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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

Manohar Manak Alloys P.Ltd, Mumbai vs. ACIT 4(2), Mumbai

Appeal is allowed

ITA 1159/MUM/2022[2017-18]Status: DisposedITAT Mumbai22 Dec 2022AY 2017-18
For Appellant: Shri Rajkumar SinghFor Respondent: Shri A.B. Koli
Section 143(1)Section 143(3)Section 147Section 263Section 263(1)

next date hereof e. 1st October 2016 till payment. 5. Further, it is also seen from the record, that you are following mercantile system of accounting and accordingly the income and expenditure to be booked on accrual basis. In view of the aforementioned directions of the Hon'ble Bombay High

ACIT -893) (1), Mumbai vs. M/S. Triple Securities Pvt. Ltd, Mumbai

ITA 2270/MUM/2021[2016-17]Status: DisposedITAT Mumbai20 Dec 2022AY 2016-17
For Appellant: Shri Nitesh JoshiFor Respondent: Ms. Samruddhi Hande
Section 143(3)Section 36Section 43C

engaged in the business of construction of buildings. As stated above, we are concerned with assessment year 1987-88. The assessee followed Mercantile System of Accounting. The assessee followed Modified Project Completion Method for computing its profits. The assessee had secured development rights from Bombay Gaw Rakshak Mandal under Agreement

I-Security Services, Bengaluru vs. Deputy Commissioner of Income Tax, CPC, Bangalore

In the result, the appeal of the assessee is dismissed

ITA 1003/BANG/2022[2019-20]Status: HeardITAT Bangalore20 Dec 2022AY 2019-20
For Appellant: NoneFor Respondent: Shri Ganesh R Ghale, Standing Counsel
Section 139(1)Section 143(1)Section 143(1)(a)Section 36(1)(va)Section 43BSection 44A

appeal.” 2. The brief facts of the case are that the assessee is a partnership firm providing security services. The assessee following mercantile system of accounting and the books of accounts are audited u/s 44AB of the Income-tax Act. The assessee filed return declaring income of Rs.22

Faze Three Autofab Limited, Mumbai vs. ACIT, Circle-6(1)-2., Mumbai

In the result, all the appeals filed by the assessee are allowed for statistical

ITA 2607/MUM/2022[2015-2016]Status: DisposedITAT Mumbai16 Dec 2022AY 2015-2016

Bench: Shri Amarjit Singh, Am & Ms. Kavitha Rajagopal, Jm

For Appellant: Shri Anuj KisnadwalaFor Respondent: Shri Vranda U. Matkarni
Section 143(3)Section 147Section 250Section 43A

assets’, interest receivable for the current year was shown at Rs.30,73,017/-. The A.O. has stated that as the assessee was following mercantile system of accounting, the interest income received or receivable has to be credited to the profit and loss account, whereas the assessee has offered interest income

Faze Three Autofab Limited, Mumbai vs. ACIT, Circle-6(1)-2, Mumbai

In the result, all the appeals filed by the assessee are allowed for statistical

ITA 2606/MUM/2022[2014-15]Status: DisposedITAT Mumbai16 Dec 2022AY 2014-15

Bench: Shri Amarjit Singh, Am & Ms. Kavitha Rajagopal, Jm

For Appellant: Shri Anuj KisnadwalaFor Respondent: Shri Vranda U. Matkarni
Section 143(3)Section 147Section 250Section 43A

assets’, interest receivable for the current year was shown at Rs.30,73,017/-. The A.O. has stated that as the assessee was following mercantile system of accounting, the interest income received or receivable has to be credited to the profit and loss account, whereas the assessee has offered interest income

