“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 3(2)(2), Mumbai vs. National Bank for Agriculture and Rural Development, Mumbai

In the result, the appeal of the revenue is dismissed and the appeal of the assessee is partly allowed

ITA 3650/MUM/2016[2010-11]Status: DisposedITAT Mumbai24 Aug 2022AY 2010-11

assessee submitted that there was uncertainty in recovering service charges. There should not be any dispute that an income can be recognized under mercantile system of accounting also, only if there is certainty of its recovery. Considering the past consistent practice followed by the assessee, we are of the view

M/S. Course5 Intelligence Private Limited (Formerly Cross Tab Marketing Services Private Limited), Bangalore vs. The Deputy Commissioner of Income Tax, Circle- 2(1)(1), Bangalore

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

ITA 15/BANG/2020[2013-14]Status: DisposedITAT Bangalore18 Aug 2022AY 2013-14

Bench: Shri Chandra Poojari & Smt. Beena Pillaiassessment Year : 2013-14 M/S. Course5 Intelligence Pvt. Ltd., (Formerly Cross Tab Marketing Services The Deputy Pvt. Ltd.) Commissioner Of No. 422, 80 Feet Income Tax, Road, Circle – 2(1)(1), 6Th Block, Vs. Bangalore. Koramangala, Bangalore – 560 095. Pan: Aabcc6525A Appellant Respondent : Shri Padam Chand Khincha, Assessee By Ca : Shri Srinivas Rao Bandaru, Revenue By Jcit Dr Date Of Hearing : 14-07-2022 Date Of Pronouncement : 18-08-2022 Order Per Beena Pillaipresent Appeal Is Filed By Assessee Against Order Dated 14/10/2019 Passed By Ld.Cit(A)-2, Bangalore For A.Y. 2013-14 On Following Grounds Of Appeal: “1. The Learned Assessing Officer Had Erred In Passing The Order In The Manner Passed By Him & The Learned Cit (A) Has Erred In Partially Confirming The Same. The Orders Passed Being Bad In Law & Liable To Be Quashed.

For Respondent: Shri Padam Chand Khincha

Section 10ASection 143(2)Section 234B

Apex Court in the case of Woodward Governor -India Pvt. Ltd. (supra). It is also not in dispute that assessee is following the mercantile system of accounting consistently. The foreign exchange loss is due to the reinstatement of the accounts at the end of the financial year as well ... verify all the details and consider the claim of assessee in accordance with law. 8.12 The Ld.AR submitted that assessee follows mercantile system of accounting and income and expenditure are recorded at the time of their accrual or incurrence. He thus submitted that, income has accrued during the previous year

Dell India Private Ltd., Bangalore vs. JCIT, Bangalore

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

ITA 562/BANG/2015[2010-11]Status: DisposedITAT Bangalore18 Aug 2022AY 2010-11

Bench: Shri George George K. & Ms. Padmavathy S

For Appellant: Shri T. Suryanarayana, Senior AdvocateFor Respondent: Shri Praveen Karanth, CIT(DR)(ITAT), Bengaluru

Section 143(3)Section 92C

right to receive the income vests with the assessee as soon as the services are purchased by customers. Since, the assessee employed mercantile system of accounting, income would accrue with receipt and it cannot be considered as advance income, which could be deferred for tax purpose.” 32. However ... Assessee, is possible. The principal question therefore that needs to be addressed is regarding whether deferring revenue is permissible under the mercantile system of accounting followed by the Assessee where income that accrues or arises to an Assessee has to be regarded as income. 92. The learned counsel

Assistant Commissioner of Income Tax Circle-2(3)(1), Mumbai vs. Tata Sons Limited, Mumbai

