1. The assessee is aggrieved of the order, dated 9-1-1985 of the learned Commissioner (Appeals).
2. The assessee, the Indian Aluminium Cables Ltd., 18, Bara Khamba Road, New Delhi, is a limited company which is engaged in the manufacture of conductors and cables. The first ground relates to the change of the method of accounting, followed by the assessee in regard to the export incentive on deemed exports from mercantile to cash basis. The facts in that regard are as follows : As per the policy of the Government, (Ministry of Finance), export incentives and duty drawback are allowed on various items exported outside India and payment for which is received in convertible foreign exchange (US dollars or pounds sterling). The rates of such incentives are fixed from time to time on the basis of export/ import policy announced by the Government for each year. Such rates are announced by the Ministry of Finance. In case of supplies made in India against global tenders, successful Indian bidders are treated as exporters. Similarly, supplies made by any Indian supplier to the projects in India which are assisted by IDA/IBRD loans are also treated as export and such supplies are known as 'deemed exports'. Although, there is no physical export involved, the Government announces from time to time various incentives in relation to such 'deemed exports'. The incentives available in respect of physical exports are not automatically applicable in the case of deemed exports unless there is a specific notification of the Ministry of Commerce in that regard. During the accounting period April 1980 to March 1981, the export of conductors was banned excepting supplies against project contracts or supplies of these items manufactured out of imported material. Hitherto, the assessee had been showing export incentive receivable by it on mercantile basis. However, for the assessment year in question, the system of accounting in regard to the export incentive on 'deemed exports' was changed by the assessee to 'due and payable' basis. In this regard, the case of the assessee was that during the assessment year in question, there had been some change in the policy of the Government with regard to deemed exports insofar as export of conductors was banned except supplies against project contracts to various electricity boards under IDA/IBRD assistance project. According to the assessee, there were changes in the Government policy with regard to the export incentive and duty drawback. The case of the assessee before the IAC was that the export incentive was based on the policy of the Government and that on account of frequent changes in such policy, it had become difficult to ascertain the amount. Reference was also made to the Ministry of Commerce letter dated 4-8-1980, by which the Cables & Conductors Manufacturers Association of India had been informed that the drawback under sub-serial 4603 of the drawback schedule had been withdrawn and as such the AAC conductors would not be covered under sub-serial 4610 of the drawback schedule for the purposes of supplementary cash assistance and each individual would have to forward drawback data for fixation of rates for supplementary cash assistance in lieu of duty drawback. Reference was also made to another letter dated 6-9-1980, wherein it was clarified that where an item is otherwise banned for exports, no assistance would be available on the supply thereof as 'deemed exports'. As per the calculations submitted by the assessee before the IAC on the basis of the supplies made by it, it should have received an additional sum of Rs. 17,71,320 as follows, had the system of accounting not been changed : Month Date of Amount Date of Amount received claim claimed payment June 1980 19-2-1981 79,018 17-6-1981 79,019 July 1980 2-12-1980 9,13,892 24-7-1981 9,13,89August 1980 2-12-1980 7,78,410 28-7-1981 7,78,440 However, the learned IAC took the view that there was no significant change in the export incentive receivable and actually received in the past. He was also influenced by the fact that more or less equal amount as export incentive was received by the assessee, subsequently, though the subsequent payment was based on ad hoc settlement and not on the basis of the calculations/claims made by the assessee. The IAC, therefore, took the view that the change in the accounting system had been made only with a view to postpone the payment of taxes or set off the income of the assessment year in question against the expected losses of the subsequent year. He, therefore, added the amount of Rs. 17,71,320 as the income of the assessee.
3. In appeal, firstly, the learned Commissioner (Appeals) held that the assessee was not right in saying that there was any uncertainty in the Government's policy. In this connection, he noticed that claims continued to be made even after the circular letter dated 6-9-1980 of the Government and the assessee continued to be paid. He found from a perusal of the data regarding the assessee's claims (given in para 5.2.1 of the impugned order) that in almost all cases, the amount paid had been the same as claimed. He found that in the settlement of the claims, there was only a little delay. Secondly, the learned Commissioner (Appeals) held that the payment of duty drawback was almost automatic and that whatever delay occurred was either because the assessee had chosen to delay the making of the claim or because of the usual delays due to the Government's procedures. He observed that there was almost no time lag between the sanction of the claim and the actual payment. He also noticed that no sanction was actually issued by the customs authorities who were only issuing a forwarding letter enclosing the cheque for the amount due. He held that the payment of duty drawback accrued at least on the date when the claim was preferred by the assessee-company. He, therefore, held that it could not be said that the change in the system of accounting was bona fide or that it had been made for overriding reasons. He held that by shifting the date of approval, the assessee-company had intended to reduce its losses in the subsequent years which amounted to carry forward of losses.
