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(1) Sunil Kumar Jain v. (2) Suresh Chandra Jain (Huf)

Allahabad High Court
Nov 5, 2004
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Bench: R.K. Agrawal, J. — Summary of Opinion

Factual and Procedural Background

Two writ petitions (Civil Miscellaneous Writ Petitions Nos. 851 and 852 of 1995) were filed challenging notices dated March 31, 1995 issued under section 148 of the Income-tax Act, 1961 for assessment year 1986–87. Petitioner in Writ Petition No. 851 (Sunil Kumar Jain) carried on a small-scale electronic goods business. Writ Petition No. 852 was filed by Suresh Chandra Jain (a Hindu undivided family), who was previously the karta of a family which owned certain properties.

Background facts include a search conducted on June 6, 1985 at the premises of Prem Chandra Jain, during which officers entered adjacent premises belonging to Suresh Chandra Jain (allegedly without a section 132(1) warrant), opened a locked safe belonging to Smt. Shyama Devi and seized Rs. 2,19,000 and pawned articles valued at Rs. 10,506. Prem Chandra Jain stated the cash and items found did not belong to him. The petitioners claimed the amounts belonged to their family (Smt. Shyama Devi had allegedly executed a will bequeathing assets to the petitioners) and sought return of pawned articles (letter dated August 12, 1985).

The Income-tax Officer, Ward 3(4), Kanpur assessed the seized amounts in the hands of Prem Chandra Jain by an order under section 132(5) dated October 1, 1985. Prem Chandra Jain appealed and the Commissioner (Appeals) set aside the assessment as barred by limitation (order dated December 5, 1994). The Department appealed to the Tribunal, which allowed the Department's appeal and remanded the matter to the Commissioner of Income-tax (Appeals) (order dated February 27, 2004). Subsequently, the Income-tax Officer issued notices under section 148 for assessment year 1986–87 to both petitioners. The petitioners filed returns under protest and requested written reasons for reopening; the AO supplied common reasons asserting lack of satisfactory explanation and expressing "reasons to believe" that income had escaped assessment and that protective assessment should be made in the petitioners' hands.

The writ petitions challenge the notices under section 148 on grounds including change of opinion, absence of jurisdiction because the Assessing Officer had no basis or material to form a belief under section 147 that income had escaped assessment, and procedural defects. The petitions were heard with counsel for petitioners and the respondent present.

Legal Issues Presented

  1. Whether the notices issued under section 148 of the Income-tax Act (initiating proceedings under section 147) were legal and within jurisdiction — i.e., whether the Assessing Officer had "reason to believe" that income chargeable to tax had escaped assessment for assessment year 1986–87.
  2. Whether the writ petition under Article 226 of the Constitution is maintainable (or whether petitioners should be relegated to raising objections before the assessing authority / appellate remedies), particularly where notices under section 148 have been issued and reasons supplied.
  3. Relatedly, whether a protective assessment may be validly initiated (i.e., initiating assessment in the petitioners' hands notwithstanding an assessment already framed in the hands of another person).

Arguments of the Parties

Petitioners' Arguments

  • The notices under section 148 are illegal and without jurisdiction because they were issued on a mere change of opinion; there was no basis or material for respondent No.1 to form a belief that income had escaped assessment.
  • From the reasons recorded it was asserted the Assessing Officer did not arrive at a definite conclusion that income had escaped assessment or in whose hands it should be assessed — the reasons show only a tentative or protective approach, which the petitioners say is insufficient to support jurisdiction.
  • The petitioners relied on a number of authorities (listed in the petition) to support the proposition that reopening cannot rest on mere change of opinion and that the "reason to believe" must be based on relevant material and not arbitrary or irrational belief.

Respondent's (Revenue) Arguments

  • Although the Department had taken the initial stand that the amounts belonged to Prem Chandra Jain, because the petitioners claimed ownership the Assessing Officer was within jurisdiction to form a belief that income may have escaped assessment and to initiate proceedings under section 147; it is open to the AO to assess income in the right hands notwithstanding an assessment against another person.
  • The petitioners had filed objections to the reopening and had been supplied the reasons for reopening; therefore the petitioners should contest their objection before the tax authorities rather than approach the High Court — the writ petition was not maintainable on that basis.
  • The respondent relied upon authorities to support the proposition that parallel or protective proceedings are permissible where it is not clear who received income and that the proper course for a noticee is to file return, seek reasons and file objections which must be disposed of by a speaking order.

