1973 (9) TMI 30

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....ng out of the appellate order. The assessee is a registered firm of four partners and derives income from various sources. The accounting period in question ended with 24th of March, 1961. The year of assessment is 1960-61. The assessee maintained the mercantile method of accounting. During the previous year relevant to the assessment year under reference, the assessee undertook a project styled as "D. B. K. Railway Project". The assessee failed to render any income from this source. From the balance-sheet of the assessee the Income-tax Officer found that the assessee had made a credit of Rs. 1,34,028 and a debit of Rs. 2,18,442. A debit balance of Rs. 84,414 had been carried over to the next year as an item on the asset side. The assess....

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....he assessee got a relief of Rs. 3,350. The net income was determined at Rs. 16,753 on this head. The assessee carried a second appeal before the Income-tax Appellate Tribunal. The Tribunal was of the view that, as the payment under the contract work had not been finally adjusted, there was no real income accruing to the assessee in the accounting year and as such the amount of Rs. 16,753 could not be taken into consideration for enhancing the net income of the assessee in the appropriate assessment year. The reference was filed at the instance of the Commissioner of Income-tax. Before we examine the question of law, we may notice one important fact that a memo. was filed by Shri Mohanty on behalf of the assessee that a suit was fil....

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....d out, but on the difference between the right to receive and the liability to pay. Anticipated losses and contingent liabilities cannot be claimed under the mercantile system of accounting. Under that system an income accrues or arises when the assessee acquires a right to receive the same. When an Income-tax Officer proceeds to include a particular income in the assessment, under the mercantile system he shall have to find out when the right to receive the amount accrued. (See Commissioner of Income-tax v. A. Gajapathy Naidu and Commissioner of Income-tax v. Swadeshi Cotton and Flour Mills (Private) Ltd). The assessee entered Rs. 2,18,442 on the debit side under the mercantile system. This he could validly do in law if the following....