C/SCA/19392/2018 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 19392 of 2018 With R/SPECIAL CIVIL APPLICATION NO. 19393 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/- and HONOURABLE MR.JUSTICE A.C. RAO Sd/- 1 Whether Reporters of Local Papers may be allowed to No see judgment ? 2 To be referred to Reporter or not ? Yes 3 Whether their Lordships wish to see fair copy of No judgment ? 4 Whether this case involves substantial question of law No as to interpretation of Constitution of India or any order made thereunder ? HEMJAY CONSTRUCTION CO. PVT. LTD THROU DEENABEN YOGESHBHAI SHAH Versus INCOME TAX OFFICER, WARD -2(2) Appearance: MR DARSHAN B GANDHI(9771) for Petitioner(s) No. 1 MR SP MAJMUDAR(3456) for Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 20/08/2019 Page 1 of 55 C/SCA/19392/2018 JUDGMENT COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. Since issues raised in both captioned writ applications are same and parties are also same, those were heard analogously and are being disposed of by this common judgment and order. 2. For sake of convenience, Special Civil Application No.19392 of 2018 is treated as main matter. 3. By this writ application under Article 226 of Constitution of India, writ applicant has prayed for following reliefs; (i) This Hon'ble Court be pleased to issue writ of Mandamus or Prohibition or any other appropriate writ, order or direction quashing impugned 148 notice dated 29.03.2018 at Annexure-K and impugned order rejecting objection dated 22.11.2018 at Annexure-O. (ii) Pending hearing and final disposal of this application, this Hon'ble Court be pleased to stay reassessment proceedings pursuant to notice under section 148 dated 29.03.2018 at Annexure-K. (iii) This Hon'ble Court be pleased to grant any further or other relief as this Hon'ble Court deems just and proper in interest of justice, and (iv) This Hon'ble Court be pleased to allow this application with costs against respondent. 4. facts giving rise to this writ application may be summarized as under: 4.1 writ applicant is assessee. assessee filed its return of income for A.Y.2011-12, declaring total Page 2 of 55 C/SCA/19392/2018 JUDGMENT income of Rs.14,00,432/- on 30th March, 2013. same was processed under Section 143(1) of Income Tax Act, 1961 ( for short Act, 1961 ) without any modification. 4.2 case was selected for scrutiny assessment and notice under Section 143(2) dated 12th August, 2013 was issued and served upon assessee. case was, thereafter, transferred to office of Income Tax Officer, Ward-2(1), Jamnagar from office of Deputy Commissioner of Income Tax, Central Circle-II, Rajkot on 3rd August, 2013. 4.3 notice under Section 142(1) dated 16th September, 2013 was issued along with questionnaire calling for certain specific details/information. In para-6 of said notice dated 16th September, 2013, Assessing Officer raised specific query with regard to unsecured loan transactions. query reads thus: 6. Furnish complete details (confirmations, creditworthiness proof) of new unsecured loans/deposits taken and squared up accounts during year along with details regarding interest payment, if any, made to them and also copies of balance sheet, return of income filed and copy of bank statement for year under consideration in support of your claim. Provide confirmation of all such loans including old loans etc. 4.4 It is case of writ applicant that specific query raised by Assessing Officer with regard to unsecured loan transactions was answered with supporting documentary evidence. It also appears that in course of proceedings of original assessment under Section 143(3) of Act, notices dated 19 th March, 2014 were issued under Section 133(6) of Act,1961 to those parties Page 3 of 55 C/SCA/19392/2018 JUDGMENT who claimed to have given unsecured loan to writ applicant. 4.5 notice under Section 148 of Act, 1961 dated 29th March, 2018 came to be issued to writ applicant. 4.6 reasons assigned by Income-tax Officer for reopening of assessment under Section 147 of Act, 1961 are as follows: 1. assessee is company and has filed its return of income for A.Y. 2011-12 on 30.03.2013 declaring total income at Rs.14,00,430/-. assessment u/s. 143(3) of Act was finalized accepting returned income of Rs.14,00,430/-. 2. As per information received from DDIT (Inv), Jamnagar, it is revealed that assessee has taken unsecured loan aggregating to Rs.2,28,00,000/- during year under consideration from five shell companies situated in Kolkatta details of which are as under: Sr. Name of Company Address Amount of Date of Date of No. unsecured Acceptanc Repayment loan e of Loan 1 BSR Finance & 7/1A, Grant 20,00,000 17.01.2011 20.03.2013 Construction Ltd. lane, 2nd Floor, Room No.202, 25,00,000 21.01.2011 Kolkatta- 700012. 2 Spectrum Stock 1, British 18,00,0001 22.06.2010 19.03.2015 Service Pvt. Ltd. Indian Street, 4th Floor, Room No.405, Kolkatta 3 Nirlon Trade & 29B, 25,00,000 10/06/10 15.02.2013 Finance Pvt. Ltd. Rabindra Sarani, 3rd 25,00,000 14.06.2010 19.02.2013 Floor, Room No.2E, Kolkatta 25,00,000 16.06.2010 Page 4 of 55 C/SCA/19392/2018 JUDGMENT 4 Shri Sati Fivest 3, Amartolla 25,00,000 10/06/10 19.03.2013 Pvt. Ltd. Street, 1st Floor, Kolkatta- 25,00,000 25.01.2011 700001 5 Ishan Tie Up Pvt. 369/14, 30,00,000 17.01.2011 13.03.2013 Ltd. Dakshindari Road Narmada Appt, 4th 10,00,000 25.01.2011 Floor, Flat No.9, Kolkatta- 700048. 3. During investigation, it was also found that all above companies have No credentials to carry out transaction of huge amounts as per their income profile. These Kolkatta based companies are indulged in providing accommodation entries in form of unsecured loans. 4. On analysis of above fact, it can be construed that assessee has taken accommodation entries from above shell companies in form of bogus loan as these companies have no such credit wothiness. In view of above facts, I have reason to believe that income chargeable to tax of Rs.2,28,00,000/- has escaped assessment for A.Y.2011-12 by reason of failure on part of assessee. 5. Therefore, I have reason to believe that income chargeable to tax to tune of Rs.2,28,00,000/- has escaped assessment. 6. In this case, more than four years have lapsed from end of assessment year under consideration. Hence, necessary sanction to issue notice u/s. 148 has been obtained separately from Principal Commissioner of Income-tax, Jamnagar as per provisions of section 151 of Act. 4.7 writ applicant filed his objections dated 17th November, 2018, stating as under: Page 5 of 55 C/SCA/19392/2018 JUDGMENT case is re-opened and you have sent reasons for re- opening also. assessment for A.Y. 2011-12 was completed u/s. 143(3) by ITO, Ward 2(1) and order u/s. 143(3) was passed on 28/03/2014. At time of assessment u/s. 143(3), then ITO has already touched upon Cash Credit and Unsecured Loan which you have considered for re-opening. It is merely change of opinion and that cannot be base for re-opening of completed assessment. We strongly oppose proceedings u/s. 148 of LT Act. In support of our belief we would like to draw your kind attention to following notices and our reply during assessment u/s. 143(3) of I.T. Act. In addition to questionnaire we draw your kind attention to notice issued by ITO on 17/2/2014, 20/3/2014, 21/3/2014 and our reply dated 21/3/2014, 24/3/2014. All above notices were in respect of application money which you have considered base for re-opening. We have already proved identity, capacity and genuineness of transactions in respect of unsecured loan by filing confirmations with PA Number, Address of Five Companies. All transactions are through property banking channel and we have already filed our bank statement as well as bank statements of lenders/depositors. Moreover, depositor has directly filed their copy of IT Return. It proves that we have established identity, capacity and genuineness of transactions took place between assessee and depositors. basis for re-opening as stated in your recorded reasons is para-3 and 4 we would like to submit that we cannot be expected to prove source of source and there are number of judgments of various Court that assessee is not expected to prove source of source and hence no addition can be made u/s.68 of I.T. Act. With reference to your notice dated 13.11.2018 we submit as under. A. assessee is construction contractor. Page 6 of 55 C/SCA/19392/2018 JUDGMENT B. We have already filed audit report and acknowledgment of ITR vide our letter dated 13.09.2013. C. We enclose herewith all bank statements. D. As already replied. E. Working of Capital Gain and Copy of Computation of Income is enclosed herewith. 4.8 Ultimately, order came to be passed dated 22nd November, 2018, overruling objections raised by assessee against issue of notice under Section 148 of Act, 1961. order reads thus: assessee filed its Return of income for A.Y. 2011-12 declaring total income of Rs.14,00,432/- on 30.03.2013. assessment u/s. 143(3) of I.T. Act was finalized on 28.03.2014 accepting total income at Rs.14,00,432/-. This office got in possession of information that assessee has taken unsecured loan of Rs.2,25,00,000/- from five shell companies situated in Kolkata during year under consideration It was also found that above five companies has given accommodation entries to assessee in form of unsecured loan which fact is further substantiated by income profile of these companies. assessee has taken accommodation entries from above five shell companies in form of bogus loan as these companies have no such creditworthiness and by doing so assessee has evaded tax. This information was received in this office on 26.03.2018 and same was not on records earlier. 2. In view of above, notice u/s. 148 of I.T. Act, 1961 was issued to assessee on 29.03.2018 after getting prior approval of appropriate authority requesting to file its return of income within 30 days of receipt of notice. In response, A.R. of assessee, Shri V P Sutaria, CA submitted letter on 16.04.2018 stating that original return filed for A.Y. 2012-13 be treated as return filed u/s. 148 of Act and requested to give copy of reasons recorded for reopening and enclosed copy of Acknowledgement for year Page 7 of 55 C/SCA/19392/2018 JUDGMENT under consideration. Subsequently, vide letter dated 12.09.2018, assessee was again requested to e-file his Return of Income and after verifying same submit copy of ROI along with Computation of Income. Thereafter, vide notice u/s. 142(1) of Act dated 13.11.2018, assessee was requested to submit details called for and copy of reason for reopening of assessment was enclosed. 