AI Drafter 
TaxTMI 
TaxTMI 
2004 (3) TMI 59
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....1994, for Rs, 17,750. The sale was also shown to have been made through the same party on May 25, 1995 for Rs. 2,12,750. The capital gain was computed by adopting the indexed cost of shares at Rs. 19,258, Income from capital gains was claimed to be exempt under section 54F of the Act, on account of the same having been invested in the construction of a residential house. The return stood accepted as no assessment under section 143(3) of the Act was made. The petitioner, thereafter, received the impugned notice under section 148 of the Act dated March 31, 2003, wherein the Assessing Officer claimed that he had reason to believe that the petitioner's income chargeable to tax for the assessment year 1996-97 had escaped assessment within the meaning of section 147 of the Act and accordingly, he proposed to reassess the petitioner's income for the said assessment year. For this purpose, the petitioner was required to file his return within 30 days from the date of service of the notice. In response to this notice, the petitioner filed his return on April 30, 2003, repeating the same income as had been shown in the original return filed on March 31, 1998. The petitioner, thereafter, file....
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.... the Assessing Officer to make further probe into the transactions relating to the petitioner before recording satisfaction that the same were bogus. In support of his contention, counsel placed reliance on the judgments of the Supreme Court in Chhugamal Rajpal v. S.P. Chaliha [1971] 79 ITR 603 and ITO v. Lakhmani Mewal Das [1976] 103 ITR 437. He also relied on the judgment of this court in CIT v. Narinder Nath Parveen Chand [1975] 101 ITR 7. We have heard counsel for the petitioner and have perused the relevant material. Before issuing the impugned notice under section 148 of the Act, the Assessing Officer had recorded the following reasons, as required under subsection (2) of section 148 of the Act: "Shri Pal Jain, S/o. Sh. Faquir Chand, 396, Karta Ram Street, Ludhiana, assessment year 1996-97. As per the information available on record, the assessee had received an amount of Rs. 99,800 vide DO No. 195/203095 and deposited the same into its account No. 6927 maintained in Dena Bank, Chowk Mata Rani, Ludhiana. This DO was received by the assessee from Sh. Shankar Hari Maheshwari proprietor M/s. Maheshwari Sons, M.B. 15, Antriksh Bhawan, Kasturba Gandhi Marg, Delhi, agai....
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....aneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law." It has been correctly pointed out by learned counsel for the petitioner that for forming a valid reason to believe about the escapement of income, there has to be some material before the Assessing Officer having a rational connection or live nexus with the formation of such belief. It is on this touchstone that the validity of the initiation of proceedings under section 147 of the Act has to be adjudged. It is true that the assessee had disclosed the transactions about the sale and purchase of shares through M/s. Maheshwari Sons in his original return filed on March 31, 1998. It is also not in dispute that the proprietor of M/s. Maheshwari Sons is Shankar Hari Maheshwari. It is again not in dispute that the transactions of sale and purchase of shares had been routed through current account number 8627 in the Punjab National Bank, Karol Bagh, Gurudwara Road, Delhi, standing in the name of M/s. Maheshwari Sons. During the investigation before the DDI (Investiga....
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....ght. In Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC), the validity of a notice under section 148 of the Act in somewhat similar circumstances, had come up for consideration. In that case, the assessee at Azamgarh had claimed that it had borrowed a loan from a Calcutta company in the year 1962. The loan was stated to have been repaid in cash in 1968, but the interest thereon was paid during the assessment years 1963-64 to 1968-69 by cheques or by bank drafts. In order to prove the loan transaction, the assessee produced a copy of account of the Calcutta company and also its confirmation letter. The Assessing Officer completed the assessment accepting the genuineness of the loan and allowed deduction of interest. Thereafter, upon inquiry, the Assessing Officer having jurisdiction to assess the Calcutta company informed the Assessing Officer at Azamgarh that the managing director of the company had made a confessional statement that the company was only a name lender and had never advanced any loans to any persons. On the basis of this letter, the Assessing Officer at Azamgarh issued notices to the assessee for reassessment under section 147 of the Act on the ground that ....
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....luded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness of the loan transaction but, in our opinion, his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the Income-tax Officer acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific." The apex court distinguished its judgment in Chhugamal Rajpal's case [1971] 79 ITR 603 on the ground that reassessment proceedings in that case had been initiated on the basis of a "circular" issued from the office of the Commissioner of Income-tax, Bihar and Orissa, which stated that three persons named in that circular were merely name lenders and their transactions were bogus and proper investigation regarding the loa....
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....ner had also made an attempt to show that the view taken by the apex court in Phool Chand Bajrang Lal's case [1993] 203 ITR 456 was in conflict with its earlier view in Chhugamal Rajpal's case [1971] 79 ITR 603 (SC). He, therefore, contended that since Chhugamal Rajpal's case [1971] 79 ITR 603 (SC) was decided by a larger Bench of three judges, the ratio of Phool Chand Bajrang Lal's case [1993] 203 ITR 456 (SC) be not applied. There is no merit in this contention. As already noticed above, the Supreme Court in Phool Chand Bajrang Lal's case [1993] 203 ITR 456 has clearly distinguished its judgment in Chhugamal Rajpal's case [1971] 79 ITR 603 (SC). The judgment of this court in Narinder Nath Parveen Chand's case [1975] 101 ITR 7 is also clearly distinguishable as in that case also, the proceedings had been initiated on the basis of a circular letter issued by the Department. In view of the above, we find no merit in this writ petition. The same is, accordingly, dismissed. However before parting, we would like to make it clear that we have only rejected the prayer of the petitioner to quash the proceedings initiated under section 147 of the Act at the threshold itself. In....