Holding

A cause or justification to suspect that income escaped assessment satisfies the "reason to believe" requirement of Section 147, giving the Assessing Officer jurisdiction to issue a notice under Section 148.

Summary

The respondent, Rajesh Jha Ver! Stock Brokers Pvt. Ltd., filed its return for AY 2001‑02 showing a loss, which was processed under Section 143(1) of the Income Tax Act. The Assessing Officer later issued a notice under Section 148 alleging that the claim of bad debts was not allowable, and initiated reassessment. The respondent contested the notice on jurisdictional grounds, but the Assessing Officer upheld the reassessment. The respondent obtained a writ order from the Gujarat High Court, relying on the Adani case, which was set aside by this Court. The Court held that under the post‑1989 amendment of Section 147, "reason to believe" merely requires cause or justification, not conclusive proof, and that only this first condition suffices to confer jurisdiction for reassessment. Consequently, the Assessing Officer was justified in reopening the assessment, and the High Court’s decision was reversed.

Issues considered

Whether the Assessing Officer had "reason to believe" that income had escaped assessment sufficient to issue a notice under Section 148 when the original assessment was an intimation under Section 143(1).
Whether the High Court was correct in applying the Adani case, which dealt with assessments under Section 143(3), to the present facts.
Interpretation of the phrase "reason to believe" under the amended Section 147 of the Income Tax Act.

Legislation cited

Income Tax Act, 1961s. 143(1), s. 143(3), s. 147, s. 148, s. 152

Subjects

Income TaxSection 147Section 148reason to believereassessmentassessment yearSection 143(1) vs 143(3)jurisdictiontax law

Judgment

ASSISTANT COMMISSIONER OF INCOME TAX
v.
RAJESH JHA VER! STOCK BROKERS PVT. LTD.

MAY23, 2007

[DR. ARIJIT PASAYAT AND D. K. JAIN, JJ.] l3

; Income Tax Act, 196I:

Section 147 (as it stood w.e.f 01.04.1989)-Income escaping
assessment-Reason to believe-Assessment year 2001-02-Assessee, a private c
limited company, filed its return declaring a total loss of a certain amount-
The said return was processed under S. 143(1) accepting the loss returned

... by the assessee-Subsequently, a notice under S. 148 was issued on the
ground that the claim of bad debts as expenditure was not acceptable-A
return of income declaring the loss at the same figure, as declared in the D
original return, was filed by the assessee under protest-A copy of the
,\ reasons recorded was furnished by the Assessing Officer on the assessee 's
request-The assessee raised various objections both on the jurisdiction and
merits of the subject-matter recorded in the reasons-The Assessing Officer
disposed of the objections holding that the initiation of reassessment
proceedings was valid and that he had jurisdiction to undertake such an E
exercise-Assessee challenged the notice under S. 148-The High Court
allowed the writ petition-Correctness of-Held: if the Assessing Officer has '
cause or jurisdiction to know or suppose that income had escaped assessment,
he can be said to have reason to believe that an income had escaped
assessment-The expression 'reason to believe' cannot be read to mean that
F
,. the Assessing Officer should have finally ascertained the fact by legal evidence
or conclusion-So long as the ingredients ofS. I47 are fulfilled, the Assessing
I
Officer is free to initiate proceedings under S. 147-Hence, Assessing Officer
justified in reopening the assessment-High Court's judgment set aside.

• Words & Phrases:

"Reason to believe '-Meaning of-ln the context of Section l 47 of the
G

Income Tax Act, 1961.
)

The respondent, a private limited company, filed its return of income
765 H
766 SUPREME COURT REPORTS (2007) 7 S.C.R.

A for the Assessment year 2001-02 declaring a total loss of a certain amount.
The said return was processed under Section 143(1) of the Income Tax Act,
1961 accepting the loss returned by the respondent.

Subsequently, a notice under Section 148 of the Act was issued on the
ground that the claim of bad debts as expenditure was not acceptable. A return
B of income declaring the loss at the same figure, as declared in the original
return, was filed by the respondent under protest. A copy of the reasons
recorded was furnished by the appellant on the respondent's request. The
respondent raised various objections both on the jurisdiction and merits of
the subject-matter recorded in the reasons. The appellant disposed of the
C objections holding that the initiation of reassessment proceedings was valid
and that he had jurisdiction to undertake such an exercise.

