Recognition of income on accrual basis to be considered from view point of a prudent assessee

CA Saurabh Chokhra

Brief of the case:

1. The Hon’ble Bombay High Court in the above cited case held that even in mercantile system of accounting an item would be regarded as accrued income only if there is certainty of receiving it and not when it has been waived. Earning of the income, whether actual or notional, has to be seen from the viewpoint of a prudent assessee.

2. Therefore, when the assessee is seeing the recovery of principal probably low then it cannot be forced to recognize the interest income in the name of mercantile system of accounting. In fact, it is not open to anyone to force adoption of accounting policies which result in a distorted view of the affairs of the business.

3. Therefore,earning of the income, whether actual or notional, has to be seen from the viewpoint of a prudent assessee

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