Income Tax Appellate Tribunal - Delhi
Income-Tax Officer vs Smt. Gurinder Kaur on 16 June, 2006
Equivalent citations: [2006]102ITD189(DELHI), [2007]288ITR207(DELHI), (2006)105TTJ(DELHI)198
ORDER
R.V. Easwar, Vice President
1. This appeal by the Department pertains to the assessment year 1993-94 and the only ground taken is as follows :
Based on the facts and circumstances of the case, ld. CIT(A) has erred in annulling the assessment order dated 28-3-2000 on the ground that the same is ab initio null and void although there were sufficient reasons to believe as recorded by the Assessing Officer that income has escaped assessment before issuing notice under Section 148 of Income-Tax Act.
2. The brief facts leading up to the appeal are these. The assessee is an individual. She filed her return of income declaring income of Rs. 5,25,050 on 30-6-1993 which was processed under Section 143(1)(a). The case was reopened on the ground that there was information that the assessee had made some payments for the purchase of a farm house which were not declared in the accounts. Notice was issued under Section 148 on 28-12-1995 but the proceedings were subsequently dropped on 24-10-1997.
3. Thereafter the assessment was reopened by issue of another notice under Section 148 on 5-2-1998 on the ground that the assessee had purchased a gift of Rs. 21 lakhs on 22-7-1992 from one J.S. Kochhar and Smt. Rubinder Kochhar which was arranged through one S.L. Batra, chartered accountant from an NRE account in Grindlays Bank, Connaught Place and another such account with the Bank of America, New Delhi, against payments made by the assessee in cash along with a premium. This information was received by the Assessing Officer from the Additional Director of Income-Tax (Investigation), Unit CIB (Central Information Bureau) by letter dated 16-12-1997. The DCIT, Range-11, by letter dated 24-12-1997 referred to the above letter from the CIB and directed the Assessing Officer to examine the issue and discuss it with him for further investigation. The Assessing Officer however proceeded to issue a notice under Section 148, as noted earlier, on 5-2-1998. The notice was not complied with. The Assessing Officer therefore proceeded to summon the assessee under Section 131 and recorded her statement on oath. She was asked to produce Kochhar from whom she had claimed to have received the gift out of love and affection. Apparently she was unable to do so and so the proceedings continued, in the course of which the assessee seems to have said that since she was away to Pakistan on a goodwill mission she did not receive the notice under Section 148; she however, stated that the return filed on 30-6-1993 may be taken as return filed in response to the notice. The Assessing Officer after making further enquiries, which need not be referred to now, came to the conclusion that the gift-theory was not acceptable. He noted that in the case of Sanjeet Batra, son of S.L. Batra, the Tribunal has, by order dated 7-8-1998 held that Kochhar did not have the financial capacity to gift monies to Sanjeet Batra. Relying on the same he held that in the present case also the gift was not proved. He therefore added the amount of Rs. 21 lakhs as the income of the assessee under Section 68 of the Act.
4. The assessee appealed to the CIT(A) and raised several grounds both against the jurisdiction of the Assessing Officer to reopen the assessment and on merits. The CIT(A) held that the reasons recorded by the Assessing Officer to reopen the assessment did not amount to "reason to believe" but merely amounted to "reason to suspect" that income chargeable to tax has escaped assessment, which was contrary to the judgment of the Supreme Court in the case of ITO v. Lakhmani Mewal Das . According to him, the Assessing Officer failed to appreciate that on the basis of the intimation received from the Addl. DIT, CIB, only further investigation could have been carried out and it could not be presumed that the gift made by J.S. Kochhar to the assessee was a bogus gift. He noted that in the list of 41 persons to whom Kochhar was supposed to have given gifts, the name of the assessee did not figure and therefore the Assessing Officer was not justified in presuming that Batra had arranged a bogus gift in favour of the assessee. According to the CIT(A), the suspicions of the investigation wing (the CIB) in this regard "cannot be regarded as the 'reason to believe' of the Assessing Officer that income has escaped assessment" and that it can only be regarded as "reason to suspect". In this view of the matter he annulled the reassessment holding it to be null and void. He did not decide the merits.
