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“mercantile system of accounting”

ICDS & AccountingSection 145Section 1451,487 judgments

The decision most relied on for mercantile system of accounting is CIT v. Woodward Governor India Pvt. Ltd. (312 ITR 254), cited in 968 judgments on BharatTax.

Leading authorities on mercantile system of accounting

CIT v. Woodward Governor India Pvt. Ltd.
312 ITR 254 · 2009 · Supreme Court
968
citing judgments

Foreign exchange fluctuations, whether gains or losses, are inextricably linked to the underlying business transaction and must be accounted for under the mercantile system. The Supreme Court also affirmed the standard accounting principle of valuing stock at cost or net realisable value, whichever is lower.

CIT v. Excel Industries Ltd.
358 ITR 295 · 2013 · Supreme Court
935
citing judgments

When an income or expenditure is revenue neutral across different assessment years, where any benefit derived is offset by a corresponding liability or reversal, no additional tax liability arises, particularly concerning income recognition under the mercantile system of accounting.

Rotork Controls India Pvt. Ltd. v. CIT
314 ITR 62 · 2009 · Supreme Court
739
citing judgments

A provision for expenses, such as warranty, is a deductible liability for income tax purposes if it constitutes a present obligation arising from past events, and a reliable estimate of the amount of obligation is possible.

Kedarnath Jute Mfg. Co. Ltd. v. CIT
82 ITR 363 · 1971 · Supreme Court
654
citing judgments

Tax liability for an item of income or expenditure is determined solely by the provisions of the Income-tax Act. Entries in an assessee's books of account are not conclusive and do not govern the taxability or deductibility of an item, as the legal rights and obligations under the Act prevail.

Lalchand Bhagat Ambica Ram v. CIT
37 ITR 288 · 1959 · Supreme Court
570
citing judgments

Where an assessee maintains regular books of account, and these books are not rejected or found defective by the Assessing Officer, any cash deposits or available cash shown in the cash book, if sufficient to cover the transaction, cannot be treated as unexplained income or an addition under sections 68 or 69A.

Calcutta Co. Ltd. v. CIT
37 ITR 1 · 1959 · Supreme Court
341
citing judgments

When following the mercantile system of accounting, provisions for liabilities made on a scientific and rational basis are allowable as deductions, even if their actual quantification and discharge are deferred to a future date.

United Commercial Bank v. CIT
240 ITR 355 · 1999 · Supreme Court
314
citing judgments

Liabilities accrued on a notional basis are allowable as deductions under the mercantile system of accounting even if their exact quantification or discharge is deferred to a future date or if the demand itself is disputed.

M.M.Aqua Technologies Limited v. CIT
436 ITR 582 · 2021 · Supreme Court
308
citing judgments

Amendments to tax law that impose new obligations or change existing legal positions apply prospectively, even if stated to be "for the removal of doubts." The judgment also clarifies that deductions under Section 43B are allowed only on actual payment, overriding the mercantile system of accounting.

Judgments citing mercantile system of accounting

The Bombay Dyeing and Manufacturing Company Limited, Mumbai vs. Income Tax Central Circle 2(1)(1), Mumbai

In the result, the appeal filed by the assessee is hereby allowed for statistical

ITA 5274/MUM/2025[2018-19]Status: DisposedITAT Mumbai18 Mar 2026AY 2018-19

Bench: Shri Om Prakash Kant, Jm & Ms. Kavitha Rajagopal, Am

For Appellant: Shri Yogesh Thar, A.RFor Respondent: Shri Leyaqat Ali Aafaqui, Sr. AR
Section 115JSection 143(2)Section 143(3)Section 14ASection 234BSection 250Section 43C

accounting standards “AS” or “IND-AS”. The Ld. A.R. argued that since the ICDS provisions are applicable to all companies which are following mercantile system of accounting the income tax provisions are also equally applicable to these companies unless otherwise specified in the Act. The Ld. A.R. reiterated that

Auto Nirvahakara Credit Operative Society Limited, Udupi vs. Income Tax Officer, Ward-3, Udupi

In the result, the appeal of assessee is partly allowed for statistical purposes

ITA 2214/BANG/2025[2017-18]Status: DisposedITAT Bangalore17 Mar 2026AY 2017-18

Bench: Shri Waseem Ahmed & Shri Keshav Dubeyassessment Year: 2017-18

For Appellant: Shri Prasanna Shenoy, CAFor Respondent: Shri Ganesh R Ghale, Advocate – Standing
Section 250Section 28Section 80P(2)(a)

perusal of the audit report of assessee, the AO observed that the assessee is following mercantile system of accounting. However, in the profit and loss account, the assessee is following hybrid system of accounting which is not permissible as per the Income Tax Act, 1961. Consequently, AO disallowed the provision

