“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

Mayar Health Resorts Ltd., New Delhi vs. DCIT, New Delhi

In the result, the appeals of the assessee are partly allowed and the appeal of the Revenue is partly allowed

ITA 6228/DEL/2013[2009-10]Status: DisposedITAT Delhi29 Jul 2024AY 2009-10

Bench: Dr. B. R. R. Kumar, Sh. Sudhir Kumar

For Appellant: Sh. Raghav Sharma, CA &For Respondent: Sh. Anshul, Sr. DR

Section 143(3)Section 145(2)Section 145(3)Section 209Section 35D(2)(c)

addition of Rs.1,33,83,324/-on account of undisclosed membership fee by not considering the fact that the assessee company is following mercantile system of accounting? 4. Whether on the facts and circumstances of the case, Ld. CIT(A) is legally justified in deleting the addition of Rs.1 ... followed with regard to reorganization of revenue from membership fee from cash basis to accrual basis. The assessee company was consistently following the mercantile system of accounting but the membership fee received from the customer was being accounted for by the assessee company on the receipt basis

Mayar Health Resorts Ltd., New Delhi vs. DCIT, New Delhi

In the result, the appeals of the assessee are partly allowed and the appeal of the Revenue is partly allowed

ITA 5109/DEL/2012[2008-09]Status: DisposedITAT Delhi29 Jul 2024AY 2008-09

Bench: Dr. B. R. R. Kumar, Sh. Sudhir Kumar

For Appellant: Sh. Raghav Sharma, CA &For Respondent: Sh. Anshul, Sr. DR

Section 143(3)Section 145(2)Section 145(3)Section 209Section 35D(2)(c)

Dy. CIT Circle 3(4), Mumbai vs. Asian Paints Ltd, Mumbai

In the result, appeals filed by assessee and Revenue for A

ITA 3083/MUM/2023[2018-19]Status: DisposedITAT Mumbai26 Jul 2024AY 2018-19

Bench: IN THE INCOME TAX APPELLATE TRIBUNAL, ‘A‘ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA (Judicial Member), SMT RENU JAUHRI (Accountant Member)

Section 115JSection 143(3)Section 14ASection 2(43)Section 35Section 40Section 80GSection 90

Further, this issue has been restored back by the Tribunal in A.Y.2015-16 after observing as under:- “19. Undisputedly, the assessee is following the mercantile system of accounting. and therefore only such expenses which are crystallized during the year can be allowed as a deduction while computing the income. Since

Asian Paints Limited, Santacruz vs. National Faceless Assessment Centre, Delhi

ITA 2696/MUM/2023[2018-19]Status: DisposedITAT Mumbai26 Jul 2024AY 2018-19

Section 143(3)Section 14ASection 2(43)Section 35Section 40Section 50Section 80GSection 90

DCIT-CC-7(3), Aaykar Bhavan, Maharishi Karve Road, Mumbai, Maharashtra vs. Arihant Premises Private Limited, Mumbai

In the result, ground Nos

ITA 1602/MUM/2024[2013-14]Status: DisposedITAT Mumbai24 Jul 2024AY 2013-14

Bench: Shri Prashant Maharshi & Shri Anikesh Banerjeedcit-Cc-7(3), Vs Arihant Premises Private Limited Room No-655, Aayakar Bhavan, 412, Floor-4, Vardhaman Chamber Maharishi Karve Road, Cawasji Patel Road, Horniman Mumbai-400 020 Circle, Fort, Mumbai-400 001 Pan : Aaaca7260K Appellant Respondent

For Appellant: Shri Neeraj ShethFor Respondent: Shri Manoj Kumar Sinha (SRDR)

Section 139(1)Section 143(3)Section 14ASection 250Section 36Section 36(1)(iii)

residential project named 'Lodha Aristo' and a commercial project named 'Lodha Experia' at Majiwada, Thane, during the year. The company was following mercantile system of accounting and for the purpose of recognizing the revenues from the above projects, it was following percentage completion method of accounting. For the purpose

J vs. Industries Pvt. Ltd., Vadodaravs.the Pr. CIT, Vadodara-1, Vadodara

In the result, the appeal of the assessee is dismissed

ITA 411/AHD/2023[2018-19]Status: DisposedITAT Ahmedabad23 Jul 2024AY 2018-19

Bench: Shri Siddhartha Nautiyal & Shri Narendra Prasad Sinha

For Appellant: Shri Milin Mehta, A.RFor Respondent: Shri H. Phani Raju, CIT DR

Section 143(3)Section 263Section 43Section 49

only was made during AY 2018-19. Therefore, method of accounting followed by the assessee was not consistent Assessee is following mercantile system of accounting. Therefore, the goodwill was to be recognised in initial year i.e. in AY 2017-18. However, the assessee has mentioned that the payments for purchase

