The power to issue notice comes from section 147 which uses words “reason to believe”. In the opening line of the provision u/s 147 . An extract of say section is given below
“147. If The Assessing Officer Has Reason To Believe That Any Income Chargeable To Tax. Has Escaped Assessment For Any Assessment Year, He May. Subject To The Provisions Of Sections 148 To 153, Assess Or Reassess Such Income And”
Supreme Court in ITO vs Lakhmani Mewal Das [1976 ]103 ITR 437 has lucidly explained that power of assessing. Officer to mean that law has provided phrase “reasons to believe” and not “reasons to suspect” . The relevant portion of the said order is give as under : section 148
“The Fact That The Words “Definite Information” Which Were There In Section 34 Of The Act Of 1922, At One Time Before Its Amendment In 1948, Are Not There In Section 147 Of The Act Of 1961, Would Not Lead To The Conclusion That Action Can Now Be Taken For Reopening Assessment Even If The Information Is Wholly Vague, Indefinite, Far-Fetched And Remote. The Reason For The Formation Of The Belief Must Be Hold In Good Faith And Should Not Be A Mere Pretence.
The Powers Of The Income-Tax Officer To Reopen Assessment, Though Wide, Are Not Plenary. The Words Of The Statute Are “Reason To Believe” And Not “Reason To Suspect”. The Reopening Of The Assessment After The Lapse Of Many Years Is A Serious Matter. The Act, No Doubt, Contemplates The Reopening Of The Assessment If Grounds Exist For Believing That Income Of The Assessee Has Escaped Assessment. The Underlying Reason For That Is That Instances Of Conceal Income Or Other Income Escaping Assessment In A Large Number Of Cases Come To The Notice Of The Income-Tax Authorities After The Assessment Has Been Complete.”
The reason of believe was subject matter of many a court case and different courts have given varied judgments . But, in most of the case, on question of sufficiency of reasons of belief, the department won the case. The reason was that the court , while deciding the issue whether there was “reason to believe “. Examines facts on the basis of which the notice was issue. In most of the case , it was find that there was really reason to believe for the A.O. Therefore if even if information is provided by third party but A.O. has reasons to believe the same he may issue the notice.
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