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2016 DIGILAW 1130 (GUJ)

Praful Somabhai Patel v. Income Tax Officer

2016-06-17

G.R.UDHWANI, K.S.JHAVERI

body2016
JUDGMENT : K.S. Jhaveri, J. 1. By way of these appeals, the appellants-original assessees have challenged the order of the Income Tax Appellate Tribunal, Ahmedabad Bench "C", Ahmedabad ("the Tribunal" for short) dated 30.12.2005 in ITA Nos. 1717-1729-1731/Ahd/2009, whereby the Tribunal allowed the appeals of the revenue and reversed the order passed by the CIT (A) by confirming the order of the Assessing Officer, who has taken into account revised assessment pursuant to the audit objections raised in case of all the three assessees, who happens to be co-owners of a property. 2. Since the facts are identical in these appeals, we may refer to the facts leading to the filing of Tax Appeal No. 1071 of 2006. Return of income was filed on 30th June 1995, declaring an income of Rs. 15,48,954/-, Rs. 15,48,310/- and Rs. 15,54,757/- i.e. respectively for each of the three assessees. The assessment, in each case, was made vide order under Section 143(3) dated 29th March 1996 at the returned income after allowing the assessee its claim u/s. 54F of the Act. However, subsequently, it was found that the assessee also owned one more property, income from which is chargeable under the head Income from 'House Property', and therefore, the deduction under Section 54F stood wrongly allowed to it. Accordingly, notice under Section 148 of the Act was issued on 17.2.1997, which stood responded, in each case, by the assessee filing its return of income on 23.7.1997 at the income as originally returned. 3. In respect of its claim under Section 54F of the Act, it was explained by the assessee that it had released its share in the property being residential house at Shahpur, Ahmedabad on 23.7.1995 and, therefore, it did not own any other residential property as on the date of the transfer of original asset i.e. on the transfer of which the capital gains to it during the relevant previous year arose, or the 'transferred property'. As regards the date of transfer, it was explained that though the stamp paper on which the transfer was executed was purchased on 24th March, 1995, the same was actually executed on 28"' March, 1995. As such, as on that date, the assessee did not own any other residential house so as to disqualify its claim u/s. 54F. As regards the date of transfer, it was explained that though the stamp paper on which the transfer was executed was purchased on 24th March, 1995, the same was actually executed on 28"' March, 1995. As such, as on that date, the assessee did not own any other residential house so as to disqualify its claim u/s. 54F. Further, it was also contended by it that its share in the Shahpur Property was limited only to the extent of 1/5th of its total area of 77 sq. mtr., and which considering the parameters that would enable it to be considered as a residential house, were not, met, so as to, without prejudice to its averment of the property having been transferred only on 28th March, 1995, disentitle it for its claim u/s. 54F. 3.1 The same, however, did not find favour with the A.O., who proceeded to reassess the assessee's income u/s. 143(3) r.w.s. 147 of the Act. With reference to the 'Memorandum of Possession', on the basis of which the transfer of the original asset had taken place, it was found by him that the same stood actually executed and verified on 24th March, 1995, "reproducing the actual recital in its respect there from, so that the assessee on that day owned two properties, i.e., the 'transferred property' or the original asset, as well as the Shahpur property. Further, with reference to the assessee's computation of income, which carried a rent from another property located at Shahpur (bearing No. C/3069, S/5142 at Vanmali Vankani Pole, Shahpur), it was found that the assessee had rented that property to a Carpenter, and was located in the same locality as the Shahpur Property, which stood admittedly used by the assessee, along with others of the family, as a residential property. As such, it was contended by him that, in fact, the assessee on the day of transfer, i.e., 24-3-1995, owned, not one but two properties, i.e. besides the 'transferred property'/original asset. Whether the tenant-carpenter utilized the same for his residential or commercial purposes was not relevant, inasmuch as the same was actually a residential property. 3.2 It was on this basis that the deduction u/s. 54F (of the Act), allowed in the original assessment, was withdrawn in the subsequent assessment framed vide order dated 5-2-1999. Whether the tenant-carpenter utilized the same for his residential or commercial purposes was not relevant, inasmuch as the same was actually a residential property. 3.2 It was on this basis that the deduction u/s. 54F (of the Act), allowed in the original assessment, was withdrawn in the subsequent assessment framed vide order dated 5-2-1999. With reference to the Valuation Officer u/s. 55A, the FMV of the transferred property as at 1-4-1981 was also reduced from Rs. 5,10,200, i.e., as adopted in the original assessment, to Rs. 4,18,600, and to which it has been stated in the said order that no objection was raised by the assessee. Aggrieved, the assessee preferred an appeal before the learned CIT (A), contesting, in the first place, the reopening of the assessment as being bad in law. 3.3 The assessee contended non-supply of the reasons (for reopening) in the appellate proceedings, even as the A.O states to have had supplied the same in response to the assessee's request therefore on the first date of hearing, i.e., 19-1-1999. The same, dated at 17-2-1997, stand reproduced by the learned CIT (A) at page 12 of his order, and which do not contain any reference to any incorrect deduction claimed by the assessee u/s. 54F. As revealed thereby, the A.O., on the basis of the perusal of the record, found that the 'transferred property' stood valued as on 1-4-1991 at Rs. 34,400 by the assessee for the purposes of its Wealth-tax return, and per the same valuer who had valued the same at Rs. 5,12,800/- as on 1-4-1981, i.e., for the purposes of determining its cost of acquisition in the computation of long term capital gain for the current assessment year. As such, it transpired that the reasons for reopening were entirely different than that claimed by the Assessing Officer in his order. Further, it was observed by the learned CIT(A) that the A.O. had framed the assessee's Wealth-tax assessment u/s. 16(3) r.w.s. 17 of the Wealth-tax Act, 1956 on 24-3-1998 in response to the return of income filed on 12-1-1996, accepting the value thereof at the stated amount, i.e., Rs. 34,400,130 that the same was before the A.O. at the time of framing of the original assessment, i.e., 29-3-1996, and that therefore, there had been no failure on the part of the assessee to disclose fully and truly all material facts in relation to his income. 