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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

DCIT Central Circle-3, Thane vs. Moreshwar Krushna Baria, Thane

ITA 2217/MUM/2022[2013-14]Status: DisposedITAT Mumbai28 Jun 2023AY 2013-14

Bench: Shri Kuldip Singh & Shri Gagan Goyal

For Appellant: Shri Subodh Ratnaparkhi, A.RFor Respondent: Smt. Riddhi Mishra, CIT D.R
Section 132Section 69C

head Profits and Gains of Business or Profession or Income from Other Sources shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Income is brought to tax either on accrual basis or on receipt basis, as per the method of accounting

Moreshwar Krushna Baria, Thane vs. Asst Comm of Income Tax Central Circle-3, Thane

ITA 1966/MUM/2022[2014-15]Status: DisposedITAT Mumbai28 Jun 2023AY 2014-15

Bench: Shri Kuldip Singh & Shri Gagan Goyal

For Appellant: Shri Subodh Ratnaparkhi, A.RFor Respondent: Smt. Riddhi Mishra, CIT D.R
Section 132Section 69C

head Profits and Gains of Business or Profession or Income from Other Sources shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Income is brought to tax either on accrual basis or on receipt basis, as per the method of accounting

Moreshwar Krushna Baria, Thane vs. Asst Comm of Income Tax Central Circle-3, Thane

ITA 1965/MUM/2022[2013-14]Status: DisposedITAT Mumbai28 Jun 2023AY 2013-14

Bench: Shri Kuldip Singh & Shri Gagan Goyal

For Appellant: Shri Subodh Ratnaparkhi, A.RFor Respondent: Smt. Riddhi Mishra, CIT D.R
Section 132Section 69C

head Profits and Gains of Business or Profession or Income from Other Sources shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Income is brought to tax either on accrual basis or on receipt basis, as per the method of accounting

Moreshwar Krushna Baria, Mumbai vs. Assistant Commissioner of Income Tax, Thane

ITA 1964/MUM/2022[2012-13]Status: DisposedITAT Mumbai28 Jun 2023AY 2012-13

Bench: Shri Kuldip Singh & Shri Gagan Goyal

For Appellant: Shri Subodh Ratnaparkhi, A.RFor Respondent: Smt. Riddhi Mishra, CIT D.R
Section 132Section 69C

head Profits and Gains of Business or Profession or Income from Other Sources shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Income is brought to tax either on accrual basis or on receipt basis, as per the method of accounting

Moreshwar Krushna Baria, Thane vs. Asst Comm of Income Tax Central Circle-3, Thane

ITA 1963/MUM/2022[2011-12]Status: DisposedITAT Mumbai28 Jun 2023AY 2011-12

Bench: Shri Kuldip Singh & Shri Gagan Goyal

For Appellant: Shri Subodh Ratnaparkhi, A.RFor Respondent: Smt. Riddhi Mishra, CIT D.R
Section 132Section 69C

head Profits and Gains of Business or Profession or Income from Other Sources shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Income is brought to tax either on accrual basis or on receipt basis, as per the method of accounting

Moreshwar Krushna Baria, Thane vs. Asst Comm of Income Tax Central Circle-3, Thane

ITA 1962/MUM/2022[2010-11]Status: DisposedITAT Mumbai28 Jun 2023AY 2010-11

Bench: Shri Kuldip Singh & Shri Gagan Goyal

For Appellant: Shri Subodh Ratnaparkhi, A.RFor Respondent: Smt. Riddhi Mishra, CIT D.R
Section 132Section 69C

head Profits and Gains of Business or Profession or Income from Other Sources shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Income is brought to tax either on accrual basis or on receipt basis, as per the method of accounting

Moreshwar Krushna Baria, Thane vs. ACIT Central Circle-3, Thane

ITA 1961/MUM/2022[2009-10]Status: DisposedITAT Mumbai28 Jun 2023AY 2009-10

Bench: Shri Kuldip Singh & Shri Gagan Goyal

For Appellant: Shri Subodh Ratnaparkhi, A.RFor Respondent: Smt. Riddhi Mishra, CIT D.R
Section 132Section 69C

head Profits and Gains of Business or Profession or Income from Other Sources shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Income is brought to tax either on accrual basis or on receipt basis, as per the method of accounting

M/S Kepco Plant Service & Engineering Co Limited, Mumbai vs. Commissioner of Income Tax-(It), Mumbai

ITA 1030/MUM/2022[2017-18]Status: DisposedITAT Mumbai28 Jun 2023AY 2017-18
For Appellant: Shri P.J. Pardiwala, Sr. AdvocateFor Respondent: Shri Purushottam Tripurari
Section 143(3)Section 263

Profit & Loss account. As per accounting policy mentioned in notes forming part of the statement of accounts of the assessee company, the mercantile system of accounting is being followed by the company and income & expenditure is recognized on accrual basis. The assessee should have claimed the DTAA benefits separately

Sanjay Kumar Jain, Jaipur vs. Asst Commissioner of Income Tax, Jaipur

In the result,the appeal of the assessee is dismissed

ITA 44/JPR/2023[2016-17]Status: DisposedITAT Jaipur28 Jun 2023AY 2016-17

Bench: The Hearing.”

