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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

ITO 19(2)(4), Mumbai vs. Pallon Shapoorji Mistry, Mumbai

In the result, grounds raised by the Revenue are dismissed

ITA 1408/MUM/2024[2020-21]Status: DisposedITAT Mumbai24 Jan 2025AY 2020-21

Bench: Shri Amit Shukla & Shri Girish Agrawalassessment Year: 2020-21

For Appellant: Shri Porus Kaka, Sr. Advocate and Shri Divesh Chawla, AdvocateFor Respondent: Shri Jayant Jhaveri, CIT DR
Section 143(3)Section 144Section 145Section 3

section 145 which states that the income of the assessee has to be computed on the basis of cash or mercantile system of accounting regularly employed by the assessee?" 3. Whether on the facts and circumstances of the case and in law the Ld. CITA) has erred in ignoring ... 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

Deputy Commissioner of Income Tax, Raipur vs. Grand Motors, Raipur

ITA 544/RPR/2024[2017-18]Status: DisposedITAT Raipur23 Jan 2025AY 2017-18

Bench: Shri Ravish Sood, Jm & Shri Arun Khodpia, Am Dy. Commissioner Of Income Tax-1(1), Grand Motors, Aayakar Bhawan, Civil Lines, Lodhi Para Chowk, Pandri, Raipur Raipur, 492001, Chhattisgarh Chhattisgarh, 492001 Pan: Aagfg8524P

For Appellant: Shri Vinod Kumar Khatri, CAFor Respondent: Shri S. L. Anuragi, CIT- DR
Section 139(1)Section 143(1)Section 246A(1)(a)Section 250Section 40Section 43B

expenditure nor did the assessee claim any deduction in respect of the amount and considering that the assessee is following the mercantile system of accounting, the question of disallowing the deduction nut claimed would not arise." 12. Reverting to the facts of the case, it is admitted position on record

Paras Kuhad, Jaipur vs. ACIT - 7, Jaipur

In the result, the appeal of the assessee is partly allowed

ITA 1004/JPR/2024[2017-18]Status: DisposedITAT Jaipur22 Jan 2025AY 2017-18

Bench: DR. S. SEETHALAKSHMI (Judicial Member)

For Appellant: Sh. Tarun Mittal, CA &For Respondent: Sh. Anup Singh, Addl. CIT
Section 142(1)Section 143(2)Section 143(3)Section 44A

assessee submitted that question of mentioning sundry debtors and writing of bad debts will arise only in those cases where the assessee follows mercantile system of accounting whereas in this case, the assessee regularly follows the cash system of accounting. Therefore, there is no merit in the contention so mentioned

M/S Tdk India Pvt. Ltd.(Formerly Known As M/S Epcos India Pvt. Ltd.), Kolkata vs. DCIT, Cir. 11(1), Kolkata

In the result, both the appeal of the assessee are partly allowed for statistical

ITA 282/KOL/2022[2017-18]Status: DisposedITAT Kolkata22 Jan 2025AY 2017-18

Bench: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]

Section 144C(5)Section 92C

length price in order to ensure a consistent and reliable comparison. It is also noted that the assessee follows the mercantile system of accounting. Hence, provision for doubtful debt and advances are to be considered as non-operating in nature. The objection of the assessee is accordingly disposed

M/S Tdk India Limited (Formerly Known As Epcos India Pvt. Ltd.), Kolkata vs. DCIT, Cir. -11(1), Kolkata

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

ITA 203/KOL/2021[2016-17]Status: DisposedITAT Kolkata22 Jan 2025AY 2016-17

Bench: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]

Section 144C(5)Section 92C

length price in order to ensure a consistent and reliable comparison. It is also noted that the assessee follows the mercantile system of accounting. Hence, provision for doubtful debt and advances are to be considered as non-operating in nature. The objection of the assessee is accordingly disposed

Growmore Research and Assets Management, Mumbai vs. DCIT, CC-4(1) (Erstwhile DCIT-31, Mumbai

In the result, both the appeals are treated as partly allowed

ITA 453/MUM/2023[1992-93]Status: DisposedITAT Mumbai21 Jan 2025AY 1992-93

Bench: Shri B.R. Baskaran & Shri Anikesh Banerjee

For Appellant: Shri Vijay Mehta and ShriDharmeshFor Respondent: Dr.P. Daniel – Spl. Counsel
Section 144

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “G” BENCH : MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE

Asst. Commissioner of Income Tax- 14(1)(2), Mumbai, Aayakar Bhavan vs. T Bhimjyani Realty Private Limited, Mumbai

In the result, the appeal filed by the revenue is dismissed

ITA 4901/MUM/2024[2018-19]Status: DisposedITAT Mumbai16 Jan 2025AY 2018-19

Bench: Shri B.R. Baskaran & Shri Anikesh Banerjeea.Y : 2018-19 :

