Lalita Ashwin Jain v. Income Tax Officer

C/SCA/1626/2014 CAV JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 1626 of 2014 WithSPECIAL CIVIL APPLICATION No. 1627 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE Mr. JUSTICE AKIL KURESHI and HONOURABLE Ms. JUSTICE SONIA GOKANI ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ LALITA ASHWIN JAIN....Petitioner(s) Versus INCOME TAX OFFICER....Respondent(s) ================================================================ Appearance: Mr. HARDIK V VORA, ADVOCATE for the Petitioner(s) No. 1Mrs. MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI and HONOURABLE Ms. JUSTICE SONIA GOKANI25th March 2014 CAV JUDGMENT (PER : HONOURABLE Ms. JUSTICE SONIA GOKANI) Challenging the notice of reopening for the A.Y 2006-2007 issued under Section 148 of the Income-tax Act, 1961 [“the Act” for short] dated 28th March 2013, the present petition is preferred under Article 227 of the Constitution of India, in the following factual background. 2.The assessee is in the share trading business. For the year under consideration, the return of income was filed on 6th December 2006. Notice under section 143 (2) of the Act was issued by the respondent on 30th July 2007, which was replied to and the Assessing Officer, after making certain additions, passed original assessment order on 1st July 2008. The assessee’s income was assessed at Rs. 1,51, 892/=. 3.The impugned notice came to be issued after four years from the end of the relevant assessment year under consideration for re-assessing the income of the assessee. The Assessing Officer, on having reason to believe that the income of the petitioner has escaped the assessment on account of non-disclosure of all material facts truly and factually, has issued such a notice. 4.The reasons recorded for reopening of assessment under Section 147 of the Act are as under :- “(a)The following sources of investment have been found to be unexplained as the companies who funded the investment have been found to be bogus. The investments were also not found to be recorded in the books of accounts of the assessee as they were squared off during the financial year itself. The explanation offered by the assessee is also not been found to be satisfactory in view of the following fact : “In the statement recorded on oath u/s. 131 (1A) of the Act on 8/2/2013, Shri Ashwin C. Jain admitted that all the transactions had been undertaken by him in the name of his family members. Upon being enquired, about New Generation Finvest Private Limited, SRS Vijay Sales Private Limited and M/s. Ami Securiteis, he contended that he had been only in contact with one Shri RajeshJain of Delhi and one Shri Amrutlal of Mumbai who in turn introduced him to the said companies for the purpose of providing him with marginal funding for IPO applications. When asked about the whereabouts of Shri Rajesh Jain and Shri Amrutlal and also about contact person for the said purposes, the assessee feigned ignorance. When asked to furnish complete details of how the loan amounts, refunds and profit were extended by the said parties to him, the assessee failed to comply”. In view of the above, I have therefore reason to believe that the assessee’s income has escaped assessment within the meaning of Section 147 of the I.T Act, 1961. Therefore, this is a fit case for re-opening of assessment.” 5.In response to such notice, the objections have been raised by the petitioner herein vide communication dated 6th June 2013 inter alia contending that any notice issued beyond the period of four years is invalid unless the income has escaped assessment on account of non-disclosure of all material facts truly and fully by the petitioner. It is also contended that the very issue has been in detail scrutinized by the Assessing Officer, and therefore, the notice is nothing but a change of opinion, which is impermissible under the law. It is further contended that the reasons recorded also did not reflect that there is any reason to believe that the income has escaped the notice in as much as the only source reflected in the reasons is the investigation. 6.The Assessing Officer, on consideration of the objections, passed an order rejecting the objections vide its Order dated 20th September 2013. He observed that the sources of investment of Rs. 33.40 lakhs [rounded off] pertaining to purchase of shares have been found to be unexplained in as much as the companies with which the investments have been made are bogus, and therefore, in Form ITNS-10 clearly mentions that the income has escaped assessment warranting initiation of proceedings under Section 148 of the Act. All judicial pronouncements relied upon by the petitioner were considered and yet the conclusion remained the same, and therefore, the present petition seeking the following reliefs :- “5.1The petitioner accordingly prays that this Hon'ble Court may kindly be pleased to issue :-kindly be pleased to issue :- (a)A writ of certiorari or any other writ, order or direction in the nature of certiorari quashing the impugned notice dated 28.03.2013 issued under section 148 of the Act for the assessment year 2006-07; (b)Pending the admission, hearing and final disposal of this petition, restrain the respondent from passing the order of re-assessment; (c)Pass any other order(s) as this Hon'ble Court may deem fit and more appropriate in order to grant interim relief to the petitioner; (d)Any other and further relief deemed just and proper be granted in the interest of justice; (e)To provide for the cost of this petition.” 