“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-6(1), Lucknow vs. M/S U.P. State Mineral Development Corporation Ltd., Lucknow

ITA 261/LKW/2020[2007-08]Status: DisposedITAT Lucknow04 Jul 2024AY 2007-08

Bench: Hon’Ble Shri G. D. Padmahshali & Shri Subhash Malguriaआयकर अपील सं. / Ita No.261/Lkw/2020 निर्धारण वर्ा / Assessment Year : 2007-08 The Income Tax Officer Ward-6(1), Lucknow . . . . . . . अपीलार्थी / Appellant

For Appellant: None for the AssesseeFor Respondent: Smt. Namita Pandey [‘Ld. DR’]

Section 143(2)Section 154Section 250

involves setting aside an estimated amount revenue obligation incurred by an assessee in conducting its business. The question of provision arises only when mercantile system of accounting is followed or employed and not otherwise. To our mindfulness there are three categories of it such as; (a) provisions for expenses

DCIT Central Circle-1, Vadodara vs. Darshnam Life Spaces Pvt Ltd, Vadodara

In the result, both the appeals of the Revenue are hereby dismissed

ITA 663/AHD/2023[2015-16]Status: DisposedITAT Ahmedabad28 Jun 2024AY 2015-16

Bench: Smt. Annapurna Gupta & Shri T.R. Senthil Kumarassessment Year : 2015-16 Deputy Commissioner Of Darshnam Life Spaces Pvt. Income Tax, Ltd., Central Circle-1, 3Rd Floor, Platinum Complex, Vs Vadodara Opp. Ganga Jamuna Hospital, Subhanpura, Vadodara-390023 [Pan No.:Aadcd2030M] अपीलाथ"/ (Appellant) "" यथ"/ (Respondent) Appellant By : None Respondent By : Shri Kamlesh Makwana, Cit Dr सुनवाई क" तार"ख/Date Of Hearing: 12.06.2024 घोषणा क" तार"ख /Date Of Pronouncement: 28.06.2024 आदेश/O R D E R Per T.R. Senthil Kumar: This Appeal Is Filed By The Revenue As Against The Appellate Order Dated 14.06.2023 Passed By Commissioner Of Income Tax (Appeals) – 12, Ahmedabad Arising Out Of The Assessment Order Passed Under Section 143(3) Of The Income Tax Act, 1961 (Hereinafter Referred To As The “The Act”) Relating To The Assessment Year 2015-16. 2. The Grounds Of Appeal Raised By The Revenue Are As Follows:-

For Appellant: NoneFor Respondent: Shri Kamlesh Makwana, CIT DR

Section 143(3)Section 68

Department to prove that the method in vogue is not correct and it distorts the profits of a particular year. Under the mercantile system of accounting based on the concept of accrual, the method of accounting followed by the assessees is relevant. In the present case, there is no finding

Surana Mutha Bhansali, Pune vs. ACIT-Circle 5 Pune, Pune

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

ITA 1442/PUN/2023[2017-18]Status: DisposedITAT Pune28 Jun 2024AY 2017-18

Bench: Shri R. K. Panda & Shri Vinay Bhamoreassessment Year : 2017-18

For Appellant: Shri Neelesh KhandelwalFor Respondent: Shri Sourabh Nayak, Addl.CIT

Section 143(2)Section 270A(1)Section 270A(9)Section 43CSection 80I

satisfied with the arguments advanced by the assessee and made addition of Rs.4 crores by recording as under: “5.3. When the mercantile system of accounting being followed by the assessee, only crystallized liabilities are allowable and unascertained liabilities cannot be allowed. The future development expenses were claimed by the assessee ... liability which it had already undertaken under terms of sale deeds of lands in question, was an accrued liability which according to mercantile system of accounting, assessee was entitled to debit in its books of account for accounting year as against receipts which represented sale proceeds of said lands. Referring

Msv International Inc, Gurgaon vs. DCIT Circle Intl. Taxation, New Delhi

In the result, the appeal of the assessee is allowed

ITA 3916/DEL/2023[2021-22]Status: DisposedITAT Delhi27 Jun 2024AY 2021-22

Bench: Dr. B. R. R. Kumar, Sh. Anubhav Sharma

For Appellant: Sh. Ved Jain, Adv. &For Respondent: Sh. Vizay B. Vasanta, CIT-DR

Section 143(3)Section 144Section 144C(13)Section 144C(5)Section 144C(8)

been made ignoring the contention of the assessee that these expenditures pertain to FY 2020-21 and have been claimed as per the mercantile system of accounting followed by the assessee. (iii) That the above said disallowance has been made ignoring the explanation and evidences, including all of the invoices

Mr. Shanmugam Ravi, Bengaluru vs. Deputy Commissioner of Income Tax, Assessement Circle-2(1), Bengaluru

ITA 951/BANG/2023[2021-22]Status: DisposedITAT Bangalore25 Jun 2024AY 2021-22

Bench: Shri Chandra Poojari & Shri Keshav Dubey

Section 143(3)Section 234A

ITA No.951/Bang/2023 Mr. Shanmugam Ravi, Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT

Kome Koravadi Vividodeesha Sahakari Sangha Niyamitha, Udupi vs. Income Tax Officer, Ward-2, Udupi

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

ITA 982/BANG/2024[2017-18]Status: DisposedITAT Bangalore24 Jun 2024AY 2017-18

Bench: Shri Chandra Poojari & Shri Prakash Chand Yadavassessment Years : 2017-18

For Appellant: Shri Akshay K.S, C,AFor Respondent: Shri Ganesh R Gale, Standing Counsel for the Department, CIT (DR)

Section 143(2)Section 80P(2)(a)

interest expense of Rs.9,22,517/- stating that the assessee is following the hybrid system of accounting (i.e., combination of cash system and mercantile system of accounting) c) Disallowing provision for expenses of Rs.1,07,486/- holding it to be in the nature of unascertained liability 2.2 The AO concluded

Sh Tech Park Developers Pvt. Ltd., Gurgaon vs. ACIT, Circle-22(2), New Delhi

In the result, grounds raised by the assessee are allowed for

ITA 2043/DEL/2023[2018-19]Status: DisposedITAT Delhi21 Jun 2024AY 2018-19

Bench: SHRI S.RIFAUR RAHMAN (Accountant Member), SHRI YOGESH KUMAR U.S. (Judicial Member)

addition made of Rs. 9,47,14,870/- has failed to comprehend that, the assessee had computed its income in accordance with the mercantile system of accounting regularly employed by it and that it had computed its income in accordance with mandate of section 145A of the Act. 5. That

Rakesh Vyas, Jaipur vs. Income Tax Officer, Jaipur

In the result the appeal of the assessee is allowed

ITA 295/JPR/2024[2017-18]Status: DisposedITAT Jaipur18 Jun 2024AY 2017-18

Bench: DR. S. SEETHALAKSHMI (Judicial Member)

For Appellant: Sh. S. L. Poddar (Adv.)For Respondent: Sh. Rajesh Kumar Meena, (Addl. CIT)

Section 142(1)Section 143(2)Section 144Section 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) The Central Government may notify in the Official Gazette from time to time income computation and disclosure

Easyaccess Financial Services Ltd, Chennai vs. ITO, Copr Ward 2(1), Chennai

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

ITA 587/CHNY/2024[2012-13]Status: DisposedITAT Chennai14 Jun 2024AY 2012-13

Bench: Shri Mahavir Singhand Shri S.R. Raghunathaआयकर अपील सं./Ita No.: 587/Chny/2024 िनधा"रण वष"/Assessment Year: 2012-13 Easyaccess Financial Services Ltd., The Income Tax Officer, New No.18, Old No.40, Vs. Corporate Ward 2(1), Mussuri Subramaniam Salai, Chennai. (Oliver Road), Mylapore, Chennai – 600 004. Pan: Aabce 4646G (अपीलाथ"/Appellant) (""यथ"/Respondent) अपीलाथ" क" ओर से/Appellant By : Ms. M. Lavanya, Fca & Shri Shrenik Chordia, Ca ""यथ" क" ओर से/Respondent By : Shri N. Sanjay Gandhi, Jcit सुनवाई क" तारीख/Date Of Hearing : 13.06.2024 घोषणा क" तारीख/Date Of Pronouncement : 14.06.2024 आदेश /O R D E R Per Mahavir Singh: This Appeal By The Assessee Is Arising Out Of The Order Passed By The Commissioner Of Income Tax (Appeals), National Faceless Appeal Centre (Nfac) In Order No.Itba/Nfac/S/250/2023- 24/1060282095(1) Dated 30.01.2024. The Assessment Was Framed By The Deputy Commissioner Of Income Tax, Corporate Circle 2(1), Chennai For The Assessment Year 2012-13 U/S.143(3) R.W.S.147 Of The Income Tax Act, 1961 (Hereinafter The ‘Act’) Vide Order Dated 27.09.2017. 2. The First Issue In This Appeal Of Assessee Is As Regards To Assumption Of Jurisdiction By The Ao For Reopening Of Assessment U/S.147 R.W.S. 148 Of The Act, As The Ao During The Original Assessment Proceedings Has Formed An Opinion After Seeking Explanation & After Examining The Present Issue Of Factoring Of Income U/S.143(3) Of The Act. Hence, Now Reopening Is Bad In Law. The Assessee Also Raised The Interconnected Issue, Which Is On Merits That The Cit(A) Erred In Confirming The Addition Made By The Ao Beig Factoring Income In The Hands Of The Assessee.

For Appellant: Ms. M. Lavanya, FCA &For Respondent: Shri N. Sanjay Gandhi, JCIT

Section 143(3)Section 147Section 148

borrowing. Recognizing the factoring income over the period of the receivable ensures matching concept between income and expenditure, which is the basis for mercantile system of accounting Note: If factoring charges are to be recognized as upfront income, there would be a mismatch between the factoring income and borrowing costs ... Balance Sheet date even though the due date of such borrowing falls after the Balance Sheet date. This will contradict the principles of mercantile system of accounting 5.1 The ld.AR filed complete details of un-matured factoring charges as on 31.03.2012 and the details are now enclosed in assessee

V K A Constructions, Hyderabad vs. DCIT., Circle-9(1), Hyderabad

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

ITA 364/HYD/2024[2019-20]Status: DisposedITAT Hyderabad11 Jun 2024AY 2019-20

Bench: Shri Manjunatha, G. & Shri K. Narasimha Charyआ.अपी.सं /Ita No.364/Hyd/2024 (िनधा"रण वष"/Assessment Year: 201 ) Vka Constructions Vs. Dy. C. I. T. Hyderabad Circle 9(1) Pan:Aabfv3644E Hyderabad (Appellant) (Respondent) िनधा""रती "ारा/Assessee By: Shri Kaushal Karan, Assessee राज" व "ारा/Revenue By:: Shri Shakeer Ahmed, Dr सुनवाई की तारीख/Date Of Hearing: 11/06/2024 घोषणा की तारीख/Pronouncement: 11/06/2024 आदेश/Order

For Appellant: Shri Kaushal Karan, AssesseeFor Respondent: : Shri Shakeer Ahmed, DR

Section 143(1)Section 199

allowed in the year in which such income is assessable to tax. The assessee further submitted that since the assessee is following mercantile system of accounting, it has offered income on accrual basis even though the bills were not realized from various govt. departments and claimed

Deputy Commissioner of Income Tax Circle-2(1)(1), Bengaluru vs. Canara Bank, Bengaluru

In the result, revenue’s appeal in ITA No

ITA 716/BANG/2024[2015-16]Status: DisposedITAT Bangalore10 Jun 2024AY 2015-16

Bench: Shri Chandra Poojari & Shri Keshav Dubeyassessment Year: 2015-16

For Appellant: Sri S. Ananthan, A.RFor Respondent: Ms. Neera Malhotra, D.R

Section 14Section 147Section 14ASection 154

taxed. 7. We have heard the rival submissions and perused the materials available on record. On this issue, the assessee is following mercantile system of accounting from year to year. The assessee cannot be allowed to follow the hybrid system of accounting in respect of interest of income tax refunds ... brought to our notice that the Hon'ble Supreme Court approved the practice of nationalized bank governed by Banking Regulation Act, following mercantile system of accounting both for book keeping as well for income-tax purposes. The Hon'ble Apex Court upheld the method adopted by the banks valuing stock

Canara Bank, Bengaluru vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1), Bangalore, Bengaluru

In the result, revenue’s appeal in ITA No

ITA 111/BANG/2024[2015-16]Status: DisposedITAT Bangalore10 Jun 2024AY 2015-16

Bench: Shri Chandra Poojari & Shri Keshav Dubeyassessment Year: 2015-16

For Appellant: Sri S. Ananthan, A.RFor Respondent: Ms. Neera Malhotra, D.R

Section 14Section 147Section 14ASection 154

Grey Orange India Private Limited, New Delhi vs. ACIT Circle-10(2), New Delhi

Appeal is allowed for statistical purposes

ITA 7607/DEL/2019[2016-17]Status: DisposedITAT Delhi10 Jun 2024AY 2016-17

Bench: Shri Kul Bharat & Shri M. Balaganeshassessment Year: 2016-17

Section 143(2)Section 271(1)(c)

such warranty costs in its accounts for the relevant year, otherwise the matching concept would be violated. He contended that as per the mercantile system of accounting, the profit is to be arrived at after taking into account all the accrued receipts and expenses. 6. On the other hand learned ... year of payment, same cannot be allowed in view of the fact that the accounts are maintained on the basis of mercantile system of accounting. The nature of expenses being business cannot be lost sight. The factum of actual incurrence of expenses goes to prove that the provision so computed

M/S H.P.State Forest Coprn. Ltd., Shimla vs. JCIT, S.R., Shimla

In the result, the present appeal of Appellant/Assessee is allowed and impugned order of Ld

ITA 281/CHANDI/2000[1991-92]Status: DisposedITAT Chandigarh06 Jun 2024AY 1991-92

Bench: Shri Vikram Singh Yadav& Shri Paresh M. Joshiआयकरअपीलसं./Ita Nos.280& 281/Chd/2000 िनधा"रणवष" / Assessment Years : 1990-91& 1991-92 M/S H.P. State Forest Corp. Ltd. Vs The Jcit, Van Nigam Kasumpti Shimla Shimla "ायीलेखासं./Pan No: Aaach4036L अपीलाथ"/Appellant ""यथ"/Respondent िनधा"रतीक"ओरसे/Assessee By: Shri Y.K. Sud, Ca राज"वक"ओरसे/ Revenue By : Sh.Sarabjeet Singh, Cit-Dr सुनवाईक"तारीख/Date Of Hearing : 28.05.2024 उदघोषणाक"तारीख/Date Of Pronouncement : 06.06.2024 Hybridhearing आदेश/Order Per Paresh M. Joshi, Jm: Both The Above Appeals Have Been Filed By The Assessee. Since The Issues Involved In Both The Above Appeals Are Common & Were Heard Together Therefore They Are Being Disposed Off By This Consolidated Order For The Sake Of Brevity. We Shall Take Appeal Of The Assessee In Ita No. 280/Chd/2000 As A Lead Case.

For Appellant: Shri Y.K. Sud, CAFor Respondent: Sh.Sarabjeet Singh, CIT-DR

Section 139(9)Section 142(1)Section 143(1)(a)Section 143(2)Section 144Section 148Section 148(1)Section 151(2)Section 250Section 253

year 1990-91, this liability crystalized in that year and should have been claimed in that year only because the assessee is following mercantile system of accounting. Hence, assessee’s claim with regard to this amount of interest is also disallowed. interest on royalty and sales

M/S H.P.State Forest Coprn. Ltd., Shimla vs. JCIT, S.R., Shimla

In the result, the present appeal of Appellant/Assessee is allowed and impugned order of Ld

ITA 280/CHANDI/2000[1990-91]Status: DisposedITAT Chandigarh06 Jun 2024AY 1990-91

For Appellant: Shri Y.K. Sud, CAFor Respondent: Sh.Sarabjeet Singh, CIT-DR

Section 139(9)Section 142(1)Section 143(1)(a)Section 143(2)Section 144Section 148Section 148(1)Section 151(2)Section 250Section 253

New Balance It Services India Pvt. Ltd., Pune vs. Income Tax Officer(1)- Circle 2, Punepune, Pune

ITA 246/PUN/2024[2022-23]Status: DisposedITAT Pune05 Jun 2024AY 2022-23

Bench: Hon’Ble Shri S. S. Godara & Shri G. D. Padmahshaliआयकर अपऩल सं. / Ita No. 0245 & 0246/Pun/2024 निर्धारण वषा / Assessment Year : 2020-21 & 2022-23 New Balance It Services India Pvt. Ltd. Level-1, Wing-A, Tower-06, Cybercity, Magarpatta, Pune-411013. Pan : Aaccn5091R . . . . . . . अपीलार्थी / Appellant बिधम / V/S. Income Tax Officer-1, Circle-2, Pune . . . . . . . प्रत्यर्थी / Respondent द्वधरध / Appearances Assessee By : Mr Rajendra Agiwal [‘Ld. Ar’] Revenue By : Mr Ramnath Murkunde [‘Ld. Dr’] सुनवाई की तारीख / Date Of Conclusive Hearing : 28/05/2024 घोषणा की तारीख / Date Of Pronouncement : 05/06/2024 आदेश / Order Per G. D. Padmahshali, Am; This Twin Appeals Are Instituted U/S 253(1)(Aa) Of The Income Tax Act [‘The Act’] By The Assessee Challenging The Respective First Appellate Orders Dt. 19/12/2023 Passed U/S 250 Of The Act By The Commissioner Of Income Tax Appels [‘Cit(A)’] For The Assessment Years 2020-21 & 2022-23 [‘Ay’] Which In Turn Arisen Out Of Separate Orders Of Intimation Passed U/S 143(1) Of The Act.

For Appellant: Mr Rajendra Agiwal [‘Ld. AR’]For Respondent: Mr Ramnath Murkunde [‘Ld. DR’]

Section 139(1)Section 143(1)Section 143(1)(a)Section 145Section 145(2)Section 250Section 253(1)(aa)Section 28

against the former. Whereas s/s (2) of section 145 of the Act prescribes that, the assessee maintaining books of accounts on accrual or mercantile system of accounting in relation to any income taxable under the head ‘PGBP or IOS or both’ is required to compute its taxable income in accordance ... assessee (other than Individual or HUF who is not covered by the provisions of tax audit u/s 44AB of the Act) following mercantile system of accounting, for the purposes of computation of income chargeable to income-tax under the head ‘PGBP or IOS or both’. The compliance with applicable ICDSs

New Balance It Services India Pvt. Ltd., Pune vs. Income Tax Officer(1)- Circle 2, Pune

ITA 245/PUN/2024[2021-22]Status: DisposedITAT Pune05 Jun 2024AY 2021-22

For Appellant: Mr Rajendra Agiwal [‘Ld. AR’]For Respondent: Mr Ramnath Murkunde [‘Ld. DR’]

Section 139(1)Section 143(1)Section 143(1)(a)Section 145Section 145(2)Section 250Section 253(1)(aa)Section 28

DCIT Central Circle-1(1), Ahmedabad vs. Navratna Organisers and Developers Pvt. Ltd., Ahmedabad

In the result, the appeal of the Revenue is dismissed

ITA 1124/AHD/2023[2014-15]Status: DisposedITAT Ahmedabad04 Jun 2024AY 2014-15

Bench: Shri Siddhartha Nautiyal (Judicial Member), Shri Narendra Prasad Sinha (Accountant Member)

For Appellant: Ms. Amrin Pathan, A.RFor Respondent: Shri Sushil Kumar Katiar, Sr. D.R

Section 14A

come to the conclusion that the assessee was the developer, and the WPI did not belong to it. The assessee was consistently following mercantile system of accounting and receipts in the form of development fees were recognized on completion of project. The Assessing Officer without any basis had construed that

Deputy Commissioner of Income Tax, Nariman Point, Mumbai vs. Beil Infrastructure Limited, Gujarat

In the result, both the appeals of the revenue are dismissed

ITA 2732/MUM/2023[2017-18]Status: DisposedITAT Mumbai04 Jun 2024AY 2017-18

Bench: Justice (Retd.) C V Bhadang, Hon’Ble& Shri B.R. Baskaranassessment Year 2017-18 Assessment Year 2018-19

For Appellant: Shri S.Srinivasu, CIT-DR &For Respondent: Shri Kirit Kamdar &

Section 80I

refill them arose and it was entitled to deduction of the expenses incurred for filling those pits, as the assessee was following mercantile system of accounting". Similar view was taken by the Co-ordinate Bench of Hyderabad in the case of NMDC Ltd. 56 taxrhann.com 396. The Co-- ordinate Bench

Deputy Commissioner of Income Tax, Central Circle 6(3), Mumbai vs. Beil Infrastructure Limited, Gujarat

In the result, both the appeals of the revenue are dismissed

ITA 2729/MUM/2023[2018-19]Status: DisposedITAT Mumbai04 Jun 2024AY 2018-19

Bench: Justice (Retd.) C V Bhadang, Hon’Ble& Shri B.R. Baskaranassessment Year 2017-18 Assessment Year 2018-19

For Appellant: Shri S.Srinivasu, CIT-DR &For Respondent: Shri Kirit Kamdar &

Section 80I