The respondent filed a writ petition challenging the impugned notice
under Section 148 of the Act before the High Court. The High Court allowed
the writ petition following the decision in Adani 's case. Hence the appeal.
D
Allowing the appeal, the Court

HELD: I. Section 147 of the Income Tax Act, 1961 authorises and
permits the Assessing Officer to assess or reassess income chargeable to
tax if he has reason to believe that income for any assessment·year has
E escaped assessment. The word "reason" in the phrase "reason to believe"
would mean cause or jurisdiction. If the Assessing Officer has cause or
justification to know or suppose that income had escaped assessment, he can
be said to have reason to believe that an income had escaped assessment. The
expression cannot be read to mean that the Assessing Officer should have
finally ascertained the fact by legal evidence or conclusion. The function of
F the Assessing Officer is to administer the statue with solicitude for the public
exchequer with an inbuilt idea of fairness to taxpayers.
(Para 161 (777-A, 8, CJ
Adani Exports v. Deputy Commissioner of Income Tax (Assessment),
(1999) 240 ITR 224 (Guj), Apogee International Ltd. v. Union of India, (1996)
G 220 ITR 248 (Del), Central Provinces Manganese Ore Co. Ltd. v. ITO, (1991)
191 ITR 662 (Del), ITO v. Selected Dalurband Coal Co. Pvt. ltd. (1996) 217
ITR 597 SC and Raymond Woolen Mills ltd. v. ITO, (1999) 236 ITR 34 SC, \
referred to.
(
2. The scope and effect of Section 147 of the Act as substituted with
H
A~~l~IA:O.I LUMM.,R.U~ 11'.LUMt !AA•·. l<AJi:.~HJHAVi:.RJ;tULr..BRUl..l:.~P\l. LIU. 76 7

effect from 1.04.1989, as also Sections 148 and 152, are substantially different A
from the provisions as they stood prior to such substitution. Under the old
provisions of Section 147, separate clauses (a) and {b) laid down the
circumstances under which income escaping assessment for the past
assessment years could be assessed or reassessed. To confer jurisdiction
under Section 147{a) two conditions were required to be satisfied: firstly the B
Assessing Officer must have reason to believe that income, profits or gains
chargeable to income tax has escaped assessment and secondly he must also
have reason to believe that such escapement has occurred by reason of either
(i) omission or failure on the part of the assessee to disclose fully or truly all
material facts necessary for his assessment of that year. Both these conditions
were conditions precedent to be satisfied before the Assessing Officer could C
have jurisdiction to issue notice under Section 148 read with Section 147(a).
But under the substituted Section 147 existence of only the first condition
suffices. In other words, if the Assessing Officer for whatever reason has
reason to believe that income has escaped assessment, it confers jurisdiction
to, reopen the assessment. It is, however, to be noted that both the conditions D
must be fulfilled if the case falls within the ambit of the proviso to Section
147. The case at hand is covered by the main provision and not the proviso.
(Para 171 (777-E, F, G, H; 778-Al

3. So long as the ingredients of Section 147 are fulfilled, the Assessing
Officer is free to initiate proceedings under Section 147 and failure to take E
steps under Section 143(3) will not render the Assessing Officer powerless
to initiate reassessment proceedings even when intimation under Section
143(1) had been issued. (Para 18) (778-B)

4. The High Court has wrongly applied Adani 's case, which has no
application to the case on the facts in view of the conceptual difference between p
Section 143(1) and Section 143(3). (Para 19) (778-C)

Adani Exports v. Deputy Commissioner of Income Tax (Assessment),
(1999) 240 ITR 224 (Guj), referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2830 of2007. G
From the· Final Judgment and Order dated 23.3.2005 of the High Court
of Gujarat at Ahmedabad in Special Civil Application No. 2643 of 2005.
)
Gopal Subramanium, A.S.G, Arunav Patnaik and B. V. Balaram Das for
the Appellant. H
768 SUPREME COURT REPORTS [2007) 7 S.C.R.

A. N. Ganpathy for the Respondent.

The Judgment of the Court was delivered by

DR. ARIJIT PASA YAT, J. I. Leave granted.

B 2. Challenge in this appeal filed by the revenue is to the correctness of
the decision rendered by a Division Bench of the Gujarat High Court allowing
the Special Civil Application filed by the appellant.

