JUDGMENT : (Bhargav D. Karia, J.) : 1. Heard learned Senior Advocate Mr. Tushar Hemani with learned advocate Ms. Vaibhavi Parikh for the petitioner and learned Senior Standing Counsel Mr. Karan Sanghani for the respondent. 2. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice issued under section 148 of the Income Tax Act, 1961 (For short “the Act”) dated 29.03.2021 for the Assessment Year 2016-2017. 3. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Karan Sanghani waives service of notice of rule on behalf of the respondent. 4. Having regard to the controversy involved which is in narrow compass, with the consent of the learned advocates for the parties, the matter is taken up for hearing. 5. Brief facts of the case are that the petitioner is a partnership firm which is engaged in the business of construction, filed return of income for A.Y. 2016-17 on 21.03.2018 declaring total income at Rs. Nil. 5.1 It is the case of the petitioner that at the end of the year under consideration, total sundry creditors reflected in the balance-sheet were Rs. 10,51,28,281/- out of which, only Rs. 1,15,50,282/- were sundry creditors for expenses and Rs. 9,35,78,199/- pertained to advances received from the customers. 5.2 The case of the petitioner was selected for scrutiny. A notice under section 142(1) dated 29.08.2018 was issued calling upon the petitioner to furnish various details including the details pertaining to sundry creditors as per Point No. 12 of the said notice. 5.3 The petitioner, by reply dated 22.10.2018, furnished various details called for including the details pertaining to outstanding creditors and clarified about the bifurcation of the sundry creditors into the creditors for expenses and the amount pertaining to the advances received from customers. 5.4 Thereafter, the Assessing Officer by show-cause notice dated 06.11.2018 again called upon the petitioner to furnish various details in relation to the sundry creditors of Rs. 10,51,28,821/- failing which, 20% of such creditors to be treated as bogus as per Point No. 6 of the said notice. 5.5 The petitioner, by reply dated 19.11.2018, furnished various information and detailed justification in relation to sundry creditors. 5.6 The Assessing Officer framed the assessment under section 143(3) of the Act by order dated 06.12.2018 determining the assessed income at Rs. 2,57,45,660/- after making addition including amount of Rs. 5.5 The petitioner, by reply dated 19.11.2018, furnished various information and detailed justification in relation to sundry creditors. 5.6 The Assessing Officer framed the assessment under section 143(3) of the Act by order dated 06.12.2018 determining the assessed income at Rs. 2,57,45,660/- after making addition including amount of Rs. 2,10,25,656/- being 20% of total sundry creditors of Rs. 10,51,28,281/- on the count that such liability is bogus. 5.7 The petitioner therefore, filed appeal against the assessment order before the CIT(Appeals) raising the ground to challenge the addition of Rs. 2,10,25,656/- made in respect of the sundry creditors. 5.8 Thereafter, the respondent issued impugned notice dated 29.03.2021 under section 148 of the Act to reopen the case of the petitioner. The petitioner filed the return of income in response to such notice on 17.01.2022 and requested for copy of reasons which was supplied by the respondent on 10.03.2022. The reasons recorded by the respondent read as under: “Brief details of information collected/received by the AO: As per information available on records, it is noticed that the assessee has shown sundry creditors of Rs.10,51,28,281/-. However, on perusal of records, no details have been submitted by the assessee during the course of assessment proceedings u/s.143(3) of the Act. Therefore, identity of the creditors, genuineness, and creditworthiness remains unexplained during the course of assessment proceedings u/s.143(3) of the Act. Therefore, sundry creditors worth of Rs.10,54,28,281/- remains unexplained and and added back to the total income of the assessee for the year under consideration. On perusal of records, it is noticed that the assessee has filed his return of income on 21.03.2018 and declaring total income of Rs. Nil/-. 3. Analysis of information collected/ received: As per information available on records, it is noticed that the assessee has shown sundry creditors of Rs.10,51,28,281/-. However, on perusal of records, no details have been submitted by the assessee during the course of assessment proceedings u/s. 143(3) of the Act. Therfore, identity of the creditors, genuineness, and creditworthiness remains unexplained during the course of assessment proceedings u/s. 143(3) of the Act. Therefore, sundry creditors worth of Rs. 10,51,28,281/- required to be disallowed and added back to the total income of the assessee for the year under consideration. Therfore, identity of the creditors, genuineness, and creditworthiness remains unexplained during the course of assessment proceedings u/s. 143(3) of the Act. Therefore, sundry creditors worth of Rs. 10,51,28,281/- required to be disallowed and added back to the total income of the assessee for the year under consideration. 