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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B” : HYDERABAD
Before: SHRI S.S.GODARA & SHRI LAXMI PRASAD SAHU
O R D E R PER S.S.GODARA, J.M. : These two assessee’s appeals for AYs.2013-14 and 2014- 15 arise against the Pr.CIT-1, Hyderabad’s separate orders dated 30-01-2018 and 12-03-2019 in case F.No.10 / Pr.CIT-1, / 263 / 2017-18 and F.No.Pr.CIT-1 / Hyd / 263 / 11(1) / 2018-19, involving proceedings u/s.263 of the Income Tax Act, 1961 [in short, ‘the Act’]; respectively. Heard both the parties. Case files perused.
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It transpires at the outset that the assessee’s former instant appeal suffers from 13 days delay stated to be attributable to the reason(s) beyond its control as per condonation petition/affidavit. No rebuttal has come from the departmental side. The impugned delay is condoned therefore.
Coming to assessee’s “lead” AY.2013-14’s appeal ITA No.724/Hyd/2018, we note that the PCIT’s detailed discussion terming the Assessing Officer’s regular assessment dt.02-03- 2016 as an erroneous one causing prejudice to the interest of the Revenue; reads as under:
6.1 I have gone through the assessment order, record, grounds of revision and submissions made by the assessee company in reply to the show cause letter dated 16.11.2017. 6.2 As mentioned above, the assessee-company vide letter dated 30.11.2017 detailed the background of the agreements that it had entered into with GAIL for supply of natural gas required by it for power generation and the circumstances in which they provided for cost of Natural Gas at US $ 5.73 /MMBTU in their books as per agreement entered with GAIL even though GAIL has raised invoices for US $ 4.30/MMBTU. It is the argument of the APGPCL that they are bound to pay the differential amount to GAIL in 3 days as per the agreement as the latter can demand differential amount at any time with 3 days' notice. In support of its claim, APGPCL filed copies of correspondence between itself and GAIL authorizing supply of gas between the two entities. On verifying the documents, it is found that the provision that the assessee-company had been making in its books of accounts for the differential rate in price of gas at US $ 1.43/MMBTU was based on a letter from GAIL in F.No.GAIL/HZO/Gas Mktg/Ravva Satellite Gas/Pricing/2008 dated 29.10.2008 to the APGPCL, the contents of which are reproduced here under:
In accordance with the provisions of the upstream contract, Ravva JCV has sought revision in the price of Ravva Satellite. Gas and has indicated a price of US $ 5.73/ MMBTU with a validity of such price of 3 years from 01.12.2008
:- 3 -: & 1452/Hyd/2019 You may kindly note the possible increase in the price of Mvva Satellite Gas w.e.f. 01.12.2008" The assessee-company in reply vide its letter No.APGPCL/HO/F.GAIL/1036 dated 29.11.2008 had stated as follows: "This has with reference to your letter dated 28.11.2008. We hereby agree to give our consent for supply of Ravva Satellite Gas at $ 5.73 MMBTU to our power plants at Gas Turbo Power Station, Vijjeswaram subject to the outcome of the court order on fixation of price of the supply of the gas from Ravva Satellite" As can be gathered from the above correspondence, GAIL had only indicated a possible rise in price of Ravva Satellite Gas from US $ 4.3/MMBTU to US $ 5.73/MMBTU with a validity of such price for 3 years from 01.12.2008 in case there is such a price rise as indicated above. From the language of the letter of GAIL, the price of US $ 5.73/MMBTU is indicative and not conclusive. The contents of the APGPCL's letter also indicate that supply of Ravva Satellite Gas at $ 5.73/MMBTU to their power plants at Gas Turbo Power Station, Vijjeswaram is subject to the outcome of the court order on fixation of price of supply. Thus, the whole issue of price rise was mired in a thick element of uncertainty. 