The assessee had been following the mercantile system of accounting, wherein book profits are taken for...

The assessee had been following the mercantile system of accounting, wherein book profits are taken for tax assessment, though credit or debit amounts may not be realized or disbursed. The Income Tax Officer treated certain amounts as income, which the assessee claimed were not actually accrued. It is settled law that income tax cannot be levied on hypothetical income, and only real income can be taxed. Recording entries in books of accounts is not conclusive for determining income under tax laws. Whether an amount is income or not is determined based on Income Tax Law, not book entries. No tax can be charged on an amount not actually earned. The Tribunal rightly deleted the addition as hypothetical income not actually accrued, which was 64..... .....

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