Welkin Developers, Mumbai vs. Asstt. Comm of Income Tax, CC 4(3), Mumbai

In the result, the appeal of the assessee bearing ITA No

ITA 5070/MUM/2025[2019-20]Status: DisposedITAT Mumbai16 Mar 2026AY 2019-20

Bench: Shri Anikesh Banerjee & Shri Jagadish

For Respondent: Shri Rajesh Upadhyay
Section 139(1)Section 143(3)Section 145ASection 250

Profit disclosed in P&L A/c so far 20697854/- 7 Balance Profit to be shown in A.Y. 2018-19 4114625/- The assessee follows mercantile system of accounting. Without prejudice to anything else, the contention of the assessee that the income shall be offered in the year of realization of sale

Welkin Deveopers, Mumbai vs. Asstt.Comm. of Income Tax, CC 4(3), Mumbai

In the result, the appeal of the assessee bearing ITA No

ITA 5069/MUM/2025[2018-19]Status: DisposedITAT Mumbai16 Mar 2026AY 2018-19

Bench: Shri Anikesh Banerjee & Shri Jagadish

For Appellant: Shri Rajesh UpadhyayFor Respondent: Shri S. Anbuselvan (Sr. AR)
Section 139(1)Section 143(3)Section 145ASection 250

Profit disclosed in P&L A/c so far 20697854/- 7 Balance Profit to be shown in A.Y. 2018-19 4114625/- The assessee follows mercantile system of accounting. Without prejudice to anything else, the contention of the assessee that the income shall be offered in the year of realization of sale

DCIT, Delhi vs. Noida Toll Bridge Company Limited, Delhi

In the result, all the 03 appeals filed by the Revenue stand dismissed

ITA 6177/DEL/2025[2018-19]Status: DisposedITAT Delhi13 Mar 2026AY 2018-19

Bench: Shri Mahavir Singh & Shri S. Rifaur Rahman

For Appellant: Sh. Mahesh Kumar, CIT(DR)For Respondent: None
Section 115JSection 139(1)

designated return of 20% per annum on the total project cost, which constitutes accrued income and the same is taxable under the mercantile system of accounting followed by the assessee? 2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the additions

DCIT, Delhi vs. Noida Toll Bridge Company Limited, Delhi

In the result, all the 03 appeals filed by the Revenue stand dismissed

ITA 6176/DEL/2025[2017-18]Status: DisposedITAT Delhi13 Mar 2026AY 2017-18

Bench: Shri Mahavir Singh & Shri S. Rifaur Rahman

For Appellant: Sh. Mahesh Kumar, CIT(DR)For Respondent: None
Section 115JSection 139(1)

designated return of 20% per annum on the total project cost, which constitutes accrued income and the same is taxable under the mercantile system of accounting followed by the assessee? 2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the additions

DCIT, Delhi vs. Noida Toll Bridge Company Limited, Delhi

In the result, all the 03 appeals filed by the Revenue stand dismissed

ITA 6175/DEL/2025[2016]Status: DisposedITAT Delhi13 Mar 2026

Bench: Shri Mahavir Singh & Shri S. Rifaur Rahman

For Appellant: Sh. Mahesh Kumar, CIT(DR)For Respondent: None
Section 115JSection 139(1)

designated return of 20% per annum on the total project cost, which constitutes accrued income and the same is taxable under the mercantile system of accounting followed by the assessee? 2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the additions

DCIT, Circle-3(4), Mumbai vs. Glenmark Pharmaceuticals Limited, Mumbai

In the result, appeal of the Revenue for Assessment Year 2016-17

ITA 3991/MUM/2025[2016-17]Status: DisposedITAT Mumbai12 Mar 2026AY 2016-17

Bench: Shri Pawan Singh & Shri Girish Agrawal

For Appellant: Shri Vijay Mehta, CAFor Respondent: Ms. Neena Jeph, CIT DR
Section 143(3)Section 35Section 41(1)Section 801C

assessee that this was just a notional entry as explained vide letter dt. 14.12.2018 (PB 25-29) is not relevant. Assessee is following mercantile system of accounting and income is to be taxed on accrual basis. Assessee has passed the entry in books of accounts and is thus liable