Faze Three Autofab Limited, Mumbai vs. Dy CIT, Circle 6(1)(2), Mumbai

In the result, all the appeals filed by the assessee are allowed for statistical

ITA 2605/MUM/2022[2013-2014]Status: DisposedITAT Mumbai16 Dec 2022AY 2013-2014

Bench: Shri Amarjit Singh, Am & Ms. Kavitha Rajagopal, Jm

For Appellant: Shri Anuj KisnadwalaFor Respondent: Shri Vranda U. Matkarni
Section 143(3)Section 147Section 250Section 43A

assets’, interest receivable for the current year was shown at Rs.30,73,017/-. The A.O. has stated that as the assessee was following mercantile system of accounting, the interest income received or receivable has to be credited to the profit and loss account, whereas the assessee has offered interest income

Faze Three Autofab Limited, Mumbai vs. Dy CIT, Circle 6(1)(2), Mumbai

In the result, all the appeals filed by the assessee are allowed for statistical

ITA 2604/MUM/2022[2013-14]Status: DisposedITAT Mumbai16 Dec 2022AY 2013-14

Bench: Shri Amarjit Singh, Am & Ms. Kavitha Rajagopal, Jm

For Appellant: Shri Anuj KisnadwalaFor Respondent: Shri Vranda U. Matkarni
Section 143(3)Section 147Section 250Section 43A

assets’, interest receivable for the current year was shown at Rs.30,73,017/-. The A.O. has stated that as the assessee was following mercantile system of accounting, the interest income received or receivable has to be credited to the profit and loss account, whereas the assessee has offered interest income

Corp Circle-1(2), Chennai vs. Cccl-Edac Energy Ltd, Chennai

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

ITA 3223/CHNY/2018[2012-13]Status: DisposedITAT Chennai14 Dec 2022AY 2012-13

Bench: Shri Mahavir Singh & Shri Manoj Kumar Aggarwalआयकरअपीलसं./Ita No.: 3223/Chny/2018 िनधा"रण वष"/Assessment Year: 2012 - 13 The Dcit, Cccl-Edac Energy Ltd., Corporate Circle 1(2), Vs. 88, Spic House, Mount Road, Chennai. Guindy, Chennai – 600 032. Pan: Aaecc 0167F (अपीलाथ"/Appellant) (""यथ"/Respondent) अपीलाथ" क" ओर से/Appellant By : Shri D. Hema Bhupal, Jcit ""यथ" क" ओर से/Respondent By : Shri G. Tarun, Advocate सुनवाई क" तार"ख/Date Of Hearing : 14.12.2022 घोषणा क" तार"ख/Date Of Pronouncement : 14.12.2022 आदेश /O R D E R Per Mahavir Singh: This Appeal By The Revenue Is Arising Out Of The Order Of Commissioner Of Income Tax (Appeals) – 1, Chennai In Ita No.264/Cit(A)-1/2014-15 Dated 24.08.2018. The Assessment Was Framed By The Acit. Corporate Circle 1(2), Chennai For The Assessment Year 2012-13 U/S.143(3) Of The Income Tax Act, 1961 (Hereinafter The ‘Act’) Vide Order Dated 31.12.2014. 2. The Only Issue In This Appeal Of Revenue Is Against The Order Of Cit(A) Deleting The Addition Made By Ao On Retention Money Held By Contractee. For This, Revenue Has Raised The Following Two Effective Grounds:- “2. The Ld. Cit(A) Failed To Appreciate On The Facts & Circumstances Of The Case That Retention Money Held By Contractees Of The Assessee Having Been Excluded From The Computation Of Total Income, The Claim Of Expenditure Retention Money Payable To Its Sub-Contractors Can Only Be Allowable On Payment & Not On Accrual.

