TaxTMI 
TaxTMI 
2021 (9) TMI 694
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....e. The impugned delay is condoned therefore. 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 a....
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.....3/MMBTU to GAIL. GAIL has been reiterating time and again that it is in discussion with Ravva JV about 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 c....
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...., which is deductible for income-tax purposes, is one which is towards a liability actually existing at the time, but the putting 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 i....
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....lowing ratio was laid down: "Jurisdiction under section 263 can be exercised whenever it is found that the order of assessment was erroneous and prejudicial to the interest of the Revenue. Cases of assessment order passed on wrong assumption of facts, 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....
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....R 162)(Kol) iii. Daniel Merchants Pvt. Ltd., Vs ITO(Appeal(C) No.23976/2017) (SC) wherein it was held that the CIT can revise the assessment order when the assessing officer does not make proper inquiry while making the assessment and accepting the claim of the assessee for a deduction. 8. In view of the discussion 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 liabili....
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.... of such price from 1.12.2008. It is also mentioned that the negotiations with Ravva JV on the price revision are inconclusive and that the seller continues to supply gas from Ravva Satellite Gas Field to the assessee's plant as per the letter dated 8.2.2007 with clear understanding that, as and when, the agreement on Ravva Satellite Gas price is reached 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 s....
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....rated by it by utilizing the fuel sourced from Ravva Satellite Gas Field and as the price was likely to be revised, the liability of the assessee to pay the revised price with effect from the date of supply had accrued , though it had to be discharged at a later date. Thus, this decision is clearly applicable to the assessee. 11. In the case of Bharat Earth 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 a....
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....allowable where its historical trend indicates that in past large number of sophisticated goods were being manufactured and defects existed in some of the items manufactured and sold. It was held that the provision made for warranty in respect of army of such sophisticated goods would be entitled to a deduction from gross receipts u/s 37(1) of the Act. 16. In the case of FFE Minerals India (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 d....
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.... 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 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. 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 li....