JUDGMENT - DAGA V.C., J.:—Rule, returnable forthwith. By consent of parties, Rule is taken up for final hearing.

2. In this petition, the petitioners are challenging the notice dated 5th November, 2002, for reopening the assessment for assessment year 1996-97, issued by respondent No. 1, under section 148 of the Income Tax Act, 1961 ("Act" for the short).

3. The petitioners are engaged in the business of manufacture of various consumer products in respect of which excise duty is payable. The petitioners also import certain raw materials for its manufacturing activities subject to payment of customs duty may be leviable under the provisions of the Customs Act, 1962.

4. The petitioners had filed its return of income for the assessment year 1996-97 on 30th November, 1996. The computation of income was accompanied by a specific note reading as under:

"in accordance with the practice followed for the earlier years, the company has not made a provision for excise duty and custom duty on stocks lying at the year ended in bonded warehouse estimated at Rs. 5,85,71,968 (1994-95 Rs. 112,502,531/-) and accordingly not included the said amount in the valuation of inventories. This has no effect on the profits for the year."

The accounts which accompanied the return of income also made a specific reference to this accounting policy which was followed. The audit report which was furnished in accordance with the provisions of section 44-AB also made a specific reference to the method of accounting adopted by the petitioners in respect of the goods lying in bonded warehouse. The petitioners submit that it had made a full disclosure of all the material facts along with the return of income that was filed with the department.

5. The aforesaid return of income was revised on 31st March, 1998 as a result of amalgamation of M/s. Brooke Bond Lipton India Ltd. into the petitioners. The disclosures made in the original return were reiterated in the revised return that was filed. The respondent No. 2 completed the assessment of the petitioners income under section 143(3) of the Act vide his order dated 29th January, 1999 and assessed the petitioners to an income of Rs. 3,39,29,08,460/-.

6. Subsequently, respondent No. 3 issued notice under section 263 proposing to revise the petitioners (sic) ant year 1996-97 since, according to him, the same was erroneous and prejudicial to the interest of the revenue. According to him, the central excise and customs duty payable of Rs. 5,85,71,968/- in respect of goods lying in bonded warehouse ought to have been included while valuing the inventory.

7. The petitioners by its letter dated 22nd March, 2002 objected to the exercise of revisional power by respondent No. 3 contending that the assessment order was dated 29th January, 1999 and the said order could not be revised under section 263 of the Act inasmuch as sub-section (2) of section 263 provided that an order could be revised only within a period of two years from the end of financial year in which it was passed. In the circumstances, respondent No. 3 was requested to drop the revisional proceedings. The respondent No. 3, accordingly, accepted the contention of the petitioners and dropped the initiated revisional proceedings vide his order dated 28th March, 2002.

8. The petitioners, thereafter, on 7th November, 2002 were served with notice dated 5th November, 2002 issued under section 148 of the Act by which respondent No. 1 has stated that he had reason to believe that the petitioners income chargeable to tax for assessment year 1996-97 had escaped assessment and he, therefore, called upon the petitioners to furnish its return of income within thirty days from the date of receipt of the said notice. The petitioners by its letter dated 12th November, 2002 requested respondent No. 1 to furnish to it the reasons recorded by him prior to the issuance of the said notice so as to enable them to comply with the same.

9. The petitioners filed their return under protest and, th

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