Table of Precedents Cited

Precedent Rule or Principle Cited For (as stated in the opinion) Application by the Court (how the precedent was used in reasoning)
Lalji Haridas v. Income Tax Officer & Anothers, [1961] 43 ITR 387 (SC) Authorities may take assessment proceedings against multiple persons where it is not clear who received income. Cited to support the proposition that protective/parallel assessments against more than one person are permissible when identity of person liable is unclear.
Jagmohan Mahajan v. CIT, [1976] 103 ITR 579 (P & H) Search and seizure cannot be conducted on the basis of a blank search warrant. Noted in discussion of search-related authorities; the court observed such decisions relate to search validity though search validity is not in issue in the present petitions.
Smt. Sita Devi v. CIT, [1980] 122 ITR 105 (P & H) Section 131(1)(b)(iii) requires a valid and authorised search warrant; search must be legally valid. Referred to in relation to search-warrant validity; court recorded that decisions on search are not the central issue here.
Nenmal Shankarlal Parmer v. Asst. CIT (Investigation), [1992] 195 ITR 582 (Karn) Where warrant did not authorise seizure of valuable articles in individual capacity, seizure from residential premises could be invalid. Referred to in search/seizure context; court noted such authorities concern validity of seizure but that seizure validity was not directly contested in the present petitions.
CIT v. Tarsem Kumar, [1986] 161 ITR 505 (SC) Goods/money/papers in custody of another government department under legal authority cannot be ordered upon under section 132. Cited in the part of the opinion discussing the law on search and custody; not determinative of the section 148 issue here.
Southern Herbals Ltd. v. Director of Income-tax (Investigation), [1994] 207 ITR 55 (Karn) Court examines reasonableness of belief; the court does not test sufficiency of material but must ensure the belief was not irrational, blind or based on baseless rumours. Used to explain the limited scope of judicial review: court must ensure belief was reasonable and based on relevant material rather than substituting its own opinion on sufficiency.
Commissioner Of Income-Tax v. Smt. Durgawati Singh, [1998] 234 ITR 249 (All) When in doubt as to which person is liable to assessment, parallel proceedings and alternative/protective assessments may be taken; appellate authorities cannot make protective orders. Applied to support proposition that protective assessments are permissible and to explain limits on appellate authorities regarding protective orders.
Comunidado of Chicalim v. ITO, [2001] 247 ITR 271 (SC) When assessee challenges reopening on ground of absent/disclosed reasons, court must call for and examine the reasons; reasons are ordinarily set out by respondent in counter. Cited to affirm the court's duty to scrutinize the reasons recorded by the Assessing Officer when a writ challenges reopening.
Foramer v. CIT, [2001] 247 ITR 436 (All) Notice under section 147 should not be issued on mere change of opinion; if notice is without jurisdiction, writ petition is maintainable. Used to support maintainability of writ where notice appears to be issued on mere change of opinion or without jurisdiction; referenced with subsequent apex decision upholding similar view.
GKN Driveshafts (India) Ltd. v. ITO, [2003] 259 ITR 19 (SC) Proper course on a section 148 notice is to file return, seek reasons, and on receiving reasons file objections; AO must furnish reasons and dispose of objections by a speaking order. Relied upon to explain procedural expectations (return, request reasons, file objections) but the court also emphasized that GKN does not bar HC jurisdiction when lack of jurisdiction is apparent on the face of the notice/reasons.
Smt. Kavita Agarwal v. Director of Income-tax (Investigation), [2003] 264 ITR 472 (All) Similar view as Anita Sahai: condition precedent for action under section 132 is existence of information giving reason to believe; search and seizure cannot be a fishing expedition. Referred to in connection with the law on search and the requirement that the Director/Commissioner must have reason to believe at time of issuing warrant.
CIT v. Foramer France, [2003] 264 ITR 566 (SC) Apex's treatment of Foramer principles: upholds that notices should not be based on mere change of opinion when jurisdiction is absent. Referenced as appellate affirmation that where notice is without jurisdiction the writ petition may be maintainable.
V.K Packaging Industries v. TRO, [2004] 266 ITR 283 (All) Critical of assessing practice of hurried assessments close to limitation dates; Department must make correct assessments and not excessive additions by reason of shortage of time. Quoted to note judicial concern against hasty assessments and the duty of the Department to make correct assessments in accordance with law.
Naresh Kumar Kohli v. CIT, [2004] 266 ITR 553 (P & H) Section 132B(3) indicates seized assets or proceeds remaining after liabilities must be made over to persons from whose custody assets were seized. Referred to in the context of return of seized assets; court observed legal principles but noted that seized items here remain with Prem Chandra Jain until proved otherwise.
Ajanta Pharma Ltd. v. Asst. CIT, [2004] 267 ITR 200 (Bom) GKN does not totally bar approach to High Court under Article 226 when exercise under section 148 ex facie appears without jurisdiction. Used to stress that writ jurisdiction remains available where absence of jurisdiction is apparent on the face of notice/reasons.
Banyan and Berry v. CIT, [1996] 222 ITR 831 (Guj) Where there is doubt about the real entity in whose hands income is to be assessed, protective assessment is permissible and regular assessment in one does not affect validity of the other; levy enforceable only in one assessment ultimately. Invoked to support the proposition that protective assessments are permissible and that only the ultimately correct assessment will be effective for levy.
Oil and Natural Gas Corporation Ltd. v. Deputy CIT, [2003] 262 ITR 648 (Uttaranchal) Disclosure of all facts about borrowings and investments and absence of cautious consideration at assessment cannot be ground for reopening under proviso to section 147. Quoted to highlight limits on reopening assessments and to caution against using reopening where material was available and considered at the time of assessment.
A.M.S Jewellers v. CIT, [2004] 187 CTR 557 (Delhi) Court directed Settlement Commission to decide application for return of jewellery (specific procedural relief). Noted by the court as a case directing return of jewellery by a different forum; distinguished as not directly applicable here.
