Court affirms validity of tax notice under Sec. 148, emphasizing need for 'reason to believe'.

The court upheld the legality and validity of the notice issued under Section 148 of the Income-Tax Act, 1961, finding that the authority had formed a reasonable belief based on relevant material that income had escaped assessment. The court emphasized that at the initial stage, a reason to believe, not conclusive proof of escapement of income, sufficed. Additionally, the court found that the order rejecting the petitioner's objections was supported by cogent reasons and valid information, ultimately dismissing the petition and vacating any interim relief granted earlier.

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Issues Involved:
1. Legality and validity of the notice issued under Section 148 of the Income-Tax Act, 1961.
2. Validity of the order rejecting the objections submitted by the petitioner against the notice.

Detailed Analysis:

1. Legality and Validity of the Notice Issued under Section 148 of the Income-Tax Act, 1961:
The petitioner challenged the legality and validity of the notice issued under Section 148 of the Income-Tax Act, 1961, which was issued on the grounds that the income chargeable to tax had escaped assessment. The petitioner contended that the reasons recorded for the issuance of the notice were not germane to law and lacked independent application of mind by the authority. The petitioner argued that there was no new material or information against them, and the reopening was based on erroneous satisfaction without any cogent material. The petitioner also cited the lack of independent satisfaction by the authority and the reliance on information from DGIT (Investigation), Ahmedabad, without proper verification.

In response, the Revenue argued that the Assessing Authority had enough material to substantiate the reopening and form a reasonable belief that income had escaped assessment. The authority received specific information from DGIT (Investigation), Ahmedabad, indicating that the petitioner was a beneficiary of bogus entries provided by known entry operators Vikrant Kayan and Arvind Kayan. The Revenue contended that at the stage of issuing the notice, the Assessing Officer only needed a reasonable belief based on relevant material, not conclusive proof of escapement of income.

The court examined whether the reasonable belief formed by the authority was based on some material. The court reproduced the recorded reasons, which indicated that the petitioner was a beneficiary of bogus entries amounting to Rs. 127.94 lakhs. The court found that the authority had applied its mind and relied on the information available, justifying the reopening of the assessment. The court referred to the Apex Court decision in Assistant Commissioner of Income-Tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd., which stated that at the initial stage, what is required is a reason to believe, not an established fact of escapement of income.

The court also referred to its own recent decision in a group of tax appeals, where it held that reopening based on information from another wing (Excise Department) was permissible. The court concluded that the background of facts demanded reopening of assessment and the authority was justified in issuing the notice under Section 148 of the Act.

2. Validity of the Order Rejecting the Objections Submitted by the Petitioner:
The petitioner argued that the order rejecting their objections lacked cogent reasons and reflected non-application of mind by the authority. The petitioner contended that the objections were not dealt with properly and the reasons recorded for reopening were erroneous.

The court examined the order rejecting the objections and found that each material submitted by the petitioner had been extensively dealt with, and the order was supported by cogent reasons. The court noted that the authority had prima facie found that the petitioner was a beneficiary of the entry operators Vikrant Kayan and Arvind Kayan, and this part of the income appeared to have escaped assessment. The court held that the belief formed by the authority could not be intercepted by exercising extraordinary jurisdiction under Article 226 of the Constitution of India.

The court concluded that the authority had applied its mind and relied on valid information to justify the reopening of the assessment. The court dismissed the petition, discharged the notice, and vacated any interim relief granted earlier.

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