34,400,130 that the same was before the A.O. at the time of framing of the original assessment, i.e., 29-3-1996, and that therefore, there had been no failure on the part of the assessee to disclose fully and truly all material facts in relation to his income. Further, it was pointed out by him, on the basis of the arguments as advanced before him, that the relevant reasons, being found in the audit folder, it was an admitted position that the same emanated on the basis of the audit objection raised by the audit party, and which is not permissible in view of the judicial pronouncements, the principal among them being in the case of Indian and Eastern Newspaper Society v. CIT, [ (1979) 119 ITR 996 (SC)]. Further, it was pointed out by the learned CIT(A) that the value of the property(asset) under the Wealth-tax Act is to be computed under the provisions of that Act r.w. relevant Rules, so that it has no bearing on the it has no bearing on the value as adopted for the Income-tax purposes; in the instant case being valued on the basis of net maintainable rent. It was on these basis that he allowed the assessee's appeal, on the basis of his first ground, holding the reopening as being without jurisdiction, and thus bad in law. Aggrieved, the Revenue went in appeal before the Income Tax Appellate Tribunal. The tribunal after hearing the parties and considering the material on record, passed the impugned order allowing the appeal of the revenue, against which present appeals are filed by the assessee. 4. While admitting these appeals, this Court framed following question of law:- "Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the reopening proceedings are valid, legal and within the jurisdiction of the Respondent?" 5. Mr. Soparkar, learned counsel for the appellant contended that the reopening notice was issued to assess the difference in valuation for income tax and wealth tax, whereas in the reassessment order deduction under Section 54F of the Act was denied, therefore, reopening proceedings are bad in law. He further submitted that notice can be issued under Section 148 of the Act if an Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. He further submitted that notice can be issued under Section 148 of the Act if an Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. It is settled law that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based on reasonable grounds and not a mere change of opinion, suspicion, gossip or rumor. He submitted that in the present case there is a change of opinion. He further submitted that there is no new information or evidence in possession of the concerned officer, which was not there before him when he framed the original assessment order. He submitted that original return declaring total income of Rs. 15,48,954 was filed on 30.6.1995, for which assessment was made on 29.3.1996 and within four years i.e. on 17.2.1997, on audit objections revised notice was issued and Income Tax Officer also send the matter for valuation to the Valuation Department. 5.1 He further submitted that the Assessing Officer has passed an order, which was challenged before CIT (A), who, after considering the material on record held in favour of the assessee. He, therefore, contended that the notice issued by the department was not proper. He has taken us through the impugned order of the Tribunal wherein it is observed that, "The observations of the learned CIT (A) with regard to the filing of the Wealth-tax return by the assessee, therefore, become redundant, in the matter; the reopening jurisdiction can be validly assumed even if there has been an omission on the part of the A.O. (as per the amended law), and further, the learned CIT (A) himself observing that the valuation under the Wealth-tax law is subject to a different valuation regime. What needs, therefore, to be seen is whether, the information brought to his notice, through the agency of the audit party, for which purpose the same exists, could lead to an honest, bonafide, and prima facie belief that there has been an over-statement of the Fair Market Value of the transferred property as at 1-4-1981, which the assessee adopts at Rs. 5,10,200. We consider it as so, considering that the same stand valued by the assessee, per the same valuer, as on 1-4-1991 at Rs. 5,10,200. We consider it as so, considering that the same stand valued by the assessee, per the same valuer, as on 1-4-1991 at Rs. 34,400 whether the assessee was, in reassessment proceedings, able to successfully plead the value as adopted by him, or not, is irrelevant, and neither it is open for the Courts to go into the sufficiency of the reasons; the sole guiding criteria being whether the material had a rational and direct nexus/bearing with the formation of the belief [Kantamani Venkata Narayana and Sons v. First Additional IOT, [1967] 63 ITR 638 (SC)], Phoolchand Bhajranglal v. ITO, 203 ITR 456 (SC). The property may have been valued under the Wealth-tax Act on net maintainable rent basis, so that different considerations would apply, but the rent earning potential of the property would also be based on its fair market value, so that, in view of the huge difference between the two values, we do not find any infirmity or absence of a live link between the two stated values, being even otherwise separated by a distance of ten years, and the formation of an honest and bonafide belief on the part of the A.O. As to the escapement of income. There is nothing on record to suggest that there had been a conscious application of mind in the matter at the time of framing of the original assessment, so as to be considered as a case of change of opinion. We, therefore, uphold the same, reversing the order of the learned CIT (A)." He further contended that the basis for valuation under the Wealth tax Act and the Income Tax is different. In that view of the matter, when capital gain was already taken into consideration by the Assessing Officer, again original assessment cannot be changed on the basis of valuation report of wealth tax. It was also contended that wealth tax valuation report was available with the same officer and the CIT (A) has also observed that it was available on the record. Therefore, he contended that there is non-application of mind and there is a reason to believe that notice was issued mechanically and Assessing Officer cannot base his reasoning or cannot change his opinion and whatever is running in his mind on 17.2.1999, the date of notice, cannot be added or improved upon. He has relied upon following decisions in support of his submissions. He has relied upon following decisions in support of his submissions. "(i) Commissioner of Income Tax v. Kelvinator of India Ltd. reported in [2010] 320 ITR 561 (SC):- "On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 : dated 31st October, 1989, which reads as follows: "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression 'reason to believe' in Section 147.