Chandrakantaraj Urs, J.:— This writ petition coming up for prelimi-nary hearing in “B” group after notice to the respondent, is disposed of by the following order.
2. The petitioner, an assessee under the I.T Act, 1961 (hereinafter referred to as “the Act”), is an individual. He filed his return of income for the assessment year 1976–77 disclosing property income of Rs. 13,153, and business loss of Rs. 21,143, before respondent No. 1, the Income-tax Officer, Circle-Ill, Bangalore (hereinafter referred to as “the ITO”), who accepted the return and concluded the assessment on November 30, 1977. The order of assessment is annexed to the petition as annex. “A”, the operative portion of which reads as follows:
“Assessment Order
Return admitting property income of Rs. 13,153 and business loss of Rs. 21,143 is filed. In response to notice under s. 143(2), assessee appeared.
Loss returned is supported by necessary statements. Assessment is concluded accepting the loss returned.
Declared N.D”
3. However, the ITO issued notice under s. 148 of the Act, proposing to reopen the assessment of the petitioner for the assessment year 1976–77, inasmuch as he had reason to believe that income had escaped assessment for the relevant assessment year. The petitioner immediately wrote a letter to the ITO seeking information as to whether the notice received by him under s. 148 of the Act should be construed as one falling under s. 147(a) or (b) of the Act. This query was followed by further correspondence dated April 7, 1980, April 22, 1980, and June 29, 1980. But the assessee-petitioner never received any reply from the ITO. In that circumstance, aggrieved by the notice issued under s. 148 of the Act, the petitioner has questioned the legality of the notice issued under s. 148 of the Act on the facts and circumstances of this case under art. 226 of the Constitution as being illegal and without jurisdiction. The respondent has entered appearance through the department and has filed his statement of objections. In the statement of objections it is stated, while substantially admitting the facts alleged by the petitioner, that on February 23, 1980, the ITO made a noting as follows:
“As seen from the balance-sheet at March 31, 1976, there is a debit balance of Rs. 2,86,406 (drawing account). Interest claimed on borrowals ???s Rs. 38,719. It is evident that the amount borrowed has been utilised ???or purposes other than business and interest has, therefore, to be dis???llowed. Income chargeable to tax has escaped assessment within the meaning of sec. 147. Please issue notice under, sec. 148 for 1976–77.”
4. This has been further explained in the statement of objections that the above came to the knowledge of the ITO when for the subsequent assessment year, the assessee was required to furnish details of expenditure of investments for 1977–78 and the diversion of funds noted in the note was discovered. In a reply filed to the statement of objections, it is found that it has been asserted for the assessee-petitioner that the latter statement in the statement of objections would not be accurate or correct inasmuch as the assessee had in fact furnished all relevant materials including withdrawals relevant to the assessment year 1976–77 before the con-clusion of the assessment on November 30, 1977. For that, the learned counsel has relied upon the trading and profit and loss account for the year ended 31st March, 1976, of Premier Plastic Industries as well as the balance-sheet for the same year.
5. For the assessee, it is contended by Shri. K.R Prasad, learned counsel appearing for the assessee, that the law in regard to bringing to tax escaped income under s. 147 of the Act is too well settled and has drawn my attention to the ruling of the Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT, [1980] 119 ITR 996. In the said decision, the Supreme Court has held as follows (p. 1004):
“Now, in the case before us, the ITO had, when he made the original assessment, considered the provisions of ss. 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The revenue contends that it is open to him to do so, and on that basis to reopen the assessment under s. 147(b). Reliance is placed on Kalyanji Mavji & Co. v. Cit, West Bengal-Ii , [1976] 102 ITR 287 (SC), where a Bench of two learned judges of this court observed that a case where income had escaped assessment due to the oversight, inadvertence or mistake of the ITO must fall within s. 34(1)(b) of the Indian I.T Act, 1922. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the ITO discovers that he has committed an error in consequ-ence of which income has escaped assessment, it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in Maharaj Kumar Kamal Singh v. CIT, [1959] 35 ITR 1 (SC), Commissioner Of Income Tax, Gujarat v. A. Raman & C., [1968] 67 ITR 11 (SC) and Bankipur Club Ltd. v. CIT, [1971] 82 ITR 831 (SC) and we do not believe that the law has since taken a different course. Any observation in Kalyanji Mavji & Co. v. Cit, West Bengal-Ii , [1976] 102 ITR 287 (SC) suggesting the contrary do not, we say with respect, lay down the correct law.”
6. The above passage makes it abundantly clear that it is not enough for the concerned ITO to form a second opinion on the very same material which was before him when he concluded the assessment at a later stage, to give him jurisdiction under s. 147 of the Act. Two things more are required: One, there must be material which has come, to his knowledge by way of information or otherwise subsequent to the conclusion of the assessment in question and next, also a reasonable belief that such information was deliberately withheld or suppressed by the assessee before the con-clusion of the assessment. If that is not there, then the ITO cannot assume jurisdiction under s. 147 of the Act bringing to tax any income that has escaped assessment.
7. This has been made clear further in a subsequent decision of the Supreme Court in the case of Ganga Saran & Sons P. Ltd. v. ITO, [1981] 130 ITR 1, 11. Bhagwati J. has held as follows:
“Two distinct conditions must be satisfied before the ITO can assume jurisdiction to issue notice under s. 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the ITO would be without jurisdiction.”
8. I have already extracted the reasons recorded by the ITO prior to issuing the impugned notice at annex. “E” to ???he petition purporting to be under s. 148 of the Act. From that, it is clear, he has merely found on suspicion that some amount borrowed for purposes of business has been diverted and used for personal purposes and, therefore, interest on such borrowed funds for purposes of business diverted to private use should not have been allowed wholly and thus allowed to escape assessment. It is clearly contrary to the law laid down by the Supreme Court. It is not his case except in the statement of objections filed that at the point of time when he recorded the reasons he had any additional information which had come to his possession on the basis of which he had reason to believe that income of the particular assessment year had escaped assessment and that information had been suppressed by the assessee which is equally an essential ingredient and is totally missing in this case.
9. The mere assertion in the statement of objections filed that it was only on the assessee furnishing the details of his withdrawals in respect of a subsequent assessment year that he came to know about the funds having been diverted for private use though borrowed for purposes of business is not enough. When an officer is required to form an opinion on the basis of information and is required to record his reasons before proceeding to issue notice under s. 148 of the Act, at that point he should record in full detail the source of information on the basis of which he has formed his belief reasonably which has led to the conclusion that there has been escapement of income from being assessed. Therefore, I cannot attach much importance to the assertion made that the respondent learnt about the so-called diversion of fund only when he was doing the assessment of the assessee for the assessment year 1977–78.
10. In the light of the two decisions relied on above, I think it is unneces-sary to notice some of the other decisions, cited by Shri Prasad for the assessee except to notice that in the reply filed to the statement of objec-tions, it has been asserted that the withdrawals for 1976–77 assessment year were also available to the ITO in his file as the same had been filed even before the assessment had been concluded. This is not disputed by the learned counsel for the revenue. In the result, the impugned notice under s. 148 of the Act at annex. “E” is without jurisdiction and illegal and the same is hereby quashed. Rule will accordingly issue and be made absolute.
11. No order as to costs.