JUDGMENT [ENTITY], J.
1. This appeal is directed against the judgment and order dated January 10, 1974, [PRECEDENT] , of this court in an application under [SECTION] of the [ACT]. The appellants are Income-tax Officer, "G" Ward, Comp. Dist. II, and the Commissioner of Income-tax, West Bengal II. The respondent is M/s. Selected Dalurband Coal Co. Private Ltd. (hereinafter referred to as the "assessee-company"). The assessee-company is the owner of a colliery known as Selected Sample Colliery in Raniganj, District Burdwan.
2. The Income-tax Officer issued a notice dated March 12, 1970, to the assessee-company for the assessment year 1961-62 and also issued two notices both dated November 6, 1970, for the assessment years 1963-64 and 1965-66 under [SECTION] of the [ACT] (hereinafter referred to as "the Act."). The relevant accounting years of the assessee-company were years ending December 31,1960, December 31, 1962, and December 31, 1964, respectively. On February 11, 1971, the assessee-company filed a petition in the constitution writ jurisdiction, original side of this court, for a writ in the nature of mandamus commanding the Income-tax Officer, "G" Ward, and the Commissioner of Income-tax, West Bengal II, Calcutta, the respondents in the petition, to act according to law and to cancel and/ or withdraw and/or rescind the notices dated March 12, 1970, and November 6, 1970. The assessee-company has also prayed for a writ in the nature of certiorari calling upon the respondents to send the records of the case to this court in order that the said notices may be quashed or set aside and conscionable justice may be rendered. The assessee-company has further prayed for a writ in the nature of prohibition commanding the respondents to forbear from giving effect to and/or taking any steps whatsoever in pursuance of the said notices dated March 12, 1970, and November 6, 1970. In the petition the assessee-company has challenged the said notices on the ground that the notices are illegal, invalid and inoperative because the condition precedent for assumption of jurisdiction under [SECTION] of the Act did not exist as the Income-tax Officer was purporting to reopen the assessment on the basis of certain information in the form of a report of the underground measurement of the colliery by the mining officials of the Government of West Bengal. Rule nisi was issued by this court on February 11, 1971.
3. Shri [ENTITY], Income-tax Officer, "G" Ward, Comp. Dist, II, Calcutta, affirmed on affidavit on July 2, 1971, on his own behalf as well as on behalf of the Commissioner of Income-tax, West Bengal-II, which was filed in this court on July 30, 1971.
4. Shri [ENTITY], Income-tax Officer, "G" Ward, Comp. Dist. II, Calcutta, affirmed a further affidavit on December 20, 1971, pursuant to the leave granted by [ENTITY] J. on September 5, 1972, which was filed in this court on September 11, 1973. The matter was heard by [ENTITY] J. and the learned judge made the rule absolute, quashed the notices and issued a writ of mandamus. In this appeal the appellants are challenging the judgment and order of the learned judge.
5. I shall first indicate shortly the facts of the case as found by the learned judge in his judgment.
6. The assessee-company filed its return of income for the assessment year 1961-62 and the assessment was completed under [SECTION] of the Act. The assessee-company preferred an appeal against the order of assessment before the Appellate Assistant Commissioner of Income-tax and a further appeal to the Tribunal. The Tribunal passed its order on March 26, 1970, For the assessment year 1963-64, the Income-tax Officer disallowed certain sum. Against this order of assessment, the assessee-company preferred an appeal. The assessee-company was given certain relief by the Appellate Assistant Commissioner by order dated January 13, 1969. For the assessment year 1965-66 the assessee-company could not file its return on account of a dispute between the directors of the company. Therefore, the assessment for the said year was made under [SECTION] of the Act. The assessee-company preferred an appeal before the Appellate Assistant Commissioner, but the order of the Income-tax Officer was affirmed by the Appellate Assistant Commissioner. The assessee-company preferred a further appeal before the Tribunal. That appeal is still pending. Thereafter, on March 24, 1970, and on November 10, 1970, the assessee-company received the said three notices dated March 12, 1970, and November 6, 1970, under [SECTION] of the Act issued by the Income-tax Officer, "G" Ward, whereby the assessee-company was called upon to submit a return of income for the said assessment years within 30 days from the date of service of the notices as the Income-tax Officer had reason to believe that the petitioner's income chargeable to tax for the said assessment years had escaped assessment within the meaning of [SECTION] of the Act. The assessee-company filed return of income for the said assessment years in response to the said notices under protest as no income had escaped assessment due to omission or failure on the part of the assessee-company to disclose fully and truly all primary and relevant facts. Subsequently, it was ascertained that the notices under [SECTION] of the Act were issued as a result of the report of the underground measurement made by the mining officials of the Government of West Bengal as disclosed by the Income-tax Officer in his letter dated February 27, 1970, addressed to the principal officer of the assessee-company. Thereafter, the assessee-company made this application under [SECTION] of the [ACT]. The learned judge in his judgment quoted a letter dated May 14, 1969, from the Deputy Assistant Coal Controller to the Commissioner of Income-tax with enclosure, being a copy of letter dated January 30, 1969, from the Chief Mining Officer, Government of West Bengal, [ENTITY], to the Coal Superintendent, [ENTITY], and others on the subject of under-reporting of coal raising and shortage of surface coal stock by Selected Samla Colliery for taking necessary action. The learned judge also quoted in his judgment the recorded reasons of [ENTITY], the Income-tax Officer, "G" Ward, Company Dist II, Calcutta, for issue of notices under [SECTION] of the Act. The learned judge, in his judgment, has observed that the assessee-company had along pleaded and it was not denied or disputed by the Income-tax Officer that the assessee-company had no knowledge of the fact of under-reporting of coal raisings by the assessee-company at the time of original assessment. If the affidavit-in-opposition of the Income-tax Officer, however, it is stated that there was non-disclosure on the part of the assessee-company of all material facts regarding quantity of coal actually raised by it at the time of original assessment and that the said fact of non-disclosure was only brought to light by the detection of under-reporting of coal raising as a result of the investigation held by the mining officials of the Government of West Bengal. The learned judge referred to the decision of the Supreme Court in [PRECEDENT] and the decision of the Calcutta High Court in [PRECEDENT] and observed :
"The expression 'omission or failure to disclose fully and truly all material facts' refer only to facts within the knowledge of the assessee at the material time. A person cannot be said to have omitted or failed to disclose something when of such thing he had no knowledge. Nor can a person be expected to disclose a thing or said to have failed to disclose it unless it is a matter which he knows."
