Tribunal rules in favor of assessee in accounting method and R&D expenses dispute

The Tribunal ruled in favor of the assessee in a case involving a dispute over the change in accounting method for recognizing export benefits and the disallowance of Research and Development (RandD) expenses claimed under Section 35(1)(iv) of the Act. The Tribunal held that the change in accounting method was bonafide and directed the Assessing Officer to accept the revised return. Additionally, the Tribunal directed the A.O. to allow the total RandD expenses claimed by the assessee.

---

---

Issues involved:
The issues involved in this judgment are:
1. Dispute regarding the change in method of accounting for recognizing export benefits.
2. Disallowance of expenses incurred on Research and Development (RandD) claimed by the assessee u/s. 35(1)(iv) of the Act.

Issue 1: Change in method of accounting for recognizing export benefits:
The appeal was filed by the assessee against the decision of the CIT(A) confirming the action of ignoring the revised return filed by the assessee and holding that the change in method of accounting was not bonafide. The assessee, a company, initially filed a return declaring a loss, which was later revised with the same loss amount. The company changed its method of accounting for recognizing export benefits under advance license, resulting in a significant write-off. The Assessing Officer (A.O.) added a sum to the total income of the assessee, stating that the change was without reasonable cause and the revised return did not provide necessary details. The assessee contended that the change was genuine and for bonafide reasons, following industry practices and accounting principles. The Tribunal held that the change in accounting method was bonafide and consistent, following Accounting Standard-9 and real income theory. The Tribunal directed the A.O. to accept the revised return and the profits shown by the assessee after adopting the changed method of accounting.

Issue 2: Disallowance of RandD expenses claimed u/s. 35(1)(iv) of the Act:
The assessee claimed a total expenditure on RandD, but only 1/6th was shown as an expense in the Profit and Loss account. The A.O. disallowed the claimed amount, stating that the assessee could not take two different positions. The CIT(A) upheld this decision. The assessee argued that the entire expenditure was allowable under Section 35(1)(iv) of the Act in the year of incurrence, regardless of accounting treatment. The Tribunal agreed, stating that the genuineness of the expenditure and the applicability of the Act's provisions were not in question. The Tribunal directed the A.O. to allow the total claim made by the assessee under Section 35(1)(iv) of the Act.

In conclusion, the Tribunal ruled in favor of the assessee on both issues, directing the A.O. to accept the revised return and the profits shown after the change in accounting method, as well as allowing the total RandD expenses claimed under Section 35(1)(iv) of the Act.

---