R.L. SANGANI, J.M. This appeal by Department relates to asst. yr. 1975-76 for which accounting year ended on 30th June, 1974. assessee is firm carrying on business in marine products. ITC Ltd. was exclusive customer of assessee. assessee used to sell marine products to ITC Ltd. and those products were ultimately exported. assessee used to get marine products packed in cartons belonging to ITC Ltd. and get certificates about good condition of products from Export Inspection Agency, which was Government authority. assessee used to receive nearly 90 per cent of price of products by way of advances from ITC Ltd. before above operations were carried on. These products were then used to be shipped to foreign purchasers indicated by ITC Ltd. Subsequently, assessee used to receive balance of price. 2 . In relevant accounting year, turnover disclosed in books of account of assessee was Rs. 1,49,358 and net profit as per P & L a/c was Rs. 26,32,406. However, in its return, assessee disclosed loss. reasons for filing return for loss were mentioned by assessee in its letter dt. 19th June, 1976 to ITO. It was stated in said letter that amount of Rs. 27,70,943 included in total sales shown in books of account represented disputed claims against ITC Ltd. details of said amount were as under : . . Rs. Difference in exchange rates in 1. respect of frog legs shipments from 21st 7,45,379.92 Sept., 1973 to 29th March, 1974. Sales of marine products duly 2. certified by Export Inspection 9,85,952.04 Agency at FOB value Sale of marine products awaiting 3. Export Inspection Agency certificate 10,39,610.70 of FOB value . . 27,70,942.66 assessee further stated in that letter that ITC Ltd. had filed civil suit in Bombay High Court claiming refund of advances and repudiating assertion of assessee about sale of Rs. 27,70,943. Consequently, according to assessee, said amount represented contingent claim during pendency of said suit and, as such, assessee was not liable to pay any tax in respect of said amount. 3 . ITO observed that products of above amount had been packed by assessee in cartons belonging to ITC Ltd. and that assessee had also obtained certificate of good condition of these products from Export Inspection Agency and, as such, according to method employed by assessee in all such transactions, sale in favour of ITC Ltd. had been completed with result that profits arising out of said sale had accrued to assessee. Mere fact that ITC Ltd. had filed suit against assessee would not entitle assessee to treat sale of said amounts entered in account books as not to have taken place at all. sales in question could not be considered as contingent sales. ITO emphasised fact that in counterclaim, made by assessee in suit filed by ITC Ltd., assessee had categorically asserted that property as well as ownership in goods in question had vested with ITC Ltd., taking into consideration these facts, ITO declined to deduct said amount from total sales shown in books of account. He computed income according to book results making variations on some other points with which we are not concerned. 4. contention of assessee before CIT (A) was that it was regular practice on part of assessee to take credit for sale to ITC Ltd. in their books of account only after relevant marine products had actually been shipped on behalf of ITC Ltd. and intimation had been received from ITO of fact that all export documents had been negotiated by banks. It was only with respect to three transactions amounting to Rs. 27,70,943 that assessee departed from said regular practice in view of dispute with ITC Ltd. and made entries about said sale on 31st May, 1974 although products had not been shipped. If normal practice of recording sales which had been regularly followed prior to 31st May, 1974 had been adopted, entries for sale of above amount would not have been made. Consequently, mere fact that entries regarding said amounts have been made would not mean that sale had in fact taken place and income from those sales had in fact accrued. 5. learned CIT (A) examined account books of assessee and afforded reasonable opportunity of being heard to ITO. ITO contended before CIT (A) that assessee had not explained either to ITO at time of assessment or to IAC Ltd. at time of making objections under s. 144B of IT Act, 1961 (' Act '), as to how entries dt. 31st May, 1974 regarding amount could not have been made if regular method regarding making of entries against sale which had been followed prior to 31st May, 1974 had been adopted and as such assessee should not be allowed to raise such point. CIT (A) rejected said contention of ITO. He examined books of account and he was satisfied that assessee had been making entries against sale after products had been shipped and intimation had been received from ITC Ltd. and that there had been departure from this practice while making entries dt. 31st May, 1974 regarding above amount. 