3. A.R. of assessee vide his letter dated 17.11.2018 received in this office on 19.11.2018 submitted objection letter for notice u/s.148 of Act in this case. operative part of submission is reproduced as under: At time of assessment u/s. 143(3), then ITO has already touched upon Cash Credit and Unsecured Loan which you have considered for re-opening. It is merely change of opinion and that cannot be base for re-opening of completed assessment. We strongly oppose proceedings u/s. 148 of LT Act. In support of our belief we would like to draw your kind attention to following notices and our reply during assessment u/s. 143(3) of I.T. Act. We have already proved identity, capacity and genuineness of transactions in respect of unsecured loan by filing confirmations with PA Number, Address of Five Companies. All transactions are through property banking channel and we have already filed our bank statement as well as bank statements of lenders/depositors. Moreover, depositor has directly filed their copy of IT Return. It proves that we have established identity, capacity and genuineness of transactions took place between assessee and depositors. basis for re-opening as stated in your recorded reasons is para-3 and 4 we would like to submit that we cannot be expected to prove source of source and there are number of judgments of various Court that assessee is not expected to prove source of source and hence no addition can be made u/s.68 of I.T. Act. 4. objection raised-by assessee has been duly considered, however, objections raised by assessee Page 8 of 55 C/SCA/19392/2018 JUDGMENT are not found acceptable on following reasons: (I) As additional facts and information has come on records upon investigation and enquiries made which clearly establish that lendor companies are shell companies and has no such creditworthiness to advance such amount of loan. These companies have given accommodation entries in form of unsecured loans amounting to Rs.2,25,00,000/-. Moreover, these companies have no financial credentials to carry out transactions of huge amounts which are also evident from Income profiles of these companies. In view of above facts and Information, it clearly establish that due to failure of assessee to disclose above facts during time of assessment u/s143(3) of Act has made aesessee to escape tax evasion. (ii) With regard to objections raised by assessee that issue of Unsecured Loan was touched upon and verified by then A0 during course of assessment proceedings u/s. 143(3) of Act, it is observed that case of assessee for A.Y. 2011-12 was selected for scrutiny under CASS for reason Unsecured Loan". Though, contention of assessee that issue of unsecured loan was verified by then A0 is not maintainable as then A0 was not aware of additional facts and information regarding above transactions which came to light recently. Moreover, issue of creditworthiness of such loans was not subject matter in earlier proceedings and as such this is not case of change of opinion as alleged in objection raised. 5. explanation/objection raised by assessee vide his letter dated 17.11.2018, is not accepted as discussed above. Notice issued u/s.148 of Act dated 29.03.2018 served upon assessee is held as good and valid within meaning of provisions of Section 148 and follow up action for finalization of assessment proceedings will be exercised. objection/explanations raised by assessee vide letter dated 17.11.2018 against proceedings for re-opening and issuance of notice u/s. 148 of Act is, hereby, rejected. 4.9 Being dissatisfied with re-opening of Page 9 of 55 C/SCA/19392/2018 JUDGMENT assessment, writ applicant has come up with present writ application. 5. Submissions on behalf of writ applicant:- 5.1 Mr. Darshan Gandhi, learned counsel appearing for writ applicant invited our attention to reasons recorded for reopening assessment. He submitted that Assessing Officer seeks to reopen assessment on ground that information received from DDIT (Inv), Jamnagar reveals that petitioner has taken unsecured loan aggregating to Rs.2,28,00,000/- during year under consideration from five shell companies, details whereof are set out in reasons. He submitted that according to Assessing Officer, during investigation it was found that said companies have no credentials to carry out transactions of huge amounts as per their income profile and, therefore, Assessing Officer seeks to reopen assessment on ground that above income has escaped assessment. 5.2 learned counsel invited our attention to notice dated 16.9.2013 issued by Assessing Officer during course of scrutiny proceedings, to point out that Assessing officer had called for complete details of new unsecured loans/deposits taken and accounts squared up, in response to which, writ applicant had furnished all necessary details with regard to loan taken from five companies referred to in reasons recorded. 5.3 It was pointed out that confirmations from said companies were furnished during course of scrutiny proceedings together with copies of their bank statements. Page 10 of 55 C/SCA/19392/2018 JUDGMENT 5.4 It was submitted that Assessing Officer after being satisfied with regard to creditworthiness and genuineness of said parties did not make any addition. It was pointed out that subsequent to assessment order being passed, Assessing Officer had also received confirmations from each of said companies, copies whereof are annexed at Annexure-J to petition. 5.5 It was submitted that every transaction referred to in reasons recorded had been gone into at time of scrutiny assessment and hence, it is clear that Assessing Officer now seeks to reopen assessment on mere change of opinion. It was submitted that, therefore, assumption of jurisdiction on part of Assessing Officer under section 147 of Income Tax Act, 1961 is invalid. 5.6 It was further submitted that impugned notice is dated 29.3.2018 whereby Assessing Officer seeks to reopen assessment for assessment year 2011-12, which is clearly beyond period of four years from end of relevant assessment year, and hence, first proviso to section 147 of Act would be attracted. 5.7 It was submitted that all material necessary for assessment had been duly furnished before Assessing Officer during course of scrutiny assessment, and hence, there is no failure on part of writ applicant to disclose fully and truly all material facts necessary for assessment and, in such circumstances, reopening of assessment is bad in law. 5.8 Mr. Gandhi, in support of his submissions, has placed Page 11 of 55 C/SCA/19392/2018 JUDGMENT reliance on one order passed by Bombay High Court in case of NuPower Renewables Pvt. Ltd. vs. Asst. Commissioner of Income Tax, Writ Petition No.3618 of 2018, decided on 7th March, 2019. This decision of Bombay High Court is sought to be relied upon to fortify submission that information supplied to A.O. by Investigation Wing, by itself, would not be sufficient to reopen assessment. In other words, investigation into loan transactions would fall within realm of fishing or roving inquiry which is wholly impermissible in law in context of reopening of assessment. 5.9 Mr. Gandhi also placed reliance on decision of Supreme Court in case of Income-tax Officer vs. Lakhmani Mewal Das, reported in (1976) 103 ITR 437 (SC) to make good his submission that grounds or reasons which lead to confirmation of belief contemplated by Section 147(a) of Act must have material bearing on question of escapement of income of assessee from assessment because of his failure or omission to disclose fully and truly all materials facts. reason must be held in good faith. It cannot be merely pretence. It is open to Court to examine whether reasons for formation of belief have rational connection with or relevant bearing on formation of belief and are not extraneous or irrelevant for purpose of section. 5.10 Mr. Gandhi also placed reliance on decision of this Court in case of Inductotherm (India) (P.) Ltd. vs. M. Gopalan, Deputy Commissioner of Income Tax, reported in (2013) 356 ITR 481. This decision has been relied upon by Page 12 of 55 C/SCA/19392/2018 JUDGMENT Mr. Gandhi to fortify his submission that even in case of reopening of assessment which was previously accepted under Section 143(1) of Act without scrutiny, Assessing Officer would have power to reopen assessment provided he had some tangible material, on basis of which, he could form reason to believe that income chargeable to tax had escaped assessment. According to Mr. Gandhi, information furnished by Investigation Wing would not constitute tangible material, on basis of which, Assessing Officer could form reason to believe that income chargeable to tax had escaped assessment. In such circumstances, referred to above, Mr. Gandhi prays that there being merit in both writ applications, they be allowed and notice for reassessment be quashed. 6. Submissions on behalf of Revenue:- 6.1 Mr. Bhatt, learned senior counsel appearing for department has vehemently opposed both writ applications. Mr. Bhatt submitted that it would be immaterial whether Assessing Officer, at time of making original assessment, could or could not have found by further inquiry or investigation whether transactions were genuine or not. If on basis of subsequent information, Assessing Officer arrives at conclusion after satisfying twin conditions prescribed in Section 147(a) of Act that assessee had not made full and true disclosure of material facts at time of original assessment, income chargeable to tax could be said to have escaped assessment. Mr. Bhatt submitted that argument of Mr. Gandhi that question regarding truthfulness or Page 13 of 55 C/SCA/19392/2018 JUDGMENT falsehood of transactions reflected in return can only be examined during original assessment proceedings and not at any stage subsequent thereto, is without any merit. According to Mr. Bhatt, if such argument is accepted, same would amount to doing violence to plain language of Sections 147(a) and 148 of Act respectively. 6.2 Mr. Bhatt submitted that Court should look to purpose and intent of provisions. Mr. Bhatt would submit that one of purposes of Section 147 is to ensure that assessee does not get away by willfully making false or untrue statement at time of original assessment. Mr. Bhatt submitted that information provided by Deputy Director of Income-Tax (Investigation), Jamnagar to Assessing Officer speaks for itself. It is on basis of such information that Assessing Officer has formed reasonable belief that transactions were all sham and bogus. According to Mr. Bhatt, on basis of such tangible material if Assessing Officer proposes to reopen assessment, it cannot be termed as roving or fishing inquiry. According to Mr. Bhatt, Assessing Officer could not be said to have merely and mechanically acted on report of Investigation Wing. reasons recorded by Assessing Officer speak for itself. Mr. Bhatt, in support of his submissions, has placed reliance on following decisions: (i) Calcutta Discount Company Limited vs. Income Tax Officer, Companies District, I & Ors., 41 ITR 191 (SC); (ii) Phool Chand Bajrang Lal & Ors. vs. Income Tax Officer & Ors., 203 ITR 456 (SC); Page 14 of 55 C/SCA/19392/2018 JUDGMENT (iii) Yogendrakumar Gupta vs. Income-Tax Officer, 366 ITR 186; (iv) Gujarat Power Corporation Ltd. vs. Assistant Commissioner of Income Tax, 350 ITR 266; 6.3 Mr. Bhatt also made available for our perusal information in writing furnished by Investigation Wing to Assessing Officer. It appears that during course of investigation, it was found that all those companies said to have given unsecured loan to writ applicant and which is shown to have been repaid by writ applicant to respective company, are all shell companies found to have been indulging in providing accommodation entries in form of secured loans. report further indicates that thousands of companies have been registered at one address situated at Calcutta. Directors are all common in multiple companies. companies have no financial credential to carry out transactions of huge amounts which was found evident from income profiling of all those companies. This is just gist of investigation report. 6.4 In such circumstances, referred to above, Mr. Bhatt, learned senior counsel appearing for department prays that there being no merit in writ applications, those may be rejected. 