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2019 (10) TMI 908 - AT - Income TaxRevision u/s 263 - assessee has made a provision pending final price payable for the purchase of copper concentrate received during the year for which actual purchase price could not be finalized before the close of the financial year but soon thereafter - absence of direction in the order of the learned CIT u/s 263 of the income tax act - HELD THAT - We found that in the show cause notice issued by the learned PCIT that assessee had made a provision being the final price payable for the purchase of copper concentrate for which the quotation price could not be finalized. The actual outflow of money was expected to be made after the finalisation of the quotation price in the next financial year. An amount which was debited in the raw material consumption account was made a provision which was liable to be disallowed - at the time of passing of the order u/s 263 of the income tax act PCIT has categorically held that in respect of the issue on hand the provision is a liability which can be measured only by using a substantial degree of estimation and if certain conditions are not met the provisions cannot be recognised. It is apparent that principal Commissioner of income tax invoked her powers u/s 263 of the income tax act to verify whether the provisions made by the assessee are allowable or not. While looking at the accounts of the assessee for financial year ended on 31st of March 2010 in schedule number 12 current liabilities and provisions are mentioned. The point number 2 of that schedule deals with the various provisions made by the assessee wherein under the head of the other provisions sum of 259, 31, 00, 000 was mentioned. Ld PCIT referred to the provisions of this amount in show cause notice dealt with the issue of allowability of such provision in a her order held that AO has not verified this aspect clearly shows that this issue was dealt with by the ld PCIT. In view of this it cannot be said that the learned PCIT as not given any direction to the learned assessing officer to verify the above deduction claimed by the assessee. Hence we reject the argument of the learned authorised representative that above addition made by the learned assessing officer was not emanating from the order of the learned Principal Commissioner Of Income Tax passed u/s 263 of The Income Tax Act. Accordingly ground number 7 to the extent of claim of the absence of direction in the order of the learned CIT u/s 263 of the income tax act and ground number 8 of the appeal of the assessee are dismissed. Provision pending final price payable for the purchase of copper concentrate received - Merits of the addition on the basis of the probability the assessee has made a provision for which it has already incurred an obligation at the time of the receipt of the goods. Estimate made by the assessee is also a reliable estimate as same is accepted by the industry as stated in the annual accounts of another s similar company based on the London metal exchange prices. Therefore the provision created by the assessee is a liability which has been measured by using a substantial degree of estimation. CIT A has added in holding that such provision made in the books of account is not deductible while computing the taxable income of the assessee. We disagree with the above finding of the learned CIT A for the reason that assessee has received the goods during the financial year for which the prices would be payable letter on but the reliable estimate is made based on the London metal exchange prices. Such provision has gone into the purchase account of the assessee. Further if it is carried into the stock it becomes the cost of the underlying inventory of the assessee. Therefore if the provision is not granted to the assessee as deduction then equivalent amount of the closing stock is also required to be reduced. It is also not the case of the revenue that the provision made by the assessee has not been subsequently discharged by payment to the respective parties or if there is an excess or Short has not been carried to the raw material consumption account of the subsequent year. It is not the case of the revenue that assessee is merely carrying on a provision in its books of account without discharging it reversing it into the subsequent year. Further the finding of the learned CIT A is also incorrect that assessee has not provided the basis of working of the provisions of rupees to 59, 31, 00, 000. The above provision has been made on the basis of the London metal exchange prices and certified by the auditors as well as approved by the shareholders of the company. Identical issue has arisen in the case of the company in earlier years when the assessee chain the method of accounting with respect to the purchase price and the matter reached to the level of the coordinate bench which did not find any infirmity in the accounting treatment made by the assessee for provisions for purchases. In the result we do not find any reason to uphold the order of the lower authorities wherein the disallowance made by the learned assessing officer is upheld by the learned CIT A. - Decided in favour of assessee. Non granting the full claim of the tax deduction at source to the appellant - HELD THAT - AO is directed to the follow the direction of the learned CIT capital and grant the credit of the above tax deduction at source after proper verification.
Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) to make additions not specifically directed by the Principal Commissioner of Income Tax (PCIT) under Section 263. 2. Allowability of the provision for copper concentrate purchase as an expenditure. 3. Treatment of the provision for copper concentrate under accounting standards and tax laws. 4. Consistency in the method of accounting for provisions. 5. Netting off of provisions from previous years. 6. Grant of full Tax Deducted at Source (TDS) credit. 7. Levy of interest under Sections 234B and 234C. 8. Initiation of penalty proceedings under Section 271(1)(c). Issue-wise Detailed Analysis: 1. Jurisdiction of AO to Make Additions Not Directed by PCIT: The assessee argued that the AO made the addition of ?259.31 crores for the provision of copper concentrate purchase without specific directions from the PCIT in the order under Section 263. The Tribunal found that the PCIT, in the show cause notice and final order, explicitly mentioned the issue of the provision for copper concentrate and directed the AO to conduct proper verification. Thus, the AO had jurisdiction to make the addition. The Tribunal rejected the assessee's contention that the addition was not emanating from the order under Section 263. 2. Allowability of Provision for Copper Concentrate Purchase: The AO disallowed the provision for copper concentrate purchase, considering it unascertainable. The assessee contended that the provision was based on substantial estimation due to fluctuating copper prices and was in line with accounting standards. The Tribunal noted that the provision was made based on the London Metal Exchange (LME) prices and was consistently followed by the assessee. The Tribunal found that the provision represented an ascertained liability and directed the AO to delete the disallowance of ?259.31 crores. 3. Treatment of Provision Under Accounting Standards and Tax Laws: The assessee argued that the provision was in compliance with Accounting Standard 1, which mandates provisions for known liabilities and losses. The Tribunal agreed, stating that the provision was made based on a reliable estimate and was necessary to present a true and fair view of the financial statements. The Tribunal emphasized that the taxable income and accounting income are separate, but the provision was allowable as it represented an actual liability. 4. Consistency in Method of Accounting for Provisions: The assessee consistently followed the method of accounting for provisions based on LME prices since the financial year 2003-04. The Tribunal noted that this method was accepted by the revenue in earlier years and was in line with industry practices. The Tribunal upheld the consistency in the assessee's accounting method and allowed the provision as a deductible expense. 5. Netting Off of Provisions from Previous Years: The assessee argued that the provision for the current year should be netted off against the provision from the previous year, which was reversed and offered to tax. The Tribunal found that the assessee's method of adjusting excess or shortfall in provisions in subsequent years was consistent and reasonable. The Tribunal directed the AO to allow the provision for the current year after considering the netting off. 6. Grant of Full TDS Credit: The assessee contended that the full TDS credit was not granted. The Tribunal directed the AO to grant the credit of ?48,63,657 after proper verification, as per the directions of the CIT(A). 7. Levy of Interest Under Sections 234B and 234C: No specific arguments were advanced by either party regarding the levy of interest under Sections 234B and 234C. The Tribunal dismissed this ground. 8. Initiation of Penalty Proceedings Under Section 271(1)(c): The assessee challenged the initiation of penalty proceedings under Section 271(1)(c). The Tribunal found this ground premature as no penalty had been levied by the AO. The Tribunal dismissed this ground. Conclusion: The Tribunal partly allowed the appeal, directing the deletion of the disallowance of ?259.31 crores for the provision of copper concentrate purchase and granting the full TDS credit. Other grounds, including the initiation of penalty proceedings and levy of interest, were dismissed.
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