In the result, appeal by the Revenue is dismissed

ITA 4323/MUM/2017[2011-12]Status: DisposedITAT Mumbai16 Aug 2022AY 2011-12

Bench: Shri Pramod Kumar & Shri Sandeep Singh Karhail

For Appellant: Ms. Aarti Vissanji a/wFor Respondent: Shri Tejinder Pal Singh

Section 143(2)Section 143(3)Section 250Section 92C

./2017 and ITA No.4221/Mum./2017 reply, assessee submitted that the provision for pension has been made based on actuarial valuation and considering the mercantile system of accounting followed by the company. The assessee further submitted that the amount was payable in recognition of the services rendered by the whole time ... profit and loss account. As per the assessee, the said amount was determined based on actuarial valuation. Thus, as the assessee has adopted mercantile system of accounting, it was required to provide for the pension amount payable to the Directors. It is submission of the assessee that the pension

Tata Sons Ltd., Mumbai vs. ACIT, Cir 2(3)(1), Mumbai

In the result, appeal by the Revenue is dismissed

ITA 4221/MUM/2017[2011-12]Status: DisposedITAT Mumbai16 Aug 2022AY 2011-12

Bench: Shri Pramod Kumar & Shri Sandeep Singh Karhail

For Appellant: Ms. Aarti Vissanji a/wFor Respondent: Shri Tejinder Pal Singh

Section 143(2)Section 143(3)Section 250Section 92C

DCIT-2(2)(1), Mumbai vs. M/S State Bank of India, Mumbai

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

ITA 3036/MUM/2019[2015-16]Status: DisposedITAT Mumbai12 Aug 2022AY 2015-16

Bench: Shri Om Prakash Kant () & Shri Sandeep Singh Karhail () Assessment Year: 2015-16 Dcit-2(2)(1), M/S State Bank Of India Room No. 545, 5Th Floor, (Successor To State Bank Of Aayakar Bhavan, Vs. Bikaner & Jaipur), Mumbai-400020. Fr&T Department, 3Rd Floor, Sbi Bhavan, Nariman Point, Mumbai-400020. Pan No. Aaacs 8577 K (Earlier Aadcs 4750 R) Appellant Respondent Revenue By : Mr. Manoj Kumar, Cit-Dr Assessee By : Mr. Ketan Ved & Ms. Shraddha Jain, Ars Date Of Hearing : 28/07/2022 Date Of Pronouncement : 12/08/2022

For Appellant: Mr. Ketan Ved &For Respondent: Mr. Manoj Kumar, CIT-DR

taxed on the due basis only without appreciating that as taxed on the due basis only without appreciating that as per the mercantile system of accounting followed by the r the mercantile system of accounting followed by the r the mercantile system of accounting followed by the assessee interest

Shri Sanjay Shantilal Jain, Mumbai vs. DCIT, Central Range-8 (3), Mumbai

In the result, both the appeals of the assessee are allowed

ITA 6122/MUM/2018[2009-10]Status: DisposedITAT Mumbai12 Aug 2022AY 2009-10

Bench: Shri Om Prakash Kant () & Shri Sandeep Singh Karhail () Assessment Year: 2008-09 & Assessment Year: 2009-10 Shri Sanjay Shantilal Jain, Dcit Central Circle-8(3), 72-7, Kalpatatru Residency 6Th Floor, Aayakar Bhavan, Tower B, Sion Koliwada Road, Vs. M.K. Road, Sion, Mumbai-400020. Mumbai-400022. Pan No. Aabpj 3761 A Appellant Respondent Assessee By : Mr. Rushabh Mehta, Ar Revenue By : Mr. Manoj Kumar, Cit-Dr Date Of Hearing : 27/07/2022 Date Of Pronouncement : 12/08/2022

For Appellant: Mr. Rushabh Mehta, ARFor Respondent: Mr. Manoj Kumar, CIT-DR

Section 143(1)Section 143(3)Section 68

submitted that he did not receive the payment. The as assessee submitted that he did not receive the payment. The assessee is following mercantile system of accounting and hence the amount is following mercantile system of accounting and hence the amount is following mercantile system of accounting and hence

