The main legal point established in the judgment is the requirement for a reasonable nexus between the satisfaction of the Assessing Officer and the material regarding escaped income, as well as the proper course for challenging the notice under Section 148 of the Act.

N.K.Sodhi, J.

1. Petitioner is working as a Development Officer with the LIC at Fatehabad. He is a regular income-tax assesses. In the return filed for the asst. yr. 1995-96 the assessee had shown income by way of incentive bonus received from the LIC at Rs. 2,19,366 against which he claimed a deduction of Rs. 87,746 @ 40 per cent This return was processed on 22nd Sept., 1995, by the AO under Section 143(1)(a) of the IT Act, 1961 (for short the Act). Thereafter, a notice dt. 14th March, 2002, was received by the petitioner under Section 148 of the Act for the asst. yr. 1995-96 wherein the AO required him to file his return of income for the said year as, according to him, income for that year had escaped assessment within the meaning of Section 147 of the Act. In response to this notice, the petitioner filed his return of income on 17th April, 2002. Petitioner also requested for the supply of reasons as recorded by the AO under Section 148(2) of the Act and those were supplied to him as per letter dt. 1st May, 2002, Since the controversy revolves around the reasons recorded by the AO, those are being reproduced hereunder for facility of reference :

"Reasons for reopening of assessment under Section 147 The assessee is a Development Officer of LIC of India. Return declaring an income of Rs. 1,60,690 was filed on 30th June, 1995, which was processed under Section 143(1)(a) on 22nd Sept., 1995, by making addition of Rs. 5,000 on account of disallowance of deduction under Section 80G. The assessee claimed deduction out of incentive at Rs. 87,746 @ 40 per cent of incentive bonus received at Rs. 3,19,366. This deduction is, however, not admissible in view of the decision of Punjab & Haryana High Court in the case of B.M. Parmar v. CIT where it has been held that income from incentive bonus received by the Development Officers of the LIC of India is liable to be taxed under the head "salary" and deduction therefrom can be allowed only under Section 16(1) of IT Act, 1961. 2. I have, therefore, reasons to believe that the escaped income chargeable to tax in this case amounts to more than Rs. 1 lac including Rs. 87,746 referred to above on all the issues. It is, therefore, a fit case for issue of notice under Section 148 of IT Act, 1961, in view of Expln. 2(b) below Section 149 of IT Act, 1961. In view of the above facts, necessary permission to issue notice under Section 148 of the IT Act, 1961, may kindly be accorded."

The grievance of the petitioner is that the impugned notice under Section 148 of the Act has been issued with an ulterior motive and that the AO had been demanding a sum of Rs. 40,000 from the assessee failing which he was threatening that proceedings under Section 148 of the Act would be initiated and the assessment reopened. It is further alleged that it was because of the failure of the assessee to meet the demand of the AO that the impugned notice has been issued. It is also urged that a perusal of the reasons as recorded by the AO would clearly show that the satisfaction of the AO in regard to the quantum of escaped income had no nexus with the material before him. The argument is that even, if the facts stated by the AO were to be accepted as correct, he could not record satisfaction on the escapement of income beyond the amount of Rs. 87,746. According to the petitioner, no notice under Section 148 of the Act could be issued for escapement of income of Rs. 87,746 as the period prescribed for issue of such notice under Section 149 of the Act had lapsed. It is contended that it was only with a view to overcome the period of limitation as prescribed under Section 149 of the Act that the AO had recorded his satisfaction regarding escaped income to the tune of Rs. 1 lac or above.

2. In response to the notice issued by this Court, the respondents have filed their reply and the averments made in the writ petition have been controverted.

3. We have heard counsel for the parties. In order to appreciate the content