9911796707
TMI Blog2014 (12) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. In this case, the original assessment was completed u/s 144 of the Income-tax Act at a total income of Rs. 7,66,100/- by making an addition of Rs. 5,24,887/- including expenses payable of Rs. 2,46,040/-; by rejecting the mercantile system of accounting, as claimed to have been employed by the assessee because the auditor of the assessee had reported that the firm was following cash system of accounting and there was no change in the method of accounting vis a vis method employed in the immediately preceding year. The ld. CIT(A) had upheld the addition of Rs. 2,46,040/- being expenses payable by assessee and had deleted the rest of the additions. The assessee preferred appeal before the Tribunal and the Tribunal vide its order dated 27-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by it. Shorn of embellishment, the relevant facts are as under: a. During assessment proceedings, the AO found [PB 49) that the Assessee had claimed 'Expenses Payable' at ~ 2A6,040. Details of such expenses were requisitioned. The Assessee responded with letter dated 26.11.09, providing the said details, and stating inter-alia, that: i. Receipts had been recorded on mercantile basis only, and reference was given also to P&L Alc., wherein provisions for interest on bank FDR's were made on mercantile basis; ii. It so happened that all billings for the subject year had been collected, and therefore, there were no outstanding billings; iii. Tabulation of professional receipts and TDS deductions showed that all receipts pertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round. 3. Substantively, the misgivings of the Revenue authorities are based on an incomplete appreciation of the method of accounting. Since in the subject year, all bills have been duly collected, regardless of the method of accounting, income was to be recognised. As long as income is billed, received, and accounted for in a given year, the system is mercantile. This would get tested only if the AD is able to point out an instance where services stand billed, but payments have not been received, and for this reason, income is not recognised. No such instance has been pointed out, since no such instance exists. The fact is, income has been recognised on accrual basis, and hence, the method of accounting is clearly mercantile. This has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowable in full. So it is prayed". 4. We have considered the submissions of both the parties. In course of set aside proceedings, AO had examined the following documents: 1. Copy of ledger account of professional receipts for FY 2006-07 relevant to AY 2007-08. 2. Copy of bills raised for professional receipts for FY 2006-07 relevant to AY 2007-08. 3. Copy of cash book for the period 01-04-2006 to 31-03-2007. 4. Copy of ledger accounts of major expenses for FY 2006-07 relevant to AY 2007-08. 4.1. After examining these documents, as per the directions of Tribunal, the AO has recorded a categorical finding that assessee was following cash system of accounting, which is evident from the following observations: "On examining the ledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is that if bills raised are realized in that very financial year, then the same cannot be a basis to come to the conclusion that assessee was not following mercantile system of accounting, unless it is demonstrated that services were rendered in one financial year and bill for the same realized in subsequent assessment year. We find force in this contention. The AO has not disputed assessee's contention. There is no finding by AO that any particular bill is raised after receipt of amount. Further, it is not disputed that interest income of Rs. 12,127.91 was accounted for on accrual basis. Therefore, taking into consideration the entire conspectus of the case, we are of the opinion that assessee's claim deserves to be accepted. 5. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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