-A number of representations were received against the omission of the words 'reason to believe' from Section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs." (ii) Agricultural Produce Market Committee v. Income-Tax Officer reported in [2013] 355 ITR 384 (Guj) :- "13. In the facts of the present case, the Assessing Officer while framing the original assessment under section 143(3) of the Act, has, taken into consideration the certificate granted by the Commissioner of Income Tax under section 12AA of the Act, and has found that the petitioner carries on charitable activities. In the return of income filed by it, the petitioner had specifically claimed deduction of Rs. 32,40,212/- and Rs. 45,00,000/- totalling to Rs. 77,40,212/- as a Charitable Trust registered under section 12AA of the Act by the Commissioner of Income Tax. In the return of income filed by it, the petitioner had specifically claimed deduction of Rs. 32,40,212/- and Rs. 45,00,000/- totalling to Rs. 77,40,212/- as a Charitable Trust registered under section 12AA of the Act by the Commissioner of Income Tax. During the course of assessment proceedings the Assessing Officer had issued notice pursuant to which the petitioner had given its reply explaining as to why it was entitled to the said deductions. The Assessing Officer after considering the explanation given by the petitioner had passed a scrutiny assessment order under section 143(3) of the Act specifically allowing the above deductions. From the reasons recorded, it is evident that the Assessing Officer has not recorded any independent opinion regarding income having escaped assessment for the reasons stated therein. The sole ground for reopening the assessment appears to be the observations of the Revenue Audit Party that the assessee is not eligible for exemption to the tune of Rs. 77,40,212/- for the year under reference since, the Assessing Officer has not disallowed the exemption while finalizing the assessment under section 143(3) of the Act. Thus, it appears that the belief that income chargeable to tax escaped assessment is that of the Revenue Audit Party and not of the Assessing Officer. In the circumstances, the condition precedent for exercise of powers under section 147 of the Act, namely, that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment, does not appear to be fulfilled in the present case. 14. Besides, in the light of the above referred decisions of this Court, it is not permissible for the Assessing Officer to go behind the registration obtained by the assessee under section 12AA of the Act. The Assessing Officer while framing original assessment having taking into consideration the registration under section 12AA of the Act as well as having examined the admissibility of the claims made by the petitioner, has allowed the deduction under section 11 of the Act. Under the circumstances, the reopening of assessment appears to be based on a mere change of opinion, that too, the opinion of the Revenue Audit Party and not that of the Assessing Officer. Under the circumstances, the reopening of assessment appears to be based on a mere change of opinion, that too, the opinion of the Revenue Audit Party and not that of the Assessing Officer. The Supreme Court in the case of Commissioner of Income Tax v. Kelvinator of India Ltd., (2010) 320 ITR 561, has held that one needs to give a schematic interpretation to the words "reason to believe" failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. One must treat the concept of "change of opinion" as an inbuilt test to check abuse of power by the Assessing Officer. Viewed in the light of the aforesaid decision, the reopening of assessment based on a mere change of opinion is bad in law and as such, the impugned notice issued under section 148 of the Act, cannot be sustained." (iii) Agricultural Produce Market Committee v. Income-Tax Officer reported in [2013] 355 ITR 400 (Guj) :- "Held, allowing the petition, that the the assessment was completed on scrutiny. In the post-assessment period, the audit party raised objections and the Assessing Officer had in internal communication, strongly objected to them. No material emerged to indicate any independent application of mind by the Assessing Officer. The facts on the contrary clearly established the absence of subjective satisfaction of the Assessing Officer. Thus, such notice for reopening the assessment was invalid." (iv) Commissioner of Income Tax v. Orient Craft Ltd. reported in [2013] 354 ITR 536 (Del):- "13. Having regard to the judicial interpretation placed upon the expression "reason to believe", and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words "reason to believe" vis-à-vis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in ITA No. 555/2012 Page 11 of 14 effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to believe" in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. 14. Certain observations made in the decision of Rajesh Jhaveri (supra) are sought to be relied upon by the revenue to point out the difference between an "assessment" and an "intimation". The context in which those observations were made has to be kept in mind. They were made to point out that where an "intimation" is issued under section 143(1) there is no opportunity to the assessing authority to form an opinion and therefore when its finality is sought to be disturbed by issuing a notice under section 148, the proceedings cannot be challenged on the ground of "change of opinion". They were made to point out that where an "intimation" is issued under section 143(1) there is no opportunity to the assessing authority to form an opinion and therefore when its finality is sought to be disturbed by issuing a notice under section 148, the proceedings cannot be challenged on the ground of "change of opinion". It was not opined by the Supreme Court that the strict requirements of section 147 can be compromised. On the contrary, from the observations (quoted by us earlier) it would appear clear that the court reiterated that "so long as the ingredients of section 147 are fulfilled" an intimation issued under section 143(1) can be subjected to proceedings for reopening. The court also emphasised that the only requirement for disturbing the finality of an intimation is that the assessing officer should have "reason to believe" that income chargeable to tax has escaped assessment. In our opinion, the ITA No. 555/2012 Page 12 of 14 said expression should apply to an intimation in the same manner and subject to the same interpretation as it would have applied to an assessment made under section 143(3). The argument of the revenue that an intimation cannot be equated to an assessment, relying upon certain observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be self-defeating, because if an "intimation" is not an "assessment" then it can never be subjected to section 147 proceedings, for, that section covers only an "assessment" and we wonder if the revenue would be prepared to concede that position. It is nobody's case that an "intimation" cannot be subjected to section 147 proceedings; all that is contended by the assessee, and quite rightly, is that if the revenue wants to invoke section 147 it should play by the rules of that section and cannot bog down. In other words, the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). In other words, the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). It follows that it is open to the assessee to contend that notwithstanding that the argument of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements. 