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TMI Blog2019 (10) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2010-11. 7. That on facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO in disallowing the amount of ₹ 259,31,00,000 towards provision for copper purchase despite having recorded that no directions in this regard were issued by the Principal Commissioner of Income Tax ("PCIT") in the order dated 27.03.2017 passed under Section 263 of the Act 8. That on facts and circumstances of the case and in law, the C1T(A) erred in holding that once the PCIT issued directions under Section 263 of the Act, the entire assessment was open for scrutiny. 9. Without prejudice, that on facts and circumstances of the case and in law, the CIT(A) despite specifically recording the issue of netting off raised by the Appellant, i.e., reducing ₹ 140,67,55,306, being the provision under the same head in the prior year from the disallowance of ₹ 259,31,00,000 being provision for the current year, abjectly failed to render a finding, much less, even deal with the said issue. 10. That on facts and circumstances of the case and in law, the CIT(A) erred in not granting the full TDS claim of the Appellant despite having specifically recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order as under:- "14. The assessee in his replies on even dates further claimed: "Without prejudice to above it is submitted that, the Assessee Company has provided for ₹ 259.31 as other provisions during the financial year ended 31-march-2010 which was the liability recognized as final price settlement on purchase of copper concentrate. The Assessee Company purchases copper concentrate for production of copper anode/ copper cathode. In view of fluctuations in price of copper and as per prevailing international practices, the Assessee Company purchases copper concentrate on the basis of provisional price for the Quotational Period. The final price payable on copper concentrate is finalized at the end of the Quotational Period. When the Quotulionul Period ends after the close of the financial year, the Assessee Company recognizes the liability as at the end of the financial year, as the final price could be finalized after the end of the financial year when Quotational Period is determined. Liability recognized under this class for the financial year 2010-11 was ₹ 259.31 cr which was outstanding as on 31-march-2010. This amount is shown as &quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overs vs CIT (245 ITR 428). This view has been upheld by the jurisdictional Tribunal, Chennai in the case of Cognizant Technology Conclusions Ltd in ITA 114 and 1400/ Mds/ 2011 dated 23-Jan-2013. Extracts are given below: - The next ground of the Revenue is that the provision made by the assessee for liabilities of expenditure was in the nature of provision and should not have been allowed by the Commissioner of Income-tax (Appeals) as expenditure in computing the income. The assessee is providing provision for expenditure incurred in the previous year itself. The amount was not paid by the end of the year and in certain cases bills were not received by the end of the year and in such cases the assessee is making a provision for such expenditure already incurred during the relevant previous year. In the course of the next previous year the assessee is making the payment and the differential amount, if any, is adjusted in its profit and loss account. This is a consistent practice followed by the assessee. The provision for unpaid expenses is not in the nature of contingent expenditure. It is a provision made against actual expenditure. Therefore, the decision of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the enterprise that is recognized as a provision. In accordance with Ihe provisions of the I T. Act, 1961, though an assessee company has to incur the expenditure for its business, the creation of a mere provision in lieu of this expenditure is not entitled for deduction under the I.T Act, 1961, It is pertinent to note that a Special Bench of the Hon'ble IT A T, Mumbai in the case of DCfT vs. Bank of Bahrain and Kuwait has held that anticipated liability which are contingent in nature are not allowable, and anlieipaled liability coupled with a present obligation can be said to be a crystallized liability. If an event has already taken place, such as the entering into the contract and undertaking of an obligation to meet the liability, and only the consequential effect of the same is to be determined, then the liability is not a contingent liability (Woodward Governor 312 tTR 254 (SC) & Bharat Earth Movers. 