For Appellant: NoneFor Respondent: Smt.MonishaChourdhary (Addl.CIT)
Section 142(1)Section 143(2)Section 143(3)Section 145Section 145(3)Section 3Section 44A

shall, subject to the accounting standards notified by the Central Government in the Official Gazette, be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee, Subsection 3 of Section 145 laysdown that where the Assessing Officer is not satisfied about the correctness ... completeness of the accounts of the assessee, or where the method of accounting namely cash or mercantile systems or accounting standards as notified by the Central Government, have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in Section

Nitin Kumar, Saharanpur vs. ITO, Ward 3(3)(5), Saharanpur

In the result appeal of the assessee is allowed

ITA 56/DEL/2023[2018-19]Status: DisposedITAT Delhi23 Jun 2023AY 2018-19
For Appellant: Shri Dhurav Goel, CAFor Respondent: Shri Sumesh Swani, Sr. DR
Section 10(37)Section 28Section 56

Under that profits and gains of business or profession or income from other sources shall be computed in accordance with either cash or Mercantile system of accounting regularly employed by the assessee. The honourable Supreme Court in case of Rama Bai versus CIT 181 ITR 400 held that arrears

The Muktsar Central Co-Op Bank Limited, Muktsar vs. Deputy Commissioner of Income Tax, Circle-II, Bathinda

In the result, the appeal of the revenue bearing ITA No

ITA 354/ASR/2018[2014-15]Status: DisposedITAT Amritsar22 Jun 2023AY 2014-15

Bench: Dr. M. L. Meena & Sh. Anikesh Banerjeei.T.A. No.313/Asr/2018 Assessment Year: 2014-15

Section 143(3)Section 250(6)Section 36

earlier years has to be accepted while assessing income of the subsequent years. 4. That the appellant-assessee contends that even under the Mercantile System of Accounting, no interest has accrued to the assessee considering the ‘Real Income. The income can be said to be ‘accrued’ only when there ... case of NPA’s, there is no such certainty and therefore no interest income has even accrued to the assessee under i~e Mercantile System of Accounting on the loans classified as Non- performing Assets. That the Ld. CIT(A) after considering the submissions made by the assessee vide submissions

Deputy Commissioner of Income Tax, Circle-II, Bathinda vs. Mesers the Muktsar Central Co-Op Bank Limited, Muktsar

In the result, the appeal of the revenue bearing ITA No

ITA 313/ASR/2018[2014-15]Status: DisposedITAT Amritsar22 Jun 2023AY 2014-15

Bench: Dr. M. L. Meena & Sh. Anikesh Banerjeei.T.A. No.313/Asr/2018 Assessment Year: 2014-15

Section 143(3)Section 250(6)Section 36

earlier years has to be accepted while assessing income of the subsequent years. 4. That the appellant-assessee contends that even under the Mercantile System of Accounting, no interest has accrued to the assessee considering the ‘Real Income. The income can be said to be ‘accrued’ only when there ... case of NPA’s, there is no such certainty and therefore no interest income has even accrued to the assessee under i~e Mercantile System of Accounting on the loans classified as Non- performing Assets. That the Ld. CIT(A) after considering the submissions made by the assessee vide submissions

Dsv Coload & Clearance Private Limited, New Delhi vs. DCIT, Circle-7(1), New Delhi

In the result, the appeal of the assessee is allowed

ITA 3036/DEL/2022[2016-17]Status: DisposedITAT Delhi20 Jun 2023AY 2016-17

Bench: Dr. B. R. R. Kumar

For Appellant: Sh. Harpreet Singh Ajmani, AdvFor Respondent: Sh. Om Parkash, Sr. DR
Section 145Section 271(1)(c)

failed to appreciate that section 145 of the Income-tax Act, 1961 itself allow to follow either cash or mercantile system of accounting regularly employed by the assessee. Further, the assessee, being a company is required to maintains its books of accounts on the basis of mercantile system of accounting