3. Background facts in a nutshell are as follows:

C 4. The respondent-a Private Limited Company filed its return of income
for Assessment year 2001-02 on 30th October, 200 I declaring total loss of
Rs.2,70,85,105/-. The said return was processed under Section 143(1) of the
Income Tax Act, 1961 (in short the 'Act') accepting the loss returned by the
respondent. Notice under Section 148 of the Act was issued on the ground
that claim of bad debts as expenditure was not acceptable. On 12th May, 2004
D a return of income declaring the loss at the same figure, as declared in the
original return, was filed by the respondent under protest. Copy of the · ..
reasons recorded was furnished by the appellant on the respondent's request
some time in November, 2004. The respondent raised various objections, both
on jurisdiction and merits of the subject matter recorded in the reasons. On
E 4th February, 2005 the appellant disposed of the objections holding that the
initiation of reassessment proceedings was valid and he had jurisdiction to
undertake such an exercise. It is in the aforesaid backdrop of facts that the
impugned notice under Section I48 of the Act dated 12th May, 2004 was
challenged by the respondent.

F 5. The High Court allowed the writ petition following the decision of the
High Court in Adani Exports v. Deputy Commissioner of Income Tax
(Assessment) (1999) 240 !TR 224.

6. In support of the appeal learned counsel for the appellant submitted
that the factual position involved in Adani Export's case (supra) was entirely
G different. That was a case relating to Section 143 (3) of the Act and the
present case relates to Section 143( 1) of the Act. It is pointed out that return
was filed by the respondent for the concerned assessment year i.e. 2001-2002
on 30.10.200 I. The return was processed under Section 143 (I) of the Act
on 26.l 1. 200 I. The revenue audit raised an objection relating to a debit of
H Rs.1285.72 lakh as bad debt out of total expenditure ofRs.1307.64. Since the
ASSISTANTCOMMNR OF INCOMETAXv. RAJESHJHAVERISTOCKBROKERSPVT LTD. [PASAYAT,J.] 769

conditions stipulated under Section 36( I )(vii) read with Section 36(2) of the A
Act were not fulfilled, the assessing officer reopened the assessment by
·issuing a notice in terms of Section 148 of the Act on the ground that it has
reason to believe that the income assessable to tax had escaped assessment
within the meaning of Section 147 of the Act. The respondent asked for the
reason for re-opening the assessment. On 31.5.2004 a return of income
declaring the loss of the original return was filed by the respondent under B
protest and raised various objections relating to jurisdiction and merits of the
} subject matter. The same was disposed of by the assessing officer holding
the initiation of re-assessment proceedings was valid and the assessing
officer had jurisdiction to undertake the exercise. Thereafter a writ petition
was filed as noted above. The High Court relying on the decision in Adani C
Export's case (supra), which had no application, allowed the writ petition.

7. According to the learned counsel for the appellant the distinction
between the position as under Section 14 3(1) of the Act vis-a-vis under
Section 143(3) of the Act has been completely lost sight of by the High Court.
Adani's case (supra) related to a case under Section 143(3) of the Act. D
8. Learned counsel for the respondent on the other hand supported the
order.

9. In order to consider the rival submissions, it is necessary to take note
of Section 143(1) (as it stood before and after amendment with effect from E
June l, 1999), 147 and 148. The provisions read as follows:

After amendment:

143. Assessment- (I) Where a return has been made under section
139, or in response to a notice under sub-section (I) of Section 142,- F
(0 if any tax or interest is found due on the basis of such return,
after adjustment of any tax deducted at source, any advance tax
paid, any tax paid on self-assessment and any amount paid
otherwise by way of tax or interest, then, without prejudice to
the provisions of sub-section (2), an intimation shall be sent to (J
the assessee specifying the sum so payable, and such intimation
shall be deemed to be a notice of demand issued under Section
) 156 and all the provisions of this Act shall apply accordingly;
and
if any refund is due on the basis of such return, it shall be H
1

(ii)
770 SUPREME COURT REPORTS (2007) 7 S.C.R.

