The Judgment of the Court was delivered by

B. Prasad, J.:— The petitioner is a proprietorship concern and is engaged in the business of manufacturing tubular trusses for auction platform on contract basis. The petitioner filed a return of income for the assessment year 1995-96. The return of the petitioner was processed under section 143(1)(a) of the Income-tax Act (hereinafter referred to as “the Act”) and refund was granted to the petitioner. The petitioner has been served with a notice under section 148 of the Act for the assessment year 1995-96. In the present writ petition, the petitioner is impugning the notice issued under section 148 of the Act.

2. The petitioner states that respondent No. 4 while issuing notice has claimed to have reason to believe that income of the petitioner for the assessment year 1995-96 has escaped assessment within the meaning of section 147 of the Act. In the notice, it is stated that the respondent proposes to reassess the petitioner. The petitioner was required to file a return within 31 days from the date of service of the notice under section 148 of the Act. The petitioner submitted annexure P3 whereby he demanded copies of certain documents. In his reply, it was also stated by the petitioner that the original return already filed by the petitioner may be considered as return in response to the notice under section 148 dated May 15, 2001. The petitioner prayed for supply of copy of the reasons recorded in support of issuance of notice. The request of the petitioner was accepted and the authorised representative of the petitioner was permitted to go through the reasons recorded by respondent No. 4. The petitioner impugns the notice stating, inter alia, on the ground that the Assessing Officer has been vested with the power under section 147 of the Act to issue a notice, only if he has reason to believe that income has escaped assessment. In fact, there is total absence of reasons. Therefore, no proceedings could be taken up under section 147 of the Act and consequently no notice under section 148 of the Act was liable to be issued. The petitioner has submitted that reasons supplied to the petitioner show that there are no reasons to believe but they are only reasons to suspect. No notice can be issued on the basis of reasons to suspect. The expression “reason to believe” postulates an existence of reasons to believe. Mere subjective satisfaction of the Assessing Officer will not be sufficient to issue notice. The petitioner further claimed that there must be a rational and intelligible nexus between the reasons recorded and beliefs. The stand of the petitioner is that there is no direct material available in support of the reasons supplied to the petitioner which would justify that there existed reasons to believe to issue a notice under section 148 of the Act. The petitioner has submitted that there was no reason to issue notice. The notice issuing authority has assumed that in the contract business, the net profit ranges from 8 per cent, to 12 per cent. The petitioner has detailed a chart wherein he has shown that his net profit rate is below 3 per cent, and up to 0.67 per cent, has been accepted by the Department. The range of profit suggested by the Assessing Officer shows that the respondent had only reasons to suspect. There was no basis where it can be concluded that the respondent had reason to believe to issue notice under section 148 of the Act.

3. The respondents have put in appearance and had contested the writ petition. The stand of the respondents is that the petitioner has only come against notice under section 148 of the Act. The reassessment has not been done so far. If he has any grievance against the proposed reassessment, then he can contest the same before the departmental authorities. The respondents have further asserted that the Assessing Officer had reason to believe that income has escaped assessment and it is after recording of reasons, notice has been given.

4. The reasons recorded are given in annexure Rl. The respondents have stressed that earlier assessment was completed under section 143(1)(a) of the Act. In such cases, no reasons are recorded because the return filed by the assessee is accepted. As and when, an assessment is processed under section 143(3) of the Act, reasons are recorded. Since no reasons were recorded in the first assessment, therefore, it cannot be said that notice has been issued only after change of opinion of the assessing authority.

5. The reasons assigned and contained in annexure Rl are sufficient pointer to exclude arbitrariness. The Department is processing returns of such businessmen who are engaged in similar trade. The observation of the departmental authority is that 8 per cent, to 12 per cent, profit is generally found in such business. This practical view of the assessing authority is not without foundation. Section 44AD of the Act supplies a presumption clause and statutory presumption is made available to the respondent authorities. It cannot therefore be said that notice is based on suspicion or gossip. May be such presumption is provided for turnover up to Rs. 40 lakhs. But as and when, there is a turnover exceeding Rs. 40 lakhs, it cannot be expected that profit would show a diminishing trend. The respondents have contested the stand of the petitioner that since his stand was accepted in the past, therefore, it should be accepted in the present also. The assessee cannot be permitted to say so when his falsehood comes to the ground that “you accept my lie, now your hands are tied and you can do nothing”, and therefore, it has been contended that reassessment notice has rightly been issued.