7.On issuance of notice, respondent filed affidavit-in-reply inter alia contending that the petition is premature as there is alternative statutory remedy available under the provisions of the Act and in the event of petitioner not succeeding in convincing the Assessing Officer in dropping the proceedings under Section 147 of the Act, the appeal proceedings are available. It is also contended that for the assessment year under question, the return was processed under Section 143 (1) of the Act and on scrutiny, the order was passed in the original assessment assessing the income of the petitioner at Rs. 1.51 lakhs [rounded off]. However, subsequently it was noticed that the sources of income of Rs. 33.40 lakhs pertaining to purchase of shares remained unexplained, as the companies which funded the said investments were found bogus. Such investments were also not recorded in the books of account of the petitioner and they were squared off during the financial year itself, details were called for. During the course of recordance of statement under Section 131 (1)(a) of the Act on 8th February 2013, the husband of the assessee Shri Ashwin Jain admitted that all transactions were undertaken in the name of the family members and the companies which funded the investment were viz., New Generation Finvest Private Limited; SRS Vijay Sales Private Limited & M/s. Ami Securities. For the purpose of providing marginal funding for IPO applications, he was introduced to these companies through Shri Rajesh Jain of Delhi and Shri Amrutlal of Mumbai. However, whereabouts of these persons were not given and the details with regard to the loan amount, refund and profits etc were not furnished. Resultantly, it is the contention of respondent-Revenue that the source of investment pertaining to the purchase of shares has escaped the assessment, and therefore, the Assessing Officer when formed his belief on the strength of such material, no inference would be desirable at this stage. It is further contended that the queries were raised and insufficiently replied to, later on when it was revealed through the evidence that the explanation made was incorrect, the reopening is permissible as there was no true and full disclosure of the material facts necessary for the purpose of assessing the income of the petitioner. 7.1Affidavit-in-rejoinder has been filed by the petitioner urging strongly that the petitioner has challenged the jurisdiction of the Assessing Officer in issuing the notice under Section 148 of the Act and such issue is long ago settled by the Supreme Court in case of Calcutta Discount Company Limited [Supra]. It is also further urged that the belief of the Assessing Officer that the investments were not recored in the books of account and were squared off during the financial year itself is totally on the wrong footing, as such investment continued to remain in the books of account, they would not be reflected in the balance sheet. Moreover, it is urged that the details of investments were called for during the scrutiny assessment as investment in shares were for more than rupees one lakh, which was a part of AIR information. The assessee had produced ledger accounts and vouchers in response to the AIR information which shows the investment in the profit made therefrom. Therefore, to say that the investment was not recorded in the books of account is contrary to the material on record. 8.Learned counsel Shri H.V Vora appearing for the petitioner has strenuously and fervently submitted in support of the averments set out in the petitions. He urged that in a matter of scrutiny assessment originally made in case of the petitioner, when the Assessing Officer has chosen not to make any additions and when the very issue was duly considered in a proceeding under Section 147 beyond the period of four years from the end of the relevant assessment year, in absence of anything to indicate that disclosure was not full and true on all material facts necessary for the purpose of assessment, no jurisdiction is available to the Assessing Officer. He urged that despite alternative remedy available to the petitioner, he cannot be allowed to undergo the hazards of reopening when the very basis of such proceeding is absent. He urged that the Supreme Court in case of Calcutta Discount Company Limited v. I.T.O, Companies District, Calcutta & Anr., reported in AIR 1961 SC 372 had quashed the notice on the ground of lack of jurisdiction. Identical are the facts in the instant case where the petitioner has disclosed fully and truly all material facts. He urged the Court that in the reasons recorded, the Assessing Officer has solely relied on the