A granted to the assessee and an intimation to this effect shall be
sent to the assessee:
.
Provided that except as otherwise provided in this sub-section,
the acknowledgment of the return shall be deemed to be an intimation
under this sub-section where either no sum if payable by the assessee
B or no refund is due to him:

Provided further that no intimation under this sub-section shall be
sent after the expiry of two years from the end of the assessment year
in which the income was first assessable ...... "

c Before amendment:

JO. Section 143(1) as it stood at the point of tline when the intimation
was given under the said provision, so far as relevant, read as follows: ---
143. (l)(a) Where a return has been made under section 139, or in
D response to a notice under sub-section (1) of section 142,-

(i) if any tax or interest is found due on the basis of such return, after
adjustment of any tax deducted at source, any advance tax p~id and
any amount paid otherwise by way of tax or interest, then, witho.ut.
prejudice .to the provisions of sub-section (2), an intim~tion shall be
E· sent to the assessee specifying the sum so payable, and such intimation
shall be deemed to be a notice of demand issued under section 156.
and all the provisions of this Act shall apply accordingly; and

(ii) if any refund is due on the basis of such return; it shall be granted
to the assessee:
F Provided that in computing the tax or interest payable by, or
refundable to, the assessee, the following adjustinents shall be made
in the income or loss declared in the return, namely :

(i) any arithmetical errors in the return, accounts or documents
accompanying it shall be rectified;
G
(ii) any loss carried forward, deduction, allowance or relief, which,
on the basis of the information available in such return, accounts
or documents, if prima facie admissible but which is not claimed
(
in the return, shall be allowed;

H (iii) any loss carried forward, deduction, allowance or relief claimed
ASSISTANT COMMNR. OF INCOME TAX•. RAJESH JHA VER! STOCK BROKERS PVT.LTD. [PASAY AT, J.] 771

>. in the return, which, on the basis of the information available in A
such return, accounts or documents, is primafacie inadmissible,
shall be disallowed: ·

Provided further that an intimation shall be sent to the assessee
whether or not any adjustment has been made under the first proviso
and notwithstanding that no tax or interest is due from him: B
Provided also that an intimation under this clause shall not be
sent after the expiry of two years from the end of the assessment year
?
in the income, was first assessable.

I 47. Income escaping assessment. If the Assessing Officer, has reason
t
to believe that any income chargeable to tax has escaped assessment
for any assessment year, he may, subject to the provisions of sections
148 to 153, assess or reassess such income and also any other income
chargeable to tax which has escaped assessment and which comes
to his notice
D
subsequently in the course of the proceedings under this section, or
....... recompute the loss or the depreciation allowance or any other
allowance, as the case may be, for the assessm.ent year concerned
. '
(hereafter in this section and in sections 148 to 153 referred to as the
relevant assessment year):
E
Provided that where an assessment under sub-section (3) of section
143 or this section has been made for the relevant assessment year,
'!. no action shall be taken under this section after the expiry of four
years from the end of the relevant assessment year, unless any income
chargeable to tax has escaped assessment for such assessr lent year
by reason of the failure on the part of the assessee to make a return F:
1' under section 139 or in response to a notice issued under sub-section
(l) of section 142 or section 148 or to disclose fully and truly all
material facts necessary for his assessment for that assessment year.

Explanation l. Production before the Assessing Officer of account
books or other evidence from which material evid'!nce could, with due G
'• diligence, have been discovered by the Assessing Officer will not
·'\. necessarily amountto disclosure within the meaning of the foregoing
). proviso ..

Explanation 2. For the purposes of this section, the following shall
H
772 SUPREME COURT REPORTS [2007] 7 S.C.R.

A also be deemed to be cases where income chargeable to tax has x..
escaped assessment, namely:

(a) where no return of income has been furnished by the assessee
although his total income or the total income of any other person in
respect of which he is assessable under this Act during the previous
B year exceeded the maximum amount which is not chargeable to income-
tax·
'
(b) where a return of income has been furnished by the assessee but ~-
no assessment has been made and it is noticed by the Assessing
Offker that the assessee has understated the income or has claimed
c excessive loss, deduction, allowance or relief in the return;

(c) where an assessment has been made, but

(i) income chargeable to tax has been under-assessed ; or
(ii) such income has been assessed at too low rate ; or
D
(iii) such income has been made the subject of excessive relief
under this Act ; or J..-.

(iv) e·xc·essive loss or depreciation allowance or any other allow-
ance under this Act has been computed.

E 148. Issue of notice where income has escaped assessment.( I) Before
making the assessment, reassessment or recomputation under section
147, the Assessing Officer shall serve on the assessee a notice
..J
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
F
were a notice issued under that sub section. :r
(2) The Assessing Officer shall, before issuing any notice under this )
section, record his reasons for doing so.