7. At this stage, Mr. Gandhi, learned counsel appearing for writ applicant insisted that he should be supplied with copy of report of Investigation Wing. We declined to accede to such request of Mr. Gandhi. We did give fair idea about contents of report of Investigation Page 15 of 55 C/SCA/19392/2018 JUDGMENT Wing. proceedings initiated under Section 147 of Act would not be rendered void on non-supply of such document, for which, confidentiality is claimed at this stage. In this regard, we place reliance on decision of Delhi High Court in case of Acorus Unitech Wireless (P) Ltd. vs. Asst. CIT, (2014) 362 ITR 417. ANALYSIS 8. Having heard learned counsel appearing for parties and having gone through materials on record, only question that falls for our consideration is whether reopening of assessment is permissible in law having regard to facts on record. 9. Section 147 of Income-tax Act, 1961 provides that if Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of sections 148 to 153, assess or reassess such income "and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in course of proceedings under this section". proviso deals with reopening of assessment upon expiry of period of four years from end of relevant assessment year. Explanation 3 to section 147 was inserted by Finance (No. 2) Act of 2009, with effect from 1-4-1989. Explanation 3 provides as follows : "Explanation 3.--For purpose of assessment or reassessment under this section, Assessing Officer may assess or reassess income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in course of Page 16 of 55 C/SCA/19392/2018 JUDGMENT proceedings under this section, notwithstanding that reasons for such issue have not been included in reasons recorded under sub-section (2) of section 148." 10. Prior to its amendment with effect from 1-4-1989, section 147 provided as follows :-- "147. Income escaping assessment. - If -- (a) Income-tax Officer has reason to believe that, by reason of omission or failure on part of assessee to make return under section 139 for any assessment year to 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 (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on part of assessee, Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of sections 148 to 153, assess or reassess such income or recompute loss or depreciation allowance, as case may be, for assessment year concerned (hereafter in sections 148 to 153 referred to as relevant assessment year)." 11. condition precedent to exercise of jurisdiction under section 147 is formation of reason to believe by Assessing Officer that any income chargeable to tax has escaped assessment. Upon formation or reason to believe, Assessing Officer, before making assessment, reassessment or recomputation under section 147 has to serve on assessee notice requiring him to furnish return of his income. Upon formation of reason to believe that income chargeable to tax has escaped assessment, Assessing Officer is empowered to assess or reassess such income "and also" any other income chargeable to tax which Page 17 of 55 C/SCA/19392/2018 JUDGMENT has escaped assessment and which comes to his notice subsequently in course of proceedings under section 147. 12. effect of Explanation 3 which was inserted by Finance (No. 2) Act of 2009 is that even though notice that has been issued under section 148 containing reasons for reopening assessment does not contain reference to particular issue with reference to which income has escaped assessment, Assessing Officer may assess or reassess income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently in course of proceedings. reasons for insertion of Explanation 3 are to be found in Memorandum explaining provisions of Finance (No. 2) Bill of 2009. Memorandum treats amendment to be clarificatory and contains following Explanation: "Some courts have held that Assessing Officer has to restrict reassessment proceedings only to issues in respect of which reasons have been recorded for reopening assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. above interpretation is contrary to legislative intent. With view to further clarifying legislative intent, it is proposed to insert Explanation in section 147 to provide that Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in course of proceedings under this section, notwithstanding that reason for such issue has not been included in reasons recorded under sub- section (2) of section 148." 13. In order to appreciate reasons for amendment inserting Explanation 3, it would be necessary to advert to Page 18 of 55 C/SCA/19392/2018 JUDGMENT some of judgments of High Courts, prior to amendment. 14. Punjab and Haryana High Court, in its decision, in Vipan Khanna v. Asstt. CIT [2002] 255 ITR 2201 dealt with question as to whether, after initiating proceedings under section 147 on ground that petitioner had claimed depreciation at higher rate, Assessing Officer would be justified in launching inquiry into issues which were not connected with claim of depreciation. This question was answered in negative. 15. Division Bench of Kerala High Court held in Travancore Cements Ltd. v. CIT [2008] 305 ITR 1701 , that upon issuance of notice under section 148(2), when proceedings were initiated by Assessing Officer on issues in respect of which he had formed reason to believe that income had escaped assessment, it was not open to Assessing Officer to carry out assessment, or reassessment in respect of other issues which were totally unconnected with proceedings that were already initiated and which came to his knowledge during course of proceedings. Division Bench held that in respect of issue which is totally unconnected to basis on which Assessing Officer formed reason to believe that income escaped assessment and issued notice under section 148, it was open to him to issue fresh notice by following sub- section (2) of section 148 with regard to escaped income which came to his knowledge during course of proceedings. Kerala High Court held as follows: Page 19 of 55 C/SCA/19392/2018 JUDGMENT ". . .The Assessing Officer gets jurisdiction under section 148 to assess or reassess income which has escaped assessment only after sub-section (2) of section 148 is complied with. question is whether sub-section (2) of section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in course of proceedings. In other words, when proceedings are already on in respect of one item in respect of income for which he had already recorded reasons is it necessary that he should record reasons for assessing or reassessing any of items which are totally unconnected with proceedings already initiated. Suppose under two heads, income has escaped assessment and those two heads are inter-linked and connected, proceedings initiated or notice already issued under sub-section (2) of section 148 would be sufficient if escaped income on second head comes to knowledge of officer in course of proceedings. But if both items are unconnected and totally alien then assessing authority has to follow sub-section (2) of section 148 6 ITA No.2032/Kol/2018 Dipti Mehta AY- 2010-11 with regard to escaped income which comes to his knowledge during course of proceedings." 16. Hence, Punjab and Haryana High Court and Kerala High Court took view that once Assessing Officer has reason to believe that income chargeable to tax has escaped assessment and proceeds to issue notice under section 148, it is not open to him to assess or, as case may be, reassess income under independent or unconnected issue, which was not basis of notice for reopening assessment. 17. Parliament stepped in to correct what it regarded as incorrect interpretation of provisions of section 147. Memorandum explaining provisions of Finance (No. 2) Page 20 of 55 C/SCA/19392/2018 JUDGMENT Bill of 2009 states in this background that some courts had held that Assessing Officer should restrict reassessment proceedings only to issues in respect of which reasons have been recorded for reopening assessment and that it was not open to him to touch upon any other issue for which no reasons have been recorded. This interpretation was regarded by Parliament as being contrary to legislative intent. Hence, Explanation 3 came to be inserted to provide that Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in course of proceedings under section 147 though reasons for such issue were not included in reasons recorded in notice under section 148(2). 18. effect of section 147 as it now stands after amendment of 2009 can, therefore, be summarised as follows : (i) Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) Upon formation of that belief and before he proceeds to make assessment, reassessment or recomputation, Assessing Officer has to serve on assessee notice under sub-section (1) of section 148; (iii) Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in course of proceedings under section; and (iv) Though notice under section 148(2) does not include particular issue with respect to which income has escaped assessment, Page 21 of 55 C/SCA/19392/2018 JUDGMENT he may nonetheless, assess or reassess income in respect of any issue which has escaped assessment and which comes to his notice subsequently in course of proceedings under section. 19. It is by now well settled that for reopening of assessment by issuing notice under section 148 of Act, even in case where previously no scrutiny assessment was carried out, Assessing Officer must have reasons to believe that income chargeable to tax had escaped assessment. This aspect has been elaborated by this Court in case of Inductotherm (India) P. Ltd vs. M. Gopalan, Deputy Commissioner of Income Tax reported in 356 ITR 481 making following observations: 13. Despite such difference in scheme between return which is accepted under section 143(1) of Act as compared to return of which scrutiny assessment under section 143(3) of Act is framed, basic requirement of section 147 of Act that Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of Act permits Assessing Officer to assess, re-assess income or re-compute loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while return has been either accepted under section 143(1) of Act or scrutiny assessment has been framed under section 143(3) of Act. common requirement in both of cases is that Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. 16. It would, thus, emerge that even in case of reopening of assessment which was previously accepted under section 143(1) of Act without scrutiny, Assessing Officer would have power to reopen assessment, Page 22 of 55 C/SCA/19392/2018 JUDGMENT provided he had some tangible material on basis of which he could form reason to believe that income chargeable to tax had escaped assessment. However, as held by Apex Court in case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be firm final decision of Assessing Officer. 