245 ITR 428 (SC). In the following 2 verdicts delivered by the Hon'ble Rajasthan and Madras High Courts respectively, viz. Rajasthan State Mines and Minerals Vs. CIT ( Raj) 208. ITR 101 and T.N. Small industries Development Corporation Vs CIT (Mad) 242 ITR 122, it was categorical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icial to the interests of revenue if the order is passed without making enquiries or verification which should have been made. In view of the above, the impugned assessment order passed by the AO is erroneous and prejudicial to the interests of revenue since the AO failed to conduct the requisite enquiry/verification in respect of the issue on hand. 16 The assessee has further stated in its reply: Further it is submitted that the reopening of assessment proceedings for the A Y 2009-10 was also initiated by the Deptt. On the basis of the same reason as in year under consideration. Against the same the assessee had filed a WP1129 of 2016 before the Goa Bench of the Hon'ble Bombay High Court. The HC finding merit in the issue was pleased to issue an interim stay order against the reassessment proceedings for the AY 2009-10. The reasons recorded in writing for the AY 2009-10 and the Hon'ble HC order are attached herewith in Annexure C&H respectively. We request your honor to kindly take the HC order on record and request not to initiate assessment proceedings u/s 143(3) rws 263 of the Act based on the reasons as the assessee has got a favorable order from the HO on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be finalized. The actual outflow of money was expected to be made after finalisation of quotation price in the next FY. In view of this an amount of ₹ 259.31 Crores which was debited in the raw material consumption account was a mere provision which is liable to be disallowed. It is also noticed from the statement of consumption of income filed by you had disallowed a sum of ₹ 4,00,25,257 - U/S.43B of the IT Act,1961 as per details given below: 1. Customs duty: ₹ 3,03,19,098 2. Gratuity : ₹ 44,54,591 3. Leave Encashment: ₹ 52,51,568 From 3CD filed along with the return of income however, shows that the following amounts were liable to be disallowed U/s. 43B of IT Act 1961, 1. Customs duty : ₹ 3,03,19,098 2. Gratuity : ₹ 74,10, 164 3. Leave Encashment: ₹ 2,65,39,303 aggregating ₹ 6,42,68,565 Consequently, the differential amount of ₹ 2,42, 43,308/- was also required to be disallowed U/s. 43 B of IT Act 1961". (Refer Point 3 ii and 3 ii of the notice under section 263 Page No 104 paper Book) 3.2.2 The appellant company vide its submissions dated 15.02.2017 (Refer Paper Book Page No. 105) stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary requirements are fulfilled. If, what Revenue contends today, is accepted, these and other such provisions which empower different authorities to exercise jurisdiction at different point of time in distinct setting would be rendered otiose and that can never be the legislative intent. It is almost akin to providing separate keys for separate locked doors and the person wanting to open a particular door is required to apply the correct key which matches the concerned lock. Therefore, in proceedings to give effect to order under s. 263 of the Act, the AO cannot be permitted to undertake an exercise not warranted by the legislative scheme. 13. The Tribunal was, therefore, right in holding that the operative part of the order under s. 263 of the Act has to be read in context of what had preceded, namely, the discussion in the revisional order, and both the notice and the order under s. 263 of the Act, have to be read as a whole. That the direction to the AO to redo the assessments is after looking into the aspects discussed by the CIT in his order and the directions made in the body of the order.' The sentence recorded in para No. 7 of the revisional order cannot be read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is significant to first refer to the provisions of Sec 263 of the Act, which is quoted as under: "263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." Here, attention is outrightly drawn towards the last limb of the provision, which necessitates the powers of the Pr CIT under the provisions of Sec 263 of the Act. Now, as stated, the Pr CIT, under the provisions of Sec 263, has the power for directing a fresh assessment. The term "fresh assessment", obviously means that the AO can proceed to view the records of the assessee, from the bare basic scratch, and not merely be confined only to the issues discussed by the Pr CIT in the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of ₹ 25931000/- made by the AO is arbitrary and unwarranted in as much as the said provision are ascertained liability. 6.1 Relevant facts extracted from the impugned order wherein the AO made disallowance of provision for copper concentrate amounting to ₹ 2593100000/-, are as under: " 15. This part of the reply of the assessee was considered. It is important to note here that the assessee is making provision on the date of closing of the year. It is unascertainable for the assessee whether the same amount is payable or a different amount is payable. The judgement cited by the assessee clearly demarcates the fact that an ascertainable liability is the one which needs to be allowed. Since the liability discussed above is of highly unascertainable nature, depending on the further prospects of the market of the commodity. The order Pr. CIT while setting aside the order has also, clearly distinguished the said arguments judgments. The relevant portions are reproduced here: Hon'ble High Court of Madras staying the assessment proceedings would also bar the proceedings currently initiated u/s.263 of the I.T.Act,1961 is not acceptable. 