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PETITIONER: INCOME TAX OFFICER, I WARD, DIST, VI, CALCUTTA & ORS.

       Vs.

RESPONDENT: LAKHMANI MEWAL DAS

DATE OF JUDGMENT30/03/1976

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ GOSWAMI, P.K.

CITATION:  1976 AIR 1753            1976 SCR  (3) 956  1976 SCC  (3) 757  CITATOR INFO :  F          1977 SC 429  (10)  R          1986 SC1857  (7)  RF         1987 SC1897  (32)

ACT:      Income Tax  Act, 1961-S.  148-Scope of-Words & Phrases- "Reason  to   believe"  meaning   of  ’rational  nexus’-What postulates.

HEADNOTE:      In March  1967, after obtaining the satisfaction of the Commissioner the  appellant issued  a notice under s. 148 of the Income  Tax Act,  1961 stating  that he  had  reason  to believe that  the respondent’s  income chargeable to tax for the assessment  year 1958-59  had  escaped  assessment.  The respondent replied  that the  I.T.O. had  no  competence  or jurisdiction to  reopen the  assessment under  s. 147 of the Act on  a mere  change of  opinion. Since there was no reply from the  appellant, the respondent moved the High Court for a writ.  The High  Court held  that the conditions precedent for the  exercise of  jurisdiction by the Income Tax Officer were not  fulfilled because  the  report  submitted  by  the Income Tax  Officer to  the Commissioner under s. 147(a) was defective. On appeal to this Court it was contended that the High Court  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 omission to disclose fully and truly all material facts. [965H]      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 had 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

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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-D]      (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 inference subsequently  appears to be erroneous, mere change of opinion  with regard  to that inference would not justify initiation of action for reopening the assessment. [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-disclosure. The expression "reason to believe" does not mean a purely subjective 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 and are not extraneous or irrelevant for the purpose of the section. [962H] 957      Chhugamal Rajpal  v.  S.  P.  Chaliha  79  I.T.R.  603, Calcutta Discount  Co. Ltd. v. Income-Tax Officer, 41 I.T.R. 191 and  S. Narayanappa & Ors. v. Commissioner of Income Tax 63 I.T.R. 219 followed.      In the instant case the grounds given by the Income Tax Officer for reopening 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 had escaped assessment for  that year because of his failure or omission to disclose  fully and  truly all  material facts.  The High Court  was   justified  in   excluding  that   ground   from consideration. [963D-E]      As regards  the second  ground there is nothing to show that the  confession of  another person related to a loan to the assessee and not to someone else. There is no indication as to when the confession was made and whether it related to the assessment  year sought  to be  re-opened. To infer from that confession  that it related to the period of assessment and that  it pertained  to  the  loan  shown  to  have  been advanced to the assessee would be far-fetched. [964G]      2(a). 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  had been escapement of income of the assessee from  assessment in  the particular year. It is not any and  every material,  howsoever vague  and indefinite or distant, remote  and far-fetched  which  would  warrant  the formation of the belief relating to escapement of the income of the  assessee from  assessment. The  fact that  the words "definite information"  in s.  34 of  1922  Act  before  its

