Mercantile accounting supports section 32AB deduction for machinery purchased in the year, even if payment follows later.

An assessee maintaining mercantile accounts was treated as entitled to deduction under section 32AB for machinery purchased during the relevant year, even though payment was made in the subsequent year. The Tribunal relied on the finding that the machinery was acquired during the year under consideration and applied section 43(2) to support eligibility on a mercantile basis. No manifest error of law was shown in that reasoning, so the deduction under section 32AB was sustained and the Revenue's challenge failed.

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Issues: Whether the assessee, following the mercantile system of accounting, was entitled to deduction under section 32AB of the Income-tax Act, 1961 in respect of machinery purchased during the relevant year but paid for in the subsequent year.

Analysis: The Tribunal had found that the machinery was purchased during the year under consideration and that the assessee maintained accounts on mercantile basis. On that footing, and with reference to section 43(2) of the Income-tax Act, 1961, the Tribunal held that the assessee was entitled to the benefit under section 32AB. No manifest error of law was shown in that finding.

Conclusion: The assessee was held entitled to the deduction under section 32AB of the Income-tax Act, 1961, and the Revenue's challenge failed.

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