Appeal No 1311 of 1967
Appeal by special leave from the judgment and order dated January 17 1967 of the Patna High Court in CWJC No 952 of 1966
M C Chagla N D Karkhanis section P Chowdhury Bhuvanesh Kumari for the appellant
section C Manchanda R N Sachthey and B D Sharma for the respondent
The Judgment of the Court was delivered by Hegde J
This is an assessee s appeal by special leave against the judgment of the High Court of Patna dismissing in limini its writ petition under Arts 226 and 227 of the Constitution of India
The assessee is having construction contracts under the Railways as well as the Government
It is a partnership firm
For the assessment year 1960 61 relevant to the accounting year 1959 60 after the assessee submitted its income tax return it was asked by the Income tax Officer during the income tax assessment proceedings to produce before him its books of account and the other relevant papers
The assessee also produced before him a statement showing various creditors from whom it had borrowed on Hundis during the accounting year in question
In that statement it gave the lull names and address of the alleged creditors
After enquiry the assessee s total income was assessed at Rs 69886 
On June 3 1966 the 1st respondent Income tax Officer Ward A  Muzaffarpur issued to the assessee a notice under section 148 of the Indian Income tax Act 1961
The material portion of that notice reads as follows Notice under section 148 of the Income tax Act 1961
Income Tax Officer Muzaffarpur Dated the 3 6 1966
TO Ms Chugamal Rajpal Muzaffarpur
Whereas 1 have reason to believe that your income chargeable the income of 1960 1961 in respect of which you are assessable to tax for the assessment year 19 19 has escaped assessment within the 444 meaning of section 147 of the Income Tax Act 1961
I therefore propose to re assess the income for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice a return in the prescribed form of your income The income assessable relevant to the assessment year 1960 61 of in respect of which you are assessable for the said assessment year
The notice is being issued after obtaining the necessary satisfaction of the Commissioner of IncomeTax Bihar and Orissa Patna
Sd section P Chaliha Income Tax Officer Ward A Muzaffarpur
 The assessee challenged the validity of that notice as well as proceedings taken on the strength of that notice on various grounds
As we are accepting the contention of the assessee that the impugned notice is invalid inasmuch as it did not comply with the requirements of section 1512 of the Act we have not thought it necessary to examine the other contentions advanced on behalf of the assessee
In this case the notice was issued after four years but before eight years of the date of the original assessment
Section 151 2 of the Act reads 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 Section 148 prescribes  1 Before making the assessment re assessment or re computation under Section 147 the Income tax Officer shall serve on the assesee a notice containing all or any of the requirements which may be included in a notice under sub section 2 of Section 139 and 445 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 reasons for doing so
 Section 147 deals with income escaping assessment
At this stage we need not refer to that section  We shall refer to that provision at a later stage
Section 1392 says  In the case of any person who in the incometax Officer s opinion assessable under this Act whether on his own total income or on the total income of any other person during the previous year the Income tax Officer may before the end of the relevant assessment year serve a notice upon him requiring him to furnish within thirty days from the date of service of the notice a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed proviso is not necessary for our present purpose When this appeal came up for hearing on the last occasion as we found the affidavit filed by the Income tax Officer to be vague and indefinite we directed the learned Counsel for the Department to produce before us the records of the Incometax Officer to show that the Income tax Officer had complied with the requirements of section 148 and section 1512 of the Act
When the appeal was taken up for hearing on the 18th January 1971 only the report submitted by the Income tax Officer to the Commissioner and the order of the Commissioner was produced
The order sheet recording the reasons of the Income tax Officer as required by section 1482 was not produced
Hereinbelow we have sent out the report of the Income tax Officer as well as the order of the Commissioner Report in Connection with the starting of proceeding under Section 147 of the Income tax Act 1951
Name of District Ward of Circle A Ward Muzaffarpur G IR No 303 C 11
Name and address of the assessee MS Chugamal Rajpal Muzaffarpur
RF 2Status 3
Assessment year for which notice under section 1 48 is proposed to be issued 1960 61
446 4
Whether it is a new case or one in which re assessment or recomputation has to be made Re assessment 5
If a case of reassessment or recomputation the income or loss or depreciation allowance originally assesseddetermined
Rs 73604 6
Whether the case falls under cl
a or b of section 147 147a 7
Brief reasons for starting proceedings under Kindly see section 147 indicate the items which are Sd section P Chaliha
ITO 30 4 66 believed to have escaped assessment A Ward Muzaffarpur
8Whether the Commissioner is satisfied that Yes it is a fit case for the issue of notice under Sd K Narain section 148
13 5 66 Commissioner of Income tax Bihar and Orissa Patna 9
Whether the Board is satisfied that it is aSecretary Board of Revenuefit case for the issue of notice under section 148
During the year the assessee hasshown to have taken loans from various parties of Calcutta
From DIs Inv
No AP Misc5DI63 645623 dated 13 8 65 forwarded to this office under CIT Bihar and Orissa Patna s letter No Inv
Inv15 65 661953 2017 dated Patna 24 9 65 it appears that these persons are name lenders and the transactions are bogus
Hence proper investigation regarding these loans is necessary
The name of some of the persons from whom money is alleged to have taken on loan on Hundis are 1