6.3 Perusal of subsequent correspondence between the APGPCL and GAIL submitted by the assessee-company in support of its claim reveals that it was time and again reiterated by GAIL that it was in discussion with Ravva JV on the price revision which is inconclusive and that GAIL shill continue to pay for the gas at the purchase price fixed for the last quarter i.e. $ 4.3/MMBTU as stipulated under the GAIL-Ravva JV contract. Accordingly, the APGPCL is required to pay $4.3/MMBTU to GAIL. GAIL has been reiterating time and again that it is in discussion with Ravva JV about the price revision, that negotiation with Ravva JV on the price revision was inconclusive and that GAIL shall continue pay for the gas at the purchase price fixed for the last quarter i.e. $ 4.3/MMBTU as stipulated under the GAIL- Ravva JV contract until the new price has been determined. Accordingly, GAIL had been raising invoices on APGPCL at US $ 4.30/MMBTU every fortnight which the latter had been paying ill these years but at the same time making a provision to the credit of GAIL for the differential price in its books of accounts and debiting the same to the Profit & Loss Accounts. 6.4 Further, things as stood above, it was also informed by the assessee-company vide its letter dated 30.11.2017 that in response to its letter seeking clarification on the price rise, GAIL, vide its letter dated 27.02.2017, confirmed that there would not be any revision of price of Natural Gas from Ravva Field for the period 01.12.2008 to :- 4 -: & 1452/Hyd/2019 31.10.2014 and the revision of price will be done from 01.11.2014 as the talks are inconclusive with its partner Cairn Energy Ltd. 6.5 It is clear from the correspondence between APGPCL and GAIL that the latter only hinted at a possible revision of price of Natural Gas to be supplied by it and the former gave its consent to pay the same in case such a revision were ever to take place. However, no such revision had actually taken place and GAIL had continued to raise bills at us $ 4.30/MMBTU over the years including the year under consideration in view of the fact that GAIL continued to pay for the gas at the purchase price fixed earlier i.e. $ 4.3/MMBTU as stipulated under the GAIL-Ravva JV contract. In this background, the apparent apprehension of the assessee-company that it may be forced to cough up the differential rate of US $1.43/MMBTU within a period of 3 days appears to be without any basis as there is no hint of 'payment of differential rate within a period of 3 days' in the correspondence between the two. 6.6 It is manifest from the above" discussion that the assessee- company has been making a provision for the differential rate of US $ 1.43/MMBTU presuming that it may have to pay up the differential rate in a short span of time with a purported apprehension that failure to do so results in disastrous consequences by way of cut in supply of natural gas. Besides, its own presumption, there is nothing concrete which the assessee-company could bring up to show that there was an element of certainty about the provision that it created in its books of accounts to the credit of GAIL. In this context, it may be relevant to discuss what constitutes an 'ascertained liability' as laid out by various judicial forums. The Hon'ble Supreme Court in the case of Metal Box Company of India Ltd v Their workmen (73 I.T.R. 53) held that although the quantification may be postponed to a future date, as long as the event is a certainty, the claim for deduction cannot be denied but where the liability itself is not certain, which may happen or may not happen, such liabilities are contingent in character and cannot be the subject matter of deduction, even under the mercantile system of accounting. Referring to the decision of the apex Court in Shree Sajjan Mills Ltd v CLT. (156 I.T.R 585), the Madras High Court in the case of C.I.T. v. Dynavision Ltd (265 I.T.R 289) held, that "the basic requirement is that the amount sought to be excluded should be an expenditure and the expenditure, which is deductible for income-tax purposes, is one which is towards a liability actually existing at the time, but the putting aside of money, which may become expenditure on the happening of an event, is not an expenditure". The above decisions clearly' bring out the nature of contingent liability vis-a-vis an ascertained liability. In the instant case, the assessee company creating a provision in favour of GAIL towards the differential price of Natural Gas of US $ 1.43/MMBTU in its books of accounts and debiting the same to the Profit & Loss
