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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 ..... 3. Coming to assessee's "lead" AY.2013-14's appeal ITA No.724/Hyd/2018, we note that the PCIT's detailed discussion terming the Assessing Officer's regular assessment dt.02-03- 2016 as an erroneous one causing prejudice to the interest of the Revenue; reads as under: "6.1 I have gone through the assessment order, record, grounds of revision and submissions made by the assessee company in reply to the show cause letter dated 16.11.2017. 6.2 As mentioned above, the assessee-company vide letter dated 30.11.2017 detailed the background of the agreements that it had entered into with GAIL for supply of natural gas required by it for power generation and the circumstances in which they provided for cost of Natural Gas at US $ 5.73 /MMBTU in their books as per agreement entered with GAIL even though GAIL has raised invoices for US $ 4.30/MMBTU. It is the argument of the APGPCL that they are bound to pay the differential amount to GAIL in 3 days as per the agreement as the latter can demand differential amount at any time with 3 days' notice. In support of its claim, APGPCL filed copies of correspondence between itself and GAIL authorizing supply of gas between the two entities. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the price revision, that negotiation with Ravva JV on the price revision was inconclusive and that GAIL shall continue pay for the gas at the purchase price fixed for the last quarter i.e. $ 4.3/MMBTU as stipulated under the GAILRavva JV contract until the new price has been determined. Accordingly, GAIL had been raising invoices on APGPCL at US $ 4.30/MMBTU every fortnight which the latter had been paying ill these years but at the same time making a provision to the credit of GAIL for the differential price in its books of accounts and debiting the same to the Profit & Loss Accounts. 6.4 Further, things as stood above, it was also informed by the assessee-company vide its letter dated 30.11.2017 that in response to its letter seeking clarification on the price rise, GAIL, vide its letter dated 27.02.2017, confirmed that there would not be any revision of price of Natural Gas from Ravva Field for the period 01.12.2008 to 31.10.2014 and the revision of price will be done from 01.11.2014 as the talks are inconclusive with its partner Cairn Energy Ltd. 6.5 It is clear from the correspondence between APGPCL and GAIL that the latter only hinted at a possible revision of price of Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting aside of money, which may become expenditure on the happening of an event, is not an expenditure". The above decisions clearly' bring out the nature of contingent liability vis-a-vis an ascertained liability. In the instant case, the assessee company creating a provision in favour of GAIL towards the differential price of Natural Gas of US $ 1.43/MMBTU in its books of accounts and debiting the same to the Profit & Loss Account was based on an indicative price rise to be effected in future by its supplier, GAIL as suggested in one of its correspondence. The revision of price suggested by GAIL was only indicative, never certain and no further price differential was demanded from the assessee-company by GAIL. 6.7 The assessee company itself stated that till date the GAIL has not charged towards differential price. It has written back the provision which has been made over a period of time. The relevant portion of the submission of the assessee at page 4 of the letter dated 30-11- 2017 is as under: 'Thus GAIL had been informing us in its letters every time that the revision of price of Natural gas of Ravva Field would be effective from 01-12-2008. Thus in the said lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, or incorrect application of law, without due application of mind or without following the principles of natural justice are not beyond the scope of section 263 of the Act. " 7.4 In the case of Jai Bharath Tanners Vs. CIT(supra), it was held as under: "We, therefore, hold that the Appellate Tribunal was correct in holding that- the Commissioner has exercised his jurisdiction on proper and valid grounds and he has exercised his jurisdiction properly when he found that the assessing officer had granted deduction under sections 80HDD and 80HHC of the Act without verifying the same. We do not find any infirmity in the order of the Appellate Tribunal and accordingly, we answer the question of law referred to us in the affirmative, against the assessee and in favour of the revenue. No Costs." 7.5 In the case of Vashti Management Services Pvt. Ltd. Vs. ITO (supra), one of the issues was wrong application of provisions of section 41(2) in respect of profits earned on sale of assets in place of section 50 and the Assessing Officer allowed brought forward losses against such profits claimed u/s 41(2) by the assessee. The Assessing Officer did not examine the nature of income and subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above and the reasons mentioned in the show cause notice, the assessment order dated 02.03.2016 passed u/ s 143(3) of the Incometax Act for A.Y.2013.14 is found to be erroneous and prejudicial to the interests of revenue. Since, the twin conditions, namely, (i) the order of the Assessing Officer is erroneous: and (ii) it is prejudicial to the interests of the Revenue, are satisfied and in order to serve the interest of justice, the assessment order passed u/ s 143(3) on 02.03.2016 needs to be set aside. Accordingly, I direct the assessing officer to revise the assessment order passed u/ s 143(3) of the Income-tax Act, 1961 dated 02.03.2016 after disallowing the provision of Rs. 18, 30,18,9891 debited to the P & L Account towards the varied price of natural gas supplied to it by GAIL which is contingent in nature and therefore, not an ascertained liability. 9. In view of the above discussion, assessment order dated 02.03.2016 for the A.Y.2013-14 in the case of the assessee company is set aside to revise the income keeping in view the above directions after allowing an opportunity of being heard to the assessee company". 4. Both the learned representatives are ad idem during the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed with Ravva JV, the same would be applicable for the Ravva Satellite Gas supplied to the assessee's plant w.e.f. 1.12.2008. It is also mentioned that the buyer i.e. the assessee has agreed to pay the price for the gas as agreed to between GAIL and Ravva JV. The assessee being the purchaser, had agreed to the price proposed to be charged by the GAIL and Ravva JV. From the subsequent communications between the assessee and GAIL, it is seen that the discussions with Ravva JV 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 fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Movers (Supra), the assessee therein had made a provision for meeting the liability towards leave encashment to be paid to its employees proportionate to the entitlement earned by the employees of the company, subject to a ceiling on accumulation as applicable on relevant date. On the question whether the assessee would be entitled to a deduction of such provision out of gross receipts for the accounting year during which the provision was made for liability in as much as the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd, the assessee therein was engaged in the business of turnkey projects, in which, the time was essence of contract. One of the conditions enumerated in the contract was delivery of equipment in time, which if not done within stipulated time, would lead to liquidated damages. The case of the assessee therein was that during the relevant A.Y there was a delay in delivery of machinery and thus, liability to pay liquidated 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&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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