Dr. Mrs. Anita Sahai v. Director of Income-tax (Investigation), [2004] 266 ITR 597 (All) Before action under section 132, the Director must have information giving reason to believe; if such reason does not exist at time of issuing warrant, warrant/search is illegal. Used to underline the principle that search/seizure requires pre-existing reason to believe and cannot be a fishing expedition; again noted in context though not determinative of s148 issue.
Daulatram Rawatmal v. ITO, [1960] 38 ITR 301 (Cal) Article 226 empowers courts to investigate whether the Assessing Officer had reason to believe (jurisdictional question) in reopening assessments. Cited to support the proposition that courts under Article 226 can review whether AO had jurisdiction to initiate proceedings under section 147.
Jamna Lal Kabra v. ITO, [1968] 69 ITR 461 (All) Same theme: courts can examine if AO had reason to believe; jurisdictional review is permissible under Article 226. Used to reinforce court's power to investigate the existence of "reason to believe" as a jurisdictional fact.
Calcutta Discount Co. Ltd. v. ITO, [1961] 41 ITR 191 (SC) High Court can go into relevancy of reasons and scrutinize whether there was reasonable belief for reopening assessments. Applied to justify that this court may examine relevancy of the reasons recorded by AO for initiating reassessment under section 147/148.
C.M. Rajgharia v. ITO, [1975] 98 ITR 486 (Patna) Article 226 review of reasons for reopening is permissible. Invoked among authorities establishing judicial scrutiny of the reasons for reopening assessments.
Madhya Pradesh Industries Ltd. v. ITO, [1965] 57 ITR 637 (SC) (and later citations) Court may examine relevancy of reasons and whether AO had reason to believe; "reason to believe" is a jurisdictional matter. Used repeatedly as an authority for reviewing jurisdictional facts and the relevancy of reasons for reopening assessments.
Ganga Saran and Sons P. Ltd. v. ITO, [1981] 130 ITR 1 (SC) "Has reason to believe" is stronger than "is satisfied"; belief must be reasonable and based on relevant material. Cited as setting the standard that the Assessing Officer's belief must be reasonable and supported by relevant material, not arbitrary.
S. Narayanappa v. CIT, [1967] 63 ITR 219 (SC) Court may examine whether reasons for AO's belief have rational connection to formation of belief; AO's action open to judicial challenge to that limited extent. Used to support the proposition that judicial review can test rational connection between reasons and belief.
Kantamani Venkata Narayana & Sons v. First Addl. ITO, [1967] 63 ITR 638 (SC) Similar principle: court may examine if AO's reasons rationally support the belief to reopen. Invoked in support of limited judicial scrutiny of AO's reasons for reopening.
Sowdagar Ahmed Khan v. ITO, [1968] 70 ITR 79 (SC) Judicial review of AO's belief to ensure it is not arbitrary or extraneous. Quoted among authorities defining the scope of review of AO's reasons.
ITO v. Lakhmani Mewal Das, [1976] 103 ITR 437 (SC) Reasons must have rational/intelligible nexus with formation of belief; remote or far-fetched grounds insufficient. Relied on to emphasise that there must be a direct nexus between material and belief; absence of such nexus invalidates reopening.
ITO v. Nawab Mir Barkat Ali Khan Bahadur, [1974] 97 ITR 239 (SC) Judicial scrutiny of reasons for reopening; limits on arbitrary belief. Referred to among precedents limiting arbitrary exercise of AO's powers to reopen assessments.
CST v. Bhagwan Industries P. Ltd., [1973] 31 STC 293 (SC) Another decision cited for the principle that AO's belief must be reasonable and based on relevant material. Used as supporting authority in the doctrinal exposition of "reason to believe".
State of Punjab v. Balbir Singh, (1994) 3 SCC 299 Judicial review principles relevant to reasonableness of administrative belief. Referred to as part of the collection of authorities on the scope of judicial review.
Johri Lal (HUF), Agra v. Commissioner Of Income Tax, [1973] 88 ITR 439 Formation of opinion/belief by AO is a condition precedent and mandatory; failure vitiates proceedings. Cited to underline that formation of the required opinion is mandatory and jurisdictional.
Sheo Nath Singh v. AAC of I.T, [1971] 82 ITR 147 (SC) Failure to fulfil the condition precedent (formation of belief) vitiates proceedings. Used to emphasize mandatory nature of opinion/belief requirement before reopening assessment.
R. Dalmia v. UOI, [1972] 84 ITR 616 (Delhi) Where it is unclear whether income was earned by one person singly or jointly, AO may initiate proceedings against concerned assessees to ascertain correct position. Cited to support the permissible course of initiating parallel proceedings where identity of recipient of income is unclear.
Sohan Singh v. Commissioner Of Income-Tax, Delhi, [1986] 158 ITR 174 (Delhi) Similar view to R. Dalmia on permissibility of parallel proceedings and reassessment in doubtful cases. Referenced among authorities establishing that parallel steps may be taken when liability is uncertain.
K.S. Rashid and Son v. Income-tax Investigation Commission, [1954] 25 ITR 167 (SC) : AIR 1954 SC 207 Article 226 confers wide powers on High Courts; exercise is discretionary and alternative remedies may preclude writ relief unless extraordinary circumstances exist. Invoked to explain the discretionary nature of writ jurisdiction and to set the threshold for entertaining writs against administrative actions.
Sangram Singh v. 1. Election Tribunal, Kotah, AIR 1955 SC 425 Part of authority establishing breadth and discretion of Article 226 jurisdiction. Used to remind that writ jurisdiction is discretionary and exceptional circumstances justify exercise.
Union Of India v. T.R. Varma, AIR 1957 SC 882 Part of constitutional jurisprudence on writ jurisdiction under Article 226. Referred to in the context of High Court's discretionary power under Article 226.
State Of U.P v. Mohammad Nooh, AIR 1958 SC 86 Constitutional principles on exercise of writ jurisdiction. Referred to in the survey of Constitutional Bench authorities concerning Article 226.
K.S. Venkataraman & Co. P. Ltd. v. State of Madras, [1966] 60 ITR 112 (SC) : AIR 1966 SC 1089 Constitution Bench authority on the wide power conferred by Article 226. Cited as part of the line of authorities showing the HD's wide discretionary writ jurisdiction.
Harbans Lal Sahnia v. IOC Ltd., (2003) 2 SCC 107 Exclusion of writ jurisdiction by availability of alternative remedy is a rule of discretion (not compulsion); court must weigh pros and cons and may interfere in specific circumstances (fundamental rights violation, breach of natural justice, orders wholly without jurisdiction). Relied upon to confirm discretionary approach to writ jurisdiction where alternative remedies exist; used in assessing maintainability of petitions.
Indra Prastha Chemicals P. Ltd. v. CIT, [2004] 271 ITR 113 (High Court) Court repelled similar departmental arguments in an earlier decision of this court. Referred to as precedent from this court that supported the petitioners' position on maintainability in similar circumstances.