:- 5 -: & 1452/Hyd/2019 Account was based on an indicative price rise to be effected in future by its supplier, GAIL as suggested in one of its correspondence. The revision of price suggested by GAIL was only indicative, never certain and no further price differential was demanded from the assessee- company by GAIL. 6.7 The assessee company itself stated that till date the GAIL has not charged towards differential price. It has written back the provision which has been made over a period of time. The relevant portion of the submission of the assessee at page 4 of the letter dated 30-11- 2017 is as under: 'Thus GAIL had been informing us in its letters every time that the revision of price of Natural gas of Ravva Field would be effective from 01-12-2008. Thus in the said letter dated 27-02-2017 only, it is confirmed that we do not have any liability for gas supplied from ravva filed for the period 01-12-2008 to 31-10-2014 and provisional price charged at $4.30/ MMBTU becomes final rate. We had therefore written back Rs.81,20,86,672/ - due to GAIL as per our books and treated it as income in the financial year 2016-17 relevant to Assessment Year 2017-2018 and paid tax thereon”. 7.1 In this background, the assessment made by the Assessing Officer is in a very casual and mechanical manner and deserves to be set aside on the issues mentioned above. Assessment made without proper enquiry is held as erroneous and prejudicial to the interest of the revenue and the Commissioner of Income Tax is empowered to revise such assessment by invoking the provisions of section 263. There are various judicial decisions in support of such proposition which are as under: i.Rampyari Devi Sarogi V s. CIT (SC) 67 ITR 84 ii.Malabar Industrial Co. Ltd. V s. CIT(SC) 243 ITR 83 iii.Swamp Vegetable Products Industries Ltd. Vs. CIT (ALL) 187 ITR 412 iv.Gee Vee Enterprises Vs. Addl.CIT & Ors (Del.) 99 ITR 375 v.Rajalakshmi Mills Ltd. Vs. ITO (ITAT, SB-Chennai) 121 ITD 343, 313 ITR(AT) 182 Vi.SRM Systems & Software Pvt. Ltd. Vs. ACIT 2010-TIOL-646-HC- MAD-IT. vii.Shakti Credits Ltd Vs. CIT 2015 Tax Pub (DT) 3058 (Luck.'A' Trib) viii.Shoreline Hotel Pvt.Ltd. V s. CIT 2015 Tax Pub (DT) 2982 (Mum.'E" Trib.) ix.Kapil Ratan Associates Vs CIT 2015 Tax Pub (DT) 2931 (Mum.'A'Trib) 69 SOT 188 (Mum.) x.Swadeshi Vilas Private Ltd Vs. ACIT dt:25- 09-2013.
:- 6 -: & 1452/Hyd/2019 7.2 There was incorrect application of law which constitutes an error and as such the assessment is erroneous and prejudicial to the interests of the Revenue since there is loss of revenue. In this regard, support is drawn from the following decisions: i) CIT Vs. JawaharBhattacharjee, 341 ITR 434 (Gau.) ii) Jai Bharath Tanners Vs. CIT, 264 ITR 673 (Mad.) iii) Vashti Management Services Pvt. Ltd. Vs. ITO (ITAT, Del.)(2010- TIOL-642-ITAT-DEL) 7.3 In the case of CIT Vs. JawaharBhattacharjee (supra), the following ratio was laid down: “Jurisdiction under section 263 can be exercised whenever it is found that the order of assessment was erroneous and prejudicial to the interest of the Revenue. Cases of assessment order passed on wrong assumption of facts, or incorrect application of law, without due application of mind or without following the principles of natural justice are not beyond the scope of section 263 of the Act. " 7.4 In the case of Jai Bharath Tanners Vs. CIT(supra), it was held as under: “We, therefore, hold that the Appellate Tribunal was correct in holding that- the Commissioner has exercised his jurisdiction on proper and valid grounds and he has exercised his jurisdiction properly when he found that the assessing officer had granted deduction under sections 80HDD and 80HHC of the Act without verifying the same. We do not find any infirmity in the order of the Appellate Tribunal and accordingly, we answer the question of law referred to us in the affirmative, against the assessee and in favour of the revenue. No Costs.” 7.5 In the case of Vashti Management Services Pvt. Ltd. Vs. ITO (supra), one of the issues was wrong application of provisions of section 41(2) in respect of profits earned on sale of assets in place of section 50 and the Assessing Officer allowed brought forward losses against such profits claimed u/s 41(2) by the assessee. The Assessing Officer did not examine the nature of income and submissions of the assessee were not gone into detail to come to a conclusion whether the submissions are correct or not. The Hon'ble ITAT observed as under: "Coming to the applicability of section 263, there is no possibility of taking different views in this matter. The finding of the ld.CIT is that the assessing officer simply ignored the issue involved despite there being a specific query raised by his predecessor. We find that the assessing officer has not examined the nature of the income. He was not sure whether the submissions of the assessee were correct as :- 7 -: & 1452/Hyd/2019 such submissions only appeared to be correct