6. Before CIT (A), affidavit dt. 20th Feb., 1981 of Shri N.P. Kambli, one of partners of assessee-firm, was filed. In that affidavit, it was stated that marine products in question had been handed over by assessee to Court receiver in pursuance of direction of High Court in suit filed by ITC Ltd. against assessee. It was further mentioned therein that assessee would offer those sale proceeds for taxation under s. 41(1) of Act, when received from High Court. There was prayer to allow deduction of above amount of Rs, 27,70,943 from net profits. CIT (A) considered this affidavit and observed as follows : "...It is held that appellant-firm is entitled to relief of Rs. 27,70,943 less value of closing stock as represented by sale proceeds thereof deposited with Court receiver. appellant would furnish figure to ITO directly and it is open to ITO, to verify correctness of same at time of giving effect to this order." 7. It would be seen from above order that CIT (A) directed ITO to value closing stock represented by disputed marine products as on last date of relevant accounting year 30th June, 1974 at figure at which said goods had been sold by Court receiver on some subsequent date. Department has now come in appeal before us. 8 . We may mention at outset that there is some confusion in assessment order as well as in appellate order about details of disputed amount of Rs. 27,70,943. At some places in these orders it has been assumed as if this whole amount represents disputed sale. This is not correct. We have already given details of Rs. 27,70,943 in paragraph No. 2 above. From those details, it is clear that said amount of Rs. 27,70,943 consists of three items, first of which is of Rs. 7,45,379.92. amount is not in respect of disputed sale. This amount represents additional sum, which according to assessee, assessee is entitled to receive from ITC Ltd. on account of difference in exchange rates in respect of shipments which had taken place between 21st Sept., 1973 and 29th March, 1974. It is balance amount of Rs. 20,25,562.74, which represents disputed sale. We shall deal with these two items separately. 9. Before we deal with contentions raised by parties, it is necessary to refer to agreement between assessee and ITC Ltd., which took place on 1st Dec., 1971. copy of said agreement has been filed by assessee. In cl. 2 of agreement, it is mentioned that ITC Ltd. was exporter of marine products and had agreed to purchase from assessee marine products for purpose of export only and assessee had agreed to sell marine products for said purpose and to ship such marine products to ITC Ltd.'s customers in foreign countries on ITC Ltd.'s behalf only. Under cl. 3 of agreement, assessee had to ensure that marine products to be supplied were of first class quality fit for export to countries abroad to ITC Ltd.'s satisfaction. Under cl. 4 of agreement, assessee was required on ITC Ltd.'s behalf to ship marine products purchased by ITC Ltd. under agreement to ITC Ltd.'s customers abroad and in that connection to comply with all necessary formalities relating to export of marine products by ITC Ltd. including actual shipping of marine products and other letters of credit from foreign customers in ITC Ltd.'s favour. Under cl. 5 of agreement, ITC Ltd. was to pay 90 per cent of price of stock of marine products packed in cartons by assessee and stored in assessee's cold storage at Bombay. balance of price of 10 per cent was payable by ITC Ltd. at time marine products were exported and assessee handed over to ITC Ltd., shipping and other documents including bill of lading and letter of credit in favour of ITC Ltd. There was important stipulation in cl. 6 of agreement, which was to effect that from advance of 90 per cent of price which had been made till time when sale was completed by placing marine products with shippers for export abroad and handing over documents to ITC Ltd., all marine products owned by assessee including packaging material would be hypothecated in favour of ITC Ltd. by assessee. It was further mentioned therein that all marine products in assessee's cold storage would be insured by assessee against loss, destruction or damage and if marine products hypothecated to ITC Ltd. were lost, damaged or destroyed, money payable under insurance policy would be reimbursed to ITC Ltd. to extent of amount hypothecated. 10. first contention raised by learned Departmental Representative was that sale was completed when assessee packed marine products in cartons and obtained certificate of good quality from Export Inspection Agency. fact that property in goods passed to ITC Ltd. at that stage was, according to learned Departmental Representative, confirmed by conduct of assessee in making entries dt. 31st May, 1974 crediting amount (of Rs. 20,25,562.74) to sale. This fact was further confirmed by conduct of assessee in asserting in counterclaim made before High Court and in correspondence with ITC Ltd. to effect that sale in favour of ITC Ltd. had been completed on 31st May, 1974 and that property in goods had passed to ITC Ltd., learned Departmental Representative took us through plaint filed by ITC Ltd. in Bombay High Court and written statement containing counterclaim filed by assessee in reply to ITC Ltd's claim. It was submitted that above amount (of Rs. 20,25,562.74) represented sale made by assessee to ITC Ltd., and, as such, said sale had to be taken into account in computing profits. According to learned Departmental Representative, assessee could claim deduction as bad debt