M.M Dutt, J.:— This appeal is at the instance of the revenue and it is directed against the judgment of Amiya Kumar Mookerjee J. whereby the rule nisi obtained by the respondent on his application under article 226 of the Constitution was made absolute. The principal question that is involved in this appeal is whether the Income-tax Officer had jurisdiction to reopen the assessment of the respondent for the assessment year 1962-63 by serving a notice under section 148 of the Income-tax Act, 1961.
2. The respondent is a partner of the firm, M/s. Calcutta Hardware Stores, and carries on business as a dealer in black-sheet, sheet-cutting and plates and is an assessee under the Income-tax Act, 1961. The said firm filed its return for the assessment year in question together with copies of the profit and loss account and balance-sheet. In the course of hearing of the assessment proceeding for the said year, the firm, in compliance with the notice under sections 142(1) and 143(2) of the Income-tax Act, 1961, produced books of accounts, list of loans, list of interest paid, etc., as required by the Income-tax Officer for the purpose of assessment. It is alleged that the facts relevant to the assessment were fully and truly disclosed and brought to the knowledge of the Income-tax Officer. The Income-tax Officer, by his order dated September 26, 1963, completed the assessment of the firm under section 143(3) on the total income of Rs. 82,101. Thereafter, a notice under section 148 of the Income-tax Act, 1961, dated March 20, 1971, was issued by the Income-tax Officer to the firm alleging that he had reason to believe that income chargeable to tax for the assessment year 1962-63 had escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. By the said notice, it was proposed to reassess the income for the said assessment year, and the assessee was also called upon to file a return for the purpose of reassessment. In compliance with the said notice under section 148, the respondent filed a return under protest on April 21, 1971, in respect of the assessment year in question showing an income from business to the extent of Rs. 81,789 as originally assessed by the Income-tax Officer. The respondent moved this court by a petition under article 226 of the Constitution challenging the jurisdiction of the Income-tax Officer to issue the notice under section 148 and to reopen the assessment for the assessment year 1962-63. On the said petition of the respondent, a rule nisi, out of which the present appeal arises, was issued. At this stage, it may be stated that prior to the said rule another rule was obtained by the respondent being C.R No. 607(W) of 1971 [Mahadeo Lal Tulsyan v. ITO, [1977] 110 ITR 637 (Cal)] challenging a similar notice under section 148 whereby the assessment for the year 1961-62 was sought to be reopened by the Income-tax officer. That rule was made absolute by Amiya Kumar Mookerjee J., by his judgment dated March 22, 1974. The present rule relating to the assessment year 1962-63 also came up for hearing before Amiya Kumar Mookerjee J., and in view of his decision in the said C.R No. 607(W) of 1971 [Mahadeo Lal Tulsyan v. ITO, [1977] 110 ITR 637 (Cal)], his Lordship made the present rule absolute. An appeal was preferred by the revenue against the judgment of the learned judge in Civil Rule No. 607(W) of 1971. The said appeal was heard by a Bench consisting of Anil Kumar Sen and Manash Nath Roy JJ., and their Lordships, by their judgment dated September 21, 1976 (ITO v. Mahadeo Lal Tulsyan, [1977] 110 ITR 786 (Cal) [DB]) set aside that of the learned judge and discharged the rule.
3. The appellant did not file any affidavit-in-opposition in the trial court. It was stated before us by Mr. Nanda Lal Pal, learned advocate on behalf of the appellants, that the appellants did not get an opportunity to file an affidavit-in-opposition. He submitted that he would place reliance on the application for stay filed in this appeal. The said application was sworn by the Income-tax Officer who issued the notice under section 148. Mr. Pal also produced before us the relevant records for the assessment year 1962-63 which included a statement of the Income-tax Officer containing reasons for reopening the assessment for the year 1962-63. The statement is as follows:
“It appears from records that the assessee obtained hundi loans from various parties during the relevant year. These loans are found to have been accepted in the original assessment as genuine as claimed by the assessee without making any verification. Now, it transpires that the alleged loan credits also include credits in the names of Bhagawandas Arjundas, Kanailal Ramchand, Naraindas Pitambardas, Arjunlal, Bhagawandas, Banshidhar Gourishankar, M/s. Indermal Biswanath, which have subsequently been found to be not genuine.
Therefore, I have reasons to believe that the loans in question are not genuine and these are the assessee's concealed income which has escaped assessment for the assessee's failure to disclose truly and fully all material facts that were necessary for its original assessment.”