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amendment in  1948 do  not find  a place in s. 147 would not lead to  the conclusion  that action  could now be taken for reopening assessment  even if  the  information  was  wholly vague, indefinite, far-fetched and remote. [965B-D]      (b) The  powers of  the Income  Tax Officer  to  reopen assessment, though  wide, are  not plenary.  The  words  are "reason  to  believe"  and  not  "reason  to  suspect".  The provisions of the Act depart from the normal rule that there should be  finality about orders made in judicial and quasi- judicial  proceedings.  It  is,  therefore,  essential  that before such  action is  taken the  requirement  of  the  law should be satisfied. [965E-F]      In the  instant case  the  live  link  or  close  nexus between the  material before  the Income Tax Officer and the belief which  he was to form regarding the escapement of the income was  missing or  at any rate the link was too tenuous to  provide   a  legally   sound  basis  for  reopening  the assessment. [G]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2526 of 1972.      Appeal from  the Judgment  and  Order  dated  the  13th January, 1972  of the  Calcutta High Court in Matter No. 326 of 1967.      G. C. Sharma and S. P. Nayar, for the Appellant.      D. Pal,  B. Sen,  (Mrs.) Leila  Seth, P.  K. Pal, S. R. Agarwala and Parveen Kumar for the Respondent.      The Judgment of the Court was delivered by      KHANNA, J.  This appeal  on certificate  is against the Full Bench  judgment of  the Calcutta  High Court whereby on petition under  article 226  of the  Constitution  of  India filed by  the respondent  that  court  by  majority  quashed notice  under  section  148  of  the  Income-tax  Act,  1961 (hereinafter referred  to as  the Act)  issued by appeallant No. 2  (Income-tax Officer  E Ward,  Hundi Circle, Calcutta) (hereinafter referred to 958 as the appellant) for the purpose of reopening assessment of the income  of the  respondent for the assessment year 1958- 59.      The respondent  was assessed  for the  assessment  year 1958-59 under  section 23(3)  of the  Indian Income-tax Act, 1922 on  June 14,  1960. His total income was assessed to be Rs. 37,872.  While  making  the  assessment  the  Income-tax Officer allowed  deduction of  a sum of Rs. 15,991 by way of expenses claimed  by the  respondent. The  expenses included Rs. 10,494/4  As/3 Pies by way of interest. According to the respondent,   he    produced    through    his    authorised representative all  books of  accounts, bank  statements and other necessary  documents in connection with the return. On March 14, 1967 the respondent received notice dated March 8, 1967 issued  by the  appellant under  section 148 of the Act stating that  the appellant  had reason  to believe that the respondent’s income  which was  chargeable to  tax  for  the assessment year  1958-59 had  escaped assessment  within the meaning of  section 147  of the  Act and that the notice was being issued  after obtaining  the necessary satisfaction of the Commissioner  of Income-tax.  The respondent  was called upon to  submit within  30 days from the date of the service of the  notice a return in the prescribed form of his income for  the  assessment  year  1958-59.  On  May  2,  1967  the respondent through  his lawyer  stated  that  there  was  no

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material on  which the  appellant had reason to believe that the  respondent’s   income  had   escaped  assessment   and, therefore, the  condition precedent  for the  assumption  of jurisdiction by  the appellant  had not  been satisfied. The appellant was  said to have no competence or jurisdiction to re-open the  assessment under  section 147  of the  Act on a mere change  of opinion.  The appellant was also called upon to furnish  all the  materials on  which he  had  reason  to believe that income had escaped assessment. As, according to the respondent,  there was no satisfactory response from the appellant, he  filed  petition  under  article  226  of  the Constitution for quashing the impugned notice.      It was  denied  in  the  affidavit  on  behalf  of  the appellant that  all materials relevant and necessary for the assessment of  the respondent’s  income for  the  assessment year 1958-59 had been produced before the Income-tax Officer at the  time of  the original  assessment.  It  was  further stated:           "Subsequent to  the assessment  for the assessment      year 1958-59,  it was discovered, inter alia, that some      of the  loans shown  to have  been taken  and interests      alleged to  have been  paid thereon  by the  petitioner      during the  relevant assessment  year were not genuine.      The Income-tax  Officer had  reason to believe and bona      fide believed  that the  said  alleged  loans  and  the      interest alleged  to have  been paid  thereon  are  not      genuine. If  necessary, I crave leave to produce before      the hon’ble Judge hearing the application, the relevant      records on  the basis  of  which  the  said  Income-tax      Officer had  reason to  believe that  the income of the      petitioner  escaped  assessment  as  aforesaid  at  the      hearing of the application." During the  pendency  of  the  proceedings  the  High  Court directed that  a copy of the report made by the appellant to the Commissioner of 959 Income-tax for obtaining latter’s sanction under section 147 be produced.  The report  was accordingly  produced, and the same reads as under:           "There are  hundi loan  credits  in  the  name  of      Narayan singh  Nandalal, D.  K.  Naraindas,  Bhagwandas      Srichand, etc.,  who are  known name-lenders,  and also      hundi loan  credit in  the name,  Mohansingh Kanayalal,      who has since confessed he was doing only name-lending.      In the  original  assessment  these  credits  were  not      investigated in  detail. As  the information  regarding      the bogus  nature of  these  credits  is  since  known,      action under  section 147  (a) is  called for to reopen      the  assessment   and  assess   these  credits  as  the      undisclosed income  of the  assessee. The  assessee  is      still claiming  that the  credits are  genuine  in  the      assessment  proceedings   for  1962-63.  Commissioner’s      sanction is  solicited to  reopen  the  assessment  for      1958-59, under section 147(a)." All the  three Judges  who constituted  the Full Bench found that the  assessee was  not being  charged with  omission to disclose all facts: he was charged for having made an untrue disclosure because  the assessee  had  stated  that  he  had received certain sums of money from certain persons as loans when, in fact, he had not received any sum at all from these persons. It  was also  stated by the assessee at the time of the original assessment that he had paid interest to certain persons when,  in fact,  he  had  not,  if  the  information received later  was true.  The duty  of the assessee, it was held, was not only to make a full disclosure of all material