20. In this context, it is also equally well settled that term reason to believe is vitally different from reason to suspect . We may recall, for brief while, section 147 of Act contained expression if Assessing Officer for reasons to be recorded by him in writing is of opinion . However, it was soon realized that this expression is of opinion would be too wide giving excessive powers to Assessing Officer to resort to reopening of assessment. This expression was, therefore, quickly changed to bring back expression if Assessing Officer has reason to believe . This aspect was highlighted by Supreme Court in case of Commissioner of Income Tax vs. Kelvinator of India Ltd. reported in 320 ITR 561. In context of section 147 of Act post its amendment w.e.f. 01.04.1989, Supreme Court held that Section 147 does not vest arbitrary power in Assessing Officer and held that even post amendment of 01.04.1989 in section 147, concept of change of opinion would apply. It was observed as under: 6. On going through changes, quoted above, made to Section 147 of Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of said conditions alone conferred jurisdiction on Assessing Officer to make back assessment, but in section 147 of Act [with effect from 1st April, 1989], they are given go-by and only one condition has remained, viz., that Page 23 of 55 C/SCA/19392/2018 JUDGMENT where Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give schematic interpretation to words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to Assessing Officer to re-open assessments on basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind conceptual difference between power to review and power to re-assess. Assessing Officer has no power to review; he has power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if concept of "change of opinion" is removed, as contended on behalf of Department, then, in garb of re-opening assessment, review would take place. One must treat concept of "change of opinion" as in-built test to check abuse of power by Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to conclusion that there is escapement of income from assessment. Reasons must have live link with formation of belief. Our view gets support from changes made to Section 147 of Act, as quoted hereinabove. Under Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted words "reason to believe" but also inserted word "opinion" in Section 147 of Act. However, on receipt of representations from Companies against omission of words "reason to believe", Parliament re- introduced said expression and deleted word "opinion" on ground that it would vest arbitrary powers in Assessing Officer. We quote hereinbelow relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: "7.2 Amendment made by Amending Act, 1989, to reintroduce expression `reason to believe' in Section 147.--A number of representations were received against omission of words `reason to believe' from Section 147 and their substitution by `opinion' of Assessing Officer. It was pointed out that meaning of expression, `reason to believe' had been explained in number of court rulings in past and was well settled and its omission from section 147 would give arbitrary powers to Assessing Officer to reopen past Page 24 of 55 C/SCA/19392/2018 JUDGMENT assessments on mere change of opinion. To allay these fears, Amending Act, 1989, has again amended section 147 to reintroduce expression `has reason to believe' in place of words `for reasons to be recorded by him in writing, is of opinion'. Other provisions of new section 147, however, remain same." 21. principle, that notice of reopening can be issued only upon Assessing Officer bona fide forming belief that income chargeable to tax had escaped assessment is thus, well settled. Reassessment cannot be resorted to on mere suspicion or for carrying out fishing or roving inquiries. This is so for many reasons. reopening of completed assessment is serious issue. Once assessment is reopened on certain ground, entire assessment at hands of revenue would be at large. This Court in case of Gujarat Power Corporation Ltd vs. Assistant Commissioner of Income Tax reported in 350 ITR 266 had observed as under: 41. powers under section 147 of Act are special powers and peculiar in nature where quasi-judicial order previously passed after full hearing and which has otherwise become final is subject to reopening on certain grounds. Ordinarily, judicial or quasi-judicial order is subject to appeal, revision or even review if statute so permits but not liable to be re-opened by same authority. Such powers are vested by Legislature presumably in view of highly complex nature of assessment proceedings involving large number of assessees concerning multiple questions of claims, deductions and exemptions, which assessments have to be completed in time frame. To protect interest of revenue, therefore, such special provisions are made under section 147 of Act. However, it must be appreciated that assessment previously framed after scrutiny when reopened, results into considerable hardship to assessee. assessment gets reopened not only qua those grounds which are recorded in Page 25 of 55 C/SCA/19392/2018 JUDGMENT reasons, but also with respect to entire original assessment, of course at hands of revenue. This obviously would lead to considerable hardship and uncertainty. It is precisely for this reason that even while recognizing such powers, in special requirements of statute, certain safeguards are provided by statute which are zealously guarded by courts. Interpreting such statutory provisions courts upon courts have held that assessment previously framed cannot be reopened on mere change of opinion. It is stated that power to reopening cannot be equated with review. REASONS TO BELIEVE 22. expression reasons to believe stands adequately elaborated by Apex Court in its various pronouncements. issue is no longer debatable. 23. By relying upon its earlier decision, rendered by Constitution Bench (five-Judge) judgment, in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta, AIR 1961 SC 372, Three-Judge Bench of apex Court in S. Narayanappa v. Commissioner of Income- Tax, Bangalore, (1967) 63 ITR 219: [AIR 1967 SC 523], held that: if there are in fact some reasonable grounds for Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have material bearing on question of under-assessment that would be sufficient to give jurisdiction to Income Tax Officer to issue notice under S. 34. Whether these grounds are adequate or not is not matter for Court to investigate. In other words, sufficiency of grounds which induced Income-tax Officer to act is not justiciable issue. It is of course open for assessee to contend that Income-tax Officer did not hold belief that there had been such non-disclosure. In other words, existence of belief can be challenged by assessee but not sufficiency of Page 26 of 55 C/SCA/19392/2018 JUDGMENT reasons for belief. Again expression reason to believe in S. 34 of Income-tax Act does not mean purely subjective satisfaction on part of Income-tax Officer. belief must be held in good faith: it cannot be merely pretence. To put it differently it is open to Court to examine question whether reasons for belief have rational connection or relevant bearing to formation of belief and are not extraneous or irrelevant to purpose of Section. To this limited extent, action of Income- tax Officer in starting proceedings under S. 34 of Act is open to challenge in Court of law . (Emphasis supplied) 24. position came to be reiterated by two-Judge Bench of apex Court in Lakhmani Mewal Das (supra), wherein Court held that grounds or reasons which lead to formation of belief must have material bearing on question of escapement of income of assessee from assessment because of his failure or omission to disclose fully and truly, all material facts. 25. Later on in Phool Chand (supra), it stood clarified that decision to quash action in Lakhmani Mewal Das (supra), was based on its given fact situation, where information received by Assessing Officer was wholly vague, indefinite, farfetched, remote and without any basis for holding reasonable belief, warranting action, under Section 147 of Act. It further observed that: 19 .Acquiring fresh information, specific in nature and reliable in character, relating to concluded assessment which goes to expose falsity of statement made by assessee at time of original assessment is different from drawing fresh inference from same facts and material which was available with I.-T.O at time of original assessment Page 27 of 55 C/SCA/19392/2018 JUDGMENT proceedings. two situations are distinct and different. Thus, where transaction itself on basis of subsequent information is found to be bogus transaction, mere disclosure of that transaction at time of original assessment proceedings cannot be said to be disclosure of true and full facts in case and I.-T.O would have jurisdiction to reopen concluded assessment in such a, case. It is correct that assessing authority could have deferred completion of original assessment proceedings for further enquiry and investigation into genuineness to loan transaction but in our opinion his failure to do so and complete original assessment proceedings would not take away his jurisdiction to act under S. 147 of Act, on receipt of information subsequently. subsequent information on basis of which I.-T.O acquired reasons to believe that income chargeable to tax had escaped assessment on account of omission of assessee to make full and true disclosure of primary facts was relevant, reliable and specific. It was not at all vague or non-specific. 26 One of purposes of S. 147, appears to us to be, to ensure that party cannot get away by wilfully making false or untrue statement at time of original assessment and when that falsity comes to notice, to turn around and say you accepted my lie, now your hands are tied and you can do nothing. It would be travesty of justice to allow assessee that latitude. (Emphasis supplied) 26. Apex Court also had occasion to deal with amended provisions in Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Private Limited, (2008) 14 SCC 208;(2007) 291 ITR 500 . Court found scope and effect of section 147 to 148 as substituted with effect from April 1, 1989, to be substantially different from earlier provisions. For conferment of jurisdiction under original section 147(a), two conditions required satisfaction (i) Assessing Officer must have reason to believe that income Page 28 of 55 C/SCA/19392/2018 JUDGMENT profits or gains chargeable to income tax have escaped assessment, and (ii) he must also have reason to believe that such escapement 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. However, under substituted section 147, only first condition required satisfaction of reason to believe, that income had escaped assessment. It further observed that:- 19. Section 147 authorises and permits Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. word reason in phrase reason to believe would mean cause or justification. If Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that income had escaped assessment. expression cannot be read to mean that Assessing Officer should have finally ascertained fact by legal evidence or conclusion. function of Assessing Officer is to administer statute with solicitude for public exchequer with inbuilt idea of fairness to taxpayers. 20. At that stage, final outcome of proceeding is not relevant. In other words, at initiation stage, what is required is reason to believe , but not established fact of escapement of income. At stage of issue of notice, only question is whether there was relevant material on which reasonable person could have formed requisite belief. Whether materials would conclusively prove escapement is not concern at that stage. This is so because formation of belief by Assessing Officer is within realm of subjective satisfaction. (Emphasis supplied) 27. It is also law that Assessing Officer is not precluded to reopen assessment of earlier year on basis of his finding of fact, so made on basis of fresh material, so Page 29 of 55 C/SCA/19392/2018 JUDGMENT discovered, in course of assessment of next assessment year [Ess Kay Engineering Co. P. Ltd. vs Commissioner Of Income-Tax, 2001 247 ITR 818 SC]. 