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TMI Blog2021 (9) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us is that the same represents cash discount than cash deposits - HELD THAT;- We are of the opinion in this factual backdrop that the instant latter issue requires afresh factual verification at the Assessing Officer s end. We therefore uphold the learned Pr.CIT s directions in principle and leave it open for the Assessing Officer to consider and examine the instant latter issue in AY.2014-15 s consequential proceedings as per law. - ITA No. 724/Hyd/2018, 1452/Hyd/2019 - - - Dated:- 9-9-2021 - Shri S.S.Godara, Judicial Member And Shri Laxmi Prasad Sahu, Accountant Member For the Assessee : Shri V.Siva Kumar, AR For the Revenue : Shri Rajendra Kumar, CIT-DR, Shri Danda Srinivas, DR ORDER PER S.S.GODARA, J.M. : These two assessee s appeals for AYs.2013-14 and 2014- 15 arise against the Pr.CIT-1, Hyderabad s separate orders dated 30-01-2018 and 12-03-2019 in case F.No.10 / Pr.CIT-1, / 263 / 2017-18 and F.No.Pr.CIT-1 / Hyd / 263 / 11(1) / 2018-19, involving proceedings u/s.263 of the Income Tax Act, 1961 [in short, the Act ]; respectively. Heard both the parties. Case files perused. 2. It transpires at the outset that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or supply of Ravva Satellite Gas at $ 5.73 MMBTU to our power plants at Gas Turbo Power Station, Vijjeswaram subject to the outcome of the court order on fixation of price of the supply of the gas from Ravva Satellite As can be gathered from the above correspondence, GAIL had only indicated a possible rise in price of Ravva Satellite Gas from US $ 4.3/MMBTU to US $ 5.73/MMBTU with a validity of such price for 3 years from 01.12.2008 in case there is such a price rise as indicated above. From the language of the letter of GAIL, the price of US $ 5.73/MMBTU is indicative and not conclusive. The contents of the APGPCL's letter also indicate that supply of Ravva Satellite Gas at $ 5.73/MMBTU to their power plants at Gas Turbo Power Station, Vijjeswaram is subject to the outcome of the court order on fixation of price of supply. Thus, the whole issue of price rise was mired in a thick element of uncertainty. 6.3 Perusal of subsequent correspondence between the APGPCL and GAIL submitted by the assessee-company in support of its claim reveals that it was time and again reiterated by GAIL that it was in discussion with Ravva JV on the price revision which is inconclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision for the differential rate of US $ 1.43/MMBTU presuming that it may have to pay up the differential rate in a short span of time with a purported apprehension that failure to do so results in disastrous consequences by way of cut in supply of natural gas. Besides, its own presumption, there is nothing concrete which the assessee-company could bring up to show that there was an element of certainty about the provision that it created in its books of accounts to the credit of GAIL. In this context, it may be relevant to discuss what constitutes an 'ascertained liability' as laid out by various judicial forums. The Hon'ble Supreme Court in the case of Metal Box Company of India Ltd v Their workmen (73 I.T.R. 53) held that although the quantification may be postponed to a future date, as long as the event is a certainty, the claim for deduction cannot be denied but where the liability itself is not certain, which may happen or may not happen, such liabilities are contingent in character and cannot be the subject matter of deduction, even under the mercantile system of accounting. Referring to the decision of the apex Court in Shree Sajjan Mills Ltd v CLT. (156 I.T.R 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such proposition which are as under: i.Rampyari Devi Sarogi V s. CIT (SC) 67 ITR 84 ii.Malabar Industrial Co. Ltd. V s. CIT(SC) 243 ITR 83 iii.Swamp Vegetable Products Industries Ltd. Vs. CIT (ALL) 187 ITR 412 iv.Gee Vee Enterprises Vs. Addl.CIT Ors (Del.) 99 ITR 375 v.Rajalakshmi Mills Ltd. Vs. ITO (ITAT, SB-Chennai) 121 ITD 343, 313 ITR(AT) 182 Vi.SRM Systems Software Pvt. Ltd. Vs. ACIT 2010-TIOL-646-HCMAD- IT. vii.Shakti Credits Ltd Vs. CIT 2015 Tax Pub (DT) 3058 (Luck.'A' Trib) viii.Shoreline Hotel Pvt.Ltd. V s. CIT 2015 Tax Pub (DT) 2982 (Mum.'E Trib.) ix.Kapil Ratan Associates Vs CIT 2015 Tax Pub (DT) 2931 (Mum.'A'Trib) 69 SOT 188 (Mum.) x.Swadeshi Vilas Private Ltd Vs. ACIT ITA No.599/Hyd/2013 dt:25- 09-2013. 7.2 There was incorrect application of law which constitutes an error and as such the assessment is erroneous and prejudicial to the interests of the Revenue since there is loss of revenue. In this regard, support is drawn from the following decisions: i) CIT Vs. JawaharBhattacharjee, 341 ITR 434 (Gau.) ii) Jai Bharath Tanners Vs. CIT, 264 ITR 673 (Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, is contrary to the decision discussed above. It has also caused predudice to the interest of the revenue as there has been loss of revenue. The ld. CIT has merely restored the matter to the assessing officer to decide the matter afresh after hearing the assessee. We do not find any fault with his finding. Therefore, it is held that the ld.CIT was right in holding the order to be erroneous and prejudicial to the interest of revenue on this ground. 7.6 In the case of err v s Emery Stone Manufacturing company (213 ITR 843) (Raj) it was held that even though the assessee had disclosed all the facts before the Assessing officer, the CIT can very well exercise bis power u/ s.263 if the correct provisions of law have not been examined by the Assessing Officer. 