9. In view of the facts narr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively. Viz. Rajasthan Sate Mines and Minerals Vs. CIT (Raj) 208 ITR101 and TN Small industries Development corporation Vs. CIT (Mad) 242 ITR 122, it was categorically held that if only estimates are made this amounts to a contingent liability and that if the liability being contingent allowed then it would amount to allowing the apprehended losses in the furture from the profits of the current year which is not accepted on any principal of law or accountancy. The same view was echoed by the Hon'ble Apex court in the cases of shree Sajjam Mill Ltd Vs. CIT (SC) 156 ITR 585 and Indian Mollasses Co (P) Ltd Vs CIT (SC) 37 ITR 66, wherein it was clearly held that contingent liabilities do not constitute expenditure and cannot be subject matter of deduction even under the Mercantile system of accounting. Expenditure which is deductible for Income Tax purposes is towards a liability actually existing at the time but setting apart money which might become expenditure on the happening of events is not expenditure. All these verdicts clearly reinforce the stand of the Department in so far as the issue in the assessee's case in concerned. In the assessee company's case, certain deductions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has got a favourable order from HC on the same issue for the preceding assessment year AY 2009-10. 16.1 This contention of the assessee was considered. It is to be noted here that each assessment year is a separate assessment year and therefore, linking proceeding of one assessment year and issue of one assessment year to another is erroneous. 17. The assessee had further stated that: " WITHOUT PREJUDICE and UNDER PROTEST, we submit that even if your hnour proceeds to make the disallowance in this regard then the disallowance should be done only on Net provision basis. During the previous AY 2009-10 as on March 31,2009 the provision under the same head of Final price payable for copper concentrate was ₹ 140,67,55,306 and during the impugned AY 2010-11 as on March 31, 2010 the provision under the head was ₹ 259,31,25,883/-. Hence the net amount of ₹ 118,63,80,577 only can be disallowed if at all your honour proceed to disallow the same. The relevant page of the financials for the FY 2009-10 ( AY 2010- 11_ showing the amounts provision for both of the FY 2009-10 and FY 2008-09 attached herewith in Annexure 1 However, it is to be noted that the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of copper and London Bullion Market Association (LBMA) rate of precious metals was made. As against it, during the year ₹ 153.31 Crore has been incurred towards final price settlement. The additional amount of ₹ 12.63 Crore has been charged to profit and loss account under raw-material consumption. Liability recognised under this class for the year is ₹ 259.31 Crore which is outstanding as on 31 March 2010. Actual outflow is expected on finalisation of quotational period price in the next financial year. The said Note forms part of the Annual report and is reproduced above enclosed at Page No.... to ... of the Paper book. 3.3.6 The note given in financials for FY 2011-12 (next year) is as below. The Company has recognised liability based on substantial degree of estimation for: Final price payable on purchase of copper concentrate for which the quotational period price was not finalised as on 31 March 2010, a provision of ₹ 259.31 Crore based on forward LME rate of copper and LBMA rate of precious metals was made. As against it, during the year ₹ 248.26 Crore has been incurred towards final price settlement. The balance amount of ₹ 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation.- For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.] 3.3.9 A combined reading of the provisions of Section 145 and Section 145A brings out the following principles that are to be followed by an Assessee:- o Income chargeable under the head Income from business and profession has to be determined as per the method of accounting regularly followed by the Assessee. o The Central Government has prescribed certain accounting standards which are mandatorily required to be followed by the Assessee while preparing its accounts. 3.3.10 In the light of the above, your honour may please note as follows: i. The Income chargeable under the head Income from business and profession has to be determined on the basis of method of accounting regularly followed by the Appellant. The term regularly followed by the Appellant doesn't me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the previous year but which is reasonably expected to have a material effect in any year subsequent to previous year, the fact of such change shall be appropriately disclosed in the previous year in which the change is adopted. iv. Accounting policies adopted by an assessee should be such so as to represent a true and fair view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting policies. For this purpose, the major considerations governing the selection and application of accounting policies are following, namely:- (i) Prudence: Provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information; (ii) Substance over form: The accounting treatment and presentation in financial statements of transactions and events should be governed by their substance and not merely by the