11. It is to be noted that substantial changes have been made to section
G 143(1) with effect from June I, 1999. Up to March 31, 1989, after a return of
income was filed the Assessing Officer could make an assessment under
section 143(1) without requiring the presence of the assessee or the production
by him of any evidence in support of the return. Where the assessee objected !
to such an assessment or where the officer was of the opinion that the
H assessment was incorrect or incomplete or the officer did not complete the
ASSISTANTCOMMNR. OF INCOME TAX 1·. RAJESHJHAVliRI STOCK BROKERS PVT. LTD. [PASAYAT,J.) 773

assessment under section 143(1), but wanted to make an inquiry, a notice A
under section 143(2) was required to be issued to the assessee requiring him
to produce evidence· in support of his return. After C4?flSidering the material
and evidence produced and after making necessary inquiries, the officer had
power to make assessment under section 143(3). With effect from April 1,
1989, the provisions underwent substantial and material changes. A new
scheme was introduced and the new substituted section 143(1) prior to the B
subsequent substitution with effect from June I, 1999, in clause (a), a provision
was made that where a return was filed under section 139 or in response to
a notice under section 142(1), and any tax or refund was found due on the
basis of such return after adjustment of tax deducted at source, any advance
tax or any amount paid otherwise by way of tax or interest, an intimation was C
to be sent without prejudice to the provisions of section 143(2) to the
assessee specifying the sum so payable and such intimation was deemed to
be a notice of demand issued under section 156. The first proviso to section
143(1Xa).allowed the Department to make certain adjustments in the income
or loss declared in the. return. They were as follows:
D
(a) an arithmetical. error in the return, accounts and documents
accompanying it were to be rectified;
- '
(b) any loss carried fol"Ward, deduction, allowance or relief which on
the basis of the informati_on available in ~ch return, accounts or
documents, was prima_ facie admissible, but which was not claimed in E
the return was t.o be allowed;·

(c) any loss carried forward, relief claimed in the return which on the
basis of the information as available in such returns accounts or ·
documents were prima facie inadmissible was to be disallowed.
F
12. What were permissible under the first proviso to section 143(1Xa)
to be adjusted were, (i) only apparent arithmetical errors in the return, accounts
or documents accompanying the return, (ii) loss carried forward, deduction
allowance or relief, which was prima facie admissible on the basis of information
available in the return but not cfaimed in the return and similarly (iii) those
claims which were on the basis of the informatiort available in the return, prima G
facie inadmissible, were to be rectified/allowed/disallowed. What was
permissible was correction of errors apparent on the basis of the documents
accompanying the return. The Assessing Officer had· no authority to make
adjustments or adjudicate upon any debatable issues. I.n other words, the
Assessing Officer ha~ no power to go behind the return,. accounts .or H
774 SUPREME COURT REPORTS (2007) 7 S.C.R.
t-
A documents, either in allowing or in disallowing deductions, allowance or relief.
;I-
"
13. One thing further to be noticed is that intimation under section
143(1Xa) is given without prejudice to the provision~ of section 143(2). Though
technically the intimation issued was deemed. to be a demand notice issued
under section 156, that di.d not per se preclude the right of the Assessing
B Officer to proceed under section 143(2). That right is preserved and is not
taken away. Between the period from April I, 1989 to March 31, 1998, the
second proviso to section 143(1 )(a), required that where adjustments were
made under the first proviso to section 143(1)(a}, an intimation had to be sent ").
to the assessee notwithstanding that no tax or refund was due frorri him after
c making such adjustments. With effect from April I, 1998, the second proviso
to section 143(1)(a) was substituted by the Finance Act, 1997, which was
operative till June I, 1999. The requirement was that an intimation was to be
sent to the assessee whether or not any adjustment had been made under the
first proviso to section 143(1) and notwithstanding that no tax or interest was
found due from the assessee concerned. Between April 1, 1998 and May 31,
D 1999, sending of an intimation under section 143(1)(a) was mandatory. Thus,
the legislative intent is very clear from the use of the word "intimationas"
substituted for "assessment" that two different concepts emerged. While ~·
making an assessment, the Assessing Officer is free to make any addition ,.r
after grant of opportunity to the assessee. By making adjustments under the
first proviso to section 143(1)(a), no addition which is impermissible by the
E
information given in the return could be made by the Assessing Officer. The
reason is that under section 143( l)(a) no opportunity is granted to the assessee
and the Assessing Officer proceeds on his opinion on the basis of the return
filed by the assessee. The very fact that no opportunity of being heard is
given under section 143(1 )(a) indicates that the Assessing Officer has to
F proceed accepting the return and making the permissible adjustments only.
As a result of insertion of the Explanation to section.143 by the Finance (No.
r
2) Act of 1991 with effect from October I, 1991, and subsequently with effect
from June I, 1994, by the. Finance Act, 1994, and ultimately omitted with effect
from June 1, 1999, by the Explanation as introduced by the Finance (No. 2)
Act of 1991 an "intimation" sent to the assessee under section 143(1)(a) was
G deemed to be an order for the purposes of section 246 between June I,.! 994,
to May 31, 1999, and under section 264 between October I, 1991, and May
31, 1999. It is to be noted that the expressions intimation and assessment
order have been used ~t different places. The contextual difference between j
the two expressions has to be understood in the context the expressions are
H used. Assessment is used as meaning sometimes the computation of income, ......
ASSISTANTCOMMNR_ OF INCOME TAX v. RAJESHIHA VER! STC".K BROKERS PVT_ LTD_ (PASAY AT. J ) 775