15. In the present case the reasons disclose that the Assessing Officer reached the belief that there was escapement of income "on going through the return of income" filed by the assessee after he accepted the return under Section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer, both strongly deprecated by the Supreme Court in CIT v. Kelvinator (supra). The reasons recorded by the Assessing ITA No. 555/2012 Page 13 of 14 Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words "reason to believe" vis-à-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147." (v) Dhruv Parulbhai Patel v. Assistant Commissioner of Income-Tax reported in [2014] 45 taxmann.com 20 (Gujarat):- "7. What thus emerges from the above discussion is that the reasons on which the notice for reopening is issued lacks validity. Section 54E of the Act was neither applicable nor sought to be applied by the assessee. The question of denying any such claim under the said provision for breach of condition therein therefore simply did not arise. What thus emerges from the above discussion is that the reasons on which the notice for reopening is issued lacks validity. Section 54E of the Act was neither applicable nor sought to be applied by the assessee. The question of denying any such claim under the said provision for breach of condition therein therefore simply did not arise. It is well settled that notice for reopening has to be sustained and supported only on the basis of reasons recorded by the assessing officer and not with the help of extraneous ground, material or possible improvement. Reference in this respect can be made to the decision of this Court in the case of Aayojan Developers v. Income-tax Officer reported in [2011] 335 ITR 234 (Guj)." (vi) Aavkar Infrastructure Company v. Deputy Commissioner of Income-tax, Circle-9 reported in [2016] 67 taxmann.com 39 (Gujarat):-- "7. A perusal of the reasons recorded shows that the Assessing Officer, in the assessment proceedings in relation to the assessment year 2011-12, noticed that the cost of construction claimed by the petitioner for the project in question was Rs. 4,662/- per square yard, which appeared to be less in comparison to other similar projects run by other assessees. He, therefore, made a reference to the DVO for determining the cost of construction of the project of the assessee and pursuant thereto, the DVO determined the cost of construction of the entire project of the assessee at Rs. 30,68,87,047/- as against Rs. 27,73,76,009/- as declared by the assessee. On the basis of the aforesaid report of the DVO, the Assessing Officer has noticed that in the return of income filed by the assessee for assessment year 2007-08, no expenses had been debited to the profit and loss account of the assessee and also in the balance sheet part of the return of income, no inventory or stock in process was seen. Accordingly, the Assessing officer formed the belief that the assessee has under reported the cost of investment made by it by Rs. 22,76,698/- in the on-going project and artificially inflated the profit from the project as it was getting benefit of deduction under section 80IB(10) of the Act. From the reasons recorded, it is manifest that the Assessing Officer, in relation to the assessment year 2011-12, had referred the matter to the DVO for determining the cost of construction of the project of the assessee. From the reasons recorded, it is manifest that the Assessing Officer, in relation to the assessment year 2011-12, had referred the matter to the DVO for determining the cost of construction of the project of the assessee. Based upon the report of the DVO, the Assessing Officer has sought to reopen the assessment for the year under consideration on the ground that the assessee has under reported the cost of investment to the tune of the difference between the cost of investment as declared by the assessee and as estimated by the DVOs office. It is the case of the learned counsel for the respondents that the Assessing Officer has duly applied his mind by referring to the return of income and noting that no expenses have been debited in the profit and loss account and also that the balance sheet or the return of income does not indicate any inventory or stock in process. Therefore, there is application of mind on the part of the Assessing Officer to the report of the DVO warranting assumption of jurisdiction under section 147 of the Act. 8. The record of the case reveals that for the year under consideration, the petitioner had not claimed any deduction under section 80IB (10) of the Act and therefore as there was no profit, the same was not indicated in the profit and loss account for the year under consideration. While the assessment is sought to be reopened on the ground that the petitioner has under reported the cost of construction, from the reasons recorded, there is nothing to indicate that the Assessing Officer has independently applied his mind to the record of the case to ascertain as to whether the cost of investment as declared by the assessee was in fact under reported as recorded therein. The entire basis for reopening the assessment is the report of the DVO and the difference of cost as computed by him, which according to the Assessing Officer is the extent of income which has escaped assessment. 9. This court in the case of Vinayak Builders v. BD Garsar (or) Successor (supra) had in the facts of that case observed that the sole ground for reopening the assessment was that the Valuation Officer had determined the cost of construction at a higher rate than that shown by the assessee in its books of account. 