HINDUSTAN LEVER LIMITED Vs. V K PANDEY JOINT COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE validity of the impugned notice dt. 31st March, 2000, issued by the AO under S.148 of the IT Act, 1961, for the asst. year. 1995 96 is in issue in this writ petition. According to the AO, income for the aforestated year escaped assessment because the company had not provided for the excise/customs duty on stocks lying in the bonded warehouse on the ground that the duty was payable only on removal of goods from the bonded warehouse.

(2.) THE petitioner, Hindustan Lever Limited, manufactures and imports raw materials for its manufacturing activities and bonds the same before removal. They pay excise duty and customs duty only at the time when goods are removed from the bonded warehouse. In their accounts for the year ending 31st March, 1995, a note was appended stating that the company had not made the provision for excise/customs duty. On 30th Nov., 1995, the company filed its return for the asst. year. 1995 96 as well as accounts drawn as on 31st March, 1995, and as on 31st Dec., 1994. The company's assessment for the aforestated assessment year was completed under S.143(3) on 27th Feb., 1998, without any additions to the income. However, in March, 1999, the AO informed the company that an audit objection had been raised on the ground that the company's income had escaped assessment on account of failure to include the aforestated duty payable on the goods lying in the bonded warehouse while valuing the same on 31st March, 1995. The company pointed out that in the past, they have followed the method which was approved by the Department. That, in any event, in the present case, the company had paid the duty before, 30th Nov., 1995, being the due date for filing the returns and, therefore, there was no escapement of duty. In February, 2000, the AO once again raised the issue regarding the aforestated audit objection. In reply, the company pointed out vide letter dt. 11th Feb., 2000, that there was no debit to the P&L a/c for duty payable on the goods lying tin the bonded warehouse, nor was the P&L a/c credited by including the duty in valuing the closing inventory. In other words, the purchases were not debited and nor was the P&L a/c credited by including the said duty in valuing the closing inventory. With the said letter, the company also filed a certificate from their chartered accountant stating that the company had paid the duty on or before 30th Nov., 1995, which was the date for filing the return. Despite the said reply, the AO issued the impugned notice under S.148 of the IT Act, on 31st March, 2000, alleging that the company's income for the asst. year. 1995 96 had escaped assessment within the meaning of S.147 of the IT Act. Hence, this petition.

(3.) IN reply, Mr. Desai, learned senior counsel appearing for the Department, contended that the company had not made a provision for duty on the stock lying at the year end in the bonded warehouse, estimated at RS.11.25 crores and, accordingly, the said amount has not been included in the closing stock. He contended that by virtue of non inclusion of the said amount, the cost of the goods sold by the company is overestimated and by virtue of overestimation of the said cost, the profits are understated. He contended that the duty become payable when the goods were imported. That it was not payable at the time of removal from the bonded warehouse. He pointed out that the cost of finished goods should have included the element of duty for arriving at the correct value of the closing stock. In the circumstances, Mr. Desai submitted that the notice given under S.148 of the IT Act was a valid notice.