JUDGMENT

KHANNA. J.:— This appeal on certificate is against the Full Bench judgment of the Calcutta High Court whereby on petition under Article 226 of the Constitution of India filed by the respondent that court by majority quashed notice under Section 148 of the Income-tax Act, 1961 (hereinafter referred to as the Act) issued by appellant No. 2 (Incometax Officer E Ward, Hundi Circle, Calcutta) (hereinafter referred to as the appellant) for the purpose of reopening assessment of the income of the respondent for the assessment year 1958-59.

2. The respondent was assessed for the assessment year 1958-59 under Section 23 (3) of the Indian Income-tax Act, 1922 on June 14, 1960. His total income was assessed to be Rs. 37.872. While making the assessment the Income-tax Officer allowed deduction of a sum of Rs. 15,991 by way of expenses claimed by the respondent. The expenses included Rs. 10,494/4 As/3 pies by way of interest. According to the respondent, he produced through his authorised representative all books of accounts, bank statements and other necessary documents in connection with the return. On March 14, 1967 the respondent received notice dated 8-3-1967 issued by the appellant under Sec. 148 of the Act stating that the appellant had reason to believe that the respondents income which was chargeable to tax for the assessment year 1958-59 had escaped assessment within the meaning of Section 147 of the Act and that the notice was being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax. The 1755 respondent was called upon to submit within 30 days from the date fo the service of the notice a return in the prescribed form of his income for the assessment year 1958-59. On May 2, 1967 the respondent through his lawyer stated that there was no material on which the appellant had reason to believe that the respondents income had escaped assessment and, therefore, the condition precedent for the assumption of jurisdiction by the appellant had not been satisfied. The appellant was said to have no competence or jurisdiction to re-open the assessment under Section 147 of the Act on a mere change of opinion. The appellant was also called upon to furnish all the materials on which he had reason to believe that income had escaped assessment. As, according to the respondent, there was no satisfactory response from the appellant, he filed petition under Article 226 of the Constitution for quashing the impugned notice.

3. It was denied in the affidavit on behalf of the appellant that all materials relevant and necessary for the assessment of the respondents income for the assessment year 1958-59 had been produced before the Income-tax Officer at the time of the original assessment. It was further stated:

"Subsequent to the assessment for assessment year 1958-59, it was discovered, inter alia, that some of the loans shown to have been taken and interests alleged to have been paid thereon by the petitioner during the relevant assessment year were not genuine. The Income-tax Officer had reason to believe and bona fide believed that the said alleged loans and the interest alleged to have been paid thereon are not genuine. If necessary, I crave leave to produce before the Honble Judge hearing the application, the relevant records on the basis of which the said Income-tax Officer had reason to believe that the income of the petitioner escaped assessment as aforesaid at the hearing of the application."

During the pendency of the proceedings the High Court directed that a copy of the report made by the appellant to the Commissioner of Income-tax for obtaining latters sanction under Section 147 be produced. The report was accordingly produced. and the same reads as under:

"There are hundi loan credits in the name of Narayansingh Nandalal. D. K. Naraindas, Bhagwandas Srichand, etc., who are known namelenders, and also hundi loan credit in the name, Mohansingh Kanayalal, who has since confessed he was doing only name-lend