Court's Reasoning and Analysis

The court undertook a step-by-step legal analysis grounded in the statutory language of section 147 of the Income-tax Act and the jurisprudence governing the scope of judicial review under Article 226:

  1. Jurisdictional requirement: The court reiterated that proceedings under section 147 can be initiated only if the Assessing Officer has "reason to believe" that income chargeable to tax has escaped assessment for a relevant year. That "reason to believe" is a jurisdictional fact which the High Court may examine in proceedings under Article 226 (citing authorities such as Daulatram Rawatmal, Jamna Lal Kabra, Calcutta Discount Co., Madhya Pradesh Industries Ltd.).
  2. Standard of belief: The court emphasized that "has reason to believe" is a stronger expression than "is satisfied" and the belief must not be arbitrary or irrational — it must be reasonable and based on relevant and material facts (Ganga Saran and Sons P. Ltd. and related authorities). The belief must have a rational/intelligible nexus to the material relied upon.
  3. Scope of review: The court clarified the limited but real scope of judicial review: it cannot reassess sufficiency of the material, but it can examine relevancy and whether a reasonable person properly instructed in law and facts could form the opinion recorded by the AO (citing S. Narayanappa, Kantamani, Lakhmani Mewal Das and others).
  4. Procedural considerations: The court summarized the procedure expected on issuance of section 148 notices — filing of return, seeking reasons, filing objections and AO disposing objections by a speaking order (as explained in GKN Driveshafts). The court also addressed the discretion under Article 226 to refuse or grant writs where alternative remedies exist (Constitution Bench authorities and Harbans Lal Sahnia).
  5. Application to facts: Applying these principles, the court noted that the petitioners claimed the seized cash and pawned articles belonged to them (via an alleged will of Smt. Shyama Devi). Although those amounts had been assessed in the hands of Prem Chandra Jain, Prem Chandra claimed they did not belong to him. Given conflicting positions and the petitioners' claim, the court found it was not clear in whose hands the amount had to be assessed. The Assessing Officer recorded reasons indicating disbelief in the genuineness of the alleged will and expressly stated a protective basis for assessing the petitioners. The court concluded that there was relevant material on which the AO could form a reason to believe and therefore take proceedings under section 147.
  6. Search/seizure issues: The court examined many authorities about search and seizure and the requirements for a warrant and for pre-existing reasons to believe. However, the court observed that most of those decisions related to the validity of search/seizure and that those issues were not central to the present petitions challenging the Section 148 notices (though the petitions did seek return of seized articles, the court noted that because the assessment continues to treat the amounts as belonging to Prem Chandra Jain until held otherwise, seized items could not be returned to petitioners at that stage).
  7. Conclusion of reasoning: Balancing the doctrines (AO's duty to have a rational basis for belief, judicial review under Article 226, and permissibility of protective assessments), the court found that in the present factual matrix the AO was justified in initiating reassessment proceedings under section 147 in the petitioners' hands.

Holding and Implications

Holding: The writ petitions were dismissed. The court found no merit in the petitions challenging the notices under section 148 and held that the Assessing Officer was justified in initiating proceedings under section 147 in the petitioners' hands. There shall be no order as to costs.

Implications:

  • Direct effect: The immediate consequence is dismissal of the two writ petitions; the reassessment proceedings initiated by the Income-tax Officer under section 147/148 may continue against the petitioners.
  • Seized property: The court explicitly noted that the seized money and pawned articles will not be returned to the petitioners so long as the items are held to belong to Prem Chandra Jain; if Prem Chandra's individual assessment is satisfied and the seized property is returned to him, petitioners may claim the property from Prem Chandra Jain by appropriate means.
  • No new precedent set: The court applied settled principles (summarised from numerous precedents) concerning the jurisdictional requirement of "reason to believe", the permissible scope of judicial review under Article 226, and the permissibility of protective/parallel assessments. The decision applies those established doctrines to the facts and does not purport to lay down a novel legal principle beyond the authorities cited.

Note: This summary is based exclusively on the contents of the provided opinion. No facts or conclusions have been added beyond what appears in the text of the judgment.

Show all summary ...

R.K Agrawal, J.:— Civil Miscellaneous Writ Petition No. 851 of 1995 has been filed by Sunil Kumar Jain whereas Civil Miscellaneous Writ Petition No. 852 of 1995 has been filed by Suresh Chandra Jain, Hindu undivided family seeking a writ, order or direction in the nature of certiorari quashing separate notice dated March 31, 1995, issued under section 148 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) by the Income-tax Officer, Ward 3(4), Kanpur—respondent No. 1 for the assessment year 1986–87 and other consequential reliefs.

2. Briefly stated the facts giving rise to the present petition are as follows:

According to the petitioner in Civil Miscellaneous Writ Petition No. 851 of 1995 he is carrying on business of electronic goods on small scale basis under the name and style of Anu Electronics and is being assessed to tax by the Income-tax Officer, Ward 3(4), Kanpur-respondent No. 1 since the assessment year 1981–82. The grandfather of the petitioner, the late Dar-bari Lal was the karta of the Hindu undivided family which owned certain movable and immovable properties in Jasrana town, district Mainpuri (now in the district of Firozabad). After the death of Sri Darbari Lal, Suresh Chandra Jain, the father of the present petitioner, became the karta of the Hindu undivided family. Suresh Chandra Jain, the karta, has filed Writ Petition No. 852 of 1985. It is alleged by the petitioners that on June 6, 1995, the Income-tax Department conducted a search at the residential and business premises of one Sri Prem Chandra Jain, Mohalla Baniyat, Jasrana, district Mainpuri (now District Ferozabad). During the course of search the officers of the Income-tax Department forcibly entered the residential premises of Suresh Chandra Jain without there being any warrant under section 132(1) of the Act. It may be mentioned here that the house of Suresh Chandra Jain is adjacent to the house of Prem Chandra Jain. The search party broke open the locks and entered the premises. Smt. Shyama Devi, the mother of Suresh Chandra Jain had gone to Kanpur for treatment since Suresh Chandra Jain was residing at Kanpur, as he was in service there. In the house there was a steel safe belonging to Smt. Shyama Devi which was locked. The officers of the search party with the help of gas cutter cut open the safe and took away the sum of Rs. 2,19,000 and pawned articles valued at Rs. 10,506 kept therein on the ground that it belonged to Prem Kumar Jain. In the course of search Prem Chandra Jain gave his statement stating therein that the cash and pawned articles found from the safe of Smt. Shyama Devi did not belong to him, it either belong to Smt. Shyama Devi or to her son and he had nothing to do with the same. According to the petitioners there had been a family partition in the year 1937 between their forefathers and of Prem Chandra Jain and thereafter they are residing separately. Vide letter dated August 12, 1985, the petitioners prayed for return of the pawned articles. It may be mentioned here that the petitioners claim that Smt. Shyama Devi had executed a will and this fact had been corroborated by the writer and the witness. However, the Income-tax Officer while passing the order under section 132(5) of the Act on October 1, 1985 had held that the cash and pawned articles belonged to Prem Chandra Jain and was his undisclosed income. An objection against the said order had been filed under section 132(5) of the Act by the petitioners.

