JUDGMENT
Ajit K. Sengupta, J.
1. In this reference under Section 256(2) of the Income-tax Act, 1961 (“the Act”), for the assessment years 1962-63 and 1964-65, the following questions of law have been referred to this court:
Assessment year 1962-63 :
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reassessment proceeding under Section 147(a) of the Income-tax Act, 1961, was illegal and ab initio void and in that view annulling the assessment ?”
Assessment year 1964-65 ;
” 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reassessment proceeding under Section 147(a) of the Income-tax Act, 1961, was illegal and ab initio void and in that view annulling the assessment ?
2. If the answer to question No. 1 is in the affirmative, then whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in not upholding the validity of the proceeding under Section 147(a) when the same was initiated within the time-limit prescribed under Section 147(b) ?”
2. The facts shortly stated are that the original assessment for 1962-63 was completed on January 22, 1965. During the original assessment proceedings, the accounts of the creditors, the list of loan creditors, and the statement of interest paid by the assessee were all filed with the Income-tax Officer. The addresses of the creditors were also duly supplied to him. The assessment was made on the business income of Rs. 3,603. Later on, the Income-tax Officer served a notice under Section 147 of the Act on the assessee in 1970 as he suspected the genuineness of the loans appearing in the account of Suwalal Jain and other concerns which he thought were the concerns of the former. During the reassessment proceedings, the Income-tax Officer put across to the assessee that Suwalal Jain had made a confession before the Income-tax Department in 1965, that he was a name-lender and was not a genuine loan creditor. The Income-tax Officer was later on confronted by the assessee with affidavits made by Suwalal Jain testifying to the genuineness of the loan advanced to the assessee. The Income-tax Officer refused to place any credence on the assessee’s version in view of the contradictory statements made by Suwalal Jain. He, therefore, added back the sum of Rs. 2,80,000 along with interest thereon as the assessee’s income from undisclosed sources. He further disallowed interest of Rs. 12,533 in respect of Jahurilal Kanahaiyalal. While reopening the assessment for 1962-63, the Income-tax Officer recorded the following reasons before taking the approval of the Commissioner :
” Books of account of the assessee for the relevant accounting year show cash credits totalling over Rs. 10,000 in the name of Suwalal Jain of 46, Strand Road, Calcutta. This alleged creditor has confessed before the Department that he did not advance any genuine loans but only acted as a name-lender to help the assessee to introduce their concealed profits. Hence, bogus credits and the interest thereon represent escaped income of the assessee. I have reason to believe that owing to the assessee’s omission or failure to disclose fully and truly all material facts necessary for its assessment, income has escaped assessment”
3. For the assessment year 1964-65, the original assessment was completed on March 4, 1965, on a total income of Rs. 21,056. The Income-tax Officer reopened the assessment for this year in view of the said confidential letter referred to in the earlier years by the Income-tax Officer mentioning that some of the credits in the books of account of the assessee are bogus. Here too, the Income-tax Officer treated as bogus the accounts of Suwalal Jain and the other concerns which Shri Suwalal Jain had reportedly confessed to be his own concerns. He, therefore, made a fresh assessment by adding back the credits in the accounts of these concerns and disallowed the interest allegedly payable to these parties amounting to Rs. 45,014.
4. The matter went up in appeal to the Appellate Assistant Commissioner before whom it was argued that the reassessment proceedings were void ab initio as all the primary facts were given to the Income-tax Officer at the time of the original assessment proceedings. It was pointed out to the Appellate Assistant Commissioner that the confirmatory letters of the creditors, the details of the loan transactions and the details of addresses of the creditors had been supplied to the Income-tax Officer. The Income-tax Officer had apparently decided to treat these loans as genuine during the original assessment proceedings. It was, therefore, argued that it was not proper on the part of the Income-tax Officer to change his mind later. It was further contended that the Income-tax Officer did not have any material to go upon for reopening the assessments. Coming to the merits of the additions, it was vigorously pointed out to the Appellate Assistant Commissioner by the assessee’s counsel that Suwalal Jain had later on made affidavits confirming the loans advanced to the assessee and that the Income-tax Officer was not justified in discarding the entire evidence without ferrting out all the necessary information from Suwalal Jain whenever he appeared before them. It was argued that the reassessments were framed carelessly and had no leg to stand upon. The Appellate Assistant Commissioner held that the reassessment proceedings were validly initiated. He, however, found that the reassessments were made in violation of the principles of natural justice for which purpose he set aside the reassessment and directed the Income-tax Officer to frame fresh reassessments after due enquiries and after observing the principles of natural justice.
5. The matter then went before the Tribunal. The Tribunal, after hear- ‘ ing learned counsel appearing for the parties, held that the reasons recorded by the Income-tax Officer while reopening the assessment under appeal have no reasonable relation or nexus with the belief entertained that the conditions laid down in Section 147(a) were satisfied. Accordingly, the Tribunal held that the proceedings were illegal and ab initio void and the assessments were annulled. The only question that calls for determination is whether the proceedings under Section 147(a) were validly initiated or not.
6. The reasons which have been recorded are as follows :
“In view of the letter of the Inspecting Assistant Commissioner, Survey Range, dated April 26, 1966, the credits in the folio of Vijoylaxmi Cotton Mills are not genuine. Issue notice under Section 148 for reopening this assessment.”
7. Apart from the fact that the question whether there was any omission or failure on the part of the assessee to disclose fully and truly all material facts is essentially a question of fact, the reasons which have been disclosed for reopening the assessment, in our view, have been recorded without there being any material to show that the assessee, in the original assessment, did not disclose fully and truly all material facts necessary for its assessment. It is well-settled that the Income-tax Officer must mention in the report the materials he had before him and the reasons for coming to the conclusion that it was a fit case for issuing notice under Section 148. The assessments in this case were reopened, as it appears, on the basis of the confession made by one Suwalal Jain but the details of such confession had not been incorporated in the report in some measure so as to form the factual foundation which could hold the Income-tax Officer’s belief that it was a fit case for issuing notice under Section 148 of the Act. In other words, there is no material to show that the assessee failed to disclose fully and truly all material facts necessary for the assessment for the assessment years under reference. Sanction was given by the Commissioner on the basis of the reasons recorded. Unless the materials are substantially incorporated in the report itself or the materials are produced before the Tribunal to justify the action, the Revenue cannot succeed. In our view, the Tribunal was right in holding that the reasons which have been recorded by the Income-tax Officer do not meet the requirements of Section 147(a). It is true that we may not look into the sufficiency of the materials but there must be some materials before the Income-tax Officer which should be incorporated into the report on the basis whereof the belief was entertained by the Income-tax Officer that there was omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the assessment year in question. The nature and content of the confession and the credentials of the creditor had not been discussed in the reasons recorded by the Income-tax Officer. He has relied on the letter of the Inspecting Assistant Commissioner. We do not know what the letter contained. In the premises, we are of the view that the condition precedent and necessary for assumption of jurisdiction under Section 147(a) had not been satisfied.
8. We, therefore, answer the question for the assessment year 1962-63 in the affirmative and in favour of the assessee. The first question for the assessment year 1964-65 is also answered in the affirmative and in favour of the assessee. The third question is answered in the negative and in favour of the assessee.
9. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
10. I agree.