Bombay High Court
Hindustan Lever Ltd. vs V.K. Pandey, Joint Commissioner Of ... on 25 June, 2001
Equivalent citations: [2001]251ITR209(BOM)
Author: S.H. Kapadia
Bench: S.H. Kapadia, V.C. Daga
JUDGMENT S.H. Kapadia, J.
1. The validity of the impugned notice dated March 31, 2000, issued by the Assessing Officer under Section 148 of the Income-tax Act, 1961, for the assessment year 1995-96 is in issue in this writ petition. According to the Assessing Officer, 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. Facts :
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 March 31, 1995, a note was appended stating that the company had not made the provision for excise/customs duty. On November 30, 1995, the company filed its return for the assessment year 1995-96 as well as accounts drawn as on Marcb 31, 1995, and as on December 31, 1994. The company's assessment for the aforestated assessment year was completed under Section 143(3) on February 27, 1998, without any additions to the income. However, in March, 1999, the Assessing Officer 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 March 51, 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 November 30, 1995, being the due date for filing the returns and, therefore, there was no escapement of duly. In February, 2000, the Assessing Officer once again raised the issue regarding the aforestated audit objection. In reply, the company pointed out vide letter dated February 11, 2000, that there was no debit to the profit and loss account for duty payable on the goods lying in the bonded warehouse, nor was the profit and loss account credited by including the duty in valuing the closing inventory. In other words, the purchases were not debited and nor was the profit and loss account 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 November 30, 1995, which was the date for filing the return. Despite the said reply, the Assessing Officer issued the impugned notice under Section 148 of the Income-tax Act, on March 31, 2000, alleging that the company's income for the assessment year 1995-96 had escaped assessment within the meaning of Section 147 of the Income-tax Act. Hence, this petition.
3. Arguments :
On behalf of the petitioner, it has been urged that customs and excise duty in the present case became payable by the company only at the time of removal of the goods from the bonded warehouse. Therefore, as on March 31, 1995, when the accounts were prepared, a note was incorporated in the profit and loss account to the effect that the company has not made any provision for excise and customs duty on stocks lying at the year end in the bonded warehouse estimated at Rs. 11.25 crores and accordingly, had not included the said amount in the valuation of inventories. That this was in accordance with the past practice. That this had no effect on the profits for the year. Mr. Pardiwala, learned counsel appearing on behalf of the company, contended that as per the past practice, the accounts were prepared by the company for the year ending March 31, 1995. He pointed out that since the duty was not debited, the corresponding amount of Rs. 11.25 crores was also not included in the valuation of closing stock in the first year. That, in the second year, the closing stock of the first year would become an opening stock of the next year. Therefore, the alleged failure to include the duties in the valuation of inventory had no revenue effect inasmuch as, assuming the valuation of inventory had to be increased, correspondingly, then the profit and loss account would have to be debited by a like amount. That subsequently, in any event, before November 30, 1995, the company has paid the duty before filing the return of income. In the circumstances, he contended that the provisions of Section 45(B) of the Income-tax Act stood complied with. He pointed out that due to this payment before the due date, there was no question of income escaping assessment. He invited our attention to the reasons given by the Assessing Officer in support of the notice under Section 148. He submitted that even as per the said reasons, there is nothing to indicate escapement of income from assessment once the company effected payment of duty before the due date, i.e., November 30, 1995.
4. 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 became 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 Section 148 of the Income-tax Act was a valid notice.
5. Reasons :
In the present matter, we are not required to go into the larger question regarding valuation of the closing stock. In this matter, we are not required to go into the question of profit of the first year being understated vis-a-vis the profits of the next year. The reason is simple. In the present case, the due date for the company to file the returns was November 30, 1995. The duty of Rs. 11.25 crores was paid by November 30, 1995. The duty was paid by the due date. This has been certified by the chartered accountant. In the circumstances, Section 43B of the Act is squarely applicable. In the reasons given by the Assessing Officer who gave the impugned notice, there was no reference to this fact, viz., payment of duly before the due date. We adjourned the matter because we wanted to know whether income could be said to have escaped assessment even when the " company has paid the duty before the due date. We repeatedly inquired from the Department, their answer to this point. We, in fact, adjourned the matter for a week. However, Mr. Desai has submitted that he has no instructions in the matter. That, he is not able to answer the aforestated query of the court, particularly when the duty has been paid by November 30, 1995. Conclusion :
Before concluding, it may be mentioned that our attention has been invited to the assessment order passed by the same officer for the assessment year 1998-99 where an identical position has taken place. For that assessment year also, the value of the closing stock lying in the bonded warehouse was not increased by the value of duty. The same officer has accepted the contention of the company in the context of Section 43B. The same officer has accepted the returns. He has passed an assessment order on that basis. This order is confined to the facts of this case only.
6. For the aforesfated reasons, the writ petition stands allowed. The impugned notice dated March 31. 2000, is set aside. No order as to costs.