Reliance Industrial Infrastructure ... vs Joint Commissioner Of Income Tax on 4 June, 2001
We would like to mention here that in the cases of CIT v. Shree Krishna Gyanoday Sugar Ltd. (supra) Industrial Machinery Manufacturers (P) Ltd. (supra), CIT v. O.E.N. India Ltd.(supra), State Bank of India v. CIT (supra) and CJT v. Mogul Line Ltd. (supra), the Hon'ble High Courts have laid down the principle that merely because the assessee has been following the mercantile system of accounting and merely because it did not provide for the expenditure in the accounts of that year, the claim of the assessee on the basis of bill could not have been denied. It was also mentioned that the way in which entries are made in the books of account is not determinative of the question whether assessee has earned any profit or suffered a loss. The assessee might be making entries which are not in conformity with the principles of accountancy. Therefore, the taxability could not be decided on the basis of entries which the assessee might choose to make in its account but had to be decided in accordance with the provision of law. What would determine the taxability is not whether the assessee has shown a particular item as profit or loss in the accounting year but whether the said item could be regarded either as profit or loss under the provisions of the Act. In view of the above decisions, it is clear that whether the deductibility of an amount in the mercantile system of accounting is dependent upon the entries being made or not being made in the books of account is not determinative.