C.I.T.-II vs. NEW INDIA INDUSTRIES LTD.
What did the High Court hold?
The High Court held that the issue was no longer res integra in light of its own decision in Commissioner of Income Tax vs. Mahendra Mills Ltd. ([2011] 334 ITR 254 (Gujarat)). In that case, the Court had held that for an assessee following the mercantile method of accounting, a liability is incurred when it accrues, even if there is a dispute regarding its quantification, provided there is no uncertainty about the existence of the liability itself. The Court reasoned that the pendency of litigation regarding the purchase price or its estimation does not convert an accrued liability into a contingent one. In the present case, the liability was contractual and crystallized by the Supreme Court's decision fixing the price of gas supplied by ONGC. Therefore, the Tribunal was justified in allowing the deduction for the respective years when the gas was supplied, based on the finally determined price. The revenue's advocate could not present any contrary decision. Accordingly, the substantial question of law was answered in favour of the assessee.
What were the facts?
The revenue, represented by the Dy. C.I.T. (Asstt.), has filed these tax appeals against the orders of the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench. The appeals pertain to assessment years 1983-84, 1985-86, 1986-87, and 1987-88. The core issue revolves around the deletion of additions made by the Assessing Officer (AO) concerning the liability for purchasing gas from ONGC. The assessee, New India Industries Ltd., maintained accounts on a mercantile basis and claimed the liability for fuel charges as an allowable revenue expenditure. The AO disallowed this, holding it was not a statutory liability and had not accrued. The CIT(Appeals) upheld the AO's view. The ITAT, however, partly allowed the assessee's appeals, directing the AO to allow the liability as claimed.
What were the issues?
1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has substantially erred in law in deleting the addition made in respect of liability for purchasing gas from ONGC? Assessee's Contention: The assessee argued that it maintained accounts on a mercantile basis, and the liability to pay fuel charges had arisen in the year under consideration, making it an allowable revenue expenditure. The liability, though subject to price dispute, had accrued and was later quantified by a Supreme Court decision. Revenue's Contention: The revenue contended that the liability was not a statutory liability and therefore could not be said to have accrued during the year under consideration, making it not an allowable expenditure. The revenue's advocate was not in a position to dispute the High Court's prior decision on a similar matter.
AI-generated summary — verify with the full judgment below
O/TAXAP/31/2001 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 31 of 2001 With TAX APPEAL NO. 306 of 2001 With TAX APPEAL NO. 59 of 2002 With TAX APPEAL NO. 81 of 2002
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE KS JHAVERI
and HONOURABLE MR.JUSTICE K.J.THAKER
================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ DY. C.I.T. (ASSTT.)....Appellant(s) Versus NEW INDIA INDUSTRIES LTD.....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 Page 1 of 5
O/TAXAP/31/2001 JUDGMENT MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER
Date : 18/11/2014
ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench (hereinafter referred to as ‘the Tribunal’), the revenue has preferred the present Tax Appeals assailing the following orders Tax Appeal No. Date of Tribunal’s order ITA No. Assessment Year 31/2001 02.06.200 0 5066/Ahd/1989 1983-84 306/2001 23.04.2001 5068/Ahd/1989 1985-86 59/2002 27.08.2001 1740/Ahd/1990 1986-87 81/2002 27.08.2001 1205/Ahd/1991 1987-88 These matters were admitted by this Court for consideration of the following substantial question of law: Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has substantially erred in law in deleting the addition made in respect of liability for purchasing gas from ONGC? Page 2 of 5
O/TAXAP/31/2001 JUDGMENT 2. The assessee filed its return of income declaring total income. The assessee claimed that since it was maintaining accounts on mercantile basis, the liability to pay fuel charges having arisen in the year under consideration is an allowable revenue expenditure. During the course of assessment proceedings, the A.O held that this was not a statutory liability and therefore cannot be said to have accrued during the year under consideration and held that the liability claimed was not an allowable expenditure. On appeal the CIT (Appeals) dismissed the same. 3. On appeal before the Tribunal by the assessee, by impugned judgment and orders, Tribunal partly allowing the appeals, directed the Assessing Officer to allow the liability as claimed by the assessee. 4. Being aggrieved and dissatisfied with the impugned orders passed by the Tribunal, the revenue has preferred the present Tax Appeals for consideration of the aforesaid substantial question of law. 5. The issue involved in the present Tax Appeal is now not res integra in view of the decision of this Court in the case of Commissioner of Income Tax vs. Mahendra Mills Ltd reported in [2011] 334 ITR 254 (Gujarat) wherein this Court has held as under: “6. We find that the assessee has been following mercantile method of accounting. The Gas was supplied for the respective years. But there was a dispute about its price. As a result, there was no dispute about the liability of the assessee. But the question was that of quantification of the liability. Page 3 of 5
O/TAXAP/31/2001 JUDGMENT Differently put, the liability had accrued in the respective years which came to be quantified and crystallized by virtue of the Hon'ble Supreme Court deciding a price. The Tribunal was of the view that uncertainty and difficulty or the pendency of litigation relating to estimation or the pendency of litigation relating to estimation of the purchase price or fixing of purchase price would not convert the accrued liability into a contingent liability and since there remained no uncertainty or difficulty in estimation of the amount of such liability which had accrued in the respective assessment years of supply of Gas, the deduction would be allowable for the respective years. 7. Having taken look at the Alembic Chemical Works Limited V/s. Deputy Commissioner of Income-Tax, 266 I.T.R. 47, we are of the view that the Tribunal was justified in its view. This Court held in the said case of Alembic Chemical Works Limited that in case of an assessee following the mercantile system of accounting, a liability is said to be properly incurred when the dispute between the parties is amicably settled or finally adjudicated, where the liability in question is not a statutory liability. 8. In the instant case also, the liability of the assessee was contractual which came to be crystallized by virtue of the decision of the Apex Court by fixing the price of the Gas supplied by ONGC. We are, therefore, of the view that the view taken by the Tribunal is correct and, therefore, we answer the reference in the affirmative i.e. in favour of the assessee and against the revenue. 6. Mr. Parikh, learned advocate on behalf of the revenue is not in a position to dispute the above and is not in a position to show and/or point out any contrary decision. 7. Having heard learned advocates appearing on behalf of the assessee and the revenue and the question posed for Page 4 of 5
O/TAXAP/31/2001 JUDGMENT consideration before us reproduced hereinabove and considering the decision of the Honble the Supreme Court in the case of Mahendra Mills Ltd (Supra), the question, which is raised in the present appeals are required to be answered in favour of the assessee. We are not giving any elaborate reasons for the same as in the case of Mahendra Mills Ltd. (Supra) it is held by this Court that since liability of assessee was contractual which came to be crystallized by virtue of decision of Supreme Court by fixing price of gas supplied by ONGC, in such a situation the conclusion of the Tribunal that deduction in respect of purchase price was to be allowed in respective years when supply of gas was received on basis of price which had been finally determined by Supreme Court is justified. Accordingly, the question is answered in the negative i.e. against the appellant – revenue and in favour of the assessee. 8. In view of the above, the impugned judgment and order passed by the Tribunal is confirmed. Hence, the present Tax Appeals are dismissed. (K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 5 of 5
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