3. The proceedings under section 148 have been initiated against Prem Chandra Jain under section 147 of the Act for the assessment year 1986–87 and the cash amount of Rs. 2,19,000 and the pawned articles valued at Rs. 10,506 have been assessed as belonging to Prem Chandra Jain. However, in the appeal preferred by Prem Chandra Jain, the Commissioner of Income-tax (Appeals) vide order dated December 5, 1994, had set aside the assessment on the ground that it was barred by limitation against which the Department preferred an appeal before the Tribunal. The Tribunal vide order dated February 27, 2004, had allowed the appeal filed by the Department and remanded the matter to the Commissioner of Income-tax (Appeals) for deciding the appeal afresh in accordance with law. Thereafter the Income-tax Officer, Ward 3(4), Kanpur, respondent No. 1 had issued notice under section 148 of the Act for the assessment year 1986–87 to both the petitioners. In compliance with the notice the petitioners filed their return under protest and had requested that the reason for issuing notice under section 148 of the Act be communicated to them in writing. The Income-tax Officer Ward 3(4), Kanpur, respondent No. 1 had communicated the common reasons which are as follows:

“However, keeping in view the contents made in the alleged ‘will’ dated June 2, 1985, wherein Smt. Shyama Devi had bequeathed the above assets to his grandson Sri Sunil Kumar Jain, has not been considered as genuine in the assessment order in the case of Sri Prem Chand Jain (HUF). In the interest of the Revenue the explained cash and jewellery, as mentioned above are to be assessed in the hands of Sri Sunil Kumar Jain in his individual capacity on protective basis as precautionary measure in the assessment year 1986–87.

In view of the above facts it is found that the source of acquisition of cash and jewellery amounting to Rs. 2,19,000 and Rs. 10,506 respectively have not been satisfactorily explained either by Shri Suresh Chandra Jain (HUF) or Sri Sunil Kumar Jain, therefore, I have reasons to believe that income chargeable to tax amounting to Rs. 2,19,000 and Rs. 10,506 has escaped assessment in the hands of Shri Suresh Chandra Jain (HUF) and Sri Sunil Kumar Jain for the assessment year 1986–87. Therefore, it is a fit case for taking action under section 147.”

4. The notices dated March 31, 1995, are under challenge in both the writ petitions. We have heard Sri Shalabh Singh, learned counsel assisted by Sri R.S Agrawal, learned counsel for the petitioners and Sri A.N Mahajan, learned standing counsel for the respondent.

5. Learned counsel for the petitioner submitted that the notices under section 148 of the Act are wholly illegal and without jurisdiction as they have been issued on a change of opinion and there was no basis or justification nor any material before respondent No. 1 to form a belief that the income had escaped assessment to tax. He further submitted that from the reasons recorded by respondent No. 1 it is absolutely clear that he had not come to a definite conclusion that the income of the petitioner had escaped assessment to tax and in whose hands it has to be assessed and that too on a protective basis and, therefore, the entire proceedings are liable to be quashed. In support of the aforesaid pleas he had relied upon the following decisions:

(1) Lalji Haridas v. Income Tax Officer & Anothers, [1961] 43 ITR 387 (SC);

(2) Jagmohan Mahajan v. CIT, [1976] 103 ITR 579 (P & H);

(3) Smt. Sita Devi v. CIT, [1980] 122 ITR 105 (P & H);

(4) Nenmal Shankarlal Parmer v. Asst. CIT (Investigation), [1992] 195 ITR 582 (Karn);

(5) CIT v. Tarsem Kumar, [1986] 161 ITR 505 (SC);

(6) Southern Herbals Ltd. v. Director of Income-tax (Investigation), [1994] 207 ITR 55 (Karn);

(7) Commissioner Of Income-Tax v. Smt. Durgawati Singh, [1998] 234 ITR 249 (All);

(8) Comunidado of Chicalim v. ITO, [2001] 247 ITR 271 (SC);

(9) Foramer v. CIT, [2001] 247 ITR 436 (All);

(10) GKN Driveshafts (India) Ltd. v. ITO, [2003] 259 ITR 19 (SC);

(11) Smt. Kavita Agarwal v. Director of Income-tax (Investigation), [2003] 264 ITR 472 (All);

(12) CIT v. Foramer France, [2003] 264 ITR 566 (SC);

(13) V.K Packaging Industries v. TRO, [2004] 266 ITR 283 (All);

(14) Naresh Kumar Kohli v. CIT, [2004] 266 ITR 553 (P & H);

(15) Ajanta Pharma Ltd. v. Asst. CIT, [2004] 267 ITR 200 (Bom);

(16) Banyan and Berry v. CIT, [1996] 222 ITR 831 (Guj);

(17) ONGC Ltd. v. Deputy CIT, [2003] 262 ITR 648 (Uttaranchal);

(18) AMS Jewellers v. CIT, [2004] 187 CTR 557 (Delhi); and

(19) Dr. Mrs. Anita Sahai v. Director of Income-tax (Investigation), [2004] 266 ITR 597 (All).

6. Learned standing counsel, however, submitted that even though the Department has taken a stand that the amount of Rs. 2,19,000 and the pawned articles worth Rs. 10,506 belong to Prem Chandra Jain but as the petitioners have claimed that the said amount belongs to them, respondent No. 1 was well within his jurisdiction to form a belief that the income has escaped assessment and initiated proceedings under section 147 of the Act as it is always open to the Income-tax Officer to assess the income in the right hands notwithstanding the fact that the same amount has been assessed in the hands of another person. He further submitted that the petitioners have already filed objection in response to the notice under section 148 of the Act and had also been supplied reason for reopening the assessment and, therefore, they should contest the matter before the authorities and the writ petition is not maintainable. In support of his aforesaid pleas he has relied upon the following decisions:

(1) Lalji Haridas v. Income Tax Officer & Anothers, [1961] 43 ITR 387 (SC);

(2) S. Gyani Ram and Co. v. ITO, [1963] 47 ITR 472 (All);

(3) Sidh Gopal Gajanand v. ITO, [1969] 73 ITR 226 (All);

(4) R. Dalmia v. UOI, [1972] 84 ITR 616 (Delhi);

(5) Sohan Singh v. Commissioner Of Income-Tax, Delhi, [1986] 158 ITR 174 (Delhi); and

(6) GKN Driveshafts (India) Ltd. v. ITO, [2003] 259 ITR 19 (SC).