9. This court in the case of Vinayak Builders v. BD Garsar (or) Successor (supra) had in the facts of that case observed that the sole ground for reopening the assessment was that the Valuation Officer had determined the cost of construction at a higher rate than that shown by the assessee in its books of account. The reasons recorded did not reflect that the Assessing Officer had applied his mind to the facts of the case to ascertain as to whether in fact the assessee had expended more amount towards construction as stated in the valuation report. Reverting to the facts of the present case, the Assessing Officer, except for referring to the profit and loss account, which as noted hereinabove, would not reflect any profit as the assessee had not claimed any profit, and to the balance sheet part of the return of income, the Assessing Officer has made no effort to ascertain as to whether, in fact, the assessee has expended more amount than disclosed in the return of income. In the opinion of this court, while the report of the DVO may form the foundation for reopening the assessment, there must still be some reasons which warrant holding the belief that income chargeable to tax has escaped assessment so as to necessitate issuance of a notice under section 148 of the Act. The facts reveal that the entire basis for reopening the assessment of the petitioner for the year under consideration is the report of the DVO without verification of any facts to support such conclusion. The Assessing Officer has not recorded any satisfaction about the correctness or otherwise of the contents of the report of the DVO. 10. In the aforesaid premises, the court is of the view that considering the material before the Assessing Officer and the nature of inquiry made by him, except for the report of the DVO, there was no tangible material for the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. As held by the Supreme Court in the case of Assistant Commissioner of Income Tax v. Dhariya Construction Co. (supra), the opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Act. As held by the Supreme Court in the case of Assistant Commissioner of Income Tax v. Dhariya Construction Co. (supra), the opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Act. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon." (vii) Deputy Commissioner of Income-tax, Ahmedabad Circle-1 v. Cliantha Research Ltd. reported in [2013] 35 taxmann.com 61 (Gujarat):- "19. In response to such queries, the petitioners had given detailed replies and produced voluminous material to support the claim of deduction. It cannot be stated by any stretch of imagination that such claim of deduction under Section 80IB(8A) of the Act was not examined by the Assessing Officer in the original assessment. It may be that he did not raise specific query to allowability of the claim on the premise that the petitioner was doing scientific research for and on behalf of the companies. However, merely for the failure of the Assessing Officer to raise such a question, in our opinion, would not authorize him to reopen the assessment even within the period of 4 years from the end of the relevant assessment year. Any such attempt on his part would be based on mere change of opinion. To reiterate when a claim was processed at length and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment." (viii) Commissioner of Income Tax, Delhi-IV v. Indian Sugar and General Industry Export Import Corpn. Ltd. reported in [2008] 170 Taxman 229 (Delhi):- "7. Having gone through the decision of this Court, we find that it has been held that there must, nevertheless, be an independent examination of the materials collected by the audit party in its report and it is only thereafter that the AO must come to an independent conclusion that there was an escapement of income. 8. Insofar as the present case is concerned, there is nothing to suggest anything in the reasons or note recorded by the AO that there is an independent examination of the material collected by the audit party nor is there any independent conclusion arrived at by the AO. 8. Insofar as the present case is concerned, there is nothing to suggest anything in the reasons or note recorded by the AO that there is an independent examination of the material collected by the audit party nor is there any independent conclusion arrived at by the AO. In fact, as noted above, the reasons itself do not make any reference to the objection of the audit but it is only the note that makes a reference and the note merely states a fact that an objection has been raised. There is nothing to suggest from the language of the note that the AO had applied his mind to the contents of the audit objection before issuing a notice under s. 148 of the Act. On the contrary, the note suggests that the notice was issued mechanically as a result of the audit objection. 9. Learned counsel for the assessee points out that all the facts were before the AO at the time when the assessment was made and that being the position, it cannot be said that there was any error or omission committed by the AO while framing the original assessment and that the impugned action is nothing but a mere change of opinion. 10. In our view, the decision relied upon by learned counsel for the Revenue does not come to her assistance. On the facts of the case, we find that there is no independent application of mind by the AO for the purposes of issuing a notice under s. 148 of the Act." (ix) Dhruv Parulbhai Patel v. Assistant Commissioner of Income Tax reported in [2014] 367 ITR 234 (Gujarat):- "6. On the basis of documents on record and the submissions made before us following aspects emerge: 1. Assessment previously framed after scrutiny is sought to be reopened within a period of four years from the end of relevant assessment year. There is nothing conclusive on record to suggest that the question of assessees claim for exemption from capital gain under section 54 was examined by the assessing officer. 2. Undisputedly, however, the claim of the assessee was under section 54 and not 54E of the Act. 3. There is nothing conclusive on record to suggest that the question of assessees claim for exemption from capital gain under section 54 was examined by the assessing officer. 2. Undisputedly, however, the claim of the assessee was under section 54 and not 54E of the Act. 3. The assessing officer in the reasons recorded desired to disallow the claim on the ground that as required under section 54E of the Act, the assessee did not invest the surplus for a minimum period of 36 months. 