material produced by the investigating team and there is no independent application of mind on his part. The Assessing Officer himself has no reason to believe that the income has escaped assessment. He also urged that the petitioner had not dealt with other two companies mentioned in the statement given by the husband of the petitioner, who is a separate entity in the eyes of law. The books of account of the petitioner, according to the learned counsel, reflected entire transactions, and therefore, the order rejecting the objection wrongly states that these transactions were not reflected in the books of account and were squared off. He further urged that there has to be a rationale nexus of reasons recorded with the escapement of income. The objections raised by the petitioners were disposed of mechanically and therefore, Court’s indulgence is required. 8.1It is also further contended that no funding for investment was received from either SRS Vijay Sales or Messrs. Ami Securities, and therefore, the information that these two companies have funded the investment is totally false, misleading and contrary to the record. According to the petitioner during the inquiry, at the time of original assessment, a detailed reply has been furnished by the petitioner where all the ledgers reflected the investment, its sources and profit arrived therefrom. If no reference of the inquiry is made in the assessment order, that would not mean that no opinion is formed, as held by this Court in case of Gujarat Power Corporation Limited v. Asstt. Commissioner of Income Tax, reported in reported in 350 ITR 266. 8.2It is further urged that on completion of four years from the end of relevant assessment year, Section 149 (1)(b) provides that the notice can be issued only if the income chargeable to tax, which has escaped the assessment or likely to amount to rupees one lac or more for that year under consideration. In absence of anything in reason recorded to suggest in the reasons recorded that income chargeable to tax, which has escaped assessment is rupees one lakh or more, notice itself deserves to be quashed, as held by this Court in case of Bakulbhai Ramanlal Patel v. Income Tax Officer, reported in (2011) 56 DTR (Guj) 212. It is further urged that Section 151 desires satisfaction of the Commissioner to be recorded while permitting the re-assessment proceedings on the reasons recorded by the Assessing Officer that it is a fit case for issuance of a notice under Section 148, if such notice is issued after expiry of four years from the end of the relevant assessment year. However, merely writing ‘Yes’ to the proposal would mean a mechanical nod which would be contrary to the settled principal as rendered in case of Central India Electric Supply Company Limited v. Income-tax Officer, Company Circle-X, New Delhi, reported in 333 ITR 327 {Delhi}. 8.3Following are the authorities sought to be relied upon by the learned counsel for the petitioner in support of his contentions, these are - [a]Income-tax Officer v. Lakhmani Mewal Das, reported in [1976] 103 ITR 437 (SC);437 (SC); [b]Mahesh Kumar Gupta v. Commissioner of Income-tax, reported in [2013] 33 Taxmann.com 409 [Allahabad];[2013] 33 Taxmann.com 409 [Allahabad]; [c]Signature Hotels (P) Limited v. Income-tax Officer, reported in 338 ITR 51 (Delhi);51 (Delhi); [d]Chhugamal Rajpal v. S.P Chaliha, reported in [1971] 79 ITR 603 (SC); [e]Bakulbhai Ramanlal Patel v. Income Tax Officer, reported in (2011) 56 DTR 22 (Guj).DTR 22 (Guj). Limited v. Income-tax Officer, Company Circle-X, New Delhi, reported in 333 ITR 327 {Delhi}. 8.3Following are the authorities sought to be relied upon by the learned counsel for the petitioner in support of his contentions, these are - [a]Income-tax Officer v. Lakhmani Mewal Das, reported in [1976] 103 ITR 437 (SC);437 (SC); [b]Mahesh Kumar Gupta v. Commissioner of Income-tax, reported in [2013] 33 Taxmann.com 409 [Allahabad];[2013] 33 Taxmann.com 409 [Allahabad]; [c]Signature Hotels (P) Limited v. Income-tax Officer, reported in 338 ITR 51 (Delhi);51 (Delhi); [d]Chhugamal Rajpal v. S.P Chaliha, reported in [1971] 79 ITR 603 (SC); [e]Bakulbhai Ramanlal Patel v. Income Tax Officer, reported in (2011) 56 DTR 22 (Guj).DTR 22 (Guj). 9.Learned counsel Shri Manish Bhatt appearing for the Revenue forcefully submitted that in wake of the alternative remedy available with the petitioner, no interference is desirable. He urged that though the original assessment was completed on scrutiny, it is very clear from the reasons recorded itself that the petitioner at no point of time had disclosed fully and truly all material facts. He urged that mere disclosure is not sufficient. It has to be true and full disclosure and therefore when subsequently, the Assessing Officer had found that the companies which had funded the petitioner for making investment in the shares were bogus, that would not mean the disclosure is full and true. Learned counsel sought to rely upon the following decisions :- [a]Phool Chand Bajrang Lal v. Income-tax Officer, reported in 203 ITR 456 (SC); [b]P. Munirathnam Chetty & P. Satyanarayana Chetty v. Income-tax Officer, reported in [1975] 101 ITR 385;Officer, reported in [1975] 101 ITR 385; [c]K.C.P Limited v. Income-tax Officer, reported in 146 ITR 284; 10.Upon thus hearing both the sides and on examination of the material on record, at the outset, the law on the subject deserves consideration. 