-~
sometimes the determination of the amount of tax pay~ble and sometimes the A
whole procedure laid down in the Act for imposing liability upon the tax
payer. In the scheme of things, as noted above, the intimation under section
I43(1)(a) cannot be treated to be an order of assessment. The d!stinction is
also well brought out by the statutory provisions as they stood at different
points of time. Under section 143(1)(a) as it stood prior to April I, 1989, the
Assessing Officer had to pass an assessment order if he decided to accept ~
the return, but under the amended provision, the requirement of passing of
an assessment order has been dispensed with and instead an intimation is
j'
required to be sent. Various circulars sent by the Central Board of Direct Taxes
spell out the intent of the Legislature, i.e., to minimize the departmental work
to scrutinize each ~nd every return and to concentrate on selective scrutiny c
of returns. These aspects were highlighted by one of us (D. K. Jain J) in
Apogee International Limited v. Union of India ( 1996) 220 ITR 248. It may
be noted above that under the first proviso to the newly substituted section
143(1), with effect from June I, 1999, except as provided in the provision i;self,
the acknowledgment of the return shall be deemed to be an intimation under
section 143(1) where (a) either no sum is payable by the assessee, or (b) no D
refund is due to him. It is significant that the acknowledgment is not done
by any Assessing Officer, but mostly by ministerial staff. Can it be said that
any assessment is done by them? The reply is an emphatic no. The intimation
under section 143(1){a) was deemed to be a notice of demand under section
156, for the apparent purpose of making machinery provisions relating to E
recovery of tax applicable. By such application only recovery indicated to be
payable in the intimation became permissible. And nothing more can be
inferred from the deeming provision. Therefore, there being no assessment
under section _143(1)(a), the question of change of opinion, as contended,
does not arise.
p
) 14. Additionally, section 148 ·:; prt:sently stands is differently couched
in language from what was earlier the positio11. Prior to the substitution by
the Direct Tax Laws (Amendment) Act, 1987, the provision read as follows:

l 48. Issue of notice where income has escaped assessment.( I) Before
making the assessment, reassessment or r..;computation under section G
147, the Assessing Officer shall serve on the assessee a notice
containing all or any of the requirements which may be included in
l a notice under sub-section (2) of section 139; and the provisions of
this Act shall, so far as may be, apply accordi'lgly as if the notice
were a notice issued under that sub-section.
H
776 SUPREME COURT REPORTS [2007) 7 S.C.R.

A (2) The Assessing Officer shall, before issuing any notice under this
section, record his reasons for doing so."

15. Section 147 prior to its substitution by the Direct Tax Laws
(Amendment) .Act, 1987, stood as follows:

:J 147. Income escaping assessment. If

(a) the Assessing Officer has reason to bet.ieve that, by reason of the
omission or failure on the part of an assessee to make a return under .
s::ction 139 for any assessment year to the Assessing Officer or to
disclose fully and truly all material facts necessary for his assessment
c 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 Assessing
Officer has in consequence of information in his possession . reason
D to believe that income chargeable to tax has escaped a5sessment for
any assessment year,
,;...
he may, subject to the provisions of sections 148 to 153, assess
or reassess such income or recompute the loss or the depreciation
allowance, as the case. may be, for· the assessment year concerned
E (herea~er in sections 148 to 153 referred to as the relevant assessment
year).