if assessee was unable to recover amount due to assessee from ITC Ltd. on account of those sales and if assessee was required to refund advances received by assessee from ITC Ltd. 11. We are unable to accept this contention. entries in books of account are not decisive in determining rights and liabilities of parties in particular transactions. rights and liabilities of parties are to be determined on basis of agreement prevailing between parties, Consequently, crucial document would be agreement, dt. 1st Dec., 1971. We have already reproduced main conditions agreed upon by parties. As already indicated, condition in cl. 6 clinches issue. It is specifically mentioned therein as under : " It is expressly agreed and understood that from time advance of 90 per cent of price is made and until sale is completed by supplier placing marine products with shippers for export abroad and handing over documents to ITC Ltd. in terms of this agreement, all marine products owned by supplier including packaging material thereof shall be hypothecated in favour of ITC Ltd. by supplier." From this clause, it is clear that sale was completed only at time when assessee placed marine products with shippers for export abroad and handed over documents to ITC Ltd. and not before that stage. very fact that from time of making advances to time of placing t h e marine products with shippers, assessee was required to hypothecate products in favour of ITC Ltd., indicated that ownership in goods continued to vest in assessee till time of shipment of goods and handing over documents to ITC Ltd. in present case, documents filed by assessee indicated that assessee had hypothecated products in question in favour of ITC Ltd. and had not shipped products and had not handed over shipping documents to ITC Ltd. Consequently, it cannot be said that property in those products had vested in ITC Ltd. property in those products continued to vest in assessee. There is further stipulation in cl. 6 to effect that assessee was bound to store products at assessee's cold storage prior to shipment and that assessee was bound to get those products insured against loss, destruction or damage in assessee's own name after those products had been hypothecated to ITC Ltd. and was bound to reimburse to ITC Ltd. in respect of money received under insurance policy to extent of amount hypothecated. This clause further supported conclusion that property in products did not vest in ITC Ltd. prior to shipment of products and handing over documents to ITC Ltd. and that property in those products continued to vest in assessee. 1 2 . In view of above position, as it emerged from agreement between parties, fact that assessee made entries on 31st May, 1974 regarding sale prior to shipments of products and fact that assessee asserted that property in products had vested in ITC Ltd. in correspondence as well as in counterclaim would be wholly immaterial. On basis of said conduct of assessee, no finding that sale was completed could be recorded particularly when under terms of agreement, sale could not have been completed before products had been shipped and documents had been handed over to ITC Ltd. Considering all circumstances, and after paying due regard to submissions made on behalf of Department, we confirm finding of CIT (A) to effect that above amount (of Rs. 20,25,562.74) did not represent complete sale in favour of ITC Ltd. Consequently, entry dt. 31st May, 1974 regarding this amount consisting of two items was erroneous and assessee was entitled to deduct this amount from total sale shown in books of account. 1 3 . Before parting with this topic, we may mention that learned Departmental Representative had argued that learned CIT (A) should not Departmental Representative had argued that learned CIT (A) should not have allowed assessee to explain past methods of making entries regarding sale when assessee had not taken that stand before ITO and before IAC. It is not necessary for us to consider this contention. We have relied on terms of agreement between parties which are decisive in matter and from those terms, it is obvious to us that as far as above amount (of Rs. 20,25,562.74) was concerned, sale in favour of ITC Ltd. had not been completed and that property in goods had not passed in favour of ITC Ltd. and that property in goods remained with assessee. 14. There is another reason for deducting said amount from total sale. For that reason is that above amount represents mere claim of assessee that sale to that extent in favour of ITC Ltd. had taken place. That claim of assessee was denied by ITC Ltd. and ITC Ltd. had filed suit in August 1974 repudiating said claim. Consequently, said claim was disputed claim. Much could be said on both sides as far as this claim was concerned. In these circumstances, it cannot be said that income arising out of alleged sale of Rs. 20,25,562.74 had really accrued to assessee. it is well established that even under mercantile system of accounting no income can be taxed unless it accrued. learned counsel for assessee has cited several decisions on this point and they are : CIT vs. Nadiad Electric Supply Co. Ltd. (1971) 80 ITR 650 (Bom), Dhrangadhra Chemical Works Ltd. vs. CIT 1977 CTR (Bom) 180 : (1977) 106 ITR 473 (Bom), Vishnu Agencies (P) Ltd. vs. CIT (1963) 48 ITR 444 (Dom.) and Feros Shah vs. ITC (1933) 1 ITR 219 (PC). It is not necessary for us to discuss these decisions because legal principle involved is well established. For this reason also assessee was entitled to exclude said amount of Rs. 20,25,562.74 from total sales. 