7. The learned judge held :
"There has been no failure on the part of the assessee to make a return of his income, because he had no knowledge at the material time that there was under-reporting of raising of coal which fact has been revealed after 11 years of the assessment from the report of the mining authorities."
8. According to the learned judge :
"The Income-tax Officer cannot take any action under [SECTION] except under [SECTION] where the Income-tax Officer has in consequence Si information in his possession reason to believe that income has escaped assessment."
9. Then the learned judge observed :
"From the facts disclosed in the instant case, it leads to the only conclusion, that the Income-tax Officer in consequence of information in his possession received from the Commissioner of Income-tax, has reason to believe, that income of the petitioner (assessee-company) has escaped assessment in respect of the aforesaid years."
10. Then the learned judge held :
"In the instant case it appears that the information was derived by the Income-tax Officer from an extraneous source concerning the facts relating to the matter of assessment. Nowhere it is stated in the affidavit-in-opposition that the Income-tax Officer had made an independent enquiry."
11. The learned judge observed that the Income-tax Officer acted merely upon the information on the report received from the mining authorities and, solely relying upon that information, he issued notice under [SECTION] of the Act. Therefore, according to the learned judge, the proceedings under [SECTION] of the Act could not be initiated against the assessee-company and the learned judge cancelled the notices by writ of mandamus and made the rule absolute.
12. Mr. [ENTITY], the learned counsel for the appellants, has challenged the above reasonings of the learned judge and contends that on the facts of this case there are some reasonable grounds for the Income-tax Officer to believe that there had been escapement of income chargeable to tax for the assessment years 1961-62, 1963-64 and 1965-66. He submits that the notices have been issued under [SECTION] of the Act and not under [SECTION]. There are some, prima facie, grounds for thinking that there had been non-disclosure of material facts. The Income-tax Officer examined the existing material, namely, the report dated January 30, 1969, and on the basis of the report he formed his belief. The subject of the report was under-raising of coal, Mr. [ENTITY] relied on [PRECEDENT] and [ENTITY] Venkata Narayana and Sons v. First Additional Income-tax Officer .
13. With regard to the facts of the case Mr. [ENTITY] placed reliance on the judgment of the learned judge and paragraphs 11, 15, 19 and 26 of the affidavit of Shri [ENTITY], Income-tax Officer. Mr. [ENTITY] contended that the sufficiency of the reasons cannot be investigated. He referred to [PRECEDENT] and [PRECEDENT] . Mr. [ENTITY] then formulated his points thus :
(1) In this case, the assessee-company has not discharged the onus of showing that the Income-tax Officer had no material to proceed under [SECTION] of the Act, (2) In the recorded reasons and in the affidavit-in-opposition, the Income-tax Officer has stated the materials on which the Income-tax Officer has acted. That material is neither irrelevant nor extraneous for the formation of the requisite belief. (3) It is not disputed that the Income-tax Officer has reason to believe that income has escaped assessment. This is the finding of the learned judge. This reason to believe has been formed on the basis of the report dated January 30, 1969, and that report can also be the basis of other belief that income has escaped assessment due to omission or failure on the part of the assessee to disclose fully and truly all material facts. If the report is good material for the first condition of [SECTION] then it is also good material for the second condition, namely, to disclose fully and truly all material facts necessary for the assessment for those years. Mr. [ENTITY] relied on the decision of the Bombay High Court in the case of [ENTITY] v. R. K. Bhalla, Income-tax Officer [1974] 94 ITR 34 and submitted that in that case the Income-tax Officer relied on the finding of the enquiry commission presided over by Mr. Justice [ENTITY] and reopened the assessment and it was held, inter alia, in that case, that the Income-tax Officer had prima facie material to entertain a reasonable belief that income had escaped assessment. He contended that, in the instant case, the Income-tax Officer also relied on the report of the mining officials as a result of the joint inspection of the colliery on January 9 and January 10, 1967. In support of his argument Mr. [ENTITY] also relied on the two decisions of the Calcutta High Court, namely, (1) [PRECEDENT] and (2) Smt. Nirmala [ENTITY] v. Wealth-tax Officer [1976] 105 ITR 483 (Cal) [FB].
14. With regard to the question of onus of proof raised by Mr. [ENTITY] it is true that it is the duty of the assessee-company, who wants the court to hold that the Income-tax Officer had no jurisdiction, to establish that the Income-tax Officer had no material before him to proceed under [SECTION] of the Act. But when such question is raised it is for the Income-tax Officer to disclose to the court the facts and materials on which he relied for formation of his belief and the court can examine whether good reasons have been recorded, as has been held in [ENTITY] case :
"It is not for the assessee to satisfy the Income-tax Officer that there was no concealment with regard to any question, it is for the Income-tax Officer, if that issue is raised, to establish that the assessee had failed to disclose fully and truly certain facts material to the assessment of income which had escaped assessment."
