TMI Blog2014 (12) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... instance where services stand billed, but payments have not been received, and for this reason, income is not recognized - No such instance has been pointed out, since no such instance exists - income has been recognised on accrual basis, and the method of accounting is clearly mercantile -expenses in any case have been accepted as genuine. Assessee rightly contended that if bills raised are realized in that very financial year, then it 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- interest income of ₹ 12,127.91 was accounted for on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 2096/Del/2010, set aside the issue of system of accounting followed by the assessee to the file of AO, directing the AO as under: for examining the books of accounts, hear the assessee and decide whether it has been following cash or mercantile system of accounting. Therefore he may decide the issue regarding deductibility of expenses payable in the light of his finding on the system of accounting . 2.1. The AO, after examining the assessee s books concluded that assessee was following cash system of accounting and not mercantile system. He accordingly, made addition of ₹ 2,46,040/- being amount shown as expenses payable. 2.2. Before Ld. CIT(A) the assessee had submitted that it had regularly been following mercantile sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertained to the subject year only, and that is why, no outstanding billings existed. b. The AO relied upon the disclosure in the tax audit report, and held that the Assessee was following cash system of accounting. The expenses payable were disallowed in the order passed the very same day, i.e.26.11.09. c. The ITAT in second appeal set [PB 37) aside the issue to the AO, directing him to verify the facts from an examination of the books of account, holding that they were the only way to ascertain the method of accounting. d. Thereafter, the AO requisitioned books of account, which were duly filed before him, and professional bills had been raised only 2-3 days before receipt of fees, and entries in books of account were made only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcantile. This has been clearly pointed out to the CIT(A), as may be discerned from Page 3 of the Paper Book, and such contention has not been dealt with at all. 4. The amount involved is not a large one, and in such cases, the Revenue authorities tend to count on the Assessee to optimise its efforts, and forego small additions. In the subject case though, the Assessee is a CA firm, and has maintained correct and complete accounts, no defect or omission in which has been identified by the AD or the CIT(A). In second round, the CIT(A) has not even followed the ITAT's direction to ascertain facts from the books of account, and has mechanically confirmed the AD's version without even addressing herself to submissions in this regard. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g observations: On examining the ledger account of professional receipts it is observed that the assessee booked the professional fees in its books of accounts on the date of receipt of professional fees while the bill for these professional fees have been raised by it 2-3 days before receipt of professional fees. Had the assessee firm been following mercantile system of accounting it would have booked the professional fees on the date of raising the bill and not on the date of receipt of the same. For example details of some of the bills raised for professional fees and booking the same in the books of accounts are as under:- S. No. Date on which Bill raised Amount of bill ..... X X X X Extracts X X X X X X X X Extracts X X X X
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