Whether non-disclosure of fact during assessment that assessee did not have licence to manufacture, would amount to 'reasons to believe' for purpose of issuing notice u/s 148 - YES: HC

THE issue before the Bench is - Whether non-disclosure of fact by the assessee during assessment that he did not possess factory license to manufacture, would prima facie amount to "reasons to believe" for purpose of issuing notice u/s 148. And the answer favours the Revenue.

Facts of the case

The assessee company is engaged in the business of manufacturing speciallized Hi tech disinfectents. While filing its return, the assessee claimed deduction u/s 80IB(4) on its two Units situated at Daman. Upon verification of return the AO noticed that the assessee had failed to furnish correct certificate in Form10CCB, as the the accountant who audited the accounts had not certified the eligibility of the undertaking. The AO also observed that in 10CCB certificate, date of commencement of Unit II was one month before the issuance of factory licence from the competent authority. Thus, the AO came to the conclusion that such unit was not eligible for deduction u/s 80IB and it had resulted in income escaping assessment to the tune of Rs.2,10,41,019/- within the meaning of Section 147. Accordingly, he reopened the assessment and proposed to initiate penalty u/s 271.

Having heard the parties, the High Court held that,

++ it is seen that the assessee has set out their objections to the grounds mentioned in the reasons recorded in support of the impugned notice. In particular, the assessee pointed out that there was no requirement that a certificate claiming benefit u/s 80IB has to be of an Accountant who has audited the assessee's accounts but it is only to be of an Accountant who has audited the undertaking which is claiming the benefit and furnish the certificate as required in Form 10CCB. So far as regards non-commencement of manufacturing activity in view of the fact that factory license was issued only after the end of the previous year relevant to the A.Y, the assessee pointed out they had commenced manufacturing activity during the previous year relevant to the A.Y and in support thereof produced licence given by the Drug Authorities, registration with Excise Authorities, Sales Tax Authorities, etc. The assessee thus contended that the impugned notice is on account of mere change of opinion. It is also seen that the AO rejected the assessee's objections on the ground that there was no change of opinion. It is noticed that this Court in case of Asian Paints Ltd. vs. DCIT, has been laid down that when an objection to reopening of an assessment is disposed of by an order, adverse to the assessee, no further proceedings for reassessment would be initiated by the AO for a period of four weeks from the date of disposal of the objections. Notwithstanding the said binding decision of this Court in Asian Paints Ltd., the AO did not wait for a period of four weeks and passed the assessment order u/s 143(3) r/w 147. Therefore, such assessment order being in the face of binding decision of this Court in Asian Paints Ltd. cannot be sustained and the same is hereby quashed and set aside. The consequent demand notice issued u/s 156 and the show cause notice in respect of proposed penalty also cannot be sustained and are hereby quashed and set aside;

++ the reasons recorded for reopening indicates that the basis of the AO was that the factory license to manufacture the goods in respect of Unit No.II was issued to the assessee only after the end of the previous year relevant to the A.Y 2004-05 thus leading to a reasonable belief that the assessee's claim that they had commenced manufacturing in the Unit No.II in the previous year is not correct. This resulted in a prima facie view that in the absence of manufacture in Unit No.II, during the A.Y 2005-06, the benefit of Section 80IB is not available. The assessee pointed out the evidence in support of its case by contemporaneous evidence in the form of excise registration/records, registration with drugs authority and sales tax registration to indicate that the manufacture had commenced at Unit No.II even prior to the issue of a factory license. It is the assessee's case that absence of a factory license would not by itself indicate that there has been no manufacture carried out at Unit No.II while considering the benefit u/s 80IB. The assessee had admitted that during the assessment proceedings, it had not declared to the department that it did not possess factory license to manufacture at Unit No.II before 31 March 2004. It is a settled position of law that at the stage of the impugned notice, the AO must have reason to believe the income eligible to tax has escaped assessment. This belief must be a prima facie view and not a concluded view. On reading of the grounds of the impugned notices, this Court is of the view that it cannot be said that the grounds in support of the impugned notices did not indicate a prima facie view warranting the issue of the impugned notices. Thus it cannot be said that initiation of proceedings by the impugned notice is without jurisdiction. Therefore, this court is not inclined to interfere at this stage with regard to the impugned notice.