15. Thus, although the assessee-company who comes to court challenging the jurisdiction of the Income-tax Officer to reopen the assessment has to establish his case, but in order to decide the question whether the Income-
tax Officer had jurisdiction to issue the notice under [SECTION] of the Act, the court will consider the facts of the case and also the affidavit of the Income-tax Officer and the recorded reasons and examine whether the reasons for believing have a rational connection or relevant bearing to the formation of the belief and whether the same are extraneous or irrelevant for the purpose of the Section. When evidence is adduced by affidavit and recorded reasons are placed before the court, strict question of burden of proof is not material.
16. The real question which arises for consideration in this appeal is whether, on the facts and in the circumstances of the case, the condition precedent for exercise of jurisdiction to issue notices under [SECTION] of the Act by the Income-tax Officer did exist or not.
17. Mr. [ENTITY] for the assessee-company invited our attention to certain facts of the instant case which are not evident from the judgment of the learned judge. The facts are as follows : The respondent-company raised coal from Samla Colliery from 1956 to January 9, 1967. When the company raised coal the same were actually weighed and the royalties due to the Government were paid. There was no dispute between the company and the coal mining authorities till March 17, 1967. The books of the company were checked and royalties were paid. This will appear from the remarks column of the statements showing raising, despatches and stocks of coal. For the assessment years 1961-62, 1963-64 and 1965-66, the assessments were duly made by the income-tax authorities.
18. Long after the period of assessment two officers of the Directorate of Mines and Minerals of the Government of West Bengal made a joint inspection on January 9, 1967, and January 10, 1967. On the basis of underground measurement of the colliery, the officers thought that there were some under-raisings of coal during the period from 1956 to January 9, 1967, and the under-raising were in respect of Grade I coal. The assessment order of the Income-tax Officer dated September 23, 1965, in respect of the assessment year 1961-62, shows that in that year the assessee-company raised coal being "Selected A Grade". The Income-tax Officer made calculations in his own way holding that the assessee-company has shown "8,803 tonnes less". There was an appeal which was partly allowed by the Appellate Assistant Commissioner. The question of raisings of coal was gone into by the Income-tax Officer. It is not a case that the raisings made by the assessee-company were accepted by the Income-tax Officer.
19. Mr. [ENTITY] then invited our attention to the letters and correspondence between the coal company and the mining authorities which are annexed to the petition of the assessee-company to show the nature of dispute between the company and the coal mining authorities. I will shortly indicate the nature of dispute as hereunder:
20. By the letter dated March 17, 1967, the mining adviser and Director of Mines and Minerals intimated to the assessee-company that the inspecting officers have found under-reporting of raising of coal to the company to the tune of 1,36,390 tonnes of Grade I coal, and asked the coal company to explain the discrepancies within fifteen days. On April 3, 1967, the coal company denied the under-reporting of the raising of coal and asked for more details to clarify the actual position. It was stated in that letter that the company mined only selected "A" grade coal from 1956 to 1962 and after that the company mined Grade I coal and that selected "A" grade coal is much lighter than Grade I coal. It was also "stated in that letter that the mining authorities "have calculated the weight theoretically by taking an average specific gravity of coal, whereas the figure given to you (the mining authority) is on the basis of actual despatch and weighment return of the coal despatched strictly in accordance with the Colliery Control Order ".
21. From the letter dated October 10, 1967, it will appear that the coal company stated that it raised and despatched coal strictly in accordance with the Colliery Control Order and regularly submitted the returns of raising and despatches on the basis of actual weighment returns. They have also pointed out that it was important to find out the average width and height of the coal mine accurately and the way in which the average width and height of galleries in the mine had been measured and calculated was not only completely unscientific but the same was bound to be completely erroneous and misleading. The way in which the depillaring area was calculated was also not correct.
22. On April 22, 1969, the company sent a letter to the mining adviser and Director of Mines Minerals enclosing therein a plan depicting the various blocks for taking measurements more scientifically and for more correct calculation. The company also enclosed the method of calculation block by block and the calculation sheet. On August 10, 1970, the Director of Mines and Minerals wrote to the company that, due to depillaring operation carried out since the date of measurement, it would not be possible to get access to some of the old positions measured earlier.
23. The above correspondence shows that there was serious dispute between the mining authorities and the assessee-company as to measurement of the under-reporting of raising of coal.
24. While such dispute was going on, Shri [ENTITY], Deputy Assistant Coal Controller wrote a letter on May 14, 1969, to the Commissioner of Income-tax with the enclosure dated January 30, 1969. This letter is mentioned in the judgment of the learned judge. I shall quote the same here.
"Letter from [ENTITY], Dy. Asstt. Coal Controller to Commis-sioner of Income-tax with enclosures dated 30th" January, 1969.
No. CE/1(1) Government of India, Ministry of Petro-Chemicals, Mines & Metals, (Department of Mines & Metals), Office of the Coal Controller, 1, Council House Street, Calcutta the 14th May, 1969.
The Commissioner of Income-tax 4, Hastings Street, Calcutta-1.
