Income escaping assessment
n The wide denotation of the word ‘assessment’ shows that along with the order of assessment which is an important act in the process of taxation, other acts and steps adopted in the course of taxation are also included in the word - Maharaj Kumar Kamal Singh v. CIT  35 ITR 1 (SC).
n The word ‘reassess’ refers to a situation where an assessment is already made, but it is sought to be reassessed on the basis of this provision - Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT  148 CTR (Guj.) 62.
Reassessment - Generally Defined
n The word ‘reassessment’ is not confined to a fresh assessment being made of an income in the hands of the same person but is wide enough to include a fresh assessment of an income in hands different from those in which it had been assessed originally - Jawahar Lal Mani Ram v. CIT  48 ITR 837 (All.).
Reason to Believe
n The expression ‘reason to believe’ postulates belief and the existence of reasons of that belief. The belief must be held in good faith; it cannot be merely a pretence. The expression does not mean a purely subjective satisfaction of the ITO: the forum of decision as to the existence of reasons and the belief is not in the mind of the ITO - Calcutta Discount Co. Ltd. v. ITO  41 ITR 191 (SC).
n ‘Reason to believe’, does not mean a purely subjective satisfaction on the part of the ITO. The belief must be held in good faith, it cannot be merely a pretence - S. Narayanappa v. CIT  63 ITR 219 (SC).
n The words ‘reason to believe’ suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour - Sheo Nath Singh v. AAC  82 ITR 147 (SC).
n The expression ‘reason to believe’ occurring in section 147 does not mean a purely subjective satisfaction on the part of the ITO, the reasons for the belief must have a rational connection or relevant bearing to the formation of the belief - ITO/WTO v. Nawab Mir Barkat Ali Khan Bahadur  97 ITR 239 (SC).
n The expression ‘reason to believe’ does not mean a purely subjective satisfaction on the part of the ITO. The reason must be held in good faith. It cannot be merely a pretence - ITO v. Lakhmani Mewal Das  103 ITR 437 (SC).
n ‘Reason to believe’ is a common feature in taxing statutes. It has been considered to be the most salutary safeguard on the exercise of power by the officer concerned. It is made of two words ‘reason’ and ‘to believe’. The word ‘reason’ means cause or justification and the word ‘believe’ means to accept as true or to have faith in it. Before the officer has faith or accepts a fact to exist there must be a justification for it. The belief may not be open to scrutiny as it is the final conclusion arrived at by the officer concerned, as a result of mental exercise made by him on the information received. But, the reason due to which the decision is reached can always be examined. When it is said the reason to believe is not open to scrutiny what is meant is that the satisfaction arrived at by the officer concerned is immune from challenge but where the satisfaction is not based on any material or it cannot withstand the test of reason, which is an integral part of it, then it falls through and the Court is empowered to strike it down. Belief may be subjective but reason is objective - Ganga Prasad Maheshwari v. CIT  139 ITR 1043 (All.).
n The expression ‘reason to believe’ postulates belief and the existence of reasons for that belief. The existence of reasons for the belief is certainly justiciable but not the sufficiency of the reasons - Sambalpur Rolling & Flour Mill (P.) Ltd. v. ITO  36 Taxman 291/173 ITR 588 (Ori.).
n The word ‘reason’ in the phrase ‘reason to believe’ would mean cause or justification. If the Assessing Officer has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. The words ‘reason to believe’ cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence - Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT  148 CTR (Guj.) 62.
n The use of the expression ‘assess or reassess such income or recompute the loss or depreciation allowance’ in section 147 after the conditions for reassessment are satisfied is only relatable to the preceding expression in clauses (a) and (b), viz, ‘escaped assessment’. The term ‘escaped assessment’ includes both ‘non-assessment’ as well as ‘under-assessment’. Income is said to have ‘escaped assessment’ within the meaning of this section when it has not been charged in the hands of an assessee in the relevant year of assessment. The expression ‘assess’ refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of section 147 because the assessment had not been made in a regular manner under the Act. The expression ‘reassess’ refers to a situation where an assessment has already been made but the Income-tax Officer has, on the basis of information in his possession, reason to believe that there has been under-assessment on account of the existence of any of the grounds contemplated by the provisions of section 147(b), read with the Explanation 1 thereto - CIT v. Sun Engineering Works (P.) Ltd.  198 ITR 297 (SC).
