JUDGMENT
R.N. Misra, J.
1. These two references have been made by the Cuttack Bench of the Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act of 1961 (hereinafter referred to as “the Act”), and the following question has been referred for the opinion of the court:
“Whether, on the facts and in the circumstances of the case, the loss of Rs. 34,482 in the assessment year 1970-71 and Rs. 35,341 in the assessment year 1971-72 were rightly held to be capital losses ?”
2. Assessee is a private company limited by shares and is engaged in the business of manufacture and sale of cool drinks. It claimed by way of revenue loss a sum of Rs. 34,482 in the assessment year 1970-71 and a sum of Rs. 35,341 on the same score in the assessment year 1971-72 and contended that the alleged losses arose thus: Assessee has to undertake bottling of the drink manufactured by it for marketing. For that purpose it purchases bottle, fills them up with cool drink and supplies the same to its customers through agencies. The liquid content inside the bottle is the subject-matter of sale and bottles are not intended to be sold. With a view to ensuring the return of the bottles to the manufactory, the assessee keeps a security deposit against the bottles supplied to the market at the rate of fifty paise per bottle. Similarly, for convenience, the assessee supplies wooden crates for safe-keeping of the bottles and after use these crates are intended to return to the manufactory. Security for each crate is realised at Rs. 3 as a pre-condition to supply. According to the assessee purchase price per bottle is 52 paise and of each crate is Rs. 3 39, Assessee claimed under the head of loss and breakage in respect of crates and bottles. There is no dispute that the same has been allowed. Assessee claimed the amounts indicated above in the two years on the footing that, in its hands, the value of each crate became Rs. 3 and of each bottle 50 paise. On the depreciated value of its stock of bottles and crates, the difference was raised as a revenue loss.
3. The Income-tax Officer rejected this claim, but the Appellate Assistant Commissioner allowed the same by saying :
” ……It is also submitted that the Coca-Cola manufacturers in different
provinces all over India are following the same method of accounting, but the Income-tax Officer without understanding the true implication of the method of accounting followed by the Coca-Cola manufacturers held that since the appellant has shown the advances as deposits, the difference between the cost price and the price deposited by the customers is not allowable as revenue loss. The learned counsel invites my attention to the decision of the Supreme Court in the case of Swadeshi Cotton & Flour Mitts P. Ltd. [1964] 53 ITR 134 regarding the method of accounting regularly followed by the appellant…….
I have carefully considered the appellant’s submission and the full particulars of accounts submitted by the appellant and find that though the Income-tax Officer has allowed the breakage claimed by the appellant in manufacturing, he failed to allow the difference between the cost price of the bottles and the sale price deposited by the retail dealers as revenue expenses, Following the method of accounting regularly followed by the appellant, I hold that the Income-tax Officer is not justified in disallowing the claim for the value of depreciation of bottles and shells……”
4. The revenue appealed against the direction to admit the deduction and the Tribunal agreeing with the stand of the revenue reversed the decision of the Appellate Assistant Commissioner. The references have come to be made in this background.
5. Learned counsel for the assessee does not challenge the conclusion of the Appellate Tribunal that the Supreme Court decision in Commissioner of Income-tax v. Swadeshi Cotton and Flour Mills P. Ltd. [1964] 53 ITR 134, has no application to the facts of the present case. In that decision, the company as assessee maintained that the bonus paid for the year 1947 in the calendar year 1949 as a result of the industrial adjudication was admissible under Section 10(2)(x) of the 1922 Act in the assessment year 1950-51 (accounting year ending wish December 31, 1949). It was in this background that the court made a casual reference to the system of accounting.
6. Mr. Mohanty for the assessee relying on the observations in the book, Accountancy by Pickles, claims that the stand of the assessee is justified. Therein, it has been observed :
“When packages are returnable at a smaller price than that at which they are charged out, there will be a balance on reserve account representing profit on hire which must be transferred to profit and loss account by debiting reserve account; the corresponding credit may be direct to profit and loss or to stock account whence it will be transferred to profit and loss
along with the balance of that account, which will show the profit or loss on packages sold to customers, scrapped and destroyed.”
7. Mr. Mohanty maintains that Pickles is a high authority on the subject and had been quoted with approval by the Supreme Court in the case of Challapatti Sugars Ltd. v. Commissioner of Income-tax [1975] 98 ITR 167. In this case, the Supreme Court was obviously emphasizing on the feature of the method of accounting.
8. Whatever be the method of accounting, the ultimate purpose of its maintenance is to give a true and complete picture of the dealings in respect of which such account is maintained. Under the Act, it is the duty of the Income-tax Officer on the basis of accounts maintained by the assessee and produced before him to ascertain with precision the income earned by the assessee. If the accounts fail to disclose a true picture of the business and the Income-tax Officer is not able to reach his conclusion on the basis of such accounts, merely because the accounts have been maintained according to some known system, the same cannot be blindly adopted. In the instant case, as we have already pointed out, deductions have been allowed both for breakage as also loss. The claim of the assessee is based on the peculiar accounting system maintained by it of reducing the book value of the bottles and crates in its hands by 0.02 paise and 0.39 paise respectively immediately after putting the same into its stock on the basis of the short security in respect of the two items at the time they are put into the market. We do not see any rationale in this process. The bottles continue to be the property of the assessee and as long as the bottles are in the process of going out of and coming into the manufactory in the course of the assessee’s business, there is no occasion for reducing the book value. At the point of breakage or loss certainly the assessee has only the security to fall back upon which is deficit to the extent indicated and, therefore, the assessee becomes entitled to a claim of deduction in respect of the bottles and the crates which were going. We do not think the assessee’s claim has any basis. As found by the Tribunal and as conceded by Mr. Mohanty for the assessee, the amounts claimed in the respective years represent the reduction in the notional value of the bottles and the crates which are neither lost nor broken, but are still used for the business of the assessee. Such a claim, in our view, is not at all sustainable. We asked Mr. Mohanty to indicate an authority which might support his stand, but he has not been able to cite any.
9. Our answer to the question referred for opinion, therefore, is : On the facts and, in the circumstances of the case, the losses of Rs. 34,482 in the assessment year 1970-71 and Rs. 35,341 in the assessment year 1971-72 were not revenue losses and, therefore, the assessee is not entitled to deduction thereof.
10. We make no order as to costs.
Panda, J.
11. I agree.