Explanation l. For the purposes of this section, the following shall
also be deemed to be cases where income chargeable to tax has
escaped assessment, namely :
F
(a) Where income chargeable to tax has been underassessed ; or

(b) where such income has been assessed at too low 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 (1rof1922);
G or

(d) where excessive loss or depreciation allowance has been computed.
(
Explanation 2..Production before the Assessing Officer of account
books or other evidence from which material evidence could with due
H diligence have been discovered by the Assessing Officer will not
ASSISTANTCOMMNR. OF INCOME TAX v. RAJESHJHA VERI STOCK BROKERS PVT.LTD. [PASAYAT. J.) 777
necessarily amount to disclosure within the meaning of this section". A
16. Section 147 authorises and permits the Assessing Officer to assess
or reassess income chargeable to tax if he has reason to believe that income
for any assessment year has escaped assessment. The word reason in the
phrase "reason to believe" would mean cause or justification. If the Assessing .
Officer has cause or justification to know or suppose that income had escaped B
assessment, it can be said to have reason to believe that an income had,
escaped assessment. The expression cannot be read to mean that the
· Assessing Officer should have finally ascertained the fact by legal evidence
or conclusion. The function of the Assessing Officer is to administer the
statute with solicitude for the public exchequer with an inbuilt idea of fairness C
to taxpayers. As observed by the Delhi High Court in Central Provinces
Manganese Ore Co. Ltd. v. JTO, (1991) 191 ITR 662, for initiation of action
under section 147{a) (as the provision stood at the relevant time) fulfillment
of the two requisite conditions in that regard is essential. At that stage, the
final outcome of the proceeding is not relevant. In other words, at the
initiation stage, what· is required is reason to believe, but not the established, D
fact of escapement of income. 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. This is so because ,
the formation of be lief by the Assessing Officer is within the realm of subjective .E
satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd (1996) 217 ITR,
597 SC; Raymond Woollen Mills Ltd. v. JTO, (1999) 236 ITR 34 SC.

17. The scope and effect of section 14 7 as substituted with effect from
April I, 1989, as also sections 148 to 152 are substantially different from the,
provisions as they stood prior to such substitution. Under the old provisions F
of section 147, separate clauses (a) and (b) laid down the circumstances under
which income escaping assessment, for the past assessment years could be
assessed or reassessed. To confer jurisdiction under section 147(a) two
conditions were required to be satisfied firstly the Assessing Officer must
have reason to believe that income profits or gains chargeable to income tax
have escaped assessment, and secondly he must also have reason to believe G
that such escapement has occurred by reason of either (i) omission or failure ,
on the part of the assessee to disclose fully or truly all material facts necessary
for his assessment of that year. Both these conditions were conditions
. precedent to be satisfied before the Assessing Officer could have jurisdiction
to issue notice under section 148 read with section 147(a) But under the 'H
778 SUPREME COURT REPORTS [2007) 7 S.C.R.

A substituted section 147 existence of only the first condition suffices. In other
words ifthe Assessing Officer for whatever reason has reason to believe that
income h·as escaped assessment it confers jurisdiction to reopen the
assessment. It is however to be noted that both the conditions must be
fulfilled ifthe case falls within the ambit of the proviso to section 147. The
case at hand is covered by the main provision and not the proviso.
B
18. So long as the ingredients of section 147 are fulfilled, the Assessing
Officer is free to initiate proceeding under section 147 and failure to take steps
under section 143(3) will not render the Assessing Officer powerless to
initiate rnassessment proceedings even when intimation under section 143(1)
C had been issued.

19. Inevitable conclusion is that High Court has wrongly applied Adani 's
case (supra) which has no application to the case on the facts in view of the
conceptual difference between Section 143(1) and Section 143(3) of the Act.

20:. Learned counsel for the respo.:dent sulitnitted that other points are
D
available to be raised. Since no other point was urged before the High Court,
wee fi!ld, no reason to examine if any other point was available. The appeal is
allowed without any orders as to costs.

v.ss. .\ppeal allowed.
E

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