4. The above statement is a cyclostyled one excepting that the names of the creditors mentioned in the statement are typewritten. One of the ground's which weighed with the learned judge in making the earlier rule absolute was that cyclostyled reasons were recorded by the Income-tax Officer. The rule out of which this appeal arises was made absolute by the learned judge on the same ground.
5. Section 147 of the Income-tax Act, 1961, inter alia, provides; as follows:
“147. If—
(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year,
he may, subject to the provisions of sections 148 to 153, assessor reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned…….”
6. Section 148 runs as follows:
“(1) Before making the assessment, reassessment or recomputation) under section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice; issued under that sub-section.
(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.”
7. The principles underlying section 147 are now well-settled. The words “if the Income-tax Officer has reason to believe” suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds, and that the Income-tax Officer may act under this section on direct or circumstantial evidence but not on mere suspicion, gossip or rumour— Sheo Nath Singh v. Appellate Assistant Commissioner, [1971] 82 ITR 147 (SC), Lakshman Shenoy v. Income-tax Officer, [1958] 34 ITR 275 (SC). The assessee must disclose fully and truly all material primary facts, and if any such fact is suppressed, misrepresented or falsified, reassessment will the justified— Malegaon Electricity Co. Ltd. v. Commissioner of Income-tax, [1970] 78 ITR 466 (SC), Commissioner of Income-tax v. Chidambaram Chettiar, [1971] 80 ITR 467 (SC) and Commissioner of Income-tax v. Gillanders Arbuthnot & Co., [1973] 87 ITR 407 (SC).
8. Keeping in view the above principles as laid down by the Supreme Court, we may now proceed to consider whether there were materials before the Income-tax Officer justifying the reopening of the assessment for the assessment year 1962-63. In paragraph 7 of the application for stay filed by the appellants in this court, it has been stated as follows:
“7. That subsequently during the course of the assessment for the assessment year 1964-65, completed on 28th August, 1968, and also for the assessment year 1965-66, it was found by the Income-tax Officer concerned that the assessee-firm introduced cash credits in its books of accounts in the form of hundi loans. Enquiries in the matter revealed that the said hundi loans were not genuine inasmuch as no confirmation letter was issued by the parties advancing the loans nor any other evidence about the said loan transactions were furnished and produced before the assessing Income-tax Officer.”
9. Paragraph 8 of the said application states as follows:
“8. That as after the completion of the assessment for the year 1962-63, and during the course of the assessment for the years 1964-65 and 1965-66, it came to light that the hundi loans introduced in the year 1961-62 were not genuine and as the assessee failed to disclose truly and fully all material facts that were necessary for its original assessment for the year 1962-63, a proposal was sent under section 147(a) to the Commissioner of Income-tax, West Bengal, for his approval for initiation of the appropriate proceedings in the matter. The said Commissioner of Income-tax gave his approval on 20th March, 1971, and on that very day, the’ notice under section 148 of the Income-tax Act, 1961, was issued calling upon the assessee to file its return in respect of the said assessment year for the purpose of reassessment on the ground of reasonable belief that the income of the assessee-firm had escaped assessment.”
10. It is clear from paragraphs 7 and 8 that the Income-tax Officer issuing the notice under section 148 relied on the assessment order for the assessment year 1964-65. It may be stated in this connection that the cash credits entered in the books of accounts of the assessee in the form of hundi loans for all these assessment years, namely, 1961-62, 1962-63 and 1964-65, were received from the identical firms. A copy of the assessment order for the assessment year 1964-65 has been produced before us by the respondent. In paragraph 6 of the assessment order, the Income-tax Officer concerned observed as follows:
“6. Scrutiny of the assessment records of almost all the hundi merchants from whom the assessee has alleged to have taken loans show that they have no capital worth the name and no means from which the could possibly have advanced huge amounts as loans to different parties. None of them had discounting facilities with banks. They never maintained any accounts, not even a hundi purchase and sale register, without which it is unbelievable that they could do extensive business in hundis. None of them even show any closing stock of hundis. The returns filed were the basis of the estimated income alleging that they earned certain margin being the difference between the interest received on purchase of hundis and interest paid on sale of hundis. These drawee bankers thus purported to have sold all the hundis to third parties.”
