In these three appeals, revenue objects to decision of Commissioner (Appeals) deleting following amounts which were disallowed b y ITO on account of obsolete stocks written off by assessee in following three years: Assessment year Amount Rs. 1973-74 2,74,764 1974-75 1,70,035 1975-76 2,19,048 2. These appeals arise out of income-tax assessments of Consolidated Pneumatic Tool Co. (India) Ltd., assessee herein, which manufactures mainly pneumatic tools and air and gas compressors. We are concerned with assessment year 1973-74 for which previous is period of 15 months commencing from 1-10-1971 to 31-12-1972 and two subsequent assessment years 1974-75 and 1975-76 for which previous years ended on 31-12-1973 and 31-12-1974, respectively. There is no dispute that facts in regard to addition in question in each of these three years are identical. We find that department had come up in appeal in assessment year 1973-74 against decision of AAC, deleting addition of Rs. 2,74,764 in IT Appeal No. 730 (Bom.) of 1977-78. Tribunal by their order dated 17-5-1978, examined this issue in detail in paragraphs 14 to 27 of their order and felt that this point had been decided by AAC without proper determination of necessary facts. They, therefore, set aside order of AAC on this point and restored matter to his file for fresh disposal in accordance with law and in light of their earlier observations. Tribunal also clarified that both assessee and department were free to bring to notice of AAC appropriate material in support of their rival cases in accordance with law. 3. Pursuant to this decision of Tribunal, Commissioner (Appeals) again examined decision in great detail in his order for 1973-74 which is common order for all three years, since appeals for two subsequent years also were pending before him on this point. In paragraph 2.5 of his appellate order Commissioner (Appeals) held that assessee has been following consistently method of valuing stocks at their cost or net realisable value; that this method was consistently followed up to assessment year 1972-73 and that even in subsequent assessment years method was continued except for what assessee considered as obsolete stock. Commissioner (Appeals) accepted assessee's submission that reason for obsolescence could be design notification, quality improvement, discontinuation of products and models, cost reduction and like. He pointed out that up to assessment year 1972-73 assessee had not made any attempt to identify such obsolete stock probably because there was only steady growth in turnover of company and probably obsolete items lying in closing stock were not very substantial. Even so, Commissioner (Appeals) found that assessee had been transferred to reserve for inventory of obsolescence, though amounts transferred to reserve were always offered for taxation. Commissioner (Appeals) noticed that there were as many as 30 models of air compressors and over 125 models of pneumatic tools are tailor-made to meet requirements of consumers. Commissioner (Appeals) pointed out that with advance of technology, very substantial change in models and designs and components and spare parts manufactured for one model may not be of any use to products manufactured subsequently and that this was reason for obsolescence. Commissioner (Appeals) then examined inventory of obsolescence stock produced before him and found that assessee had issued stocks which had been discarded, but that such issue was of very small quantity. He further found that even this method of keeping obsolete stock in separately earmarked portion of stores was subsequently discarded by assessee and that stocks which were declared as obsolete had been lumped with other scrap except for brass and bronze scraps, which were valuable scraps and kept in special earmarked scrap-bins. 4. Commissioner (Appeals) next examined question whether value of stock that had become obsolete and written off in books of account could be considered as loss incidental to carrying on of business and whether method followed by assessee in this regard was scientific and rational method which did not distort profit figures of assessee-company. Commissioner (Appeals) held that assessee was engaged in manufacturing of several types of pneumatic tools and air compressors of various designs, as per requirements of consumers, that these designs and models did undergo frequent changes and that components and spares which were manufactured in year might have little or no value at all in subsequent years. He was of view that for ascertainment of true profit, it would be necessary for businessman to determine proper value of stocks and that it was wholesome practice to discard obsolete stock after taking into consideration its scrap value. He further found that in assessment years 1972-73 and 1973-74 assessee had followed method of retaining some value in respect of obsolete stock, but that such method had been discarded as policy because of difficulties faced by assessee in matter of accounting. He pointed out that this method involved determination of value of items discarded, when later on called back either because of certain demands from consumers or because assessee required it in course of its customer service. Commissioner (Appeals) found that from assessment year 1975-76 method followed by assessee was to identify