Sub: Discrepancy in the reported figure of raising and surface stocks at Selected Samla Colliery. Dear Sir,
I am directed to enclose a copy of the report of the joint inspection carried out on 9th January, 1967, and 10th January, 1967, by the Asstt. Coal Supdt., Raniganj Estate Branch, Directorate of Mines and Minerals, Govt. of W.B., Calcutta, the contents of which are self-explanatory. This information is conveyed to you for such action as you may deem necessary.
Yours faithfully, ([ENTITY]) Enclo : As above Dy. Asstt. Coal Controller. Copy of letter No. 285/95/CMO, dated 30th January, 1969. IX/1 From Chief Mining Officer, Govt. of W.B., [ENTITY], to the Coal Supdt. [ENTITY] and others.
Sub : Under-reporting of coal raising and shortage of surface coal stock by Selected Samla Colliery. Owner, Messrs. Selected Dalurband Coal Co. Pvt. Ltd., 137, Cotton Street, Calcutta.
A joint inspection was made in the colliery mentioned above on 9th January, 1967, and 10th January, 1967, by Sri [ENTITY], Asstt. Coal Superintendent, Raniganj Division, and [ENTITY], Mining Officer of this Mining Estate Branch, Directorate of Mines & Minerals.
As a result of underground measurement it was revealed that the colliery co. under-reported the raising figure to the following extent during the period from 1956 to 9th January, 1967.
Gr. I : 1,36,390 m.t.
Shortage of surface coal stock was also detected to the extent of 387 m.t. of Gr. I coal on 9th January, 1967.
It has been decided to charge royalty on the aforesaid quantity of coal by the Govt. of W.B. This is for your information and necessary action."
25. After receipt of this letter the Income-tax Officer addressed a letter dated February 27, 1970, to the assessee-company proposing to reopen the assessment for the assessment years 1957-58 to 1960-61. I shall quote the letter here.
"Letter dated 27th February, 1970, from Shri [ENTITY], Income-tax Officer, ' G' Ward, Companies District-II, Calcutta, to the Principal Officer of Messrs. Selected Dalurband Coal Co. (P.) Ltd.
Office of the Income-tax Officer, Companies Dist. II, P-7, [ENTITY] Square, Calcutta-1.
No. C-II/S-353/G Dated 27th February, 1970 To The Principal Officer, Selected Dalurband Coal Co. (P) Ltd.
137, Cotton Street, Calcutta.
Dear Sir, Re: Asstt. years 1957-58 to 1960-61
I understand that as a result of underground measurement of your colliery on 9th January, 1967, and 10th January, 1967, by mining officials of Govt. of W.B., it was found that raising was under-reported by you to the extent of 1,36,390 m.t. of Gr. I coal during the period 1956 to 9th January, 1967. Coal raising under-reported in the C. Year is estimated by me at 12,599 m.t. (i.e., 1/11th of 1,36,390 m.t.). Sale value of the said coal representing your income has escaped assessment, for truly and fully that was necessary for assessment during original assessment proceedings. I, therefore, propose to take action under [SECTION] for the asst. year 1957-58 to 1960-61.
I am now to request you to have me your views in the matter on or before 16th March, 1970.
Yours faithfully, ([ENTITY]) I. T. O. 'G' Ward, Comp. Dt. II/Cal."
26. It will appear from the letter dated February 27, 1970, that Shri [ENTITY], Income-tax Officer, estimated under-raising at 12,399 m.t. (i.e. 1/11th of 1,36,390 m.t.) for the assessment years 1957-58 to 1960-61 and requested the company to give their views on the matter on or before March 16, 1970. But before March 16, 1970, the Income-tax Officer issued the notice dated March 12, 1970, which is set out hereunder.
"Notice dated 12th March, 1970, under [SECTION] of the [ACT], issued by the Income-tax Officer, 'G' Ward, Companies District-II, Calcutta, in respect of asstt. years 1961-62.
[CASE NUMBER] Notice under [SECTION] of the [ACT].
Income-tax Officer, Comp. Dist. II P-7, [ENTITY] Sq. Cal.
Dated the 12th March, 1970.
To The Principal Officer, Selected Dalurband Coal Co., 137, Cotton Street, Calcutta.
Whereas I have reason to believe that your income chargeable to tax for the assessment year 1961-62 has escaped assessment within the meaning of [SECTION] of the [ACT].
I, therefore, propose to reassess 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 for the said assessment year.
2. This notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, W. B. II, Cal.
(Sd.) Illegible I. T. O., 'G' Ward, Comp. Dist. II/Cal. Income-tax Officer."
27. Before issuing the notice for the assessment year 1961-62 under [SECTION] of the Act, the Income-tax Officer must record his reason under [SECTION] of the Act. Two other notices dated November 6, 1970, under [SECTION] of the Act for the assessment years 1963-64 and 1965-66 issued by the Income-tax Officer were similarly worded. So I need not quote the said two notices here.
28. From the recorded reasons (exhibit A) it appears that the recorded reasons for all the three assessment years are similar. The recorded reasons (exhibit A) do not bear any date. I will set out the recorded reasons here.
Recorded reasons for the asstt. years 1961-62, 1963-64 & 1965-66.
A-Y 1963-64
29. Information received from the Chief Mining Officer, West Bengal, says that it was found as a result of underground measurement of assessee's colliery on 9th January, 1967, and 10th January, 1967, that coal raising by 1,36,390 m.t. of Gr. I coal (sic). Raising shown by the assessee during the period 1955 to 1966 is 9,54,489 m.t., raising under-reported works out at 14'3% of raising shown. Raising under-reported in 1962 C. Yr. (corresponding to 1963-64 asstt. yr.) is estimated by me on the basis of 14.3% of raising disclosed by assessee at 19,415 m. t. Rs. 4,20,141 being value of 19,415 m. t. of coal @ average sale rate of Rs. 21-74 per m. t. represents, I have reason to believe, income which escaped assessment for failure on the part of the assessee in disclosing all material facts truly and fully that was necessary lor their assessment.
