TaxTMI 
TaxTMI 
2007 (10) TMI 241
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....ssessment year 1984-85, for which the relevant previous year is year ended 30^th June, 1983. Search operations were carried out on 27^th September, 1988 at the business and residential premises amongst others of the petitioners. Assessment for the assessment years 1972-73 to 1984-85 was sought to be reopened. Petitioners challenged the assessment for some of the years by separate petition being Writ Petition No.1374 of 1989. Petitions had been admitted and interim relief had been granted. Subsequently those petitions have been allowed in favour of the petitioner by order dated 22^nd August, 2005. 2. The petitioner is in the business of manufacturing of ball pens and refills as also ink. In far as manufacture of ink is concerned the....
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.... had passed an order on different ground. Although these findings were subsequently reversed by the Appellate authorities, the 1^st respondent was aware and seized of the question of the shortcomings, if any, in the petitioner's income as declared by reason of the alleged excess production/consumption of finished goods/ raw materials. The notice issued under Section 148 of the Income Tax Act is being challenged on the following grounds:- (a). The reasons recorded do not mention that there is a failure on the part of the petitioner, to disclose truly and fully all material facts. (b). The assessment cannot be reopened merely on the basis of estimation based on statement under section 132(4) of the Income Tax Act, when all primary facts....
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....et out as under:- "4. The one fact that came out during the recording of statements u/s.132(4) was that there is a definite ratio between the consumption of ink and the number of refills produced. One kg. of ink is required for producing 20 gross of eko refills. Consumption of ink is higher for producing sharp refills. The assessee is manufacturing eko refills and sharp refills (larger size). On consumption of 1 kg. of ink 18 gross sharp refills can be produced. 6. In view of the above, I have reason to believe that by reason of failure on the part of the assessee to disclose the income from sale of suppressed production, income to the extent of Rs.44,53,680/-has escaped assessment within the meaning of Section 147(a) of the I.T. Act,....
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....ed the same. 7. With the above background the question that would arise is whether the reasons given would constitute reasons to believe warranting the exercise of jurisdiction in issuing notice under Section 148 of the I.T. Act. Section 147(a), as it then stood required that if the Assessing Officer has reason to believe that by reason of omission or failure on the part of the assessee to make return under Section 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for assessment, income chargeable to tax has escaped assessment the Officer subject to the other provisions could assess or reassess. There has been no omission or failure for the Assessing Officer to have reason to....
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.... challenging the notice issued under Section 148 of the Income Tax Act. The petitions were allowed, against which Appeals were preferred. The Appeals were dismissed. What is relevant to notice is that the High Court took the view that the condition precedent to issue notice under Section 148 were not fulfilled. In Appeal the Supreme Court was pleased to observe that reasons for the formation of the belief for reopening of the assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of....
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....efills. In the petition the petitioner brought on record that there are also wastages which statement has not been denied. In fact for the assessment year 1986-87 the Commissioner of Income Tax (Appeals) accepted based upon the report of the Chartered Certificate that while manufacturing ink, the ink waste is 3% to 4% and while putting the ink in refills the waste is to the extent of 10.7%. The ink which was used as raw material, that information was already available to the Assessing Officer and was not new information. The Assessing Officer considering the raw material consumed for the purpose of refilling has taken the maximum figures and on that basis only, held that there were reasons to believe the failure of the assessee to disclose ....