3.2 3.2 Therefore, sundry creditors of Rs.10,51,28,281/- has to be disallowed and added back to the total income of the assessee and required to be taxed, which is remains to be unexplained. 4. Enquiries made by the AO as sequel to information collected/received: As per information available on records, it is noticed that the assessee has shown sundry creditors of Rs.10,51,28,281/-. However, on perusal of records, no details have been submitted by the assessee during the course of assessment proceedings u/s.143(3) of the Act. Therefore, identity of the creditors, genuineness, and creditworthiness of the creditors remains unexplained during the course of assessment proceedings w/s.143(3) of the Act Therefore, sundry creditors worth of Rs.10,51,28 264/- required to be disallowed and added back to the total income of the assessee for the year under consideration. 4.2 Therefore, sundry creditors of Rs.10,51,28,284/-has to be disallowed and added back to the total income of the assessee and required to be taxed, which is remains to be unexplained. 5. Findings of the AO: As discussed in above para(s), the assessee has shown sundry creditors of Rs.10,51,28,284/-. However, identity of the creditors, genuineness, and creditworthiness of the creditors remains unexplained during the course of assessment proceedings u/s.143(3) of the Act. Therefore, sundry creditors of Rs.10,51,28,281/- is required to be added to the total income of the assessee during the year under consideration.” 5.9 The petitioner also preferred objection by letter dated 15.03.2022 explaining in detail with regard to the issue of sundry creditors along with the assessment order passed under section 143(3) wherein, the addition of 20% of the said amount of alleged creditors has been made. It was therefore, contended that no re-assessment can be made based on change of opinion in absence of any fresh tangible material to support the reopening of assessment and the amount of so-called creditors was already there with the Assessing Officer which has been dealt with by treating certain amount from the same as income. It was therefore, contended that no re-assessment can be made based on change of opinion in absence of any fresh tangible material to support the reopening of assessment and the amount of so-called creditors was already there with the Assessing Officer which has been dealt with by treating certain amount from the same as income. 5.10 The respondent-Assessing Officer by order dated 22.03.2022 rejected the objection filed by the petitioner on the ground that as per Para No. 2 of the reasons recorded, it was clearly stated that in absence of the full details, the sundry creditors remained unexplained and should be verified accordingly. It was also pointed out that the subject matter of appeal which is pending before the CIT (Appeals) is in respect of disallowance of 20% of sundry creditors for the relevant assessment year and not the balance 80% which forms part 100% of the sundry creditors which requires further verification during the current reassessment proceeding. Being aggrieved, the petitioner has preferred this petition challenging the assumption of jurisdiction by the respondent for issuance of notice under section 148 of the Act for reopening of the assessment for A.Y. 2016-17. 6. Learned Senior Advocate Mr. Tushar Hemani for the petitioner submitted that the reopening is based on mere change of opinion on the part of the respondent as it is well settled that the words “reason to believe” suggest that firstly the belief must be that of Assessing Officer; secondly, it must be that of an honest and reasonable person based upon reasonable ground and not a mere change of opinion, suspicion, gossip or rumor and thirdly, there must be live link or close nexus between the material and information available with the Assessing Officer and the belief he has formed regarding escapement of income which belief must lead to conclusion that some income chargeable to tax has escaped assessment in the hands of the assessee concerned. 6.1 It was submitted that in the facts of the present case, notices dated 29.08.2018 and 06.11.2018 issued during the course of regular assessment deal with the very same issue of sundry creditors and ultimately, the Assessing Officer while passing the order under section 143(3) has disallowed 20% of the total sundry creditors reflected in the balance-sheet against which, the petitioner has preferred the appeal before the CIT(Appeals). 6.2 It was therefore submitted that the entire issue of sundry creditors was dealt with by the Assessing Office during the regular course of assessment which was also pointed out by the petitioner in the objections filed before the respondent. 