15. It cannot be gainsaid that if sale to extent of Rs. 20,25,562.74 is excluded from total sales, value of goods in question would have to be added in value of closing stock. This is because goods in question continued to be property of assessee on last day of accounting year (30th June, 1974). We are of opinion that learned CIT (A) should not have based decision regarding value of goods to be included in closing stock on affidavit of one of partners of assessee-firm filed before him. learned CIT (A) should have directed ITO to determine value of those goods to be included in closing stock according to method of accounting regularly followed by assessee. value to be included would be either cost or market value as on 30th June, 1974, whichever is lower. For determining market value as on 30th June, 1974, ITO cannot ignore fact that on 31st May, 1974, assessee had made entry about sale of those products thereby indicating that on that date those products were in excellent condition. assessee had also obtained certificate from Government agency about these products being in good condition. ITO also cannot ignore fact that under agreement, assessee was required to store those products in cold storage and to insure those products against loss, damage or destruction. ITO may take into account subsequent events also, namely, about handing over of products to receiver. However, ITO would not be bound to determine value of closing stock solely on basis of what had happened subsequently. He has to take into account all surrounding circumstances and to determine value to be included in closing stock as on 30th June, 1974. We, therefore, modify direction of CIT (A) on this point. We hereby direct that ITO shall include value of products as on 30th June, 1974 in closing stock and value to be included would be that determined by ITO in accordance with method of accounting regularly followed by assessee and after taking into account all surrounding circumstances mentioned above including those that may be brought to his notice by assessee. 16. Now we come to first item comprised in total amount of Rs. 27,70,943, that item is of Rs. 7,45,380. As already stated, it represents difference in exchange rates in respect of frog legs shipments made between 21st Sept., 1973 to 29th March, 1974. products in question have already been exported and sale price has already been credited. This is additional amount which assessee claims that assessee is entitled to receive from ITC Ltd. because of difference in exchange rates. assessee has not yet received this amount. There is no clause in agreement between parties under which this amount is payable. assessee is claiming this amount on basis of past practice. ITC Ltd. has in clear terms repudiated claim of assessee in respect of this amount in reply to counterclaim in litigation between parties. Thus, this amount represents disputed claim. amount has not been received and there is merely claim of assessee, which is denied by ITC Ltd. In these circumstances, mere fact that assessee made entry regarding this amount would not lead to inference that this amount represented additional sale price receivable by assessee from ITC Ltd. For reasons already given, we hold that this amount should be excluded from total sales for computing profits. We confirm order of CIT (A) regarding this item on above grounds. 1 7 . Before parting with this appeal, we may point out that learned Departmental Representative had brought to our notice fact that there were some instances prior to 31st May, 1974, when sale was credited prior to shipment of goods and handing over of documents to ITC Ltd. These instances were pointed out in statement of shipments filed by assessee. We have not based our decision on past practice of assessee. We have relied on agreement between parties. As already stated by us, entries in account books are not conclusive evidence of rights and liabilities of parties in respect of transactions in question although they may constitute one of pieces of evidence particularly in those cases where there is no agreement in writing which governed impugned transactions. In present case, there is agreement in writing which governs transactions with which we are concerned and, as such, legal question as to whether property in goods passed to purchaser at particular point of time shall have to be decided on basis of interpretation of terms of agreement and not on basis of unilateral entries made by assessee in books of account. In this view of matter, we find it unnecessary to record any finding on question whether assessee had adopted uniform practice of crediting sale only after shipment and handing over of documents to ITC Ltd. and not prior to that stage because nothing would turn on that finding in view of express terms of agreement. 18. In result, appeal is partly allowed. *** FOURTH INCOME TAX OFFICER v. SHRIMPEL