legal form; (iii) Materiality: Financial statements should disclose all material items, the knowledge of which might influence the decisions of the user of the financial statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a more appropriate preparation or presentation of the financial statements by an assessee. iv. Any change in an accounting policy which has a material effect shall be disclosed. The impact of, and the adjustments resulting from such change, if material, shall be shown in the financial statements of the period in which such change is made to reflect the effect of such change. Where the effect of such change is not ascertainable, wholly or in part, the fact shall be indicated. If a change is made in the accounting policies which has no material effect on the financial statements for the previous year but which is reasonably expected to have a material effect in years subsequent to the previous years, the fact of such change shall be appropriately disclosed in the previous year in which the change is adopted. v. A change in an accounting estimate that has a material effect in previous year shall be disclosed and quantified. Any change in an accounting estimate which is reasonably expected to have a material effect in years subsequent to previous year shall also be disclosed. vi. If a question arises as to whether a change is a change in accounting policy or a change in an acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een emphasized by the Appellant. 3.3.12 According to Accounting Standard 1, the principle of prudence requires that Provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information. 3.3.13 The Appellant on the date of Balance Sheet knew that its liability to pay on account of copper concentrate have gone up substantially in view of the increase in the prices of copper concentrate and by not accounting for such increase, the Assessee would have had violated the mandatory provisions of Accounting Standard 1. 3.3.14 The Accounting Standard 1 required that Accounting policies adopted by an assessee should be such so as to represent a true and fair view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting policies. 3.3.15 Thus, as per AS-1, the accounts have to be prepared so as to present a True and fair view and as per the AS-1 itself, the accounts cannot be said to have been true and fair unless it follows the principles of Prudence as mentioned in point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g into account all liabilities which the Appellant knew that would have become payable as on the date of preparation of the balance sheet. It was the mandatory duty cast upon the Appellant not only by the Shareholders, but even as per the mandatory provisions of Section 145 and Section 145A of the Income-tax Act, 1961. 3.3.19 Section 145A of the Income-tax which starts with a non-obstante clause in precedence to Section 145 in the matters of conflicts relating to valuation of purchase and sale of goods and inventory which has to be done in accordance with the method of accounting regularly employed by the Assessee. In cases relating to valuation of purchase and sale of goods, thus the provisions of Section 145A must prevail over Section 145 and the Ld. AO has no power to recomputed the value of purchase and sale over that as done by the Appellant in accordance with the method of accounting regularly followed and the Appellant having shown that the method of accounting has been regularly followed by him , the Ld. AO had no power to reject the same in view of the mandatory provisions of Section 145A which takes precedence over Section 145 in view of the non-obstante clause. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rkman 73 ITR 53 (SC) Kedarnath Jute Manufacturing Co. Ltd. vs. CIT 82 ITR 363 (SC) CIT vs. Vinitec Corporation (P) Ltd. (196 CTR 369) [Delhi] CIT Tamil Nadu vs. Sitalakshmi Mills Ltd. (141 ITR 415) [Mad] ITAT Chennai & Commissioner Appeals has decided this issue favorable in AY 2004- 05 3.3.23 Similar issue came before CIT(A)-XI, Chennai in AY 2004-05 first year of adoption this policy of accounting provision for copper concentrate where CIT(A) held in favour of the appellant and deleted the addition. Relevant extract CIT(A) order produced below: "In the light of the above discussion as above the appellant is bound to succeed and the addition is liable to be deleted as the fall in net profit is duly explained in my considered opinion and the change in the method of accounting having been followed consistently and having not been demonstrated to be malafide the addition in this regard was wrong. The Appellant's detailed reasoning in this regard has been seen and analysed. The Appellant in the last para of his written submission that the provisions of section 145A in respect of method of valuation of purchases and sales and the said 145A starts with non-obstante clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te last year provision ₹ 140,67,55,306 need to be reduced. Such disallowance, without prejudice, can be only made on net basis As per, the Clause No 2 of Schedule 12 referred to hereinabove is reproduced herein below:- "The Company has recognised liability based on substantial degree of estimation for: Final price payable