16 DCIT v. ACC Rio Tinto Exploration Ltd.
ITAT ‘C’ Bench, New Delhi
Before R. K. Gupta (JM) and
K. G. Bansal (AM)
ITA Nos. 4908 /Del./2005
A.Y. : 2001-02. Decided on : 26-9-2008
Counsel for revenue/assessee : Suresh K. Jain/
Salil Kapoor
S. 145 read with S. 35E of the Income-tax Act, 1961 — Change in method of accounting — Assessee engaged in the business of prospecting and exploring ores and minerals changed its earlier method of accounting of capitalising the expenditure incurred to charging the same to profit and loss account — Whether the change was bona fide — Held, Yes.
Per K. G. Bansal :
Facts :
The assessee was engaged in the business of prospecting and exploring ores and minerals. As per its method of accounting, expenditure incurred on such activities was capitalised. During the year under appeal the assessee changed its accounting policy in respect of the same and the expenditure incurred on such activities was charged to profit and loss account. The AO did not accept the change for the following reasons :
The CIT(A) on appeal came to the conclusion that the assessee was in the business of exploration, and not mining as held by the AO. Further, being satisfied that the change made in accounting policy was bona fide, the CIT(A) allowed the assessee’s appeal.
Before the Tribunal the Revenue contended that the assessee had changed its policy only to frustrate the provisions contained in S. 35E of the Act and submitted that the order of the AO be restored.
Held :
Referring to the main objects as per the Memorandum of Association of the assessee company, the Tribunal noted that the assessee company was formed to carry on the business of prospecting or exploring the ores and minerals. According to it, the conclusion got further strength from the FIPB approval received by the assessee, which was only for carrying out exploration activity. Thus, the Tribunal held that the mainstay of AO that the business of the assessee had not commenced and therefore, the expenses cannot be charged to profit and loss account failed. Further, the Tribunal held that to align the accounting policy with that of one’s parent, could be a valid ground and it did not agree with the AO that it was not a good ground to permit the change. According to it, the change would lead to more appropriate preparation and presentation of the financial statement for the reason that the losses will not unnecessarily be carried forward as work-in-progress, when there was none.