“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

Kpmg Advisory Services Private Limited, Mumbai vs. Deputy Commissioner of Income Tax-Circle-6(1)(2), Mumbai

In the result, all the appeals of the assessee are allowed

ITA 5392/MUM/2024[2018-19]Status: DisposedITAT Mumbai13 Feb 2025AY 2018-19

Bench: Shri Amarjit Singh & Shri Anikesh Banerjeeita No. 5395/Mum/2024 (A.Y. 2012-13) Ita No. 5393/Mum/2024 (A.Y. 2015-16) M/S. Kpmg Advisory Services Dcit, Circle – 6(1)(2), Private Limited Aaykar Bhavan, M.K. Road, Churchgate, 2Nd Floor, Block T2 (B Wing), Mumbai Vs. Lodha Excelus, Apollo Mills Compound, N. M. Joshi Marg, Mahalaxmi, Mumbai

For Appellant: Shri Ajit Jain a/w Shri Siddhesh Chaugule &For Respondent: Shri Hemanshu Joshi, Sr. DR

Section 143(2)Section 143(3)Section 250Section 40A(2)(b)Section 40A(2)(h)

year was Rs. 1.88 crores which was only 0.99% of the total revenue of the assessee. The assessee has been consistently following mercantile system of accounting. Revenue is recognized as per IND-AS-9 Revenue Recognition (same as ICDS IV – Revenue Recognition). Revenue is recorded on the basis

Strides Pharma Science Limited, Mumbai vs. DCIT-15(3)(2), Mumbai

In the result, appeal of the assessee is allowed

ITA 3514/MUM/2024[2012-13]Status: HeardITAT Mumbai13 Feb 2025AY 2012-13

Bench: Shri Saktijit Dey, Hon’Ble & Shri Narendra Kumar Billaiya, Hon’Ble

For Appellant: Revenue byFor Respondent: Shri Bhangepatil Pushkaraj Ramesh, Sr. D/R

Section 115JSection 147Section 234ASection 234BSection 271(1)(c)Section 37Section 37(1)

claimed as deduction towards exchange loss which has not debited to profit & Loss. Since the method of accounting employed by assessee company is mercantile system of accounting any sum to qualify as liability/expenditure incurred should necessarily be accounted in the profit & loss account and the Balance Sheet. Therefore

ACIT Cir 2(1)(1), Mumbai vs. Bank of Baroda, Mumbai

In the result, the appeal by the Revenue is dismissed

ITA 2777/MUM/2019[2016-17]Status: DisposedITAT Mumbai06 Feb 2025AY 2016-17

Bench: Shri Amarjit Singhshri Sandeep Singh Karhailbank Of Baroda, C-26, G-Block, Baroda Corporate Centre, Bandra Kurla Complex, Bandra (East), Mumbai-400051. ……………. Appellant Pan: Aaacb 1534 F V/S Acit, 2(1)(1), ……………. Respondent Mumbai-400051. Acit, Circle - 2(1)(1), Room No. 561, 5Th Floor, Aayakar Bhavan, M.K. Road, ……………. Appellant Mumbai-400020. V/S Bank Of Baroda, C-26, G-Block, Baroda Corporate Centre, Bandra ……………. Respondent Kurla Complex, Bandra (East), Mumbai-400051. Pan: Aaacb 1534 F

For Appellant: Mr. C. NareshFor Respondent: Mr. Kailash C. Kanojiya, CIT-DR

Section 115JSection 143(3)Section 14ASection 250

cash basis and certain income earned on accrued basis. It was further held that since the assessee has been regularly following the mercantile system of accounting, the right to receive the interest is taxable on an accrual basis as per provisions of section 145 of the Act. Accordingly, the amount

Bank of Baroda, Mumbai vs. ACIT 2 (1)(1), Mumbai

In the result, the appeal by the Revenue is dismissed

ITA 1649/MUM/2019[2016-17]Status: DisposedITAT Mumbai06 Feb 2025AY 2016-17

Bench: Shri Amarjit Singhshri Sandeep Singh Karhail

For Appellant: Mr. C. NareshFor Respondent: Mr. Kailash C. Kanojiya, CIT-DR

Section 115JSection 143(3)Section 14ASection 250

Servier India Private Limited, Mumbai vs. Assistant Commissioner of Income-Tax, OSD, TDS Circle 2(2), Mumbai

ITA 5775/MUM/2024[2022-23]Status: DisposedITAT Mumbai04 Feb 2025AY 2022-23

Bench: Shri Narender Kumar Choudhry, Jm & Ms Padmavathy S, Am

For Appellant: Shri M. P Lihia, ARFor Respondent: Shri Surendra Meena, Sr. DR

Section 133(6)Section 201Section 201(1)Section 37Section 40

assessee in this regard. The assessee submitted before the AO that these provisions are made as per the mercantile system of accounting regularly followed by the assessee and since the invoices were not raised by the vendors the provisions are not credited to the ledger of the vendors. The assessee