n The expression ‘escaped assessment’ clearly connotes a very basic postulate that the income for a particular assessment year went unnoticed by the Assessing Officer and because of it not being noticed by him for any reason, it escaped assessment. The meaning of the expression ‘escaped assessment’ is so simple and straight that it does not leave anyone in doubt that power under section 147 of the Act could be invoked by the Assessing Officer if it is a case of escapement of assessment of income for a particular year - Hum Boldt Wedag India Ltd. v. Asstt. CIT 1997 Tax LR 786 (Cal.).
n The words ‘escaped assessment’ where the return is filed, are apt to cover the case of a discovery of a mistake in the assessment caused by either an erroneous construction of the transaction or due to its non-consideration or caused by a mistake of law applicable to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have been based - Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT  148 CTR (Guj.) 62.
n The expression ‘reason to believe’ mandates that before jurisdiction under section 147 is invoked by the Assessing Officer, he is to record his reasons for doing so or before issuing any notice under section 147. The formation of reason to believe and recording of reasons are imperative before the Assessing Officer can reopen a completed assessment.
The Assessing Officer does not have any jurisdiction to review its own order. If the ITO does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the revenue is not without remedy. Section 263 empowers the Commissioner to review an order which is prejudicial to the revenue. A mere change in the opinion would not confer jurisdiction upon the Assessing Officer to initiate a proceeding under section 147. It is clear from the CBDT Circular No. 549, dated 31-10-1989 that even according to the Board, a mere change of opinion cannot form the basis for reopening a completed assessment - CIT v. Kelvinator of India Ltd.  123 Taxman 433/256 ITR 1 (Delhi)(FB).
n Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word ‘reason’ in the phrase ‘reason to believe’ would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion - Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd.  161 Taxman 316/291 ITR 500 (SC).
In the course of proceedings - generally defined
n The expression ‘in the course of proceedings’ is wide in its amplitude, and it will, therefore, be proper to conclude that the information at the time of issuing notice need not be complete and accurate - G. Sukesh v. Dy. CIT  118 Taxman 427/252 ITR 230 (Ker.).
Failure - Proviso to section 147
n ‘Failure’ connotes that there is an obligation which has not been carried out and if there was no obligation upon the assessee to make a return, then it would not be a failure on his part to carry out that obligation - Pannalal Nandlal Bhandari v. CIT  30 ITR 57 (Bom.).
Material facts - Proviso to section 147
n The expressions ‘Material facts’ in clause (a) of section 147 for reopening and ‘concealed the particulars of his income or furnished inaccurate particulars of such income’ in section 271(1)(c) are different - CIT v. K.S.D. Pandurangan  218 ITR 8 (Mad.).
Not necessarily - Explanation 1 to section 147
n The words ‘not necessarily’ as appearing in Explanation 2 only indicate that whether there is a disclosure or not within the meaning of section 147(a) would depend on the facts and circumstances of each case. To put it differently, it would be the nature of documents and the circumstances in which these are produced before the Assessing Officer that will determine the question - Rakesh Agarwal v. Asstt. CIT  86 Taxman 37/221 ITR 492 (Delhi).
n The expression ‘reason to believe’ means that there is a reason coupled with the belief. If there is no rational and intelligible nexus between the reason and the belief so that on such reason no one properly instructed on the facts of the case could reasonably entertain the belief, the conclusion would be inescapable that the Assessing Officer could not have had reason to believe. In such a case the notice issued by him would be liable to be struck down as being invalid and without jurisdiction. The materials having a natural nexus with the formation of the belief will have to be disclosed by the Assessing Officer. He can do so by filing an affidavit - Berger Paints India Ltd. v. Asstt. CIT  139 Taxman 200/266 ITR 462 (Cal.).