“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

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

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

ITA 1892/MUM/2022[2013-14]Status: DisposedITAT Mumbai21 Sept 2022AY 2013-14

Section 143(3)

account of interest cost retained in Inventory which was claimed as revenue expenditure by the assessee. The assessee company is following mercantile system of accounting and recognizing the revenue from the above project following Percentage of Completion Method. The assessee for the purposes of construction had borrowed interest bearing funds

Assistant Commissioner of Income Tax, CC-7(3), Mumbai vs. M/S Mmr Social Housing Pvt Ltd (Earlier Know As M/S Lodha Buildcon Pvt Ltd), Mumbai

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

ITA 1891/MUM/2022[2013-2014]Status: DisposedITAT Mumbai21 Sept 2022AY 2013-2014

Section 143(3)

Deputy Commissioner of Income Tax, Circle-2(1)(2), Bangalore vs. M/S. Enzen Global Solutions Private Limited, Bangalore

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

ITA 2550/BANG/2019[2016-17]Status: DisposedITAT Bangalore19 Sept 2022AY 2016-17

Bench: Shri N.V. Vasudevan & Ms. Padmavathy Sappeal Nos. & Appellant Respondent Assessment Year

For Appellant: Shri V. Chandrashekar, AdvocateFor Respondent: Shri Manjunath Karkihalli, CIT(DR)(ITAT), Bengaluru

Section 45

show that the assessee was entitled to the dividend / interest income and on the basis on the accrual and therefore under the mercantile system of accounting, the assessee ought to have offered the income attributable to the previous year as its income and the AO is therefore justified in making ... when the assessee has a right to receive periodic payments can it be said that income has accrued to an assessee under the mercantile system of accounting. For example, if the sum paid by the ITA Nos.2332, 2550/Bang/2019 Page 16 of 31 assessee is loan and as per the terms

M/S. Enzen Global Solutions Private Limited, Bengaluru vs. Income Tax Officer, Ward- 2(1)(4), Banglaoore

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

ITA 2332/BANG/2019[2016-17]Status: DisposedITAT Bangalore19 Sept 2022AY 2016-17

Bench: Shri N.V. Vasudevan & Ms. Padmavathy Sappeal Nos. & Appellant Respondent Assessment Year

For Appellant: Shri V. Chandrashekar, AdvocateFor Respondent: Shri Manjunath Karkihalli, CIT(DR)(ITAT), Bengaluru

Section 45

DCIT, CC - 1 (2), Chennai vs. M/S. Cholamandalam Ms Risk Services Ltd., Chennai

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

ITA 262/CHNY/2020[2015-16]Status: DisposedITAT Chennai16 Sept 2022AY 2015-16

Bench: Shri V. Durga Rao & Shri G. Manjunathaआयकर अपील सं./I.T.A. No.262/Chny/2020 िनधा"रण वष"/Assessment Year: 2015-16 The Deputy Commissioner Of Vs. M/S. Cholamandalam Ms Risk Services Ltd., No. 02, 2Nd Floor, Income Tax, Corporate Circle 1(2), Chennai 600 034. Dare House, N S C Bose Road, Parrys, Chennai 600 001. [Pan:Aabcc6610Q] (अपीलाथ"/Appellant) (""थ"/Respondent) अपीलाथ" की ओर से / Appellant By : Shri M. Rajan, Cit ""थ" की ओर से/Respondent By : Shri P. Murali Mohana Rao, Fca सुनवाई की तारीख/ Date Of Hearing : 12.07.2022 घोषणा की तारीख /Date Of Pronouncement : 16.09.2022 आदेश /O R D E R Per V. Durga Rao: This Appeal Filed By The Revenue Is Directed Against The Order Of The Ld. Commissioner Of Income Tax (Appeals) 4 (I/C), Chennai, Dated 26.11.2019 Relevant To The Assessment Year 2015-16. 2. The Assessee Company Is Engaged In The Business Of Providing Risk Assessment Services & Filed Its Return Of Income For The Assessment Year 2015-16 On 25.09.2015 Admitting A Total Income Of ₹.2,39,21,070/-. After Following Due Procedure & Considering The 2

For Appellant: Shri M. Rajan, CITFor Respondent: Shri P. Murali Mohana Rao, FCA

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

were accounted as prepaid expenses and amortized over the agreement period (1 year). The books of accounts of the company are maintained under MERCANTILE SYSTEM of accounting. The revenue and expenses are recognized on accrual basis. Under Mercantile system, when the expenses are incurred during a contractual period, the same ... expenditure is recognized in the books in the relevant financial year, accordingly. The payment had accounted as Business Promotion & Referral Charges. Under the mercantile system of accounting, expenses amortized during the FY 2013-14 treated as expenditure towards Marketing Promotion (Rs. 5 Crores) and the balance is treated as prepaid