M/S. the Bharathi Co-Operative Credit Society, Bengaluru vs. Income Tax Officer, Ward-7(2)(1), Bangalore

ITA 1171/BANG/2023[2017-18]Status: DisposedITAT Bangalore23 Jul 2024AY 2017-18

Bench: Shri Chandra Poojari & Shri Prakash Chand Yadav

For Appellant: Ms. Sunaiana Bhatia, A.RFor Respondent: Sri Subramanian S., D.R

Section 18Section 234Section 250Section 80PSection 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

Deputy Commissioner of Income Tax, New Delhi vs. Kd Campus Private Limited, Mukherjee Nagar, Delhi

In the result, the appeal is dismissed

ITA 355/DEL/2024[2017-18]Status: DisposedITAT Delhi18 Jul 2024AY 2017-18

Bench: Shri Pradip Kumar Kedia & Shri Sudhir Pareekassessment Year 2017-18

For Respondent: Mr. Waseem Arshad, CIT (DR)

Section 115BSection 143(3)Section 69A

assessee. The Assessee promptly responded to the alleged variance vide reply dated 27/12/2019 and pointed out that the revenue is recognized on mercantile system of accounting as per the mandate of section 145(1) of the Act whereby the revenue are recognized in the income statement in the period ... with the case made by the assessee and ordered reversal of wrongful additions on account of such alleged mismatch. 11. The adoption of mercantile system of accounting policy mandatory for assessee-company as per Section 145(1) has been properly disclosed in the audited financial accounts. As per mercantile method

ACIT, Circle-13(1), Hyderabad vs. M/S Suresh Productions Pvt. Ltd., Hyderabad

Accordingly, the ground of the revenue is allowed

ITA 1633/HYD/2014[2006-07]Status: DisposedITAT Hyderabad16 Jul 2024AY 2006-07

Bench: Shri K. Narasimha Chary & Shri Madhusudan Sawdia

For Appellant: Shri K.C. Devdas, C.AFor Respondent: : Shri Shakeer Ahamed, DR

Section 143Section 143(3)Section 263Section 40Section 40A(2)(b)Section 80I

grounds raised by the assessee in CO reads as under : “1) a) The learned CIT(Appeals), having allowed the grounds on mercantile system of accounting consistently followed by the assessee, should have also allowed the additional ground that revenue would have to redo/rectify a number of past and future assessments ... already held in detail vide my orders dated 31-03-20L4 for the A.Ys 2003-04, 2008-09, 2009-10 accepting the mercantile system of accounting adopted by the appellant in accounting for the transactions with M/s. Ramanaidu Charitable Trust. 8.3 Following the same, I hold that

Hscc (India) Ltd., Noida vs. Addl. CIT, Special Range- 4, New Delhi

In the result, the appeal of the assessee is allowed and appeal of the revenue is dismissed

ITA 6033/DEL/2018[2014-15]Status: DisposedITAT Delhi16 Jul 2024AY 2014-15

Bench: Shri M. Balaganesh & Shri Vimal Kumarhscc (India) Ltd, Vs. Add. Cit, E-6A, Sector-1, Noida, Special Range-4, Uttar Pradesh New Delhi (Appellant) (Respondent) Pan:Aaach0086N Add. Cit, Vs. Hscc (India) Ltd, Special Range-4, E-6A, Sector-1, New Delhi Noida, Uttar Pradesh (Appellant) (Respondent) Pan:Aaach0086N Assessee By : Shri Lakshay Gupta, Ca Revenue By: Shri Sandip Kumar Mishra, Sr. Dr Date Of Hearing 21/05/2024 Date Of Pronouncement 16/07/2024

For Appellant: Shri Lakshay Gupta, CAFor Respondent: Shri Sandip Kumar Mishra, Sr. DR

Section 143(3)Section 194CSection 194J

statement. The assessee explained that in some cases, the income is not credited in its profit and loss account as it is following mercantile system of accounting and recognizing income on accrual basis, whereas the clients being Government entities deduct tax at source on cash basis and hence there ... duly offered to tax by the assessee either in the year of receipt or in the year to which it pertains based on mercantile system of accounting regularly employed by the assessee in terms of section 145 of the Act. It is not in dispute that the assessee offers

Addl. CIT, Special Range- 4, New Delhi vs. Hscc (India) Ltd., Noida

In the result, the appeal of the assessee is allowed and appeal of the revenue is dismissed

ITA 5902/DEL/2018[2014-15]Status: DisposedITAT Delhi16 Jul 2024AY 2014-15

For Appellant: Shri Lakshay Gupta, CAFor Respondent: Shri Sandip Kumar Mishra, Sr. DR