6. Learned counsel for the petitioner supporting his case argued that the Assessing Officer had no reasons to believe to initiate proceedings against him. There was no reason to believe to arrive at a conclusion that there had been an escapement of income. Learned counsel has placed reliance on the judgment of the Supreme Court in the case of Sheo Nath Singh v. AAC of I.T, [1971] 82 ITR 147, wherein it has been held as under (page 153):

“In our judgment, the law laid down by this court in the above case is fully applicable to the facts of the present case. There can be no manner of doubt that the words ‘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 on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction, if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court.”

7. Learned counsel has further supported his case by relying upon the decision of the hon'ble Supreme Court in the case of ITO v. Laksmani Mewal Das [1976] 103 ITR 437 and has stressed that the expression “reason to believe” does not mean a reason based on purely subjective satisfaction on the part of Income-tax Officer. This expression also does not mean reason to suspect. The reasons should be real and convincing. He has also placed reliance on the judgment of the hon'ble Supreme Court in the case of Ganga Saran and Sons (P.) Ltd. v. ITO, [1981] 130 ITR 1, and has emphasized that the requirement of section 147 of the Act has not been satisfied. It may however be mentioned that this case relates to unamended section 147 of the Act.

8. Learned counsel has further placed reliance on the decision of this court in the case of Tara Chand Mundhra v. Union of India, [2000] 245 ITR 187 and has stressed that the material available on record relied upon by the Department was held to be not a sufficient material.

9. Learned counsel has also placed reliance on the judgment of the Gujarat High Court in the case of Vxl India Ltd. v. Assistant Commissioners Income-Tax., [1995] 215 ITR 295 and has stressed that the Assessing Officer was required to disclose the process of reasoning for issuing a notice. The grounds supplied lack reasoning and that being the position, the notice is bad in the eye of law.

10. Per contra, learned counsel for the Revenue has relied on the judgment of the hon'ble Supreme Court in the case of Pool Chand Bajrang Lal v. ITO, [1993] 203 ITR 456, wherein it has been held as under (headnote):

“Since the belief is that of the Income-tax Officer, sufficiency of the reasons for forming the belief is not for the court to judge, but it is open to an assessee to establish that there in fact existed no belief or that the belief was not a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection with or a live link for the formation of the requisite belief.

It would be immaterial whether the Income-tax Officer, at the time of making the original assessment, could or could not have found by further enquiry or investigation whether the transaction was genuine or not if, on the basis of subsequent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in section 147(a) that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment….”

11. Learned counsel further placed reliance on the judgment of the Allahabad High Court in the case of K.M Bansal v. CIT, [1992] 195 ITR 247, wherein it has been held as under (headnote):

“(iv) All the issues arising in the reassessment proceedings including the issue relating to the validity of reopening of assessment proceedings have to be gone into at the same time. Normally speaking, there ought not to be any piecemeal decision of issues. If, however, it turns out in a case that no reasons whatsoever were recorded under section 148(2), it may be a case where proceedings can be terminated on that question itself without going into the merits of the case.

The High Court in a writ petition challenging reassessment does not sit in judgment over the adequacy or sufficiency of reasons recorded. This is a matter to be gone into in reassessment proceedings. The High Court will interfere only in cases where no reasons are recorded or where the reasons recorded are ex facie irrelevant.”

12. Learned counsel has further placed reliance on the Division Bench decision of this court in the case of M/S. Rajan Products v. U.O.I & Anr., [2001] 247 ITR 101, wherein it has been held as under (page 102):

“It is not the case of the appellant herein that no sanction has been obtained as contemplated under section 151 of the Act. The Income-tax Officer has reason to believe that there is escaped assessment and we have reason to believe that he could exercise his jurisdiction under section 147 of the Act. We are unable to accept the arguments advanced by learned counsel for the appellant on sections 147 and 148 of the Act. If such contention is accepted, then reopening of the assessment will be impossible and the income which has escaped assessment cannot be taxed in any eventuality. In regard to the request made by the assessee asking for reasons for issuance of notice under section 147, we are of the opinion that the appellant has no legal right to ask for reasons and the same in our opinion need not to be communicated. The notice was issued under section 148 of the Act, and, therefore, the appellant ought to have filed the reply immediately. In our opinion, the appellant has wrongly invoked the jurisdiction of this court. As already noticed, the writ petition is directed against the notice under section 147 of the Income-tax Act. This apart, the appellant has an alternative remedy of filing appropriate appeal before the appropriate authority provided under the Income-tax Act, 1961. In our view, there is no cause of action which has arisen for the appellant-petitioner for filing a writ petition and further appeal.