stocks which were of little use or no use and thereafter write off their value in books. Commissioner (Appeals) held that no serious exception can be taken to this procedure though assessee has not made any attempt of finding out scrap value of such stock, because once scrap, value is determined, stock that has been considered as obsolete, will have to be kept separately and when same has been sold scrap value will have to be adjusted from, sale proceeds. He pointed out that this would involve avoidable labour and also maintenance of list of obsolete stock. Commissioner (Appeals) was of opinion that there cannot be any serious objection to assessee changing method of valuation of closing stock, if such change in method is bona fide change and has been followed consistently thereafter, and that in present case it is even doubtful whether there has been change in method of valuation of closing stock. according to Commissioner (Appeals), what assessee has been doing was to identify stocks which have no value or little value and thereafter deduct its value, while valuing closing stocks. principle behind such valuation is that stock that has been discarded as obsolete, has little scrap value and it is not possible to ascertain what such stock would fetch if sold in open market. method of accounting for sale proceeds as and when stocks are sold, could compensate any possible distortion in matter of reporting any any profits and in this view, Commissioner was of opinion that amounts written off by assessee in stock accounts in every year consideration was in order. He further held that non-retention of any value in respect of this discarded stock in assessment year 1975-76 and onwards was purely dictated by exigencies of accounting and was not likely to distort profit figures in long turn. He, therefore, upheld this claim of assessee. 5. Commissioner (Appeals) then examined further question whether it was proper for assessee to write off as obsolete stocks on basis of inventory as on 30th day of September of each year and especially when previous year of assessee ended on 31-12-1972. It was pointed out by assessee that exercise of inventorising obsolete stock out of several hundred items, is time consuming job and that this exercise has to be gone through well before close of accounting year and that assessee, f o r this purpose, starts inventorising obsolete items of stock out of several hundred items, is time consuming job and that this exercise has to be gone through well before close of accounting year and that assessee, for this purpose, starts inventorising obsolete items of stock in month of September, but that write off is actually made at end of accounting year. Commissioner (Appeals) accepted this explanation offered by assessee as satisfactory. He further held that even assuming that items listed as obsolete are out of list prepared as at end of September, that procedure left no room for mischief. Commissioner (Appeals) pointed out that at best it might not have taken into consideration few items which had become obsolete after this inventory was prepared and this by itself was not sufficient to condemn method followed by assessee. In this view of matter, accepted this claim of assessee also. Consequently, Commissioner (Appeals) deleted additions in all three years under appeal. 6. revenue feel aggrieved by these orders and has again come up in 6. revenue feel aggrieved by these orders and has again come up in appeal to Tribunal. 7. We have heard Shri D. A. Kamat, learned departmental representative, and Shri S. E. Dastur, learned counsel for assessee, and carefully considered their submissions. In our view decision of Commissioner (Appeals) is right and does not call for any interference at our hands. We are unable to agree with revenue that Commissioner (Appeals) had not examined case in light of directions given by Tribunal in earlier order dated 17-5-1978. Apart from making general submission, revenue was unable to pin-point in what respect or aspect Commissioner (Appeals) failed to follow directions given by Tribunal. On contrary, perusal of entire order of Commissioner (Appeals) from paragraph 2 to paragraph 2.6 would show that Commissioner (Appeals) had applied his mind to every aspect of case has been pointed out by Tribunal while remanding case for assessment year 1973-74. We have not burdened this order with submissions urged on behalf of assessee before Commissioner (Appeals) which are set out in great detail in sub- paragraphs 2.1 to 2.4 of Appellate order of Commissioner (Appeals). perusal of these four sub-paragraphs would establish that preparation of inventories of obsolete stocks, in these year, was not done in arbitrary and whimsical matter by assessee, but in fair and reasonable way having regard to development of technology, either on account of design change or for one or more reasons like quality, improvement, discontinuation of products n d models and cost reduction and like. In sub-paragraph 2.1 Commissioner (Appeals) has referred to two specific instances by way of illustration. They are cases of receiver strip used in compressors of value of Rs. 12,754 which totally became obsolete due to alternation of design. Similarly 740 items of perforated stocks of value of Rs. 11,322, which were used as component in filter element, were found to become obsolete