2009 (7) TMI 87 - HC - Income Tax

Allow ability of expenditure - Whether the Appellate Tribunal is right in law and on facts in holding that deduction in respect of purchase price payable by the assessee in respect of supply of gas received from ONGC should be allowed in the respective years when such supply of gas was received on the basis of price which had been finally determined by the Supreme Court? Held Yes - 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

Summary

Issues:
Interpretation of deduction in respect of purchase price payable for gas supply received from ONGC for Assessment Year 1984-85.

Analysis:
The High Court of Gujarat was presented with a reference from the revenue regarding the deduction claim made by the assessee in relation to the purchase price payable for gas supply received from ONGC. The key question raised was whether the Appellate Tribunal's decision to allow the deduction in the years when the gas supply was received, based on the price determined by the Supreme Court, was legally sound. The Assessing Officer initially rejected the deduction claim, which was later upheld by the Commissioner of Income-Tax (Appeals), leading to the matter being brought before the Tribunal.

Upon reviewing the case, the Tribunal concluded that the deduction for the purchase price payable by the assessee for the gas supply from ONGC should indeed be allowed in the respective years when the gas was received, based on the price finally determined by the Supreme Court. The Tribunal emphasized that the liability of the assessee had accrued in those respective years, with the only issue being the quantification of this liability due to a price dispute. The Tribunal reasoned that the uncertainty or difficulty in estimating the purchase price would not convert the accrued liability into a contingent one. Citing the case of Alembic Chemical Works Limited v. Deputy Commissioner of Income-Tax, the Tribunal justified its stance by highlighting that under the mercantile system of accounting, a liability is considered properly incurred when the dispute is settled or adjudicated, especially in non-statutory liability scenarios.

The High Court concurred with the Tribunal's reasoning, noting that the liability in question was contractual and was crystallized by the Supreme Court's decision on fixing the gas price supplied by ONGC. Therefore, the Court upheld the Tribunal's decision and answered the reference in favor of the assessee and against the revenue. The judgment was delivered by A. L. Dave and K. A. PUJ, JJ., with Mrs. Mauna M. Bhatt representing the Applicant in the case.

In conclusion, the High Court's thorough analysis and alignment with the Tribunal's decision underscore the importance of properly recognizing accrued liabilities under the mercantile system of accounting, particularly in cases where disputes are resolved or prices are determined by competent authorities.