7. Having heard learned counsel for the parties, we find that in the present case the notice under section 148 of the Act and the reasons which have been recorded for initiating proceedings for reassessment have been challenged on the ground that from the material on record the Income-tax Officer could not have formed any belief that any part of the income has escaped assessment to tax which is the prerequisite condition for assuming the jurisdiction of the assessing authority to initiate proceedings under section 147/148 of the Act.

8. Under section 147 of the Act proceedings for assessment can be initiated only if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. The question whether the Assessing Officer had reasons to believe is not a question of limitation only but is a question of jurisdiction, a vital thing, which can always be investigated by the court in an application under article 226 of the Constitution as held in Daulatram Rawatmal v. ITO, [1960] 38 ITR 301 (Cal); Jamna Lal Kabra v. ITO, [1968] 69 ITR 461 (All); Calcutta Discount Co. Ltd. v. ITO, [1961] 41 ITR 191 (SC); C.M Rajgharia v. ITO, [1975] 98 ITR 486 (Patna) and Madhya Pradesh Industries Ltd. v. ITO, [1965] 57 ITR 637 (SC).

9. The words “has reason to believe” are stronger than the words “is satisfied”. The belief entertained by the Assessing 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 as held by the apex court in Ganga Saran and Sons P. Ltd. v. ITO, [1981] 130 ITR 1 (SC).

10. The expression “reason to believe” in section 147 does not mean purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in good faith; it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Assessing Officer in starting proceedings under section 147 is open to challenge in a court of law as held in S. Narayanappa v. CIT, [1967] 63 ITR 219 (SC); Kantamani Venkata Narayana and Sons v. First Addl. ITO, [1967] 63 ITR 638 (SC); Madhya Pradesh Industries Ltd. v. ITO, [1970] 77 ITR 268 (SC); Sowdagar Ahmed Khan v. ITO, [1968] 70 ITR 79 (SC); ITO v. Lakhmani Mewal Das, [1976] 103 ITR 437 (SC); ITO v. Nawab Mir Barkat Ali Khan Bahadur, [1974] 97 ITR 239 (SC); CST v. Bhagwan Industries P. Ltd., [1973] 31 STC 293 (SC) and State Of Punjab v. Balbir Singh., (1994) 3 SCC 299.

11. The formation of the required opinion and belief by the Assessing Officer is a condition precedent. Without such formation, he will not have jurisdiction to initiate proceedings under section 147. The fulfilment of this condition is not a mere formality but it is mandatory. The failure to fulfil that condition would vitiate the entire proceedings as held by the apex court in the cases of Johri Lal (Huf), Agra v. Commissioner Of Income Tax., [1973] 88 ITR 439 and Sheo Nath Singh v. AAC of I.T, [1971] 82 ITR 147 (SC). The reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation of his belief that there has been escapement of income of the assessee from assessment in the particular year. It is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of income of the assessee from assessment as held by the hon'ble Supreme Court in the case of ITO v. Lakhmani Mewal Das, [1976] 103 ITR 437. If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Assessing Officer could not have reason to belief. In such a case, the notice issued by him would be liable to be struck down as invalid as held in the case of Ganga Saran and Sons P. Ltd. v. ITO, [1981] 130 ITR 1 (SC).

12. In the case of GKN Driveshafts (India) Ltd. v. ITO, [2003] 259 ITR 19 the apex court has held as follows (headnote):

“When a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of action for the noticee is to file the return and, if he so desires, to seek reasons for issuing the notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order.

On receiving notices under section 148 the appellant filed the returns. The appellant also received notices under section 143(2) calling for further information on certain points in connection with the returns. Thereupon the appellant filed writ petitions challenging the notices. The High Court dismissed the writ petitions holding that the petitions were premature and the appellant could raise its objections to the notices by filing reply to the notices before the Assessing Officer (see e.g, [2002] 257 ITR 702). The appellant preferred appeals and the Supreme Court dismissed the appeals, observing that since the reasons for reopening of assessments under section 148 had been disclosed in respect of five assessment years, the Assessing Officer had to dispose of the objections, if filed, by passing a speaking order before proceeding with the assessments for those years.”

13. The Constitution Benches of the hon'ble Supreme Court, in K.S Rashid and Son v. Income-tax Investigation Commission, [1954] 25 ITR 167 (SC) : AIR 1954 SC 207; Sangram Singh v. 1. Election Tribunal, Kotah, AIR 1955 SC 425; Union Of India v. T.R Varma , [1957-58] 13 FJR 237 (SC) : AIR 1957 SC 882 State Of U.P v. Mohammad Nooh ., AIR 1958 SC 86; K.S Venkataraman and Co. P. Ltd. v. State of Madras, [1966] 60 ITR 112 (SC) : AIR 1966 SC 1089, have held that article 226 of the Constitution confers on all the High Courts a very wide power in the matter of issuing writs. However, the remedy of writ is an absolutely discretionary remedy and the High Court has always the discretion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere. The court, in extraordinary circumstances, may exercise the power if it comes to the conclusion that there has been a breach of principles of natural justice or procedure required for decision could not be adopted.

14. In Harbans Lal Sahnia v. IOC Ltd., (2003) 2 SCC 107 the hon'ble Supreme Court has held that the rule of exclusion of writ jurisdiction by availability of an alternative remedy is a rule of discretion and not one of compulsion and the court must consider the pros and cons of the case and then may interfere if it comes to the conclusion that the petitioner seeks enforcement of any of the fundamental rights; where there is failure of the principles of natural justice or where the orders of proceedings are wholly without jurisdiction or the vires of an Act is challenged.

15. As held by the apex court in the case of Calcutta Discount Co. Ltd. v. ITO, [1961] 41 ITR 191 and Madhya Pradesh Industries Ltd. v. ITO, [1965] 57 ITR 637 this court under article 226 is entitled to go into the relevancy of the reasons as also to scrutinize as to whether there was reasonable belief or not.

16. In the case of Comunidado of Chicalim, [2001] 247 ITR 271 the apex court had held that when an assessee challenges a notice to reopen an assessment under section 147 of the Act on the ground that no reasons under section 148 had been recorded or disclosed, the court must call for and examine the reasons, and, in fact, ordinarily, the reasons are set out by the respondents to the writ petitioner in their counter.