Shri Sanjay Shantilal Jain, Mumbai vs. JCIT, Central Range-8 (3), Mumbai

In the result, both the appeals of the assessee are allowed

ITA 6121/MUM/2018[2008-09]Status: DisposedITAT Mumbai12 Aug 2022AY 2008-09

For Appellant: Mr. Rushabh Mehta, ARFor Respondent: Mr. Manoj Kumar, CIT-DR

Section 143(1)Section 143(3)Section 68

M/S. Tesco Bengaluru Private Limited (Formerly Known As Tesco Hindustan Service Centre Private Limited), Bangalore vs. Joint Commissioner of Income Tax, Special Range- 7, Bangalore

In the result, both the appeals of assessee in ITA

ITA 2387/BANG/2019[2015-16]Status: DisposedITAT Bangalore04 Aug 2022AY 2015-16

Bench: Shri Chandra Poojari & Smt. Beena Pillai

For Appellant: Shri T. Suryanarayana, Sr. A.RFor Respondent: Shri Sumer Singh Meena, D.R

Section 40

authorities. 3.3. We have heard the rival submissions and perused the materials available on record. The assessee in this assessment year following the mercantile system of accounting made provisions for expenses on which there was no deduction of TDS. The assessee was liable for deduction of tax, since the assessee ... assessee. Therefore, it is not possible for the assessee to argue that there was no accrual of expenditure in accordance with the mercantile system of account followed by assessee. Therefore, TDS obligation do catch triggered. In view of this, we are of the opinion that the expenditure cannot be allowed

M/S Tesco Bengaluru Private Limited, Bangalore vs. The Joint Commissioner of Income Tax Special Range-7, Bangalore

In the result, both the appeals of assessee in ITA

ITA 2898/BANG/2018[2014-15]Status: DisposedITAT Bangalore04 Aug 2022AY 2014-15

Bench: Shri Chandra Poojari & Smt. Beena Pillai

For Appellant: Shri T. Suryanarayana, Sr. A.RFor Respondent: Shri Sumer Singh Meena, D.R

Section 40

Skv Industrial Plant & Waste Treatment Pvt. Ltd., Mumbai vs. ITO Ward -3(3)(3), Mumbai

ITA 7375/MUM/2018[2014-15]Status: DisposedITAT Mumbai02 Aug 2022AY 2014-15

For Appellant: Shri Prakash PanditFor Respondent: Shri Hoshang B. Irani

Section 143(2)Section 143(3)Section 234ASection 254Section 43B

circumstances of the case and in law, the learned C.I.T.(A) erred in confirming the disallowance of Rs.7,50,000/- as per Mercantile system of Accounting being the provision for forming a Co-operative Society of the purchasers of the Office Premises / Shops as the said amount ... relevant time the Appellant was engaged in the business of real estate development. The Appellant was preparing accounts on the basis of mercantile system of accounting and had been offering income from real estate projects to tax by following completed contract method. 6.1. Referring to the submission dated

DCIT Circle- 1, Thane vs. M/S Everest Industries Ltd, Delhi

In the result, appeal of the Revenue is partly

ITA 554/MUM/2020[2010-11]Status: DisposedITAT Mumbai29 Jul 2022AY 2010-11

Bench: Shri B.R. Baskaran & Shri Anikesh Banerjee

For Appellant: Sh Chaitanya Joshi &For Respondent: Shri Amol Kirtane, CIT-DR

Section 143(3)Section 250(6)Section 32(1)(iia)Section 43B

present as per the mercantile system, but assessees used to defer payment thereof despite claiming deductions there against under the guise of mercantile system of accounting. Resultantly, irrespective of the category of liability, such deductions were regulated by law under the aegis of Section 43B, keeping in mind the peculiar

