The judgment emphasizes the requirement of valid reasons to believe warranting the issuance of a notice by the Assessing Officer under Section 148 of the Income Tax Act, 1961, as established in the cases of Chhugamal Rajpal, P. Munirathnam Chetty, Ganga Saran and Sons Pvt. Ltd., and United Electrical Co. Pvt. Ltd.

MADAN B. LOKUR, J.

( 1 ) THE Revenue is aggrieved by an order dated 2nd March, 2006 passed by the income Tax Appellate Tribunal, Special Bench SMC, New Delhi in ITA No. 4824- 25/del/2004 relevant for the assessment year 1997-98.

( 2 ) THE assessees had purchased shares of M/s Globe Commercials Ltd. through M/s Maheshwari Sons, stock and share broker. Subsequently, these shares were sold at a much higher value through another broker Satish Kumar Goel, proprietor of R. K. Aggarwal and Co. The assessees had disclosed long term capital gains arising from the transaction.

( 3 ) IT appears that some intra-departmental information was received by the assessing Officer to the effect that the assessees had taken a bogus entry of long term capital gain after paying the equivalent amount in cash together with premium for the accommodation entry to Satish Kumar Goel. This information was received from the Deputy Director of Income Tax (Investigation), Gurgaon. Based on the information received, the Assessing Officer took action to issue a notice under Section 148 of the Income Tax Act, 1961 (the Act) to the assessees.

( 4 ) IN the case of Smt. Vinita Jain, the reasons for issuing a notice, as recorded by the Assessing Officer, read as follows:

"as per information received from DDIT (Inv.) Gurgaon, the assessee had taken bogus entry of capital gains Rs. 2,12,635/- on 27. 6. 95 (A. Y. 1997-98) by paying cash along with some premium and taking cheque of same amount. "

Similarly, in the case of Atul Jain, the reasons for issuing a notice are as follows:

"as per information received from DDIT (Inv.) Gurgaon, the assessee had taken bogus entry of capital gains Rs. 1,08,845/- on 22. 6. 96 (A. Y. 1997-98) by paying cash along with some premium and taking cheque of same amount. "

( 5 ) THE concerned files were then put up before the Commissioner of Income tax and in response to the question whether the Commissioner was satisfied that income had escaped assessment, he wrote "yes".

( 6 ) AS one would expect, the income of the assessees was then re-assessed by the Assessing Officer who thereupon issued a demand notice and also sought to charge interest and levy penalty upon the assessees.

( 7 ) BOTH the assessees preferred appeals before the Commissioner of Income tax (Appeals) [cit (A)] and by separate orders, the CIT (A) partly allowed the appeals filed by the assessees. Feeling aggrieved, the assessees then approached the Tribunal which decided the appeals in their favour and concluded that the initiation of proceedings was vitiated. Accordingly, the assessment made was annulled and the appeals allowed.

( 8 ) THE Revenue has preferred two separate appeals against the combined order passed by the Tribunal. We heard submissions made by learned counsel for the parties and are of the view that there is no error in the opinion expressed by the Tribunal and that no substantial question of law arises for our consideration.

( 9 ) BROADLY speaking, the view taken by the Assessing Officer (and which is canvassed before us) was that the assessees had invested their money received from undisclosed sources and taken back the amounts through a negotiable instrument. The amounts so invested were treated as undisclosed income and the assessing Officer estimated 10% commission for the accommodation entry and thereupon made a further addition to the undisclosed investment.

( 10 ) FOR deciding whether the issuance of notice is vitiated or not, our attention has been drawn to Chhugamal Rajpal v. S. P. Chaliha and Ors. , (1971) 79 itr 603. In that case, re-assessment proceedings were struck down by the supreme Court on the ground that in the reasons recorded by him, the Income Tax officer had vaguely referred to certain communications that he had received; he did not mention the facts contained in those communications except that from those communications "it appears that these persons (alleged creditors) are name lenders and the transactions are bogus"; he did