For Appellant: Shri D. Hema Bhupal, JCITFor Respondent: Shri G. Tarun, Advocate
Section 143(3)

Supreme Court in the case of Calcutta Co. Ltd vs CIT, 37 ITR 1, held that where the assessee was following the mercantile system of accounting is entitled for deduction of the expenditure which is incidental to the business on accrual basis though it was not actually incurred during

Sheetal Clothing Co Pvt Ltd, Mumbai vs. Assistant Commissioner of Income Tax-5(3)(1), Mumbai

In the result, all the three appeals of the assessee are allowed and the appeal of the revenue is dismissed

ITA 1109/MUM/2022[2012-2013]Status: DisposedITAT Mumbai14 Dec 2022AY 2012-2013
Section 132Section 133ASection 143(1)Section 143(2)Section 143(3)Section 153ASection 68

been regularly followed by the assessee. This is not the case of the Revenue that the assessee had not followed either cash or mercantile system of accounting stipulated in sub- Section (1) of Section 145 of the Act. This is also not the case of the Revenue that the Central

Sheetal Clothing Co Pvt Ltd, Mumbai vs. Assistant Commissioner of Income Tax-5(3)(1), Mumbai

In the result, all the three appeals of the assessee are allowed and the appeal of the revenue is dismissed

ITA 1108/MUM/2022[2011-12]Status: DisposedITAT Mumbai14 Dec 2022AY 2011-12
Section 132Section 133ASection 143(1)Section 143(2)Section 143(3)Section 153ASection 68

been regularly followed by the assessee. This is not the case of the Revenue that the assessee had not followed either cash or mercantile system of accounting stipulated in sub- Section (1) of Section 145 of the Act. This is also not the case of the Revenue that the Central

M/S. Marshal Multitrade Pvt. Ltd, Mumbai vs. The ITO WD 9(2)-3, Mumbai

In the result, the appeal by the assessee is dismissed

ITA 1914/MUM/2008[2004-2005]Status: DisposedITAT Mumbai13 Dec 2022AY 2004-2005

Bench: Shri Om Prakash Kant & Shri Sandeep Singh Karhail

For Appellant: Shri Rajiv KhandelwalFor Respondent: Shri Chetan M. Kacha
Section 144Section 145(3)Section 145ASection 250Section 254(1)

inordinately in excess of its regular business needs, which has not been properly explained. The appellant is a company maintaining its accounts on mercantile system of accounting and therefore even when the payments are not made the appellant company could very well claimed such expenses which were incurred during

Aqua Flow, Coimbatore vs. DCIT Non Corporate Circle 1, Coimbatore

In the result, appeal filed by the assessee is allowed

ITA 2870/CHNY/2017[2014-15]Status: DisposedITAT Chennai07 Dec 2022AY 2014-15

Bench: Shri V. Durga Rao & Shri G. Manjunathaआयकर अपील सं./Ita No.: 2870/Chny/2017 िनधा"रण वष" / Assessment Year: 2014-15 M/S. Aqua Flow, Deputy Commissioner Of 2/189-C, Karayampalayam V. Income Tax, Road, Non-Corporate Circle -1, Mylampatty Post, Coimbatore. Coimbatore – 641 062. [Pan: Aadfa-8031-G] (अपीलाथ"/Appellant) (""यथ"/Respondent) : Shri. R. Vijayaraghavan, Advocate अपीलाथ" क" ओर से/Appellant By ""यथ" क" ओर से/Respondent By : Shri. D. Hema Bhupal, Jcit सुनवाई क" तारीख/Date Of Hearing : 30.11.2022 घोषणा क" तारीख/Date Of Pronouncement : 07.12.2022 आदेश /O R D E R

For Respondent: Shri. D. Hema Bhupal, JCIT
Section 36(1)Section 40

disallowed interest paid to partner’s capital account which pertains to earlier financial year, on the ground that when the assessee is following mercantile system of accounting, expenditure pertains to earlier years should have been claimed in the assessment year 2013-14. :-3-: ITA. No:2870/Chny/2017 The assessee carried ... outgoing partner in the assessment year 2014-15, the same needs to be allowed in this year, even if the assessee is following mercantile system of accounting. 5. The Ld. DR on the other hand supporting the order of the Ld. CIT(A), submitted that there is no dispute that

M/S Toyota Kirloskar Motors (P) Ltd, Bangalore vs. The Assistant Commissioner of Income Tax Ltu Circle-1, Bangalore