([ENTITY]) I. T. O., 'G' Ward, Comp. Dt. II/Calcutta.
30. In course of argument Mr. [ENTITY] pointed out that Shri [ENTITY], Income-tax Officer, ' G ' Ward, in his affidavit affirmed on July 2, 1972, stated that the letter dated January 30, 1969, from the Chief Mining Adviser, Government of West Bengal, addressed to the Coal Superintendent, [ENTITY], and others was "forwarded to and/or received by me."
He also stated in the affidavit : "I have reason to believe and I bona fide believed that the income of the petitioner, chargeable to tax escaped assessment within the meaning of [SECTION] of the said Act." He again said in affidavit: "I say that the report of underground measurement of coal, referred to in the said paragraph, was given by the expert mining official of the Government of West Bengal and it contained ample material which reasonably led me to the belief that petitioner's income for the relevant assessment years had escaped assessment owing to the non-disclosure by the petitioner of all material facts necessary for its assessment." But it appears that another Income-tax Officer, namely, Shri [ENTITY], had recorded the reason. This will appear from exhibit A which is referred to in the judgment of the learned judge.
31. I will note in this connection that while Mr. [ENTITY], in the course of his argument, was pointing out that the Income-tax Officer who recorded his reasons was not the Income-tax Officer who issued the notices under [SECTION] of the Act, Mr. [ENTITY], on instructions, submitted that the reasons were recorded not by Shri [ENTITY] but by Shri [ENTITY] and by mistake the name of Shri [ENTITY] appears in exhibit A. Mr. [ENTITY] wanted leave of the court for allowing the Income-tax Officer to file further affidavit. We could not at that stage allow the Income-tax Officer to file another affidavit. We found from the records of this court that in exhibit A the name of Shri [ENTITY] appears. In the judgment also the learned judge has set out the recorded reasons as stated by Shri [ENTITY]. In the memorandum of appeal the appellants have not taken any ground to the effect that the Income-tax Officer who recorded the reasons should be Shri [ENTITY] and not Shri [ENTITY]. Even at the opening of the case it was not pointed out to us that the reasons were recorded by Shri [ENTITY] and not by Shri [ENTITY], Income-tax Officer. However, although we did not allow the prayer of Mr. [ENTITY] to file any further affidavit at that stage, we made it clear that we should record his statements in the judgment and we also allowed Mr. [ENTITY] to make his further submissions if he so desired. Mr. [ENTITY] then made further submissions. He submitted that notice under [SECTION] of the Act was issued by Shri [ENTITY] and before issuing the notice under [SECTION] of the Act, he recorded his reasons for doing so under [SECTION]. Shri [ENTITY], Income-tax Officer, reopened the assessment on the basis of the report dated January 30, 1969, as stated by him in his affidavit. Mr. [ENTITY], then, referred to two decisions of the Calcutta High Court: (1) [PRECEDENT] and (2) [PRECEDENT] and relied on the judgment delivered by me in the unreported Division Bench decision of this court in [ENTITY] Engg. Works v. Income-tax Officer, Mr. [ENTITY] then continued his argument on behalf of the assessee-company and submitted that if Shri [ENTITY] had examined the records and formed his belief as stated by him in his affidavit affirmed on July 2, 1972, and if he recorded his reasons for the assessment years 1961-62, 1963-64 and 1965-66, he should have verified his affidavit stating that the above facts are true to his knowledge. But he had not done so. He verified the relevant paragraphs as "based on information received from records and believed to be true by me". Mr. [ENTITY] also pointed out that Shri [ENTITY], Income-tax Officer, also affirmed on affidavit on December 20, 1972, wherein he stated that the Additional Commissioner of Income-tax was invested with jurisdiction to proceed under [SECTION] of the Act.
32. Mr. [ENTITY] further made his submissions as follows: Both the conditions in [SECTION] are conditions precedent. If the Income-tax Officer has reason to believe that the income has been under-assessed, on the basis of the report, it does not follow that he has good material for the second condition, namely, that he has reason to believe that the underassessment was due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that year. Both conditions are cumulative and both must exist before the Income-tax Officer can exercise his jurisdiction to issue notices under [SECTION] of the Act. Mr. [ENTITY] relied on the following cases, (1) [PRECEDENT] and (2) [PRECEDENT] . Mr. [ENTITY] submitted that in the above cases of the Supreme Court, there has been some departure from the decision of [ENTITY]'s case . Mr. [ENTITY] also cited [PRECEDENT] and relied on [ENTITY]'s case .
33. Mr. [ENTITY] further contended that the report dated January 30, 1969, is at best an information within the meaning of [SECTION] of the Act and on that basis the Income-tax Officer could have reopened the assessment under [SECTION]. But on the basis of the report he could not reopen the assessment under [SECTION] on the principle of law laid down by the Supreme Court in [ENTITY]'s case . On this point Mr. [ENTITY] relied on the decision of the Supreme Court in the case of [PRECEDENT]. He also relied on the decision of the Assam and Nagaland High Court in [PRECEDENT] and [PRECEDENT]. Mr. [ENTITY] also distinguished the decisions cited by Mr. [ENTITY].