M/S Bosch Limited, Bangalore vs. Assistant Commissioner of Income Tax Ltu Circle-1, Bangalore

In the result, appeal of the assessee is partly allowed

ITA 1629/BANG/2018[2013-14]Status: DisposedITAT Bangalore13 Sept 2022AY 2013-14

Bench: Shri N.V. Vasudevan & Ms. Padmavathy Sassessment Year : 2013-14 Bosch Limited, Vs. The Assistant Commissioner Hosur Road, Adugodi, Of Income Tax, Ltu, Bangalore – 560 030. Circle 1, Pan: Aaacm 9840P Bangalore. Appellant Respondent Appellant By : Shri Percy Pardiwala, Advocate Respondent By : Shri V S Chakrapani, Cit(Dr)(Itat), Bengaluru. Date Of Hearing : 01.09.2022 Date Of Pronouncement : 13.09.2022 O R D E R Per Padmavathy S.2. This Appeal Is Against The Order Of The Cit(Appeals), Bangalore-9, Bangalore Dated 31.3.2018 For The Assessment Year 2013- 14. 3. The Assessee Raised Grounds Pertaining To The Following Issues:- Deduction U/S. 35(2Ab) Computed On Net Expenditure As Opposed To Gross Expenditure Disallowance Of Provision For Bad & Doubtful Debts I) Disallowance Of Provision For Long Term Service Award Disallowance Of Expenditure U/S. 14A Of The Act Ii) Page 2 Of 67

For Appellant: Shri Percy Pardiwala, AdvocateFor Respondent: Shri V S Chakrapani, CIT(DR)(ITAT), Bengaluru

Section 14ASection 35Section 37Section 43BSection 80J

without putting the Appellant on notice. 4.5. That the CIT(A) ought to have appreciated that as the Appellant follows the mercantile system of accounting and reports the provision on the basis of actuarial valuation report, the liability accrued to the Appellant crystallises during the relevant financial year and when ... that the liability is contingent in nature cannot be accepted. The ld. AR further submitted that since the assessee is following the mercantile system of accounting, the provision made towards long term service award determined on actuarial valuation basis is a crystallized liability of the year and therefore should

M/S. Arshiya Rail Infrastucture Ltd., Mumbai vs. Dy CIT - CC-6(4), Mumbai

In the result appeal by the assessee is allowed

ITA 574/MUM/2021[2012-13]Status: DisposedITAT Mumbai09 Sept 2022AY 2012-13

Bench: Shri S. Rifaur Rahman & Shri Sandeep Singh Karhail

For Appellant: Shri Piyush Chhajed a/wFor Respondent: Shri Mehul Jain

Section 115Section 139(1)Section 142(1)Section 143Section 143(2)Section 143(3)Section 147Section 148Section 14ASection 153C

entities pertains to the previous financial year and assessee being an Indian company has already paid the taxes thereon, since it follows the mercantile system of accounting. Therefore, we are of the considered view that conditions laid down in 1st proviso to section 147 of the Act are not satisfied

M/S. the Hunger Project, Mumbai vs. ITO(E)-2(4), Mumbai

In the result, appeal by the assessee is allowed

ITA 1467/MUM/2021[2014-15]Status: DisposedITAT Mumbai05 Sept 2022AY 2014-15

Bench: Shri Om Prakash Kant & Shri Sandeep Singh Karhail

For Appellant: Shri Vinod Garg a/wFor Respondent: Shri Ajeya Kumar Ojha

Section 11(1)(a)Section 12ASection 250Section 40A(7)

disallowance made by Ld. AO towards provision for gratuity when such provision was consistently made in the books of accounts by following mercantile system of accounting in the earlier years and no such disallowance was made. 1.5 That the disallowance as made by Ld. AO and confirmed ... gratuity complies with required statutory provisions and accounting standards. It is also the fact that assessee has consistently prepared its accounts following mercantile system of accounting and made provision for gratuity in the similar manner, as is made in the year under consideration. Thus, respectfully following the aforesaid judicial precedents

