ASSISTANT COMMISSIONER OF INCOME TAX versus RAJESH JHAVERI STOCK BROKERS PVT. LTD.

Citation: [2007] 7 S.C.R. 765 · Decided: 23-05-2007 · Supreme Court of India · Bench: ARIJIT PASAYAT · Disposal: Appeal(s) allowed

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Judgment (excerpt)

ASSIST ANT COMMISSIONER OF INCOME TAX 
v. 
RAJESH JHA VER! STOCK BROKERS PVT. LTD. 
MAY23, 2007 
[DR. ARIJIT PASAYAT AND D. K. JAIN, JJ.] 
l3 
; 
Income Tax Act, 196I: 
Section 147 (as it stood w.e.f 01.04.1989)-Income escaping c 
assessment-Reason to believe-Assessment year 2001-02-Assessee, a private 
limited company, filed its return declaring a total loss of a certain amount-
The said return was processed under S. 143(1) accepting the loss returned 
by the assessee-Subsequently, a notice under S. 148 was issued on the 
... 
ground that the claim of bad debts as expenditure was not acceptable-A 
return of income declaring the loss at the same figure, as declared in the D 
original return, was filed by the assessee under protest-A copy of the 
,\ 
reasons recorded was furnished by the Assessing Officer on the assessee 's 
request-The assessee raised various objections both on the jurisdiction and 
merits of the subject-matter recorded in the reasons-The Assessing Officer 
disposed of the objections holding that the initiation of reassessment 
proceedings was valid and that he had jurisdiction to undertake such an E 
exercise-Assessee challenged the notice under S. 148-The High Court 
allowed the writ petition-Correctness of-Held: if the Assessing Officer has ' 
cause or jurisdiction to know or suppose that income had escaped assessment, 
he can be said to have reason to believe that an income had escaped 
assessment-The expression 'reason to believe' cannot be read to mean that F 
,. 
the Assessing Officer should have finally ascertained the fact by legal evidence 
or conclusion-So long as the ingredients ofS. I47 are fulfilled, the Assessing 
Officer is free to initiate proceedings under S. 147-Hence, Assessing Officer 
I 
justified in reopening the assessment-High Court's judgment set aside. 
• 
Words & Phrases: 
G 
"Reason to believe '-Meaning of-ln the context of Section l 47 of the 
Income Tax Act, 1961. 
) 
The respondent, a private limited company, filed its return of income 
765 
H 
766 
SUPREME COURT REPORTS 
(2007) 7 S.C.R. 
A for the Assessment year 2001-02 declaring a total loss of a certain amount. 
B 
The said return was processed under Section 143(1) of the Income Tax Act, 
1961 accepting the loss returned by the respondent. 
Subsequently, a notice under Section 148 of the Act was issued on the 
ground that the claim of bad debts as expenditure was not acceptable. A return 
of income declaring the loss at the same figure, as declared in the original 
return, was filed by the respondent under protest. A copy of the reasons 
recorded was furnished by the appellant on the respondent's request. The 
respondent raised various objections both on the jurisdiction and merits of 
the subject-matter recorded in the reasons. The appellant disposed of the 
C objections holding that the initiation of reassessment proceedings was valid 
and that he had jurisdiction to undertake such an exercise. 
D 
The respondent filed a writ petition challenging the impugned notice 
under Section 148 of the Act before the High Court. The High Court allowed 
the writ petition following the decision in Adani 's case. Hence the appeal. 
Allowing the appeal, the Court 
HELD: I. Section 147 of the Income Tax Act, 1961 authorises and 
permits the Assessing Officer to assess or reassess income chargeable to 
tax if he has reason to believe that income for any assessment·year has 
E escaped assessment. The word "reason" in the phrase "reason to believe" 
would mean cause or jurisdiction. If the Assessing Officer has cause or 
justification to know or suppose that income had escaped assessment, he can 
be said to have reason to believe that an income had escaped assessment. The 
expression cannot be read to mean that the Assessing Officer should have 
finally ascertained the fact by legal evidence or conclusion. The function of 
F the Assessing Officer is to administer the statue with solicitude for the public 
exchequer with an inbuilt idea of fairness to taxpayers. 
(Para 161 (777-A, 8, CJ 
Adani Exports v. Deputy Commissioner of Income Tax (Assessment), 
(1999) 240 ITR 224 (Guj), Apogee International Ltd. v. Union of India, (1996) 
G 220 ITR 248 (Del), Central Provinces Manganese Ore Co. Ltd. v. ITO, (1991) 
191 ITR 662 (Del), ITO v. Selected Dalurband Coal Co. Pvt. ltd. (1996) 217 
ITR 597 SC and Raymond Woolen Mills ltd. v. ITO, (1999) 236 ITR 34 SC, \ 
referred to. 
H 
2. The scope and effect of Section 147 of the Act as substitute

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