34. In view of the arguments advanced before us the question which arises for consideration is whether, on the basis of the report dated January 30, 1969, the Income-tax Officer had reason to believe that income had escaped assessment for the assessment years in question due to omission or failure on the part of the assessee-company to disclose fully and truly all material facts.
35. It is well established principle of law that to confer jurisdiction under [SECTION] of the Act to issue notice for the assessment beyond the period of four years but within the period of eight years from the end of the relevant assessment year the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been underassessed and he must have also reason to believe that such "under assessment" has occurred by reason of either, (i) omission or failure on the part of an assessee to make a return of his income, or (ii) omission are failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent [see [PRECEDENT] . Both the conditions are cumulative and both must exist before notice could be issued under [SECTION] of the Act. In his affidavit, the Income-tax Officer stated : "I say that the report of underground measurement of coal, referred to in the said paragraph, was given by expert mining officials of the Government of West Bengal and it contained ample material which reasonably led me to the belief that petitioner's income for the relevant assessment years had escaped assessment owing to the non-disclosure by the petitioner of all material facts necessary for its assessment."
36. So, the question is whether the reason for formation of the belief, namely, the report, had a rational connection with or relevant bearing on the formation of the belief that income had escaped assessment by reason of omission or failure on the part of the assessee-company to disclose fully and truly all material facts necessary for assessment. In other words, whether there was rational connection or direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of the belief that there has been escapement of the income of the assessee-company from the assessment because of failure to disclose fully and truly all material facts. The material in this case is the report dated January 30, 1969.
37. I will note in this connection that the letter dated August 10, 1970, by the Director of Mines and Minerals to the assessee-company cannot be the basis of the Income-tax Officer's application of mind because he formed his belief either on or before March 12, 1970, i.e., before sending the notice dated March 12, 1970. The letter dated August 10, 197,0, which is annexed to the petition of the assessee-company is addressed to the assessee-
company. It does not appear from that letter that a copy of that letter was sent to the Income-tax Officer or to the Commissioner. Therefore, the only material on which the Income-tax Officer formed his belief is the report dated January 30, 1969. So, it is necessary to consider the report carefully.
38. The report is contained in the copy of letter dated January 30, 1969, from the Chief Mining Officer [ENTITY], to the Coal Superintendent, [ENTITY], and others. This copy of the letter or the report is unsigned. The report states certain fact, namely, that a joint inspection by two mining officials was made in the colliery on January 9, 1967, and January 10, 1967. It states that, as a result of ground measurement, it was revealed that the coal company under-reported the raising figure to the extent of 1,36,390 m.t. during the period from 1956 to January 9, 1967. Thus under-reporting was for a period of 11 years. This under-reporting during the period of 11 years was the result of an enquiry made long afterwards, i.e., on January 9, 1967, and January 10, 1967. So under-reporting for these 11 years was not based on specific facts, but was really an inference drawn from facts specifically found later on. The report says, what inference was drawn during the period of 11 years. It says : "Gr. I 1,36,390 m.t.". This is, in substance, the report.
39. In order to assume jurisdiction to issue notice the Income-tax Officer must not only have reason to believe that income has escaped assessment during the assessment years in question, but he must have reason to believe that such escapement has been due to omission or failure on the part of the assessee-company to disclose fully and truly all material facts necessary for the assessment years in question. On the report it cannot be said that during the assessment years in question for which the notices were issued there was under-reporting of coal by the assessee-company to the mining authorities. The Income-tax Officer did not reopen the assessment for all the period covered by the report, but only for the three assessment years in question. The report, on the face of it, does not give any indication with regard to this aspect of the matter.
40. It appears that after receipt of the report dated January 30, 1969, the Income-tax Officer on February 27, 1970, addressed a letter to the assessee-company that he proposed to take action under [SECTION] of the Act for the assessment years 1957-58 to 1960-61. In this letter, the Income-tax Officer-Said that raising of coal was under-reported by the assessee-company to the extent of 1,36,390 m.t. and he estimated the under-reporting as 1/11th of 1,36,390 m.t. He requested the assessee-company to give its views on or before March 16, 1970, and, ultimately, he did not issue any notice for the assessment years in question. But before March 16, 1970, the Income-tax Officer issued the notice dated March 12, 1970, in respect of the assessment year 1961-62, that the Income-tax Officer estimated the under-
raising differently on percentage basis. Raising under-reported by the Income-tax Officer was stimated on the basis of 14.3% of raising disclosed by the assessee. But it appears from the assessment proceedings that the assessee disclosed its books of accounts and statements showing raisings, despatches and stock of coal of the colliery during the assessment years in question. There is nothing to indicate that the books of accounts are not correct or it contained any untrue statements. The Income-tax Officer proceeded to make his own assessment on the basis of books of accounts submitted by the assessee-company. So it is not a case of any non-disclosure on the part of the assessee. At the time when the assessments were made in respect of the assessment years in question, the assessee did not have the report of the mining officials. The disputes with the mining authorities started long afterwards. In any event, it appears from the correspondence between the assessee-company and the mining authorities that the assessee-company did not accept the report of the two officers as correct and raised disputes with regard to several matters including measurement. There was dispute with regard to the grade of coal, with regard to the question of measurement and on the question of depillaring area, which should have been measured very carefully. At the time of assessment, there was no material before the Income-tax Officer as to the under-reporting of actual raising of coal.