5. The department is in appeal to contend that the CIT(A) was wrong in holding that the Assessing Officer only had reason to suspect and not reason to believe that income chargeable to tax had escaped assessment. It is pointed out that there was reliable information received by the Assessing Officer from CIB of the department which contained a definite finding that the assessee had purchased the gift from Kochhar by making cash payment with a premium and this definite information certainly constituted material for the formation of the belief that income chargeable to tax had escaped assessment. It is vehemently contended that it is not a case of reason to suspect but was a case of reason to believe. It is submitted that at the stage of the formation of the belief on the basis of the material coming to the possession or knowledge of the Assessing Officer, it is only a prima facie belief which he is required to form and at that time he is not expected to make a cast-iron case for the department before issuing the notice under Section 148. It is submitted that there was no way the Assessing Officer could ignore the information given to him by CIB which was quite categorical and proceed to hold a further investigation before issuing the notice. In this connection, it is submitted that the letter dated 24-12-1997, written by the DCIT can only be taken as advisory in nature and that merely because the Assessing Officer did not follow the advice given in the letter, it cannot be said that he had no reason to believe that income chargeable to tax has escaped assessment. Reliance is also placed on the order of the Tribunal in the case of Sanjeet Batra {supra) in which the Tribunal has recorded a definite finding in para 26 of its order that the financial capacity of Kochhar has not been established. It is contended that all these circumstances taken together certainly enabled the Assessing Officer to form the belief, and not mere suspicion, that income chargeable to tax has escaped assessment. It was, therefore, strongly urged that the CIT(A) was wrong in annulling re-assessment proceedings.
6. On behalf of the assessee, the following points were sought to be raised in defence of the order of the CIT(A):
(a) No reasons were recorded for reopening the assessment as required by Section 148(2).
(b) The reasons recorded, if any, were not supplied to the assessee despite repeated requests.
(c) The notice under Section 148 has not been served on the assessee and non-service of the notice is fatal to the validity of the re-assessment.
(d) The Assessing Officer has not taken the approval of the Jt. CIT before issuing the notice under Section 148 as required by Section 151(1) of the Act.
(e) Section 148 cannot be used for making a fishing or roving enquiry. In this case, the Assessing Officer was merely called upon by the DCIT to examine and investigate the matter whereas the Assessing Officer chose to shortcut the proceedings and proceeded to issue the notice before formation of the belief.
(f) The mere allegation made by the CIB that the assessee purchased the gift from Kochhar is not relevant for the formation of the belief and before issuing the notice under Section 148, the Assessing Officer failed to carry out the necessary enquiry which alone could have given him the material for the formation of the requisite belief. Since no such investigation was carried out, the notice under Section 148 was based merely on the allegation of the CIB and, was based only on reason to suspect.
7. The Ld. Sr. DR, Mr. Shantanu Dhamija, at this juncture raised a primary objection to the effect that the assessee cannot go beyond the order of the CIT(A) and raise the points such as non-recording or non-disclosure of the reasons for reopening the assessment, non-service of the notice under Section 148 and the question of approval of the JCIT under Section 151(1). He pointed out that these are totally new points which are beyond the scope of the appeal which is limited to the question whether the CIT(A) was right in saying that the notice under Section 148 based on reason to suspect and not reason to belief. It is pointed out that the assessee has not filed any appeal or cross-objection against the order of the CIT(A) and, therefore, he cannot raise these new points which would also require investigation of facts.
8. The Ld. Counsel for the assessee sought to meet the aforesaid objection of the Ld. Sr. DR by relying on Rule 27 of the Appellate Tribunal Rules, as well as the following judgments:
1. B.R. Bamasi v. CIT ,
2. Marolia and Sons v. CIT ,
3. Assam Co. (India) Ltd. v. CIT ,
4. Dahod Sahakari Kharid Vechan Sangh Ltd. v. CIT [2005] 149 Taxman 456 (Guj.); and
5. CIT v. Cochin Refineries Ltd. .
9. The Ld. Counsel for the assessee also pointed out that these objections have been taken by the assessee right from the beginning of the hearing before the Tribunal on 30-9-2004 on which date the Tribunal directed the department to obtain the records and produce them before it, but despite repeated adjournments and opportunities, the department has not been able to produce the record to show that reasons were recorded and disclosed to the assessee and that the notice under Section 148 was also served on the assessee. Almost two years have passed and since the department has not been able to produce the records, it cannot now be contended that these points cannot be taken before the Tribunal. It was also vehemently denied that the new points raised by the assessee in defence of the ultimate decision of the CIT(A) would involve investigation into the facts. A distinction was sought to be made between investigation into the facts and investigation into the record and it was submitted that the points raised by the assessee involve mere examination of the record and do not involve investigation into facts not already on record. Our attention was also drawn to several letters written by the assessee to the Assessing Officer informing him that the notice had not been served on her and that she was complying with the same and participating in the proceedings without prejudice and in a spirit of co-operation which cannot amount to waiver of her rights. It was thus pleaded that the assessee was entitled to raise these points before the Tribunal and that the preliminary objections of the Ld. Sr. DR have no merit.
10. Before we proceed further, it is necessary to clear this point, namely, whether the assessee can raise these points before the Tribunal for the first time as a respondent defending the order of the CIT(A) which was based on the only question whether the reasons recorded by the Assessing Officer amounted to reason to believe or reason to suspect. The matter is not res integra. Rule 27 of the Appellate Tribunal Rules, says that the respondent in an appeal can support the order appealed against on any of the grounds decided against him even though he may not have filed an independent appeal or cross-objection. This Rule clearly supports the assessee. In the present case, the assessee has raised the point of non-recording of reason in ground No. 2 before the CIT(A) though this ground is not so categorical as the Ld. Counsel for the assessee wants us to read. Even so, such ground can be inferred from the fact that the assessee has been repeatedly asking for the reasons recorded which were not supplied to her. Even before the Tribunal right from September, 2004, the assessee has been requesting for production of the department's records obviously calling upon the department to show that reasons for reopening have been recorded, but due to some difficulty or the other, the department has not been able to produce the records. The CIT(A) has not recorded any finding on the question whether the reasons were recorded or not, but having regard to the judgment of the Hon'ble Delhi High Court in Rohtak and Hissar Districts Electric Supply Co. (P.) Ltd, v. CIT , it is possible to hold that he found against the assessee on this point. On this reasoning, it is open to the assessee to raise the question of non-recording of reasons for reopening the assessment before the Tribunal for the first time and seek to support the ultimate decision of the CIT(A). Even the non-disclosure of the reasons can be said to be covered by ground No. 2 taken before the CIT(A) and in the absence of any definite decision by the CIT(A), the same conclusion would follow namely, that it is open to the assessee to invoke Rule 27 even in respect of this point. As regards the approval of the JCIT under Section 151(1), it is fairly admitted on behalf of the assessee that this was not specifically taken either before the Assessing Officer or before the CIT(A) and, therefore, we hold that Rule 27 may not be strictly speaking available to the assessee.
11. Even de hors Rule 27 of the Appellate Tribunal Rules, it is open to the respondent in an appeal before the Tribunal to raise a new ground in defence of the order appealed against. It has been so held by the Supreme Court in Hukam Chand Mills Ltd. v. CIT of the report it was held that even assuming that Rule 27 is not strictly applicable, the Tribunal has inherent powers under Section 254(1) to entertain the argument of the respondent which amounted to a new ground. It was further held by the Supreme Court as follows:
It is necessary to state that Rules 12 and 27 are not exhaustive and the powers of the Appellate Tribunal. The rules are merely procedural in character and do not, in any way, circumscribe or control the power of the Tribunal under Section 33(4) of the Act.