Everest Industrial Ltd., Noida vs. Dy CIT Circle-1, Thane

In the result, appeal of the Revenue is partly

ITA 7791/MUM/2019[2010-11]Status: DisposedITAT Mumbai29 Jul 2022AY 2010-11

Bench: Shri B.R. Baskaran & Shri Anikesh Banerjee

For Appellant: Sh Chaitanya Joshi &For Respondent: Shri Amol Kirtane, CIT-DR

Section 143(3)Section 250(6)Section 32(1)(iia)Section 43B

Asian Paints Ltd, Mumbai vs. Addl CIT Ltu, Mumbai

In the result, appeal filed by the Revenue is dismissed

ITA 655/MUM/2017[2011-12]Status: DisposedITAT Mumbai28 Jul 2022AY 2011-12

Bench: Shri Amit Shukla, Hon'Ble & Shri S. Rifaur Rahman, Hon'Blem/S. Asian Paints Ltd., V. Addl. Cit – Ltu – 2 6A, Shantinagar 29Th Floor, World Trade Centre Santacruz (East) Cuffe Parade, Mumbai - 400005 Mumbai – 400055 Pan: Aaaca3622K (Appellant) (Respondent) Addl. Cit – Ltu – 2 V. M/S. Asian Paints Ltd., Centre-1, 29Th Floor 6A, Shantinagar World Trade Centre Santacruz (East) Cuffe Parade, Mumbai - 400005 Mumbai – 400055 Pan: Aaaca3622K (Appellant) (Respondent)

For Appellant: Shri Madhur AgarwalFor Respondent: Shri S.K. Das

Section 115OSection 14A

income has resulted it cannot be said that income has accrued merely on the ground that the assessee had been following the mercantile system of accounting. Even if the assessee makes a debit entry to that effect, still no income can be said to have accrued to the assessee ... materialized, there can be no liability to tax on a hypothetical income. It is not the hypothetical accrual of income based on the mercantile system of accounting followed by the assessee that has to be taken into account, but what should be considered is whether the income has really materialized

Sundaram Developers, Mumbai vs. DCIT 5(1), Mumbai

Appeal is partly allowed

ITA 6682/MUM/2016[2012-13]Status: DisposedITAT Mumbai28 Jul 2022AY 2012-13

For Appellant: NoneFor Respondent: Shri Hoshang B. Irani

Section 142(1)Section 143(3)

income chargeable under the head "Profits and gains of Business or Profession" etc. shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. In view of this, it is noticed that the non-disclosure of income arising on sale of the said ... followed by the appellant. A perusal of "significant accounting policies" contained in "Notes forming part of accounts" reveals that "the assessee follows the mercantile system of accounting for all income/expenditure. In the year of completion of building, agreement value for each flat/ gala sold is transferred to sales and balance

Elim Resort Private Limited, Bangalore vs. Income Tax Officer, Ward- 3(2)(2), Bangalore

In the result, appeal of the assessee is allowed

ITA 238/BANG/2022[2016-17]Status: DisposedITAT Bangalore26 Jul 2022AY 2016-17

Bench: Shri N. V. Vasudevanassessment Year :2016-17 M/S. Elim Resorts Pvt. Ltd., Vs. Ito, No.175, Nettigere Village, Ward – 3(2)(2), Uttarahalli Hobli, Bengaluru. Bengaluru – 560 061. Pan : Aadce 0682 J Appellant Respondent Assessee By : Shri. B. S. Balachandra, Advocate Revenue By : Shri. Ganesh R. Ghale, Standing Counsel For Department. Date Of Hearing : 25.07.2022 Date Of Pronouncement : 26.07.2022 O R D E R Per N. V. Vasudevan: This Is An Appeal By The Assessee Against The Order Dated 27.02.2020 Of Cit(A)-2, Bengaluru, Relating To Ay 2016-17. 2. The First Issue Raised By The Assessee Is With Regard To Disallowance Of Depreciation On Buildings Of Rs.3,19,208/-. The Opening Wdv As On 01.04.2014 & As On 01.04.2015 As Per The Books Of Accounts Of The Assessee Was As Follows:

For Appellant: Shri. B. S. Balachandra, AdvocateFor Respondent: Shri. Ganesh R. Ghale, Standing Counsel for Department