6.3 It was pointed out that the reasons for rejecting the objections given by the respondent in the order dated 22.03.2022 are absurd inasmuch as it cannot be said that the CIT(Appeals) is seized off the matter for 20% of the sundry creditors and remaining 80% requires further verification during the re-assessment proceedings. It was therefore submitted that the respondent has no jurisdiction to reopen the assessment as the entire issue of sundry creditors is pending and sub judice before the CIT(Appeals). Learned Senior Advocate Mr. Hemani therefore submitted that the impugned notice is required to be quashed and set aside on the basis of applying the principle of merger as the issue of sundry creditor is pending before the CIT(Appeals) in light of the third proviso to section 147 of the Act. 6.4 It was further submitted that the respondent could not have formed any reason to believe that income chargeable to tax has escaped assessment in view of the facts of the case as the sundry creditors outstanding at the end of the year under consideration cannot be the ground to hold that same are bogus and hence, income chargeable to be taxed had escaped assessment on account of the same. It was submitted that in any case, out of total sundry creditors of Rs. 10,51,28,281/- reflected in balance-sheet only Rs. 1,15,50,282/- were sundry creditors for expenses and Rs. 9,35,78,199/- pertained to advances received from the customers and hence, reopening is based upon factually incorrect premise that sundry creditors of Rs. 10,51,28,281/- require to be verified resulting into escapement of income. 6.5 It was submitted that the respondent-Assessing Officer has no new tangible material before him to come to the conclusion that the income has escaped assessment after framing of the regular assessment so as to assume the jurisdiction under section 148 of the Act to issue the notice under section 148 of the Act. It was therefore, submitted that the impugned notice is required to be quashed and set aside. 7. Per contra, learned Senior Standing Counsel Mr. It was therefore, submitted that the impugned notice is required to be quashed and set aside. 7. Per contra, learned Senior Standing Counsel Mr. Karan Sangahani for the respondent submitted that the claim of the petitioner is not correct inasmuch as the petitioner has not shown the correct information in the return of income by disclosing that the petitioner has received advances from customers amounting to Rs. 9,35,78,199/- and instead, the petitioner has filled up the column of sundry creditors outstanding of one year. It was therefore submitted that the petitioner has not made full and true disclosure with regard to sundry creditors and no contra confirmation in respect of sundry creditors were submitted even during the regular assessment proceedings or along with objections. The petitioner has also not provided any details whatsoever in respect of the amount of sundry creditors shown as advances received from the customers in the entire original assessment proceedings. 7.1 It was submitted that the impugned notice is issued after taking due diligence and observing statutory procedure within the time limit prescribed as per the audit memo dated 03.07.2019. It was submitted that as per the audit objection raised, it was found that there was under assessment of income by Rs.8,40,02,625/- which has escaped assessment. Learned Senior Standing Counsel Mr.Sanghani in support of his submissions referred to and relied upon the following averments made in the affidavit-in-reply filed on behalf of the respondent: “14. With respect to the contentions raised in Para-3.1, it is submitted that the contention raised by the petitioner is jncorrect. It is submitted that subsequent to completion of original assessment dtd.06.12.2018, the ITO (Audit)-1, Rajkot has vide Audit Memo No. ClT(Audit), Ahmedabad.2019-20/ITO(IAP)-1, Audit Rajkot/ 10291 dtd. 03.07.2019 raised major internal audit objection which is as under: “During the course of assessment proceedings, the assessee has not been able to produce the confirmations from the creditors to prove that the liability continues to exist. The assessee has just continued the entry of creditors in its books of account without any intention to pay back the same. The assessee cannot be allowed to show an amount as a liability even though he has no intention to pay it back but to enjoy the same for an unlimited period without being added to his income. The assessee has just continued the entry of creditors in its books of account without any intention to pay back the same. The assessee cannot be allowed to show an amount as a liability even though he has no intention to pay it back but to enjoy the same for an unlimited period without being added to his income. However, the AO has made addition to the