2020 (1) TMI 78

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....n the business of generating power using natural gas as fuel. For the year under consideration, the assessee filed its return of income on 28-09-2010, declaring loss of Rs. 5,75,24,496/- under the normal provisions and book loss at Rs. 2,32,10,676/- u/s.115JB of the Income Tax Act [Act]. The case of the assessee was selected for scrutiny and notice u/s.143(2) of the Act, dt.13-09-2011 was issued and served on the assessee. The regular assessment was completed u/s.143(3) of the Act on 28-03-2013, determining loss at Rs. 5,14,16,413/-. 2.1. Later on it was noticed by the Assessing Officer (AO) that the assessee-company had paid $4.30 per Metric Million British Thermal Units (MMBTU) for Ravva Satellite Gas to GAIL and provided a provision f....

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....pellant 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 the said expenditure may not be allowed stating it to be prior period expenditure. It is also relevant to note that such a provision was made as per the correspondence it had with GAIL. Therefore Commissioner of Income Tax (Appeals) is not justified in confirming the addition of Rs. 8,31,86,662/- being the differential price for gas supplied from Ravva Satellite field by GAIL. 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 ....

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....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 the present obligation as a result of the past events, settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate of the amount of obligation is possible, then a provision made to meet such an obligation is allowable u/s 37(1) of the Act. 20. In the case before us, we find that there is a case for the assessee to collect the charges from the customers at $5.73 per MMBTU w.e.f. 1.12.2008, because as per the in....