4. Though through the affidavit-in-reply it is now pointed out that reference to section 54E is mere typographical error and the intention was to refer to section 54 of the Act, we are of the opinion that such stand is wholly incorrect. Had this been a case of mere typographical error, we would have ignored the mistake and referred to the correct statutory provision. The fact that reference under section 54E was however, not an error is manifest from the reasons recorded. It referred to the requirement of investing the surplus fund for a minimum period of 36 months. Such requirement flows from section 54E of the Act and not section 54. Section 54 in fact requires the assessee to acquire a new unit within a year or build himself within three years. In the later case he has to invest the surplus in specified investments. This was thus not a mere typographical error but a conscious decision on the part of the assessing officer to disallow the exemption claimed, for breach of the requirement of section 54E of the Act. 7. What thus emerges from the above discussion is that the reasons on which the notice for reopening is issued lacks validity. Section 54E of the Act was neither applicable nor sought to be applied by the assessee. The question of denying any such claim under the said provision for breach of condition therein therefore simply did not arise. It is well settled that notice for reopening has to be sustained and supported only on the basis of reasons recorded by the assessing officer and not with the help of extraneous ground, material or possible improvement. Reference in this respect can be made to the decision of this Court in the case of Aayojan Developers v. Income-tax Officer reported in [2011] 335 ITR 234 (Guj). 8. Under the circumstances, notice dated 25.3.2014 is quashed. Reference in this respect can be made to the decision of this Court in the case of Aayojan Developers v. Income-tax Officer reported in [2011] 335 ITR 234 (Guj). 8. Under the circumstances, notice dated 25.3.2014 is quashed. Petition is allowed. Rule is made absolute." 5.2 In view of above, he contended that the order impugned is contrary to law and the same is required to be set aside. 6. On the other hand, Mr. Mehta, learned counsel for the revenue has taken us through the material on record and contended that in the present case on the basis of the audit report, case of the assessee is taken up for reassessment. He further submitted that all the conditions and parameters have been fulfilled and it is open for the authority to reconsider the case within four years on the basis of audit report. He has relied upon following decisions in support of his submissions. "(i) Sun Pharmaceutical Industries Ltd. v. Deputy Commissioner of Income Tax (No.2) reported in [2013] 353 ITR 474 (Guj):- "33. In view of the above settled legal position, at this stage, we do not find that the reasons recorded lack validity. The above observations of various decisions noted would also be relevant when we examine whether such escapement of income was due to failure on the part of the assessee in truly and fully disclosing all material facts. In this respect, the assessee had disclosed that it had received interest of Rs. 3,03,48,973/-. It is an admitted position that in the return filed, the assessee did not indicate whether the entire interest or part thereof was received from Aditya Medisales. Further, there is no indication that from Aditya Medisales, which was a sister concern, the assessee had received interest at the rate of 24% on the outstanding amounts. Counsel for the petitioner, however, submitted that in the tax audit report, the petitioner had disclosed that the petitioner company and Aditya Medisales are closely associated. In our opinion, this would not be a sufficient disclosure. From the facts on record, it was not possible for the Assessing Officer to ascertain that the petitioner received interest from Aditya Medisales which was higher than the normal rate of interest. In our opinion, this would not be a sufficient disclosure. From the facts on record, it was not possible for the Assessing Officer to ascertain that the petitioner received interest from Aditya Medisales which was higher than the normal rate of interest. Three essential facts, namely, that the petitioner received interest on overdue payments from Aditya Medisales, that Aditya Medisales was a sister concern of the petitioner Company and that such interest was charged at the rate of 24% per annum, were not discernible from the record at all. 34. Under the circumstances, from the material on record, it was not possible for the Assessing Officer to make adjustment under section 80IA(10) even if it was required. It may be that the petitioner did give the total figure of interest received. However, from such figures, it was not possible for the Assessing Officer to ascertain these vital facts. Section 147 of the Act, explanation 1 provides that "production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of foregoing proviso". In the present case, even from the account books and other evidence which the assessee had produced, even after due diligence, it was not possible for the Assessing Officer to discover these three vital facts. 35. In the case of Sri Krishna Pvt. Ltd. (supra), the Apex Court observed that obligation of the assessee is to disclose all material facts necessary for his assessment for that year fully and truly. It was further observed that the idea is to save the assessee from harassment resulting from mechanical reopening of reassessment. This protection avails only to those assessees who disclose all material facts truly and fully. 36. In the case of Phool Chand Bajrang Lal (supra), the Apex Court held as under: "Where the transaction itself, on the basis of subsequent information was found to be a bogus transaction, mere disclosure of that transaction at the time of original proceedings could not be said to be a disclosure of true and full facts and officer would have jurisdiction to reopen the concluded assessment in such a case." 37. In the present case, as already noted, the only disclosure was that the assessee had earned interest income of Rs. 3,03,48,973/-. In the present case, as already noted, the only disclosure was that the assessee had earned interest income of Rs. 3,03,48,973/-. There was no further information available on record that such interest included overdue payment charges at the rate of 24% received from the sister concern, viz. Aditya Medisales. Even without the aid of explanation (1) to proviso to section 147, therefore, it was perhaps open for the Assessing Officer to contend that there was no true and full disclosure on the part of the assessee in this respect. At any rate, by applying such explanation, it can be easily gathered that the assessee failed to disclose fully and truly all material facts. Counsel for the petitioner, however, vehemently contended that these were not primary facts. Only primary fact was that the assessee had earned interest income. We are, however, of the opinion that in the context of the close connection between the petitioner and Aditya Medisales, the fact that the assessee was eligible for deduction under section 80IA of the Act and the interest income received from the sister concern had relevance to the provisions of section 80IA(10) of the Act, primary facts were not on record. 