Tribunal Upholds Tax Appeal Decision on Accounting Policy Change

The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal against the deletion of an addition made by the Assessing Officer under section 35E, amounting to Rs. 1,61,80,156, for the assessment year 2001-02. The change in accounting policy by the assessee, engaged in prospecting and exploring ores and minerals, was considered justified under Accounting Standards for a more appropriate financial statement presentation, as the company was not involved in mining activities but solely in prospecting and exploring activities.

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Issues involved: Appeal by Revenue challenging deletion of addition u/s 35E of Rs. 1,61,80,156 made by AO.

Summary:
The Revenue appealed against the deletion of an addition made by the Assessing Officer (AO) under section 35E, amounting to Rs. 1,61,80,156, for the assessment year 2001-02. The assessee, engaged in prospecting and exploring ores and minerals, changed its accounting policy, which was challenged by the Revenue. The AO disagreed with the assessee's reasons for the change, citing mismatch of expenditure with receipts and an attempt to circumvent provisions of section 35E. The assessee contended that it was not engaged in mining but only in prospecting and exploring activities. The Commissioner of Income Tax (Appeals) upheld the assessee's position, stating that the change in accounting policy was justified under Accounting Standards and for a more appropriate financial statement presentation. The Tribunal found the change to be bona fide and in line with worldwide accounting standards, leading to the dismissal of the Revenue's appeal.

The main objects of the company included prospecting, exploring, and research of various ores and minerals, with no involvement in mining activities. The approval granted by the Government of India was limited to prospecting, requiring further approval for mining activities. The Tribunal noted that the provisions of section 35E only apply to commercial production of minerals, which was not the case for the assessee engaged solely in prospecting and exploring activities. The change in accounting policy was deemed bona fide and beneficial for financial statement accuracy, aligning with global standards. Consequently, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal.

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