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ITAT ruled that under mercantile accounting, income accrues only when there exists a legal right to receive it, not merely based on book entries. In the disputed case, enhanced charges recorded in books were unrecoverable due to consumer litigation. Following the 'real income' doctrine established in precedent cases, ITAT held that hypothetical or unilateral book entries without acceptance from debtors do not constitute taxable income. The tribunal emphasized that even in mercantile accounting, income must actually become due and not remain a mere claim. Addition was deleted as no real income had accrued to the assessee, aligning with established judicial principles on income recognition and taxability.
ITAT ruled that under mercantile accounting, income accrues only when there exists a legal right to receive it, not merely based on book entries. In the disputed case, enhanced charges recorded in books were unrecoverable due to consumer litigation. Following the 'real income' doctrine established in precedent cases, ITAT held that hypothetical or unilateral book entries without acceptance from debtors do not constitute taxable income. The tribunal emphasized that even in mercantile accounting, income must actually become due and not remain a mere claim. Addition was deleted as no real income had accrued to the assessee, aligning with established judicial principles on income recognition and taxability.
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