11.Section 148 permits the Assessing Officer to reopen the assessment if he has a reason to believe that the income chargeable to tax has escaped the assessment. It authorizes him to make re-assessment even beyond the period of four years, if the income chargeable to take has escaped the assessment for such assessment year on account of the failure on the part of the assessee to make a return under section 139 or in respect to a notice sub-section (1) of Section 142 or Section 148 or he has failed to disclose fully and truly all material facts necessary for such assessment. 11.1In various judicial pronouncements, it has been established that when the assessment is framed under section 143 (3) of the Act, the reopening beyond the period of four years is permissible only if the income chargeable to tax has escaped the assessment on account of failure on the part of the assessee to make a return under section 139 or in response to the notice under sub-section (1) of Section 142 or Section 148 or if a person has failed to disclose fully and truly all material facts necessary for the assessment. The requirement of the proviso to Section 147 deserves to be satisfied, and therefore, in absence of any satisfaction having been recorded by the Assessing Officer that the income has escaped the assessment by reason of failure on the part of the petition/assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the assumption of jurisdiction under section 147 of the Act would be invalid. year under consideration, the assumption of jurisdiction under section 147 of the Act would be invalid. 11.2In case of Phoolchand Bajrang Limited v. I.T.O [Supra], the Apex Court was dealing with a case of re-assessment. In the original assessment, the assessee firm claimed that it had borrowed certain amount from a Calcutta based company. The I.T.O directed the assessee to file a copy of account of the said Calcutta Company to support the loan transaction and in reply thereto, assessee produced a confirmatory letter from the said company confirming payment of loan to the assessee. For nearly five years ie., A.Y 1993-94 to 1968-69, such deduction of interest, as claimed by the assessee having been paid to the Calcutta company, continued to be allowed by the I.T.O. Later on, I.T.O entertained some doubts about genuineness of loan transaction, and therefore, a communication was sent to I.T.O stationed at Calcutta. It was realized that the Managing Director of the said Calcutta company had confessed that he was only a name-lender and had not advanced any loan to any party during the three assessment years. Thus, these transactions were found to be bogus on the basis of subsequent information received. In light of these facts, the Apex Court held and observed thus, - “15. In the present case, as already noticed, the I.T.O. Azamgarh, subsequent to completion of the original assessment proceedings, on making an enquiry from the jurisdictional I.T.O. at Calcutta, learnt that the Calcutta Company from whom the assessee claimed to have borrowed the loan of Rs. 50,000 in cash, had not really lent any money but only its name, to cover up a bogus transaction and after recording this satisfaction as required by the provisions of Section 147 of the Act proposed to reopen the assessment proceedings. The present is, thus, not a case where the Income Tax Officer sought to draw any fresh inference, which could have been raised at the time of original assessment on the basis of the material placed before him by the assessee relating to the loan from the Calcutta Company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the some facts and material which was available which the I.T.O. at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full" facts in the case and the I.T.O. would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under Section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the I.T.O. acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or nonspecific. Xx xx Xx xx 19. Again, in A.LA. Firm v. CIT, 189 (1991) ITR 285, a three Judges bench of this Court, to which one of us (S.C. Agrawal, J.,) was a party, after an elaborate discussion of the subject opined that the jurisdiction of the Income Tax Officer to reassess income arises if he has in consequence of specific and relevant information coming into his possession subsequent to the previous concluded assessment, reason to believe, that income chargeable to tax and had escaped assessment. It was held that even if the information be such that it could have been obtained by the I.T.O. during the previous assessment proceedings by conducting an investigation or an enquiry but was not in fact so obtained, it would not affect the jurisdiction of the Income Tax Officer to initiate reassessment proceedings, if the twin conditions prescribed under Section 147 of the Act are satisfied. 