Shah, J. - (1.) The assessee -M/s. A. Raman and Company-are dealers in "mill stores". In the course of their business they sell "mill stores" to other dealers including two concerns trading in the names of M/s. A. M. Shah and Co. and M/s. R. Ambalal and Co., which are owned by the Hindu undivided families, managers of which are the only partners of the assessees. For the assessment years 1959-60, 1960-61 and 1961-62 the assessees were originally assessed by the Income-tax Officer, Circle-I, Ward-A, Ahmedabad, while the partners of the assessees and the Hindu undivided families which traded in the names of M/s. A. M. Shah and Co. and M/s. R. Ambalal and Co. were assessed by Income-tax Officers in other Circles. The cases of the assessees, of the partners of the assessees and of the two Hindu undivided families trading in the names of A. M. Shah and Co. and R. Ambalal and Co. were later transferred to the Income-tax Officer, Group Circle-J, Ahmedabad. That Officer by letter dated March 20, l964 informed the assessees that he was convinced from a perusal of the assessment records of the assessees, their partners and their individual Hindu undivided families that the partners of the assessees had contrived to divert profits of the assessees to their respective Hindu undivided families and had tried to "evade proper taxation", and on that ground he called upon the assessees to submit their objections, if any, to the reopening of the assessments for the year 1959-60, 1960-61 and 1961-62. The assessees in reply contended that the Income-tax Officer had no jurisdiction to reopen the assessments since the Hindu undivided families of the two partners and the assessees had submitted "correct and complete returns of income" supported by their books of account, "quantity details" of purchases, sales and expenses and had given all material facts and relevant information necessary for assessment at the time of each assessment.
(2.) The Income-tax Officer issued three separate notices under Section 147 of the Income-tax Act; 1961. requiring the assessees to show cause why the assessments for the years 1959-60, 1960-61 and 1961-62 should not be reopened. The High Court of Gujarat in a petition for a writ under Article 226 of the Constitution quashed those notices and restrained the Income-tax Officer from taking proceedings in pursuance thereof. With special leave granted by this Court, the Commissioner of Income-tax has appealed to this Court.
(3.) In support of the claim of the Income-tax Officer, to reopen the assessments, reliance was placed in the High Court on Clause (b) of Section 147 (1) of the Income-tax Act 1961. The material part of Section 147 (1) (b) may be read: "If- (a) * * * * (b) notwithstanding that there has been no omission or failure as mentioned in Cl.(a) on the part of the assessee, the 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 the provisions of Sections 148 to 153, assess or re-assess such income or recompute the loss or the depreciation allowance as the case may be, for the assessment year concerned. Explanation 1. - For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax teas escaped assessment, namely: (a) where income chargeable to tax has been under-assessed; or ********** Under Section 147 (1) (b) reason to believe that income chargeable to tax has escaped assessment in consequence of information in the possession of the Income-tax Officer is a condition precedent to the exercise of his jurisdiction to assess or reassess the income of the assessee. If that condition does not exist, steps taken by the Income-tax Officer to assess or reassess the income will be without jurisdiction.;