11. The above statement in the assessment order related to hundi merchants from whom the respondent was alleged to have taken loans in the assessment year 1962-63. Further, by the said assessment order, the Income-tax Officer found that the discharged hundis produced by the respondent for the assessment year 1964-65 were fictitious, false and collusive. The Income-tax Officer also recorded the names of some hundi merchants who were doing name-lending business. The names of such merchants as mentioned in the said order of the Income-tax Officer also include the names of Kanailal Ramchand and Bhagawandas Arjundas. In the reasons recorded by the Income-tax Officer referred to above, the said two names also appear.
12. It was contended on behalf of the appellants that, in view of the said assessment order and reasons recorded therein, the Income-tax Officer had ample justification for his belief that the income for the assessment year in, question had escaped assessment. On the other hand, it was contended on behalf of the respondent that there was no material before the Income-tax Officer for the formation of a reasonable belief. In any event, it was submitted, the belief that was formed by the Income-tax Officer was not an honest belief but it was a mere suspicion. Further, it was contended that the assessee had filed all documents including the receipts, balance-sheet, profit and loss account, etc., and the Income-tax Officer could have with due diligence found out the genuineness or otherwise of the hundi loans. Because the hundi loans were not believed and accepted by another Income-tax Officer to be genuine, the Income-tax Officer issuing the notice under section 148 was not justified in relying on the opinion of the other Income-tax Officer which was merely a change of opinion.
13. Strong reliance was placed on behalf of the respondent on the decision of the Supreme Court in Income-tax Officer v. Lakhmani Mewal Das, [1976] 1103 ITR 437 (SC), which affirmed the majority decision of a Full Bench of this court reported in [1975] 99 ITR 296 (Cal) [FB]. The facts of that case are that the original assessment for the assessment year 1958-59 was made cm the respondent before the Supreme Court, after allowing deduction of a sum of Rs. 10,491 towards the interest to certain creditors. Thereafter, by a notice under section 148 of the Income-tax Act, 1961, dated March 8, 1967, and served on the respondent on March 14, 1967, the Income-tax Officer sought to reopen the assessment. In his report made in February, 1967, to the Commissioner for reopening the assessment for the assessment year 1958-59 after four years under section 147(a), two reasons were mentioned: (i) that Mohansing Kanayalal, who was shown to be one of the creditors of the assessee, had since confessed that he was doing only name-lending; and (ii) that Narayansing Nandalal, D.K Naraindas, Bhagawandas Shrichand, etc., whose names too were mentioned in the list of the creditors of the assessee, were known name-lenders. This court, by a majority, held that the pre-conditions for the exercise of jurisdiction under section 147 were not fulfilled. So far as the second ground was concerned, neither the majority of the judges of the Full Bench nor the learned judge who was in the Minority relied upon that ground. So far as the first ground was concerned, the majority of the judges also rejected the same. The Supreme Court, while affirming the majority view, observed as follows ([1976] 103 ITR 437, 447, 448 (SC)):
“This ground relates to Mohansing Kanayalal, against whose name there was an entry about the payment of Rs. 74, annas 3 as interest in the books of the assessee, having made a confession that he was doing only name-lending. There is nothing to show that the above confession related to a loan to the assessee and not to someone else, much less to the loan of Rs. 2,500 which was shown to have been advanced by that person to the assessee-respondent. There is also no indication as to when that confession was made and whether it relates to the period from April 1, 1957, to; March 31, 1958, which is the subject-matter of the assessment sought to be reopened. The report was made on February 13, 1967. In the absence of the date of the alleged confession, it would not be unreasonable to assume that the confession was made a few weeks or months before the report. To infer from that confession that it relates to the period from April 1, 1957, to March 31, 1958, and that it pertains to the loan shown to have been advanced to the assessee, in our opinion, would be rather far-fetched.”
14. Further, the Supreme Court observed:
“As stated earlier, the reasons for the formation of the belief must have a rational connection with 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 that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts.”