28. In Calcutta Discount Co. Ltd. (supra), apex Court held that: 9. There can be no doubt that duty of disclosing all primary facts relevant to decision of question before assessing authority lies on assessee. To meet possible contention that when some account books or other evidence has been produced, there is no duty on assessee to disclose further facts, which on due diligence, Income-tax Officer might have discovered, Legislature has put in Explanation, which has been set out above. In view of Explanation, it will not be open to assessee to say, for example - I have produced account books and documents: You, assessing officer examine them, and find out facts necessary for your purpose: My duty is done with disclosing these account-books and documents . His omission to bring to assessing authority's attention these particular items in account books, or particular portions of documents, which are relevant, will amount to omission to disclose fully and truly all material facts necessary for his assessment. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by assessing authority if he had pursued investigation on basis of what has been disclosed. Explanation to section, gives quietus to all such contentions; and position remains that so far as primary facts are concerned, it is assessee's duty to disclose all of them - including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by assessing authority, from documents and other evidence disclosed. (Emphasis supplied) 29. Apex Court in S. Ganga Saran and sons (Pvt.) Ltd., Page 30 of 55 C/SCA/19392/2018 JUDGMENT Calcutta v. Income Tax Officer, (1981) 3 SCC 143 has observed as under: 6 (a) are has reason to believe and these words are stronger than words is satisfied . belief, entertained by Income-tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. Court, of course, cannot investigate into adequacy or sufficiency of reasons which have weighed with Income-tax Officer in coming to belief, but Court can certainly examine whether reasons are relevant and have bearing on matters in regard to which he is required to entertain belief before he can issue notice under Section 147 (a). If there is no rational and intelligible nexus between reasons and belief, so that on such reasons, no one properly instructed on facts and law could reasonably entertain belief, conclusion would be inescapable that Income-tax Officer could not have reason to believe that any part of income of assessee had escaped assessment and such escapement was by reason of omission or failure on part of assessee to disclose fully and truly all material facts and notice issued by him would be liable to be struck down as invalid. (Emphasis supplied) 30. Apex Court in Income Tax Officer, Cuttack v. Biju Patnaik, 1991 Supp (1) SCC 161, observed that while examining existence of reasons, record can be looked into. 31. In Niranjan & Co. Pvt. Ltd. v. Commissioner of Income Tax, West Bengal-I, 1986 Supp SCC 272, apex Court held that: 21. It was contended on behalf of assessee/appellant relying on observations of this Court in Commr. of Income-tax, Gujarat v. A. Raman and Co., (AIR 1968 SC 49) (supra), that Income-tax Officer must have had reason to believe and in consequence of Page 31 of 55 C/SCA/19392/2018 JUDGMENT information he must have that reason to believe and it was submitted that information was already there and there was no new information from which Income-tax Officer could have formed belief. Having regard to facts of this case as discussed above and nature of information indicated before, we are of opinion that there was information in form of revised return and since information mentioned before came to knowledge of Income-tax Officer subsequent to making of first assessment and information being such from which reasonable person could have formed belief that there was escapement of income or underassessment of income, it cannot be said that there was no jurisdiction of Income-tax Officer to reopen assessment. Whether in fact reassessment to be made pursuant to notice issued, income assessed would be more by Re, 1/- or less than income already assessed is not material or relevant for question of jurisdiction to issue notice under S. 147 of Act. (Emphasis supplied) 32. Supreme Court in Lakhmani Mewal Das (supra), had observed as under: grounds or reasons which lead to formation of belief contemplated by section 147(a) of Act must have material bearing on question of escapement of income of assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for Income- tax Officer to form above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether grounds are adequate or not is not matter for court to investigate. 963 sufficiency of grounds which induce Income-tax Officer to act is, therefore, not justiciable issue. It is, of course, open to assessee to contend that Income-tax Officer did not hold belief that there had been such non-disclosure. existence of belief can be challenged by assessee but not sufficiency of reasons for belief. expression "reason to believe" does not mean purely subjective satisfaction on part of Income-tax Officer. reason must be held in good faith. It cannot Page 32 of 55 C/SCA/19392/2018 JUDGMENT be merely pretence. It is open to court to examine whether reasons for formation of belief have rational connection with or relevant bearing on formation of belief and are not extraneous or irrelevant for purpose of section. To this limited extent, action of Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in court of law [see observations of this Court in cases of Calcutta Discount Co. Ltd. v. Income-tax Officer and S. Narayanappa & Ors. v. Commissioner of Income-tax while dealing with corresponding provisions of Indian Income-tax Act, 1922]. 33. Division Bench of this Court in case of Dishman Pharmaceuticals & Chemicals Limited vs. Deputy Commissioner of Income-Tax [OSD], reported in [2012] 346 ITR 228 [Guj] made following observations : From above judicial pronouncements, following principles can be culled out : [i] To confer jurisdiction to Assessing Officer to reopen assessment under Section 147 of Income- tax Act beyond four years from end of assessment year, following two conditions must be satisfied (a) that Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment; and (b) that same was occasioned, on account of either failure on part of assessee to make return of his income for that assessment year, or to disclose fully and truly all material facts necessary for assessment of that year, or to disclose fully and truly all material facts necessary for assessment of that year; [ii] both above conditions are conditions precedent and must be satisfied simultaneously before Income-tax Officer can assume jurisdiction to reopen assessment beyond four years of end of assessment year; [iii] such reasons must be recorded and if reasons recorded by Assessing Officer do not disclose satisfaction of these two conditions, reopening notice must fail; [iv] there is no set format in which such reasons must be recorded. It is not language but Page 33 of 55 C/SCA/19392/2018 JUDGMENT contents of such recorded reasons which assumes importance. In other words, mere statement that Assessing Officer had reason to believe that certain income has escaped assessment and such escapement of income was on account of non filing of return by assessee or failure on his part of disclose fully and truly all material facts necessary for assessment would not be conclusive. Nor absence of any such statement would be fatal, if on basis of reasons recorded, it can be culled out that there were sufficient grounds for Assessing Officer to hold such beliefs.. Information Received from Investigation Wing: Accommodation entries: 34. In case of PCIT v. Manzil Dineshkumar Shah[2018] 95 Taxmann.com 46 (Guj) HC), this Court held that; even assessment which is completed u/s 143(1) cannot be reopened without proper reason to believe . If reasons state that information received from VAT Dept that assessee entered into bogus purchases "needed deep verification", it means AO is reopening for doing fishing or roving inquiry without proper reason to believe, which is not permissible. Court also observed that, before closing, we can only lament at possible revenue loss. law and principles noted above are far too well settled to have escaped notice of Assessing Officer despite which if reasons recorded fail test of validity on account of sentence contained, it would be for Revenue to examine reasons behind it. 35. In case of Amar Jewellers Ltd. v. Dy. CIT (2018) 254 Taxman 384 (Guj. )(HC) this Court held that; On verifying record it was found that, there was no nexus with Page 34 of 55 C/SCA/19392/2018 JUDGMENT reasons recorded for initiating reassessment proceedings and information received by AO from investigation wing, accordingly, reassessment was held to be bad in law. 36. However In case of Jayant Security & Finance Ltd. v. ACIT (2018) 254 Taxman 81 (Guj. )(HC) this court held that; Information from Investigation Wing stating that loan from company working as entry operator and earning bogus funds to provide advances to various persons was sufficient and would constitute genuine and bona fide reason to believe. Reassessment was held to be valid. 37. Similarly in case of Ankit Agrochem (P. ) Ltd. v. JCIT (2018) 253 Taxman 141 (Raj)(HC) Court held that; reassessment on basis of information for DIT stating that assessee had received share application money from several entities which were only engaged in business of providing bogus accommodation entries to beneficiary concerns, reassessment on basis of said information was justified. 38. other cases where reopening has been held to be justified on basis of information from Investigation Wing are as follows: (I) PCIT v. Paramount Communication P. Ltd. (2017) 392 ITR 444 (Delhi)(HC); (ii) Aravali Infrapower Ltd. v. DCIT, (2017) 390 ITR 456 (Delhi)(HC) Page 35 of 55 C/SCA/19392/2018 JUDGMENT (iii) Aradhna Estate Pvt. Ltd. v. DCIT, (2018) 404 ITR 105 (Guj) (HC) (iv) Rajnish Jain. v. CIT (2018) 402 ITR 12 (All) (HC) 39. While it is true that court is conscious that reassessment notice should not have been routinely issued, at same time, nature of power is wide enough that when there is escapement of income and Revenue has information ruling that this escapement is also relatable to suppression of material facts (which could include false claims), power to reopen concluded assessment can validly be exercised. consideration which ought to weigh with Revenue and are considered valid are existence of tangible material or information in light of judgment in CIT vs. Kelvinator of India Ltd., (2010) 320 ITR 561 (SC). Having regard to reasons assigned for reopening assessment, we are unable to accept vociferous submissions of Mr. Gandhi. It constitutes reference to tangible material outside record, i.e., information based upon investigation of office of Deputy Director of Income Tax (Investigation), Jamnagar with respect to bogus and sham loan transactions. 40. contention that Assessing Officer had merely and mechanically acted on report of Investigation Wing also cannot be accepted. We have reproduced reasons recorded by Assessing Officer and noted gist of his reasons for resorting reopening of assessment. We have recorded that Assessing Officer had perused materials placed for its consideration and thereupon, upon Page 36 of 55 C/SCA/19392/2018 JUDGMENT examination of such materials, formed belief that income chargeable to tax had escaped assessment. 