7.7 The assessing officer, while completing the assessment, has not caused any inquiry into the nature of provision that was being debited to the profit Loss Account and allowed the same as a deduction. Thus, the order passed by the Assessing Officer rendered itself erroneous in so far as it is prejudicial to the interests of the revenue. It may be relevant to refer to the following decisions in case no proper e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for AYs.2011-12, 2012-13 and 2015-16 decided on 19-11-2019. Learned co-ordinate bench therein had accepted the very nature of provision(s) in the said assessment years to be allowable vide following detailed discussion: 9. Having regard to the rival contentions and the material on record, we find that the assessee had entered into an agreement with GAIL for supply of natural gas and GAIL was sourcing the fuel/raw material from Cairn Energy Ltd which on the other hand, was sourcing the natural gas from its Ravva Satellite Gas Field. As per the letter dated 29.10.2008 (which is placed at page 6 of the paper book), there is an intimation to the assessee from GAIL that Ravva JV sought revision of the gas price and has indicated a price of $5.73 per MMBTU with a validity of such price for three years from 1.12.2008 and that the possible increase in the rate of Ravva Satellite gas price is from 1.12.2008. In the letter dated 28.11.2008, it also intimated to the assessee that the price of Ravva Satellite Gas price has been agreed at US $ 4.30 per MMBTU for the period 1.10.2006 to 30.11.2008 and that vide letter dated 29.10.2008, it has been informed to the assessee that in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein was dealing in landed property and carried on land developing activity and in the course of the said business, it maintained its account on mercantile system. In the relevant accounting period, it had sold certain plots and had received the entire sale price, but it had to also carry out developments within six months from the date of sale. Accordingly, it estimated a sum as expenditure for developments to be carried out in respect of the plots sold out during the relevant year and debited the said sum in its books of account as accrued liability. The Department did not allow the said estimated expenditure, and the matter travelled upto the Hon'ble Supreme Court and the Hon'ble Supreme Court held that the assessee had already undertaken a liability under the terms of its sale deeds of lands in question and therefore, it was an accrued liability and had to discharge such a liability and therefore, it was entitled to debit the same in its books of account in the accounting year against the receipts which represented sale proceeds of said lands. We find that this decision is applicable to the assessee. The assessee therein had received the income and has estimated the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on actuarial calculation, the deduction claimed by the assessee has to be allowed. 14. In the case of Monica India (Supra), the assessee therein had purchased imported goods from two parties and as per the purchase agreement, customs duty payable by sellers for import, would be included in the sale consideration. Accordingly, the assessee had claimed deduction of customs duty as part of cost of goods purchased. Revenue authorities denied deduction of customs duty on the ground that liability to pay customs duty was contingent liability as seller/importers had challenged the same in the Supreme Court and obtained stay against the admission of customs duty. The Hon'ble Bombay High Court held that since the assessee had liability to pay the sellers the cost of customs duty on goods purchased, it was to be borne by the assessee purchaser, only and thus the assessee would be entitled to deduct the said amount as consideration paid for goods in the relevant A.Y, irrespective of fact that sellers/importers had disputed such a liability. 15. Let us now consider the applicability of case laws relied upon by the learned DR. In the case laws relied upon by the learned DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod and that amounts provided represented estimated liabilities in respect of that obligation. When the liability under warranty clause in contract did not accrue during the relevant accounting years, merely because provision had been made as per accounting standards or that it was in consonance with established commercial principles, it could not be allowed under the I.T. Act. It was further held that since no boiler had been delivered or commissioned during the relevant A.Y, there was no material with reference to any liability under warranty and thus there was not even a semblance of liability during the relevant period let alone accrued liability. 19. The common principles that emerge from the above case laws relied upon by the learned Counsel as well as the Revenue are that a provision can be allowed as a deduction only if it is an ascertained liability and if it is computed on actuarial basis or on the basis of past experience and the provision is made on a scientific basis. The Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd (Supra) has laid down 4 tests for allocating a provision. It held that as per the recognized practice when a party has th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee are allowed . 5.1. There is no distinction on facts or law; as the case may be, from the Revenue side during the course of hearing. We thus hold that the Assessing Officer s regular assessments forming subject matter of revision herein framed on 02-03- 2016 and 31-08-2016 had rightly not disallowed the assessee s provisions(s) qua its gas pricing. And that the learned PCIT herein therefore has erred in law and on facts in holding the same to be erroneous ones causing prejudice to the interest of the Revenue. We make it clear that the hon'ble apex court s landmark decision Malabar Industrial Co. Vs. CIT [243 ITR 83] (SC) has settled the law that an assessment has to be both erroneous as well as causing prejudice to interest of the Revenue before the CIT or the Pr.CIT; as the case may be, assumes Section 263 revision jurisdiction. We therefore accept the assessee s sole substantive ground as well in the main appeal ITA No.724/Hyd/2018 for AY.2013-14 and former substantive grievance to this effect in AY.2014-15. Its former appeal ITA No.724/Hyd/2018 is allowed. 6. Next comes the latter issue of un-explained cash deposits of ₹ 5,22,416/- forming part o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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