extent of 20% of the total creditors on ad-hoc basis by invoking the provisions of section 41(1) of the Act is not correct by way because when the Assessing Officer is accepting the identity of the creditors as well as genuineness of the transaction and he is also accepting the creditworthiness/ existence of the creditor also to the extent of 80% of the credit outstanding in the name of concerned creditor and is making ad-hoc addition of 20% without giving any specific finding that the creditworthiness/ existence of the creditor is established to the extent of 80% only. The stand of Assessing Office in adding only 20% of sundry creditors is not according to the Provisions of the Act. Either it should have accepted entire sundry creditors or should have added back the entire amount outstanding in the name of sundry creditors.” Thereby the ITO (IAP), Rajkot has stated the understatement of income by a sum of Rs. 8,40,02,625/-. It is submitted that all the due procedure laid down in the section 147 r.w.s. 148 of the Income Tax Act, 1961 regarding the reopening of the case had been followed in this case. A notice u/s 148 of the IT Act, for AY 2016-17 has been issued on 29.03.2021 after obtaining the prior approval of Jt. Commissioner of Income Tax, Rajkot u/s.151 of the Act on dtd.28.03.2021. Since, there was major audit objection in the case the assessee, an administrative approval was also obtained from Pr.CIT, Rajkot on 04.11.2021. In nutshell, the due diligence was taken before re-opening the case of the assessee. 15. With respect to the contentions raised in Para-3.2, it is submitted that the allegation made by the assessee in this para is false. The case was not re-open on the basis of change of opinion. In nutshell, the due diligence was taken before re-opening the case of the assessee. 15. With respect to the contentions raised in Para-3.2, it is submitted that the allegation made by the assessee in this para is false. The case was not re-open on the basis of change of opinion. It is to submit that while re-opening the case of the assessee, the AO was in the possession of information by way of Audit Memo of ITO (Audit)-1, Rajkot Bearing No. CIT(Audit}, Ahmedabad.2019-20/ITO(IAP)-1, Audit Rajkot/10291 dtd. 03.07.2019 which specifically indicates the under assessment of income to the extent of Rs.8,40,02,625/while finalizing original assessment dtd. 06.12.2018. There is no mere change of opinion, but there is live link between the information with the AO which lead to form belief that the income chargeable to tax has escaped assessment. Reliance may be placed on the decision delivered by Hon. Apex Court in the case of CIT ve P.V.8, Beedies Pvt. Ltd. (237 ITR 13). 16. With respect to the contentions raised in & is submitted that the allegation made by the assessee in this para is false. While re-opening the case of the assessee, the AO was having valid jurisdiction & he also in the possession of information by way of Audit Memo of ITO (Audit)-I, Rajkot Bearing No. CIT{Audit), Ahmedabad.2019-20/ITO(IAP)-1, Audit Rajkot/10291 dtd. 03.07.2019 which specifically indicates the under assessment of income to the extent of Rs.8,40,02,625/-while finalizing original assessment dtd. 06.12.2018. There is live link or close nexus between the information with the AO which lead to form belief that the income chargeable to tax has escaped assessment.” 7.2 It was therefore submitted that the respondent-Assessing Officer has issued the impugned notice under section 148 of the Act on the basis of the information in possession by way of audit memo issued as referred above. 7.3 Learned Senior Standing Counsel Mr. Sanghani placed relied upon the decision in case of Phoolchand Bajranglal vs. ITO reported in 203 ITR 456 (SC) and in case of Raymond Woolen Mills Ltd vs. ITO reported in 236 ITR 34(SC) and submitted that no interference may be called for, for setting aside the impugned notice under section 148 of the Act. 8. Sanghani placed relied upon the decision in case of Phoolchand Bajranglal vs. ITO reported in 203 ITR 456 (SC) and in case of Raymond Woolen Mills Ltd vs. ITO reported in 236 ITR 34(SC) and submitted that no interference may be called for, for setting aside the impugned notice under section 148 of the Act. 8. Considering the submissions made by both the learned advocates for the parties and on perusal of the facts emerging from the material placed on record, it is not in dispute that the issue of sundry creditors amounting to Rs. 10,51,28,281/- was considered by the Assessing Officer during the regular course of assessment by issuance of notice dated 29.08.2018 followed by notice dated 05.10.2018 in respect of the sundry creditors appearing in the balance-sheet of the petitioner. 