DCIT, Circle-3(4), Mumbai vs. Glenmark Pharmaceuticals Limited, Mumbai

In the result, appeal of the Revenue for Assessment Year 2016-17

ITA 3971/MUM/2025[2015-16]Status: DisposedITAT Mumbai12 Mar 2026AY 2015-16

Bench: Shri Pawan Singh & Shri Girish Agrawal

For Appellant: Shri Vijay Mehta, CAFor Respondent: Ms. Neena Jeph, CIT DR
Section 143(3)Section 35Section 41(1)Section 801C

assessee that this was just a notional entry as explained vide letter dt. 14.12.2018 (PB 25-29) is not relevant. Assessee is following mercantile system of accounting and income is to be taxed on accrual basis. Assessee has passed the entry in books of accounts and is thus liable

ACIT, Circle- 19(1), Delhi vs. Pnc Rajasthan Highways Pvt. Ltd., New Delhi

In the result, relevant grounds of the Revenue are dismissed

ITA 3248/DEL/2025[2020-21]Status: DisposedITAT Delhi11 Mar 2026AY 2020-21

Bench: SHRI SATBEER SINGH GODARA (Judicial Member), SHRI S. RIFAUR RAHMAN (Accountant Member)

For Appellant: Shri Deependra Mohan,CAFor Respondent: Ms. Amish S. Gupt, CIT(DR)
Section 143(3)Section 46ASection 56

would like to bring the following facts to your honours kind consideration: -the assessee being an SPV follows Mercantile system of accounting and follows IND-AS accounting standards while drafting its financial statements, which is mandatory required to be followed. During the year under consideration, the Ld. AO made

Income Tax Officer-4(1), Raipur, Central Revenue Building vs. Mohammad Ibrahim, Prop Janta Sanitation

In the result, this appeal of Revenue is allowed for statistical purposes

ITA 698/RPR/2025[2022-23]Status: DisposedITAT Raipur05 Mar 2026AY 2022-23

Bench: Shri Partha Sarathi Chaudhury, Jm & Shri Avdhesh Kumar Mishra, Am आयकर अपील सं. / Ita No: 698/Rpr/2025 (िनधा"रण वष" Assessment Year: 2022-23) Income Tax Officer, Ward - 4(1), Vs Mohammand Ibrahim, Aayakar Bhawan, Civil Lines, Ring Road No. 1, Pachpedinaka Raipur- 492001, C.G. Raipur- 492001, C.G. Pan: Aigpm6755J (अपीलाथ"/Appellant) : (""थ" / Respondent) िनधा"रती की ओर से / Assessee By : None राज" की ओर से / Revenue By : Dr. Priyanka Patel, Sr. Dr सुनवाई की तारीख / Date Of Hearing : 06/01/2026 घोषणा की तारीख / Date Of : 05/03/2026 Pronouncement आदेश / O R D E R Per Avdhesh Kumar Mishra, Am: The Appeal For Assessment Year (‘Ay’) 2022-23 Filed By The Revenue Is Directed Against The Order Dated 08.09.2025 Of The Commissioner Of Income Tax (Appeals) [Cit(A)], National Faceless Appeal Centre (“Nfac”), Delhi.

For Appellant: NoneFor Respondent: Dr. Priyanka Patel, Sr. DR
Section 132Section 132(4)Section 148Section 69C

while making it mandatory to compute the income under head 'business & profession' or 'Income from other sources' based on cash or mercantile system of accounting being regularly followed by the assessee, the word 'shall' have been specifically used to make it mandatory leaving no discretion to use any another method

Cisco Commerce India Private Limited, Bangalore vs. Principal Commissioner of Income Tax, PCIT, Bengaluru-2, Bangalore

In the result, the appeal by the assessee is dismissed

ITA 1235/BANG/2025[2021-22]Status: DisposedITAT Bangalore05 Mar 2026AY 2021-22

Bench: Shri Prashant Maharishi & Shri Soundararajan K.Assessment Year: 2021-22

For Appellant: Shri Nageshwar Rao, AdvocateFor Respondent: Smt. N. Hemalatha, CIT(DR)(ITAT), Bengaluru
Section 143(3)Section 154Section 194JSection 263Section 40

assessee:- Page 6 of 24 9. The assessee submitted a letter dated 13 March 2025 to the learned PCIT, explaining adherence to the mercantile system of accounting. According to the matching principle, expenses should be recognized and reported in the same period as the corresponding income is earned. Consequently ... related accounting practices. Notably, note No. 16 indicates refund liabilities of ₹105.60 crores for incentives payable during FY 2020–21, consistent with the mercantile system of accounting and matching principle. The assessee argued that these provisions were appropriately recognized in FY 2020–21. Supporting documentation, such as invoices (page