41. In case of Principal Commissioner of Income tax, Rajkot-3 v. Gokul Ceramics, reported in (2016) 241 Taxman 341 (Gujarat), similar contention was raised by counsel for assessee contending that Assessing Officer had acted mechanically on investigation carried out by Excise department and not formed his independent belief. Such contention was rejected making following observations : 9. It can thus be seen that entire material collected by DGCEI during search, which included incriminating documents and other such relevant materials, was alongwith report and show cause notice placed at disposal of Assessing Officer. These materials prima facie suggested suppression of sale consideration of tiles manufactured by assessee to evade excise duty. On basis of such material, Assessing Officer also formed belief that income chargeable to tax had also escaped assessment. When thus Assessing officer had such material available with him which he perused, considered, applied his mind and recorded finding of belief that income chargeable to tax had escaped assessment, reopening could not and should not have been declared as invalid, on ground that he proceeded on show cause notice issued by Excise Department which had yet not culminated into final order. At this stage Assessing Officer was not required to hold conclusively that additions invariably be made. He truly had to form bona fide belief that income had escaped assessment. In this context, we may refer to various decisions cited by counsel for Revenue. 10. In case of Central Provinces Manganese Ore Co. Ltd. vs. Income Tax Officer, Nagpur (Supra) Supreme Court noted that in case of assessee which had office in London, this Customs authority had come to Page 37 of 55 C/SCA/19392/2018 JUDGMENT know that assessee had declared very low price in respect of consignment of Manganese exported by them out of India. After due inquiries and investigations, Customs authorities found that assessee was systematically undervoicing value of Manganese as compared with prevailing market price. Income Tax Officer on coming to know about proceedings before Customs Collector in this respect issued notice for reopening of assessment. In reasons that Assessing Officer relied on facts as found by Customs Authorities that assessee had under-voiced goods during export. Under such circumstances, upholding validity of notice for reopening, Supreme Court held and observed as under :- So far as first condition is concerned, Income Tax Officer, in his recorded reasons, has relied upon fact as found by Customs Authorities that appellant had under invoiced goods it exported. It is not doubt correct that said finding may not be binding upon income tax authorities but it can be valid reason to believe that chargeable income has been under assessed. final outcome of proceedings is not relevant. What is relevant is existence of reasons to make Income Tax Officer believe that there has been under assessment of assessee's income for particular year. We are satisfied that first condition to invoke jurisdiction of Income Tax Officer under Section 147(a) of Act was satisfied. 11. In case of Income Tax Officer vs. Purushottam Das Bangur (Supra) after completion of assessment in case of assessee, Assessing Officer received letter from Directorate of Investigation giving detailed particulars collected from Bombay Stock Exchange which revealed earning of share and price of share increased during period in question and quotation appearing at Calcutta Stock Exchange was as result of manipulated transaction. On basis of such information,the Assessing Officer issued notice for reopening of assessment. question, therefore, arose whether information contained in letter of Directorate of Investigation could be said to be definite information and Assessing Officer could act upon such information for taking action under Section 147(b) of Act. In such Page 38 of 55 C/SCA/19392/2018 JUDGMENT background, Supreme Court observed as under: 12. Ms. Gauri Rastogi, learned counsel appearing for respondents, has urged that letter of Shri Bagai was received by Income tax Officer on March 26, 1974 and on very next day, that is, on March 27, 1974, he issued impugned notice under Section 147(b) of Act and that he did not have conducted any inquiry or investigation into information sent by Shri Bagai. Merely because impugned notice was sent on next day after receipt of letter of Shri Bagai does not mean that Income Tax Officer did not apply his mind to information contained in said letter of Shri Bagai. On basis of said facts and information contained in said letter, Income Tax officer, without any further investigation, could have formed opinion that there was reason to believe that income of assessee chargeable to tax had escaped assessment. High Court, in our opinion, was in error in proceeding on basis that it could not be said that Income Tax Officer had in his possession information on basis of which he could have reasons to believe that income of assessee chargeable to tax had escaped assessment for relevant assessment years. For reasons aforementioned, we are unable to uphold impugned judgment of High Court. appeal is, therefore, allowed, impugned judgment of High Court is set aside and Writ Petitions filed by respondents are dismissed. No order as to costs. 12. In case of Income Tax Officer vs Selected Dalurband Coal Co. Pvt. Ltd. (Supra), assessment was reopened on basis of information contained in letter from Chief Mining Officer that colliery of assessee had been inspected and there had been under reporting of coal raised. Upholding validity of re-opening of assessment, Supreme Court held and observed as under :- After hearing learned counsel for parties at length, we are of opinion that we cannot say that letter aforesaid does not constitute relevant material or that on that basis, Income Tax Officer could not have reasonably formed requisite belief. letter shows that joint inspection was conducted in colliery of respondent on January 9, 1967, by officers of Page 39 of 55 C/SCA/19392/2018 JUDGMENT Mining Department in presence of representatives of assessee and according to opinion of officers of Mining Department, there was under reporting of raising figure to extent indicated in said letter. report is made by Government Department and that too after conducting joint inspection. It gives reasonably specific estimate of excessive coal mining said to have been done by respondent over and above figure disclosed by it in its returns. Whether facts stated in letter are true or not is not concern at this stage. It may be well be that assessee may be able to establish that facts stated in said letter are not true but that conclusion can be arrived at only after making necessary enquiry. At stage of issuance of notice, only question is whether there was relevant material, as stated above, on which reasonable person could have formed requisite belief. Since we are unable to say that said letter could not have constituted basis for forming such belief, it cannot be said that issuance of notice was invalid. Inasmuch as, as result of our order, reassessment proceedings have not to go on we don not and we ought not to express any opinion on merits. 13. In case of AGR Investment Ltd. vs. Additional Commissioner of Income Tax & Anr. (Supra), Division Bench of Delhi High Court considered validity of reopening of assessment where notice was based on information received from Directorate of investigation that assessee was beneficiary of bogus accommodation entries. Court while upholding validity of reopening observed that sufficiency of reason cannot be considered in writ petition. It was observed as under : 23. present factual canvas has to be scrutinized on touchstone of aforesaid enunciation of law. It is worth noting that learned counsel for petitioner has submitted with immense vehemence that petitioner had entered into correspondence to have documents but assessing officer treated them as objections and made communication. However, on scrutiny of order, it is perceivable that authority has passed order dealing with objections in very careful and studied manner. He has taken note of Page 40 of 55 C/SCA/19392/2018 JUDGMENT fact that transactions involving Rs.27 lakhs mentioned in table in Annexure P-2 constitute fresh information in respect of assessee as beneficiary of bogus accommodation entries provided to it and represents undisclosed income. assessing officer has referred to subsequent information and adverted to concept of true and full disclosure of facts. It is also noticeable that there was specific information received from office of DIT (INV-V) as regards transactions entered into by assessee company with number of concerns which had made accommodation entries and they were not genuine transactions. As we perceive, it is neither change of opinion nor does it convey particular interpretation of specific provision which was done in particular manner in original assessment and sought to be done in different manner in proceeding under Section 147 of Act. reason to believe has been appropriately understood by assessing officer and there is material on basis of which notice was issued. As has been held in Phool Chand Bajrang Lal (supra), Bombay Pharma Products (supra) and Anant Kumar Saharia (supra), Court, in exercise of jurisdiction under Article 226 of Constitution of India pertaining to sufficiency of reasons for formation of belief, cannot interfere. same is not to be judged at that stage. In SFIL Stock Broking Ltd. (supra), bench has interfered as it was not discernible whether assessing officer had applied his mind to information and independently arrived at belief on basis of material which he had before him that income had escaped assessment. In our considered opinion, decision rendered therein is not applicable to factual matrix in case at hand. In case of Sarthak Securities Co. Pvt. Ltd. (supra), Division Bench had noted that certain companies were used as conduits but assessee had, at stage of original assessment, furnished names of companies with which it had entered into transactions and assessing officer was made aware of situation and further reason recorded does not indicate application of mind. That apart, existence of companies was not disputed and companies had bank accounts and payments were made to assessee company through banking channel. Regard being had to aforesaid fact situation, this Court had interfered. Thus, said decision is also distinguishable on factual score. Page 41 of 55 C/SCA/19392/2018 JUDGMENT 13. Learned Single Judge of Madras High Court in case of Sterlite Industries (India) Ltd. vs. Assistant Commissioner of Income Tax reported in [2008] 302 ITR 275 (Mad) upheld notice for reopening which was based on information from enforcement directorate showing possible inflation of purchases made by assessee. 