“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 Cen Cir 7(3), Mumbai vs. Sanathanagar Enterprises Ltd, Mumbai

In the result and subject to the above observation, all the three appeals are dismissed

ITA 794/MUM/2019[2015-16]Status: DisposedITAT Mumbai12 Apr 2022AY 2015-16

Section 143(3)Section 36(1)(iii)

narrow compass of material facts. The assessee is engaged in the business of real estate construction and development. The assessee is following the mercantile system of accounting and, so far as recognition of revenue is concerned, the assessee is following the percentage of completion method of accounting. When it comes

DCIT Cen Cir 7(3), Mumbai vs. Sanathanagar Enterprises Ltd, Mumbai

In the result and subject to the above observation, all the three appeals are dismissed

ITA 793/MUM/2019[2014-15]Status: DisposedITAT Mumbai12 Apr 2022AY 2014-15

Section 143(3)Section 36(1)(iii)

DCIT Cen Cir 7(3), Mumbai vs. Sanathanagar Enterprises Ltd, Mumbai

In the result and subject to the above observation, all the three appeals are dismissed

ITA 792/MUM/2019[2013-14]Status: DisposedITAT Mumbai12 Apr 2022AY 2013-14

Section 143(3)Section 36(1)(iii)

Tata Consultancy Services Ltd, Mumbai vs. ACIT Large Tax Payer Unit-1, Mumbai

797/Mum/2018

ITA 1769/MUM/2018[2013-14]Status: DisposedITAT Mumbai11 Apr 2022AY 2013-14

Section 143(3)Section 2Section 2(43)Section 37Section 40Section 90

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘I‘ BENCH MUMBAI BEFORE: SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI M.BALAGANESH, ACCOUNTANT MEMBER & M/s

Shri. Boraiah Shivananjaiah, Bengaluru vs. Assistant Commissioner of Income Tax, Circle- 3(2)(1), Bangalore

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

ITA 680/BANG/2020[2014-15]Status: DisposedITAT Bangalore11 Apr 2022AY 2014-15

Bench: Shri Chandra Poojari, Am & Smt. Beena Pillai, Jm Boraiah Shivananjaiah, Asst.Commissioner Of K. Janatha Colony, Income Tax, Bidadi Hobli, Vs. Circle - 3(2)(1) Ramnagara Dist., Bengaluru Bengaluru Pan – Anaps2762E Appellant Respondent

For Respondent: Assessee by Sri Sreehari Kutsa, Advocate

Section 143(3)Section 234ASection 250Section 36(1)(va)Section 43ASection 43B

gains of business or profession or income from other sources, the same is to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The said provisions were substituted by the Finance Act, 1995 w.e.f. 01.04.1997. Under section 145A

Mmr Social Housing P. Ltd., Mumbai vs. Dy CIT-Central Range-7(3), Mumbai

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

ITA 1310/MUM/2021[2014-15]Status: DisposedITAT Mumbai08 Apr 2022AY 2014-15

Bench: Shri Amarjit Singh & Shri Sandeep Singh Karhail

For Appellant: Shri Niraj D. ShethFor Respondent: Shri T. Shankar, Sr. A.R. – CIT

Section 143(3)Section 36(1)(iii)

year under consideration, the assessee was developing residential project named as “Casa Royale” at Thane. The assessee being the company was following mercantile system of accounting and for the purposes of recognising the revenue from the above project, it was following percentage completion method of accounting. For the purpose

Rashmi Ameya Developers Housing & Estate Realtors P. Ltd., Palghar vs. ACIT, Central Circle-3, Thane

In the result, all the five appeals of the assessee are dismissed

ITA 1990/MUM/2020[2011-12]Status: DisposedITAT Mumbai30 Mar 2022AY 2011-12

Bench: Shri Om Prakash Kant () & Ms. Kavitha Rajagopal () Assessment Year: 2011-12 & Assessment Year: 2012-13 & Assessment Year: 2013-14 & Assessment Year: 2014-15 & Assessment Year: 2015-16 Rashmi Ameya Developers Acit, Central Circle-3, 6Th Floor, Ashar It Park, Road No. Housing & Estate Realtors Pvt. Ltd., Vs. D Ii, 01 02, Akanksha Commercial 16Z, Wagale Industrial Estate, Complex, Opp. Sajavat Complex, Thane-400 604. Achole Road, Nallasopara, Dist. Palghar-401 203. Pan No. Aaecr 8508 H Appellant Respondent

For Appellant: Mr. Subhodh Ratnaparkhi, ARFor Respondent: Mr. Prabhat Kumar Gupta, CIT-DR