on purchase of copper concentrate for which the quotational period price was not finalised as on 31 March, 2009, a provision of ₹ 140.68 Crore based on forward LME rate of copper and LBMA rate of precious metals was made. As against it, during the year ₹ 153.31 Crore has been incurred towards final price settlement. The additional amount of ₹ 12.63 Crore has been charged to profit and loss account under raw-material consumption. Liability recognised under this class for the year is ₹ 259.31 Crore which is outstanding as on 31 March 2010. Actual outflow is expected on finalisation of quotational period price in the next financial year." The said Note forms part of the Annual report and is reproduced at Page No.... to ... of the Paper book 3.3.27 From the above, it can be seen that the Ld. AO completely ignored the detailed subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly exclusive items. The treatment of books of accounts cannot be a guiding factor as to the taxability of an item, and vice versa, the taxability of an item cannot determine its treatment in the books of accounts of the appellant. Now, the appellant has simply vouched on the fact that a set of accounting standards permits the appellant to account for the provisional purchases, in the manner it has so done in its books. However, even though the accounting standard might allow such treatment, even still, the main matter to be considered, prior to allowing a provision, is whether or not, the same is ascertainable or not. Simply taking the stand of some accounting standard, does not prove the ascertainability of an expenditure. Therefore, to this extent, the contention of the appellant fails. 6.5 Coming to the aspect of the ascertainably of the provision so created by the appellant, it has been stated that the purchase price of copper keeps on fluctuating. It is on account of this fluctuation that the seller does not sell the copper with a final price tag. However, what is essential to note in this entire process is that the appellant, indeed has accepted the volitality and the exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em therein wherein the other provisions are mentioned at ₹ 259,31,00,000. He also referred to the footnote therein wherein it is mentioned that Company has recognized liability based on substantial degree of estimation for Final price payable on purchase of copper concentrate for which the quotational period price was not finalized as on 31 March, 2009, a provision of ₹ 140.68 Crore based on forward LME rate of copper and LBMA rate of precious metals was made. As against it, during the year ₹ 153.31 Crore has been incurred towards final price settlement. The additional amount of ₹ 12.63 Crore has been charged to profit and loss account under raw-material consumption. Liability recognized under this class for the year is ₹ 259.31 Crore, which is outstanding as on 31 March 2010. Actual outflow is expected on finalization of quotational period price in the next financial year. He submitted that this is the provision made by the assessee, which has been disallowed by the revenue. He explained that how the provisions are made looking at the provision made in the year ended on 31/3/2009, how it was settled in next year when the prices were finalized, how th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is mentioned that final price payable on purchase of copper concentrate for which quotation Price is not finalised having an additional provision of INR 559,500,000 based on closing LME rate of copper and LMBA rate of precious metals. During the year INR 320,500,000 was utilised towards the final price settlement and unused balance of ₹ 2 3,90,00,000 was reversed. Liability recognized under this class for the year is INR 553,500,000 which is outstanding as on 31st of March 2005. Actual outflow is expected on finalisation of quotation Price in the next financial year. He further referred to the order of THE COMMISSIONER OF INCOME TAX (APPEALS) - I, Chennai dated 14/11/2007 for assessment year 2004 - 05 wherein identical addition was made by the learned assessing officer was challenged. He referred to para number 4 of the order where the grounds of appeal were raised. He specifically referred to ground number 3 to show that the identical issue was raised. He further referred to page number 242 of the paper book para number 7 wherein ground number 3 of the appeal was decided by the learned CIT - A. Thereafter he referred to para number 7.6 of the order at page number 263 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of accounting continuously year to year. He further submitted that if there is any adjustment arising out of the exccess and shortage of the provision, same are adjusted in the accounts of the next year as income or further expenditure. In view of this, he submitted that the addition made by the learned assessing officer and confirmed by the learned CIT - A deserves to be deleted. 