N.K Sud, J.:— Challenge in this writ petition is to the validity of notice under section 148 of the Income-tax Act, 1961 (for short “the Act”), dated March 31, 2003, by which proceedings under section 147 of the Act have been initiated to reassess the income of the petitioner which is alleged to have escaped assessment.

2. Before adverting to the dispute, the relevant facts may first be noticed. The petitioner claims to be carrying on trading business. He filed his return of income for the assessment year 1996-97 on March 31, 1998, declaring an income of Rs. 51,850. In the documents accompanying the return, he had disclosed that he had earned long-term capital gains of Rs. 1,93,492 on sale of 5,000 shares of Nilamber Holdings Ltd. These shares were shown to have been purchased through M/s. Maheshwari Sons on March 24, 1994, for Rs. 17,750. The sale was also shown to have been made through the same party on May 25, 1995, for Rs. 2,12,750. The capital gain was computed by adopting the indexed cost of shares at Rs. 19,258. Income from capital gains was claimed to be exempt under section 54F of the Act, on account of the same having been invested in the construction of a residential house. The return stood accepted as no assessment under section 143(3) of the Act was made. The petitioner, thereafter, received the impugned notice under section 148 of the Act dated March 31, 2003, wherein the Assessing Officer claimed that he had reason to believe that the petitioner's income chargeable to tax for the assessment year 1996-97 had escaped assessment within the meaning of section 147 of the Act and, accordingly, he proposed to reassess the petitioner's income for the said assessment year. For this purpose, the petitioner was required to file his return within 30 days from the date of service of the notice. In response to this notice, the petitioner filed his return on April 30, 2003, repeating the same income as had been shown in the original return filed on March 31, 1998. The petitioner, thereafter, filed an application for obtaining a copy of the reasons recorded by the Assessing Officer for issuing the notice under section 148 of the Act. The same were duly supplied to him. A copy of the same has been filed as annexure P6 with the writ petition.

3. Mr. P.C Jain, learned counsel for the petitioner, contended that the asses-see had disclosed all the material facts necessary for his assessment in the original return filed on March 31, 1998, and the reassessment was being proposed on the basis of a reappraisal of the same material. Thus, it was claimed that it was merely a case of change of opinion which could not be a valid ground for initiation of proceedings under section 147 of the Act. He further submitted that the proceedings had been initiated on the basis of the investigation report of the DDI (Investigation), Gurgaon. This report, according to him, did not lead to an inference that income of the petitioner for the assessment year 1996-97 had escaped assessment and that the escapement was attributable to failure on the part of the petitioner to make a full and true disclosure of the material facts necessary for his assessment. According to him, the material before the Assessing Officer must have a rational connection with or relevant bearing on the formation of the belief about escapement of income. In other words, he pleaded that there has to 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 an escapement of income of the asses-see for a particular assessment year. Learned counsel pointed out that the statements of Shankar Hari Maheshwari, the proprietor of M/s. Maheshwari Sons, and that of Shri Parveen Mittal, chartered accountant, on which the Teport of the DDI (Investigation) is based, are totally general in nature and do not specifically brand the transactions with the petitioner as bogus. He further submitted that Shri Parveen Mittal in his statement had merely stated that “more than 95 per cent, of the transactions from account were pertaining to bogus capital gains of shares which were given to different clients/assessee”. Thus, it was pleaded, that even on the basis of this statement, it could not be concluded that all the transactions in the bank account of M/s. Maheshwari Sons were bogus. He, therefore, contended that it was incumbent upon the Assessing Officer to make further probe into the transactions relating to the petitioner before recording satisfaction that the same were bogus. In support of his contention, counsel placed reliance on the judgments of the Supreme Court in Chhugamal Rajpal v. S.P Chaliha, [1971] 79 ITR 603 and ITO v. Lakh-mani Mewal Das, [1976] 103 ITR 437. He also relied on the judgment of this court in CIT v. Narinder Nath Parveen Chand, [1975] 101 ITR 7.

4. We have heard counsel for the petitioner and have perused the relevant material.

5. Before issuing the impugned notice under section 148 of the Act, the Assessing Officer had recorded the following reasons, as required under subsection (2) of section 148 of the Act:

“Shri Pal Jain, S/o. Sh. Faquir Chand, 396, Karta Ram Street, Ludhiana, assessment year 1996-97.