Chaturvedi Sk & Fellows LLP, Mumbai vs. Income-Tax Officer 16(2)(1) Mumbai, Mumbai

ITA 5700/MUM/2024[2018-19]Status: DisposedITAT Mumbai31 Jan 2025AY 2018-19

Bench: SHRI AMRJIT SINGH, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY (Judicial Member)

For Appellant: Shri Srikant ChaturvediFor Respondent: Shri Mahesh Pamnani

Section 154Section 250

INR.3,30,000/-. The aforesaid TDS was reflected in 26AS pertaining to Assessment Year 2016-2017 as the payee was following mercantile system of accounting. However, the Assessee had offered the same income to tax on receipt basis in the return of income for the Assessment Year

DCIT-3(2)(1), Aaykar Bhawan vs. Marshall Produce Brokers Company Pvt Ltd, Nariman Point

The appeal of the Revenue is dismissed

ITA 5092/MUM/2024[2017-18]Status: DisposedITAT Mumbai30 Jan 2025AY 2017-18

Bench: Shri Om Prakash Kant () & Shri Sunil Kumar Singh ()

For Respondent: Mr. Harsh Kothari

determined under the mercantile system of appellant and that as determined under the mercantile system of appellant and that as determined under the mercantile system of accounting without appreciating the fact that the appellant has accounting without appreciating the fact that the appellant has accounting without appreciating the fact that ... from other sources as determined under the cash system followed by the tem followed by the appellant and that as per the mercantile system of accounting without appellant and that as per the mercantile system of accounting without appellant and that as per the mercantile system of accounting without appreciating

Marshall Produce Brokers Company Private Limited, Mumbai vs. Assistant Commissioner of Income Tax Circle 3(2)(1), Mumbai

The appeal of the Revenue is dismissed

ITA 4918/MUM/2024[2017-18]Status: DisposedITAT Mumbai30 Jan 2025AY 2017-18

Bench: Shri Om Prakash Kant () & Shri Sunil Kumar Singh ()

For Respondent: Mr. Harsh Kothari

Marshall Produce Brokers Company Private Limited, Mumbai vs. Assistant Commissioner of Income Tax Circle 3(2)(1), Mumbai

The appeal of the Revenue is dismissed

ITA 4917/MUM/2024[2016-17]Status: DisposedITAT Mumbai30 Jan 2025AY 2016-17

Bench: Shri Om Prakash Kant () & Shri Sunil Kumar Singh ()

For Respondent: Mr. Harsh Kothari

Joint Commissioner of Income Tax (OSD)-3(4), Mumbai vs. Ambuja Cements Limited, Mumbai

ITA 312/MUM/2024[2011-12]Status: DisposedITAT Mumbai30 Jan 2025AY 2011-12

Bench: the Assessing Officer to set out his defence against levy of penalty?." 3. The relevant facts in brief are that the Assessee, a public Limited company engaged, inter alia, in manufactured and sale of cement, filed original return of income for the Assessment Year 2011–2012 on 30/11/2011. Thereafter, the Assessee filed a revised return of income on 27/11/2012, which was selected for regular scrutiny.

For Appellant: Shri Vartik ChoksiFor Respondent: Shri Ram Krishn Kedia

Section 143(3)Section 250Section 263Section 271(1)(c)Section 274

made patently untenable claim in respect of Provisions for Mine Reclamation Expenses which could not have been allowed as a deduction under the mercantile system of accounting followed by the Assessee. Despite having full knowledge of the fact that no two interpretations were possible in respect of the claim

M/S Sheetal Industries, Khanna vs. DCIT, CC-1, Ludhiana

In the result, appeal of the assessee is allowed

ITA 143/CHANDI/2023[2017-18]Status: DisposedITAT Chandigarh29 Jan 2025AY 2017-18

Bench: Shri Rajpal Yadav & Shri Krinwant Sahay

For Appellant: Shri Rohit Kapoor, Advocate and Shri Virsain AggarwalFor Respondent: Smt. Kusum Bansal, CIT DR

Section 132Section 145Section 153C

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) The Central Government may notify in the Official Gazette from time to time 2 [income computation ... profession’ or 'income from other sources' shall subject to the provision of sub-section (2) be computed in accordance with either cash or mercantile system of accounting regularly implied by an assessee. Sub Section (2) further provides that Central Government will notify the accounting method required to be followed