9. The Assessing Officer during the regular course of assessment has disallowed 20% of the sundry creditors by observing as under: “7.2 The reply submitted by the assessee is vague and has been made with a motive to delay the assessment proceeding and to avoid the independent inquiry in the case. For any credit balance appearing in the books of the assessee, it is the utmost liability of the assessee to furnish details to the satisfaction of A.O. In this case, ample opportunities were, provided to the assessee to come clean on the issue of sundry creditors, however the assessee has grossly failed to submit contra confirmation of sundry creditors over having closing-balance more than, 5 Lacs. However, considering the line of business, the assessee involved into, they used to receive payments as advance from the Customers and it will be inappropriate to ceased the entries liability shown in the books of the assessee considering the same as bogus. Keeping such thing in mind, a show cause notice was issued in the case, where the assessee was requested to submit name and address of each creditors and contra confirmation of all the creditors having closing balance more than 5 lacs, failing which 20% of such liability i.e of Rs. 10,51,28,281/- will be considered as bogus and will be ceased. In this case, the assessee was again vide order sheet noting dated 20.11.2018 was requested to submit details asked vide show cause notice and given 7 days time to submit the details. On 27.11.2018, the AR of the assessee attended and filed adjournment letter. 10,51,28,281/- will be considered as bogus and will be ceased. In this case, the assessee was again vide order sheet noting dated 20.11.2018 was requested to submit details asked vide show cause notice and given 7 days time to submit the details. On 27.11.2018, the AR of the assessee attended and filed adjournment letter. Accordingly, the AR of the assessee was again requested to produce the details as asked vide questionnaire, vide show cause notice and vide order sheet noting as discussed above in respect of sundry creditors, failing which addition will be made as per proposal given in show cause notice. On schedule date, neither any one attended nor any submission was filed. In absence of details, submitted, the undersigned left with no option but to treat the 20% of liability which comes to Rs. 2,10,25,656/-(20% of Rs. 10,51,28,281/-) as bogus liability shown in the books and hereby ceased as per provision of section 41(1) of the Act. Accordingly, addition of Rs. 2,10,25,656/is made to the total income.” 10. From the above observation in the assessment order which is challenged by the petitioner before the CIT(Appeals), it is apparent that the very issue of sundry creditors has been considered during the course of regular assessment and therefore, the respondent-Assessing Officer cannot assume the jurisdiction to reopen the assessment for the year under consideration on the very same issue as it would amount to change of opinion. 11. It is also pertinent to note that once the issue of sundry creditors is a subject- matter of appeal before the CIT(Appeals), the Assessing Officer could not have observed in the order rejecting the objection as under: “Therefore it is clear that the subject matter of appeal which is pending before the CIT(A) is in respect of disallowance of 20% of Sundry Creditors for the relevant assessment year and not the balance 80% which forms part of 100% of Sundry Creditors which requires further verification during the current re-assessment proceeding. Therefore the 3rd proviso to section 147 of the Act does not apply in your case.” 12. Therefore the 3rd proviso to section 147 of the Act does not apply in your case.” 12. From the above observation made by the respondent-Assessing Officer while rejecting the objection it is clear that there is violation of principle of merger as the very issue of sundry creditors is pending before the CIT(Appeals) and the respondent-Assessing Officer therefore, cannot reopen the assessment on the ground that the remaining 80% is required verification in re-assessment proceedings. 13. The Assessing Officer while framing the regular assessment under section 143(3) after considering the total sundry creditors of Rs. 10,51,28,281/- made addition of 20% thereof which is subject matter of appeal before the CIT(Appeals). Therefore, the very basis of the rejection on the objection by the respondent is fallacious and contrary to the principle of merger. 14. In view of the above facts, merely on the basis of the audit objection, the respondent-Assessing Officer could not have assumed the jurisdiction to issue the impugned notice under section 148 of the Act to reopen the assessment for the year under consideration. 15. In view of the foregoing reasons, the petition succeeds and is accordingly allowed. Impugned notice dated 29.03.2021 issued under section 148 of the Act is hereby quashed and set aside. Consequently, the order rejecting the objection dated 22.03.2022 is also quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to cots.