It is significant to note that in the case before the Supreme Court, the department which was the respondent sought to raise a new plea in defence of the order appealed against. Earlier, in New India Life Assurance Co. Ltd. v. CIT , the Bombay High Court while pointing out the difference between an appellant and respondent before the appellate court, observed at page 55 that the respondent "may support the decision of the trial court, not only on the ground contained in the judgment of the trial court, but on any other ground". Later, in the case of B.R. Bamasi v. CIT , the Bombay High Court which was dealing with the case of right of the respondent to defend the order appealed against held that the respondent would be entitled to raise a new ground in defence of the order appealed against, provided it is a ground of law and does not necessitate any other evidence to be recorded, the nature of which would not only be a defence to the appeal itself, but may also affect the validity of the entire assessment proceedings. It was further held that the ground served as a weapon of defence against the appeal and, if accepted should not place the appellant in a worse than he would have been, had he not appealed. In CIT v. Gilbert and Barkar Mfg. Co. , the Bombay High Court made no distinction between the appellant and respondent in an appeal before the Tribunal and held that both were entitled to raise new points or contentions subject only to the condition firstly that no new facts are required to be brought on record is capable of being disposed of on the facts on record and secondly that an opportunity is given to the other side to meet that point which is allowed to be raised for the first time in the appeal. This was also a case of the respondent. To the same effect are the decisions of the Allahabad, Gauhati, Kerala and Gujarat High Courts cited on behalf of the assessee. Therefore, whether it is the appellant or the respondent before the Tribunal, new points or contentions can be raised provided they did not involve investigation into facts (as contrasted with the record) and that an opportunity is given to the other side to meet the contentions. Applying these principles to the present case, we overrule the preliminary objection of the Ld. Sr. DR and permit the assessee to raise the new points before us as a respondent.
12. Coming to the merits of the new points raised by the assessee, so far as the claim that no reasons were recorded is concerned, we are unable to accept the same. It is no doubt true that the Assessing Officer did not furnish the reasons recorded for reopening the assessment to the assessee. It is also true that the department has not been able to produce the record before us despite several opportunities being granted to do so. Normally in such circumstances, we would have had no hesitation in accepting the claim that no reasons were recorded before issuing notice under Section 148. In fact, there are certain orders of the Delhi Bench of the Tribunal holding so (please see Suresh Chand Garg v. CIT [1992] 42 ITD 166). However, we are not inclined to hold that no reasons were recorded by the Assessing Officer before issuing the notice under Section 148 because there is sufficient material in the order of the Income-Tax authorities themselves which enable us to infer that the reasons were in fact recorded. When the appeal was heard by the CIT(A), the Assessing Officer was called upon to comment on the assessee's claim that the reasons recorded had no rational connection with the formation of the requisite belief. While meeting this objection, the Assessing Officer filed a letter dated 17-8-2000 by which he sought to defend his connection and in this letter which is extracted by the CIT(A) in pages 10 and 11 of his order, the Assessing Officer gave the following reasons for reopening the assessment:
Refer to No. Addl. DIT(Inv.)/97-98/NRE/Gift/JSK/1601. During the financial year 1992-93, the assessee has received a gift of Rs. 21,00,000 from an NRE Sh. Jagjit Singh Kochhar. The Investigation Wing has noticed that the gift is bogus arranged by the CA, Sh. S.L. Batra, through NRE A/c No. 01 SEP 1457600 of ANZ Grindlays Bank, Conn. Place, New Delhi.
13. We have no reasons to disbelieve the Assessing Officer that the above were the reasons which were recorded under Section 148(2) before issue of the reopening notice. The fact that the above paragraph has been given by the Assessing Officer within inverted commas permits the inference that it has been extracted from the record. In these circumstances and despite the fact that the record was not produced before us by the department, we consider it proper to infer that the reasons for reopening the assessment were recorded by the Assessing Officer and they are as given above.
14. The next contention to be dealt with is that the reasons for reopening the assessment were not disclosed to the assessee or formally communicated to her. The argument of the Ld. Sr. DR is that the assessee was aware of the reasons for reopening the assessment even in March, 1998 as was clear from the letters written by her to the Assessing Officer, copies of which are placed at pages 13 and 15 of the paper book also and also from her statement recorded on 10-3-1998, copies of which are at pages 23-25 of the paper book. Page 13 is a letter dated 14-3-1998 written by the assessee to J.S. Kochhar informing him that she was called upon by her Assessing Officer a few days ago to enquire about the gift of Rs. 21 lakhs which Kochhar was supposed to have given the assessee. The assessee also requested Kochhar to come to Delhi and be present before the Assessing Officer as directed by the Assessing Officer. Page 15 is a letter written by the assessee to the Assessing Officer referring to the discussion and the statement recorded from her on 10-3-1998 and informing the Assessing Officer that since Kochhar is out of India, some more time is required to produce him before the Assessing Officer. The assessee also furnished the address of Kochhar in Dubai and requested the Assessing Officer to write to him directly to Dubai.