20. From a combined review of the judgments of this Court, it follows that an Income-tax Officer acquires jurisdiction to reopen assessment under Section 147(a) read with Section 148 of the Income Tax 1961 only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons which he must record, to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit or gains chargeable to income tax has escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which where not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since, the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the Income-tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if one the basis of subsequent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in Section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment. The High Courts which have interpreted Burlop Dealer's case (Supra) as laying down law to the contrary fell in error and did not appreciate the import of that judgment correctly. 21. We are not persuaded to accept the argument of Mr. Sharma that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of Sections 147(a) and 148 of the Act and is against the settled law by this Court. We have to look to the purpose and intent of the provisions. One of the purposes of Section 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the 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 the assessee that latitude. 22. In our opinion, therefore, in the facts of the present case the Income-tax Officer, Azamgarh rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific relevant and reliable, and after recording the reasons for formation of his own belief that in the original assessment proceedings, the assessee had not disclosed the material facts truly and fully and therefore income chargeable to tax had escaped assessment. He, therefore, correctly invoked the provisions of Sections 147(a) and 148 of the Act. The High Court was, thus, perfectly justified in dismissing the writ petition. There is no merit in this appeal which fails and is dismissed but with no order as to costs.” 11.3In case of P. Manirathnam Chetty & P. Satyanarayana Chetty v. Income-tax Officer, C-Ward, Chittoor & Anr., reported in [1975] 101 ITR 385 [A.P], the Income-tax Officer in a proceedings under Section 147 of the Act accepted the book results of the assessee-firm. However, later on, from the order of the Sales Tax authorities, the Assessing Officer noticed that the assessee had failed to disclose fully and truly all material facts as the turnover of the assessee was at much higher figure and penalty also was levied by the Sales Tax authorities for such suppression of turnover and therefore, the proceedings under Section 147 of the Income Tax Act were initiated. The Commissioner also granted sanction by saying “yes”. The Court held that this was not a case where the I.T.O thought that it was a case for investigation nor was there any documentary evidence to support his report. Merely because the Commissioner said ‘yes’ against the question as to whether such was a fit case for issuance of the notice under Section 148, he was alleged of having acted mechanically. The Court, therefore, observed and held that in order to obviate such impression and to infuse more confidence in the assessee, the Commissioner ought to have atleast briefly stated the reasons as to why the sanction was accorded for proceedings under section 147 of the Act. 11.4In case of K.C.P Limited v. Income-tax Officer [Supra], the assessee had sold certain machinery and had shown three-fourths of sale price as profits. The assessment was accordingly finalized. Depreciation also was allowed at the time of original proceedings. However, later on, it was realized that the same was in excess due to assessee’s failure to disclose availment of initial depreciation. Therefore, the re-assessment proceedings were initiated for withdrawing excess depreciation. The Court held that the assessee’s contention that it was under no obligation to disclose the factum of availment of initial depreciation since the form of return prescribed at the relevant time did not 11.4In case of K.C.P Limited v. Income-tax Officer [Supra], the assessee had sold certain machinery and had shown three-fourths of sale price as profits. The assessment was accordingly finalized. Depreciation also was allowed at the time of original proceedings. However, later on, it was realized that the same was in excess due to assessee’s failure to disclose availment of initial depreciation. Therefore, the re-assessment proceedings were initiated for withdrawing excess depreciation. The Court held that the assessee’s contention that it was under no obligation to disclose the factum of availment of initial depreciation since the form of return prescribed at the relevant time did not contain any column requiring the assessee to furnish such information could not be accepted. Every assessee is expected to know the law that it was not entitled to claim normal depreciation above the prescribed ceiling. If that was done and if that had crossed the ceiling by availing the depreciation, he could be said to have omitted or failed to disclose fully and truly all material facts necessary for the purpose of assessment. 