38. Under the circumstances, in so far as ground No. 3 is concerned, we find that the same cannot be stated to be invalid. The issue being common, we see no reason to take a different view. In fact, we may notice that the above decision was rendered by us in a case where notice for reopening of the assessment was issued beyond the period of four years from the end of the relevant assessment year whereas in the present case, such notice is issued within four years. In that view of the matter, the contention of the counsel for the petitioner that full facts were available on record before the Assessing Officer when the assessment was previously framed after scrutiny would be of no avail." (ii) Dishman Pharmaceuticals and Chemicals Limited v. Deputy Commissioner of Income-Tax (OSD) (No.1) reported in [2012] 346 ITR 228 (Guj):- "8. In that view of the matter, the contention of the counsel for the petitioner that full facts were available on record before the Assessing Officer when the assessment was previously framed after scrutiny would be of no avail." (ii) Dishman Pharmaceuticals and Chemicals Limited v. Deputy Commissioner of Income-Tax (OSD) (No.1) reported in [2012] 346 ITR 228 (Guj):- "8. From the above judicial pronouncements, following principles can be culled out:- [i] To confer jurisdiction to the Assessing Officer to reopen the assessment under Section 147 of the Income-tax Act, beyond four years from the end of assessment year, following two conditions must be satisfied [a] that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; and that [b] same occasioned, on account of either failure on the part of the assessee to make a return of his income for that assessment year, or to disclose fully and truly all material facts necessary for assessment of that year. (ii) Both the above conditions are condition-precedent and must be satisfied simultaneously before the Income-tax Officer can assume jurisdiction to reopen assessment beyond four years of the end of assessment year. (iii) Such reasons must be recorded and if the reasons recorded by the Assessing Officer do not disclose satisfaction of these two conditions, re-opening notice must fail. (iv) There is no set format in which such reasons must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessing Officer had reason to believe that certain income has escaped assessment and such escapement of income was on account of non-filing of the return by the assessee or failure on his part to disclose fully and truly all material facts necessary for assessment would not be conclusive. Nor, absence of any such statement would be fatal, if on the basis of reasons recorded, it can be culled out that there were sufficient grounds for the Assessing Officer to hold such beliefs. (v) Such reasons must emerge from the reasons recorded by the Assessing Officer and cannot be supplied through an affidavit filed before the Court. Nor, absence of any such statement would be fatal, if on the basis of reasons recorded, it can be culled out that there were sufficient grounds for the Assessing Officer to hold such beliefs. (v) Such reasons must emerge from the reasons recorded by the Assessing Officer and cannot be supplied through an affidavit filed before the Court. However, Gujarat High Court in the case of Aayojan Developers v. Income Tax Officer [Supra] has accepted the view that to elaborate such reasons already recorded, reference would be permissible to the affidavit filed by the Department before the Court. (vi) What would amount to true and full disclosure of all material facts must depend on each case and no strait-jacket formula of universal application can be provided. It can however safely be stated that the duty of the assessee is to disclose primary facts and it is not his duty to lead the Assessing Officer to any particular inference of fact or of law on the basis of such primary disclosures. In other words, once the assessee discharges his duty of stating all the primary facts, what inferences and conclusions should be drawn is the duty of the Assessing Officer. (vii) At the time of ascertaining whether the notice was validly issued, what could be the probable conclusion of fresh assessment if re-opening is permitted, is not the inquiry of the Court. In other words, the merits of the proposed action, through opening of the assessment, cannot be gone into by the court beyond prima facie stage." (iii) Rajesh Jhaveri Stock Brokers P. Ltd. v. Assistant Commissioner of Income-Tax reported in [2006] 284 ITR 593 (Guj):- "10. In the present case also, as the facts demonstrate, despite recording of reasons the respondent has sustained his objection to the proposal made by the audit department and the objection raised by the respondent has been endorsed by the Additional Commissioner of Income Tax. Therefore, it is abundantly clear that the respondent did not hold the belief at any point of time, either before or after recording reasons, that income of the assessee has escaped assessment on account of erroneous computation of loss and it is required to be held that the exercise of recording reasons on the file is a mere pretence to give validity to the exercise of power for assuming jurisdiction. In other words, it was a colourable exercise of jurisdiction and cannot be sustained in law. 11. In the result, the impugned notice dated 12th May, 2004 issued under Section 148 of the Act (Annexure-A) is quashed and set aside. The petition is allowed accordingly. Rule made absolute. There shall be no order as to costs." (iv) Assistant Commissioner of Income-Tax V. Rajesh Jhaveri Stock Brokers P. Ltd. reported in [2007] 291 ITR 500 (SC):- "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. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO, [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. P. Ltd., [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO, [1999] 236 ITR 34 (SC)." (v) N.K. Industries Ltd. v. Income-Tax Officer (OSD) reported in [2014] 362 ITR 502 (Guj):- "With respect to the first of the two reasons recorded by the Assessing Officer therefore it clearly emerges that she was acting at the instance of the audit party, though she herself held a contrary belief that no income chargeable to tax has escaped assessment on these two counts. Had this being the sold reason for issuing notice for reopening, we would have perhaps allowed the petition and quashed the notice. In the present case, however, the Assessing Officer was convinced that on third ground recorded in the reasons, income chargeable to tax had escaped assessment. It is true that such ground was also brought to her notice by the audit party and that by itself would not mean that she was acting at the instance of the audit party. As held by the Supreme Court in case of Commissioner of Income-Tax v. P.V.S Beedies Private Limited, reported in [1999] 237 ITR 13 (SC), if a particular issue is brought to the notice of the Assessing Officer by the audit party and the Assessing Officer of his/her application of mind finds that the ground is valid, reopening of assessment cannot be quashed merely because such ground was brought to the notice of the Assessing Officer by the audit party. In this context, even the counsel for the