1985 (1) TMI 89 - AT - Income Tax

Summary

Issues Involved:
1. Whether the disputed amount of Rs. 27,70,943 should be included in the total sales for the assessment year 1975-76.
2. Whether the sale of marine products amounting to Rs. 20,25,562.74 had been completed.
3. Whether the difference in exchange rates amounting to Rs. 7,45,380 should be considered as part of the total sales.
4. Proper valuation of closing stock as on 30-6-1974.

Detailed Analysis:

1. Inclusion of Rs. 27,70,943 in Total Sales:
The assessee, a firm dealing in marine products, disclosed a turnover of Rs. 1,49,358 and a net profit of Rs. 26,32,406 in its books for the relevant accounting year. However, it reported a loss in its tax return, attributing this to a disputed amount of Rs. 27,70,943 with ITC Ltd. The ITO included this amount in the total sales, arguing that the sale had been completed and profits accrued. The Commissioner (Appeals) disagreed, stating that the disputed amount should be deducted from the net profits, as the sale had not been completed according to the firm's regular practice and the terms of the agreement with ITC Ltd.

2. Completion of Sale for Rs. 20,25,562.74:
The agreement between the assessee and ITC Ltd. dated 1-12-1971 specified that the sale was completed only when the marine products were shipped and documents handed over to ITC Ltd. The ITO contended that the sale was completed when the products were packed and certified by the Export Inspection Agency. However, the Commissioner (Appeals) and the Tribunal found that the sale was not completed as the products had not been shipped nor documents handed over. The property in the goods continued to vest in the assessee, and thus, the amount of Rs. 20,25,562.74 did not represent a completed sale.

3. Difference in Exchange Rates of Rs. 7,45,380:
This amount represented the difference in exchange rates for shipments made between 21-9-1973 and 29-3-1974. The assessee claimed this amount based on past practice, but ITC Ltd. repudiated the claim. The Tribunal held that this amount should be excluded from the total sales as it was a disputed claim and had not been received by the assessee. The mere entry in the books did not infer that this amount was receivable.

4. Valuation of Closing Stock as on 30-6-1974:
The Commissioner (Appeals) directed the ITO to value the closing stock represented by the disputed marine products based on the sale proceeds deposited with the court receiver. The Tribunal modified this direction, stating that the ITO should determine the value of the closing stock according to the method of accounting regularly followed by the assessee, considering all surrounding circumstances, including the condition of the products and subsequent events like handing over to the receiver.

Conclusion:
The Tribunal partly allowed the appeal, confirming that the disputed amount of Rs. 27,70,943 should be excluded from the total sales for computing profits. The sale of marine products amounting to Rs. 20,25,562.74 was not completed, and the difference in exchange rates of Rs. 7,45,380 was a disputed claim. The ITO was directed to properly value the closing stock as on 30-6-1974 based on the regular accounting method and surrounding circumstances.