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facts, his  duty was also to make a true disclosure of facts and not  to mislead  the  assessing  officer  by  disclosing certain things which did not represent facts. The High Court accordingly held  that once an assessee infringes this rule, any subsequent  discovery of  fact by  the assessing officer which would  raise a  resonable belief  in his mind that the assessee had  not made  a true and correct disclosure of the facts and had thereby been responsible for escapement of his income from assessment would attract section 147 of the Act. Two of  the learned  Judges,  A.  K.  Mukherjea  and  S.  K. Mukherjea JJ.,  however, took  the view  that the conditions precedent for the exercise of jurisdiction by the Income-tax Officer under  section 147  of the  Income-tax Act  were not fulfilled in the case as the report submitted by the Income- tax Officer  to the  Commissioner for sanction under section 147(a) was  defective. The  defects in  the report,  in  the opinion of the High Court, were the same as had been pointed out by  this Court  in the case of Chhugamal Rajpal v. S. P. Chaliha.(1) The Commissioner, while according permission for taking action  under section  147, it  was  observed,  acted mechanically because  the  Commissioner  had  not  expressly stated that  he was  satisfied that  this was a fit case for the issue  of notice  under  section  148.  As  against  the majority, Sabyasachi  Mukherji J.  held  that  notice  under section 148 of the Act was valid and did not suffer from any infirmity. It was 960 also observed  that the  Commissioner of  Income-tax had not acted improperly in giving sanction.      In the  result, by  majority the High Court quashed the notice issued by the appellant to the respondent.      In appeal  before  us  Mr.  Sharma  on  behalf  of  the appellants has  assailed the judgment of the majority of the learned Judges  in so  far as they have held that the report submitted by  the Income-tax  Officer to the Commissioner of Income-tax for  sanction was defective. As against that, Dr. Pal on  behalf of  the assessee-respondent has canvassed for the correctness  of the view taken by the majority regarding the defective  nature of  the report. Dr. Pal has in his own turn assailed the finding of all the three learned Judges of the High Court in so far as they have held that the assessee was being  charged with  omission to  disclose  true  facts. Contention has  also been  advanced  by  Dr.  Pal  that  the material on  the  basis  of  which  the  Income-tax  Officer initiated these proceedings for reopening the assessment did not have  a rational  connection with  the formation  of the belief that  the assessee  had not made a true disclosure of the facts at the time of the original assessment.      Before dealing with the points of controversy, it would be useful  to reproduce  the relevant provisions of the Act. Sections  147  and  148  which  deal  with  income  escaping assessment and  issue of  notice where  income  has  escaped assessment read as under:      "147. Income escaping assessment.-If-           (a) the  Income-tax Officer  has reason to believe      that, by  reason of the omission or failure on the part      of an  assessee to  make a return under section 139 for      any assessment  year to  the Income-tax  Officer or  to      disclose fully  and truly  all material facts necessary      for his  assessment for that year, income chargeable to      tax has escaped assessment for that year, or           (b)  notwithstanding   that  there   has  been  no      omission or  failure as  mentioned in clause (a) on the      part of  the assessee,  the Income-tax  officer has  in      consequence of  information in his possession reason to