petitioner was unable to dispute that the question of depreciation require re-examination since the question whether the asset for which the depreciation was claimed was put to use before 30th September of the year under consideration, and therefore, whether full depreciation at the specified rate during the year under consideration was allowable." (vi) V. Jagmohan Rao and Others v. Commissioner of Income Tax and Excess Profits Tax, Andhra Pradesh reported in [1970] 75 ITR 373:- "5. The first question arising in this case is whether the proceeding under Section 34 is legally valid. It was contended by Mr. The first question arising in this case is whether the proceeding under Section 34 is legally valid. It was contended by Mr. Narasaraju that the decision of the Privy Council could not be said to be definite information within the meaning of the section. It was said that the Income-tax Officer was fully aware of the circumstances of the case and the assessee had placed all the relevant facts before him, namely, that under the High Court's judgment the vendor was only entitled to one-third share of the income pending the decision of the appeal before the Privy Council. In our opinion there is no justification for this argument. It is not true to say that the assessee brought all the relevant facts before the Income-tax Officer. On the contrary he deliberately suppressed the fact that there was a compromise between himself and the plaintiffs under which he was entitled to the whole of the income from the mill. At any rate the Privy Council's decision which determined the rights of the parties irrespective of the compromise did constitute definite information within the meaning of Section 34 of the Income-tax Act. This view is borne out by the decision of this Court in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax. In that case the Income-tax Officer had, following the decision of the High Court in Kamakshya Narain Singh's case, omitted to bring to assessment for the year 1945-46 the sum of Rs. 93,604 representing interest on arrears of rent due to the assessee in respect of agricultural land on the ground that the amount was agricultural income. Subsequently, the Privy Council, on appeal from that decision, held that interest on arrears of rent payable in respect of agricultural land was not agricultural income. As a result of this decision the Income-tax Officer initiated reassessment proceedings under Section 34(1)(b) of the Income-tax Act and brought the amount of Rs. 93,604 to tax. Subsequently, the Privy Council, on appeal from that decision, held that interest on arrears of rent payable in respect of agricultural land was not agricultural income. As a result of this decision the Income-tax Officer initiated reassessment proceedings under Section 34(1)(b) of the Income-tax Act and brought the amount of Rs. 93,604 to tax. In these circumstances, it was held by this Court, firstly, that the word "information" in Section 34(1)(b) included information as to the true and correct state of the law, and so would cover information as to relevant judicial decisions, secondly, that "escape" in Section 34(1) was not confined to cases where no return had been submitted by the assessee or where income had not been assessed owing to inadvertence or oversight or other lacuna attributable to the assessing authorities. But even in a case where a return had been submitted, if the Income-tax Officer had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment. The decision of the Privy Council, therefore, was held to be information within the meaning of Section 34(1)(b) and the proceedings for reassessment were validly initiated. In our opinion, the principle of this decision governs the present case and it must be held that the proceedings initiated under Section 34 for the assessment year 1944-45 were legally valid. It was stated on behalf of the appellant that in any case the Income-tax Officer could have legitimately assessed one-third share of the income which was due to the assessee according to the judgment of the Madras High Court and there was escape only to the extent of two-thirds share of the income. This argument is not of much avail to the appellant because once proceedings under Section 34 are taken to be validly initiated with regard to two-thirds share of the income, the jurisdiction of the Income-tax Officer cannot be confined only to that portion of the income. Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under Section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under Section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year." 6.1 He submitted that in view of above decisions, the Tribunal has not committed any error while passing the impugned order, therefore, these appeals may be dismissed. 7. We have heard learned counsel appearing for both sides. Before proceeding with the matter, it will not be out of place to mention that following facts are emerging from record. It is clear that when capital gain was already taken into consideration by the Assessing Officer, again original assessment cannot be changed on the basis of valuation report of wealth tax. Wealth tax valuation report was available with the same officer, when the original assessment was made. In that view of the matter, while considering the matter on the Income Tax, Wealth Tax valuation ought not to have been relied upon and the valuation report which was relied by the assessing officer was available with the authority. 8. In view of various judicial pronouncements, it is clear that 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. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO, [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO, [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. Merely an audit report, in our opinion, would not authorize the Assessing Officer to reopen the assessment even within the period of 4 years from the end of the relevant assessment year, when the said material was already before him when the original assessment was made. Any such attempt on his part would be based on mere change of opinion. To reiterate when a claim was processed at length and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment. Therefore, in our view, the Assessing Officer cannot change his opinion, which he has already accepted in his assessment order. We are of the opinion that the Tribunal has committed an error in reversing the finding of CIT (A). Accordingly, we answer the question posed for our consideration in favour of the assessee and against the revenue and the Tribunal has committed an error in holding that the reopening proceedings are valid, legal and within the jurisdiction of the Respondent. Even otherwise, the method of valuation is in order and since the valuations are made under two different Acts, they cannot be made basis for reopening of valuation. Accordingly, all these appeals are allowed.