42 In case of Central Provinces Manganese Ore Co. Ltd. vs. Income Tax Officer, Nagpur, 1992 AIR 567, 1991 SCR (3) 627, Supreme Court noted that in case of assessee which had office in London, Customs authority had come to know that assessee had declared very low price in respect of consignment of Manganese exported by them out of India. After due inquiries and investigations, Customs authorities found that assessee was systematically under-voicing value of Manganese as compared with prevailing market price. Income Tax Officer on coming to know about proceedings before Customs Collector in this respect issued notice for reopening of assessment. In reasons recorded, Assessing Officer relied on facts as found by Customs Authorities that assessee had under-voiced goods during export. In such circumstances, while upholding validity of notice for reopening, Supreme Court held and observed as under: So far as first condition is concerned, Income Tax Officer, in his recorded reasons, has relied upon fact as found by Customs Authorities that appellant had under invoiced goods it exported. It is not doubt correct that said finding may not be binding upon income tax authorities but it can be valid reason to believe that chargeable income has been under assessed. final outcome of proceedings is not relevant. What is relevant is existence of reasons to make Income Tax Officer believe that there has been under assessment of Page 42 of 55 C/SCA/19392/2018 JUDGMENT assessee's income for particular year. We are satisfied that first condition to invoke jurisdiction of Income Tax Officer under Section 147(a) of Act was satisfied. 43. In case of Income Tax Officer vs Purushottam Das Bangur, (1997) 224 ITR 0362 after completion of assessment in case of assessee, Assessing Officer received letter from Directorate of Investigation giving detailed particulars collected from Bombay Stock Exchange which revealed earning of share and price of share increased during period in question and quotation appearing at Calcutta Stock Exchange was as result of manipulated transaction. On basis of such information, Assessing Officer issued notice for reopening of assessment. question, therefore, arose whether information contained in letter of Directorate of Investigation could be said to be definite information and Assessing Officer could act upon such information for taking action under Section 147(b) of Act. In such background, Supreme Court observed as under: 12. Ms. Gauri Rastogi, learned counsel appearing for respondents, has urged that letter of Shri Bagai was received by Income tax Officer on March 26, 1974 and on very next day, that is, on March 27, 1974, he issued impugned notice under Section 147(b) of Act and that he did not have conducted any inquiry or investigation into information sent by Shri Bagai. Merely because impugned notice was sent on next day after receipt of letter of Shri Bagai does not mean that Income Tax Officer did not apply his mind to information contained in said letter of Shri Bagai. On basis of said facts and information contained in said letter, Income Tax officer, without any further investigation, could have formed opinion that there was reason to believe that income Page 43 of 55 C/SCA/19392/2018 JUDGMENT of assessee chargeable to tax had escaped assessment. High Court, in our opinion, was in error in proceeding on basis that it could not be said that Income Tax Officer had in his possession information on basis of which he could have reasons to believe that income of assessee chargeable to tax had escaped assessment for relevant assessment years. For reasons aforementioned, we are unable to uphold impugned judgment of High Court. appeal is, therefore, allowed, impugned judgment of High Court is set aside and Writ Petitions filed by respondents are dismissed. No order as to costs. 44. In case of Income Tax Officer vs Selected Dalurband Coal Co. Pvt. Ltd, 1978 113 ITR 489 Cal, assessment was reopened on basis of information contained in letter from Chief Mining Officer that colliery of assessee had been inspected and there had been under reporting of coal raised. Upholding validity of reopening of assessment, Supreme Court held and observed as under: After hearing learned counsel for parties at length, we are of opinion that we cannot say that letter aforesaid does not constitute relevant material or that on that basis, Income Tax Officer could not have reasonably formed requisite belief. letter shows that joint inspection was conducted in colliery of respondent on January 9,1967, by officers of Mining Department in presence of representatives of assessee and according to opinion of officers of Mining Department, there was under reporting of raising figure to extent indicated in said letter. report is made by Government Department and that too after conducting joint inspection. It gives reasonably specific estimate of excessive coal mining said to have been done by respondent over and above figure disclosed by it in its returns. Whether facts stated in letter are true or not is not concern at this stage. It may be well be that assessee may be able to establish that facts stated in said letter are not true but that conclusion Page 44 of 55 C/SCA/19392/2018 JUDGMENT can be arrived at only after making necessary enquiry. At stage of issuance of notice, only question is whether there was relevant material, as stated above, on which reasonable person could have formed requisite belief. Since we are unable to say that said letter could not have constituted basis for forming such belief, it cannot be said that issuance of notice was invalid. Inasmuch as, as result of our order, reassessment proceedings have not to go on we don not and we ought not to express any opinion on merits. 45. In case of AGR Investment Ltd. vs. Additional Commissioner of Income Tax and Anr. [2011] 333 ITR 146, Division Bench of Delhi High Court considered validity of reopening of assessment where notice was based on information received from Directorate of investigation that assessee was beneficiary of bogus accommodation entries. Court while upholding validity of reopening observed that sufficiency of reason cannot be considered in writ petition. It was observed as under: 23 present factual canvas has to be scrutinized on touchstone of aforesaid enunciation of law. It is worth noting that learned counsel for petitioner has submitted with immense vehemence that petitioner had entered into correspondence to have documents but assessing officer treated them as objections and made communication. However, on scrutiny of order, it is perceivable that authority has passed order dealing with objections in very careful and studied manner. He has taken note of fact that transactions involving Rs.27 lakhs mentioned in table in Annexure P2 constitute fresh information in respect of assessee as beneficiary of bogus accommodation entries provided to it and represents undisclosed income. assessing officer has referred to subsequent information and adverted to concept of true and full disclosure of facts. It is also noticeable that there was specific information received from office of DIT (INVV) as regards Page 45 of 55 C/SCA/19392/2018 JUDGMENT transactions entered into by assessee company with number of concerns which had made accommodation entries and they were not genuine transactions. As we perceive, it is neither change of opinion nor does it convey particular interpretation of specific provision which was done in particular manner in original assessment and sought to be done in different manner in proceeding under Section 147 of Act. reason to believe has been appropriately understood by assessing officer and there is material on basis of which notice was issued. As has been held in Phool Chand Bajrang Lal (supra), Bombay Pharma Products (supra) and Anant Kumar Saharia (supra), Court, in exercise of jurisdiction under Article 226 of Constitution of India pertaining to sufficiency of reasons for formation of belief, cannot interfere. same is not to be judged at that stage. In SFIL Stock Broking Ltd. (supra), bench has interfered as it was not discernible whether assessing officer had applied his mind to information and independently arrived at belief on basis of material which he had before him that income had escaped assessment. In our considered opinion, decision rendered therein is not applicable to factual matrix in case at hand. In case of Sarthak Securities Co. Pvt. Ltd. (supra), Division Bench had noted that certain companies were used as conduits but assessee had, at stage of original assessment, furnished names of companies with which it had entered into transactions and assessing officer was made aware of situation and further reason recorded does not indicate application of mind. That apart, existence of companies was not disputed and companies had bank accounts and payments were made to assessee company through banking channel. Regard being had to aforesaid fact situation, this Court had interfered. Thus, said decision is also distinguishable on factual score. 46. We may also refer to and rely upon some of relevant observations made by this Court in case of Yogendrakumar Gupta vs. Income-Tax Officer, reported in (2004) 366 ITR 186 (Guj.). We are not persuaded to accept argument of Mr. Page 46 of 55 C/SCA/19392/2018 JUDGMENT Sharma that question regarding truthfulness or falsehood of transactions reflected in return can only be examined during original assessment proceedings and not at any stage subsequent thereto. argument is too broad and general in nature and does violence to plain phraseology of Sections 147(a) and 148 of Act and is against settled law by this Court. We have to look to purpose and intent of provisions. One of purposes of Section 147, appears to us to be, to ensure that party cannot get away by wilfully making false or untrue statement at time of original assessment and when that falsity comes to notice, to turn around and say "you accepted my lie, now your hands are tied and you can do nothing". It would be travesty of justice to allow assessee that latitude. As held by Apex Court in Phool Chand Bajrang Lal v. Income tax Officer (Supra) where transaction itself on basis of subsequent information is found to be bogus transaction, Court held that mere disclosure of such transaction at time of original assessment proceedings, cannot be said to be disclosure of 'full' and 'true' facts and Assessing Officer surely would have jurisdiction to reopen concluded assessment in such case. Apex Court also had observed in said case that Assessing Officer may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed, or some information with regard to facts previously disclosed comes into his possession which tends to expose untruthfulness of those facts. In such situations, it is not case of mere change of opinion or drawing of different inference from same facts as were earlier available but acting on fresh information. Since belief is that of Income tax Officer, sufficiency of reasons for forming belief, is not for Court to judge but is is open to assessee to establish that there in fact existed no belief or that belief was not at all bona fide one or was based on vague, irrelevant and nonspecific information. To that limited extent, Court may look conclusion arrived at by Income tax Officer and examine whether there was any material available on record from which requisite belief could be formed by him and further whether that material had any rational connection or live link with formation of requisite belief. Page 47 of 55 C/SCA/19392/2018 JUDGMENT In instant case also, these observations and findings would have direct bearing. Assessing Officer, at time of making original assessment though made enquiry, could not have found by further inquiry or investigation whether such transactions were genuine or not. However, on basis of subsequent informations, he arrived at such conclusion after satisfying both conditions prescribed under Section 147 that assessee failed to disclose fully and truly all material facts at time of original assessment and therefore, income chargeable to tax had escaped assessment. Assessing Officer certainly would assume jurisdiction under Section 147. Ostensibly, thus, there was disclosure and occasion would not arise to term this as assessee