Since the writ petition has been filed against the notice of reassessment, we have no other option except to dismiss the appeal as not maintainable. However, the dismissal of the writ appeal will not stand in the way of the appellant's raising of legal contention by way of reply to the notice under section 147 of the Act along with the return if the return has not already been filed. On receipt of reply to the show cause notice issued under section 147, the Income-tax Officer shall decide the objections filed legally and factually and then pass final orders in accordance with law after affording an opportunity of hearing either to the appellant or to their authorised representative within three months from the date of filing objections regarding reassessment proceedings.”

13. I have considered the rival submissions and have given my thoughtful considerations.

14. The courts have been slow to interfere at the stage of notice. It is only, where the notice is found to be based on no relevant material, the courts have exercised jurisdiction, at the notice stage. The Supreme Court while dealing with such issue in Calcutta Discount Co. Ltd. v. ITO, [1961] 41 ITR 191 has observed that as and when notice is issued “all that is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some nondisclosure of material facts.” The hon'ble Supreme Court further observed that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of “under assessment” that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice but if there was no non-disclosure of material fact and there was no material before the assessing authority, then there was no material before the Income-tax Officer to assume that there was no material to deduce that there was a non-disclosure. Thus, hon'ble Supreme Court has interfered at the stage of notice.

15. The basic argument of learned counsel for the petitioner proceeds on the premise that mere change of opinion is not sufficient to infer that a case for reopening is made out. Learned counsel for the petitioner has emphasized that material should be available and relevant. The reasons should be legitimate to generate belief and they should not be merely reasons to suspect. He has supported his assertion on the basis of the aforesaid court decisions.

16. In the instant case, what comes to the fore is that earlier the assessment was done under section 143(1)(a), wherein no reasoning was given. Therefore, there was no occasion for the respondent-Department to express any opinion. It cannot be said thus, that while issuing the impugned notice, there was a change of opinion involved. The argument of learned counsel for the petitioner that a mere change of opinion is not sufficient to issue notice has no relevancy in the present matter. Had the first assessment been under section 143(3), the requirement of going into the niceties of the reasons would have been there but since the assessment was not done under section 143(3) and was only under section 143(1)(a), therefore, it would not be necessary to go for the exercise of assessing reasons, because there are none to look at.

17. Learned counsel for the petitioner has stressed that notice should not be based on rumour or gossip. The net profit specified in the notice to range between 8 per cent, and 12 per cent, in the contract business can only be said to be a gossip and rumour. While laying stress on the question of rumour being involved in the case, learned counsel for the petitioner has lost sight of the provisions of section 44AD of the Act wherein a presumption has been provided to be drawn, may be for a case involving a turnover of Rs. 40 lakhs. In the instant case, the turnover is above Rs. 40 lakhs. But then it cannot be said that as and when the turnover increases, the net profit decreases. If the presumption of net profit is statutorily provided, then it cannot be said that the opinion of the Assessing Officer is not rational. It is at least in the line of a statutory provision. If the Assessing Officer has stated in the reasons that the profit ranges from 8 per cent, to 12 per cent., then it is not gossip but is in the line of statutory provision. The practical experience of the Assessing Officer while conducting assessment of similarly situated businessmen also gives him reasons to believe. Thus, it cannot be said that it is a case of recording of reason on the basis of rumour and gossip. When the Legislature has thought of providing such presumption, it cannot be said that this part of the reasons can be said to be based on reasons to suspect. In this light, this argument of learned counsel for the petitioner has no relevance. The Division Bench of this court in the case of Rajan Products, [2001] 247 ITR 101 has clearly laid down that in such matters, the petitioner should pursue remedies at the level of the Department. Rushing to this court by way of a writ petition has not been appreciated. In view of the law laid down by the Division Bench of this court, the argument of learned counsel for the petitioner is without foundation. The other citations relied upon by learned counsel for the petitioner also cannot help the petitioner because the reasons expressed appear to be legitimate which also cannot be said to be irrelevant. As such, it cannot be said that notice issued to the petitioner is entirely without foundation and falls within the parameters described by the hon'ble Supreme Court in Calcutta Discount's case, [1961] 41 ITR 191.

18. That being the position, no interference is called for. The writ petition having no force is dismissed.