COMMISSIONER OF INCOME-TAX, GUJARAT vs A. RAMAN & COMPANY

The Supreme Court held that under Section 147 of the Indian Income-tax Act, 1961, the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment based on external information. The Court clarified that the High Court, while exercising powers under Article 226, cannot re-appraise evidence to quash reassessment notices. In this case, the Court found that the pre-conditions for issuing a notice of reassessment were not met, affirming that a trader is not obligated to maximize profits and that tax avoidance through legitimate commercial arrangements is permissible.