DCIT Circle 6 vs. Sahara India Financial Corporation Ltd

In the result, the appeal is dismissed

ITA 1877/DEL/2007[1996-1997]Status: DisposedITAT Delhi16 Jun 2023AY 1996-1997

Bench: Shri Saktijit Dey & Dr. B.R.R. Kumarassessment Year: 1996-97 Dcit, Vs. M/S. Sahara India Financial Central Circle-6, Corporation Ltd., New Delhi 1, Kapoorthala Complex, Aliganj, Lucknow, Up Pan :Aadcs8698C (Appellant) (Respondent) Assessee By Sh. Ajay Vohra, Sr. Advocate Sh. Arpit Goel, Advocate Department By Sh. P. Praveen Sidharth, Cit (Dr) Date Of Hearing 18.04.2023 Date Of Pronouncement 16.06.2023 Order Per Saktijit Dey, Jm: This Is An Appeal By The Revenue Against Order Dated 22.01.2007 Of Learned Commissioner Of Income Tax (Appeals)-1, New Delhi, For The Assessment Year 1996-97. 2. The Revenue Has Raised The Following Grounds: 1. Deleting The Addition Of Rs.81,50,93,579/- Made On Account Of Disallowance Of Reimbursement Of Expenses To Agent. Ay: 1996-97

Section 143(3)

have considered rival submissions and perused the materials on record. Briefly the facts are, since, the assessee was following mercantile system of accounting, it made a provision of Rs.62,50,000/- on account of dividend receivable from ‘Canpep - 92’ in its accounts, based on the past history of the dividend

Assistant Commissioner of Income Tax Central Circle-1, Jalandhar vs. M/S the Citizen Urban Co- Operative Bank Limited, Jalandhar

In the result, the appeal is allowed

ITA 62/ASR/2023[2017-18]Status: DisposedITAT Amritsar15 Jun 2023AY 2017-18

Bench: Dr. M. L. Meena & Sh. Anikesh Banerjee

Section 145Section 45Q

account of treating interest due to non- performing assets, as income of the year as the assessee was following mercantile system of accounting. 2 I.T.A. No. 62/Asr/2023 Assessment Year: 2017-18 2. At the outset, the CIT(DR) has submitted that the Ld.CIT(A) has deleted the addition without considering ... erred in granting relief regarding the interest on non- performance assets by relying on the contention of the assessee that it was following mercantile system of accounting, except for interest on non- performing assets who is following the guidelines issued by the RBI which is in violation to the provisions

Assistant Commissioner of Income Tax Circle-1, Jammu vs. Gravita Metal Inc, Kathua

ITA 594/ASR/2019[2016-17]Status: DisposedITAT Amritsar15 Jun 2023AY 2016-17

Bench: Dr. M. L. Meena & Sh. Anikesh Banerjee

For Appellant: Shri. P.C. Parwal, CAFor Respondent: Shri Rohit Mehra, CIT DR
Section 10Section 2(24)Section 2(24)(xviii)

receipt when the assessee himself claimed entire amount of Rs.5,15,25,900/- as refundable from Excise Department. 2. The assessee is following mercantile system of accounting and income is to be taxed on accrual basis and the assessee has passed this entry in the books of accounts maintained during ... assessee that this was just a notional entry as explained vide letter dt. 14.12.2018 (PB 25-29) is not relevant. Assessee is following mercantile system of accounting and income is to be taxed on accrual basis. Assessee has passed the entry in books of accounts and is thus liable

Measage Gravita Metal Inc, Kathua vs. Income Tax Officer Ward- 1(4), Kathua

ITA 587/ASR/2019[2016-17]Status: DisposedITAT Amritsar15 Jun 2023AY 2016-17

Bench: Dr. M. L. Meena & Sh. Anikesh Banerjee

For Appellant: Shri. P.C. Parwal, CAFor Respondent: Shri Rohit Mehra, CIT DR
Section 10Section 2(24)Section 2(24)(xviii)

receipt when the assessee himself claimed entire amount of Rs.5,15,25,900/- as refundable from Excise Department. 2. The assessee is following mercantile system of accounting and income is to be taxed on accrual basis and the assessee has passed this entry in the books of accounts maintained during ... assessee that this was just a notional entry as explained vide letter dt. 14.12.2018 (PB 25-29) is not relevant. Assessee is following mercantile system of accounting and income is to be taxed on accrual basis. Assessee has passed the entry in books of accounts and is thus liable

Chhattisgarh State Power Generation Co. Ltd., Raipur vs. Dy. Commissioner of Income Tax-1(1), Raipur