11.5With regard to Commissioner’s having exercised the function under section 148 (2) of the Act, the same however was held not to be mechanical. The Court, therefore, held that, “..The Commissioner’s function under section 148 (2) is not a mechanical one. He has to peruse the reasons and form an opinion that the assessee has failed to disclose fully and truly all material facts necessary for assessment of that year, and that the same has led to the income chargeable to tax escaping assessment. Obviously, he cannot form this opinion or satisfaction unless the basic facts constituting such non-disclosure are stated in the reasons recorded by the Income- tax Officer. The Income-tax Officer must broadly indicate the fact or facts, which constitute non-disclosure leading to assessable income escaping assessment.” 12.At this juncture, some of the judgments sought to be relied upon by the petitioner deserve consideration. 12.1In case of Bakulbhai Ramanlal Patel v. I.T.O [Supra], the reasons recorded in the proceedings of re-assessment were found to be vague or non-existent and in light of these facts, the Court held that for the purpose of invoking the provisions of Section 147 of the Act, formation of requisite belief precedes the initiation of the proceedings. The Assessing Officer is required to record reasons for the formation of belief that income chargeable to tax has escaped assessment and in absence of any such belief appearing on the record, it could be stated that the Assessing Officer reopened the assessment for the purpose of making a roving and fishing inquiry to verify as to whether any income has in fact escaped the assessment, which is impermissible. Thus, in absence of basic requirement of Section 147 of the Act, the assumption of jurisdiction by the Assessing Officer was held to be invalid. The Court in this case also has held and observed that in reassessment proceedings the income escaped must exceed rupees one lakh as per the limitation set out under the provisions of Section 149(1)(b). When the reasons do not reflect that the income having escaped assessment was more than rupees one lakh or likely to be more than rupees one lakh, the assumption of jurisdiction under Section 147 itself would be invalid, as such averment came in the affidavit-in-reply and there was no other material on record to indicate the extent of income which escaped assessment. 12.2In case of Mahesh Kumar Gupta v. Commissioner of Income-tax 12.2In case of Mahesh Kumar Gupta v. Commissioner of Income-tax [Supra], the Allahabad High Court was considering the case of re-assessment after expiry of four years from the end of relevant assessment year on the ground that the assessee sold his property within three years of conversion, which would result into accrual of short term gain. In absence of anything in the reasons recorded to suggest that income chargeable to tax which has escaped assessment was rupees one lakh or more, the re-assessment notice issued after four years from the end of the relevant assessment year was held to be invalid. 12.3The Apex Court in case of Chhugamal Rajpal v. S.P Chaliha [Supra] noticed that the Income-tax Officer initiated reassessment proceedings seeking to include certain cash credits appearing in the books of account of assessee’s income on suspicion that the creditors were mere name-lenders though assessee had produced its books of account and also statement giving full particulars of creditors at the time of original assessment. The Court held that when the Income-tax Officer did not even come to a prima facie conclusion that the transactions were not genuine transactions and conclusion arrived were on a vague feeling that they might be bogus transactions, would not amount to fulfilling the requirements of the provisions of Section 151 (2). In the case before the Apex Court, the Commissioner also mechanically accorded permission, and therefore, the Court held that the important safe guards provided in Section 147 and 151 were lightly treated by the Income-tax Officer and the Commissioner, and therefore, the notice was held invalid. 12.4The Apex Court in case of Income-tax Officer v. Lakhmani Mewal Das [Supra] held that in case of re-assessment proceedings, the reasons recorded for formation of belief, as contemplated under Section 147 (a) must have rational connection with or relevant bearing on the formation of belief and rational connection postulates that there must be direct nexus or live link between material coming to Income-tax Officer’s notice and formation of his belief that there has been escapement of assessee’s income from assessment in a particular year because of his failure to disclose fully and truly all material facts. 