INCOME TAX OFFICER, I WARD, DIST. VI, CALCUTTA & ORS. versus LAKHMANI MEWAL DAS

Citation: [1976] 3 S.C.R. 956 · Decided: 30-03-1976 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Dismissed

Cited by 4 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

956 
A 
INCOME TAX OFFICER, l WARD, DIST. VI, CALC.UTTA & ORS. 
B 
c 
D 
E 
F 
G 
H 
v. 
LAKHMANI MEW AL DAS 
March 30, 1976 
[H. R. KHAN"fA AND P. K. GOSWAMI, JJ.] 
/nconie Tax Act, 1961--,S. 148-Scope of-Words & Phrases-"Reason to 
believe" meaning of 'ratio11al nexus'-What postulates. 
Jn March 1967, a[ter obtaining the satisfaction of the Commissioner !he 
appel1ant issued a notice under s. 148 of the ln~o~e Tax Act. 1961 stating 
that he had reason to believe that the respondents income chargeable to t~ 
for the assessment year 1958-59 had escaped assessment. The respondent reph-
ed that the I.T.0. had no competence or jurisdiction to reopen the assessment 
under s. 147 of the Act on a mere change of opinion. 
Since there \vas no 
reply from the appellant, the respondent moved the High Cou!t for . a . w~it. 
The High Court held that the conditions precedent for the exercISe of 1un~d1c· -1 
tion by the Income Tax Officer were not fulfilled because the report subm1~ted 
by the Income Tax Officer to the Commissioner under s. 147(a) was defective. 
On appeal to this Court it was contended tha' the High c_;ourt was not right 
in holding that the Income Tax Officer"s report was defective. 
Dismissing the appeal, 
HELD : The High Court was right in holding that the material before the 
Income Tax Officer could not have led to the formation of the belief that the 
income of the assessee had escaped assessment because of his failure or omis-
sion to disclose fully and truly all material facts. 
[965Hl 
1. (a) The two conditions required to be satisfied before the Income Tax 
Officer issued a notice under s. 148 of the Income Tax Act are that he must 
have reason to believe (i) that the income chargeable to tax bad escaped 
assessment and (ii) that such income had escaped assessment by reason of the 
omission or failure on the part of assessee, to disclose fully and truly material 
facts necessary for assessment for that year. Both these conditions must co-
exist in order to confer jurisdiction on the Income Tax Officer. 
Further the 
Income Tax Officer should record his reasons before initiating proceedings 
under s. 148(2); before issuing the notice after the expiry of four years from 
the end of the relevant assessment year, the Commissioner should be satisfied 
on the reasons recorded by the Income Tax Officer that it was a fit case for 
the issue of such notice. 
[962C-Dl 
(b) The duty cast upon the assessee does not extend beyond making a 
true and full disclosure of the primary facts. It is then for the Income Tax 
Officer to draw the correct inference from the primary facts. 
Where his infer-
ence s'ubsequently appears to be erroneous, mere change of opinion with regard 
to that inference would not justify initiation of action for reopening the assess-
ment. 
[962F-G] 
· 
( c) The grounds or reasons leading to the formation of the belief under 
s. 147(a) must have a material bearing on the question of escaPement of 
income. 
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. While· the sufficiency of grounds which induce the 
Income 
Tax Officer to act is not justiciable, it is open to the assessee to contend that 
the Income Tax Officer ·did not hold the belief that there was such 
non-
~isclos1;1re. _The expression .. reason to believe" does not mean a purely subject-
ive satisfaction on the part of the Income-Tax Officer. 
It is open to the Court 
to examine whether the reasons for the formation of the belief have a rational 
connection with or relevant bearing on the formation of the belief arid are not 
extraneous or irrelevant for the purpose of the sectrion. 
[962H] _ 
I.T.O. v. L. M. DAS (Khanna, I.) 
957 
Chlrugamal Rajpal v. S. P. Chaliha 79 I.T.R. 603, Calcutta Discount Co. Lt~. 
A 
v. Income-Tax Officer, 41 I.T.R. 191 and S. Narayanappa & Ors. v. Commis-
sioner of Income Tax 63 I.T.R. 219 followed. 
~ ,,, 
In the instant case the grounds given by the Income Tax Officer for reopen-
ing the assessment were (i) that the three persons whose names were mentioned 
in the list of creditors, were known name lenders and (ii) that another person 
shown as a creditor of the assessee had since confessed that he was doing only 
name lending. 
The first ground mentioned by the Income Tax Officer could 
• 
not have led to the formation of the belief that the income of the respondent 
B 
had escaped assess

Excerpt shown. Read the full judgment & AI analysis in Lexace.