15. We find force in the contention of the Ld. Sr. DR that having regard to the contents of the letters referred to above, written by the assessee, she was quite aware that her assessment had been reopened and she was also aware as to the reasons for the reopening. She was fully aware of the enquiries conducted by the Assessing Officer and in fairness it must be stated that she also exhibited a spirit of co-operation in the enquiry and seems to have participated willingly. She did make attempts to contact Kochhar and requested him to appear before the Assessing Officer specifically referring to the enquiries made by the Assessing Officer with regard to the gift of Rs. 21 lakhs. All these show that the assessee was fully aware of the reasons for reopening the assessment. To repeatedly insist that the Assessing Officer should formally communicate the reasons recorded for reopening the assessment, even all the while being aware of such reasons, is nothing but a futile attempt to challenge the proceedings on technicalities which are not fatal to their validity. The Ld. Counsel for the assessee referred to the judgment of the Supreme Court in G.K.N. Driveshafts India Ltd. v. ITO [2003] 259 ITR 19 [2002] 125 Taxman 963. A perusal of this judgment shows that the Supreme Court clarified that when a notice under Section 148 is issued the proper course for the assessee is to file a return and then seek reasons for reopening the assessment, if he so desires. If such request is made the Assessing Officer is bound to furnish the reasons within a reasonable time. As against this judgment, the Ld. Sr. DR drew our attention to an earlier judgment of the Supreme Court rendered by a Bench of three Ld. Judges in the case of S. Narayanappa v. CIT and submitted that this judgment is valid for the proposition that the reasons for reopening the assessment need not be communicated to the assessee since they are administrative in character and not quasi-judicial and that this judgment has not been brought to the notice of the Supreme Court in the later judgment in the case of G.K.N. Driveshafts (India) Ltd. {supra). It is, therefore, contended that non-communication of the reasons recorded is not fatal to the validity of the re-assessment proceedings. We have carefully gone through both the judgments and find force in the contention of the Ld. Sr. DR. The following paragraph in the judgment of the Supreme Court in the case of S. Narayanappa {supra) is important and the same is as under:
It was also contended for the appellant that the Income-tax Officer should have communicated to him the reasons which led him to initiate the proceedings under Section 34 of the Act. It was stated that a request to this effect was made by the appellant to the Income-tax Officer, but the Income-tax Officer declined to disclose the reasons. In our opinion, the argument of the appellant on this point is misconceived. The proceedings for assessment or reassessment under Section 34(1)(a) of the Income-tax Act start with the issue of a notice and it is only after the service of the notice that the assessee, whose income is sought to be assessed or reassessed, becomes a party to those proceedings. The earlier stage of the proceeding for recording the reasons of the Income-tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not quasi-judicial. The scheme of Section 34 of the Act is that, if the conditions of the main Section are satisfied, a notice has to be issued to the assessee containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22. But before issuing the notice, the proviso requires that the officer should record his reasons for initiating action under Section 34 and obtain the sanction of the Commissioner who must be satisfied that the action under Section 34 was justified. There is no requirement in any of the provisions of the Act or any Section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under Section 34 must also be communicated to the assessee. In Presidency Talkies Ltd. v. First Additional Income-tax Officer, City Circle II, Madras the Madras High Court has expressed a similar view and we consider that that view is correct. We accordingly reject the argument of the appellant on this aspect of the case.