12.5In a case before the Apex Court, the Income-tax Officer had completed original assessment by allowing deduction of interest paid to certain creditors. However, when one of the creditors had confessed that he was doing only name lending and that other creditors were only name lenders, the reopening proceedings were initiated. There was absence of any material to indicate that the confession made by the creditor related to the loan to the assessee and not to some one else. In absence of such confession related to the period which was subject matter of assessment, the Court found absence of live link or close nexus with the material and the belief of the Income-tax Officer, and therefore, the Apex Court quashed the order of the High Court by holding that such material could not have led to formation of belief that the income of the assessee had escaped assessment on account of assessee’s failure or omission to disclose fully and truly all material facts. material could not have led to formation of belief that the income of the assessee had escaped assessment on account of assessee’s failure or omission to disclose fully and truly all material facts. 12.6Delhi High Court in case of Signature Hotels (P) Limited v. Income-tax Officer [Supra] was concerned with the re-assessment proceedings where information was given by the Director of Income-tax (Investigation) that the amount received by assessee from other company was nothing but accommodation entry and assessee was beneficiary. In absence of any application of mind on the part of the Assessing Officer for his having formed a belief that the income chargeable to tax has escaped assessment which is a mandatory requirement, the Court held that the jurisdiction assumed by the Assessing Officer for the purpose of re-assessment proceeding was invalid. The Court also held that, “..The ‘reasons to believe’ would mean cause or justification of the Assessing Officer to believe that the income has escaped assessment and does not mean that the Assessing Officer should have finally ascertained the said fact by legal evidence or reached a conclusion, as this is determined and decided in the assessment order, which is the final stage before the Assessing Officer.” 12.7Delhi High Court in case of Central India Electric Supply Company Limited v. Income-tax Officer, Company Circle-X, New Delhi [Supra] was dealing with a case of reopening. Such re-assessment proceedings were initiated alleging that there was non-disclosure of primary facts on the part of the assessee company which was engaged in generation and supply of electricity from its unit. Its unit were acquired by the State Government in 1964 and compensation thereof was paid in the same year. The assessee had made claim for higher compensation and the matter was finally settled by the Supreme Court nearly after 10 years and the enhanced compensation was availed to the assessee in the assessment year 1979-80. 12.8The Assessing Officer was of the belief that since the income had accrued to the assessee under the head of Long-term capital gain given on transfer of assets in respect of its two units, such income was to be taxed in the very assessment year ie., 1964 when the transfer took place. Considering the fact that the Supreme Court pronounced its judgment which settled the dispute of enhanced compensation, the Delhi High Court held that there was no lack of disclosure by assessee with respect to enhanced compensation and therefore, reopening of assessment for the relevant assessment year was held without .jurisdiction 12.9In this very judgment, on the issue of sanction for issuance of the notice as contemplated under Section 151, the Court held and observed that mere rubber stamping of underlying material would suggest that there was no application of mind and such endorsement was taken in a mechanical manner and even if the authority agreed upon the reasonings set out by the Income-tax Officer, what is expected is that appropriate endorsement is made in this regard setting out brief reasons. 13.In light of the discussion held hereinabove, the twin conditions required for the satisfaction of the Income-tax Officer, in the event of reopening of assessment beyond the period of four years is that [i] there must be a reason to believe that income chargeable to tax had escaped assessment; and [ii] he also must have reason to believe that such escapement of income is on account of omission or failure on the part of the assessee to disclose fully and truly all material facts for assessment of the income of the assessee for the year under consideration. 13.In light of the discussion held hereinabove, the twin conditions required for the satisfaction of the Income-tax Officer, in the event of reopening of assessment beyond the period of four years is that [i] there must be a reason to believe that income chargeable to tax had escaped assessment; and [ii] he also must have reason to believe that such escapement of income is on account of omission or failure on the part of the assessee to disclose fully and truly all material facts for assessment of the income of the assessee for the year under consideration. 