JUDGMENT : N. Sathish Kumar, J. The appeal has been filed by the Assessee M/s. Srivithesa Holding Pvt. Ltd., challenging the order passed by the Income Tax Appellate Tribunal, Chennai Bench “C” in I.T.A. No.718/Mds/2002 dated 06.07.2007 for the Assessment Year 1994-95. 2. T.C.[A].No.1479 of 2008 has been admitted vide order dated 13.10.2008 on the following substantial questions of law : 1. Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in concluding that the reopening of assessment is valid in law when the assessment is reopened based on the audit objection? 2. Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in concluding that the reopening of assessment is valid in law when there is no fresh material available on record to reopen the assessment? 3. Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in concluding that the reopening of assessment is valid in law when the explanation of assessee accepted in original assessment made under Section 143(3) and rejecting the same explanation subsequently in reassessment under Section 147 of the Income Tax Act? 3. The Assessment for the year 1994-95 was concluded under Section 143(3) of the Income Tax Act, during February 1997. Subsequently, the assessment was reopened under Section 147 of the Income Tax Act during March 1999 for the reason income assessable to tax had escaped assessment due to incorrect computation of capital gains on sale of shares, by not taking into account the issue of bonus shares which had the effect of altering the cost of original shares. It is pertinent to note that assessment was reopened under Section 147 of the I.T. Act due to Audit Note. As against the Assessment Order, Assessee filed an appeal before the Commissioner of Income Tax (Appeals) V. The Commissioner of Income Tax confirmed the order of the Assessing Officer, against which the Assessee preferred appeal before the Income Tax Appellate Tribunal, Chennai Bench 'C'. The Income Tax Appellate Tribunal confirmed the Order of the Commissioner of Income Tax and dismissed the Appeal. As against the order of Tribunal the present appeal came to be filed. 4. Learned Counsel appearing for the Appellant vehemently contended that reassessment has been made without any fresh materials and only based on the audit objection. The Income Tax Appellate Tribunal confirmed the Order of the Commissioner of Income Tax and dismissed the Appeal. As against the order of Tribunal the present appeal came to be filed. 4. Learned Counsel appearing for the Appellant vehemently contended that reassessment has been made without any fresh materials and only based on the audit objection. The audit objection also did not advance any theory of its own but merely based on the outcome judgment of the Apex Court. Mere omission to follow the Judgment by the Assessing Officer and passing an order, it cannot be concluded that there were tangible materials available to conclude the escapement of income from assessment. It is the further contention of the learned counsel that the decision of the Apex Court relied on by the Tribunal in Escorts Farms (Ramgarh) Ltd. Vs. Commissioner of Income Tax, New Delhi [ (1996)222 ITR 509 ] is not applicable o the facts as, at the time of the delivery of the Judgment, amendment made under Section 55 was not brought to the notice of the Apex Court by either side. Section 55 has been amended to provide that cost of bonus shares should be taken as 'Nil' for computation of capital gains and sale of bonus shares. It should not affect the cost of original shares. The above provision is also applicable to the assessees case. Hence, it is the contention of the learned counsel that bonus shares acquired by the Assessee to be taken as 'Nil' only, and as such the cost of the original shares acquired for consideration has remained as original cost. Therefore, the Order of the Assessing Officer, Commissioner of Income Tax and Income Tax Appellate Tribunal cannot be sustained in the eye of law as the re-assessment has been done without any materials. He has also placed reliance of the judgment of the Apex court in the Commissioner of Income Tax, Delhi v. Kelvinator of India Limited [MANU/SC/0047/2010]. 5. Ms. S. Premalatha, Learned Counsel appearing for the Respondent submitted that at the time of original assessment, Assessing Officer erroneously computed the capital gains and hence assessment was reopened. The Apex Court in Escorts Farms (Ramgarh) Ltd. Vs. 5. Ms. S. Premalatha, Learned Counsel appearing for the Respondent submitted that at the time of original assessment, Assessing Officer erroneously computed the capital gains and hence assessment was reopened. The Apex Court in Escorts Farms (Ramgarh) Ltd. Vs. Commissioner of Income Tax, New Delhi [ (1996)222 ITR 509 ], has held that the cost of the acquisition of the original shares, by spreading the original cost over the original and bonus shares and then averaging the sale, the capital gain should be computed. It is the further contention of the counsel that the order of the Tribunal does not call for any interference. 6. We have heard the learned counsels and perused the materials. It is not in dispute that the original assessment for the year 1994-95 was completed under section 143(3) of the Act. Thereafter it was reopened under Section 147 of the Income Tax Act. While replying the notice of reopening, the Assessee admitted the same income assessed earlier. From the above, we can safely conclude that there is no misinformation or concealment or suppression. However, during the reassessment proceedings, the Assessing Officer held that in previous assessment the capital gains have not been properly computed and sale of shares were not taken into account, the issue of bonus shares which had the effect of altering the cost of original shares. The assessment was re-opened solely based on the audit report. However, the audit did not advance any reason for reopening. The audit merely based its objection by referring to the judgment of the Apex Court in Escorts Farms (Ramgarh) Ltd. Case (supra). 7. Proviso to Section 147 of the Income Tax Act reads as follows : “where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.” 8. The above makes it very clear that to initiate any action the income chargeable to tax must have escaped assessment by reason of failure on the part of assessee to make a return under Section 139 or in response to notice issued under Sub-Section (1) of Section 142 or section 148 or failure to disclose fully and truly all material facts. Only when the above conditions are shown to exist at the time of reopening action can be initiated under Section 147 of I.T. Act. It is not the case of the revenue that income chargeable to tax has escaped assessment due to the failure on the part of the assessee to file a Return under Section 139 of the I.T. Act or failure to disclose fully and truly all material facts. In fact in the earlier assessment, all the materials have been furnished by the assessee which is not in dispute. Similarly, on receipt of notice under Section 147 of the I.T. Act return was filed admitting the same income as shown in the earlier assessment. The Notice under Section 147 of the I.T. Act was issued based on the audit objection which was made relying upon the Apex Court Judgment in Escorts Farms (Ramgarh) Ltd. Case (Supra) on the ground that in the earlier Assessment Order there was a miscalculation and capital gain had not been properly computed. It is to be noted that every order passed by the Assessing Officer after following certain procedure or proceedings cannot be subject to reassessment on the ground that income chargeable to tax has escaped assessment. In order to initiate proceedings under Section 147 of the Act, the Assessing Officer has reason to believe that there is a “tangible materials” to come to the conclusion that there is escapement of income from assessment. In this regard, it is beneficial to refer to the judgment of the Apex Court in the Commissioner of Income Tax, Delhi v. Kelvinator of India Limited [MANU/SC/0047/2010] wherein it has been held as follows: “6. In this regard, it is beneficial to refer to the judgment of the Apex Court in the Commissioner of Income Tax, Delhi v. Kelvinator of India Limited [MANU/SC/0047/2010] wherein it has been held as follows: “6. 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." ” 9. From the above dictum, the Assessing Officer can reopen the assessment only when there is “tangible material”. Mere non-application of mind and erroneous order passed by the Assessing Offficer alone cannot be a ground to reopen the assessment under Section 147 of the Income Tax Act and further merely based on the Audit Report which also did not contain any reason except relying upon some precedents, the Assessment Order passed earlier cannot be reopened. 10. In the light of the above discussion, we are of the considered view that the substantial questions of law framed for consideration have to be answered in favour of the appellant/assessee. Accordingly, the same are answered. 11. In the result, T.C.(A) Nos.1479 of 2008 is allowed and the substantial questions of law are answered in favour of the appellant/assessee. No costs.