Rajes Kumar, J.:— By means of the present revision, the following reliefs have been claimed:

(a) issue a writ, order or direction in the nature of certiorari quashing the show cause notice dated July 26, 1999, issued by the respondent (annexure No. IX).

(a-1) to issue a writ, order or direction in the nature of certiorari quashing the notice under section 148 of the Income-tax Act, dated December 24, 1998, received on January 11, 1999, issued by the respondent (annexure No. 1).

(b) issue any other writ, order or direction as this hon'ble court deems fit and proper.

(c) award the cost of the petition to the petitioner.

2. The brief facts of the case giving rise to the present petition are that the petitioner is a company carrying on the business of construction of building in the city of Agra. The company was incorporated on January 31, 1994. For the assessment year 1995-96, the petitioner filed its return regarding the construction of the building showing loss of Rs. 2,77,400. The assessment was completed under section 143(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). The respondent issued a notice under section 148 of the Act on December 24, 1998, to reopen the case for the assessment year 1995-96. On the request of the petitioner, on July 26, 1999, the reasons for issue of the notice and reopening of the case have been supplied which is annexure 9 to the writ petition, read as follows:

“During the course of assessment proceedings for the assessment year 1996-97 the books of account of the assessee were rejected under section 145(2) for the detailed reasons given in the order passed under section 143(3) dated December 18, 1998, it was found that:

1. That the assessee is not maintaining the stock register even for the major items such as steel, cement, bricks, etc.

2. Work-in-progress register has also not been maintained from which expenditure incurred on the project can be verified.

3. No details of day-to-day consumption of material is maintained.

And the net income was estimated at 10 per cent, of the gross receipts during the course of assessment proceedings it was found that the assessee has also not maintained the, details/information has also not mentioned above at (1), (2) and (3) for the assessment year 1995-96 also and the loss has been shown at Rs. 2,77,400. The receipts under the head ‘deposit from customers’ have been shown at Rs. 46,77,190.35. Therefore, net profit at 10 per cent, works out to Rs. 4,67,719 as against loss of Rs. 2,77,400.

Therefore, I have reason to believe that income to the extent of Rs. 7,45,119 (4,67,719 + 2,77,400) has escaped assessment as per the provisions of section 147 of the Income-tax Act, 1961. Issue notice under section 148.”

3. Heard Sri S.O.P Agarwal, learned counsel for the petitioner, and Sri Govind Krishna, learned standing counsel appearing on behalf of the respondent. Learned counsel for the petitioner submitted that under section 147 of the Act, a case can be reopened only when there is material of escaped income. He submitted that the reason recorded by the respondent for the reopening of the case shows that there was no material of any escaped income for the year under consideration. He submitted that the only material referred to is that defects were found in the books of account for the assessment year 1996-97 and the estimate of the income by way of best judgment assessment, but no material has been referred to relating to the year under consideration on the basis of which a belief could be formed about the escaped income. He submitted that unless there is specific material for the year under consideration that any income has been escaped, proceedings under section 147 of the Act cannot be taken.

4. Learned standing counsel submitted that during the course of the assessment proceeding for the assessment year 1996-97, it was found that the petitioner has not maintained proper books of account and it was also found that the proper books of account have not been maintained for the year under consideration and there was a receipt under the head “Deposit from customer to the extent of Rs. 46,77,190.35 paise”, therefore, the assessing authority on the basis of the previous year estimated the income which was made at 10 per cent, of the gross receipts estimated the net profit at Rs. 4,67,719 as against the disclosed loss of Rs. 2,77,400 which shows that there was an escaped income. He submitted that the material mentioned in the reasons recorded is sufficient to reopen the case and this court in writ jurisdiction cannot examine the sufficiency of the material. In support of his contention, he relied upon the decisions in the cases of Raymond Woollen Mills Ltd. v. ITO reported in [1999]236 ITR 34 (SC); Kundan Lal Ratan Lal Jain v. Assessing Officer reported in [2000]245 ITR 434 (All) and Ess Ess Kay Engineering Co. P. Ltd. v. CIT reported in [2001]247 ITR 818 (SC).

5. We have given our anxious consideration to the submissions of learned counsel for the parties and perused the reasons recorded for reopening of the case under section 147 of the Act, which have been referred to hereinabove. It is a settled principle of law that in writ jurisdiction the court cannot examine the sufficiency of the material on the basis of which notice under section 148 of the Act is issued but it is open to this court in writ jurisdiction to examine, whether there was any material or the material mentioned in the reasons recorded is relevant material to form a belief of escaped income. Section 147 of the Act reads as follows:

147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Explanation 1.—Production before the Assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:—

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

(c) where an assessment has been made, but—

(i) income chargeable to tax has been under assessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under this Act; or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.”