Vodafone Mobile Services Limited, New Delhi vs. DCIT, Coimbatore

In the result, the appeal filed by the assessee is allowed

ITA 587/CHNY/2017[2010-2011]Status: DisposedITAT Chennai29 Jan 2025AY 2010-2011

Bench: Shri Ss Viswanethra Ravi & Shri Jagadishआयकर अपील सं./Ita No.587/Chny/2017 िनधा:रण वष: /Assessment Year: 2010-11

For Appellant: Shri Ketan K. Ved, C.A HIFor Respondent: Shri A. Sasikumar, CIT

Section 143(3)Section 144CSection 144C(1)Section 153(2)Section 201(1)Section 40

ground that TDS has not been deducted at the time of credit. The assessee has followed mercantile system of accounting and in order to arrive at the correct profit for the year all expenses pertaining to year in accordance with the matching principle is accounted for. The assessee has accounted

The Municipal Cooperative Bank Ltd., Mumbai vs. DCIT, Circle-1(3)(1), Mumbai

In the result, appeals of the assessee are partly allowed

ITA 4144/MUM/2024[2014-15]Status: DisposedITAT Mumbai29 Jan 2025AY 2014-15

Section 143(3)Section 197ASection 3Section 4Section 40

revenue commission income. It has been stated that initially as per the contract assessee was to receive commission @0.50%. Since assessee was following mercantile system of accounting that is, based on accrual basis assessee disclosed commission @ 0.50%, however, later on assessee received only 0.25%. In the notes to the account ... commission was fixed @0.50%. However, later on the BMC reduced the commission from 0.50% to 0.25% with retrospective effect. Since assessee was following mercantile system of accounting, therefore, assessee was showing the commission income @0.50%. However later on when rate of commission was reduced to 0.25% from retrospective date, assessee

The Municipal Cooperative Bank Ltd., Mumbai vs. DCIT, Circle-1(3)(1), Mumbai

In the result, appeals of the assessee are partly allowed

ITA 4143/MUM/2024[2018-19]Status: DisposedITAT Mumbai29 Jan 2025AY 2018-19

Bench: SHRI AMIT SHUKLA (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)

Section 143(3)Section 197ASection 3Section 4Section 40

revenue commission income. It has been stated that initially as per the contract assessee was to receive commission @0.50%. Since assessee was following mercantile system of accounting that is, based on accrual basis assessee disclosed commission @ 0.50%, however, later on assessee received only 0.25%. In the notes to the account ... reduced the commission from 0.50% to 0.25% with retrospective effect. Since The Municipal Co-operative Bank Ltd assessee was following mercantile system of accounting, therefore, assessee was showing the commission income @0.50%. However later on when rate of commission was reduced to 0.25% from retrospective date, assessee has written back

Nitesh Agarwal, Jaipur vs. Deputy Commissioner of Income Tax, Jaipur

Appeal is partly allowed

ITA 1214/JPR/2024[2012-13]Status: DisposedITAT Jaipur28 Jan 2025AY 2012-13

Bench: SHRI RATHOD KAMLESH JAYANTBHAI (Accountant Member), SHRI NARINDER KUMAR (Judicial Member)

For Appellant: Shri S. L. Poddar, Adv. &For Respondent: Shri Arvind Kumar, CIT-DR

Section 143(2)Section 143(3)Section 144Section 145(3)Section 68Section 69B

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) The Central Government may notify in the Official Gazette from time to time income computation and disclosure

DCIT - 1(1)(2), Mumbai vs. Housing Development Finance Corporartion Ltd., Mumbai

ITA 2862/MUM/2017[2012-13]Status: DisposedITAT Mumbai28 Jan 2025AY 2012-13

Bench: Shri Anikesh Banerjee & Shri Girish Agrawal

For Appellant: Shri Nitesh Joshi, Advoca

Motor Car Expenses 30,000 General Office Expenses 7,200 Grand Total 1,64,95,500 26. 3. Assessee explained that it follows mercantile system of accounting and makes provision for various expenses at the year-end which are necessary since assessee had already availed the services/received the supplies ... same on the first day of the next financial year so as to reflect true and fair state of affairs since assessee follows mercantile system of accounting. Such a practice has been followed by the assessee, year on year basis in terms of generally accepted accounting practices. This issue

DCIT Cent, Circle 1(3), Nagpur vs. Radhika Vegetable Oils Pvt Limited, Vizianagaram

In the result, appeal filed by the Revenue is dismissed

ITA 17/NAG/2024[2019-20]Status: DisposedITAT Nagpur27 Jan 2025AY 2019-20

Bench: Shri V. Durga Rao & Shri K.M. Roy, Accountant, Member

For Appellant: Shri Mukesh AgrawalFor Respondent: Shri Sandipkumar Salunke

Section 115BSection 132Section 143(3)Section 147Section 148Section 40A(3)Section 69A

facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that the assessee follows mercantile system of accounting, books wereaudited and closed. 2 Radhika Vegetable Oils Pvt. Ltd. ITA no.17/Nag./2024 3. On the facts and in the circumstances of the case

