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TMI Blog2000 (2) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... method of accounting followed by the assessees. 3. The entire activity of the Companies has been summarised by the assessees as follows: (a) "One day old" birds are purchased. (b) These birds are housed in specially designed poultry houses. (c) Appropriate quantity and quality of feed and water is given to them. (d) Medicines and vaccines are given for maintenance of their general health. (e) When the birds grow upto around 25 weeks, they start 'laying' at which time they are shifted to different 'growing house'. (f) The 'laying period' is generally a period of around 43 to 45 weeks which is their productive life when they lay eggs. (g) These eggs are hatched to produce "one day old chicks' which are sold by the company. (h) Once the productive life of the birds is over, they become useless from the angle of production and are sold as 'Culled' birds. (i) The average production life of a bird is about 72 weeks roughly. 4. The accounting practice followed by the assessee companies since the assessment year 1991-92 onwards is as under: (A) The Grand Parent/Parent birds are treated as a part of "Stock in trade" i.e., a part of current assets. (B) The purchase co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct. As a result of this finding, following adjustments were made by the Assessing Officer: (a) The value of opening stock of grand parent breeders debited to profit and loss account was disallowed i.e., added to income. (b) The purchase price of grand parent/parent breeders debited to profit and loss account was also disallowed i.e., added to income (c) The feed cost during growing stage alongwith estimated overhead cost during growing stage was disallowed. (d) The corresponding relief was reduction of value of closing stock of breeders from profit alongwith reduction of profit by amount of sale of parent breeders which was initially credited to profit and loss account alongwith granting deduction under section 36(1)(vi) was granted by the Assessing Officer. Dr. Pathak, the learned counsel for the assessees, submitted that the assessees' method was accepted in the past years by the Assessing Officer. In this connection, he drew our attention to pages 308 309 of the paper book. He further submitted that even in the other eases of this group the same method as followed by the assessees has been accepted. The learned counsel further submitted that as regards poultry/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58 that the direct and indirect cost of raising live-stock needs to be capitalised until it reaches maturity and thereafter it should be depreciated on the basis of their expected productive life. Secondly, it is further stated that the stock should be valued at cost or market value, whichever is less. Accordingly, the learned counsel submitted that the method followed by the assessees in treating the birds as stock-in-trade and also the method of valuation of stock are confirmed by the accountancy principles. The learned counsel relied upon the decision of this Bench in the case of Sandvik Asia Ltd. v. Dy. CIT [1999] 69 ITD 59 where it was observed that LIFO method is a valid method of valuation of stock and if the assessee had followed this method, the ITO cannot compel the assessee to follow FIFO method. Thus, according to the learned counsels the principle is that if the assessee had followed a valid method of accountings the ITO cannot thrust upon the assessee some other method. In the cases of the assessees, the assessees had followed a valid method as per the principle of accountancy and the Assessing Officer cannot thrust upon a different method in support of his contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions: (1) H. Mohmed Co. v. CIT [1977] 107 ITR 637 at 644/645 (Guj.), (2) Tripty Drinks (P.) Ltd. v. CIT [1978] 112 ITR 721 (Ori.). 10. Lastly, the learned senior D.R. submitted that pages 268 to 290 of the assessees' paper book (accounting principles as referred supra) are only guidelines for the accounting system and they are not the accounting principles and cannot override the provisions of law. In support of this contention, he relied upon the judgment of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT [1997] 227 ITR 172. 