41. The report relates to under-raising of Grade I coal. But the assessment order dated September 23, 1965, for the assessment year 1961-62 shows that the assessment was made in respect of selection "A" grade coal. Thus, the Income-tax Officer had all the documents and papers necessary for the assessment of the assessee-company for the relevant assessment years in question. The Income-tax Officer did not accept the raising account of the assessee and made assessment of his own. Therefore, it seems to me that the Income-tax Officer had no valid reason to believe that the assessee-company omitted or failed to disclose fully and truly all material facts necessary for assessment for the assessment years in question. The Income-tax Officer had all the materials before him when he made the original assessment. So the Income-tax Officer could not take recourse to [SECTION] of the Act.
42. The learned counsel for the appellants has argued that if the Income-tax Officer has formed the belief that income had escaped assessment, automatically he can form a belief that there was failure on the part of the assessee-company to state fully and truly all material facts necessary for assessment. It is difficult to accept this submission of the learned counsel for the appellants, because [SECTION] of the Act required two conditions to be fulfilled.
43. Mr. [ENTITY] had rightly invited our attention to the decision of the Supreme Court in [PRECEDENT]. In that case, the High Court held that the Income-tax Officer did in fact decide that the income had escaped assessment, but it did not consider whether the income escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The judgment of the High Court was set aside by the Supreme Court and the case was remanded for determination of the question whether by reason of the omission or failure on the part of the company to disclose fully and truly all material facts necessary for assessment of the company for the assessment years in question, any income chargeable to income-tax had escaped assessment.
44. Two Supreme Court decisions relied upon by Mr. [ENTITY], namely, [PRECEDENT] and [PRECEDENT] indicate the application of well-settled principles of law on the point in the facts of a particular case. I am not inclined to accept the submission of Mr. [ENTITY] that in the aforesaid decisions there was deviation of any principle of law by the Supreme Court from its previous decisions.
45. It seems to me that Mr. [ENTITY] has rightly pointed out that the report of the mining officials may be an information under [SECTION] of the Act and on that basis the Income-tax Officer could have reopened the assess ment under [SECTION]. This is not a case under [SECTION] of the Act. Mr. [ENTITY] invited our attention to an observation made by the Supreme Court in [ENTITY]'s case [CASE NUMBER]. Such a case would, however, appropriately fall under [SECTION]. But the period prescribed for serving a notice under [SECTION] had elapsed. In my view under the facts of this case similar observation could appropriately be made. The report of the mining officials may be an information under [SECTION] of the Act, but if [SECTION] is satisfied, it does not necessarily follow that [SECTION] will also be satisfied. I will follow the principles laid down by the Supreme Court in [PRECEDENT], where the Supreme Court held that the opinion of the Central Board of Revenue regarding the correct valuation of securities for purposes of estate duty, expressed in an appeal prepared by the accountable person, is "information" within the meaning of [SECTION] of the [ACT], as amended by the [ACT], on the basis of which the Controller can entertain a reasonable belief that property assessed to estate duty has been under-valued.
46. The other case referred to in this respect by Mr. [ENTITY] is the decision of the Assam and Nagaland High Court in [PRECEDENT]. In that case, it was held that the Income-tax Officer's prima facie justification for reason to believe was based upon his subsequent information and not upon anything already found on the records and, therefore, it fell under [SECTION] and not under [SECTION] of the Act. In my view the same reasoning is applicable in the instant case also.
47. With regard to the question of applicability of [SECTION] of the Act to the facts of this case Mr. [ENTITY] strongly relied on [ENTITY]'s case and submitted that where on the evidence and materials produced the Income-tax Officer could have reached a conclusion other than the one reached by him, a proceeding under [SECTION] will not lie merely on the ground that the officer later on regards the inference raised by him as erroneous. Mr. [ENTITY] submitted that we shall follow the same principles in this case.
48. Mr. [ENTITY], on the other hand, placed before us an unreported Division Bench decision of this court dated April 11, 1974, in [ENTITY] Engg. Works Ltd. v. Income-tax Officer and relied upon the judgment delivered by me, where I distinguished [ENTITY]'s case under the facts of that case. It may be noted that my learned brother, [ENTITY] J., delivered a separate judgment in which he followed [ENTITY]'s case . The appeal against the judgment in that case is now pending before the Supreme Court.
49. In [ENTITY]'s case (unreported), I considered the second question under [SECTION] of the Act on the point whether the assessee had disclosed fully and truly all material facts necessary for assessment for the assessment years in question. Under the facts of that case, the Income-tax Officer found subsequent to the assessment for the assessment year in question that the assessee in his books of accounts introduced various cash credits as hundi loans, but all the hundi loans were found to be not genuine. In the facts of that case, I took the view that the assessee did not make true disclosure in his orginal return. In my view, the facts of [ENTITY]'s case (unreported) are entirely different from the facts of the instant case. In the instant case, I have no hesitation to follow the principles laid down in [ENTITY]'s case .
50. In the above view of the matter, under the facts of the instant case, I am of the opinion that the Income-tax Officer had no valid reason to believe that the assessee-company had omitted or failed to disclose fully and truly all material facts necessary for assessment for the assessment year in question and the condition precedent under [SECTION] of the Act which is necessary before issue of notice under [SECTION] did not exist.
51. On the question whether the report of the mining officials constitutes sufficient materials for issue of notice under [SECTION] of the Act, Mr. [ENTITY] has relied on several decisions. I shall now discuss the same.
