Law:

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Section 147 of the Income-tax Act, 1961 – Income escaping assessment – Information – Position prior to 1-4-1989 – Assessment year 1960-61 – Whether for reopening of assessment under section 147(a) it is reasonable belief of ITO which will be material and Tribunal cannot substitute its own belief and justify proceedings – Held, yes – At time of original assessment ITO was aware of loans taken on hundis but did not apply mind on genuineness thereof – Subsequently he came to know that in subsequent proceedings before authorities, persons who were shown in assessee's books of accounts as creditors had confessed that they had acted as name-lenders for third parties and, therefore, ITO reopened assessment – Whether since confession of creditors which was made subsequently to authorities was not in existence during original assessment, it was impossible for assessee to have disclosed this confession – Held, yes – Whether, therefore, ITO had no reasonable ground to believe that there was failure on part of assessee to disclose fully and truly all material facts whereby any income of assessee had escaped assessment and as such reopening of assessment under section 147(a) was not justified – Held, yes FACTS Subsequently to the original assessment proceedings, the ITO sought to reopen the assessment on the ground that it was revealed in the course of investigation at subsequent stages that there were cash credits in the assessee's books of hundi loans in the accounts of bogus parties who by their confession made before the department at subsequent stages had stated that they had acted as name-lenders for third parties' accounts. The assessee, however, challenged the legality of the proceedings on the ground that there was no omission or failure on his part to disclose all material facts fully and truly in the course of original assessment proceedings. The contentions of the assessee were rejected by the ITO who completed the reassessment and made an addition. The AAC and the Tribunal upheld the reassessment. On reference : HELD In the instant case, subsequent to the original assessment, a piece of information admittedly came to the knowledge of the ITO to the effect that…

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