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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SHRI D.KARUNAKARA RAO & SHRI V.DURGA RAO
PER D.KARUNAKARA RAO, A.M. :
This appeal of assessee is directed against the order of the Commissioner of Income Tax (Appeals)-1, Hyderabad, dated 25-06-2018, for the AY.2010-11.
Brief facts of the case are that, assessee is a company, engaged in the business of generating power using natural gas as fuel. For the year under consideration, the assessee filed its return of income on 28-09-2010, declaring loss of Rs.5,75,24,496/- under the normal provisions and book loss at Rs.2,32,10,676/- u/s.115JB of the Income Tax Act [Act]. The case of the assessee was selected for scrutiny and notice u/s.143(2) of the Act, dt.13-09-2011 was issued and served on the assessee. The regular
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assessment was completed u/s.143(3) of the Act on 28-03-2013, determining loss at Rs.5,14,16,413/-.
2.1. Later on it was noticed by the Assessing Officer (AO) that the assessee-company had paid $4.30 per Metric Million British Thermal Units (MMBTU) for Ravva Satellite Gas to GAIL and provided a provision for Rs.8,31,86,662/- over and above $4.30 per MMBTU to the credit of GAIL $1.43 per MMBTU. In view of the excess claim of Rs.8,31,86,662/- for the year under consideration, the case of assessee was reopened by the AO, by issuing a notice u/s.148 of the Act, dt.30-03-2017.
2.2. The AO completed re-assessment, making addition of the aforesaid amount of Rs.8,31,86,662/-, brushing aside the contention of the assessee that - the assessee is bound to pay the differential amount as per contract entered into with GAIL.
Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A). The Ld.CIT(A) upholding the order of AO, dismissed the appeal of assessee, holding that - the impugned amount was a provision and hence not allowable as expenditure.
Aggrieved by the said order of Ld.CIT(A), the assessee is in appeal before us, by raising the following Grounds:
“1. The Order of the Commissioner of Income Tax (Appeals)-1, Hyderabad dated 25-06-2018 is erroneous, contrary to law and facts of the case. 2. a) The Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.8,31,86,662/- made by the Assessing Officer representing provision made by the Appellant in its books on account of Natural Gas taken from Ravva Satellite field of Gas Authority of India Limited (GAIL) stating that such amount is only a provision made in the Accounts.
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b) Commissioner of Income Tax (Appeals) ought to have seen that the Appellant is following mercantile system of accounting according to which all contractual liabilities are to be taken into account as and when they arise as otherwise the said expenditure may not be allowed stating it to be prior period expenditure. It is also relevant to note that such a provision was made as per the correspondence it had with GAIL. Therefore Commissioner of Income Tax (Appeals) is not justified in confirming the addition of Rs.8,31,86,662/- being the differential price for gas supplied from Ravva Satellite field by GAIL. 3. For all of the above and such other grounds as may be urged at the time of hearing it is most respectfully prayed that this Hon'ble Tribunal may be pleased to allow the appeal and suitable directions be given to Assessing Officer to delete disallowance of differential amount of Rs.8,31,86,662/- in the interest of justice”.
Before us, at the outset, Ld.Counsel for the assessee submitted that the present issue i.e., the differential price for gas supplied from Ravva Satellite field by GAIL, is squarely covered in favour of assessee, by the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case in ITA Nos.2092 to 2094/Hyd/2018, dt.19-11-2019 and argued that as per the said order of the Tribunal, the provision made for differential price to the credit of GAIL is an accrued liability and the same is allowable u/s.37(1) of the Act.
Per contra, Ld.DR for the Revenue relied heavily on the order of the CIT(A) and that of the AO as well.
We heard both the counsels and the material placed on record, along with the decision of the Co-ordinate Bench of ITAT in this regard. We observe that identical issue has been decided by the Co-ordinate Bench of the Tribunal in assessee’s own case in ITA Nos.2092 to 2094/Hyd/2018, vide order dt.19-11-2019 for the
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AYs.2011-12, 2012-13 & 2015-16. For the sake of completeness, relevant lines of the said order are extracted here under:
“19. 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 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. 20. 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.
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In the result, assessee’s appeals are allowed”. 21.
7.1. Since the facts before us are identical to one as decided by the Co-ordinate Bench of the Tribunal, respectfully following the same, we set aside the order of Ld.CIT(A) by treating the amount of Rs.8,31,86,662/- as ‘allowable expenditure’, made towards the provision for differential price to the credit of GAIL. The Grounds raised by assessee are allowed.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 4th December, 2019
Sd/- Sd/- (V. DURGA RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 4th December, 2019 TNMM
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Copy to : 1. Andhra Pradesh Gas Power Corporation Limited, #201, 2nd Floor, My Home Sarovar Plaza, Secretariat Road, Hyderabad. 2. Deputy Commissioner of Income Tax, Circle-1(1), Hyderabad. 3. CIT(Appeals)-1, Hyderabad. 4. Pr.CIT-1, Hyderabad. 5. D.R. ITAT, Hyderabad. 6. Guard File.