For Appellant: Shri Hemanshu Joshi, Sr. DRFor Respondent: Shri Vijay Mehta
Section 28Section 36(1)(iii)Section 37

assessment year which was entitled to deduction under section 37 of the 1961 Act.” There is no dispute that the assessee is following mercantile system of accounting. Under that system, it is mandatory for the assessee to make provision for all known expenses and losses, even if the payments

Dy. Commissioner of Income Tax, Circle-1(1), Pune vs. Bank of Maharashtra, Pune

ITA 428/PUN/2024[2016-17]Status: DisposedITAT Pune15 Jan 2025AY 2016-17

Bench: Shri R. K. Panda & Shri Vinay Bhamore

Section 115JSection 143(1)Section 143(2)Section 143(3)Section 14ASection 36(1)(via)Section 36(1)(viia)

made in both the lower proceedings. Suffice to say, both the learned lower authorities are of the view that once the assessee follows mercantile system of accounting, it ought to have claimed and recognized the impugned expenditure in the year of accrual than that of the actual expenditure. The assessee

Bank of Maharashtra, Pune vs. Asst Commissioner of Income Tax, Circle 1(1), Pune

In the result, the appeal filed by the Revenue is partly allowed for statistical purposes and the appeal filed by the assessee is partly allowed for statistical purposes

ITA 259/PUN/2024[2016-17]Status: DisposedITAT Pune15 Jan 2025AY 2016-17

Bench: Shri R. K. Panda & Shri Vinay Bhamoreassessment Year : 2016-17

For Appellant: Shri S Ananthan & Smt. Abarna CAFor Respondent: Shri Amol Khairnar CIT-DR
Section 115JSection 143(1)Section 143(2)Section 143(3)Section 14ASection 36(1)(via)Section 36(1)(viia)

made in both the lower proceedings. Suffice to say, both the learned lower authorities are of the view that once the assessee follows mercantile system of accounting, it ought to have claimed and recognized the impugned expenditure in the year of accrual than that of the actual expenditure. The assessee

ITO, Kolkata vs. Harmony Vinimay Pvt Ltd, Kolkata

In the result, the appeal of the Revenue is dismissed

ITA 1978/KOL/2024[2018]Status: DisposedITAT Kolkata15 Jan 2025

Bench: Shri Rajesh Kumar, Am & Shri Pradip Kumar Choubey, Jm Ito, Kolkata Harmony Vinimay Pvt. Ltd. Ward11(1), P-7, Chowringhee Square, 6 Th Floor, 67, Chistopher Road, Kolkata Vs. Kolkata-700069 West Bengal West Bengal (Appellant) (Respondent) Pan No. Aacch3211P Assessee By : Shri S.K. Tulsiyan & Smt Puja Somai, Ars Revenue By : Shri Prakash Nath Barnwal, Dr Date Of Hearing: 07.01.2025 Date Of Pronouncement : 15.01.2025

For Appellant: Shri S.K. Tulsiyan and Smt PujaFor Respondent: Shri Prakash Nath Barnwal, DR
Section 143(1)

project work-in- progress account and the advances received against booking of flats were credited to long term liabilities. The assessee was following mercantile system of accounting. According to the ld. AO, the assessee has not recognized the revenue of the said project on the basis of Percentage Completion Method

M/S. Tamilnadu Transmission Corpn. Ltd., Chennai vs. ACIT, CC-3(1), Chennai

The appeal stand allowed for statistical purposes

ITA 2040/CHNY/2024[2016-17]Status: DisposedITAT Chennai15 Jan 2025AY 2016-17

Bench: Hon’Ble Shri Aby T. Varkey, Jm & Hon’Ble Shri Manoj Kumar Aggarwal, Am 1. आयकरअपील सं./ Ita No.2794/Chny/2019 (िनधा*रण वष* / Assessment Year: 2016-17) & 2. आयकरअपील सं./ Ita No.2040/Chny/2024 (िनधा*रण वष* / Assessment Year: 2016-17) M/S Tamilnadu Transmission Corp. Ltd. Acit बनाम #144, Npkrr Maligai, Anna Salai, Corporate Circle-3(1), / Vs. Chennai-600 002. Chennai. "थायीलेखासं./जीआइआरसं./Pan/Tan No. Aadct-4780-A (अपीलाथ"/Appellant) : (""थ" / Respondent) अपीलाथ"कीओरसे/ Appellant By : Shri R. Vijayaraghavan (Advocate) – Ld.Ar ""थ"कीओरसे/Respondent By : Shri Nilay Baran Som (Cit) -Ld. Dr सुनवाईकीतारीख/Date Of Hearing : 31-12-2024 घोषणाकीतारीख /Date Of Pronouncement : 15-01-2025 आदेश / O R D E R Manoj Kumar Aggarwal ()