It thus appears to us that in the light of the above judgment, there is no requirement in the Act that the Assessing Officer has to communicate the reasons for reopening the assessment to the assessee. Even in the judgment of the Supreme Court in G.K.N. Driveshafts (India) Ltd.'s case (supra), it was observed that since the reasons for reopening the assessment have been disclosed in the proceedings before the court, the Assessing Officer has to dispose of the assessee's petition by passing a speaking order before proceeding with the assessment. Therefore, non-communication of the reasons, even according to the judgment of the Supreme Court in G.K.N. Driveshafts (India) Ltd.'s case (supra), is not considered to be fatal to the validity of the reassessment proceedings. In the present case, as we have already found the assessee was aware of the reasons for reopening the assessment. Therefore, it is not necessary for us to enter into the controversy as to whether the non-communication of the reasons is fatal to the validity of the reassessment proceedings. Even if it is to be held that the assessee cannot be said to be aware of the reasons for reopening the assessment, the earlier judgment of the Supreme Court which directly addresses the question would apply and on that basis the reassessment cannot be invalidated. It would be relevant to note that in Presidency Talkies Ltd. v. Addl. ITO , the Madras High Court held that there is no requirement in any of the provisions of the Act or any Section that the reasons which induced the CIT to accord sanction to proceed under Section 34 must also be communicated to the assessee and "the requirement regarding communication of the reasons to the Commissioner is, in our opinion, intended to safeguard the interests of the assessee against any hasty action on the part of the ITO under Section 34 or an action without any justification. It is not intended that the reasons should be communicated to the assessee". This judgment has been approved by the Supreme Court in the case of S. Narayanappa (supra).
16. We cannot help noticing a somewhat incongruous stand taken by the assessee in the proceedings before us. Before us as also before the Assessing Officer, the assessee has been harping that she did not receive the notice herself as she was away to Pakistan. In fact, in her letter dated 10-3-1998 to the Assessing Officer, she has stated, in a very guarded language that the notice under Section 148, if served, might have been left unattended by her servant and that the existence of the notice came to her knowledge for the first time on 10-3-1998 when her statement was recorded under Section 131. We do not see how the assessee can say at the same breath that she was not served with the notice under Section 148 and also that she was not being given reasons for reopening the assessment. This again is only a passing observation.
17. That takes us to the next plea of the assessee before us that she was not served with the notice under Section 148. Specific grounds have been taken to this effect before the CIT(A) (ground No. 9) as also in the statement of facts before the CIT(A). It is no doubt true that the service of the notice under Section 148 is a condition precedent for the validity of the reassessment proceedings. However, in the peculiar facts and circumstances of the present case, we are unable to hold that the reassessment proceedings can be invalidated on that ground. Again, we may refer to the assessee's letter to the Assessing Officer written on 10-3-1998 in which she stated as under:
This is with reference to your aforesaid notice that we would like to mention that the aforesaid notice was not received by the assessee and therefore, left uncomplied with on the designated date. It is also likely that if served, left unattended by the servant of the assessee, when she was out of India to Pakistan. The existence of such notice came to assessee's knowledge for the first time on 10-3-1998, when her statement was recorded. However, the subsequent summon under Section 131 has been duly attended from time to time. The non-compliance was accidental as the assessee was not aware of the same or the same was not served on her.
In any case, in compliance of the said notice we would like to mention that the assessee has already filed her return of income for the captioned assessment year 1993-94 on 30-6-1993 vide R. No. 568 in ward 11(1), Delhi. The said return be considered filed in compliance of your notice under Section 148 dated 5-2-1998.
In view of the above, we would request you to kindly consider this letter in full compliance of your earlier notice under Section 148 dated 5-2-1998.
The letter is self-explanatory. The assessee has complied with the notice by pointing out that the return already filed by her on 30-6-1993 may be taken as the return filed in response to the notice under Section 148. It is, therefore, not possible for us to accept the contention of the assessee that the notice was not served on her and, therefore, reassessment proceedings must be struck down. The ld. Counsel for the assessee referred to the judgment of the Supreme Court in CIT v. Thayaballi Mulla Jeevaji Kapasi . A perusal of this case shows that the notice of reopening was served by affixture and the objection that the persons in whose presence the notice was affixed were not examined was not held to be a valid objection. This case shows that procedural irregularities which are not of a material or substantial nature can be ignored if the notice is otherwise properly served. Whatever may be the position, factually the assessee before us complied with the notice under Section 148, acknowledging the same and therefore there ends the matter. The objection appears to us to be untenable.