Section 132Section 132(4)Section 153ASection 153C

course of proceedings before lower authorities, it was explained that appellant being in the business of land development as a colonizer, follows mercantile system of accounting. The appellant explained to Id. AO that the relevant seized papers record summary of FSI to be sold to the prospective buyers on getting ... head Profits and Gains of Business or Professión 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

Hp India Sales Private Limited (Formerly Known As Hewlett - Packard India Sales Private Limited), Bangalore vs. Joint Commissioner of Income Tax, Ltu, Bangalore

In the result, the appeal of the assessee is allowed

ITA 779/BANG/2016[2011-12]Status: DisposedITAT Bangalore30 Mar 2022AY 2011-12

Bench: Shri George George K & Ms. Padmavathy Sassessment Year : 2011-12

For Appellant: Shri Percy Pardiwala, Sr. AdvocateFor Respondent: Shri Pradeep Kumar, CIT(DR)

Section 143(2)Section 143(3)Section 40Section 40aSection 92C

like ‘project in progress’, ‘finished goods inventory’, ‘stores and spare parts’ and ‘deferred revenue’. The assessee has been recognizing revenue expenses under the mercantile system of accounting in accordance with principle laid down by accounting standard 9 and the same has been consistently followed in its computation of taxable income ... order. IT(TP)A No.779/Bang/2016 Page 11 of 14 17. The assessee raised objections before the DRP stating that the assessee is following mercantile system of accounting and has been consistent in recognizing the revenue as per the accounting standard. The assessee raised an alternate plea before the DRP stating

Afcons Infrastructure Ltd., Mumbai vs. Pr. CIT -(1), Mumbai

ITA 749/MUM/2021[2010-11]Status: DisposedITAT Mumbai29 Mar 2022AY 2010-11

Bench: Shri M. Balaganesh & Shri Kuldip Singhassessment Year: 2010-11

For Appellant: Shri Sujit Ghosh, A.RFor Respondent: Ms. Shailja Rai, D.R

Section 115JSection 143(3)Section 147Section 263Section 69

entire amount of Rs.6,57,89,000/- to the total income instead of Rs.37,75,625/- as the assessee has been following mercantile system of accounting. 5. Declining the contentions raised by the assessee the Ld. PCIT proceeded to conclude that the assessment order passed by the AO under section ... from you profit for the year while computing income in the 7 M/s. Afcons Infrastructure Ltd. second revised return. As you are following mercantile system of accounting and further in view of the various provisions of the I.T. Act the same should not have reduced in your computation and erroneously

Asstt. CIT (OSD) - CC -7 (3), Mumbai vs. M/S. Macrotech Developers Ltd. (Earlier Known As M/S Lodha Developers Ltd.), Mumbai

In the result the appeal filed by the assessee is allowed for statistical purposes

ITA 68/MUM/2019[2015-16]Status: DisposedITAT Mumbai25 Mar 2022AY 2015-16

Bench: S Shri Rifaur Rahamn & Pavan Kumar Gadaledcit – Cc-7(3) Vs. Macrotech Developers Room No. 655, 6Th Ltd (Successor To Floor, Aayakar Bhavan, Bellissimo Crown Mk Road, Mumbai – Buildmart Pvt Ltd) 400020. (Earlier Known As Lodha Crown Build Mart Ltd) 412, 17-G, Vardhaman Chambers, Cp Road, Horniman Circle Fort, Mumbai – 400001 "थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Aaacl1490J Appellant .. Respondent Macrotech Developers Vs. Dcit – Cc-7(3) Ltd (Successor To Room No. 655, 6Th Bellissimo Crown Floor, Aayakar Bhavan, Buildmart Pvt Ltd) Mk Road, Mumbai – (Earlier Known As 400020. Lodha Crown Build Mart Ltd) 412, 17-G, Vardhaman Chambers, Cp Road, Horniman Circle Fort, Mumbai – 400001. "थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Aaacl1490J Appellant .. Respondent

Section 143(2)Section 14ASection 36(1)(iii)

that the assessee has considered the interest component in the work in progress. The contentions of the assessee that the assessee is following Mercantile System of Accounting and the revenue recognition is as per the project completion method Accounting Standard of ICAI.Whereas, the A.O dealt on the provisions