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    believe that  income  chargeable  to  tax  has  escaped      assessment for any assessment year, he may,  subject to  the provisions  of section  148 to 153, assess or  ressess such  income or recompute the loss or the depreciation  allowance,   as  the  case  may  be,  for  the assessment year  concerned (hereinafter  in sections  148 to 153 referred to as the relevant assessment year).           Explanation 1.-For  the purposes  of this section,      the following  shall also  be deemed  to be cases where      income  chargeable   to  tax  has  escaped  assessment,      namely:-           (a) where  income chargeable to tax has been under      assessed; or 961           (b) where such income has been assessed at too low      a rate; or           (c) where such income has been made the subject of      excessive relief  under this  Act or  under the  Indian      Income-tax Act, 1922 (XI of 1922); or           (d) where excessive loss or depreciation allowance      has been computed.           Explanation 2.-Production  before  the  Income-tax      Officer of  account books  or other evidence from which      material evidence  could with  due diligence  have been      discovered  by   the  Income-tax   Officer   will   not      necessarily amount  to disclosure within the meaning of      this section.           148. Issue  of notice  where  income  has  escaped      assessment.-           (1) Before  making the assessment, reassessment or      recomputation under section 147, the Income-tax Officer      shall serve  on the assessee a notice containing all or      any of  the requirements  which may  be included  in  a      notice under  sub-section (2)  of section  139; and the      provisions of  this Act  shall, so far as may be, apply      accordingly as if the notice were a notice issued under      that sub-section.           (2) The  Income-tax Officer  shall, before issuing      any notice  under this  section, record  his reason for      doing so." Sub-section (1) of section 149 prescribes the time limit for notice and reads as under:           "(1) No notice under section 148 shall be issued"           (a) in  cases falling  under clause (a) of section      147-           (i) for  the relevant  assessment year,  if  eight      years have  elapsed from  the end  of that year, unless      the case falls under sub-clause (ii);           (ii) for the relevant assessment year, where eight      years, but  not more  than sixteen  years, have elapsed      from the end of that year, unless the income chargeable      to tax  which has  escaped assessment  amounts to or is      likely to  amount to  rupees fifty thousand or more for      that year;           (b) in  cases falling  under clause (b) of section      147, at  any time  after the  expiry of four years from      the end of the relevant assessment year." Section 151 pertains to the sanction for issue of notice and reads as under:           "151. Sanction  for issue of notice.-(1) No notice      shall be  issued under  section 148 after the expiry of      eight years  from the  end of  the relevant  assessment      year, unless  the Board  is satisfied  on  the  reasons      recorded by  the Income-tax  Officer that  it is  a fit      case for the issue of such notice.

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962           (2) No  notice shall  be issued  under section 148      after the  expiry of  four years  from the  end of  the      relevant assessment  year, unless  the Commissioner  is      satisfied on  the reasons  recorded by  the  Income-tax      Officer that  it is  a fit  case for  the issue of such      notice." The provisions  of sections 147 to 153 of the Act correspond to those  of section  34 of the Indian Income-tax Act, 1922. There have  been some  points of departure from the old law, but it  is not necessary for the purpose of the present case to refer to them.      It would  appear from  the perusal  of  the  provisions reproduced above  that two  conditions have  to be satisfied before an  Income-tax Officer acquires jurisdiction to issue notice under  section 148 in respect of an assessment beyond the period  of four years but within a period of eight years from the  end of the relevant year, viz., (1) the Income-tax Officer must  have reason  to believe that income chargeable to tax  has escaped  assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the  omission or  failure on the part of the assessee (a) to make  a return  under section 139 for the assessment year to the  Income-tax Officer,  or (b)  to disclose  fully  and truly material  facts necessary  for his assessment for that year. Both these conditions must co-exist in order to confer jurisdiction  on   the  Income-tax   Officer.  It   is  also imperative for  the Income-tax Officer to record his reasons before initiating proceedings as required by section 148(2). Another requirement  is that  before notice  is issued after the expiry  of four  years from  the  end  of  the  relevant assessment years,  the Commissioner  should be  satisfied on the reasons  recorded by the Income-tax Officer that it is a fit case  for the  issue of such notice. We may add that the duty which  is cast  upon the assessee is to make a true and full disclosure  of the  primary facts  at the  time of  the original  assessment.   Production  before   the  Income-tax Officer of  the account  books or  other evidence from which material  evidence   could  with  due  diligence  have  been discovered by  the Income-tax  Officer will  not necessarily amount to  disclosure contemplated  by law.  The duty of the assessee in  any case  does not  extend beyond making a true and full  disclosure of primary facts. Once he has done that his duty  ends. It is for the Income-tax Officer to draw the correct  inference   from  the   primary  facts.  It  is  no responsibility of  the assessee  to  advise  the  Income-tax Officer with  regard to  the inference  which he should draw from the  primary facts.  If an  Income-tax Officer draws an inference which  appears subsequently  to be erroneous, mere change of  opinion with  regard to  that inference would not justify initiation of action for reopening assessment.      The grounds  or reasons  which lead to the formation of the belief  contemplated by  section 147(a)  of the Act must have a  material bearing  on the  question of  escapement of income of  the  assessee  from  assessment  because  of  his failure or omission to disclose fully and truly all material facts. 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. Whether the  grounds are adequate or not is not a matter for the court to investigate. The 963 sufficiency of  grounds which  induce the Income-tax Officer to act  is, therefore,  not a  justiciable issue.  It is, of course, open  to the assessee to contend that the Income-tax