18. So far as the objection based on Section 151(1) is concerned, we are unable to entertain the same. Under this provision, in a case where an assessment has been made under Section 143(3) or Section 147, no notice under Section 148 shall be issued by an Assessing Officer who is below the rank of ACIT or DCIT unless the JCIT is satisfied on the reasons recorded by the Assessing Officer, that it is a fit case for issue of such notice. This Section applies only where an assessment has already been made under Section 143(3) or Section 147 and it is sought to be reopened. In the present case, there was no earlier assessment order under Section 143(3) or Section 147 which was communicated to the assessee. The return filed on 30-6-1993 was merely processed under Section 143(1)(a), The contention of the learned Counsel for the assessee however was that the assessment was earlier reopened by the Assessing Officer by notice issued under Section 148 and only after having been satisfied with the submissions and explanations given by the assessee in response to the said notice, the proceedings initiated under Section 148 read with Section 147 were dropped by him by order sheet entry dated 24-10-1997. According to him, the dropping of the proceedings would amount to an assessment under Section 143(3) of the Act. Keeping in view the judgment of the Supreme Court in Esthuri Aswathiah v. ITO , we find merit in this contention. In our opinion, the proceedings initiated earlier under Section 148 having been dropped by the Assessing Officer only after having been satisfied about the explanation offered by the assessee and after having applied his mind, it did culminate in the conclusion of proceedings under Section 147 read with Section 143(3) which clearly amounted to an assessment completed by the Assessing Officer under the said provisions. The matter, however, does not end here because the satisfaction of the JCIT, as envisaged in Section 151(2), is required on the reasons recorded only in a case where such reasons are recorded by the Assessing Officer who is below the rank of an Assistant Commissioner of Income-tax (ACIT) or Deputy Commissioner of Income-tax (DCIT). In the present case, nothing has been brought on record by the learned Counsel for the assessee to show that the notice dated 5-2-1998 under Section 148 was issued by an Assessing Officer who was below the rank of ACIT or DCIT. On the other hand, a perusal of a copy of the earlier notice under Section 148 dated 20-12-1995 placed at page No. 6 of the assessee's paper-book clearly shows that the same was issued by the ACIT, Circle 11(1), New Delhi. Similarly, a perusal of the reply dated 10-3-1998 submitted by the assessee in response to the fresh notice dated 5-2-1998 issued under Section 148 (copy at page No. 12 of the assessee's paper-book) also shows that the same was received by the office of the ACIT, Circle 11(2), New Delhi on 12-3-1998. This documentary evidence placed in the assessee's paper-book itself is sufficient to show that the ACIT, Circle 11(2) was having jurisdiction over the case of the assessee during the relevant period and not only the notice dated 5-2-1998 was issued by the said Assessing Officer, but even the assessment in pursuance to the said notice was completed by him with a designation of DCIT as changed/revised as a result of reorganization/restructuring taking place in the Income-tax department with effect from 1-10-1998. Obvious as it is, the case of the assessee did not fall under Sub-section (2) of Section 151 and the satisfaction of the JCIT was not required to be obtained on the reasons recorded by the Assessing Officer before issuing the notice under Section 148. We therefore reject the contention raised by the learned Counsel for the assessee on this issue.