Seth Bhagwan Singh Sricharan
Lakha Singh Lal Singh
Radhakissen Shyam Sunder
The amount of escapement involved amounts to Rs 100000 
Sd section P Chaliha 30 4 66
Income tax Officer A Ward Muzaffarpur
 In his report the Income tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under section 148
The material that he had before him for issuing notice under section 148 is not mentioned in the report
In his report he vaguely refers to certain communications received by him from the CIT Bihar and Orissa
He does not mention the facts contained in those communications
All that he says is that from those communications it appears that these persons alleged creditors are name lenders and the transactions are bogus
He has not even come to a prima facie conclusion 447 that the transactions to which he referred are not genuine transactions
He appears to have had only a vague feeling that they may be bogus transactions
Such a conclusion does not fulfil the requirements of section 1512
What that provision requires is that he must give reasons for issuing a notice under section 148
In other words he must have some prima facie grounds before him for taking action under section 148
Further his report mentions  Hence proper investigation regarding these loans is necessary In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions
That is not the same thing as saying that there are reasons to issue notice under section 148
Before issuing a notice under section 148 the Income tax Officer must have either reasons to believe that by reason of the omission or failure on the part of these 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 alternatively not withstanding that there has been no omission or failure as mentioned above on the part of the assessee the Income tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year
Unless the requirements of clause a or b of section 147 are satisfied the Income tax Officer has no jurisdiction to issue a notice under section 148
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 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 cl
a or cl
b of section 147
Therefore he could not have issued a notice under section 148
Further the report submitted by him under section 1512 does not mention any reason for coming to the conclusion that it is a fit case for the issue of a notice under section 148
We are also of the opinion that the Commissioner has mechanically accorded permission
He did not himself record that he was satisfied that this was a fit case for the issue of a notice under section 148
To Question No 8 in the report which reads Whether the Commissioner is satisfied that it is a case for the I issue of notice under section 148 he just noted the word yes and affixed his signatures thereunder
We are of the opinion that if only he had read the report carefully he could never have 448 come to the conclusion on the material before him that this is a fit case to issue notice under section 148
The important safeguards provided in sections 147 and 151 were lightly treated by the Income tax Officer as well as by the Commissioner
Both of them appear to have taken the duty imposed on them under those provisions as of little importance
They have substituted the form for the substance
In the result this appeal is allowed the order of the High Court is set aside and the impugned notice quashed
The Respondent No 2 shall pay the costs of the appellant both in this Court and in the High Court
GC Appeal allowed


Summary:
The appellant a partnership firm filed its return of income for the assessment year i960 61 and subsequently produced before the Incometax Officer its relevant books of accounts and papers
It also produced before him the statement showing various creditors from whom it had borrowed on Hundis during the accounting year in question giving full names and addresses of the alleged creditors
After enquiry the Incometax Officer made an assessment
On June 3 1966 the Income tax Officer issued to the appellant a notice under section 148 of the Income tax Act 1961
The notice was issued after four years but before 8 years of the end of the original assessment year
The appellant challenged the validity of the notice as well as the proceedings taken on the strength of that notice in a writ petition under articles 226 and 227 of the Constitution
The High Court dismissed the petition
By special leave appeal was filed in this Court
On direction given by the Court the report submitted by the Income tax Officer to the Commissioner and the Commissioner s order thereon were produced
In the report it was said that it appeared that the alleged creditors of the appellant were name lenders and transactions were bogus hence proper investigation regarding those loans was necessary
Question No 8 on the report was whether the Commissioner was satisfied that the case was fit for the issue of notice under section 148
Against this the commissioner had noted yes 
On these facts this Court HELD  Under section 148 and section 1512 the Income tax Officer Must record his reasons for issuing the notice under section 148
There must be prima facie grounds for taking action under section 148 Further before issuing such a notice the provisions of cis
a and b of section 147 must be satisfied
447 B E In this case the Income tax Officer appears to have had a vague feeling that the transactions were bogus and that the alleged creditors were only name lenders
According to him proper investigation regarding the loans was necessary
That is not the same thing as saying that there are reasons to issue notice under section 148
447 A C In these circumstances it could not be held that the Income tax Officer had any material before him which could satisfy the requirements of either cl
a or cl
b of section 147
Therefore he could not have issued a notice under section 148
Further the report submitted by him under section 1512 did not mention any reason for coming to the conclusion that it was a fit case for the issue of the notice under section 148
The Commissioner also mechanically accorded permission
Thus the important safeguards provided in sections 147 and 151 were lightly treated by the income tax Officer as well as by the Commissioner
447 F 448 B The appeal must accordingly be allowed