4. In the appeal before us, Shri O.P. Vaish, the learned Counsel for the assessee, reiterated the submissions made on behalf of the assessee before the Income-tax authorities on the basis of its replies. In short, he highlighted the point that the Government had withdrawn all export benefits to the 'deemed exports'. Next, he pointed out that even earlier the system of accounting followed by the assessee was not a case of "legally due and payable though not received 'or' accrued but not due". He pointed out that the making of the claim could not be taken as accrual of the income as the claim was subject to uncertainties. He pointed out that apart from the uncertainty in the accrual of such income, the export incentive on deemed export could accrue only when the incentive claims had been processed by the concerned authorities after they were satisfied that the required conditions had been met. He also pointed out with reference to the printed balance sheets that there never were losses. He also pointed out that the finding of the Commissioner (Appeals) in this regard was not correct and that the payment of drawback was not automatic.
Reliance was also placed by him on the decision of the Bombay High Court in CIT v. Nadiad Electric Supply Co. Ltd. [19711 80 ITR 650, and the decision of the Tribunal in ITO v. Bajaj Auto Ltd.  8 ITD 296. He, therefore, argued that not only the change in the method of accounting was bona fide but that it was also the correct method of accounting which should have been followed by the assessee from the very beginning having regard to the nature of the income and its accrual. On the other hand, Shri K.K. Sharma, the learned departmental representative, strongly supported the orders of the Income-tax authorities. We have considered the rival submissions as also the decisions referred to above. The main question which falls for our consideration is whether the change in the system of accounting hitherto followed by the assessee in regard to the export incentive on 'deemed exports' was bona fide. So far as the policy of the availability of export incentives on 'deemed exports' are concerned, it is seen that vide circular dated 4-7-1980, the Cable & Conductors Mfrs.
Association of India informed that duty drawback on AC/ACSR had been revised with effect from 1-6-1980 resulting in the total withdrawal of the drawback on AAC conductors while on ACSR conductors, the rate had been reduced as per public notice published in the Gazette of India on 19-5-1980. Thereafter, the Ministry of Commerce vide its letter dated 28-7-1980 informed the Cable & Conductors Mfrs. Association of India that the AAC conductors could be classified under sub-serial 4610 for the purposes of grant of supplementary cash assistance in lieu of duty drawback (earlier the AAC conductors were classified under sub-serial 4603 for the purposes of grant of supplementary cash assistance in lieu of duty drawback). Thereafter on 4-8-1980, Cable & Conductors Mfrs.
Association of India, was informed that drawback under sub-serial 4603 of the drawback schedule had been withdrawn and that as such the AAC conductors would not be covered under sub-serial 4610 of the drawback schedule for the purposes of supplementary cash assistance in lieu of duty drawback on supplies made under IDA/IBRD. It was also directed that for the grant of supplementary cash assistance, each individual had to forward drawback data for the fixation of rates of supplementary cash assistance in lieu of duty drawback. The assessee was given a similar advice by the Joint Chief Controller of Imports and Exports, in pursuance to its letters. The Indian Electrical Mfrs. Association also informed the assessee vide its letter dated 19-9-1980/20-9-1980 that no drawback duty was payable on supplies of the AAC conductors by covering them under drawback rights which had to be determined on weighted average duties paid on aluminium received by the allottee prior to despatch of the AAC conductors and that it would be a long drawn process. There can be no doubt that this imparted an element of unascertainability so far as the payment of drawback was concerned. The Ministry of Commerce vide its letter dated 6-9-1980 had informed that where an item was otherwise banned for exports, no assistance would be available on the supply of that item as 'deemed exports'. Therefore, the assessee was right in contending that the Government had withdrawn export benefits to the 'deemed exports' and, the procedure and system of allowance of export incentives against 'deemed exports' had also been changed. Cash assistance was, thus, a matter of bounty and the assessee could not claim it as of right. Alter a claim is filed by the assessee, the Joint Chief Controller of Imports and Exports forwards its application for cash assistance to the bank endorsing a copy to the assessee giving the reasons for the reduction of the claim. The assessee, if not satisfied with the reduction of the claim, could follow the appeal procedure as per hand-book of rules and procedure.
The appeal is then adjudicated upon by the Joint Chief Controller of Imports and Exports and if that appeal also fails, the assessee can file a revision before the Chief Controller of Imports and Exports in terms of paras 381 to 397 of the Hand Book of Imports and Exports Procedure. It is only after the decision on the revision/ review petition that the assessee would know as to what extent the claim preferred by the assessee had been accepted. It is, therefore, clear that making of the claim did not mean automatic acceptance thereof.