not having disclosed fully and truly all material facts necessary for assessment. However, in essence, if unsecured loans obtained from Basant Marketing Pvt. Ltd. from material supplied by them, DCIT, Kolkata reveals that same was as result of accommodation entry in form of loans and advances from Basant Marketing Pvt. Ltd. to tune of Rs.8.71 crore, case of assessee would surely be covered under said provision of law as it would not amount to full and true disclosure on part of assessee. At this stage, reasons recorded shall have to be regarded, which have been based on information contained in report of DCIT, Kolkata, dated March 24, 2013, wherein it had been noticed that assessee company obtained accommodation entry in form of loans and advances from Basant Marketing Pvt. Ltd. and, therefore, Assessing Officer based his reason to believe that income chargeable to tax had escaped assessment. In post notice correspondence dated March 05, 2014, it has been stated by Assessing Officer that Basant Marketing Pvt. Ltd. provided accommodation entry to various companies, where assessee company is one of them. Basant Marketing Pvt. Ltd. is dummy company of one Shri Arun Dalmia and substantial material is found to base such reasons recorded during search by CBI, Mumbai and, therefore, Assessing Officer issued notice to show cause as to why said amount of Page 48 of 55 C/SCA/19392/2018 JUDGMENT Rs.8.71 crore received from Basant Marketing Pvt. Ltd. should not be treated as cash credit under section 68 of Act. 47. following principles of law are discernible from various decisions we have referred to, relied upon and discussed. (i) Court should be guided by reasons recorded for reassessment and not by reasons or explanation given by Assessing Officer at later stage in respect of notice of reassessment. To put it in other words, having regard to entire scheme and purpose of Act, validity of assumption of jurisdiction under Section 147 can be tested only by reference to reasons recorded under Section 148(2) of Act and Assessing Officer is not authorized to refer to any other reason even if it can be otherwise inferred or gathered from records. Assessing Officer is confined to recorded reasons to support assumption of jurisdiction. He cannot record only some of reasons and keep others upto his sleeves to be disclosed before Court if his action is ever challenged in court of law. (ii) At time of commencement of reassessment proceedings, Assessing Officer has to see whether there is prima facie material, on basis of which, department would be justified in reopening case. sufficiency or correctness of material is not thing to be considered at that stage. (iii) validity of reopening of assessment shall have to be determined with reference to reasons recorded for reopening of assessment. Page 49 of 55 C/SCA/19392/2018 JUDGMENT (iv) basic requirement of law for reopening and assessment is application of mind by Assessing Officer, to materials produced prior to reopening of assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied-a postmortem exercise of analysing materials produced subsequent to reopening will not make inherently defective reassessment order valid. (v) crucial link between information made available to Assessing Officer and formation of belief should be present. reasons must be self evident, they must speak for themselves. (vi) tangible material which forms basis for belief that income has escaped assessment must be evident from reading of reasons. entire material need not be set out. To put it in other words, something therein, which is critical to formation of belief must be referred to. Otherwise, link would go missing. (vii) reopening of assessment under Section 147 is potent power and should not be lightly exercised. It certainly cannot be invoked casually or mechanically. (viii) If original assessment is processed under Section 143(1) of Act and not Section 143(3) of Act, proviso to Section 147 will not apply. In other words, although reopening may be after expiry of four years from end of relevant assessment year, yet it would not be necessary for Assessing Officer to show that there was any failure to disclose fully or truly all material facts necessary for assessment. Page 50 of 55 C/SCA/19392/2018 JUDGMENT (ix) In order to assume jurisdiction under Section 147 where assessment has been made under sub-section (3) of section 143, two conditions are required to be satisfied; (i) Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment; (ii) Such escapement occurred by reason of failure on part of assessee either (a) to make return of income under section 139 or in response to notice issued under sub-section (1) of Section 142 or Section 148 or (b) to disclose fully and truly all material facts necessary for his assessment for that purpose. (x) Assessing Officer, being quasi judicial authority is expected to arrive at subjective satisfaction independently on objective criteria. (xi) While report of Investigation Wing might constitute material, on basis of which, Assessing Officer forms reasons to believe, process of arriving at such satisfaction should not be mere repetition of report of investigation. reasons to believe must demonstrate some link between tangible material and formation of belief or reason to believe that income has escaped assessment. (xii) Merely because certain materials which is otherwise tangible and enables Assessing Officer to form belief that income chargeable to tax has escaped assessment, formed part of original assessment record, per se would not bar Assessing Officer from reopening assessment on basis of such material. expression tangible material does not mean material alien to original record. Page 51 of 55 C/SCA/19392/2018 JUDGMENT (xiii) order, disposing of objections or any counter affidavit filed during writ proceedings before Court cannot be substituted for reasons to believe. (xiv) decision to reopen assessment on basis of report of Investigation Wing cannot always be condemned or dubbed as fishing or roving inquiry. expression reason to believe appearing in Section 147 suggests that if Income Tax Officer acts as reasonable and prudent man on basis of information secured by him that there is case for reopening, then Section 147 can well be pressed into service and assessments be reopened. As consequence of such reopening, certain other facts may come to light. There is no ban or any legal embargo under Section 147 for Assessing Officer to take into consideration such facts which come to light either by discovery or by fuller probe into matter and reassess assessee in detail if circumstances require. (xv) test of jurisdiction under Section 143 of Act is not ultimate result of inquiry but test is whether income tax officer entertained bona fide belief upon definite information presented before him. Power under this section cannot be exercised on mere rumours or suspicions. (xvi) concept of change of opinion has been treated as built in test to check abuse. If there is tangible material showing escapement of income, same would be sufficient for reopening assessment. (xvii) It is not necessary that Income Tax Officer should hold quasi judicial inquiry before acting under Section 147. It is enough if he on information received believes in good faith that assesee's profits have escaped assessment or Page 52 of 55 C/SCA/19392/2018 JUDGMENT have been assessed at low rate. However, nothing would preclude Income Tax Officer from conducting any formal inquiry under Section 133(6) of Act before proceeding for reassessment under Section 147 of Act. (xviii) full and true disclosure of material facts would not include that material, which is to be used for testing veracity of particulars mentioned in return. All such facts would be expected to be elicited by Assessing Officer during course of assessment. disclosure required only reference to those material facts, which if not disclosed, would not allow Assessing Officer to make necessary inquiries. (xix) word information in Section 147 means instruction or knowledge derived from external source concerning facts or particulars or as to law relating to matter bearing on assessment. information anonymous is information from unknown authorship but nonetheless in given case, it may constitute information and not less information though anonymous. This is now recognized and accepted source for detection of large scale tax evasion. non-disclosure of source of information, by itself, may not reduce credibility of information. There may be good and substantial reasons for such anonymous disclosure, but real thing to be looked into is nature of information disclosed, whether it is mere gossip, suspicion or rumour. If it is none of these, but discovery of fresh facts or of new and important matters not present at time of assessment, which appears to be credible to honest and rational mind leading to scrutiny of facts indicating incorrect allowance of expense, such disclosure would constitute information as Page 53 of 55 C/SCA/19392/2018 JUDGMENT contemplated in clause (b) of Section 147. (xx) reasons recorded or material available on record must have nexus to subjective opinion formed by A.O. regarding escapement of income but then, while recording reasons for belief formed, A.O. is not required to finally ascertain factum of escapement of tax and it is sufficient that A.O had cause or justification to know or suppose that income had escaped assessment [vide Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra)]. It is also well settled that sufficiency and adequacy of reasons which have led to formation of belief by Assessing Officer that income has escaped assessment cannot be examined by court. 48. Having regard to materials on record it cannot be said that there is total non-application of mind on part of Assessing Officer while recording reasons for reopening of assessment. It also cannot be said that his conclusion was merely based on observations and information received from Investigation Wing. Assessing Officer could be said to have applied his mind to same. Assessing Officer could not be said to have merely concluded without verifying facts that it is case of reopening of assessment. We do not find merit in vociferous submission of learned counsel appearing for writ applicant that contents of reasons recorded by Assessing Officer for reopening of assessment is merely introduction about investigations conducted by Investigation Wing, modus operandi of entry provided, summing up of inquiry of Investigation Wing, information received from Investigation Wing etc. We Page 54 of 55 C/SCA/19392/2018 JUDGMENT have examined belief of Assessing Officer to limited extent to look into whether there was sufficient material available on record for Assessing Officer to form reasonable belief and whether there was live link existing of material and income chargeable to tax that escaped assessment. case on hand is not one where it could be argued that Assessing Officer, on absolutely vague or unspecific information, initiated proceedings of reassessment without taking pains to form his own belief in respect of such materials. 49. In overall view of matter, we are convinced that no case is made out by writ applicant for interference. 50. In result, both writ applications fail and are hereby rejected. Notice stands discharged in each of writ applications. interim relief, earlier granted, stands vacated forthwith. (J. B. PARDIWALA, J) (A. C. RAO, J) Vahid Page 55 of 55 Hemjay Construction Co. Pvt. Ltd v. Income-tax Officer, Ward-2(2)