11. In rejoinder to the argument of the learned senior D.R., Dr. Pathak submitted that the assessees did purchase the birds for sale only. This is clear from the number of birds sold during the year. It is only that the assessees by getting the eggs have ensured that the maximum advantage has been taken out of such birds by realising the gains out of hatched eggs and the culled birds. Otherwise, the sale of birds in both the eases would not have been in such large numbers. He drew a similarity vis-a-vis the crop of sugarcane or Jowar. A farmer is having a business of selling sugarcane or Jowar, but that d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as capital assets in poultry industry, since the productive life is very short, the birds are considered as stock-in-trade. This method has been accepted by the Assessing Officer for the past three assessment years, i.e., assessment years 1991-92, 1992-93 and 1993-94. It is noted that on the same set of facts, the authorities below have tried to disturb the method of accounting regularly being followed by the assessees in the past. We find no justification for the same. In H.A. Shah Co.'s case the Hon'ble Supreme Court has held as under: "As a general rule the principle of res judicata is not applicable to decisions of Income-tax Authorities. An assessment for a particular year is final and conclusive between the parties only in relation to the assessment for that year and the decisions given in an assessment for an earlier year are not binding either on the assessee or the department in a subsequent year. But this rule is subject to limitations, for there should be finality and certainty in all litigations including litigation arising out of the I.T. Act and an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly for the past so many years could not be disturbed by the Assessing Officer. 16. In view of the above discussion, we hold that the authorities below are not justified in disturbing the method of accounting, i.e., treating the birds as stock-in-trade which the assessees have been consistently following and which in the three earlier assessment years the Assessing Officer had approved/accepted this regular method of accounting. 17. One of the star arguments of the learned senior D.R. was that the method of accounting should not violate the provisions of charging section and for this purpose, he relied upon the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. This decision of the Hon'ble Apex Court in nowhere falls foul of the accounting principles which have found acceptance in several cases. Here in this case, the business was not started, yet the company earned income by way of interest from the available surplus fund. Accounting practice is such that when the project is in construction stage, interest should be set off against the capital cost of the project. However, the Institute's guidelines of pre-construction accounting clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applicable on the facts of the cases. Similarly in the case of Tripty Drinks (P.) Ltd., the assessee was selling soft drinks and the bottles were used as plant, i.e., for bottling the drinks, so the intention was to sell the drinks and not the bottles and, therefore, they were held as plant. In the cases before us, it has been shown that the assessees had sold enough number of birds (i.e., in thousands or lakhs) which factor itself indicates that the intention was to sell the birds also. Accordingly, the analogy of a soft drank bottle is not applicable to the cases of the assessees. 19. In the light of the above discussion, we hold that the authorities below are not justified in disturbing the method of accountings i.e., treating the birds as stock-in-trade by the assessees. The Assessing Officer is directed to accept the accounting principles followed by the assessees and consequently, the additions made on these accounts will stand deleted. 20. The second common ground is that the learned authorities below are not justified in holding that provisions of section 36(1)(vi) are applicable to the cases of the assessees. This ground is a natural corollary to the above ground, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Delhi Bench 'E' of the Tribunal in Perfect Pac Ltd. v. IAC [1993] 46 TTJ (Delhi) 43 8 and the decision of Pune Bench in the case of Eagle Flask (P.) Ltd. [IT Appeal No. 173 (Pune) of 1990] relating to assessment year 1987-88. This ground accordingly succeeds and the disallowances of Rs. 15,000 and Rs. 25,000 are deleted. Additional ground: 25. In the case of Nicholas Breeders (India) Ltd. ITAs No. 398/PN/ 98 and 853/PN/98 relating to assessment years 1994-95 and 1995-96, following additional ground has been raised: "On the facts and in the law, the ld. CIT(A), Nashik erred in confirming the ad hoc disallowance of Rs. 86,850 (Assessment year 1994-95), Rs. 87,835 (Assessment year 1995-96) on account of earlier year expenses and Rs. 89,922 (Assessment year 1994-95), Rs. 60,717 (Assessment year 1995-96) on account of entertainment expenses." 26. As regards the disallowance of earlier year expenses, it is noted that no such ground was raised before the CIT(A) and accordingly this ground does not arise out of the order of the CIT(A). No legal issue is involved and the addition is based en the facts of the case. Accordingly, to this extent, the additional ground is no ..... 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