Bal Krishan Das Mundhra Vs ITO (ITAT Kolkata)
AO cannot mixed system of accounting for assessment of income on accrual basis and disallowance of expenditure on cash basis and Interest expense cannot be disallowed for not reflecting in Form 26AS issued by recipient.
The case of Bal Krishan Das Mundhra Vs ITO (ITAT Kolkata) revolves around the dispute regarding the assessment of income on accrual basis and the disallowance of expenditure on a cash basis. The appellant contested the disallowance of deduction under section 57 of the Income Tax Act, leading to a thorough examination of accounting practices.
The appellant, consistently following the mercantile system of accounting, recognized interest income on an accrual basis, despite not receiving the entire amount by the end of the accounting year. Similarly, interest expenditure was accounted for on accrual basis, with a portion paid in the subsequent year.
The Assessing Officer disallowed the interest expenditure discrepancy, contending that if expenditure isn’t reflected in Form 26AS issued by the recipient, it shouldn’t be allowed to the assessee. However, the Tribunal recognized the appellant’s adherence to the mercantile system and ruled in their favor.
Drawing upon the judgment of the Hon’ble Supreme Court in Kerala State Industrial Development Corporation Limited-vs.-CIT, the Tribunal emphasized the validity of accounting income on a mercantile basis and upheld the appellant’s claim.
