Accrual basis income recognition failed where escalation claim was not shown as receivable and was taxed on receipt.

Under mercantile accounting, income may generally accrue before receipt, but that principle did not help the assessee because it failed to show the escalation claim as a receivable or outstanding balance in its books. The Court distinguished cases on accrued expenditure and liability, and held that those authorities could not be mechanically applied to income recognition on these facts. As the escalation amount was credited only when sanctioned and received from the railways, the Tribunal correctly treated it as taxable in the year of credit and receipt.

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Issues: Whether escalation claims arising under the contract were required to be brought to tax in the year to which they pertained despite being credited only when received and notwithstanding the filing of revised returns.

Analysis: The claim was founded on the principle that, under mercantile accounting, income or liability may be recognised on accrual rather than receipt. The Court accepted the general principle relied upon by the assessee, but held that it did not assist on the facts because the assessee had not shown the corresponding receivable or outstanding balance in its books of account. The Court distinguished authorities dealing with expenditure and accrued liability, and held that those principles could not be mechanically extended to the present claim for income. Since the assessee credited the escalation amount only when sanctioned and received from the railways, and had not disclosed the amount as an accrued receivable in the books, the Tribunal was right in treating it as taxable in the year of credit/receipt.

Conclusion: The escalation amount was rightly taxed in the year in which it was credited and received, and the assessee's contention failed.

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