As per the information available on record, the assessee had received an amount of Rs. 99,800 vide DD No. 195/203095 and deposited the same into its account No. 6927 maintained in Dena Bank, Chowk Mata Rani, Ludhiana. This DD was received by the assessee from Sh. Shankar Hari Maheshwari, proprietor M/s. Maheshwari Sons, M.B 15, Antriksh Bhawan, Kasturba Gandhi Marg, Delhi, against the cash payment of Rs. 99,800 and a commission of Rs. 4,990, i.e, at 5 per cent, of the amount of draft total Rs. 1,04,790 (99,800 + 4,990).

An investigation made by the DDI (Investigation), Gurgaon, revealed that such transactions shown as income from capital gains from the sale/proceed of shares are not genuine. Actually the assessee has simply taken an accommodation entry by way of cheque/draft by paying in cash the amount equal to the cheque of the sale proceeds of shares and certain amount of commission on a transaction.

In this case the assessee introduced its income from undisclosed sources through the bank draft entry and avoided payment of tax on this amount of Rs. 1,04,790.

In view of the above facts, I have reasons for belief that an income of Rs. 1,04,790 for the previous year 1995-96 relevant to the assessment year 1996-97 has escaped assessment.”

6. The scope of challenge to the jurisdiction of the Assessing Officer under section 148 of the Act has been explained by the apex court in the case of Lakhmani Mewal Das, [1976] 103 ITR 437, at page 445, as under:

“The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such nondisclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression ‘reason to believe’ does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason 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 formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law. (see observations of this court in the cases of Calcutta Discount Co. Ltd. v. IW, [1961] 41 ITR 191 (SC) and S. Narayanappa v. CIT, [1967] 63 ITR 219 (SC), while dealing with the corresponding provisions of the Indian Income-tax Act, 1922).” It has been correctly pointed out by learned counsel for the petitioner that for forming a valid reason to believe about the escapement of income, there has to be some material before the Assessing Officer having a rational connection or live nexus with the formation of such belief. It is on this touchstone that the validity of the initiation of proceedings under section 147 of the Act has to be adjudged.

7. It is true that the assessee had disclosed the transactions about the sale and purchase of shares through M/s. Maheshwari Sons in his original return filed on March 31, 1998. It is also not in dispute that the proprietor of M/s. Maheshwari Sons is Shankar Hari Maheshwari. It is again not in dispute that the transactions of sale and purchase of shares had been routed through current account number 8627 in the Punjab National Bank, Karol Bagh, Gurudwara Road, Delhi, standing in the name of M/s. Maheshwari Sons. During the investigation before the DDI (Investigation), Shankar Hari Maheshwari had totally disowned this account and had stated that if there was such an account, it was a farzi account. His response to questions Nos. 9, 10 and 11 was as under:

“Question 9: Have you ever had any kind of bank account in Delhi or not?

Answer: Yes, I have an account in the Bank of Baroda, Ashok Ali Road, Delhi. But the last five years no transaction has taken place from that account. This account is in the name of Maheshwari Sons with current account number 8813. I opened this account in 1989 the copy of which was attached with the income-tax return which was filed in Aligarh. Apart from this I have no account in any other bank in Delhi.

Question 10: Do you know about Hasija Gulati and Associates, 4/3-A 3, Chamber, Gali No. 4, Karol Bagh, Delhi or not?

Answer: I do not know anything about this party neither I am concerned with this party in anyway.

Question 11: According to my information you have a current account number 8627 in the Punjab National Bank, Karol Bagh, Gurudwara Road, Delhi, since 1994 in the name of Maheshwari Sons which is still operational and in which lot of money is deposited. What is say about this?

Answer: I have no bank account in the Punjab National Bank in Karol Bagh in Delhi. It might be possible that some one might have opened a farzi account in my name but I have no concern with it.”