to him. In view thereof, the order is erroneous as it is not based upon appreciation of facts and law in the matter and, in fact, is contrary to the decision discussed above. It has also caused predudice to the interest of the revenue as there has been loss of revenue. The ld. CIT has merely restored the matter to the assessing officer to decide the matter afresh after hearing the assessee. We do not find any fault with his finding. Therefore, it is held that the ld.CIT was right in holding the order to be erroneous and prejudicial to the interest of revenue on this ground. " 7.6 In the case of err v s Emery Stone Manufacturing company (213 ITR 843) (Raj) it was held that even though the assessee had disclosed all the facts before the Assessing officer, the CIT can very well exercise bis power u/ s.263 if the correct provisions of law have not been examined by the Assessing Officer. 7.7 The assessing officer, while completing the assessment, has not caused any inquiry into the nature of provision that was being debited to the profit & Loss Account and allowed the same as a deduction. Thus, the order passed by the Assessing Officer rendered itself erroneous in so far as it is prejudicial to the interests of the revenue. It may be relevant to refer to the following decisions in case no proper enquiry is made: i. pragathi Financial Management Pvt. Ltd. Vs CIT (386ITR 162) (Cal), ii. Rajmandir Estates Pvt. Ltd., Vs Pr.CIT (386 ITR 162)(Kol) iii. Daniel Merchants Pvt. Ltd., Vs ITO(Appeal(C) No.23976/2017) (SC) wherein it was held that the CIT can revise the assessment order when the assessing officer does not make proper inquiry while making the assessment and accepting the claim of the assessee for a deduction.
In view of the discussion above and the reasons mentioned in the show cause notice, the assessment order dated 02.03.2016 passed u/ s 143(3) of the Incometax Act for A.Y.2013.14 is found to be erroneous and prejudicial to the interests of revenue. Since, the twin conditions, namely, (i) the order of the Assessing Officer is erroneous: and (ii) it is prejudicial to the interests of the Revenue, are satisfied and in order to serve the interest of justice, the assessment order passed u/ s 143(3) on 02.03.2016 needs to be set aside. Accordingly, I direct the assessing officer to revise the assessment order passed u/ s 143(3) of the Income-tax Act, 1961 dated 02.03.2016 after disallowing the provision of Rs.18, 30,18,9891 debited to the P & L Account towards the varied price of natural gas supplied to it by GAIL which is contingent in nature and therefore, not an ascertained liability.
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In view of the above discussion, assessment order dated 02.03.2016 for the A.Y.2013-14 in the case of the assessee company is set aside to revise the income keeping in view the above directions after allowing an opportunity of being heard to the assessee company”. Both the learned representatives are ad idem during the 4. course of hearing that the learned PCIT had adopted the very detailed discussion mutatis mutandis in AY.2014-15 appeal as well. 5. We have given our thoughtful consideration to rival pleadings against and in support of the PCIT’s revision action qua the sole and former substantive issue; assessment year- wise, respectively in these twin assessment years. We are admittedly dealing with the given issue of assessee’s provision(s) made and debited to its P&L A/c towards the varied price of natural gas supplied by M/s.Gas Authority of India Ltd. (GAIL). Case files suggest that the very issue had arisen between the parties in assessee’s appeals to 2094/Hyd/2018 for AYs.2011-12, 2012-13 and 2015-16 decided on 19-11-2019. Learned co-ordinate bench therein had accepted the very nature of provision(s) in the said assessment years to be allowable vide following detailed discussion:
“9. Having regard to the rival contentions and the material on record, we find that the assessee had entered into an agreement with GAIL for supply of natural gas and GAIL was sourcing the fuel/raw material from Cairn Energy Ltd which on the other hand, was sourcing the natural gas from its Ravva Satellite Gas Field. As per the letter dated 29.10.2008 (which is placed at page 6 of the paper book), there is an intimation to the assessee from GAIL that Ravva JV sought revision of the gas price and has indicated a price of $5.73 per MMBTU with a validity of such price for three years from 1.12.2008 and that :- 9 -: & 1452/Hyd/2019 the possible increase in the rate of Ravva Satellite gas price is from 1.12.2008. In the letter dated 28.11.2008, it also intimated to the assessee that the price of Ravva Satellite Gas price has been agreed at US $ 4.30 per MMBTU for the period 1.10.2006 to 30.11.2008 and that vide letter dated 29.10.2008, it has been informed to the assessee that in accordance with the provisions of upstreaming contract, Ravva JV has entered into, the Ravva Gas Field has indicated a price of US $ 5.73 per MMBTU with a validity of such price from 1.12.2008. It is also mentioned that the negotiations with Ravva JV on the price revision are inconclusive and that the seller continues to supply gas from Ravva Satellite Gas Field to the assessee’s plant as per the letter dated 8.2.2007 with clear understanding that, as and when, the agreement on Ravva Satellite Gas price is reached with Ravva JV, the same would be applicable for the Ravva Satellite Gas supplied to the assessee’s plant w.e.f. 1.12.2008. It is also mentioned that the buyer i.e. the assessee has agreed to pay the price for the gas as agreed to between GAIL and Ravva JV. The assessee being the purchaser, had agreed to the price proposed to be charged by the GAIL and Ravva JV. From the subsequent communications between the assessee and GAIL, it is seen that the discussions with Ravva JV for the revision of price w.e.f. 1.12.2008 for the gas supplied from Ravva Gas Field is inconclusive. Therefore, it can be reasonably concluded that the assessee had a possible liability to pay GAIL $ 5.73 per MMBTU w.e.f. 1.12.2008, even if the discussions on the price revision culminated at a later date. Therefore, the assessee’s collecting the charges from its shareholders/consumers @ 5.73 per MMBTU is a prudent practice, as admittedly, there were no restrictions on the shareholders from selling/transferring their shares and the new shareholders would not be liable to pay the charges for the consumption of power by the earlier shareholders and the assessee would not be able to recover the revised charges from the earlier shareholders who had consumed the power. Therefore, the assessee collecting the price at the possible revised price from the customers cannot be faulted. We find that the assessee has made a provision of the excess of the amount received and has claimed it as an expenditure during the year of receipt itself, though it has not made the payment. The allowability of this claim is the question before us. The learned Counsel for the assessee has relied upon various case laws for the allowability of such a claim. Let us therefore, see the applicability of the said case laws to the facts of the case before us.
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In the case of Calcutta Co. Ltd (Supra), the assessee therein was dealing in landed property and carried on land developing activity and in the course of the said business, it maintained its account on mercantile system. In the relevant accounting period, it had sold certain plots and had received the entire sale price, but it had to also carry out developments within six months from the date of sale. Accordingly, it estimated a sum as expenditure for developments to be carried out in respect of the plots sold out during the relevant year and debited the said sum in its books of account as accrued liability. The Department did not allow the said estimated expenditure, and the matter travelled upto the Hon'ble Supreme Court and the Hon'ble Supreme Court held that the assessee had already undertaken a liability under the terms of its sale deeds of lands in question and therefore, it was an accrued liability and had to discharge such a liability and therefore, it was entitled to debit the same in its books of account in the accounting year against the receipts which represented sale proceeds of said lands. We find that this decision is applicable to the assessee. The assessee therein had received the income and has estimated the expenditure towards a liability which had accrued to it as per the terms of the sale deed. In the case before us also, the assessee had sold the power generated by it by utilizing the fuel sourced from Ravva Satellite Gas Field and as the price was likely to be revised, the liability of the assessee to pay the revised price with effect from the date of supply had accrued , though it had to be discharged at a later date. Thus, this decision is clearly applicable to the assessee.
