Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in annulling the reassessments under Section 147(a) for the assessment years 1959-60, 1961-62 and 1962-63?" There is some mistake in the question referred to this court. The proper question which the Tribunal wanted, in our opinion, to refer was : "Whether, on the facts and in the circumstances of the case, the Tribunal was correct or justified in law in holding that the reassessments under Section 147(a) for the assessment years 1959-60, 1961-62 and 1962-63 were bad and as such were liable to be annulled under Section 147(a) of the Income-tax Act, 1961 ?" The assessments for the assessment years 1959-60, 1960-61, 1961-62 and 1962-63 were reopened by the ITO under Section 147(a) of the I.T. Act, 1961. The assessment year 1960-61 is not under reference. So far as the facts relevant for the assessment year 1959-60 are concerned, the same have been set out by the Tribunal in its order as follows : "During the original assessment proceedings, the assessee filed the return of income in January, 1960, along with the balance-sheets and profit and loss account. The balance-sheets show unsecured loans from the creditors other than the banks at a figure of Rs. 9,08,800. The Income-tax Officer had apparently scrutinised the balance-sheet as is clear from his noting against the entry in the balance-sheet of Rs. 9,08,800. The Income-tax Officer had scribbled the following remarks on the face of the balance-sheet against this particular item. Details given, ledger accounts filed to be reported: On going through the miscellaneous folder for the assessment year 1959-60, one finds that the copies of accounts of the creditors had been filed with the Income-tax Officer by the assessee. The address of many of the creditors had been furnished. During these assessment proceedings, the Income-tax Officer had issued a questionnaire some time in February, 1962, asking the assessee, inter alia, to give the complete addresses and the income-tax districts wherein the loan creditors were being assessed. This information was required to be given to the Income-tax Officer so far as it was known to the assessee. The order sheet entry dated 17th February, 1962, indicates that this questionnaire was issued by the Income-tax Officer and that on two occasions some discussion had taken place. The details of the discussions have not been recorded in the order sheet and there is no reference to the result of the enquiries made as a result of the information supplied in pursuance of the questionnaire. There is no reference in the assessment order to the necessary facts not having been supplied to the Income-tax Officer by the assessee. The original assessment order is, therefore, silent on this point. It can, therefore, be presumed that the Income-tax Officer had no grievance in this matter. Otherwise, he could have referred to the assessee's lapse in not supplying the information or would have made some additions. In the records which were shown to the Tribunal, the necessary details called for in the questionnaire are not available. One is not, therefore, in a position to say whether these materials as asked for by the Income-tax Officer were actually supplied to the Income-tax Officer or not. One can only make an inference from the facts stated above that the Income-tax Officer was not apparently aggrieved about any of the lapses of the assessee, if any. In 1968, the Income-tax Officer reopened the proceedings under Section 147(a) and the reasons given by him for reopening the proceedings are extracted below : "M/s. Bagwan Ltd.: Assessee has business in share dealings, gunnies and hessians and speculation and income from dividend. During the previous year relevant to the assessment year 1959-60, the assessee has introduced his concealed income amounting to Rs. 2,00,000 in the names of various unverifiable hundi creditors. Full details of the deposits were not disclosed at the time of original assessment. I have reason to believe that, by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that year, income of Rs. 2,00,000 chargeable to tax escaped assessment during 1959-60 assessment. Sanction may, therefore, be given for issue of notice under Section 147(a)/148.
(2.) The Commissioner recorded his satisfaction or sanction to the initiation of these proceedings. The ITO noticed that the assessee had taken a number of loans on hundies and that these hundi credits represented the concealed income of the assessee. He found that the peak credit of the hundi loans reached Rs. 10 lakhs on 17th January, 1962, and that an amount of Rs. 2 lakhs was introduced between July, 1958, and December, 1958. He was of the opinion that these loans were of the same nature as loans surrendered by the shareholders of the assessee-company under the Voluntary Disclosure Schemes. He called upon the assessee to explain the true source and nature of these credits and when the assessee did not reply to the query letter, he had proceeded to add back the amount of Rs. 2 lakhs as income from other sources along with the interest thereon. The Appellate Assistant Commissioner noticed that the transaction impugned by the Income-tax Officer had practically been transacted in cash as, even where the cheques had been issued, they were only bearer cheques. As the transactions in respect of these loans had taken place in cash and as no evidence was led by the assessee to prove the genuineness of these loans, the Appellate Assistant Commissioner confirmed the addition. He also upheld the validity of the reassessment proceedings. The assessee's representative vehemently contended before the Tribunal that the ITO could have had no prima facie reason to believe at the time of reopening the assessment that there was any concealment of income on account of the assessee's failure to furnish the material particulars at the time of the original assessment proceedings. He stated that the necessary particulars regarding the creditors had been furnished to the Income-tax Officer during the original assessment proceedings and that, if so advised, the Income-tax Officer could have made further enquiries and satisfied himself about the genuineness of these loans. It was not open to him to embark upon the provisions of Section 147(a) and make the additions which he sought to do. He also argued that the Commissioner had apparently not applied his mind since he gave his sanction without testing the material on record. He relied upon the Supreme Court decision reported in in the case of Chhugamal Rajpal. As for merits, he stated that the Income-tax Officer was wrong in making the additions without making further enquiries. The departmental representative stated before the Tribunal that the assessee had failed to make a complete and true disclosure of the material facts necessary for the assessment and in this connection he stated that a mere furnishing of the addresses or the copies of accounts of the creditors was not enough and, for this purpose, he relied upon an unreported Calcutta High Court decision in the case of Shri Lakhmani Mewal Das dated 13th January, 1972 (reported in [FB]. He pointed out that, in that case also, necessary particulars about the creditors had been filed in the course of the original proceedings and yet the court held that there was not a full, true and complete disclosure of the material facts. As for merits, he argued that the transactions were in cash and that though cheques had been issued they were bearer cheques and apparently the cheques had been cleared by the assessee itself at the time of the repayment of the loans. He, therefore, argued that the reassessment proceedings were valid and that the additions had been rightly made. He also tried to distinguish the Supreme Court decision relied upon by the assessee from the facts obtaining before us."