14.Once the Assessing Officer has a reason to believe that such income has escaped assessment, the same as per the statutory requirement under Section 147(1)(b) has to be more than rupees one lakh or should likely to be more than rupees one lakh. And on having formed such belief, sanction of the Commissioner for reopening needs to be obtained under Section 151 (2) of the Act, who also is required to apply his mind to such proposal before according sanction, rather than acting mechanically. For examining the application of these statutory provisions, in the present case, it is necessary to revert to the facts. Admittedly, the assessee had made disclosure in respect of the investment made in three companies and the assessment was completed under Section 143 (3) on 1st July 2008, after scrutiny. In the reasons recorded for reopening assessment under Section 147, the Assessing Officer has noted the fact that the return of the assessee for the A.Y 2006-07 was filed on 6th December 2006 where he declared his come at Rs. 1,46,710/=, such return was processed under Section 143 (1) and her case was selected for scrutiny through CASS and accordingly, the assessment order was passed on 1st July 2008 assessing her income at Rs. 1,51,890/=. From the sources of investment, the Assessing Officer is of the belief that the companies who funded the investment were found to be bogus. The investments were not found to be recorded in the books of account of the assessee as they were squared off during the financial year itself and the explanation offered by the assessee was not found to be satisfactory, in as much as, the statement recorded under Section 131 (1)(a) of Shri Ashwin C. Jain-husband of the petitioner on 8th February 2013 wherein he admitted that such name sake transactions had been undertaken by him were in the name of his family members. With regard to the three companies viz., New Generation Finvest Private Limited; SRS Vijay Sales Private Limited and M/s. Ami Securities, he stated inter alia that he was in contact with one Shri Rajesh Jain of Delhi and one Shri Amrutlal of Mumbai who introduced him to the said companies for the purpose of providing him with margin funding for I.P.O applications. However, he had no clue with regard to the whereabouts of both these persons. He also failed to furnish details of loan amounts, refunds and profit extended by the said parties to him. The Income-tax Officer on the basis of these details formed his belief that the assessee’s income had escaped assessment within the meaning of Section 147 of the Act. This was thus a case where there were no full and true disclosures by the assessee. 14.1It is also to be noted that for approval to be obtained of Additional Commissioner of Income-tax, form I.T.N.S-10 had also been furnished for such approval being a must under Section 151 wherein the quantum of income which had escaped assessment is mentioned. In Column No.6, amount mentioned is Rs. 33,40,980/= and in column no. 11, “the reason for the belief that income has escaped assessment” annexure was enclosed therewith. The Commissioner of Income-tax, of course while according sanction has written ‘yes’ on the reasons recorded by the Assessing Officer that it was a fit case for issuance of notice under Section 148 of the Act. 14.1It is also to be noted that for approval to be obtained of Additional Commissioner of Income-tax, form I.T.N.S-10 had also been furnished for such approval being a must under Section 151 wherein the quantum of income which had escaped assessment is mentioned. In Column No.6, amount mentioned is Rs. 33,40,980/= and in column no. 11, “the reason for the belief that income has escaped assessment” annexure was enclosed therewith. The Commissioner of Income-tax, of course while according sanction has written ‘yes’ on the reasons recorded by the Assessing Officer that it was a fit case for issuance of notice under Section 148 of the Act. 14.2Therefore, at this juncture, all the three grounds raised by the petitioner viz., [i] absence of any failure on the part of the a to disclose fully and truly any material facts necessary for the purpose of assessment for the year under consideration and the income chargeable to tax having escaped assessment for that year on account thereof; [ii] absence of anything in the reasons recorded to suggest that income chargeable to tax which has escaped assessment was rupees one lakh or more; and [iii] absence of any application of mind on the part of the Commissioner, while exercising his power to grant sanction, are required to be dealt with in light of the discussion made hereinabove. 15.Taking firstly the last two grounds raised by the petitioner, it is true that in the reasons recorded, the Assessing Officer has not specifically recorded that income chargeable to tax which had escaped assessment for the year under consideration was rupees one lakh or more. The impugned re-assessment notice issued after four years of the close of the relevant assessment year, since is attacked on the ground of invalidity, it needs to be noted here that in the decision of this Court in case of Bakulbhai Ramanlal Patel v. I.T.O [Supra], the reasons did not reflect that the income having escaped assessment was more than rupees one lakh or likely to be more than rupees one la