Samay Safe Lockers Private Limited, Mumbai vs. ITO 2(3)(2), Mumbai

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

ITA 1671/MUM/2019[2013-14]Status: DisposedITAT Mumbai25 Mar 2022AY 2013-14

Bench: Shri M Balaganesh & Shri Pavan Kumar Gadaledcit 6(2)(1), Vs. Credit Analysis & R.No. 563, Aayakar Research Ltd., Bhavan, Mk Road, 5Th Floor, Rbc Churchgate, Mahindra Towers, Mumbai – 400020. Road No.13, Worli Mumbai-400018. Pan/Gir No. : Aaacc4587F Appellant .. Respondent Appellant By : Shri Pratap Singh, Dr Respondent By : Ms. Priyank Jain, Ar Date Of Hearing 31.05.2021 Date Of Pronouncement 14.06.2021 आदेश / O R D E R Per Pavan Kumar Gadale, Jm: The Appeal Is Filed By The Revenue Against The Order Of The Commissioner Of Income Tax (Appeals) -12 Mumbai, Passed U/S. 143(3) & 250 Of The Income Tax Act, 1961. The Revenue Has Raised The Following Grounds Of Appeal:

For Appellant: Shri Pratap Singh, DRFor Respondent: Ms. Priyank Jain, AR

Section 143(1)Section 143(2)Section 143(3)Section 37(1)

reflected in the financial statement. But the A.O was not satisfied with the explanations and observed that the assessee has been following the mercantile system of accounting from many years and offering 100% receipts of surveillance fee. The assessee has filed the explanations mentioning that the statutory auditor has recommended ... financial year and the same was incorporated in the financial statements. Whereas, the contentions of the Ld.AR that the assessee company is following mercantile system of accounting and there are operational reasons for bifurcation to give correct revenue on quarterly basis. The A.O has made addition of surveillance fee which

M/S Volvo India Pvt Ltd, Bangalore vs. Income Tax Officer(TDS), Bangalore

ITA 1195/BANG/2014[2012-13]Status: DisposedITAT Bangalore25 Mar 2022AY 2012-13

Bench: Shri George George K & Ms. Padmavathy S

For Appellant: Shri S Parthasarthy, AdvocateFor Respondent: Smt. Priyadarshini Besaganni, JCIT(DR)

Section 194CSection 194HSection 194ISection 194JSection 195Section 201Section 201(1)Section 40

provisions, its impact on profits and the legal effects. The accounts of a business concern can follow either “cash system of accounting” or “mercantile system of accounting”. Under mercantile system of accounting, “revenue cost matching principle” is followed, i.e., all the expenses incurred to earn the corresponding revenue should ... known expenses and losses at the time of finalising accounts at the year end. Accordingly, the assessee’s, who are following mercantile system of accounting are required to account for all known expenses and losses, even if the bills/invoices have not been received. This is done by making provision

The United Western Bank Ltd. (Through Successors Idbi Bank Ltd.), Mumbai vs. DCIT, Satara

In the result, all the three appeals filed by the assessee are disposed of as above

ITA 289/PUN/2010[2002-03]Status: DisposedITAT Mumbai23 Mar 2022AY 2002-03

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

For Appellant: Shri C Narseh, ARFor Respondent: Shri

Section 143(3)Section 14ASection 35DSection 36(1)(vii)Section 36(1)(viia)Section 37

assessee are carried out through multiple branches situated at distant places naturally, there would be overflow of information. However, assessee is following mercantile system of accounting and as and when the expenditure are approved then the same are said to be incurred and for that year those claim are allowable

The United Western Bank Ltd., Mumbai vs. Deputy Commissioner of Income-Tax, Jalgaon

In the result, all the three appeals filed by the assessee are disposed of as above

ITA 1339/PUN/2007[2002-03]Status: DisposedITAT Mumbai23 Mar 2022AY 2002-03

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

For Appellant: Shri C Narseh, ARFor Respondent: Shri

Section 143(3)Section 14ASection 35DSection 36(1)(vii)Section 36(1)(viia)Section 37

The United Western Bank Ltd., Satara vs. Additional Commissioner of Income-Tax, Satara

In the result, all the three appeals filed by the assessee are disposed of as above

ITA 1738/PUN/2005[2002-03]Status: DisposedITAT Mumbai23 Mar 2022AY 2002-03

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

For Appellant: Shri C Narseh, ARFor Respondent: Shri

Section 143(3)Section 14ASection 35DSection 36(1)(vii)Section 36(1)(viia)Section 37

M/S. Toyota Kirloskar Motor Private Limited, Ramanagar vs. Income Tax Officer, (TDS), Ltu, Bangalore

ITA 2392/BANG/2019[2011-12]Status: DisposedITAT Bangalore23 Mar 2022AY 2011-12

Bench: Shri N.V. Vasudevan & Shri B.R. Baskaranita No.2391 & 2392/Bang/2019 Assessment Years : 2010-11 & 2011-12

For Appellant: Shri Padamchand Khincha, A.RFor Respondent: Shri Sumer Singh Meena, D.R

