2020 (1) TMI 78 - AT - Income Tax

Allowable expenditure made towards the provision for differential price to the credit of GAIL u/s 37 - HELD THAT - As decided in own case 2019 (11) TMI 1004 - ITAT HYDERABAD 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 DR s submissions that the price is fixed by the Govt. is also strictly not correct. From 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) 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.

Summary

Issues:
1. Allowability of provision for differential price for gas supplied from Ravva Satellite field by GAIL as expenditure under the Income Tax Act.

Detailed Analysis:
The case involved the appeal of an assessee against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The assessee, a company engaged in power generation using natural gas, declared a loss in its return of income. The Assessing Officer reopened the case, noting an excess claim by the assessee for the provision made for gas supplied from Ravva Satellite field by GAIL. The AO made an addition to the income, which was upheld by the CIT(A), stating that the provision was not allowable as expenditure.

The main issue was whether the provision made by the assessee for the differential price for gas supplied from Ravva Satellite field by GAIL should be treated as an allowable expenditure. The assessee contended that the provision was made in accordance with the mercantile system of accounting and contractual obligations with GAIL. The assessee argued that the provision should be allowed as it was an accrued liability and should be deductible under section 37(1) of the Income Tax Act.

The Tribunal referred to a previous decision in the assessee's own case, where it was held that a provision can be allowed as a deduction if it is an ascertained liability and made on a scientific basis. The Tribunal noted that the liability for the differential price had accrued during the relevant assessment years, and the assessee was bound to pay the revised charges as per the agreement with GAIL. The Tribunal concluded that the provision for the differential price was an allowable expenditure under section 37(1) of the Act.

Based on the previous decision and the specific facts of the case, the Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and treating the provision for the differential price as an allowable expenditure. The Tribunal directed the Assessing Officer to delete the disallowance of the amount in the interest of justice. The appeal of the assessee was allowed, and the order was pronounced in favor of the assessee on December 4, 2019.