For Appellant: Shri R. Vijayaraghavan (Advocate) – Ld.ARFor Respondent: Shri Nilay Baran Som (CIT) -Ld. DR
Section 143(3)

appellant, the same is an allowable deduction. 4. The Commissioner of lncome tax (Appeals) ought to have appreciated that under the Mercantile System of Accounting, liability is allowable deduction on accrual and need not await the actual payment before being allowed. 5. The Commissioner of lncome tax (Appeals) erred ... manner of investment by the fund. /However, as the liability to the contribution to the fund has accrued and arisen under the Mercantile system of accounting, the same ought to have been allowed. 7. The Commissioner of Income tax (Appeals) erred in disallowing the provision of insurance reserve of Rs.404

Tamilnadu Transmission Corporation Ltd., Chennai vs. ACIT Corporate Circle 3(1), Chennai

The appeal stand allowed for statistical purposes

ITA 2794/CHNY/2019[2016-17]Status: DisposedITAT Chennai15 Jan 2025AY 2016-17

Bench: Hon’Ble Shri Aby T. Varkey, Jm & Hon’Ble Shri Manoj Kumar Aggarwal, Am 1. आयकरअपील सं./ Ita No.2794/Chny/2019 (िनधा*रण वष* / Assessment Year: 2016-17) & 2. आयकरअपील सं./ Ita No.2040/Chny/2024 (िनधा*रण वष* / Assessment Year: 2016-17) M/S Tamilnadu Transmission Corp. Ltd. Acit बनाम #144, Npkrr Maligai, Anna Salai, Corporate Circle-3(1), / Vs. Chennai-600 002. Chennai. "थायीलेखासं./जीआइआरसं./Pan/Tan No. Aadct-4780-A (अपीलाथ"/Appellant) : (""थ" / Respondent) अपीलाथ"कीओरसे/ Appellant By : Shri R. Vijayaraghavan (Advocate) – Ld.Ar ""थ"कीओरसे/Respondent By : Shri Nilay Baran Som (Cit) -Ld. Dr सुनवाईकीतारीख/Date Of Hearing : 31-12-2024 घोषणाकीतारीख /Date Of Pronouncement : 15-01-2025 आदेश / O R D E R Manoj Kumar Aggarwal ()

For Appellant: Shri R. Vijayaraghavan (Advocate) – Ld.ARFor Respondent: Shri Nilay Baran Som (CIT) -Ld. DR
Section 143(3)

appellant, the same is an allowable deduction. 4. The Commissioner of lncome tax (Appeals) ought to have appreciated that under the Mercantile System of Accounting, liability is allowable deduction on accrual and need not await the actual payment before being allowed. 5. The Commissioner of lncome tax (Appeals) erred ... manner of investment by the fund. /However, as the liability to the contribution to the fund has accrued and arisen under the Mercantile system of accounting, the same ought to have been allowed. 7. The Commissioner of Income tax (Appeals) erred in disallowing the provision of insurance reserve of Rs.404

Madhya Gujarat Vij Company Ltd., Vadodara vs. The Pr. CIT-1, Vadodara

In the result, the appeal of the assessee is partly allowed

ITA 191/AHD/2022[2017-18]Status: DisposedITAT Ahmedabad10 Jan 2025AY 2017-18

Bench: Smt. Annapurna Gupta & Shri Siddhartha Nautiyalआयकर अपील सं /Ita No.191/Ahd/2022 िनधा"रण वष" /Assessment Year : 2017-18 Madhya Gujarat Vij Company Ltd. Pr.Commissioner बनाम/ Sardar Patel Vidyut Bhavan Of Income V/S. Race Course Tax-1 Vadodaa – 390 007 Vadodara – 390 007 "ायी लेखा सं./Pan: Aadcm 7439 H (अपीलाथ"/ Appellant) ("" यथ"/ Respondent) Assessee By : Shri M.K. Patel, Advocate Revenue By : Shri Prathvi Raj Meena, Cit-Dr

For Appellant: Shri M.K. Patel, AdvocateFor Respondent: Shri Prathvi Raj Meena, CIT-DR
Section 143(3)Section 263Section 43B

liable to pay any instalment either of principle or interest at least till 31.03.2017. It was only because the Company is following the mercantile system of accounting and as per the Companies Act and various Accounting Standards, it has to mandatorily recognize and account the interest accrued

Gurumachideva Vividhodeesha Sahakara Sangh Ltd., Udupi vs. Income Tax Officer, Ward-1 & Tps, Udupi

