These cross-appeals are filed by assessee and by Revenue. assessment year involved is 1998-99. These appeals are directed against order dt. 8th April, 2002 passed by CIT(A)-XII and arises out of assessment completed under s. 143(3) of IT Act, 1961. As these appeals are pertaining to same assessee and issues are interconnected, these were heard together and, therefore, as matter of convenience, these are being disposed of by way of this consolidated order. We have heard parties and have also perused materials placed on record and applicable legal position. First we shall deal with appeal filed by Revenue, i.e., in ITA No. 3848/Mum/2002. Revenue has raised following grounds: "1. On facts and in circumstances of case, learned CIT(A) erred in allowing unrealized export profits of Rs. 19,05,800 contrary to Hon ble Supreme Court judgment in case of State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290: (1986) 158 ITR 102 (SC) holding that: (i) where Act applies, concept of real income should not be so read as to defeat provisions of Act. (ii) more improbability of recovery cannot be treated as evidence or fact income has not resulted or accrued to assessee. On facts and in circumstances of case, learned CIT(A) erred in allowing relief of Rs. 19,05,800 on account of unrealized export proceeds relying on Supreme Court judgment in Godhra Electricity Co. Ltd. vs. CIT (1997) 139 CTR (SC) 564: (1997) 225 ITR 746 (SC) ignoring that: (i) decision is not applicable since facts of case are not identical; (ii) assessee has once again claimed it as write off in asst. yr. 2001-02. On facts and in circumstances of case, learned CIT(A) erred (i) in reducing taxable profit instead of export turnover which results in excessive relief under s. 80HHC not envisaged as per provisions of that section. (ii) learned CIT(A) has further failed to appreciate that expenditure debited to P&L a/c for earning such income is also to be disallowed." All these grounds deal with common issue of computation of deduction under s. 80HHC, therefore, we shall deal with them together. Briefly stated, facts of case are that assessee is engaged in exporting processed and frozen sea foods. return of income was filed on 30th Oct., 1998 showing return income at nil . AO noted that assessee had claimed deduction under s. 80HHC at Rs. 1,69,47,425. It was also noted by AO that out of total export turnover of Rs. 20,36,33,460, sum of Rs. 5,71,02,628 (FOB) value was not received by assessee. auditors in their report pointed out this fact and also pointed out that application for extension of time was made by assessee to learned CIT(A) which was pending. AO treated same as domestic sales and reworked out deduction under s. 80HHC of Act at Rs. 1,12,64,253. Aggrieved by this decision, assessee preferred appeal before learned CIT(A). In appellate proceedings, it was contended that there were minor discrepancies in bank documents presented by bankers to buyers for acceptance and in meantime consignments reached port of destination. Therefore, assessee renegotiated payment terms with buyers who took delivery of consignments accordingly. assessee had made requests with learned CIT for extension of time and also filed application with RBI for extension of same which remained pending till passing of appellate order. In meantime, assessee filed suit for recovery of sums with Provincial Court in China. However, ultimately, assessee could not recover sums so due, therefore, assessee wrote off same as bad debts in asst. yr. 2001-02. learned CIT(A) held that sale proceeds were not realized by assessee and extension application was pending before RBI, therefore, AO was fully justified in reducing claim of assessee under s. 80HHC. During course of appellate proceedings, assessee filed two alternative pleadings; one was that sum of Rs. 6,73,51,645 (being CIF value) could not be assessed as income of assessee for asst. yr. 1998-99 as same did not represent real income. Secondly, said sum should be allowed as business/trading loss of asst. yr. 1998-99. learned CIT(A), admitted two alternative grounds of assessee after obtaining report of AO. learned CIT(A) after considering submissions of assessee, rejected claim of business loss/trading loss on ground that export was made in year under consideration but loss was incurred in year when assessee choose to treat same as loss in it s own books of account after efforts for realization failed. learned CIT(A), however, accepted plea of assessee regarding real income with regard to unrealised amount of export proceeds. Accordingly, learned CIT(A) worked out profit embedded in unrealised export in proportion of ratio of unrealised exports and computed same at Rs. 56,83,172 and held that real profits were to be reduced to Rs. 1,12,64,253 as against Rs. 1,69,47,377. learned CIT(A) worked out deduction under s. 80HHC at Rs. 74,86,883 and held that as result of same taxable income would reduced to Rs. 37,77,370. Thus, assessee got relied of Rs. 19,05,800. Revenue is in appeal against this relief and assessee is in appeal against restricting claim of deduction under s. 80HHC as well as against non-exclusion of sum of Rs. 5,71,02,628 (FOB value) from total turnover of assessee. assessee is also aggrieved by deduction of only Rs. 56,83,172 instead of Rs. 6,73,51,645 which represented trading loss of assessee and said sum was allowable as business/trading loss under s. 28(i) of Act. learned Departmental Representative contended that claim of assessee was rightly rejected by AO with regard to such export profits as extension of time was pending and not approved by concerned competent authorities. learned Departmental Representative further referred to decision of Hon ble apex Court in case of IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513: (2004) 266 ITR 521 (SC) to contend that even though s. 80HHC was incentive provision but wordings of section were clear, therefore, benefits which were not available under section, could not be given by ignoring or misinterpreting words of that section. He further contended that assessee claimed unrealized sale proceeds as bad debts in asst. yr. 2001-02 which was allowed by Department, therefore, there was n o case for any grievance on part of assessee. learned Departmental Representative further contended that learned CIT(A) invented new formula of working out profit on unrealised profits which was not introduced in provisions and, therefore, same was liable to be quashed. It was also pointed out that assessee in original grounds did not raise these grounds which were taken as additional during course of appellate proceedings as alternate ground. It was also contended that assessee was following mercantile system of accounting based upon accrual concept and profits accrued immediately after transaction of sales was completed, therefore, there was no substance in arguments. learned Departmental Representative further relied on grounds of appeal. learned counsel appearing on behalf of assessee, on other hand, narrated factual matrix of case and through example submitted that real loss was Rs. 6,73,51,645 and not Rs. 56,83,172 as worked out by learned CIT(A). learned counsel further relied on following decisions in support of real income theory: Godhra Electricity Co. Ltd. vs. CIT (1997) 139 CTR (SC) 564: (1997) 225 ITR 746 (SC); CIT vs. Bokaro Steel Ltd. (1999) 151 CTR (SC) 276: (1999) 236 ITR 315 (SC); CIT vs. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC); CIT vs. India Discount Co. Ltd. (1970) 75 ITR 191 (SC); H.M. Kashiparekh & Co. Ltd. vs. CIT (1960) 39 ITR 706 (Bom); CIT vs. Western India Engineering Co. (1971) 81 ITR 712 (Guj); CIT vs. Kerala State Drugs & Pharmaceuticals Ltd. (1991) 192 ITR 1 (Ker); G.V. Narasa Reddy vs. ITO (2002) 125 TAXMAN 30 (Hyd)(Mag); CIT vs. Pioneer Engg. Syndicate [1998] Tax L.R. 431 (Mad); Poysha Oxygen (P) Ltd. vs. Dy. CIT (2005) 92 TTJ (Del) 315: (2004) 91 ITD 616 (Del). He further contended that when no income resulted in fact, then, even presentation of same in books of account as income was not material. learned counsel also contended that in ground No. 3, Revenue has objected action of CIT(A) in reducing taxable profit instead of export turnover which resulted into excessive relief under s. 80HHC was not correct for reason that deduction under s. 80HHC was based upon profits and t h e profits in particular transaction were net result of income (minus) expenditure, therefore, to that extent order of learned CIT(A) was correct. It was also contended that benefit granted CIT(A) could not be withdrawn merely because assessee had written off unrealised sales proceeds as bad debts in subsequent year and decision of Hon ble Supreme Court in case of State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290: (1986) 158 ITR 102 (SC) relied on by Revenue was not applicable to case of assessee for reason that assessee in that case had not taken any legal action for recovery of amounts due in first place and also said decision was held to be per incuriam one and not followed in subsequent decision of Hon ble Supreme Court in case of UCO Bank vs. CIT (1999) 154 CTR (SC) 88. We have considered rival submissions, material on record and orders of authorities below. With regard to ground No. 1 of Revenue s appeal, we consider it appropriate to reproduce accounting policies followed by assessee with regard to recognition of income and provisions for bad debts which are same both in year 1998-99 and 2001-02 in respect of all transactions undertaken by assessee: (iii) Income (a) Sale of goods is recognized on dispatch to customers (b) Premium on sale of licences is recognized on transfer of licences. (3) No provision is made in accounts in respect of sundry debtors which are unsecured and outstanding for period exceeding six months as balance sheet date and are overdue in relation to terms of payment. From perusal of above, it is clear that assessee is following mercantile system of accounting and recognizing income in respect of export sales at time of dispatch of goods. It is also pertinent to note that goods were exported against confirmed order and letter of credit. It is also undisputed fact that terms of payment have been changed as per mutual agreement. It is also undisputed fact that delivery of goods exported by assessee has been taken by concerned buyer. In this factual background, we can safely conclude that ownership of goods exported passed to buyers, which is one of core factor to determine true nature of transaction. It is only case where buyers have taken benefit, whether ethical or unethical/legal or illegal by