CAN ASSESSEE ALLOW TO FOLLOW MERCANTILE SYSYTEM FOR ONE

PROJECT AND CASH SYSYTEM FOR ANOTHER PROJECT?

As per section 145 of IT Act 1961 there is an option available with the assessee to follow either cash or mercantile system of accounting regularly employed by the assessee. but in recent case assessee has follows mercantile system for one project and cash system for another project.

Facts of the case:

. The assessee is engaged in the business of land development. As part of the business, the assessee has entered into an agreement for the development of land with the owners thereof, admeasuring 31 acres situated at Hadapsar, for total consideration of Rs.4.75 crores on 29th November 2004.

.Thereafter, on 12th October 2006 assessee executed a Deed of Assignment assigning all its rights and interest in respect of the said land in favor of one M/s Sahastrajeet Reality Private Limited for consideration of Rs.12.44 crores.

. The assessee offered a sum of Rs.2.44 crores by way of tax, crediting such sum to its profit and loss account. The balance of Rs.10 crores was received during the period relevant to the Assessment Year 2008-09 and 2009-10 and was offered to the tax as its business income.

. The assessee contended that for the said project the assessee had followed the cash system and offered the income to tax on actual receipt basis. The same was taken for scrutiny by Assessment Officer.

.  He taxed the entire income during the said year on the accrual basis. Assesse challenged the order.

Held:

. The high court has observed that The Tribunal has recorded that the assessee has been regularly following a mercantile system of accounting and that there has been no change in the method of accounting.

.  Court has also observed that as per section 145 of IT Act 1961 there is an option available with the assessee to follow either cash or mercantile system of accounting  regularly employed by the assessee.

.  In terms of this provision, therefore the choice of the assessee would be

either of following mercantile or cash system of accounting.

 . The assessee, however,   cannot choose to follow a mercantile

system for all other projects and make a departure only for one of the projects by changing the system of accounting.

.  We, therefore, hold that the assessee was bound to follow the mercantile system of accounting and offer the income to tax on the basis of accrual and not actual receipts.