15. In the instant case before us, the assessment order and the findings made therein for the year 1964-65, upon which the Income-tax Officer issuing the notice under section 148 has placed reliance as materials for the formation of his belief, are not based merely on the confession of the hundi merchants that they were doing only name-lending. The hundi loans for the assessment years 1961-62 and 1964-65 were found to be bogus. We have already quoted the observation of the Income-tax Officer in the assessment order for the year 1964-65. The Income-tax Officer had scrutinised the assessment records of the hundi merchants and found that they were only doing name-lending inasmuch as they had no capital worth the name and no means to advance huge amounts as loans. Thus, it is apparent that the Income-tax Officer did not rely only on the confession made by the hundi merchants, but the findings were made by him on the scrutiny of their assessment records. The findings of the Income-tax Officer related to the assessment proceeding of the respondent for the assessment year 1964-65. In our view, the assessment order and the findings and observations of the Income-tax Officer are materials which furnished the Income-tax Officer with reasons to believe that the income of the respondent for the assessment year 1962-63 had escaped assessment. In our opinion, there was a direct nexus or live-link between the assessment order for the year 1964-65, and the formation of the belief by the Income-tax Officer that there had been escapement of the income of the respondent from assessment for the year in question because of his failure to disclose fully and truly all material facts. Lakhmani's case, [1976] 103 ITR. 437 (SC), referred to above, does not help the respondent.
16. It is also difficult for us to accept the contention of the respondent that the belief which was formed by the Income-tax Officer in issuing the notice under section 148 was not an honest belief, but it was a mere suspicion. If the materials upon which the Income-tax Officer had placed reliance for the purpose of issuing the notice under section 148 are considered to be insufficient in the formation of a reasonable belief, we do not know upon what materials such a belief can be formed. Where there is no nexus or live-link between the materials available to the Income-tax Officer and the assessment which is sought to be reopened, issuance of a notice under section 148 may be said to be on the basis of a mere suspicion. In the instant case, the materials, namely, the findings made in the assessment proceeding for the assessment year 1964-65 relate to the respondent in respect of the hundi loans from identical hundi merchants. In such a case, it is difficult to hold that the notice was issued merely on suspicion. In the case of Chhugamal Rajpal v. S.P Chaliha, [1971] 79 ITR 603 (SC), the facts were different. In that case, the Income-tax Officer relied on certain communications received by him from the Commissioner of Income-tax from which it appeared that the creditors were name-lenders. The distinction between Chhugamal's case, [1971] 79 ITR 603 (SC) and the present one before us is that, while in the former it was not found that the creditors were name-lenders in respect of loan transactions with the assessee, in the latter it was so found. It has been already stated that the hundi merchants from whom the respondent was alleged to have taken loans were found to be name-lenders relating to the alleged loan transactions between them and the respondent.
17. It was contended on behalf of the respondent that when he had disclosed the primary facts and the Income-tax Officer, after taking a particular view of the said primary facts, made the assessment, he could not, on a mere change of opinion on those facts, reopen the assessment. In Commissioner of Income-tax v. Bhanji Lavji, [1971] 79 ITR 582 (SC), on which reliance was placed on behalf of the respondent, it was held by the Supreme Court that when the primary facts necessary for assessment were fully and truly disclosed to the Income-tax Officer at the stage of the original assessment proceedings he was not entitled, on a change of opinion, to reopen the assessment. The question is whether the respondent had disclosed fully and truly the primary facts. It is the case of the respondent that he produced all documents before the Income-tax Officer including the discharged hundis. When a person is said to have disclosed a fact, it means that he has disclosed a true fact. Similarly, when a document is said to have been disclosed, it implies that the document is a genuine one. To place before the Income-tax Officer any fact which is untrue or any document which is not genuine, is not to disclose a primary fact. If the hundi loans which were disclosed by the respondent to the Income-tax Officer as primary facts are found to be not genuine, in our view, there was no disclosure of primary facts. The Income-tax Officer reasonably believes that the hundi loans disclosed by the respondent at the time of the original assessment are bogus transactions. It is true that at the time of the original assessment the Income-tax Officer did not doubt the genuineness of the said transactions, but if, subsequently, he has reasons to believe that the transactions are not genuine at all, it is difficult to say that it is a mere change of opinion. A change of opinion by the Income-tax Officer contemplates formation of two different opinions or to make two different inferences at two stages on the same set of primary facts which are true. In these circumstances, we are unable to accept the contention of the respondent that the formation of the belief by the Income-tax Officer is based on a mere change of opinion.