In the case of Bharat Earth Movers (Supra), the assessee therein had made a provision for meeting the liability towards leave encashment to be paid to its employees proportionate to the entitlement earned by the employees of the company, subject to a ceiling on accumulation as applicable on relevant date. On the question whether the assessee would be entitled to a deduction of such provision out of gross receipts for the accounting year during which the provision was made for liability in as much as the liability was a contingent liability, the Hon'ble Supreme Court has held that the assessee was entitled to do so. It was held that the liability was an ascertainable liability as the assessee had employees and the actual emoluments to be paid to them was ascertainable and therefore, the provision which had to be made for future liability, was allowable as expenditure. 12. In the case of IBP Co. Ltd (Supra) also, the assessee therein had made a provision for payment on finalization of revision of pay scale and other benefits to its Officers. The ITAT
:- 11 -: & 1452/Hyd/2019 held that it was decided by the Govt. of India to increase salary w.e.f. a certain date in accordance with certain norms and therefore, liability for such increase had definitely arisen and could not be said to be a contingent liability.
In the case of Insilco Ltd (Supra), the Hon'ble Delhi High Court was considering the case of an assessee which had evolved a scheme whereby employees who rendered long period of service to the assessee company were made entitled to monetary awards at various stages of their employment equivalent to a defined period of time and based on actuarial calculation, the assessee made a provision for “long service award” payable to its employees and claimed deduction of the same. The Hon'ble Delhi High Court held that since the provision for long service award was estimated based on actuarial calculation, the deduction claimed by the assessee has to be allowed.
In the case of Monica India (Supra), the assessee therein had purchased imported goods from two parties and as per the purchase agreement, customs duty payable by sellers for import, would be included in the sale consideration. Accordingly, the assessee had claimed deduction of customs duty as part of cost of goods purchased. Revenue authorities denied deduction of customs duty on the ground that liability to pay customs duty was contingent liability as seller/importers had challenged the same in the Supreme Court and obtained stay against the admission of customs duty. The Hon'ble Bombay High Court held that since the assessee had liability to pay the sellers the cost of customs duty on goods purchased, it was to be borne by the assessee purchaser, only and thus the assessee would be entitled to deduct the said amount as consideration paid for goods in the relevant A.Y, irrespective of fact that sellers/importers had disputed such a liability.
Let us now consider the applicability of case laws relied upon by the learned DR. In the case laws relied upon by the learned DR, we find that the Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd, has held that a provision for the warranty period is allowable where its historical trend indicates that in past large number of sophisticated goods were being manufactured and defects existed in some of the items manufactured and sold. It was held that the provision made for warranty in respect of army of such sophisticated goods would be entitled to a deduction from gross receipts u/s 37(1) of the Act.
In the case of FFE Minerals India (P) Ltd, the assessee therein was engaged in the business of turnkey projects, in :- 12 -: & 1452/Hyd/2019 which, the time was essence of contract. One of the conditions enumerated in the contract was delivery of equipment in time, which if not done within stipulated time, would lead to liquidated damages. The case of the assessee therein was that during the relevant A.Y there was a delay in delivery of machinery and thus, liability to pay liquidated damages arose and accordingly it made a provision for the same and claimed deduction u/s 37(1) of the Act. Revenue rejected the assessee’s claim on the ground that the liability to pay damages did not crystallize in the relevant A.Y. The Hon'ble High Court held that in the A.Y in question, only negotiations and discussions took place and the finally liquidated damages were computed much later and therefore, the assessment order did not require any interference.
In the case of Microland Ltd (Supra), the assessee therein had claimed deduction u/s 37(1) of the Act in respect of provisions made for providing a possible future warranty claim during years of unexpired warranty in respect of products sold during the accounting periods in question. The Hon'ble Karnataka High Court held that since there was nothing on record to indicate that any such expenses have been incurred or laid out by the assessee as has been claimed before the authorities below, the AO was justified in rejecting the assessee’s claim. It has reported that it was the assessee who had not placed any material either before the AO or before the appellate authorities.
In the case of Thermax Babcock & Wilcox Ltd (Supra), the assessee therein had claimed deduction in respect of warranty in its account on the ground that it was under an obligation to replace the defective components of boilers during the warranty period and that amounts provided represented estimated liabilities in respect of that obligation. When the liability under warranty clause in contract did not accrue during the relevant accounting years, merely because provision had been made as per accounting standards or that it was in consonance with established commercial principles, it could not be allowed under the I.T. Act. It was further held that since no boiler had been delivered or commissioned during the relevant A.Y, there was no material with reference to any liability under warranty and thus there was not even a semblance of liability during the relevant period let alone accrued liability.