ACIT CC 4 3, Mumbai vs. Maersk Line India Private Limited, Mumbai

ITA 6166/MUM/2025[2020-21]Status: DisposedITAT Mumbai05 Mar 2026AY 2020-21

Bench: Shri Vikram Singh Yadav & Shri Sandeep Singh Karhail

For Appellant: Shri Manish Kant, CAFor Respondent: Shri Virabhadra Mahajan, (Sr. DR)
Section 135Section 143(2)Section 206ASection 250Section 40Section 80G

quantum of the amount or the names of the payees. Further, such provision amount was created on a best estimate basis following the mercantile system of accounting. It is the plea of the assessee that the policy of making/creating provisions for expenses is consistently followed by the assessee

Menakuru Sukumar Reddy, Hyderabad vs. DCIT(A), Chennai

ITA 993/CHNY/2025[2017-18]Status: DisposedITAT Chennai02 Mar 2026AY 2017-18
Section 143(3)Section 147Section 148Section 251(2)Section 69A

held that: There can be no dispute with the submission advanced by Mr. Pinto that accrual of income in case of mercantile system of accounting would warrant the same being brought to tax. However, the dispute between the parties is when did the income arise/accrue? The contesting alternatives

Menakuru Sukumar Reddy, Hyderabad vs. DCIT(A), Chennai

In the result the appeal of the revenue is dismissed

ITA 992/CHNY/2025[2016-17]Status: DisposedITAT Chennai02 Mar 2026AY 2016-17

Bench: Shri S.S. Viswanethra Ravi & Shri S. R. Raghunatha

For Appellant: Shri. P. Murali Mohana Rao, CAFor Respondent: Ms. E. Pavuna Sundari, CIT
Section 143(3)Section 147Section 148Section 251(2)Section 69A

held that: There can be no dispute with the submission advanced by Mr. Pinto that accrual of income in case of mercantile system of accounting would warrant the same being brought to tax. However, the dispute between the parties is when did the income arise/accrue? The contesting alternatives

Menakuru Sukumar Reddy, Hyderabad vs. DCIT(A), Chennai

In the result the appeal of the revenue is dismissed

ITA 991/CHNY/2025[2015-16]Status: DisposedITAT Chennai02 Mar 2026AY 2015-16

Bench: Shri S.S. Viswanethra Ravi & Shri S. R. Raghunatha

For Appellant: Shri. P. Murali Mohana Rao, CAFor Respondent: Ms. E. Pavuna Sundari, CIT
Section 143(3)Section 147Section 148Section 251(2)Section 69A

held that: There can be no dispute with the submission advanced by Mr. Pinto that accrual of income in case of mercantile system of accounting would warrant the same being brought to tax. However, the dispute between the parties is when did the income arise/accrue? The contesting alternatives

ACIT, Chennai vs. Menakuru Sukumar Reddy, Chennai

ITA 1644/CHNY/2025[2017-18]Status: DisposedITAT Chennai02 Mar 2026AY 2017-18

Bench: Shri S.S. Viswanethra Ravi & Shri S. R. Raghunathaआयकर अपील सं./Ita Nos.: 991, 992 & 993/Chny/2025 निर्धारण वर्ष / Assessment Years: 2015-16, 2016-17 & 2017-18 Menakuru Sukumar Reddy, 8-2-696-697, Road No.2, Banjara Hills, Hyderabad - 500 034. [Pan: Aabhm-8414-M] (अपीलार्थी/Appellant) Dcit, Vs. Central Circle -3(4), Chennai. (प्रत्यर्थी/Respondent) आयकर अपील सं./Ita Nos.: 1639 & 1644/Chny/2025 निर्धारण वर्ष / Assessment Years: 2015-16 & 2017-18 Acit, Central Circle -3(4), Chennai. (अपीलार्थी/Appellant) Menakuru Sukumar Reddy, Vs. 8-2-696-697, Road No.2, Banjara Hills, Hyderabad - 500 034. [Pan: Aabhm-8414-M] (प्रत्यर्थी/Respondent) Assessee By : Shri. P. Murali Mohana Rao, Ca Department By : Ms. E. Pavuna Sundari, Cit सुनवाई की तारीख/Date Of Hearing : 04.12.2025 घोषणा की तारीख/Date Of Pronouncement : 02.03.2026 आदेश /Order Per S. R. Raghunatha, Am : :-2-:

For Appellant: Shri. P. Murali Mohana Rao, CAFor Respondent: Ms. E. Pavuna Sundari, CIT
Section 143Section 143(3)Section 147Section 148Section 251(2)Section 69A

held that: There can be no dispute with the submission advanced by Mr. Pinto that accrual of income in case of mercantile system of accounting would warrant the same being brought to tax. However, the dispute between the parties is when did the income arise/accrue? The contesting alternatives