52. In [ENTITY] v. R. K. Bhalla, Income-tax Officer [1974] 94 ITR 34 (Bom) on the report of a commission of enquiry the assessment was reopened. It was decided in that case, that the Income-tax Officer had prima facie material to entertain the reasonable belief that income had escaped assessment and that the Income-tax Officer had not acted improperly. It appears from the judgment in that case that the Commission of enquiry was appointed by the Central Government under the [ACT] to enquire into and report on the administration of nine companies, the nature and extent of the control, direct and indirect, exercised over such companies and firms or any of them by [ENTITY], the petitioner in that case, the relatives, employees and persons concerned with them and other matters mentioned in Clause (1) of the notification. The Commission was presided over by Mr. Justice [ENTITY], judge of the Supreme Court. The report related to payment of Rs. 7,00,000 compensation to [ENTITY]. The payment in the opinion of the Commission was fraudulent, because of the reason stated in the report. There was positive finding of fact in the report. Thus, a fact-finding report was the material before the Income-tax Officer to entertain his reasonable belief for reopening the assessment. In my view, the facts of the instant case are entirely different because there is no positive finding of fact in the report of the mining officials for reopening of assessment for the assessment year in question. The report of the mining officials so far as the assessment years are concerned may be considered to be an inference drawn from certain facts.
53. In the case of [PRECEDENT] two of the alleged hundi creditors had made subsequent confessions that the loans alleged to have been given by them to the assessee were in fact not given by them. This fact, according to the learned judges, constituted sufficient material which could lead to the formation of the belief in the mind of the Income-tax Officer that the income of the assessee escaped assessment due to failure on his part to disclose fully and truly all the material facts necessary for his assessment in the relevant assessment year. In that case, it was held by [ENTITY] J. that the Income-tax Officer had prima facie reason to believe that there had been failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the relevant year. There was no question of mere change of opinion. In my view, the facts of the instant case are entirely different. In [PRECEDENT] , the Income-tax Officer reopened the proceeding on the report of the Central Bureau of Investigation. It appears from the facts of that case that the basis for initiation of proceeding under [SECTION] was disclosure of certain facts from the documents seized, for the department, at the direction of the court, filed two documents which according to him were the basis for formation of the bona fide belief by the Income-tax Officer about the non-disclosure of true and correct facts by the assessee which had resulted in concealment of income and consequent evasion of tax. Therefore, the Income-tax Officer did not only rely on the report of the Central Bureau of Investigation, but also on the seized documents. Again with regard to the report it was held by the learned judges at page 29 of the report :
"The said report shows that there is some basis for the Income-tax Officer to issue the notices under [SECTION]. From the said report and the pleadings of the parties it transpires that the Income-tax Officer had reasons to believe that the assessee was under-assessed due to the failure or omission to disclose truly and fully certain amounts which have escaped assessment."
54. Therefore, the facts of that case are distinguishable from the facts of the instant case.
55. In the matter of Smt. Nirmala [ENTITY] v. Wealth-tax Officer [KB], the Wealth-tax Officer wanted to reopen assessment on the basis of certain reports. Notices were issued under [SECTION] of the [ACT], within four years from the end of the assessment year. So, both [SECTION] of the Act apply in this case. [ENTITY] C.J., at page 497, held :
" If we find that some information did come to the knowledge of the Wealth-tax Officer which was not known to him before and on the new facts that were brought to light a belief either under Clause (a) or (b) could be formed, we cannot strike down the notice under [SECTION]."
56. In that case, [ENTITY] J. agreed with the judgment of the learned Chief Justice. But the learned judge at page 516 observed :
" If, therefore, the validity of this notice had to be judged solely on the grounds mentioned in Clause (a) of Sub-section (1) of seqtion 17 of the Act, I would have found it difficult to uphold the said notice in the facts and circumstances of this case in view of the materials which were already on record as disclosed in the four basic documents, when the Wealth-tax Officer completed the original assessment for the relevant assessment year "
57. [ENTITY] J., in a separate judgment, said (page 517):
"I am, however, unable to agree with my learned brother, [ENTITY] J., in his tentative conclusion that once the assessee has disclosed the quotations of shares of a recognised stock exchange, such disclosure is to be accepted as full and true disclosure under the Act of all basic primary facts regarding the valuation of assets on a particular date."
58. So, the facts of [ENTITY]'s case [FB] are entirely different and distinguishable.
59. In my view the above-mentioned cases relied on by Mr. [ENTITY] do not apply under the facts and in the circumstances of the instant case for the reason that there is a distinction between finding of a specific fact and the finding of fact which is really an inference from facts specifically found. [See [PRECEDENT]]. In the case before us all that can be said is that the mining officials made certain inference with regard to under-raising of coal during a period of 11 years. There are specific findings of fact in respect of the inspection made on two days, but with regard to the preceding period the same is nothing but their inference from the specific facts found later on. The cases referred to by Mr. [ENTITY] are cases where there were specific findings of fact on which the Income-tax Officer could form his belief. But this is not so in the instant case.
60. For the above reasons, I cannot accept the argument of Mr. [ENTITY]. It may be recorded in this connection that at the stage of reply to the arguments made by the learned counsel for the assessee-company, Mr. [ENTITY] realised that the verification of some of the paragraphs of the affidavit of the Income-tax Officer affirmed on July 2, 1971, is not correct and the same should have been verified as true to his knowledge. He wanted leave of the court for allowing the Income-tax Officer to re-verify the same. We could not give leave to re-verify the affidavit of the Income-tax Officer at that stage of the appeal, as we decided to consider the appeal on merits and not on technical points, although there was great substance in the points taken by Mr. [ENTITY] in this respect also.
61. In the above view of the matter, I will dismiss the appeal and affirm the decision of the court below. There will be no order as to costs.
[ENTITY], J.
62. I agree.