The common principles that emerge from the above case laws relied upon by the learned Counsel as well as the Revenue are that a provision can be allowed as a deduction only if it is an ascertained liability and if it is computed on :- 13 -: & 1452/Hyd/2019 actuarial basis or on the basis of past experience and the provision is made on a scientific basis. The Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd (Supra) has laid down 4 tests for allocating a provision. It held that as per the recognized practice when a party has the present obligation as a result of the past events, settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate of the amount of obligation is possible, then a provision made to meet such an obligation is allowable u/s 37(1) of the Act.
In the case before us, we find that there is a case for the assessee to collect the charges from the customers at $5.73 per MMBTU w.e.f. 1.12.2008, because as per the intimation dated 29.10.2008 from GAIL to the assessee, Ravva Satelllite JV was likely to revise the price and that such revised price to $5.73 per MMBTU is applicable w.e.f. 1.12.2008. After such intimation, the assessee had agreed to pay at the finally agreed revised price and also received the fuel from Ravva Satellite JV thereafter. Therefore, there is an implicit obligation of the assessee to pay the revised price, subject to the maximum of $ 5.73 per MMBUT. Thus, the liability had accrued during the relevant A.Ys. The discussions between GAIL and Ravva JC on revision of price continued, but remained inconclusive till Feb.2017, when it was finalized that the GAIL shall charge the assessee at US $ 4.30 per MMBTU only, till 2014 and thereafter at $5.73 per MMBTU. Therefore, the liability of the assessee to pay at the revised price is an ascertained liability and not a contingent liability as held by the Revenue. The assessee was liable to pay the revised charges w.e.f. 1.12.2008 but the revised charges were not finalized though the maximum price which could be revised or increased was mentioned in the communication from GAIL. The learned DR’s submissions that the price is fixed by the Govt. is also strictly not correct. From page 34 of the paper book filed by the assessee which is a copy of the new domestic natural gas price 2014, dated 25.10.2014, it is seen that the cost of the price shall be determined in accordance with the formula given therein and it was also clarified that the cost of the price so determined under these guidelines was not to be applicable where prices have been fixed directly for a certain period of time, till the end of such period. Therefore, we are of the opinion that the claim of the assessee u/s 37(1) of the Act is allowable particularly since the assessee itself has offered the cessation of liability to tax in the year of crystallization. Therefore, the appeals of the assessee are allowed”.
:- 14 -: & 1452/Hyd/2019 5.1. There is no distinction on facts or law; as the case may be, from the Revenue side during the course of hearing. We thus hold that the Assessing Officer’s regular assessments forming subject matter of revision herein framed on 02-03- 2016 and 31-08-2016 had rightly not disallowed the assessee’s provisions(s) qua its gas pricing. And that the learned PCIT herein therefore has erred in law and on facts in holding the same to be erroneous ones causing prejudice to the interest of the Revenue. We make it clear that the hon'ble apex court’s landmark decision Malabar Industrial Co. Vs. CIT [243 ITR 83] (SC) has settled the law that an assessment has to be both erroneous as well as causing prejudice to interest of the Revenue before the CIT or the Pr.CIT; as the case may be, assumes Section 263 revision jurisdiction. We therefore accept the assessee’s sole substantive ground as well in the main appeal for AY.2013-14 and former substantive grievance to this effect in AY.2014-15. Its former appeal ITA No.724/Hyd/2018 is allowed.
Next comes the latter issue of un-explained cash deposits of Rs.5,22,416/- forming part of “other expenses” as per the Pr.CIT’s discussion in para 10 in AY.2014-15’s order. The assessee’s case before us is that the same represents “cash discount” than “cash deposits”. We are of the opinion in this factual backdrop that the instant latter issue requires afresh factual verification at the Assessing Officer’s end. We therefore uphold the learned Pr.CIT’s directions in principle and leave it open for the Assessing Officer to consider and examine the :- 15 -: & 1452/Hyd/2019 instant latter issue in AY.2014-15’s consequential proceedings as per law. This latter appeal is partly allowed.
To sum-up, assessee’s former appeal is allowed and its latter appeal is partly allowed. A copy of this common order be placed in the respective case files.
Order pronounced in the open court on 9th September, 2021