not making payment of goods purchased by them. It is case of mere non-realisation of sale proceeds. If contentions of assessee are accepted, then it would necessarily result into cash system of accounting for transactions where sale proceeds not realized and in case of sale proceeds realized, same would stand on mercantile system of accounting. This accounting system is neither commercially acceptable nor legally permissible in view of provisions of s. 145 of Act which requires assessee either to follow accrual system of accounting or cash system of accounting. Further, concept of real income is exception to general concept of recognition of revenue based upon principle of accrual and it cannot be applied merely for non-realisation of sale proceeds. legislature has provided for relief in such cases under provisions of s. 36(1)(vii) r/w s. 36(2) of Act. In fact, assessee has claimed relief under these sections subsequently. Thus, concept of real income is not applicable to impugned transaction. assessee has relied on various judicial decisions in this regard, however, we are of considered view that they deal with different factual matters and lay down general propositions but accrual of income is mixed question of law and fact that depends upon peculiar facts of each case, hence aforesaid decisions do not help cause of assessee. We are further of opinion that income accrues when same is earned in law and it cannot be so by unilateral act of one party therefore, learned CIT(A) erred in accepting contention of assessee based upon decision of Godhra Electricity Co. Ltd. s case (supra) wherein real income theory was accepted as other party to transaction had not consented to pay enhanced charges at relevant point of time. In this view of matter, we are of considered opinion that income accrued to assessee for year under consideration and, therefore, this ground of Revenue stands accepted. For same reasons, ground No. 2 of Revenue is also accepted. In ground No. 3, learned CIT(A) after accepting contention of assessee regarding real profits has merely excluded amount of profit embedded in transactions of unutilised sale proceeds and other figures pertaining to export turnover, total turnover and 90 per cent of incentives have remained unchanged. In view of our decision with respect to ground Nos. 1 and 2, where we have upheld action of AO, this ground becomes academic, hence same is dismissed. In result, appeal of Revenue stands partly allowed. Now we shall take up assessee s appeal in ITA No. 3834/Mum/2002. In ground No. 1, assessee is aggrieved by partial relief given by learned CIT(A). While dealing with Revenue s appeal, we have already discussed factual matrix of case and have held that in impugned transaction profit accrued to assessee. Since export proceeds were not realized in convertible foreign exchange, therefore, same cannot be part of export turnover. In this view of matter, we are of considered opinion that order of learned CIT(A) is not in accordance with law and accordingly, reverse same and restore order of AO in this regard. Thus, this ground No. 1.1 is dismissed. In ground No. 1.2, assessee is aggrieved by decision of learned CIT(A) in including Rs. 5,71,02,628 (FOB value) to total turnover of assessee while computing deduction under s. 80HHC of Act. learned counsel appearing on behalf of assessee has mainly contended that said sum was not realized, hence same should not form part of total turnover and placed reliance on following judicial decisions: ITO vs. M.V. Mathew (1993) 47 TTJ (Coch) 195; ITO vs. Gokaldas Pragji (1987) 29 TTJ (Ahd) 368: (1988) 24 ITD 25 (Ahd); Dy. CIT vs. Associated Alcohols & Breweries Ltd. (2003) 80 TTJ (Kol)(TM) 837: (2005) 274 ITR 103 (Kol)(TM)(Mag); Asian Techs Ltd. vs. Dy. CIT (1999) 65 TTJ (Coch) 148; Laxmi Ginning & Oil Mills vs. CIT (1971) 82 ITR 958 (P&H); Kerala State Drugs & Pharmaceuticals Ltd. s case (supra). (i) CIT vs. Sudarshan Chemicals Industries Ltd. (2000) 163 CTR (Bom) 596: (2000) 245 ITR 769 (Bom). Wherein it was held that "Therefore, turnover should be restricted to such receipts which have element of profit in it." (ii) CIT vs. Sundaram Fasteners Ltd. (2005) 194 CTR (Mad) 339: (2005) 272 ITR 652 (Mad) wherein it was held that "..............only that part of receipt for sale consideration is to be taken as part of total turnover which has element of profit therein.............," (iii) CIT vs. Chloride India Ltd. (2002) 178 CTR (Cal) 432: (2002) 256 ITR 625 (Cal); (iv) CIT vs. Bharat Earth Movers Ltd. (2004) 188 CTR (Kar) 488: (2004) 268 ITR 232 (Kar); (v) Jt. CIT vs. Kiran Processors (2005) 94 TTJ (Chennai) 511. learned Departmental Representative, on other hand, contended t h t said amount represented sale value of transaction which included profits, therefore, merely on basis of non-realisation of sale proceeds, it could not be said that there was no profit embedded therein. It was also contended that case laws relied on by assessee were factually different, hence not applicable to case on hand. We have considered rival submissions; material on record and orders o f authorities below. assessee s main contention is based upon non- realisation of any income to assessee in impugned transaction, therefore, same should not be included in total turnover of assessee. In view of