ITAT allows appeal for AY 2013-14, partly for AY 2014-15. AO to re-examine unexplained cash deposits.

The appeal for AY 2013-14 was allowed, and the appeal for AY 2014-15 was partly allowed by the ITAT. The ITAT directed the AO to re-examine the issue of unexplained cash deposits in AY 2014-15.

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Issues Involved:
1. Delay in filing the appeal.
2. Validity of the provision for the differential price of natural gas.
3. Unexplained cash deposits forming part of "other expenses."

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee’s appeal ITA No.724/Hyd/2018 for AY 2013-14 suffered a 13-day delay. The delay was attributed to reasons beyond the assessee’s control as per the condonation petition/affidavit. The department did not rebut this claim, and hence, the delay was condoned.

2. Validity of the Provision for the Differential Price of Natural Gas:
The primary issue in both appeals (AY 2013-14 and AY 2014-15) was the provision made by the assessee for the differential price of natural gas supplied by GAIL. The Principal Commissioner of Income Tax (PCIT) had revised the Assessing Officer’s (AO) regular assessments, terming them erroneous and prejudicial to the interest of the Revenue. The PCIT argued that the provision was based on an indicative price rise suggested by GAIL, which was not certain. The PCIT cited various judicial decisions to support the stance that the provision was a contingent liability and not an ascertained liability, and thus, not deductible.

However, the assessee contended that the provision was made based on a reasonable expectation of a price increase from $4.30/MMBTU to $5.73/MMBTU, as indicated in communications from GAIL. The assessee had consistently made provisions for this differential price and debited it to the Profit & Loss Account. The matter was previously adjudicated by the ITAT in the assessee’s favor for AYs 2011-12, 2012-13, and 2015-16, where it was held that the provision was an ascertained liability and thus allowable under Section 37(1) of the Income Tax Act.

The ITAT, in the current appeals, found no distinction in facts or law from the earlier decisions and held that the AO’s assessments were not erroneous or prejudicial to the interest of the Revenue. The ITAT emphasized that an assessment must be both erroneous and prejudicial to the Revenue for Section 263 revision jurisdiction to be invoked. Consequently, the ITAT allowed the assessee’s appeal for AY 2013-14 and the relevant part of the appeal for AY 2014-15.

3. Unexplained Cash Deposits Forming Part of "Other Expenses":
In AY 2014-15, the PCIT also raised an issue regarding unexplained cash deposits amounting to Rs. 5,22,416/-, which were part of "other expenses." The assessee claimed these were "cash discounts" rather than "cash deposits." The ITAT opined that this issue required fresh factual verification by the AO. Thus, the ITAT upheld the PCIT’s directions in principle and remanded the matter to the AO for further examination and consideration as per law.

Conclusion:
The assessee’s appeal for AY 2013-14 (ITA No.724/Hyd/2018) was allowed, and the appeal for AY 2014-15 (ITA No.1452/Hyd/2019) was partly allowed. The ITAT directed the AO to re-examine the issue of unexplained cash deposits in AY 2014-15. The order was pronounced in the open court on 9th September 2021.

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