Section 32Section 43(1)

sustained. In CIT Vs Noble And Hewitt (I) (P) Ltd. (Delhi High Court) (2008) 305 ITR 324 (Delhi) the assessee maintained a mercantile system of accounting. It had collected service tax during the previous year relevant to the assessment year in question. Out of the service tax so collected

M/S. Altisource Business Solutions Private Limited, Bengaluru vs. Deputy Commissioner of Income Tax, Circle-1(1)(1), Bangalore

In the result, the appeal is allowed in favour of the assessee

ITA 183/BANG/2022[2017-18]Status: DisposedITAT Bangalore25 Jul 2022AY 2017-18

Bench: Shri George George K. & Ms. Padmavathy S

For Appellant: Shri Nitin G. Inamdar, CAFor Respondent: Shri Srinivas T. Bidari, CIT(DR)(ITAT), Bengaluru

Section 115JSection 143(2)Section 143(3)

Delhi - Trib.) v. The Assessee has satisfied all factors laid out in the above decision of Apex court viz., Assessee has followed accrual/ mercantile system of accounting, has accounted for foreign exchange loss as per Accounting Standard 11, has also complied with ICDS VI and has offered

Income Tax Officer-3(2)(4), Mumbai vs. M/S. Patodia Systex Limited, Mumbai

ITA 5641/MUM/2019[2010-11]Status: DisposedITAT Mumbai20 Jul 2022AY 2010-11

For Appellant: Shri S.L. JainFor Respondent: Shri B.K. Bagchi

Section 143(3)Section 147Section 148

loan advanced to M/s. Shree Janardhan Mills Ltd. without appreciating that the books of accounts of the assesse are maintained as per mercantile system of accounting and as per mercantile system of accounting, the assesse company ought to have provided the interest on accrual basis on the said loan ... Mills Ltd was not offered to tax as income of the relevant previous year. The Assessing Officer noted that the Assessee, though following mercantile system of accounting, had not credited the accrued interest of INR 29,87,028/- to the Profit & Loss Account and therefore, income amounting

The Dy CIT-15(3)(1), Mumbai vs. M/S. Tata Projects Ltd., Mumbai

Appeal are allowed whereas Cross Objection No

ITA 1165/MUM/2021[2013-14]Status: DisposedITAT Mumbai19 Jul 2022AY 2013-14

For Appellant: Shri Shri Rajan VoraFor Respondent: Shri Om Prakash Singh

Section 143(3)Section 263Section 43B

Account as an expenditure nor did the assessee claim any deduction in respect of the amount and considering that the assessee is following Mercantile system of accounting, the question of disallowing the deduction not claim would not arise.” The above decision of the Hon‟ble Delhi High Court turned

M/S Kable First Private Limited, Bangalore vs. Deputy Commissioner of Income Tax Circle-4(1)(1), Bangalore

In the result, the appeals of the assessee are allowed for statistical purposes

ITA 1696/BANG/2018[2015-16]Status: DisposedITAT Bangalore18 Jul 2022AY 2015-16

Bench: Shri N.V. Vasudevan, Vice Preseident & Shri Padmavathy S

For Appellant: Shri Aliasger Rampurwala, CAFor Respondent: Shri Narayana, K.R., Addl.CIT(DR)(ITAT), Bengaluru

Section 143(2)Section 37(1)Section 40Section 4o

numerous clients for subscription for data base services and charges for annual maintenance support services. The assessee in the present case follows mercantile system of accounting .The Hon’ble Bombay High Court in the case of Taparia Tools Ltd. v. JCIT [2003] 260 ITR 102 has described the mercantile system ... accounting, which reads as follows: "The mercantile system of accounting is based on accrual. Basically, it is a Double Entry System of accounting. Under the ITA Nos. 1694 to 1696/Bang/2018 Page 7 of 17 mercantile system of accounting, profits arising or accruing at the date of the transaction are liable