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

ITA 150/BANG/2017[2012-13]Status: DisposedITAT Bangalore02 Dec 2022AY 2012-13

Bench: Smt. Beena Pillai & Shri Laxmi Prasad Sahu

For Appellant: Sri Padam Chand Khincha, A.RFor Respondent: Sri Sunil Kumar Singh, D.R
Section 40A(2)

Appellant by holding that the same is contingent in nature (Pg 38 of Appeal Papers). 3.3 The Appellant submits that it adopts mercantile system of accounting. The provision was made in compliance with the Accounting Standard-15 and as per actuarial valuation report. The Appellant submits that the liability ... reversal, relevant WDV and depreciation were reversed completely. Therefore, instant disallowance by the AO is resulting in double disallowance. 3.11 The Appellant adopts mercantile system of accounting and the capitalisation is in accordance with AS-10. The liability is estimated on fair basis. When the assets were

Tata Motors Ltd, Mumbai vs. Asst CIT (Ltu), Mumbai

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

ITA 7543/MUM/2013[2002-03]Status: DisposedITAT Mumbai30 Nov 2022AY 2002-03
Section 143(1)Section 147Section 148

skewed against the I.T.Department: 1. Interest income of Non Performing Assets/Doubtful assets have been recognized on the receipt of the interest rather than Mercantile System of Accounting followed by the assessee company. 2. Late payment of compensation in case of Lease, Hire Purchase Contract for commercial vehicle & bill discounting ... been accounted for on receipts basis though the assessee company followed Mercantile System of Accounting. 3. Subvention income received from the dealers is pro-rated over the tenure of facility w.e.f. 1 July 2001 resulting in the higher claim of loss to the tune of Rs.2.57 crores. 4. The assessee

Asst CIT Ltu, Mumbai vs. The Tata Finance Ltd, Mumbai

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

ITA 7359/MUM/2013[2002-03]Status: DisposedITAT Mumbai30 Nov 2022AY 2002-03
Section 143(1)Section 147Section 148

skewed against the I.T.Department: 1. Interest income of Non Performing Assets/Doubtful assets have been recognized on the receipt of the interest rather than Mercantile System of Accounting followed by the assessee company. 2. Late payment of compensation in case of Lease, Hire Purchase Contract for commercial vehicle & bill discounting ... been accounted for on receipts basis though the assessee company followed Mercantile System of Accounting. 3. Subvention income received from the dealers is pro-rated over the tenure of facility w.e.f. 1 July 2001 resulting in the higher claim of loss to the tune of Rs.2.57 crores. 4. The assessee

Deputy Commissioner of Income Tax, Central Circle-2(4), Bangalore vs. Century Real Estate Holdings Private Limited, Bangalore

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

ITA 740/BANG/2022[2013-14]Status: DisposedITAT Bangalore30 Nov 2022AY 2013-14

Bench: Shri Chandra Poojari & Smt. Beena Pillaiassessment Year: 2013-14

For Appellant: Smt. Sheetal Borkar, A.RFor Respondent: Shri Gudimella V.P. Pavan Kumar, D.R

debenture and the action of the assessee in claiming entire interest during the first year itself was incorrect and not as per mercantile system of accounting as corresponding income would arising over a period of time only. Applying the ratio of this decision to the appeal under consideration ... Born) and approved in 26 taxmann.com 253 (SC), the Hon. Bombay High Court has held as under: “Under the mercantile system of accounting, in order to determine the net income of an accounting year, the revenue and other incomes are matched with the cost of resources consumed (expenses). Under

Century Real Estate Holdings Private Limited, Bangalore vs. Deputy Commissioner of Income Tax, Central Circle-2(2), Bangalore