6. Under section 147 of the Act, the case can be reopened if there is reason to believe that there is an escaped income for the assessment year. Therefore what has to be examined is whether there was any material for the year under consideration of escaped income. A perusal of the reason recorded shows that the material referred to is relating to the assessment year 1996-97 in which on the basis of the defects found in the books of account, the assessing authority estimated the income by way of best judgment assessment. If on the basis of the defect found in the books of account for the assessment year 1996-97, the income has been estimated by way of best judgment assessment by taking 10 per cent, profit of the gross receipts, it does not mean that the same profit would have been earned in the year under consideration. The assessing authority only proceeded under the presumption in estimating the net profit at the rate of 10 per cent, on the gross receipts. No material has been referred to relating to the assessment year 1995-96 on the basis of which it could be believed that some profit was earned in this year also and loss shown was incorrect. In the circumstances, we are of the considered opinion that there was no material relating to the assessment year under consideration of any escaped income. The basis for the reopening of the case is only a presumption and guess work and does not constitute material to reopen the case.

7. Under section 147 of the Act, the words are “has reason to believe” and not “reason to suspect”. The belief entertained by the Assessing Officer must not be arbitrary or irrational. It must be reasonable and based on reasons, which are relevant. It must be in good faith and not in mere pretence, should have a rational connection and relevant bearing on the formation of the belief, and should not be extraneous or irrelevant. The material should be relating to the particular year for which the assessment is sought to be reopened. 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.

8. In the case of Johri Lal (Huf), Agra v. Commissioner Of Income Tax., [1973]88 ITR 439, the apex court has held as follows (headnote):

“The formation of the required belief by the Income-tax Officer before proceedings can be validly initiated under section 34(1)(a) is a condition precedent: the fulfilment of this condition is not a mere formality, it is mandatory, and, failure to fulfil that condition would vitiate the entire proceedings. Further, the formation of the required belief is not the only requirement: the officer is further required to record his reasons for taking action under section 34(1)(a) and obtain the sanction of the Central Board or the Commissioner, as the case may be.”

9. In Joti Parshad v. State Of Haryana., 1993 Supp (2) SCC 497 : AIR 1993 SC 1167; [1992] 6 JT 94 (SC), the hon'ble Supreme Court while dealing with the meaning of expression “reason to believe” in section 26 of the Indian Penal Code held that the reason to believe is not the same as suspicion and a person must have reason to believe if the circumstances are such that a reasonable man would, by probable reasoning, conclude or infer regarding the nature of the thing concerned.

10. In ITO v. Lakhmani Mewal Das, [1976]103 ITR 437 (SC); [1976] UPTC 809 (SC), the hon'ble Supreme Court held that the reasons for the formation of the belief contemplated by reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief. The hon'ble Supreme Court further observed that though it is true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening the assessment yet at the same time we have to bear in mind that it is not any and every material, however, vague and indefinite or distinct, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.

11. In Commissioner of Sales tax v. Bhagwan Industries (P.) Ltd., [1973] 31 STC 293 (SC), it was held that reasonable grounds necessarily postulate that they must be germane to the formation of the belief regarding escaped assessment. If the grounds are of an extraneous character, the same would not warrant initiation of proceedings under this section. If, however, the grounds are relevant and have a nexus with the formation of belief regarding escaped assessment, the assessing authority would be clothed with jurisdiction to take action under this section.

12. The question whether the Assessing Officer had reasons to believe is a question of jurisdiction, a vital thing, which can always be investigated by the court 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).

13. 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 believe. 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).

14. In the case of Indra Prastha Chemicals P. Ltd. v. CIT, [2004]271 ITR 113, this court held as follows (page 119):

“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.”

15. In the present case, there was no material relating to the assessment year 1995-96, what to say the relevant material relating to the escaped income. The escaped income for the year under consideration has been inferred on the basis of the assessed income in the assessment year 1996-97 by way of best judgment assessment due to defect found in the books of account. There is no material that some income has been earned in the assessment year 1995-96. Thus, the information is based only on guess, presumption and on extraneous and irrelevant consideration. Therefore, in view of the principle of law referred to hereinabove, in the absence of specific material of escaped income for the year under consideration, no belief could be formed about the escaped income merely on the basis of the assessment for the year 1996-97.

16. Now let us deal with the decisions cited by learned standing counsel.

17. In the case of Raymond Woollen Mills Ltd. v. ITO, [1999]236 ITR 34, the apex court held that in a writ jurisdiction, the court can only consider whether there was a prima facie case for reassessment and sufficiency of the material cannot be considered.

18. In the case of Kundan Lal Ratan Lal Jain v. Assessing Officer, [2000]245 ITR 434 (All), in which notice under section 148 of the Act was issued on the basis of information relating to the enquiries in which it was found that the land holders whose names were found entered had denied having leased out any land to the assessee and the court had not found the case fit for interference.

19. In the case of Ess Ess Kay Engineering Co. P. Ltd. v. CIT reported in [2001]247 ITR 818 (SC), the case was reopened on the basis of fresh material obtained in the course of assessment for the next year. The apex court found the material sufficient to reopen the assessment proceeding.

20. The aforesaid cases are not of much help to learned standing counsel as they are based on their own facts. For the reasons stated above, we are of the considered view that the initiation of the proceedings under section 147 of the Act was without any material of escapement income for the assessment year 1995-96. Thus, the entire proceeding is held to be illegal and is accordingly, quashed.

21. In the result, the writ petition is allowed. The notice under section 148 of the Act for the assessment year 1995-96 and the consequential proceedings thereof are quashed. However, there shall be no order as to costs.