17. In the case of Foramer, [2001] 247 ITR 436 this court has held that notice under section 147 should not be given on mere change of opinion and if notice under section 148 was without jurisdiction the petitioner should not be relegated to the alternative remedy and the writ petition was maintainable, which has been upheld by the apex court in the civil appeal filed by the Department reported in CIT v. Foramer France, [2003] 264 ITR 566.

18. In the case of Ajanta Pharma Ltd., [2004] 267 ITR 200 the Bombay High Court has held that GKN Driveshafts (India) Ltd., [2003] 259 ITR 19 (SC) nowhere lays down that the party is totally debarred from approaching the High Court under article 226 of the Constitution of India when the exercise of power by the authority under section 148 of the Act, ex facie appears to be without jurisdiction. Undoubtedly, whether such an exercise is with or without jurisdiction will have to be revealed from the notice and reasons on the face thereof. At the same time, it is also well-settled, and Calcutta Discount Co. Ltd., [1961] 41 ITR 191 (SC) is very clear on the point, that mere availability of alternative relief can be no bar for exercise of writ jurisdiction when the authorities seek to assume jurisdiction which they do not possess or act in a totally arbitrary manner. The decision in GKN Drive-shafts (India) Ltd., [2003] 259 ITR 19 (SC) reminds the assessee that when a notice under section 148 of the Act is issued the proper course of action is to file a reply with his objections including those in relation to the absence of jurisdiction. However, it does not lay down that when such an objection is in relation to the absence of jurisdiction and the same is revealed ex facie or apparent on the fact of a notice or reasons in support thereof, the assessee has compulsorily to invite an order from the Assessing Officer in relation to the absence of jurisdiction.

19. This court in Civil Miscellaneous Writ Petition No. 257 of 2004 (Indra Prastha Chemicals P. Ltd. v. CIT, [2004] 271 ITR 113) decided on August 16, 2004, has repelled the similar arguments raised by the Department.

20. Thus, it is well-settled that the “reason to believe” under section 147 must be held in good faith and should have a rational connection and relevant bearing on the formation of the belief and should not be extraneous or irrelevant. Further this court in proceedings under article 226 of the Constitution of India can scrutinize the reasons recorded by the Assessing Officer for initiating the proceedings under section 147/148 of the Act. The sufficiency of the material cannot be gone into but relevancy certainly be gone into.

21. Thus, the writ petition under article 226 is maintainable.

22. Going to the merits of the case, we find that it is not in dispute that the cash amount of Rs. 2,19,000 and the pawned articles valued at Rs. 10,506 have been claimed by the petitioners as belonging to them. Merely because it has been taxed at the hands of Sri Prem Chandra Jain will not preclude the Income-tax Officer from assessing the same at the hands of the right person. From the reason recorded for reopening of the assessment which has been reproduced above it will be seen that the basis for initiating proceedings is the claim made by the petitioners on the basis of the alleged will executed by Smt. Shyama Devi, thus it cannot be said that there was no relevant material for taking proceedings under section 147 of the Act.

23. In the case of Jagmohan Mahajan, [1976] 103 ITR 579 the Punjab and Haryana High Court has held that search and seizure cannot be conducted on the basis of the blank search warrant sent and issued by the Commissioner.

24. In the case of Smt. Sita Devi, [1980] 122 ITR 105 the Punjab and Haryana High Court has held that the provisions of section 131(1)(b)(iii) of the Act envisage that the search of the premises had to be a valid and authorised search in that there must be a legal and valid search warrant for searching the premises of the persons who, on information, are believed to reside therein or occupy the same and it is not necessary that the person against whom the warrant is issued should be in exclusive possession of specified portions and the proceeding was, therefore, valid.

25. In the case of Tarsem Kumar, [1986] 161 ITR 505 the apex court has held that on a construction of section 132 of the Act and the context in which the words “search”, “possession” and “seizure” had been used in the section and the rules, there could not be any order in respect of goods or money or papers which were in the custody of another Government Department under legal authority.

26. In the case of Nenmal Shankarlal Parmer, [1992] 195 ITR 582 the Karnataka High Court has held that where there was no reference at all in the warrant of authorisation that any valuable article or thing was in the possession of the petitioner in his individual capacity as a necessary consequence, the mere mention of residential premises did not enable the Department to effect seizure either of gold, jewellery or other articles or documents belonging to the partner from such premises and, therefore, the order of assessment passed under section 132(5) of the Act was not valid and liable to be quashed.

27. In the case of Southern Herbals Ltd., [1994] 207 ITR 55 the Karnataka High Court has held that it is not for the court to examine the sufficiency of the material leading to the belief of the authority that search shall have to be conducted: the court has to see that the belief was reasonable, in the sense, it was formed on the basis of relevant material (information): the court cannot substitute its own opinion as to the reasonableness of the belief. The court has to examine to see whether the belief is an irrational or blind belief, formed out of prejudice or the result of relying on wild gossip or baseless rumours, etc.

28. In the case of Naresh Kumar Kohli, [2004] 266 ITR 553 the Punjab and Haryana High Court has held that sub-section (3) of section 132B of the Act clearly indicates that the seized assets or proceeds thereof which remain after the liabilities referred to in clause (i) of sub-section (1) have been discharged, have to be forthwith made over or paid to the persons from whose custody the assets were seized.

29. In the case of A.M.S Jewellers, [2004] 187 CTR 557 the Delhi High Court had only directed the Settlement Commission to decide the application for return of jewellery which is not the case here.

