of said illegal notice under s. 148 is accordingly quashed. Since assessment for year under consideration is quashed, we need not to adjudicate other grounds of appeal. adjudicate other grounds of appeal. In result, appeal filed by assessee is allowed. *** SUDHIR ENGG. CO. v. ASSISTANT COMMISSIONER OF INCOME TAX