Therefore, no amount could be said to be legally due to the assessee until the claim was accepted. We have already referred to the change in the policies and procedures appearing upon the grant of cash assistance. On these facts, even if for the first time the assessee was to decide as to which system of accounting to follow in regard to the export incentives, it could not be said that the following of the system of accounting on the basis of receipt of the amount would not be proper. In fact, the system which was hitherto followed by the assessee, namely, the mercantile system was not the correct system. In fact, even the system adopted by the assessee for the assessment year in question could not be said to be a cash system in the sense that money was still not actually received by the assessee. The inference drawn by the learned Commissioner (Appeals) that by shifting the date of accrual the assessee-company had intended to reduce its losses in the subsequent years, which amounted to carry backward losses also, does not appear to be correct on facts. The balance sheets filed by the assessee clearly show that it was not incurring any losses but was deriving profits. In fact, a perusal of the details of the amount of Rs. 17,71,320 shows that even though the claims were made for the assessment year in question, the dates of the payments of the claims all fell in the subsequent year. In reply to a query from the Bench, the learned Counsel for the assessee stated that the changed system of accounting was being regularly followed by the assessee for the assessment years subsequent to the assessment year in question. We are, therefore, of the view that since on the date of the making of the claim, the amount was neither due nor payable to the assessee, the change of the system of accounting made by the assessee could not be said to be other than bonafide. In fact, we find that on the basis of a similar pattern of facts, the Special Bench of the Tribunal, in the case of Bajaj Auto Ltd. (supra), held that the assessee could change the method of accounting in respect of duty drawback and cash assistance from the Government on export performance, from mercantile to cash basis. The Tribunal noticed that the scheme of cash assistance was not statutory but a concession and that the amount could not be known beforehand certainly as it depended on facts such as the Government policy and rates which were frequently changed. It also noticed that the amounts involved were received irregularly and very late from the Government. The ratio of the aforesaid decision could also be taken advantage of by the assessee. We, therefore, decide this ground of appeal in favour of the assessee.
5. The next ground relates to the claim for extra shift allowance to the tune of Rs. 5,58,740. The assessee had claimed Rs. 15,50,400 as against which the IAC allowed only Rs. 10,84,942. He held that some of the items of plant and machinery were purchased and installed in February and March 1981. He was of the view that extra shift allowance could not be allowed for the whole year as the machinery had not worked for a minimum of 240 days. Reliance was placed by him on the decision of the Hon'ble Calcutta High Court in Anantpur Textiles Ltd. v. CIT  116 ITR 851. On the basis of the computation relied upon by the assessee, extra shift allowance on account of machinery added during the year was calculated at Rs. 3,37,144. The balance of Rs. 2,21,597 related to the existing machinery. The learned Commissioner (Appeals) was of the view that extra shift allowance had to be calculated on the basis of the number of days any particular plant and machinery had worked and not on the basis of the number of days the concern worked double or triple shift. Reliance was placed by him in this connection on the decision of the Calcutta High Court in the case of Anantpur Textiles Ltd. (supra) as also on the following decisions : CIT v. Dehri Rohtas Light Railway Co. Ltd.  116 ITR 847 (Cal.), Dhampur Sugar Mills Ltd. v. CIT  126 ITR 648 (All.) (FB) and South India Viscose Ltd. v. CIT  135 ITR 206 (Mad.).
6. In the appeal before us, reliance was placed on behalf of the assessee on the decision of the Tribunal in ITO v. Sri Varadaraja Textiles (P.) Ltd.  9 ITD 469 (Mad.), as also on the circular letter dated 28-10-1970 of the CBDT. On the other hand, the learned departmental representative relied upon the order of the learned Commissioner (Appeals).
7. We have considered the rival submissions as also the decisions referred to above. In the circular of the CBDT it is clearly mentioned that where a concern has worked double shift or triple shift, extra shift allowance would be allowed in respect of the entire plant and machinery used by the concern without making any attempt to determine the number of days on which each machinery actually worked double or triple shift during the relevant previous year. This being a circular beneficial to the assessee and it not having been shown that this circular was not applicable for the assessment year in question, we are of the view that the claim made by the assessee was justified and that it should have been accepted. A similar view was taken by the Tribunal, in the following decisions, copies of which have been filed by the assessee in its paper book : Order dated 29-9-1977 of Delhi Bench 'S' in Hindustan Cococu Wire Ltd. v. ITO [IT Appeal No. 5295 (Delhi) of 1975-76] and order dated 4-9-1984 of Delhi Bench 'B' of the Tribunal in ITO v. Hindustan Cococu Wire Ltd. [IT Appeal No. 2169 (Delhi) of 1983].
We hold accordingly.
8 to 13. [These paras are not reproduced here as they involve minor issues.]