(3.) After noting the aforesaid contentions, the Tribunal, observed, inter alia, as follows: "We have heard the rival contentions advanced by both the sides at length and we are inclined to agree with the submissions made by the assessee's representative that the reassessment proceedings were not validly initiated. The necessary condition to be satisfied for the reopening of the assessment under Section 147(a) is that the Income-tax Officer must have reason to believe that income has escaped the assessment owing to the failure of the assessee to furnish material particulars. This belief on the part of the Income-tax Officer must not be founded on suspicion, rumour, gossipor caprice. It is no doubt trite law that sufficiency of the reasons in such circumstances is not justiciable. However, the Supreme Court has laid down on more than one occasion that it is open to us to look into the reasons given by the Income-tax Officer to find out whether the Income-tax Officer had prima facie reasons to believe that there was an escapement of income on account of the assessee's failure to furnish material particulars and whether the reasons given by the Income-tax Officer, if any, for reopening the assessment have a reasonable and rational nexus to the belief entertained by him. In this connection, reference may be made to the observations of the Supreme Court in this case of Sheo Nath Singh . The Supreme Court has emphasised in this decision that the words 'reason to believe' found in the statutory provisions in question suggest that it must be that of an honest and reasonable person based upon reasonable grounds and that the court can always examine whether the reason for the belief exists or not though the sufficiency of the reasons cannot be investigated by the court. In this case before the Supreme Court, the Income-fax Officer reopened the assessment on the ground that the assessee had made secret profits which were not offered for assessment and had received a sum of Rs. 22 lakhs, which according to him, represented concealed income. The Income-tax Officer had mentioned in a separate sheet in that case that he had reason to believe that such income had escaped assessment. On going through the facts and circumstances of that case, the Supreme Court, however, found that the Income-tax Officer could have had really no reason to believe that on account of the assessee's omission to disclose fully and truly all material facts, any income had escaped assessment. Coming now to the facts before us, we find that the necessary particulars had been supplied to the Income-tax Officer at the time of the original assessment. Of course, if the Income-tax Officer had materials to believe that the income had escaped assessment, the matter would have been different. The reasons which induced the Income-tax Officer to reopen the assessment have been extracted above and it would not be clear therefrom that the assessment was reopened on the ground that the assessee had concealed income of Rs. 2 lakhs in the names of various unverifiable hundi creditors and that full details of the depositors had not been disclosed at the time of the original assessment. The materials supplied to the Income-tax Officer at the time of the original assessment certainly give a clue to the total absence of reasons which could have, reasonably led the Income-tax Officer to reopen the assessment. There is nothing in the statement in which the Income-tax Officer has recorded his reasons to indicate that the hundi creditors were all bogus. There is no reference to the confessions made by the hundi bankers or to any information that those hundi creditors were bogus. The mere ipsi dixit of the Income-tax Officer that some income is concealed and that he has reason to believe that the income has escaped assessment would not by itself confer jurisdiction on him to reopen the assessment. The facts are very close to the Supreme Court decision in the case of Sheo Nath Singh . We may also refer to the unreported decision of the Calcutta High Court relied upon by the departmental representative and point out that in that case also, the assessment proceedings were struck down by the High Court by following the decisions of the Supreme Court referred to above. In the case before the Calcutta High Court, the Income-tax Officer had even mentioned that there was information regarding the bogus nature of the credits which had since been known. Even then the Calcutta High Court held that the proceedings were bad as the important safeguards provided in Sections 147 and 151 were lightly treated by the Income-tax Officer. Respectfully following the decisions of the Calcutta High Court relied upon by the departmental representative and the two Supreme Court decisions reported in and, we hold that the reassessment proceedings were not validly initiated. The reasons given by the ITO hopelessly fail to meet the requirements of Section 147(a) and are totally bereft of the basic requirements necessary for reopening the assessment under Section 147(a). In this view of the matter, we annul the reassessment order made under Section 147(a) for the assessment year 1959-60. It would not be necessary, therefore, to go into the merits of the addition.";