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TMI Blog2019 (11) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... r MMBUT to the credit of GAIL $1.43 per MMBTU. In view of the excess claim, the case, the case was reopened for both the A.Ys by issuance of a notice u/s 148 dated 30.03.2017. 3. During the re-assessment proceedings, the AO observed that the assessee had entered into a short term agreement with GAIL in December, 2008 for supply of natural gas from Ravva Satellite gas field owned by Cairn Energy Ltd which is a joint venture of the GAIL @ $5.73 per MMBTU but GAIL has been raising invoices only at $4.30 per MMBTU and that the assessee has made a provision for the balance price of $1.43 per MMBTU since the price payable as agreed upon was $ 5.73 per MMBTU. It was submitted that GAIL can claim such differential amount at any time and APGPCL is bound to pay such amount as per the terms of contract entered into by it with GAIL. The AO, in order to verify the rate at which GAIL had raised the invoices, addressed a letter to GAIL. In response to the same, GAIL vide letter dated 24.08.2017 stated that it has never fixed the price of $5.73 per MMBTU, but it has only charged $4.30 per MMBTU to APGPCL and that the same was admitted as its income for the relevant financial year 2011-12. 4. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,17,68,889/- being the differential price Appellant had incurred for gas supplied by GAIL from Ravva Satellite field. 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 Rs. 15,17,68,889/- in the interest of justice". For the A.Y 2015-16 also, the grounds are as follows: "1. The Order of the Commissioner of Income Tax (Appeals)-1, Hyderabad dated 20-09-2018 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. 3,25,22,021/- made by the Assessing Officer, representing provision made by the Appellant in its books on account of Natural Gas supplied by Gas Authority of India Limited (GAIL) from Ravva Satellite field stating that such amount is only a provision made in the Accounts towards differential price for supply of natural gas. b) Commissioner of Income Tax (Appeals) ought to have seen that the said provision was made as per understanding the Appellant had with GAIL. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airn Energy Ltd from its Ravva Satellite Gas Field. Initially, the agreement between the assessee company and GAIL was entered into on 21.11.1990 and the same was being extended from time to time. The learned Counsel for the assessee has taken us through the relevant copies of the correspondence between the assessee and "GAIL" through which the agreement has been extended from time to time and submitted that in the year 2008, in the letter dated 29.10.2008 GAIL informed the assessee that the price of gas to be supplied from Ravva field will be revised w.e.f. 1.12.2008 and indicated the price for such gas at $5.73/MMBTU with a validity of such price for three years from 1.12.2008. He also drew our attention to the letter dated 28.11.2008, wherein it is mentioned that as and when the agreement of Ravva Satellite Gas price as stipulated with Ravva JV was finalized, the same would be applicable to the Ravva Satellite Gas supplied to the assessee's plant w.e.f. 1.4.2008 and that the assessee agreed to pay the seller, the price as agreed to by and between GAIL and Ravva JV. Subsequent letters were also referred to, to show that the revision of gas price was inconclusive and it continued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrespondence between the assessee and GAIL and that pages 46 to 52 are additional evidence which may be admitted and considered for adjudication of the issue. 8. The learned DR, on the other hand, supported the orders of the authorities below and submitted that the gas price is not decided by the parties but it is decided by the Ministry of Petroleum & Natural Gas and therefore, the assessee's contention that the assessee was under a liability to pay GAIL @ $5.73 per MMBTU during the relevant A.Ys is not acceptable. He further submitted that even otherwise, the liability to pay the higher price had not arisen or was not crystallised during the relevant A.Ys as the negotiations between the parties were going on and the GAIL in its letters had clearly stated that the negotiations were inconclusive. Therefore, according to him, the liability had not arisen to the assessee but it is a contingent liability which may or may not arise even in future and therefore, such a provision is not allowable as an expenditure u/s 37 of the I.T. Act during the relevant A.Ys. In support of his contention as above, he placed reliance upon the following case laws: i) Hon'ble Supreme Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the revision of price w.e.f. 1.12.2008 for the gas supplied from Ravva Gas Field is inconclusive. Therefore, it can be reasonably concluded that the assessee had a possible liability to pay GAIL $ 5.73 per MMBTU w.e.f. 1.12.2008, even if the discussions on the price revision culminated at a later date. Therefore, the assessee's collecting the charges from its shareholders/consumers @ 5.73 per MMBTU is a prudent practice, as admittedly, there were no restrictions on the shareholders from selling/transferring their shares and the new shareholders would not be liable to pay the charges for the consumption of power by the earlier shareholders and the assessee would not be able to recover the revised charges from the earlier shareholders who had consumed the power. Therefore, the assessee collecting the price at the possible revised price from the customers cannot be faulted. We find that the assessee has made a provision of the excess of the amount received and has claimed it as an expenditure during the year of receipt itself, though it has not made the payment. The allowability of this claim is the question before us. The learned Counsel for the assessee has relied upon various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he liability was a contingent liability, the Hon'ble Supreme Court has held that the assessee was entitled to do so. It was held that the liability was an ascertainable liability as the assessee had employees and the actual emoluments to be paid to them was ascertainable and therefore, the provision which had to be made for future liability, was allowable as expenditure. 12. In the case of IBP Co. Ltd (Supra) also, the assessee therein had made a provision for payment on finalization of revision of pay scale and other benefits to its Officers. The ITAT held that it was decided by the Govt. of India to increase salary w.e.f. a certain date in accordance with certain norms and therefore, liability for such increase had definitely arisen and could not be said to be a contingent liability. 13. In the case of Insilco Ltd (Supra), the Hon'ble Delhi High Court was considering the case of an assessee which had evolved a scheme whereby employees who rendered long period of service to the assessee company were made entitled to monetary awards at various stages of their employment equivalent to a defined period of time and based on actuarial calculation, the assessee made a provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same and claimed deduction u/s 37(1) of the Act. Revenue rejected the assessee's claim on the ground that the liability to pay damages did not crystallize in the relevant A.Y. The Hon'ble High Court held that in the A.Y in question, only negotiations and discussions took place and the finally liquidated damages were computed much later and therefore, the assessment order did not require any interference. 17. In the case of Microland Ltd (Supra), the assessee therein had claimed deduction u/s 37(1) of the Act in respect of provisions made for providing a possible future warranty claim during years of unexpired warranty in respect of products sold during the accounting periods in question. The Hon'ble Karnataka High Court held that since there was nothing on record to indicate that any such expenses have been incurred or laid out by the assessee as has been claimed before the authorities below, the AO was justified in rejecting the assessee's claim. It has reported that it was the assessee who had not placed any material either before the AO or before the appellate authorities. 18. In the case of Thermax Babcock & Wilcox Ltd (Supra), the assessee therein had claimed dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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