13. The learned departmental representative submitted that assessee has objected that the issue was not the subject matter of order u/s 263 of the act, this deserves to be rejected. She submitted that in response to notice u/s 263 of the income tax act and the reply of the appellant is reproduced in para number 4 of the order of 263. The PCIT has mentioned in para number 5 of the order of that the honourable High Court of Madras has only passed an order of interim stay of demand on the conditional payment in interim stay on penalty. This fact is also ascertainable from page number 42 and 43 of the paper book filed by the appellant where the order of the Honourable High Court of madras in MP number 1 of 2014 in WP 15937 of 2014 is enclosed. The CIT has further stated in para number 7 of the order that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the same, we found that in the show cause notice issued by the learned PCIT dated 01/02/2017, it is categorically stated that assessee had made a provision of ₹ 259,31,00,000 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. In view of this, an amount of ₹ 259,31,00,000 which was debited in the raw material consumption account was made a provision which was liable to be disallowed. Further at the time of passing of the order u/s 263 of the income tax act, in para number 10 the order , learned principal Commissioner of income tax 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. Further, in para number 11 the learned CIT - A referring to the provisions made by the assessee directed the learned assessing officer to conduct a proper verification. It was also found that the learned AO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket requirements. The assessee is buying copper concentrate at London metal exchange linked prices for copper less treatment charges and refinement charges. Further, the assessee sells refined copper at LME link prices in the domestic and export markets. The assessee is sourcing copper concentrate from various global suppliers and from its Australian mines. The assessee purchases copper concentrate at the prices of the copper concentrate finalized after getting the quotations from the suppliers. The copper concentrates are normally traded in open market based on London metal exchange prices as pertaining to the agreed quotation within appropriate deduction for treatment charges and refinement charges, which are negotiated with the suppliers. The assessee makes the initial payment to the suppliers based on provisional invoices, which are prepared based on the appropriate weight, quality, and purchase price prevailing at the time of loading the copper concentrate. Final invoicing is done after considering the weight of the cargo at the port, the quality of the copper concentrate and adjustment for treatment charges and refinement charges. The assessee also undertakes the hedging fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the month of the arrival. In such cases the court national. Shall be the month of arrival of the statement. Accordingly, the price payable shall be the London metal exchange month average price of the payable copper 4 to the month of arrival of the statement and as reduced by the agreed treatment charges and refinement charges. The month average following the month of arrival court national prizes shall be the month following the month of arrival of the statement. Accordingly the price payable shall be the London metal exchange month average price of the payable copper for the month following the month of arrival of the shipment and as reduced by the treatment charges and refinement charges this methodology of the pricing is scope and in known as 1 MAMA. Further the court national. May also be 2nd month average following the month of arrival. In such cases the court national. Shall be the 2nd month following the month of arrival of the shipment. Accordingly the price payable shall be the London metal exchange month average price of the payable copper for the 2nd month following the month of arrival of the shipment as reduced by the treatment charges and refinement charges. This m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on that date wherein the assessee was granted the credit of 30482 USD 8.05. The assessee has further referred consignment named Andina -35 from supplier from Chile which was provisionally built on 6/12/2009 and finally build on 14/file/2010. The another consignment Ccorna-1, was provisionally billed on 30/12/2009 by RBS Sempra commodities, for which final bill was raised and settled on 30/4/2010. Accordingly the complete details of the provision of rupees to 59,31,00,000 was provided by the assessee. The provisioning made by the assessee is based on the principles of productions where the provision should be made for all loan liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information. It is not in dispute that the assessee is not making the above provisions on the basis of industry accepted standards on year to year basis. If there is a difference in the provisioning made by the assessee in one year is in excess of the actual liability later realised, the resultant sum always goes to the credit of the profit and loss account and further if there is an excess, the same is also debite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alent 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. Further, the 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 fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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