Company Can Follow Mercantile And Cash System of Accounting At The Same Time ?



An assessee is free to adopt an accounting method -mercantile or cash – or even a method of accounting which is regularly employed by it . The basic thing is that the accounting system adopted should be fair and should be followed regularly. This is what section 145 of the I T Act provides. However, under Companies Act  there is only one kind of accounting system allowed i’e mercantile accounting system. Section 209(3)(b ) of the Companies Act   provides that a company must maintain the accounts on accrual basis .

The questions, therefore, are

  1.  Can a company  follow the cash system of accounting for the purpose of Income Tax Act even though it is following mercantile under Companies Act ?
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