INCOME TAX ACT, 1961

Section 145(1)

Accounting method - Mercantile system of accounting - Income recognition - Invoices not raised

Assessee-company was engaged in the business of rendering counselling and consultation services. Assessee followed mercantile system of accounting but recognized revenue as per AS-9, which, recognizes accrual of income only when bills were raised on the clients for services rendered. AO made addition of the revenue whose recognition was postponed till the time bills were raised. Held: Since assessee followed mercantile system of accounting, AO was bound to compute income in accordance with that system. The fact that bills were not raised did not stop accrual of income under the mercantile system of accounting. Therefore, the claim of assessee which was purely based on AS-9 was not sustainable and the AO was justified in making the impugned addition. However, the aforesaid observations will hold good only upto assessment year 2012-13 because section 145 had undergone some statutory amendments and the position after such amendment is not and cannot be subject of decision in the instant appeal.

REFERRED :

FAVOUR : Against the assessee

A.Y. : 2012-13

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