8. From the categorical denial of Shankar Hari Maheshwari about having current account number 8627 in the Punjab National Bank, Delhi, a clear inference flows that the transactions routed through the said bank account in his name were not genuine. Thus, no fault can be found with the prima facie satisfaction recorded by the Assessing Officer on the basis of this denial that the transactions of sale and purchase of shares alleged to have been transacted through M/s. Maheshwari Sons in this account were not genuine. Thus, the disclosure of these transactions with the original return cannot be said to be disclosure of “true” facts of the case. The petitioner cannot derive any support from the statement of Shri Parveen Mittal, chartered accountant, as in the information supplied with the original return, the transactions had not been shown to have been entered into through him. Even otherwise, in the face of the total denial of account-holder Shankar Hari Maheshwari, his statement cannot carry much weight.

9. In Phool Chand Bajrang Lal v. ITO, [1993] 203 ITR 456 (SC), the validity of a notice under section 148 of the Act in somewhat similar circumstances, had come up for consideration. In that case, the assessee at Azamgarh had claimed that it had borrowed a loan from a Calcutta company in the year 1962. The loan was stated to have been repaid in cash in 1968, but the interest thereon was paid during the assessment years 1963-64 to 1968-69 by cheques or by bank drafts. In order to prove the loan transaction, the assessee produced a copy of account of the Calcutta company and also its confirmation letter. The Assessing Officer completed the assessment accepting the genuineness of the loan and allowed deduction of interest. Thereafter, upon inquiry, the Assessing Officer having jurisdiction to assess the Calcutta company informed the Assessing Officer at Azamgarh that the managing director of the company had made a confessional statement that the company was only a name lender and had never advanced any loans to any persons. On the basis of this letter, the Assessing Officer at Azamgarh issued notices to the assessee for reassessment under section 147 of the Act on the ground that income had escaped assessment to tax as a result of the failure of the assessee to fully and truly disclose the material facts. The assessee thereupon filed a writ petition challenging the validity of the notices on the ground that it had disclosed all material facts necessary for its assessment at the original stage itself and that the information received was wholly vague and had no live link or nexus with the satisfaction recorded in its case about the escapement of income. In that case also, the assessee had placed reliance on the earlier judgments of the apex court in Chhugamal Rajpal's case, [1971] 79 ITR 603 and Lakhmani Mewal Das case, [1976] 103 ITR 437. These contentions were repelled by the apex court (at page 473) as under:

“In the present case, as already noticed, the Income-tax Officer, Azamgarh, subsequent to the completion of the original assessment proceedings, on making an enquiry from the jurisdictional Income-tax Officer at Calcutta, learnt that the Calcutta company from whom the assessee claimed to have borrowed the loan of Rs. 50,000 in cash had not really lent any money but only its name to cover up a bogus transaction and, after recording his satisfaction as required by the provisions of section 147 of the Act, proposed to reopen the assessment proceedings. The present is thus not a case where the Income-tax Officer sought to draw any fresh inference which could have been raised at the time of the original assessment on the basis of the material placed before him by the assessee relating to the loan from the Calcutta company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of the original assessment is different from drawing a fresh inference from the same facts and material which were available with the Income-tax Officer at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where thetrans-action itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the ‘true’ and ‘full’ facts in the case and the Income-tax Officer would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness of the loan transaction but, in our opinion, his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the Income-tax Officer acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific.”

10. The apex court distinguished its judgment in Chhugamal Rajpal's case, [1971] 79 ITR 603 on the ground that reassessment proceedings in that case had been initiated on the basis of a “circular” issued from the office of the Commissioner of Income-tax, Bihar and Orissa, which stated that three persons named in that circular were merely name lenders and their transactions were bogus and proper investigation regarding the loans from such persons was necessary before accepting the returns. The apex court observed that such a circular “by itself, without any other material and investigation, could not afford any basis” for forming a reasonable belief that the assessee had not fully and truly disclosed all the relevant facts. As against such a general circular, the information received by the Assessing Officer in Phool Chand Bajrang Lal's case, [1993] 203 ITR 456 (SC) was specific and went to show that the Calcutta company was not a money lender. This information was held to be vastly different, both in content and character, from the circular in Chhugamal Rajpal's case, [1971] 79 ITR 603 (SC).

