Is it a reasonable belief?

Though this term is not referred in our legal system as much as the word intention or the knowledge is being referred. But this term is of great significance and plays an important role in respect of the offences wherein the officers of income tax or enforcement directorate open the assessment or confiscate the property without recording their reasons to believe and therefore the order is bad in law and therefore is liable to be set aside.

The expression 'reason to believe' has been defined under Section 26 of the Indian Penal Code as under:-

"26 "Reason to believe".-A person is said to have "reason to believe" a thing, if he has sufficient cause to believe that thing but not otherwise."  And that sufficient cause must be in writing and justifiable.  

The expression 'reason to believe' has also been the subject matter of several decisions of the Supreme Court albeit in the context of other laws.  In the case of Aslam Mohd. Merchant v. Competent Authority & Ors: (2008) 14 SCC 186, the Supreme Court considered the meaning of the expression 'reason to believe' in the context of Narcotic Drugs and Psychotropic Substances Act, 1985. The Supreme Court referred to its earlier decisions rendered in the context of Section 147 of the Income Tax Act, 1961 where a similar expression has been used to clothe an Assessing Officer with the power to reopen income tax assessments. 

In Phool Chand Bajrang Lal v. ITO: (1993) 203 ITR 456 (SC), the Supreme Court held as under:

"Since the belief is that of the Income- tax Officer, the sufficiency of reasons for forming this belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non- specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief."

In Income Tax Officer v. Lakhmani Mewal Das: 1976 SCR (3) 956, the Supreme Court explained that powers of Income Tax Officer to reopen an assessment, though wide, are not plenary as the words used are 'reason to believe' and not 'reason to suspect'. The Court held that there should be a "live link or close nexus" between the material before the Income Tax Officer and the formation of his belief that the income had escaped assessment.

In Calcutta Discount Company v. Income Tax Officer: 1961 SCR (2) 241, the Supreme Court held as under:-

"The expression "reason to believe" postulates belief and the existence of reasons for that belief. The belief must be held in good faith: it cannot be merely a pretence. The expression does not mean a purely subjective satisfaction of the Income Tax Officer: the forum of decision as to the existence of reasons and the belief is not in the mind of the Income Tax Officer. If it be asserted that the Income Tax Officer had reason to believe that income had been under assessed by reason of failure to disclose fully and truly the facts material for assessment, the existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justifiable. The expression therefore predicates that the Income Tax Officer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief; in other words, the Income Tax Officer must on information at his disposal believe that income has been under assessed by reason of failure fully and truly to disclose all material facts necessary for assessment. Such a belief, be it said, may not be based on mere suspicion: it must be founded upon information"

Yet in another case Hon’ble Delhi High Court speaking through Hon’ble Justice Vibhu Bakhru in M/S Mahanivesh Oils & Foods Pvt Vs Directorate Of Enforcement on 25 January, 2016 had set aside the confiscation made by the Enforcement Directorate because in the impugned order records that the concerned officer has reason to believe that the property in question is likely to be concealed, transferred or dealt with in a manner, which may result in frustrating the proceedings relating to confiscation of the said proceeds of crime, there is no reference to any fact or material in the impugned order which could lead to this inference. A mere mechanical recording that the property is likely to be concealed, transferred or dealt with would not meet the requirements of Section 5(1) of the Money Laundering Act.

The author can also be reached at Advocate.kapilc@gmail.com