our decision in this regard in Revenue s appeal that profits accrued to assessee in said transaction, same is liable to be included to total turnover of assessee and profits of same would form part of profits of business. case laws relied on by assessee are distinguishable and, therefore, do not help to cause of assessee. We also find force in contention of Revenue that profit element is not dependent on realization or non-realisation of credit sales because sales whether on cash or credit include profit therein. In this view of matter, we are of considered view that order of learned CIT(A) is in accordance with law, accordingly, we approve same. Thus, this ground of assessee is also rejected. Ground No. 1.3 deals with opportunity to be given to assessee to obtain permission of competent authority for realization of sale proceeds in convertible foreign exchange. provisions of s. 80HHC are very clear that assessee may get deduction under s. 80HHC if time specified in Act for realization of profits in convertible foreign exchange is extended by Competent Authority. Such approval was not produced before Revenue authorities at any stage. Revenue authorities are not obliged to give assessee opportunity to obtain same and then decide issue. Competent Authority s approval is responsibility of assessee which he should have obtained in normal course, so that he can claim deduction under s. 80HHC. In any case assessee can always claim deduction under s. 80HHC if he fulfils necessary conditions under provisions of s. 155(13) of Act. Moreover, in present case, assessee has not realized 155(13) of Act. Moreover, in present case, assessee has not realized sum ultimately, therefore, assessee is not at all entitled to claim deduction under s. 80HHC in respect of this impugned claim. In this view of matter, we find no merits in contention of assessee and accordingly, reject same. Thus, this ground of assessee is also rejected. In ground No. 2.1, assessee is aggrieved by decision of learned CIT(A) in reducing profit of assessee only by Rs. 56,83,172 instead of reducing same by Rs. 6,73,51,645 though learned CIT(A) accepted concept of real income. While deciding Revenue s appeal, we have already reversed decision of learned CIT(A) in this regard and held that profit accrued to assessee in impugned transactions though same is not eligible under s. 80HHC of Act for non-fulfilling conditions made therein, consequently this ground is liable to be dismissed. We order accordingly. Thus, this ground of assessee is rejected. In ground No. 2.2 assessee has made alternative claim of allowing deduction of Rs. 6,73,51,645 as trading loss. learned counsel on behalf of assessee contended that writing off amount in relevant assessment year was necessary when claim was made for bad debts and not when claim was made for trading loss and placed reliance on following decision in this regard. ITO vs. M.V. Mathew (supra); ITO vs. Gokaldas Pragji (supra); Dy. CIT vs. Associated Alcohols & Breweries Ltd. (supra); Asia Technology Ltd. vs. Dy. CIT (supra). learned counsel further contended that efforts for realization by way of suit for recovery or otherwise were not adverse factor for allowing claim of trading loss in year of transaction itself and placed reliance on following decisions in this regard: Laxmi Ginning & Oils Mills vs. CIT (supra); CIT vs. Kerala State Drugs & Pharmaceuticals Ltd. (supra). assessee has also contended that as loss has arisen due to non- recoupment of cost incurred by assessee in asst. yr. 1998-99, losses should be allowed in that very year irrespective of fact that same has been claimed as bad debts in subsequent year and it that be situation, subsequent claim of bad debts may be withdrawn. learned Departmental Representative has contended that assessee cannot approbate and reprobate on same issue. learned Departmental Representative also contended that once claim has been made as bad debts by fulfilling conditions of law and same has been allowed by Revenue authorities as well, same cannot be considered again. We have considered rival submissions, material on record and orders o f authorities below. Admittedly, in impugned year when assessee has incurred expenditure, same has been debited in P&L a/c. expenditure so debited has been considered while arriving at profits earned by assessee in impugned year. Non-recoupment of expenditure and non- realisation of sundry debts are two different issues. law relating to non- realisation of debt is covered under provisions of s. 36(1)(vii) r/w s. 36(2) of Act while trading loss is considered as per provision of s. 28(1) r/w s. 29 of Act. However, we find no necessity to deliberate on this issue in detail because while deciding Revenue s appeal and other grounds of assessee s appeal, we have already held that impugned transactions were valid transactions of export sales, therefore, question of allowing same as trading loss is not tenable. assessee has rightly claimed same as bad debts in subsequent year which has been allowed by Department as well. In this view of matter, we do not find any merit in this ground, accordingly reject same. In result, appeal filed by assessee is dismissed. To sum up, assessee s appeal is dismissed and Revenue s appeal is partly allowed. *** NAIK MARINE EXPORTS v. INCOME TAX OFFICER