18. The case of Commissioner Of Income Tax, Calcutta v. Burlop Dealers Ltd.† , [1971] 79 ITR 609 (SC) does not also help the respondent. It that case, it has been held that if the assessee had disclosed primary facts relevant to the assessment, he is under no obligation to assist the Income-tax Officer about the inference which the Income-tax Officer may make from those facts. From the discussion made above, it is clear that the reason of the Income-tax Officer for issuing the notice under section 148 is that the respondent did not disclose the primary facts. The condition for the application of the above principle laid down by the Supreme Court in Burlop Dealer's case, [1971] 79 ITR 609 (SC) is disclosure of primary facts relevant to the assessment which necessarily means disclosure of true primary facts. If such facts are disclosed then the assessee is not required to assist the Income-tax Officer in making his inference from the same. But the condition precedent is the disclosure of true primary facts. The Income-tax Officer in the present case has reason to believe that such facts were not disclosed by the assessee at the time of the original assessment. In this connection, we may refer to a Bench decision of the Gauhati High Court in Bhadarmal Hazarimal v. Income-Tax Officer, “A” Ward, Jorhat., [1975] 100 ITR 159 (Gauhati). It has been observed in that case that if, on subsequent enquiry or investigation, the Income-tax Officer has reason to believe that the material facts or primary facts disclosed by the assessee were false or non-existent, then the Income-tax Officer gets jurisdiction to issue a notice under section 148. Further, it has been observed that the words “to disclose fully and truly all material facts” cannot mean to disclose some material facts which are false or non-existent. Most respectfully, we agree with the said observation of the Gauhati High Court.
19. We may now consider the ground on which the rule nisi was made absolute by the learned judge. The ground is that the reasons recorded by the Income-tax Officer are cyclostyled. Obviously, the learned judge seemed to think that the Income-tax Officer merely signed a cyclostyled sheet of paper containing the reasons without any application of mind. In our opinion, it cannot be laid down as a general proposition of law that whenever the reasons are cyclostyled, it will be presumed that there was non-application of the mind of the Income-tax Officer whose reasons they purport to be. In our view, the determination of this question whether or not the Income-tax Officer has applied his mind, will depend on the scrutiny of the records and the existence of the materials forming the basis of the reasons. It has been earlier noticed that the names of the hundi merchants appearing in the statement of the Income-tax Officer containing his reasons are not cyclostyled, but they are type-written. Of the eighteen hundi merchants alleged to have advanced hundi loans to the Respondent, the names of only six have been mentioned in the statement of reasons of the Income-tax Officer. Moreover, it has been found by us that the Income-tax Officer had relevant materials before him justifying the issuance of the notice under section 148. In these circumstances, in our opinion, there is no scope for presuming non-application of mind by the Income-tax Officer before he assigned the reasons in support of his proposal to, reopen the assessment. It appears from the Bench decision in Income-tax Officer v. Mahadeo Lal Tulsyan, [1977] 110 ITR 786 (Cal) [DB] disposing of the appeal of the respondent from the judgment of the learned judge in the said C.R No. 607(w) of 1971 [Mahadeo Lal Tulsyan v. Income-tax Officer, [1977] 110 ITR 637 (Cal)] that a similar contention was made on behalf of the respondent, but Anil K. Sen J., who delivered the judgment of the Bench, could not accept the contention of the respondent that because the reasons were cyclostyled, it should be held that the Income-tax Officer acted mechanically and did not apply his mind. Most respectful, we agree with his Lordship. The contention of the respondent, therefore, fails.
20. Next, it was contended on behalf of the respondent that the Additional Commissioner of Income-tax did not at all apply his mind when he endorsed his satisfaction that it was a fit case for the issue of a notice under section 148. It appears that the records were before the Additional Commissioner along with the reasons of the Income-tax Officer. It would be mere speculation to hold that the Commissioner did not apply his mind before he granted permission to the Income-tax Officer to issue a notice under section 148. This contention of the respondent cannot be accepted. Lastly, it was argued on behalf of the respondent that under section 151(2) of the Income-tax Act, 1961, it was the Commissioner who could grant permission for the issue of a notice under section 148, but in the instant case, the permission was granted by the Additional Commissioner of Income-tax and, accordingly, the notice was invalid. This argument is devoid of any merit, for section 2(16) of the Income-tax Act, 1961, defines the word “Commissioner” as meaning a person appointed to be a Commissioner of Income-tax under sub-section (1) of section 117, and includes a person appointed to be an Additional Commissioner of Income-tax under that sub-section. No other point has been argued on behalf of either party.
21. In view of the discussion made above, we set aside the judgment of the learned trial judge and discharge the rule. The appeal is allowed, but there will be no order as to costs.
22. Let the operation of this judgment remain stayed for a period of six weeks from date, as prayed for by the learned advocate for the respondent so as to enable the respondent to prefer an appeal to the Supreme Court.
Sharma, J.:— I agree.