Section 154Section 190Section 201Section 201(1)Section 37Section 40

provisions, its impact on profits and the legal effects. The accounts of a business concern can follow either “cash system of accounting” or “mercantile system of accounting”. Under mercantile system of accounting, “revenue cost matching principle” is followed, i.e., all the expenses incurred to ITA No.2391 & 2392/Bang/2019 M/s. Toyota Kirloskar ... known expenses and losses at the time of finalising accounts at the year end. Accordingly, the assessee’s, who are following mercantile system of accounting are required to account for all known expenses and losses, even if the bills/invoices have not been received. This is done by making provision

M/S. Toyota Kirloskar Motor Private Limited, Ramanagar vs. Income Tax Officer, (TDS), Ltu, Bangalore

ITA 2391/BANG/2019[2010-11]Status: DisposedITAT Bangalore23 Mar 2022AY 2010-11

Bench: Shri N.V. Vasudevan & Shri B.R. Baskaranita No.2391 & 2392/Bang/2019 Assessment Years : 2010-11 & 2011-12

For Appellant: Shri Padamchand Khincha, A.RFor Respondent: Shri Sumer Singh Meena, D.R

Section 154Section 190Section 201Section 201(1)Section 37Section 40

provisions, its impact on profits and the legal effects. The accounts of a business concern can follow either “cash system of accounting” or “mercantile system of accounting”. Under mercantile system of accounting, “revenue cost matching principle” is followed, i.e., all the expenses incurred to ITA No.2391 & 2392/Bang/2019 M/s. Toyota Kirloskar ... known expenses and losses at the time of finalising accounts at the year end. Accordingly, the assessee’s, who are following mercantile system of accounting are required to account for all known expenses and losses, even if the bills/invoices have not been received. This is done by making provision

DCIT 2(2), Mumbai vs. State Bank of India, Mumbai

ITA 4951/MUM/2013[2005-06]Status: DisposedITAT Mumbai22 Mar 2022AY 2005-06

Bench: Shri M. Balaganesh & Shri Kuldip Singhassessment Year: 2005-06 M/S. State Bank Of India, Dcit, Financial Reporting & Circle -2(2), Taxation Dept., Mumbai 3Rd Floor, Vs. Corporate Centre, Madam Cama Road, Nariman Point, Mumbai – 400 021 Pan: Aaacs8577K (Appellant) (Respondent) Assessment Year: 2005-06 Office Of The Dcit-2(2), M/S. State Bank Of India, R.No.545, Central Office, Aayakar Bhavan, Accounts & Compliance M.K. Road, Dept., Vs. 14Th Floor, Mumbai- 400 020 Madam Cama Rd., Nariman Point, Mumbai – 400 021 Pan: Aaacs8577K (Appellant) (Respondent)

For Appellant: Shri Ketan Ved, A.RFor Respondent: Shri Anand Mohan, D.R

Section 14Section 14ASection 36Section 41(4)

erred in allowing the taxing of interest on securities on due basis, ignoring the fact that the assessee bank has been following Mercantile System of accounting and therefore, interest on securities is to be accounted for on accrual basis, while arriving at the Book Profit. 6. (a) On the facts ... less than the face value. On the date of maturity, the whole of the amount of redemption money becomes due under the mercantile system of accounting followed by the appellant unless a portion of this amount is written off as bad debt. It is a real income and hence

State Bank of India, Mumbai vs. DCIT Cir 2(2), Mumbai

ITA 3685/MUM/2013[2005-06]Status: DisposedITAT Mumbai22 Mar 2022AY 2005-06

For Appellant: Shri Ketan Ved, A.RFor Respondent: Shri Anand Mohan, D.R

Section 14Section 14ASection 36Section 41(4)

Biocon Ltd, Bangalore vs. Deputy Commissioner of Income Tax, Ltu, Bangalore

ITA 1248/BANG/2014[2012-13]Status: DisposedITAT Bangalore21 Mar 2022AY 2012-13

Bench: Shri N.V. Vasudevan & Shri B.R. Baskaranassessment Year : 2012-13

For Appellant: Shri Padamchand Khincha, A.RFor Respondent: Shri Sumer Singh Meena, D.R

Section 190Section 201Section 201(1)Section 40

provisions, its impact on profits and the legal effects. The accounts of a business concern can follow either “cash system of accounting” or “mercantile system of accounting”. Under mercantile system of accounting, “revenue cost matching principle” is followed, i.e., all the expenses incurred to earn the corresponding revenue should ... accounting for all known expenses and losses at the time of finalising accounts at the yearend. Accordingly, the assessee’s, who are following mercantile system of accounting are required to account for all known expenses and losses, even if the bills/invoices have not been received. This is done by making