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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 ..... BTU w.e.f. 1.12.2008, because as per the intimation dated 29.10.2008 from GAIL to the assessee, Ravva Satelllite JV was likely to revise the price and that such revised price to $5.73 per MMBTU is applicable w.e.f. 1.12.2008. After such intimation, the assessee had agreed to pay at the finally agreed revised price and also received the fuel from Ravva Satellite JV thereafter. Therefore, there is an implicit obligation of the assessee to pay the revised price, subject to the maximum of $ 5.73 per MMBUT. Liability had accrued during the relevant A.Ys. The discussions between GAIL and Ravva JC on revision of 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 DR s submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision 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. Therefore, a show-cause notice was issued to the assessee as to why the excess of amount which is provided in the books to the credit of GAIL should not be disallowed u/s 37 of the I.T. Act. In response to the same, the assessee has submitted that the purchase price was admitted in the books as per contractual obligations was made and a provision for the excess of the amount collected over the payment made by the assessee and after the correct price was crystallised in Feb. 2017 as per the letter issued by GAIL, taxes on the excess am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustice . 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 ₹ 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. It is further relevant to note that the Appellant is following mercantile system of accounting according to which all contractual liabilities are to be taken into account as and when they arise as otherwise such expenditure may not be allowed as deduction in the year in which it is paid stating it to be prior period expenditure. Therefore, C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant 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 to be so upto Feb.2017, when it was finally decided that the gas price would be charged at $430 MMBTU only till Nov.2014, and thereafter, the price would be charged at $5.73 per MMBTU. The learned Counsel for the assessee submitted that as a prudent business pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 case of Rotork Controls India (P) Ltd reported in 180 Taxmann 422 (SC) dated 12.5.2009. ii) Hon'ble Madras H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case laws for the allowability of such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d damages arose and accordingly it made a provision for the 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per MMBUT. Thus, the liability had accrued during the relevant A.Ys. The discussions between GAIL and Ravva JC on revision of 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 direct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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