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Officer did  not hold  the belief  that there  had been such non-disclosure.  The   existence  of   the  belief   can  be challenged by  the  assessee  but  not  the  sufficiency  of reasons for  the belief.  The expression "reason to believe" does not  mean a  purely subjective satisfaction on the part of the  Income-tax Officer.  The reason must be held in good faith. It  cannot be  merely a  pretence. It  is open to the court to  examine whether  the reasons  for the formation of the belief  have a  rational connection  with or  a relevant bearing  on   the  formation  of  the  belief  and  are  not extraneous 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  [see observations of this Court in the cases of Calcutta Discount Co. Ltd.  v. Income-tax Officer and S. Narayanappa & Ors. v. Commissioner of  Income-tax while dealing with corresponding provisions of the Indian Income-tax Act, 1922].      Keeping the  above principles  in view, we may now turn our attention  to the facts of the present case. Two grounds were mentioned  in the report made by the Income-tax Officer for reopening the assessment of the assessee respondent with a view  to show  that his  income  had  been  under-assessed because of  his failure to disclose fully and truly material facts necessary  for the assessment. One was that Mohansingh Kanayalal, who  was shown  to be one of the creditors of the assessee, had  since confessed  that he was doing only name- lending. The other ground was that Narayansingh Nandalal, D. K. Naraindas,  Bhagwandas Srichand,  etc., whose  names  too were mentioned in the list of the creditors of the assessee, were known  name-lenders. So  far as  the second  ground  is concerned, neither  the majority  of the  Judges of the High Court nor  the learned  Judge who was in the minority relied upon that  ground. Regarding  that ground, the learned Judge who was  in the  minority observed  that no  basis had  been indicated as  to how  it became  known that  those creditors were known  namelenders and  when it was known. The majority while not  relying upon that ground placed reliance upon the case of  Chhugamal Rajpal  (supra). In that case the Income- tax Officer while submitting a report to the Commissioner of Income-tax for  obtaining his  sanction with a view to issue notice under section 148 of the Act stated:           "During the  year the  assessee has  shown to have      taken loans  from various  parties  of  Calcutta.  From      D.I.’s Inv.  No. A/P/Misc.  (5)  D.I./63-64/5623  dated      August 13, 1965, forwarded to this office under C.I.T.,      Bihar and Orissa, Patna’s letter No. Inv. (Inv.) 15/65-      66/1953-2017 dated  Patna September 24, 1965 it appears      that   these   persons   are   name-lenders   and   the      transactions are  bogus.  Hence,  proper  investigation      regarding these  loans is  necessary. The names of some      of the  persons from whom money is alleged to have been      taken on loan on hundis are:           1. Seth Bhagwan Singh Sricharan 964           2. Lakha Singh Lal Singh           3. Radhakissen Shyam Sunder           The amount  of escapement  involved amounts to Rs.      1,00,000."      In dealing with that report this Court observed:           "From  the  report  submitted  by  the  Income-tax      Officer to  the Commissioner, it is clear that he could      not have  had reasons  to believe that by reason of the      assessee’s omission  to disclose  fully and  truly  all      material facts  necessary for  his assessment  for  the

