TMI Blog1986 (3) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has been maintaining books of account on mercantile system of accounting. The assessee follows financial year as the previous year. Though the assessee follows mercantile system of accounting, yet in respect of the containers or drums in which the raw material is purchased, the assessee adopted a method, which has, however, been consistently and regularly followed from the year of inception. This method is that the assessee debits the purchases with the cost of plasticiser as purchased. As stated earlier, it is purchased in drums or in gunny bags. After debiting the cost to the accounts in this manner, the assessee has been keeping the containers in separate stock. There is no dispute that proper details for verification of the quantity of such containers or gunny bags are available. The assessee, however, did not value such empty containers or gunny bags for the purpose of inclusion of their value in the profit and loss account. However, whenever the assessee sold such containers or gunny bags, the sale proceeds were credited in the accounts and accounted for in the total sales appearing in the final accounts. 4. The assessee had, thus, sold and accounted for, for exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs. 8. On such background, the learned counsel for the assessee has submitted that the assessee has been accounting for the empty drums by keeping a separate stock account for the same and the sale proceeds of the drums have been credited as and when they were sold. Since, the assessee had regularly adopted this method and there was no change, the authorities below had in the earlier years accepted this system after due consideration. He submitted this system of the assessee which was basically a mercantile system of accounting except that for the sale of drums and gunny bags. The assessee accounted for their sales and did not value them from the very beginning for the purpose of including in the closing stock on estimate basis. The Commissioner was, therefore, in error in supporting the ITO on this issue, as he did. 9. The revenue, on the other hand, submitted that the assessee has paid for not only the material in the drums but also for the drums when the purchases were made. Therefore, by debiting the entire cost to the profit and loss account and not valuing the empty drums for purpose of inclusion in the profit and loss account of the relevant assessment year, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case, trying to add to the total income of the assessee by way of valuation of empty drums and gunny bags by treating them as part of the closing stock, which was not done in any of the earlier assessment years. Therefore, the reasoning given by the authorities below that the assessee had tried to furnish inaccurate particulars of income in this manner is without substance. It is very clear that the assessee had consistently adopted this regular method and the department had accepted it. There is no justification shown to us for making a departure of this accepted system and, therefore, the addition resulting from the departure, which is without justification is in itself without justification. It is deleted. Therefore, the ground Nos. 1 and 2 of the assessee are allowed. 12. [This para is not reproduced here as it involves a minor issue.] 13. The only other grounds that survive for our consideration are numbered 4 and 5. These grounds relate to the cash incentives and duty drawbacks. In order to appreciate the grievance of the assessee, the factual backdrop of the case relevant to this issue has to be kept in focus, which is as under. 14. As mentioned earlier, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the assessee did not account for these two amounts in its books of account on the basis of mercantile system of accounting because it decided to account for the amounts on the cash system of accounting due to the fact that the assessee on attaining eligibility for CCS and duty drawbacks was subsequently required to approach the concerned authorities for legally enforceable entitlement and the quantum of such entitlement by the said authorities. It decided to account for these amounts on receipt of quantified entitlement from the concerned authorities. 17. The ITO, however, held that the assessee's accounting system was purely mercantile and CCS and duty drawbacks, in fact, directly relate to the business of export of garments. These were, in fact, part of the same transaction and should have been accounted for by the assessee when the export transactions were accounted for in the books of account from which the said CCS and duty drawbacks arose as incidental receipt of such transactions. These amounts were, therefore, added to the total income which was determined at Rs. 9,41,228 as per order dated 25-8-1984 made under section 143(3), read with section 144B, of the Act, namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was bona fide. The learned counsel also relied upon the judgment of the Delhi Bench 'A' in the case of East West Linkers (P.) Ltd. [IT Appeal No. 4335 (Delhi) of 1977-78 and C.O. No. 337 of 1977-78 dated 12-9-1979] for the assessment year 1975-76 appearing at pages 217 to 226 of the assessee's paper book. The learned departmental representative, on the other hand, relying upon the judgments of the Delhi High Court in the case of Dalmia Dadri Cement Ltd. v. CIT [1980] 126 ITR 851, CIT v. Martin Harris (P.) Ltd. [1985] 154 ITR 460 (Cal.) and the Delhi High Court judgment in the case of N.K. Textile Mills v. CIT [1985] 152 ITR 594 contended that the assessee has not made out a case for an interference in the order of the learned Commissioner, which should be confirmed. 20. We have given careful consideration to the rival submissions. On a perusal of the authorities cited from both the sides, we find that the authorities cited on behalf of the revenue are clearly distinguishable on facts. These are, therefore, not applicable for determination of the issue before us. On the other hand, the judgments of the Tribunal cited by the assessee are directly on the issue in the sen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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