11. Similarly, the apex court distinguished the case of Lakhmani Mewal Das, [1976] 103 ITR 437 (SC) in which the proceedings had been initiated on the basis of a confessional statement by a creditor to the effect that he had only lent his name. The Supreme Court observed that there was nothing to show that the confession related to any loan advanced to the assessee or even the period during which name, and not loan, was lent. It was further observed that there was also no material to show that the confession made was in relation to the period which was the subject-matter of the assessment sought to be reopened. It was, under these circumstances, that the information received in Lakhmani Mewal Das's case, [1976] 103 ITR 437 (SC) was held to be vague, indefinite, remote and far-fetched.

12. However, in the present case, the proceedings have not been initiated on the basis of a general circular. It is on the basis of an inquiry conducted by the DDI (Investigation). Further, the statement of Shankar Hari Maheshwari cannot be said to be vague. He had clearly denied having any account in the Punjab National Bank, Karol Bagh, Delhi, and had further stated that if there was such an account, it might have been opened by someone farzi in his name with which he had no concern. In view of this categorical stand, it was not necessary for the Assessing Officer to further confront him with any specific transaction in the said account for recording a prima facie satisfaction about the escapement of income. Thus, according to us, the present case is fully covered by the ratio of the judgment of the apex court in Phool Chand Bajrang Lal's case, [1993] 203 ITR 456.

13. We may also mention that counsel for the petitioner had also made an attempt to show that the view taken by the apex court in Phool Chand Bajrang Lal's case, [1993] 203 ITR 456 was in conflict with its earlier view in Chhugamal Rajpal's case, [1971] 79 ITR 603 (SC). He, therefore, contended that since Chhugamal Rajpal's case, [1971] 79 ITR 603 (SC) was decided by a larger Bench of three judges, the ratio of Phool Chand Bajrang Lal's case, [1993] 203 ITR 456 (SC) be not applied.

14. There is no merit in this contention. As already noticed above, the Supreme Court in Phool Chand Bajrang Lal's case, [1993] 203 ITR 456 has clearly distinguished its judgment in Chhugamal Rajpal's case, [1971] 79 ITR 603 (SC).

15. The judgment of this court in Narinder Nath Parveen Chand's case, [1975] 101 ITR 7 is also clearly distinguishable as in that case also, the proceedings had been initiated on the basis of a circular letter issued by the Department.

16. In view of the above, we find no merit in this writ petition. The same is, accordingly, dismissed.

17. However before parting, we would like to make it clear that we have only rejected the prayer of the petitioner to quash the proceedings initiated under section 147 of the Act at the threshold itself. In view of the limited scope of interference by this court while exercising its extraordinary jurisdiction under article 226 of the Constitution of India, nothing observed herein shall be used against the assessee while dealing with the case on the merits by the Assessing Officer.

18. Order on miscellaneous petition: This application has been filed under section 151 of the Code of Civil Procedure for placing on record annexure P15.

19. It has been submitted in the application that annexure P 15 is the report of Deputy Director of Investigation, which was not supplied to the petitioner earlier. However, it has not been stated as to when this document was supplied to the petitioner nor has any evidence been produced to show that it had been supplied after the conclusion of the hearing of the case. It cannot, therefore, be entertained after the conclusion of hearing.

20. At any rate, annexure P15 merely gives a summary of the bank account. The counsel has referred to column No. 4 in which it has been mentioned that the bank account had been operated by Shankar Hari Maheshwari. However, the said Shankar Hari Maheshwari has categorically denied maintaining of this account and has clearly stated in his statement that if there is any such account it must be bogus. Thus, it is a disputed question of fact which can be resolved only on the basis of evidence to be led at the time of making the assessment.

21. We are not opining on the merits of the statement. We are only on the question as to whether the denial of Shankar Hari Maheshwari could lead to formation of a prima facie belief about escapement of income. We, accordingly, are of the view that the assessee cannot draw any support from this document for challenging the validity of the proceedings under section 147 of the Income-tax Act. Another grievance of the petitioner in this application is that the Assessing Officer is proceeding with the assessment proceedings without confronting it with the material in his possession. We have only dealt with the validity of initiation of proceedings under section 147 of the Act. It goes without saying that for the purpose of making the assessment, the Assessing Officer shall have to confront the petitioner with the entire material in his possession on the basis of which he proposes to make the additions.

22. With the above observations, the application stands disposed of. A copy of the order be given dasti on payment of usual charges.