Section 143(3)Section 194CSection 194J

Dy. C.I.T. Central Cir.-1(3), Nagpur vs. M/S Spacewood Furnishers Pvt. Ltd, Nagpur

In the result, Revenue’s appeal is dismissed

ITA 163/NAG/2019[2013-14]Status: DisposedITAT Nagpur11 Jul 2024AY 2013-14

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

For Appellant: Shri Abhay AgrawalFor Respondent: Shri Abhay Y. Marathe

Section 143(3)Section 154

liability to pay these expenses has actually been crystallized so as to allow the same as deduction in case where the assessee follows mercantile system of accounting. In other words, the issue regarding allowability or otherwise of prior period expenses can only be decided by making full investigation and examination

Ambereen Islam, Kolkata vs. ITO, Ward-40, Kolkata

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

ITA 262/KOL/2024[2016-17]Status: DisposedITAT Kolkata10 Jul 2024AY 2016-17

Bench: Shri Sanjay Garg & Shri Sanjay Awasthii.T.A. No.262/Kol/2024 Assessment Year: 2016-17 Ambereen Islam….…………………..……………………....………....Appellant 71, Princep Street, Chandni Chawk, Kolkata – 700072. [Pan: Aakpi3448Q] Vs. Ito, Ward-40(1), Kolkata….................................................…..…..... Respondent Appearances By: Shri Manoj Kataruka, Ar, Appeared On Behalf Of The Appellant. Shri P. P. Barman, Addl. Cit-Sr. Dr, Appeared On Behalf Of The Respondent. Date Of Concluding The Hearing : May 28, 2024 Date Of Pronouncing The Order : July 11, 2024 आदेश / Order संजय गग", "या"यक सद"य "वारा / Per Sanjay Garg: The Present Appeal Has Been Preferred By The Assessee Against The Order Dated 02.11.2023 Of The National Faceless Appeal Centre [Hereinafter Referred To As ‘Cit(A)’] Passed U/S 250 Of The Income Tax Act (Hereinafter Referred To As The ‘Act’). 2. The Assessee In This Appeal Has Agitated Against The Levy/Confirmation Of Penalty U/S 271(1)(C) Of The Act. 3. At The Outset, The Ld. Counsel For The Assessee Has Submitted That The Assessing Officer During The Assessment Proceedings Noted That The Assessee Had Raised A Claim Of Duty Draw Back To The Tune Of Rs.3,67,376/-, Whereas, The Assessee Had Disclosed A Sum Of Rs.69,525/- Under The Head ‘Duty Draw Back’. On Being Asked To Explain In This Respect, The Assessee Explained That The Balance Amount Of Rs.2,97,851/- Was Not Received During The Year. That The Amount Of

Section 250Section 271(1)(c)

draw back was disclosed on actual receipt basis. However, the Assessing Officer was of the view that since the assessee had been following mercantile system of accounting, therefore, the assessee was supposed to include all the amount that had accrued to the assessee on account of duty draw back

Calcom Institute of Management Development and Training, New Delhi vs. CIT(Exemption), New Delhi

In the result, the appeal of the assessee is allowed

ITA 1751/DEL/2024[2018-19]Status: DisposedITAT Delhi09 Jul 2024AY 2018-19

Bench: Shri Saktijit Dey, Hon’Ble & Shri M. Balaganeshcalcom Institute Of Vs. Cit(Exemption), Management Development & New Delhi Training, C-41, Defence Colony, New Delhi (Appellant) (Respondent) Pan:Aaatc0685K Assessee By : Shri Salil Aggarwal, Sr. Adv Shri Shailesh Gupta, Ca Shri Madhur Aggarwal, Adv Revenue By: Ms. Rajinder Kaur, Cit Dr Date Of Hearing 03/07/2024 Date Of Pronouncement 09/07/2024

For Appellant: Shri Salil Aggarwal, Sr. AdvFor Respondent: Ms. Rajinder Kaur, CIT DR

Section 11Section 12ASection 143(3)Section 144BSection 263

payment of stipend to its trainees for want of cash flow. This is the fundamental principle of accounting transactions on accrual basis under mercantile system of accounting, which has not been appreciated by the ld. CIT(E) in the instant case. Either way, there was no grievance raised

The Dy CIT Cir 1(1), Mumbai vs. M/S. Housing Development Finance Corpn Ltd., Mumbai

ITA 724/MUM/2005[2001-2002]Status: DisposedITAT Mumbai05 Jul 2024AY 2001-2002

Bench: Shri Girish Agrawal & Shri Sunil Kumar Singh

Section 143(3)Section 36(1)Section 36(1)(viii)

erred in not appreciating that the provision was on account of fluctuation in the exchange rate on foreign currency loans as per the mercantile system of accounting consistently followed by the appellant and in accordance with Accounting Standard 11 issued by the ICAI and was therefore allowable as a deduction