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

ITA 580/BANG/2022[2013-14]Status: DisposedITAT Bangalore30 Nov 2022AY 2013-14

Bench: Shri Chandra Poojari & Smt. Beena Pillaiassessment Year: 2013-14

For Appellant: Smt. Sheetal Borkar, A.RFor Respondent: Shri Gudimella V.P. Pavan Kumar, D.R

debenture and the action of the assessee in claiming entire interest during the first year itself was incorrect and not as per mercantile system of accounting as corresponding income would arising over a period of time only. Applying the ratio of this decision to the appeal under consideration ... Born) and approved in 26 taxmann.com 253 (SC), the Hon. Bombay High Court has held as under: “Under the mercantile system of accounting, in order to determine the net income of an accounting year, the revenue and other incomes are matched with the cost of resources consumed (expenses). Under

Dy Commissioner of Income Tax, CC-7(3), Mumbai vs. M/S Macrotech Developers Limited(Successor to Lodha Impression Real Estate Pvt Ltd, Mumbai

In the result, the present appeal filed by the Revenue is dismissed

ITA 2154/MUM/2022[2014-15]Status: DisposedITAT Mumbai28 Nov 2022AY 2014-15
For Appellant: Smt. Mahita NairFor Respondent: Shri Niraj Sheth
Section 143(3)Section 36(1)(ii)

real estate. During the relevant previous year the Assessee was developing a residential project names „Lodha Eternis‟ at Andheri. The Assessee was following mercantile system of accounting and had adopted percentage completion method for offering the profits of the aforesaid project to tax in the return of income filed

M/S. Fino Paytech Limited, Mumbia vs. Deputy Commissioner of Income Tax, Circle 9(3)(1), Mumbai

In the result, the appeal is allowed for statistical purposes

ITA 5638/MUM/2019[2014-15]Status: DisposedITAT Mumbai25 Nov 2022AY 2014-15
For Appellant: NoneFor Respondent: Shri Vivek Perumpura
Section 143(3)Section 36(1)(va)Section 43B

from the expenses claimed as deduction by the Appellant while computing the total income. The CIT(A) confirmed the addition holding that under mercantile system of accounting deduction could not be allowed for prior-period expenses. 5. We have considered the submission of the Learned Departmental Representative and perused ... provisions of Section 43B of the Act deduction for specified expenses is allowed on payment basis even to an assessee following mercantile system of accounting. This aspect has not been considered/examined by the CIT(A). However, recently, the Hon’ble Supreme Court has, in the case of Checkmate Services

ACIT 28(2), Mumbai vs. M/S. Neel Siddhi Developers, Mumbai

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

ITA 1693/MUM/2020[2012-13]Status: DisposedITAT Mumbai22 Nov 2022AY 2012-13

Bench: Shri Prashant Maharishi & Shri Pavan Kumar Gadaleacit 28(2) Vs. M/S Neel Siddhi Room No. 307, 3Rd Floor Developers, Tower No. 6, Vashi Rly 2Nd Floor, Emerald, Stn Complex, Vashi Plot No. 195/B, Navi Mumbai – 400703 Sec-12, Vashi, Navi Mumbai – 400 703. "थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Aagfn2744N Appellant .. Respondent Appellant By : Shri Chetan M. Kacha.Dr Respondent By : Shri Subodh Ratnaparkhi.Ar Date Of Hearing 14.11.2022 Date Of Pronouncement 24.11.2022 आदेश / O R D E R Per Pavan Kumar Gadale Jm: The Revenue Has Filed The Appeal Against The Order Passed By The Commissioner Of Income Tax (Appeals)- 26, Mumbai Passed U/S 143(3) & 250 Of The Act. The Revenue Has Raised The Following Grounds Of Appeal:

For Appellant: Shri Chetan M. Kacha.DRFor Respondent: Shri Subodh Ratnaparkhi.AR
Section 143(2)Section 143(3)

notify from time time Accounting Standards be followed any class assessees or respect of class income. Accordingly, under section 209 of Companies Act, mercantile system of accounting made mandatory for companies. In other words, accounting standard which continuously adopted by assessee can superseded or modified Legislative intervention. However