ACIT, Chennai vs. Menakuru Sukumar Reddy, Chennai

ITA 1639/CHNY/2025[2015-16]Status: DisposedITAT Chennai02 Mar 2026AY 2015-16

Bench: Shri S.S. Viswanethra Ravi & Shri S. R. Raghunathaआयकर अपील सं./Ita Nos.: 991, 992 & 993/Chny/2025 निर्धारण वर्ष / Assessment Years: 2015-16, 2016-17 & 2017-18 Menakuru Sukumar Reddy, 8-2-696-697, Road No.2, Banjara Hills, Hyderabad - 500 034. [Pan: Aabhm-8414-M] (अपीलार्थी/Appellant) Dcit, Vs. Central Circle -3(4), Chennai. (प्रत्यर्थी/Respondent) आयकर अपील सं./Ita Nos.: 1639 & 1644/Chny/2025 निर्धारण वर्ष / Assessment Years: 2015-16 & 2017-18 Acit, Central Circle -3(4), Chennai. (अपीलार्थी/Appellant) Menakuru Sukumar Reddy, Vs. 8-2-696-697, Road No.2, Banjara Hills, Hyderabad - 500 034. [Pan: Aabhm-8414-M] (प्रत्यर्थी/Respondent) Assessee By : Shri. P. Murali Mohana Rao, Ca Department By : Ms. E. Pavuna Sundari, Cit सुनवाई की तारीख/Date Of Hearing : 04.12.2025 घोषणा की तारीख/Date Of Pronouncement : 02.03.2026 आदेश /Order Per S. R. Raghunatha, Am : :-2-:

For Appellant: Shri. P. Murali Mohana Rao, CAFor Respondent: Ms. E. Pavuna Sundari, CIT
Section 143(3)Section 147Section 148Section 251(2)Section 69A

held that: There can be no dispute with the submission advanced by Mr. Pinto that accrual of income in case of mercantile system of accounting would warrant the same being brought to tax. However, the dispute between the parties is when did the income arise/accrue? The contesting alternatives

Balaji Marbles and Tiles Pvt Limited, Katni vs. DCIT Central Circle 1, Udaipur

In the result, the appeal of the assessee is allowed

ITA 304/JODH/2024[2017-2018]Status: DisposedITAT Jodhpur26 Feb 2026AY 2017-2018

Bench: Dr. Mitha Lal Meena, Hon’Ble & Sudhir Pareek, Hon’Blebalaji Marbles & Tiles Pvt. Ltd. Dcit, Central Circle -1, 12 Dunne Market, Bargawan, Udaipur. Jabalpur Road, Madhya Pradesh – 483501. Pan No. Aaccb 4886 C Assessee By Shri Rahul Bardia, Ca (Virtual) Revenue By Shri P.R. Mirdha, Addl. Cit (Virtual) Date Of Hearing 18.02.2026. Date Of Pronouncement 26.02.2026. Order Dr. Mitha Lal Meena, A.M.: This Appeal Filed By The Assessee Is Directed Against The Order Of The Commissioner Of Income Tax (Appeals), Udaipur–2 [Cit(A)], Dated 28.02.2024 For The Assessment Year 2017–18. 2. The Assessee Has Taken Following Grounds Of Appeal: 1. The Ld Cit Erred In Law & Facts Of The Case In Rejecting The Books Of Account During Appellate Proceedings. 2. The Ld Cit Appeals Erred In Law & Facts Of The Case In Enhancing The Addition On Account Of Gp Addition Of Rs 94,24,706/-. 3. The Ld Cit Appeals Erred In Law & Facts Of The Case In Comparing The Gp Ratio Of Assessee As 2.07% Whereas The Assessee Explained

Section 143(3)Section 145Section 145(3)Section 69A

profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) 5 (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts

Sh. Randhir Singh, Sirsa vs. PCIT Rohtak, Rohtak

In the result, all the above appeals filed by the respective assessee’s are dismissed

ITA 494/CHANDI/2024[2013-14]Status: DisposedITAT Chandigarh24 Feb 2026AY 2013-14

Bench: SHRI. LALIET KUMAR (Judicial Member), SHRI. KRINWANT SAHAY (Accountant Member)

Section 143(3)Section 263

head "Profits and gains of business or profession" or "Income from other sources", shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further, the Hon'ble Supreme Court in the case of Rama Bai vs. CIT (181 ITR 400) has held