JUDGEMENT
Bhagwati, J. -
(1.)This appeal by certificate is directed against an order passed by a Division Bench of the High Court of Calcutta allowing an appeal against a decision of a single Judge dismissing the writ petition of the respondent. The facts giving rise to the appeal may be briefly stated as follows:
(2.)The respondent was assessed to income-tax for the assessment year 1959-60 and certain interest paid by the respondent to creditors from whom it claimed to have borrowed monies on hundis, was allowed as deductible expenditure. The assessment of the respondent was completed on 23rd Aug., 1960. On or about 25th January, 1968, however, a Notice was issued by the Income-tax Officer under Section 148 of the Income Tax Act, 1961 to re-open the assessment of the respondent for the assessment year 1959-60. The notice was obviously under Section 147 (a) since a period of four years had already elapsed from the close of the assessment year 1959-60 and no notice could be issued under Section 147 (b). The Income-tax Officer claimed that the transactions of loan represented by the hundis were bogus and no interest was paid by the respondent to any of the creditors shown in the hundis and it was wrongly allowed as a deduction and hence a part of the income of the respondent had escaped assessment by reason of the failure of the respondent to disclose fully and truly all material facts necessary for its assessment. The respondent challenged the validity of the notice issued by the Income-tax Officer by filing a writ petition in the Calcutta High Court. The respondent contended that there was no failure on its part to disclose fully and truly all material facts necessary for its assessment and that in any event the Income-tax Officer had no reason to believe that any part of the income of the respondent had escaped assessment by reason of such failure on the part of the respondent. The Income-tax Officer in the affidavit in reply filed by him on 5th December, 1968 declined to disclose the facts which had weighed with him in reaching the belief that the income of the respondent had escaped assessment by reason of its failure to disclose fully and truly all material facts, on the ground that if such facts were disclosed to the respondent, it would cause great prejudice to the interests of the Revenue and would frustrate the object of re-opening the assessment. This was obviously an untenable stand because the existence of reason to believe on the part of the Income-tax Officer was a justiciable issue and it was for the court to be satisfied whether in fact the Income-tax Officer had reason to believe that income had escaped assessment by reason of failure of the respondent to make a full and true disclosure. The Income-tax Officer realising this position filed a further affidavit on 27th January, 1970 stating as follows:
"In January 1968 I was the Income-tax Officer 'I' Ward, Hundi Circle, Calcutta. On or about the 25th January, 1968 I issued a notice under Section 148 of the Income Tax Act, 1961 on the petitioner. My reasons for issuing such notice were these. In the course of assessment of the petitioner for assessment year 1963-64 it was discovered that various items shown as loans against the security of hundis in the petitioner's books of account for the previous year relevant to assessment year 1959-60 were in fact fictitious. Credits against the names of certain persons as having advanced loans viz. Amarlal Moolchand, Girdharidas, Raghoomal, Murlidhar Kanhaiyalal and Deudaram Basdeo in the petitioner's books were found not to be genuine. It appeared during assessment proceedings for 1963-64 that none of such loans were genuine. In the premises, it appeared to me that the petitioner had failed to disclose fully and truly all material facts necessary for its assessment, and a portion of the petitioner's income had escaped assessment by reason of such failure."
(3.)The writ petition was heard by a single Judge of the High Court and he took the view that the affidavit of the Income-tax Officer dated 27th January, 1970 clearly showed that he had reason to believe that income of the respondent had escaped assessment by reason of its failure to disclose fully and truly all material facts and he accordingly dismissed the writ petition. The respondent preferred an appeal and a Division Bench of the High Court disagreeing with the view taken by the single Judge held that there was no failure on the part of the respondent to disclose fully and truly all material facts and in any event there was no material on the basis of which it could be said that the Income-tax Officer had reason to believe that any part of the income had escaped assessment by reason of such failure on the part of the respondent. The Division Bench accordingly allowed the writ petition and quashed and set aside the notice for re-opening the assessment. The Income-tax Officer thereupon preferred the present appeal to this Court after obtaining a certificate from the High Court.