due to alteration of filter element frame from wool to fiber glass wool and that consequently perforated screen used in wool frame became no longer usable and had to discarded. There is no material placed by revenue that these are incorrect. Commissioner (Appeals) has also referred to four broad classifications of obsolete stocks into castings, bar materials, blanks and finished parts, adopted by assessee while preparing these inventories of obsolete stocks in first two years and basis on which they were valued as obsolete stocks. Commissioner (Appeals) had also discussed reasons as to why assessee discarded this method of valuation of obsolete stocks in 1975-76 by taking total value of obsolete stocks as nil. Commissioner (Appeals) has also taken note of percentage of obsolete stocks written off in each of these years, of total cost inventory and cost of sales. department has been unable to point out anything wrong in this approach of assessee in arriving at value of obsolete stocks or suggest any other better or appropriate and scientific method of valuation of such obsolete stocks. It is not case of revenue that inventories of obsolete stocks prepared by assessee in these three years are neither correct nor represent true state of affairs, nor has department placed any material which would show that findings reached by Commissioner (Appeals) are not based on any material, but on mere surmises and conjectures. 8. We are also unable to accept contention of revenue that Commissioner (Appeals) has not applied his mind to last aspect stated by Tribunal in paragraph 26 of their order, namely, whether entire claim of loss was allowable in assessment year 1973-74 as it may pertain to stock which had become obsolete in earlier years. This argument of revenue overlooks fact that Commissioner (Appeals) had relied upon two decisions of Madras High Court in case of K. Mohammad Adam Sahib v. CIT [1965] 56 ITR 360 and in India Motor Parts & Accessories (P.) Ltd. v. CIT [1966] 60 ITR 531. Apart from these decisions, following decisions relied upon by learned counsel for assessee, Shri Dastur, also support assessee's case. 9. first decision is of Indo-Commercial Bank Ltd. v. CIT [1962] 44 ITR 2 2 (Mad.). In this case it was held that method assessee adopted for valuing his closing stock was 'method of accounting', within meaning of section 13 of Indian Income-tax Act, 1922, and that at any rate it was integral part of mercantile system of accounting. It was also held that, on facts, as change in basis of valuing securities at close of year was made by assessee bona fide and that basis was continued thereafter, was made by assessee bona fide and that basis was continued thereafter, requirements of section 13 were satisfied, that, assessee had option o f adopting well known system of valuing closing stock at market price and that assessee had regularly thereafter adopted that system. department was not, therefore, entitled to reject that system adopted by assessee. Their Lordships further held that change in method of valuation was detrimental to revenue was not relevant factor in deciding whether assessee had right to change basis of valuation, and that in deciding whether assessee had right to change in method of valuation of closing stock attracted proviso to section 13, it was not correct approach to see whether losses of previous years would also enter into claim made by assessee for accounting year. Their Lordships pointed out that actual loss sustained by sale of securities below cost price could not be disallowed on such ground, and that notional or anticipantory loss resulting from valuation of closing stock, which assessee was permitted to take into account in ascertaining his trading profits, stood on no different footing. According to their Lordships, it was concession given to assessee bases on well recognized usage of trade, and principle underlying that concession was in no way violated when assessee changed his method of valuation from cost to market value, if latter was less than cost price. Their Lordships pointed out that if revised basis of valuation was continued thereafter profits and loss thereafter would no correctly computed. Their Lordships of Madras High Court followed decision of Bombay High Court in Sarupchand v. CIT [1936] 4 ITR 420. This decision of Madras High Court completely answers contentions of revenue in present case. We may further point out that this decision of Madras High Court was followed by Kerals High Court in cases of Forest Industries Travancore Ltd. v. CIT [1945] 51 ITR 329 and also in CIT v. Carborandum Universal Ltd. [1984] 149 ITR 759 (Mad.). No materials has been placed before us by revenue to show that method of valuing obsolete stocks and writing them off in its accounts, followed by assessee in these three years, was not bona fide and that this method had not been followed by assessee in subsequent assessment years. We, therefore, respectfully follow decisions quoted above and hold that Commissioner (Appeals) was right inaccepting assessee's contentions and in deleting additions made by ITO on account of obsolete stocks written off by assessee in its books. Accordingly, we confirm orders of Commissioner (Appeals) in all three years and dismiss appeals. *** INSPECTING ASSISTANT COMMISSIONER v. CONSOLIDATED PNEUMATIC TOOL CO. (INDIA) LTD.