In the result, the appeal of the assessee in ITA No

ITA 24/RPR/2022[2018-19]Status: DisposedITAT Raipur15 Jun 2023AY 2018-19

Bench: Shri Ravish Sood & Shri Arun Khodpiaआयकर अपील सं. / Ita No.16/Rpr/2017 "नधा"रण वष" / Assessment Year : 2009-10 Chhattisgarh State Power Generation Company Ltd. O/O. Executive Director-Finance Ground Floor, Vidyut Seva Bhawan, Daganiya, Raipur-492 001 (C.G.) Pan : Aadcc5772F .......अपीलाथ" / Appellant बनाम / V/S. The Assistant Commissioner Of Income Tax, Circle-1(2), Raipur (C.G.) ……""यथ" / Respondent आयकर अपील सं. / Ita No.24/Rpr/2022 "नधा"रण वष" / Assessment Year : 2018-19 Chhattisgarh State Power Generation Company Ltd. Ground Floor, Vidyut Seva Bhawan, Daganiya, Raipur-492 001 (C.G.) Pan : Aadcc5772F .......अपीलाथ" / Appellant बनाम / V/S.

For Appellant: Shri R.B Doshi, CAFor Respondent: Shri V.K Singh, CIT-DR
Section 143(2)Section 143(3)Section 32

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

The Chhattisgarh State Power Generation Company Limited, Raipur, Raipur (Cg) vs. The Asstt. Commissioner of Income Tax 1(2), Raipur, Raipur (Cg)

In the result, the appeal of the assessee in ITA No

ITA 16/BIL/2017[2009-10]Status: DisposedITAT Raipur15 Jun 2023AY 2009-10

Bench: Shri Ravish Sood & Shri Arun Khodpiaआयकर अपील सं. / Ita No.16/Rpr/2017 "नधा"रण वष" / Assessment Year : 2009-10 Chhattisgarh State Power Generation Company Ltd. O/O. Executive Director-Finance Ground Floor, Vidyut Seva Bhawan, Daganiya, Raipur-492 001 (C.G.) Pan : Aadcc5772F .......अपीलाथ" / Appellant बनाम / V/S. The Assistant Commissioner Of Income Tax, Circle-1(2), Raipur (C.G.) ……""यथ" / Respondent आयकर अपील सं. / Ita No.24/Rpr/2022 "नधा"रण वष" / Assessment Year : 2018-19 Chhattisgarh State Power Generation Company Ltd. Ground Floor, Vidyut Seva Bhawan, Daganiya, Raipur-492 001 (C.G.) Pan : Aadcc5772F .......अपीलाथ" / Appellant बनाम / V/S.

For Appellant: Shri R.B Doshi, CAFor Respondent: Shri V.K Singh, CIT-DR
Section 143(2)Section 143(3)Section 32

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

Income Tax Officer, Ward-1(2), Bhilai vs. Mesers Metex Engineers, Bhilai

In the result Ground No 8 of the revenue is dismissed

ITA 247/RPR/2019[2015-16]Status: DisposedITAT Raipur14 Jun 2023AY 2015-16

Bench: Shri Ravish Sood, Jm & Shri Arun Khodpia, Am आयकर अपील सं./Ita No.238/Rpr/2019 (Assessment Year: 2015-2016) M/S Metex Engineers, Vs Ito, Ward-1(2), Bhilai Shop No.10-11, Ganesh Complex, Shakti Vihar, Risali Bhilai, Durg Pan No. :Aawfm 8852 G & आयकर अपील सं./Ita No.247/Rpr/2019 (Assessment Year: 2015-2016) Ito, Ward-1(2), Bhilai Vs M/S Metex Engineers, Shop No.10-11, Ganesh Complex, Shakti Vihar, Risali Bhilai, Durg Pan No. :Aawfm 8852 G (अपीलाथ" /Appellant) (""यथ" / Respondent) .. "नधा"रती क" ओर से /Assessee By : Shri R.B.Doshi, Ca राज"व क" ओर से /Revenue By : Shri V.K.Singh, Cit-Dr सुनवाई क" तार"ख / Date Of Hearing : 24/04/2023 घोषणा क" तार"ख/Date Of Pronouncement : 14/06/2023 आदेश / O R D E R Per Arun Khodpia, Am :

For Appellant: Shri R.B.Doshi, CAFor Respondent: Shri V.K.Singh, CIT-DR
Section 68

assessee was held as liability and did not constitute income at all in the hands of the assessee. 5.8 Assessee is regularly following Mercantile system of accounting. Income has to be completed u/s 28 with reference to Section 145 of the Income Tax Act, Reliance is placed on the following