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    accounting year  in question,  income chargeable to tax      has escaped  assessment for  that year, nor could it be      said that  he, as  a consequence  of information in his      possession, had  reasons to  believe  that  the  income      chargeable to tax has escaped assessment for that year.      We are  not satisfied  that the  Income-tax Officer had      any  material   before  him  which  could  satisfy  the      requirements of  either clause  (a) or  clause  (b)  of      section 147.  Therefore he  could  not  have  issued  a      notice under section 148". Reference to  the names  of  Narayansingh  Nandalal,  D.  K. Naraindas, Bhagwandas  Srichand, etc.,  in the report of the Income-tax Officer  to the Commissioner of Income-tax in the instant case  does not  stand on  a better  footing than the reference to  the three  names in  the report  made  by  the Income-tax Officer  in the  case  of  Chuugamal  Rajpal.  We would, therefore,  hold that  the second ground mentioned by the Income-tax  Officer, i.e.,  reference to  the  names  of Narayansingh Nandalal, D. K. Naraindas, Bhagwandas Srichand, etc., could not have led to the formation of the belief that the income  of the respondent assessee chargeable to tax had escaped assessment  for that  year because of the failure or omission of  the assessee  to disclose  fully and  truly all material facts.  All the  three learned  Judges of  the High Court, in  our opinion,  were  justified  in  excluding  the second ground from consideration.      We may  now deal with the first ground mentioned in the report of  the Income-tax  Officer to  the  Commissioner  of Income-tax. This  ground relates  to  Mohansingh  Kanayalal, against whose  name there  was an entry about the payment of Rs. 74  Annas 3  as interest  in the  books of the assessee, having made  a confession  that  he  was  doing  only  name- lending. There  is nothing to show that the above confession related to  a loan  to the assessee and not to someone else, much less  to the  loan of Rs. 2,500 which was shown to have been advanced  by that  person to  the  assessee-respondent. There is  also no  indication as to when that confession was made and whether it relates to the period from April 1, 1957 to March  31,  1958  which  is  the  subject-matter  of  the assessment sought  to be  reopened. The  report was  made on February 13, 1967. In the absence of the date of the alleged confession, it  would not be unreasonable to assume that the confession was made a few weeks or months before the report. To infer  from that confession that it relates to the period from April 1, 1957 to March 965 31, 1958 and that it pertains to the loan shown to have been advanced to  the assessee,  in our  opinion, would be rather far-fetched.      As stated earlier, the reasons for the formation of the belief must  have a  rational connection  with  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 the assessee from assessment in the particular year because of his failure to disclose fully and truly  all material  facts. It is no doubt true that the court cannot  go into  the sufficiency  or adequacy  of  the material and  substitute its  own opinion  for that  of  the Income-tax Officer  on the point as to whether action should be initiated  for reopening  assessment. At the same time we have to  bear in mind that it is not any and every material, howsoever vague  and indefinite  or distant, remote and far- fetched, which  would warrant  the formation  of the  belief

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relating to  escapement of  the income  of the assessee from assessment. The  fact that  the words "definite information" which were  there in  section 34  of the  Act of 1922 at one time before  its amendment  in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action cannot  be taken for reopening assessment even if the information is  wholly vague,  indefinite,  far-fetched  and remote. The  reason for  the formation of the belief must be held in good faith and should not be a mere pretence.      The  powers   of  the   Income-tax  Officer  to  reopen assessment though  wide are  not plenary.  The words  of the statute are "reason to believe" and not "reason to suspect". The reopening  of the  assessment after  the lapse  of  many years is  a serious  matter. The Act, no doubt, contemplates the  reopening  of  the  assessment  if  grounds  exist  for believing  that   income  of   the  assessee   has   escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number  of cases  come to the notice of the income-tax authorities after  the assessment  has been  completed.  The provisions of the Act in this respect depart from the normal rule that  there should  be, subject  to right of appeal and revision, finality  about orders made in judicial and quasi- judicial  proceedings.  It  is,  therefore,  essential  that before such  action is  taken the  requirements of  the  law should be  satisfied. The  live link  or close  nexus  which should be  there between  the material before the Income-tax Officer in  the present  case and the belief which he was to form regarding  the escapement of the income of the assessee from assessment  because of the latter’s failure or omission to disclose  fully and  truly all material facts was missing in the  case. In  any event,  the link  was too  tenuous  to provide a  legally sound basis for reopening the assessment. The majority of the learned Judges in the High Court, in our opinion, were not in error in holding that the said material could not  have led  to the formation of the belief that the income of  the assessee  respondent had  escaped  assessment because of  his failure  or omission  to disclose  fully and truly all  material facts.  We would,  therefore, uphold the view of the majority and dismiss the appeal with costs. P.B.R.                                     Appeal dismissed. 966