International Hospital Ltd. (Before Amalgamation M/S Escorts Hospital and Research Centre Ltd), New Delhi vs. ITO, Ward-8(3), New Delhi

The appeals are dismissed as infructuous

ITA 3390/DEL/2019[2013-14]Status: DisposedITAT Delhi27 Jan 2025AY 2013-14

Bench: Shri S Rifaur Rahman & Shri Vimal Kumarassessment Year: 2012-13 Assessment Year: 2013-14 Assessment Year: 2012-13 Assessment Year: 2013-14 M/S. Ircon Soma Tollway (P) Vs. Principal Commissioner Of Ltd., B-4/45, Ground Floor, Income Tax, Range-4, Safdarjung Enclave, New Delhi New Delhi Pan No. Aabci4622C (Appellant) (Respondent)

For Appellant: Shri VK Aggarwal, AR & Shri HritikFor Respondent: Shri Dayainder Singh Sidhu, CIT DR

Section 142(1)Section 143(2)Section 143(3)Section 234BSection 250(6)Section 263

asset which the Ld. Pr. CIT has asked the AO to delete inspite of the fact that the appellant is following mercantile system of accounting. Similarly as regards negative grant, one view is that taken by the Ld. AO in view of clause 23.1 of the concession agreement between NHAI ... 15th year) to the cost of the asset which the Ld. Pr. CIT has asked the ITO to delete. The assessee is following mercantile system of accounting and therefore, has to account for all the liabilities which have accrued. The liability is duly ascertained and clearly mentioned in the concession

Cambridge Technology Enterprises Limited, Hyderabad vs. Dy. Commissioner of Income Tax, Circle-1(2), Hyderabad

In the result, appeal filed by the assessee is allowed

ITA 536/HYD/2019[2012-13]Status: DisposedITAT Hyderabad24 Jan 2025AY 2012-13

Bench: Shri Manjunatha G. & Shri K.Narasimha Charyआ.अपी.सं /Ita No.536/Hyd/2019 (निर्धारण वर्ा/Assessment Year: 2012-13) M/S Cambridge Technology Vs. Dcit Enterprises Limited Circle-1(2) Hyderabad Hyderabad [Pan :Aaacu3358G] (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee By: Shri P.Murali Mohan Rao, Ar रधजस् व द्वधरध/Revenue By: Shri Shiva Sewak, Cit-Dr सुिवधई की तधरीख/Date Of Hearing: 28/10/2024 घोर्णध की तधरीख/Date Of 24/01/2025 Pronouncement: आदेश / Order Per. Manjunatha G., A.M: This Appeal Filed By The Assessee Is Directed Against The Order Dated 20.03.2019 Of The Learned Principal Commissioner Of Income Tax [Ld.Pcit], Hyderabad Pertaining To A.Y.2012-13. 2. The Brief Facts Of The Case Are That The Assessee Company, Engaged In The Business Of Rendering Software Services, Filed Its Return Of Income For The A.Y.2012-13 On 26.09.2012, Admitting Total Income Of Rs.4,05,55,380/- Under Normal Provisions Of Income Tax Act, 1961 (“The Act”) & Rs.1,47,09173/-

For Appellant: Shri P.Murali Mohan RaoFor Respondent: Shri Shiva Sewak, CIT-DR

Section 115JSection 143(3)Section 263Section 37(1)

while computing the tax liability. From the notes to account it was stated that the assessee company maintained its books of accounts under mercantile system of accounting and unrealized foreign exchange fluctuation gain and loss computed on the last day of financial year is considered for taxation purpose. However, unrealized

T vs. Motor Company Ltd., Chennaivs.ACIT, Chennai

In the result, appeal filed by the assessee ppeal filed by the assessee is partly allowed

ITA 672/CHNY/2017[2012-13]Status: DisposedITAT Chennai24 Jan 2025AY 2012-13

Bench: Shri Aby T. Varkey & Shri Amitabh Shuklaआयकरअपीलसं./Ita No.672/Chny/2017 िनधा"रणवष"/Assessment Year: 2012-13 M/S.Tvs Motor Co. Ltd., V. The Acit, No.29, Haddows Road, Corporate Circle – 3(1), Chennai-600 006. Chennai. [Pan: Aaacs 7032 B] (अपीलाथ"/Appellant) (""यथ"/Respondent)

For Appellant: Shri Vikram VijayaraghavanFor Respondent: Shri A. Sasikumar, CIT

Section 143(3)

record. In this 13. We have heard both the parties and perused the material on record. In this case, assessee following the mercantile system of accounting, there is no assessee following the mercantile system of accounting, there is no assessee following the mercantile system of accounting, there is no question