Method of accounting can be changed if such change is bona fide, scientific, accurate and complies with statutory requirements of AS-9 and S.5 of the Act:

AO, on finding that the assessee had changed the method of accounting during the year under consideration, took a view that on account of such change, assessee had shown less profit and hence, he made addition in respect of the same which came to be deleted by CIT(A) and ITAT. On Revenue’s appeal, Hon’ble High Court observed that the CIT(A), while deleting the said addition, found that earlier, assessee used to account for “advances received from sponsors” as income and “expenses incurred on such projects” as expenditure in the very same year irrespective of the fact whether the said project was completed or not in the said year. However, during the year under consideration, the new method of accounting adopted was such whereby advances received and expenses incurred only in respect of completed projects were accounted for in P&L a/c whereas advances and expenses in respect of incomplete projects were shown in B/S under the head “Advances” and “Work-in-progress” respectively. Such change in method of accounting was bona fide, more accurate and scientific. It was in line with the statutory requirements of AS-9 on “Revenue Recognition and Section 5 of the Income-tax Act. Hence, the new accounting system was permissible under the law. Also, AO had neither pointed out any defect in the books of accounts, nor established that that on account of change in method of accounting, assessee’s profit cannot be deduced. Hence, rejection of such method of accounting was not sustainable and consequently, the impugned addition was deleted. The said order was confirmed by ITAT and even Hon’ble High Court held that ITAT’s order didn’t require any interference. Accordingly, Revenue’s appeal was dismissed.

[CIT vs. Mapin Publishing Pvt. Ltd. – Tax Appeal No.902 of 2013]