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

ITA 1345/BANG/2024[2017-18]Status: DisposedITAT Bangalore10 Jan 2025AY 2017-18

Bench: Shri Laxmi Prasad Sahu & Shri Soundararajan K.Assessment Year : 2017-18

For Respondent: Shri Mahesh .R. Uppin
Section 40A(7)Section 40A(7)(b)Section 43(2)Section 80P(2)(a)

regular method of accounting consistently followed by the assessee. In the present case, it is not disputed that assessee has been following mercantile system of accounting and interest accrued on deposit but not due as on date of 31.3.2017 to be provided in the books of accounts of the assessee

Kyocera Document Solutions India Pvt. Ltd., Gurgaon vs. DCIT, Circle-14(2), New Delhi

In the result, the appeal filed by the assessee for AY 2012-13 is allowed

ITA 7104/DEL/2018[2012-13]Status: DisposedITAT Delhi10 Jan 2025AY 2012-13

Bench: Shris.Rifaur Rahman & Shri Yogesh Kumar Us

For Appellant: Shri S.K. Aggarwal, CAFor Respondent: Shri Om Parkash, Sr. DR
Section 143(2)Section 250(6)Section 40A(7)Section 43Section 92C

paper book [‘PB’] for copy of the said incentive scheme announced during AY 2012-13) Further, the Appellant follows mercantile system of accounting, it is required to provide for all known liabilities. This is in tune with liabilities and losses. Accordingly, the Appellant, on scientific basis made provision ... organized in Thailand in April 2012.  The cost of the event organized was estimated at INR 1,750,000. Further, the Appellant follows mercantile system of accounting, it is required to provide for all known liabilities.  This is in tune with accounting standards notified by the Central Board of Direct

Income Tax Officer, Exemption, Ward, Jaipur vs. Rajasthan Cricket Association, Jaipur

In the result, appeal of the revenue is dismissed

ITA 927/JPR/2024[2012-13]Status: DisposedITAT Jaipur08 Jan 2025AY 2012-13

Bench: DR. S. SEETHALAKSHMI (Judicial Member), SHRI RATHOD KAMLESH JAYANTBHAI (Accountant Member)

For Appellant: Shri S.L. Agarwal CA &For Respondent: Mrs. Anita Rinesh, JCIT-DR a
Section 143(3)Section 154Section 250

income chargeable under the head "Income from Other Sources, shall also be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The 4 ITO, (EXEMPTION), WARD –JAIPUR VS RAJASTHAN CRICKET ASSOCIATION assesse is following the mercantile system of accounting consistently, which is dearly ... took the same ground of appeal of provision for expenses and the ITAT allowed the appeal in favor of the Association allowing the mercantile system of accounting and rejecting the ground raised by the revenue. Thereafter, a notice was issued on 20.04.2023 to the appellant Association under section

Aryacon Contractors and Engineers Pvt Ltd, Perumbavoor vs. Assistant Commissioner of Income Tax, Circle-1, Aluva

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

ITA 853/COCH/2023[AY 2017-2018]Status: DisposedITAT Cochin06 Jan 2025

Bench: Shri Prashant Maharishi & Shri Keshav Dubeyassessmentyear:2017-18

For Appellant: Shri. Thomas Joseph, CAFor Respondent: Smt. Leena Lal, Snr AR
Section 143(2)Section 143(3)Section 250Section 43C

India relied upon by the assessee. 7. Before us, ld. A.R. of the assessee vehemently submitted that the assessee has followed both the mercantile system of accounting as well as ICDS- III in which the income recognition should be done at the time when there is a reasonable certainty ... Aaryacon, Kerala Page 9 of 11 10. After going through the above, we are of the considered opinion that the assessee was following Mercantile system of accounting and had to account for all the receipts on accrual basis and accordingly, the retention money could not be excluded specially when there

Lanxes India P.Ltd, Thane vs. Asst CIT Cir 1, Thane

In the result, both the appeals are treated as partly allowed

ITA 1125/MUM/2017[2012-13]Status: DisposedITAT Mumbai01 Jan 2025AY 2012-13

Bench: Shri B.R. Baskaran & Shri Anikesh Banerjee

For Appellant: Shri Vijay Mehta and ShriDharmeshFor Respondent: Dr.P. Daniel – Spl. Counsel
Section 144

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “G” BENCH : MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE

Nakshatra Metals Private Limited, Delhi vs. ITO, Ward 18(1), Delhi

The appeals are dismissed as infructuous

ITA 1198/DEL/2024[2015-16]Status: DisposedITAT Delhi01 Jan 2025AY 2015-16

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

Asst.Commissioner of Income-Tax (TDS)2(1), Mumbai vs. Patel Engineering Limited, Mumbai

ITA 3068/MUM/2024[2017-18]Status: DisposedITAT Mumbai31 Dec 2024AY 2017-18
Section 194ASection 201

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER