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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

Thomas Cook (India) Ltd., Mumbai vs. Addl/ Jt/ Dy/CIT/Asstt/ITO, National E-Assessment Centre, Delhi

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

ITA 1218/MUM/2021[2016-17]Status: DisposedITAT Mumbai24 Nov 2023AY 2016-17

Bench: Shri S. Rifaur Rahman, Hon'Ble & Ms. Kavitha Rajagopal, Hon'Ble

Section 92CSection 92C(3)

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H”, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND

M/S Ashok Engineering Works, Korba vs. Deputy Commissioner of Income Tax, Circle-1(1), Bilaspur

In the result, appeal of the assessee in ITA No

ITA 54/RPR/2022[2018-19]Status: DisposedITAT Raipur24 Nov 2023AY 2018-19

Bench: Shri Ravish Sood & Shri Arun Khodpiaआयकर अपील सं. / Ita Nos. 53 & 54/Rpr/2022 "नधा"रण वष" / Assessment Years : 2017-18 & 2018-19 M/S. Ashoka Engineering Works, Lig-51, Sada Colony, Jamnipali, Korba (C.G.)-495 450 Pan : Aaafw5581G .......अपीलाथ" / Appellant बनाम / V/S. The Deputy Commissioner Of Income Tax, Circle-1(1), Bilaspur (C.G.) ……""यथ" / Respondent

For Appellant: Shri Y.K Mishra, AdvocateFor Respondent: Shri Satya Prakash Sharma, Sr. DR
Section 143(1)Section 154Section 36(1)(va)

liability to pay such sum was incurred by the Assessee according to the method of accounting regularly employed by it. In short, a mercantile system of accounting cannot be looked at when a deduction is claimed under this Section, making it clear that incurring of liability cannot allow ... Commissioner of Income Tax, Delhi, 2021 SCC OnLine SC 575. [employer(s)] was entitled to deduction even prior to 1-4-1984, on mercantile system of accounting as a business expenditure by making provision in his books of accounts in that regard. In other words, if an assessee(s) [employer

M/S Ashoka Engineering Works, Korba vs. Deputy Commissioner of Income Tax, Circle-1(1), Bilaspur

In the result, appeal of the assessee in ITA No

ITA 53/RPR/2022[2017-18]Status: DisposedITAT Raipur24 Nov 2023AY 2017-18

Bench: Shri Ravish Sood & Shri Arun Khodpiaआयकर अपील सं. / Ita Nos. 53 & 54/Rpr/2022 "नधा"रण वष" / Assessment Years : 2017-18 & 2018-19 M/S. Ashoka Engineering Works, Lig-51, Sada Colony, Jamnipali, Korba (C.G.)-495 450 Pan : Aaafw5581G .......अपीलाथ" / Appellant बनाम / V/S. The Deputy Commissioner Of Income Tax, Circle-1(1), Bilaspur (C.G.) ……""यथ" / Respondent

For Appellant: Shri Y.K Mishra, AdvocateFor Respondent: Shri Satya Prakash Sharma, Sr. DR
Section 143(1)Section 154Section 36(1)(va)

liability to pay such sum was incurred by the Assessee according to the method of accounting regularly employed by it. In short, a mercantile system of accounting cannot be looked at when a deduction is claimed under this Section, making it clear that incurring of liability cannot allow ... Commissioner of Income Tax, Delhi, 2021 SCC OnLine SC 575. [employer(s)] was entitled to deduction even prior to 1-4-1984, on mercantile system of accounting as a business expenditure by making provision in his books of accounts in that regard. In other words, if an assessee(s) [employer

Pradeep Kumar Dhurve, Durg vs. Deputy Commissioner of Income-Tax, Circle 1(1), Bhilai

In the result, appeal of the assessee is allowed in terms of our aforesaid observations

ITA 302/RPR/2023[2018-19]Status: DisposedITAT Raipur23 Nov 2023AY 2018-19

Bench: Shri Ravish Sood & Shri Arun Khodpiaआयकर अपील सं. / Ita No. 302/Rpr/2023 "नधा"रण वष" / Assessment Year : 2018-19 Pradeep Kumar Dhurve Near Pawan Kirana Store, Sangram Chowk, Prem Nagar, Sikola Bhata, Durg (C.G.)-491 001 Pan : Aanpd6067H

For Appellant: Shri R.B Doshi, CAFor Respondent: Shri Satya Prakash Sharma, Sr. DR
Section 139(1)Section 143(1)Section 143(1)(a)Section 36(1)(va)Section 43B

make a nice distinction between Chowringhee's case and instances where Profit and Loss accounts and Service Tax accounts are maintained separately following mercantile system of accounting. As rightly noticed therein, it is not for the Income Tax department to make out a case relating to the correctness or otherwise ... mercantile system of accounting, resorted to and maintained by an assessee. The acceptability or otherwise of the accounts in a mercantile system would obviously be a matter of concern for other taxation authorities. 6. In the case in hand, as already noted, the fact situation that the Assessing Authority

Deputy Commissioner of Income Tax Circle-2, Nagpur vs. M/S Forest Development Corporation of Maharashtra Ltd, Nagpur

In the result, appeal of the Revenue is allowed for statistical purpose

ITA 70/NAG/2020[2016-17]Status: DisposedITAT Nagpur21 Nov 2023AY 2016-17

Bench: Shri S.S.Godara & Dr. Dipak P. Ripoteआयकर अपील सं. / Ita No.70/Nag/2020 िनधा"रण वष" / Assessment Year : 2016-17 The Dy.Commissioner Of M/S. Forest Development Income Tax, Circle-2, V Corporation Of Maharashtra Nagpur – 440001. S Ltd., Plot No.359/B, Fdcm Bhavan, Hingana Road, Ambazri, Nagpur – 440001. Pan: Aaacf2982K Appellant / Revenue Respondent / Assessee Assessee By Shri Indraneel Dani – Ar Revenue By Shri Kailash Kanojiya – Sr.Dr Date Of Hearing 01/09/2023 Date Of Pronouncement 21/11/2023

Section 143(3)Section 250Section 37(1)

working has been filed to demonstrate how the expenditure has crystalised during the year. 5. It is a fact that assessee is following mercantile system of accounting. In mercantile system, deduction is allowable in the year in which liability accrues. The Hon'ble High Court of 3 M/s.Forest Development Corporation

Ge India Industrial Pvt. Ltd. (Formerly Known As Ge India Exports P.Ltd), New Delhi vs. JCIT, Special Range-4, New Delhi

In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed

ITA 9031/DEL/2019[2015-16]Status: DisposedITAT Delhi21 Nov 2023AY 2015-16

Bench: Shri Challa Nagendra Prasada N D Shri M. Balaganesh

For Appellant: Shri Sachit Jolly, Adv. &
Section 143(3)Section 144C(5)Section 2Section 37Section 37(1)

Mills Ltd. (supra) sup- port the case of the assessee as the assessee has incurred a definite legal liability and on following the mercantile system of accounting, the discount on employees stock option plans has rightly been debited as expenditure in the books of account. We are in respectful agreement

Channalplay Limited, Haryana vs. Circle-6(1), Delhi

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

ITA 90/DEL/2022[2018-19]Status: DisposedITAT Delhi16 Nov 2023AY 2018-19

Bench: Shri Shamim Yahya & Shri Kul Bharat[Assessment Year : 2018-19] M/S. Channelplay Ltd., Vs Asst.Dit, Plot No.800, Udhyog Vihar, Central Processing Gurgaon-122016. Centre, Pan-Aadcc0600L Bangalore-560500. Appellant Respondent Appellant By Shri Suyash Sinha, Adv. Respondent By Shri Vivek Kumar Upadhyay, Sr.Dr Date Of Hearing 13.11.2023 Date Of Pronouncement 16.11.2023 Order

Section 139(1)Section 143(1)Section 36(1)(va)

other hand, Ld. Sr. DR opposed these submissions and supported the orders of the authorities below. He contended that the assessee is following Mercantile System of Accounting. Therefore, Ld.CIT(A) was justified in disallowing the claim of the assessee. 11. We have heard Ld. Authorized Representatives of the parties ... connection, it is considered necessary to examine the method of accounting of that the assessee regularly follows. The assessee, being a company following mercantile system of accounting, it is a statutory right of the assessee to get refund of the excess tax paid and such refund shall be made

ACIT, New Delhi vs. M/S. Central Warehousing Corporation, New Delhi

In the result, appeal of the Revenue and appeal of the assessee are partly allowed as indicated above

ITA 4334/DEL/2011[1998-99]Status: DisposedITAT Delhi14 Nov 2023AY 1998-99

Bench: Shri Challa Nagendra Prasada N D Shri M. Balaganesh

For Appellant: Shri V. Rajakumar, Adv
Section 10Section 10(29)Section 10(33)Section 11Section 115JSection 2

Income from Bonded Warehouses which required to be offered for taxation or which could be taxed, even though the Corporation is following the Mercantile System of Accounting. 7. It is contended that the Realization of Income Accrued on account of Warehousing Charges on the Time Barred Bonds is generally uncertain ... other joint ventures but in absence of the audited accounts, income of those joint ventures was not reported on accrual basis following mercantile system of accounting. Before us, learnedCounsel of the assessee referred to various pages of the paper-book and submitted that said income from joint ventures should

Central Warehousing Corporation, New Delhi vs. DCIT, New Delhi

In the result, appeal of the Revenue and appeal of the assessee are partly allowed as indicated above

ITA 4190/DEL/2011[1998-99]Status: DisposedITAT Delhi14 Nov 2023AY 1998-99

Bench: Shri Challa Nagendra Prasada N D Shri M. Balaganesh

For Appellant: Shri V. Rajakumar, Adv
Section 10Section 10(29)Section 10(33)Section 11Section 115JSection 2

Income from Bonded Warehouses which required to be offered for taxation or which could be taxed, even though the Corporation is following the Mercantile System of Accounting. 7. It is contended that the Realization of Income Accrued on account of Warehousing Charges on the Time Barred Bonds is generally uncertain ... other joint ventures but in absence of the audited accounts, income of those joint ventures was not reported on accrual basis following mercantile system of accounting. Before us, learnedCounsel of the assessee referred to various pages of the paper-book and submitted that said income from joint ventures should

Standard Chartered Bank, Mumbai vs. DDIT (It) 2(1), Mumbai

In the result, ground raised by the revenue is dismissed

ITA 3458/MUM/2009[2000-01]Status: DisposedITAT Mumbai13 Nov 2023AY 2000-01

Bench: Shri Vikas Awasthy & Shri Gagan Goyalstandard Chartered Bank Taxation Department, 23-25, M. G. Road, 3Rd Floor, Fort, Mumbai-400 001 Pan: Aabcs4681D ..... Appellant Vs. Ddit (Intl. Tax)-2(1) Scindia House, Ballard Estate, N. M. Marg, Mumbai-400 038 ..... Respondent

For Appellant: Shri Madhur Agarwal, Ld. ARFor Respondent: Shri Anil Sant, Ld. DR
Section 14ASection 250Section 40Section 44C

contracts. 5.2 The leaned CIT (A) ought to have allowed the loss since the same were in accordance with the FEDAI guidelines and mercantile system of accounting regularly· employed by the Appellant and accordingly disallowance should be deleted. 6. 6.1 The learned CIT (A) erred in estimating ... contracts. 5.2 the leaned CIT (A) ought to have allowed the loss since the same were in accordance with the FEDAI guidelines and mercantile system of accounting regularly· employed by the Appellant and accordingly disallowance should be deleted.” 5.2 Submission The Appellant submits that this loss on unmatured forward contract

Ruby Touch Infrstructure Private Limited, Nagpur vs. ACIT Circle -II, Nagpur

In the result, appeal of the assessee is dismissed

ITA 323/NAG/2019[2013-14]Status: DisposedITAT Nagpur13 Nov 2023AY 2013-14

Bench: Shri S.S.Godara & Dr. Dipak P. Ripoteआयकर अपील सं. / Ita No.323/Nag/2019 िनधा"रण वष" / Assessment Year : 2013-14 Ruby Touch Infrastructure The Acit, Circle-Ii, Private Limited, V Nagpur. 8, Laxmi Anjuman Building S Sadar, Nagpur – 440001. Pan: Aadcr7138N Appellant/ Assessee Respondent/Revenue Assessee By None Revenue By Shri Rishi Kumar Bisen – Dr Date Of Hearing 28/08/2023 Date Of Pronouncement 13/11/2023 आदेश/ Order Per Dr. Dipak P. Ripote, Am: This Is An Appeal Filed By The Assessee Against The Order Under Section 250 Of The Income Tax Act, 1961 Passed By Ld.Commissioner Of Income Tax(Appeals), Nagpur On 29.08.2018 For The A.Y. 2013-14. The Grounds Of Appeal Are As Under : “1. That The Lower Authorities Grossly Erred In Law & Facts In Disallowing & Maintaining Expenditure Of Rs.462453/-, Paid To Nagpur Improvement Trust Being “Additional Regulrisitation Charges” At The Time Of Registration Of Sale Deed “ Purchase Title Deed: In As Much As Due Evidence Was Produced During The Course Ruby Touch Infrastructure Private Limited [A]

Section 250Section 37

name of Arvind Ladhe. The ld.CIT(A) confirmed the disallowance as it pertains to earlier financial year and assessee is a company following mercantile system of accounting. 5.1 Before us, the assessee has taken a plea in the grounds of appeal that the amount was paid to Nagpur Improvement Trust

Bayer Cropscience Ltd (Sucessor to Monsanto India Limited Mil), Mumbai vs. DCIT RG- 10(2)(2), Mumbai

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

ITA 2302/MUM/2018[2012-13]Status: DisposedITAT Mumbai10 Nov 2023AY 2012-13

Bench: Shri Om Prakash Kant & Shri Sandeep Singh Karhail

For Appellant: Shri Nitesh JoshiFor Respondent: Ms. Riddhi Mishra
Section 10(1)Section 115JSection 142(1)Section 143(2)Section 250

no.3763/Mum./2015 ITA no.2124/Mum./2018 ITA no.2302/Mum./2018 assessee as the assessee has incurred a definite legal liability and on following the mercantile system of accounting, the discount on ESOPs has rightly been debited as expenditure in the books of account. We are in respectful agreement with the view taken

JCIT (OSD)- 10(2)(2), Mumbai vs. Bayer Cropscience Ltd (Sucessor to Monsanto India Limited, Mumbai

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

ITA 2124/MUM/2018[2012-13]Status: DisposedITAT Mumbai10 Nov 2023AY 2012-13

Bench: Shri Om Prakash Kant & Shri Sandeep Singh Karhail

For Appellant: Shri Nitesh JoshiFor Respondent: Ms. Riddhi Mishra
Section 10(1)Section 115JSection 142(1)Section 143(2)Section 250

no.3763/Mum./2015 ITA no.2124/Mum./2018 ITA no.2302/Mum./2018 assessee as the assessee has incurred a definite legal liability and on following the mercantile system of accounting, the discount on ESOPs has rightly been debited as expenditure in the books of account. We are in respectful agreement with the view taken

Bayer Cropscience Ltd (Sucessor to Monsanto India Limited Mil), Mumbai vs. DCIT RG- 10(2)(2), Mumbai

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

ITA 3763/MUM/2015[2009-10]Status: DisposedITAT Mumbai10 Nov 2023AY 2009-10

Bench: Shri Om Prakash Kant & Shri Sandeep Singh Karhail

For Appellant: Shri Nitesh JoshiFor Respondent: Ms. Riddhi Mishra
Section 10(1)Section 115JSection 142(1)Section 143(2)Section 250

no.3763/Mum./2015 ITA no.2124/Mum./2018 ITA no.2302/Mum./2018 assessee as the assessee has incurred a definite legal liability and on following the mercantile system of accounting, the discount on ESOPs has rightly been debited as expenditure in the books of account. We are in respectful agreement with the view taken

Icici Bank Ltd, Mumbai vs. Addl CIT RG (1), Mumbai

Appeals are partly allowed

ITA 4248/MUM/2014[2007-08]Status: DisposedITAT Mumbai09 Nov 2023AY 2007-08

Bench: Shri Amit Shukla () & Ms. Padmavathy S. ()

Section 10(15)Section 115JSection 234BSection 41(4)Section 88ESection 90

also includes “recoverable” depending on the method of accounting followed by the assessee. The AO further held that since the assessee is following mercantile system of accounting even though no cash recovery is made, the non-cash write backs also should be brought to tax. Accordingly, the AO made addition

DCIT Cir 3(1), Mumbai vs. Icici Bank Ltd, Mumbai

Appeals are partly allowed

ITA 4158/MUM/2014[2007-08]Status: DisposedITAT Mumbai09 Nov 2023AY 2007-08

Bench: Shri Amit Shukla () & Ms. Padmavathy S. ()

Section 10(15)Section 115JSection 234BSection 41(4)Section 88ESection 90

also includes “recoverable” depending on the method of accounting followed by the assessee. The AO further held that since the assessee is following mercantile system of accounting even though no cash recovery is made, the non-cash write backs also should be brought to tax. Accordingly, the AO made addition

M/S. S.R. Ferro Alloys, Jhabua vs. The PCIT, Bhopal

In the result, the appeal of assessee is allowed

ITA 148/IND/2021[2015-16]Status: DisposedITAT Indore09 Nov 2023AY 2015-16

Bench: Shri Vijay Pal Rao & Shri B.M. Biyanis.R. Ferro Alloys Pr. Cit, Central 9, Siddheswar Colony Bhopal Vs. Jhabua (Appellant / Assessee) (Revenue) Pan: Abhfs7377Q Appellant By Shri Sumit Nema, Sr. Adv. & Gagan Tiwari, Ar Revenue By Shri Ashish Porwal, Sr. Dr Date Of Hearing 12.10.2023 Date Of Pronouncement 09.11.2023

Section 263

section 1482) of the Act the income is to be computed in accordance with either cash or mercantile system of accounting to be regularly employed. This sub- section further empowers Central Government to notify the accounting standards to followed by any case of assessee or in respect of clause from

Pawan Hans Helicopters Limited, New Delhi vs. DCIT, Spl. Range-27, New Delhi

In the result, the appeal of the assessee is allowed

ITA 3516/DEL/1998[1992-93]Status: DisposedITAT Delhi03 Nov 2023AY 1992-93

Bench: Sh. N. K. Billaiya & Ms. Astha Chandraassessment Year: 1992-93 Pawan Hans Helicopters Ltd. Dcit Special Range-27 Safdarjung Airport Vs New Delhi New Delhi (Appellant) (Respondent) Assessment Year: 1999-2000 Pawan Hans Helicopters Ltd. Jcit (Osd) Range-14 New Delhi Safdarjung Airport Vs New Delhi (Appellant) (Respondent)

been rejected repeatedly by the Ministry of Finance. Thus, the liability pertains to the current year only and the assessee is following the mercantile system of accounting and thus the interest claimed by the assessee has to be allowed. The assessee has claimed similar expenditure in the following preceding assessment

Zee Entertainment Enterprises Limited, Mumbai vs. JCIT(TDS)(OSD)-2(3), Mumbai

In the result, we confirm the appellate order passed by the CIT (A) for assessment year 2013 – 14 and dismiss all the grounds raised by the assessee in this appeal

ITA 2097/MUM/2023[2018-19]Status: DisposedITAT Mumbai31 Oct 2023AY 2018-19

Bench: Shri Prashant Maharishi, Am & Shri Sandeep Singh Karhail, Jm

For Appellant: Shri Madhur Agarwal Advocate and Shri Jay Bhansali ARFor Respondent: Shri ram Krishna Kedia Sr DR
Section 133ASection 201Section 40

deduction at source provisions. viii. Assessee explained its accounting entries and stated that assessee is required to prepare books of account following the mercantile system of accounting and accounting standards. Accordingly, the provision is made at the year-end on the basis of some reasonable estimate, as the invoices

Zee Entertainment Enterprises Limited, Mumbai vs. Joint Commissioner of Income Tax, OSD(TDS)-2(3), Mumbai(Present in Charge JCIT CC-2(4), Mumbai

In the result, we confirm the appellate order passed by the CIT (A) for assessment year 2013 – 14 and dismiss all the grounds raised by the assessee in this appeal

ITA 2096/MUM/2023[2019-20]Status: DisposedITAT Mumbai31 Oct 2023AY 2019-20

Bench: Shri Prashant Maharishi, Am & Shri Sandeep Singh Karhail, Jm

For Appellant: Shri Madhur Agarwal Advocate and Shri Jay Bhansali ARFor Respondent: Shri ram Krishna Kedia Sr DR
Section 133ASection 201Section 40

deduction at source provisions. viii. Assessee explained its accounting entries and stated that assessee is required to prepare books of account following the mercantile system of accounting and accounting standards. Accordingly, the provision is made at the year-end on the basis of some reasonable estimate, as the invoices