30. In the case of Dr. Mrs. Anita Sahai, [2004] 266 ITR 597 this court has held that before taking any action under section 132 of the Act the condition precedent is information in the possession of the Director of Income-tax which gives him reason to believe that a person is in possession of some article, jewellery, bullion or money which represents wholly or partly his income which was not disclosed or would not be disclosed. If the aforesaid condition is missing the Commissioner or Director of Investigation will have no jurisdiction to issue the warrant of authorisation under section 132(1) of the Act. Search and seizure cannot be a fishing expedition. Before search is authorised the Director must on the relevant material have reason to believe that the assessee has not or would not disclose his income. The reason to believe must exist and must be taken into consideration by the Director/Commissioner at the time of issuing the warrant of authorisation. If the reason to believe comes into existence later, i.e, after issuance of the warrant of authorisation, then the warrant of authorisation and entire search and seizure will be illegal even if the material on the basis of which the Director formed his opinion that there was reason to believe existed prior to the issuance of warrant of authorisation. In the case of Smt. Kavita Agarwal, [2003] 264 ITR 472 this court has taken the similar view.

31. Even though in the writ petition a prayer for releasing the seized articles has been made, it may be mentioned that the seizure was effected on June 6, 1985, and as the matter stands today it has been held to be the belonging of Prem Chandra Jain so long as it is not held that the seized articles belonged to the petitioners, it cannot be returned to them. It is another thing that after assessment of the individual case of Prem Chandra Jain is taken as satisfied, seized money and pawned articles, after its return to Prem Chandra Jain, can be claimed by the petitioners from the said Prem Chandra Jain. All the aforesaid decisions cited by learned counsel for the petitioner relate to search, validity of search and seizure, which is not in issue in the present writ petitions.

32. In the case of Lalji Haridas, [1961] 43 ITR 387 the apex court has held that in cases where it appears to the income-tax authorities that certain income has been received during the relevant year but it is not clear who has received that income; and, prima facie, it appears that the income may have been received by A or by B or by both together, it would be open to the income-tax authorities to determine the question who is responsible to pay tax by taking assessment proceedings both against A and B.

33. In the case of S. Gyani Ram and Co., [1963] 47 ITR 472 this court has held that the mere fact that a particular income has been assessed in the hands of a particular person as his income will not prevent the Income-tax Officer from coming to the conclusion on fresh materials that that income is the income of another person and taking proceedings under section 34 of the Act for reassessment against the latter on the ground that this income had escaped assessment in his assessment.

34. In the case of Sidh Gopal Gajanand, [1969] 73 ITR 226 this court has held that the validity of notice under section 34 of the Indian Income-tax Act, 1922 cannot be impugned on the ground that the assessment proceeding was already pending in respect of the same income against another entity and where it appears that the income may have been received either by A or by B or by both together, it would be open to the income-tax authorities to determine the said question by taking appropriate proceedings against both A and B.

35. In the case of R. Dalmia, [1972] 84 ITR 616 the Delhi High Court has held that where the items of escaped income in respect of which the assessment is proposed is specific but the question as to whether the income, if earned, was earned by one person singly or by him along with others is a matter of inquiry, if the Income-tax Officer has reason to believe that it could have been earned either by one person singly or by him along with others there is nothing to prevent him from initiating proceedings against the concerned assessees in both capacities. In such a case where it appears to the Income-tax Officer, that certain income had been received during a particular year but it is not clear who has received that income it is open to the Income-tax Officer to start proceedings against all the persons individually or collectively to ascertain the correct position. In the case of Sohan Singh, [1986] 158 ITR 174 the Delhi High Court has taken a similar view.

36. In the case of Smt. Durgawati Singh, [1998] 234 ITR 249 this court has held that it is settled that when there is a doubt as to which person amongst two was liable to be assessed, parallel proceedings may be taken against both and alternative assessments may also be framed. It is also equally true that while a protective assessment is permissible, it is not open to the income-tax appellate authorities constituted under the Act to make a protective order. The law does not permit assessment of the same income successively in different hands. The tax can only be levied and collected in the hands of the person who has really earned the income and is liable to pay tax thereon.

37. In the case of Banyan and Berry, [1996] 222 ITR 831 the Gujarat High Court has held that where there is doubt or ambiguity about the real entity in whose hands a particular income is to be assessed, the assessing authority is entitled to have recourse to making a protective assessment in the case of one and a regular assessment does not affect the validity of the other assessment inasmuch as if ultimately one of the entities is really found to be liable to assessment, then the assessment in the hands of the entity alone remains the effective assessment and the other becomes infructuous. The levy is enforceable only under one assessment and not under both.

38. In the case of Oil and Natural Gas Corporation Ltd., [2003] 262 ITR 648 the Uttaranchal High Court has held that the assessee having disclosed all facts about borrowings and investments in public sector undertakings and the fact that there was no cautious consideration of the pointed facts at the time of assessment that could not be a ground for reopening of assessment by virtue of the proviso to section 147 of the Act. In the case of V.K Packaging Industries, [2004] 266 ITR 283 this court has observed that before parting with the case we would like to state that we cannot appreciate this practice of the Income-tax Department of hurriedly passing assessment orders shortly before the limitation period is about to expire and justifying this practice by saying that there was shortage of time and hence it was impossible to verify the facts properly, and hence the additions were being made. It is common knowledge that when the limitation for making an assessment is about to expire (usually on 31st March) there is a sudden rush and scramble to complete the assessments. If this practice is countenanced the citizens of the country will be put to great harassment as exorbitant demands can be made against them merely by saying that there was shortage of time and hence additions were being made for this reason without verifying the facts correctly. It is the duty of the Department to make a correct assessment and not to make an excessive assessment merely on the ground of shortage of time. No doubt the Department has to assess and collect the correct tax, but for this purpose it should devise and set up a rational scheme in accordance with law. It should certainly not make assessment hurriedly merely by saying that there is shortage of time (as often happens), thus putting the citizens to great harassment.

39. Applying the principle laid down in the aforesaid cases to the facts of the present case, we find that according to the claim made by the petitioners the amount in question belonged to Smt. Shyama Devi who had bequeathed the same to them. Notwithstanding the fact that the said amount has been assessed to tax in the hands of Prem Chandra Jain, he has taken a stand that the amount does not belong to him and instead belonged to Smt. Shyama Devi. Therefore, it is not clear as to in whose hands the amount in question has to be assessed. Thus, the Income-tax Officer was justified in taking proceedings under section 147 of the Act for assessing the aforesaid amounts at the hands of the petitioner according to the claim made by the petitioners.

40. In view of the foregoing discussions, we do not find any merit in both the writ petitions which are hereby dismissed. However, there shall be no order as to costs.