19. We now turn to the main question whether the CIT(A) was right in holding that the Assessing Officer did not have reason to believe that income had escaped assessment, but merely had "reason to suspect". The CIB had written to the Assessing Officer on 16-12-1997 that during the financial year 1992-93 the assessee has received a gift of Rs. 21 lakhs from an NRE Shri Jagjit Singh Kochhar and that the investigation wing has noticed that the gift is bogus and arranged by a chartered accountant by name S.L. Batra through NRE accounts (account numbers given) and that the assessee had made cash payments along with premium to obtain the gifts. This is definite information coming to the possession of the Assessing Officer from another wing of the Income-tax department which is entrusted with the task of collecting information relevant to the detection of tax evasion. The Assessing Officer cannot be said to have merely suspected that income had escaped assessment. He is bound to give prima facie credence to the information coming from his own department, though from another wing. He cannot brush it aside or ignore it on the ground that it is a mere allegation. The letter constitutes material on the basis of which the Assessing Officer can hold the requisite "belief". It has a rational connection or live link with the formation of the belief that income chargeable to tax has escaped assessment in the hands of the assessee. It is not a mere pretence nor is it based on mere gossip or rumour. It is a belief bona fide held. No doubt the DCIT of the concerned range had, by letter dated 24-12-1997, asked the Assessing Officer to examine the issue and discuss it with him for further investigation, but simply because the Assessing Officer chose to issue the notice under Section 148 without adhering to the directions of the DCIT it cannot be said that the Assessing Officer had proceeded to adopt a short-cut without forming the requisite belief. It is the satisfaction of the Assessing Officer who is eynpowcred to issue the notice under Section 148 that is relevant and in arriving at the same he is not bound by the directions of his superiors. It has to be remembered that at the stage of recording reasons and issuing notice under Section 148 it is only expected of the Assessing Officer to reach a prima facie conclusion that income chargeable to tax has escaped assessment. At that stage, he is not expected to build a fool-proof or cast-iron case against the assessee before proceeding to issue the notice. He is not expected to make a complete investigation before issuing the notice. In R. Dalmia v. Union of India [1972] 84 ITR 616, a judgment of the Hon'ble Delhi High Court cited by the learned Senior DR., it was held (page 619) that all that was required of the Assessing Officer is that he must have reason to believe "and not that he should launch an investigation and come to a positive finding before issuing the notice..." and that "the facts on the basis of which he entertained the belief need not at this stage be irrebuttably conclusive to support his tentative conclusion". In Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT the Hon'ble Deihi High Court, referring to the judgment of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO held that at the time of initiation of action to reopen the assessment (by issuing notice under Section 148) the final outcome of the proceeding is not relevant and what is required is "reason to believe" but "not the established fact of escapement of income". It was held that at the stage of issue of notice, "the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage". Therefore, there is no force in the submission of the learned Counsel for the assessee that the Assessing Officer had not held any enquiry into the veracity of the letter received from the CIB or had not conducted an investigation to check the allegation in the letter before issuing the notice.
20. We have to remember the fundamental proposition that when the Assessing Officer initiates action to reopen the assessment, he may do so on the basis of material which may lead him to the formation of a prima facie or tentative conclusion that income chargeable to tax has escaped taxation. Such material may turn out in the course of the reassessment proceedings to be insufficient to sustain the assessment of the alleged escaped income; it may not stand judicial scrutiny; or the assessee may be able to lead evidence to show that no income chargeable to tax had escaped assessment. All this has to be carried out during the reassessment proceedings but they have no place at the stage when the Assessing Officer proposes to issue notice under Section 148. At that stage, it is only the relevancy of the reasons that can be looked into and not the sufficiency in S. Narayanappa's case (supra). In the case on hand, we are satisfied that the material before the Assessing Officerthe letter dated 16-12-1997 received from the CIB - had a rational connection or live link with the formation of the belief that income chargeable to tax has escaped assessment in the assessee's case. The belief was bona fide held, it was not a pretence. The material gave rise to "reason to believe" and not merely "reason to suspect". No doubt, as pointed out by the CIT(A), the list of 41 persons to whom Kochhar is supposed to have made gifts did not contain the name of the assessee. But the CIT(A) appears to have overlooked that this list was not the material on the basis of which the notice was issued. The Assessing Officer had not relied on the Tribunal's order in the case of Sanjeet Balra, in which all the 41 names are given. Indeed, he could not have, since the order of the Tribunal was passed in July 1998 whereas the notice under Section 148 was issued on 5-2-1998. The Assessing Officer had relied on the letter of the CIB which contained a clear statement that the investigation wing has noticed that the assessee has purchased the gifts from Kochhar by paying cash including the premium. This letter, in our view, constitutes relevant material for the formation of the belief, not mere suspicion, that income chargeable to tax has escaped assessment in the assessee's case.
21. We are thus unable to concur with the view taken by the CIT(A) that the notice under Section 148 was prompted by reason to "suspect" and not reason to "believe".
22. The matter has to go back to the file of the CIT(A) for decision on merits which he has not dealt with, in the view he had taken of the jurisdiction of the Assessing Officer to reopen the case. We direct accordingly.
23. The appeal of the Department is allowed in the above terms.