M/S. the Hunger Project, Mumbai vs. ITO (Exemtptions)-2(4), Mumbai

In the result, appeal by the assessee is allowed

ITA 1332/MUM/2021[2014-15]Status: DisposedITAT Mumbai05 Sept 2022AY 2014-15

Bench: Shri Om Prakash Kant & Shri Sandeep Singh Karhail

For Appellant: Shri Vinod Garg a/wFor Respondent: Shri Ajeya Kumar Ojha

Section 11(1)(a)Section 12ASection 250Section 40A(7)

DCIT Cent. Cir. 5(2), Mumbai vs. Ipca Laboratories Ltd., Mumbai

In the result, appeal filed by the learned assessing officer is dismissed

ITA 5227/MUM/2016[2010-11]Status: DisposedITAT Mumbai29 Aug 2022AY 2010-11

Bench: Shri Prashant Maharishi, Am & Shri Pavan Kumar Gadale, Jm

For Appellant: Shri F.V. Irani, ARFor Respondent: Shri Sumit Kumar, DR

Section 801BSection 801CSection 80ISection 92C

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM

Ipca Laboratories Ltd, Mumbai vs. DCIT Ltu, Mumbai

In the result, appeal filed by the learned assessing officer is dismissed

ITA 3811/MUM/2016[2010-11]Status: DisposedITAT Mumbai29 Aug 2022AY 2010-11

Bench: Shri Prashant Maharishi, Am & Shri Pavan Kumar Gadale, Jm

For Appellant: Shri F.V. Irani, ARFor Respondent: Shri Sumit Kumar, DR

Section 801BSection 801CSection 80ISection 92C

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM

Asst CIT (Ltu) 1, Mumbai vs. Ipca Laboratories Ltd, Mumbai

In the result, appeal filed by the learned assessing officer is dismissed

ITA 3691/MUM/2016[2009-10]Status: DisposedITAT Mumbai29 Aug 2022AY 2009-10

Bench: Shri Prashant Maharishi, Am & Shri Pavan Kumar Gadale, Jm

For Appellant: Shri F.V. Irani, ARFor Respondent: Shri Sumit Kumar, DR

Section 801BSection 801CSection 80ISection 92C

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM

Ipca Laboratories Ltd, Mumbai vs. Asst CIT (Ltu), Mumbai

In the result, appeal filed by the learned assessing officer is dismissed

ITA 3597/MUM/2016[2009-10]Status: DisposedITAT Mumbai29 Aug 2022AY 2009-10

Bench: Shri Prashant Maharishi, Am & Shri Pavan Kumar Gadale, Jm

For Appellant: Shri F.V. Irani, ARFor Respondent: Shri Sumit Kumar, DR

Section 801BSection 801CSection 80ISection 92C

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM

DCIT (Ltu) 1, Mumbai vs. Ipca Laboratories Ltd, Mumbai

In the result, appeal filed by the learned assessing officer is dismissed

ITA 2815/MUM/2015[2010-11]Status: DisposedITAT Mumbai29 Aug 2022AY 2010-11

Bench: Shri Prashant Maharishi, Am & Shri Pavan Kumar Gadale, Jm

For Appellant: Shri F.V. Irani, ARFor Respondent: Shri Sumit Kumar, DR

Section 801BSection 801CSection 80ISection 92C

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM

Ipca Laboratories Ltd, Mumbai vs. Asst CIT (Ltu), Mumbai

In the result, appeal filed by the learned assessing officer is dismissed

ITA 2493/MUM/2015[2008-09]Status: DisposedITAT Mumbai29 Aug 2022AY 2008-09

Bench: Shri Prashant Maharishi, Am & Shri Pavan Kumar Gadale, Jm

For Appellant: Shri F.V. Irani, ARFor Respondent: Shri Sumit Kumar, DR

Section 801BSection 801CSection 80ISection 92C

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM

Cifco Finance Ltd, Mumbai vs. DCIT (OSD-II) Cr-7, Mumbai

In the result all 16 appeals related to the assessee are disposed off

ITA 489/MUM/2013[2006-07]Status: DisposedITAT Mumbai29 Aug 2022AY 2006-07

Bench: The Income Tax Appellate Tribunal C Bench Mumbai Before Sri Amit Shukla J M & Prashant Maharishi Am In The Matter Of Cifco Finance Limited, [ Aaacc1765F] Bhupen Chambers, Dalal Street, Mumbai V The Asst Commissioner Of Income Tax Aykar Bhavan 4Th Floor , M K Road Mumbai 20

Section 143Section 147Section 271

assessee has changed the accounting system price in a period of three years that is it followed cash system of accounting, adopted Mercantile system of accounting and again from assessment year 1998 – 99 it reverted back to cash system for accounting. The AO rejected the same stating that frequent change