Andhra Pradesh Gas Power Corporation Limited, Hyderabad v. Dy. Commissioner of Income Tax , Circle-1(1), Hyderabad

ITA 2093/Hyd/2018 | 2012-2013
Pronouncement Date: 19-11-2019 | Result: Allowed

Appeal Details

RSA Number 209322514 RSA 2018
Assessee PAN AABCA9105C
Bench Hyderabad
Appeal Number ITA 2093/Hyd/2018
Duration Of Justice 1 year(s) 17 day(s)
Appellant Andhra Pradesh Gas Power Corporation Limited, Hyderabad
Respondent Dy. Commissioner of Income Tax , Circle-1(1), Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 19-11-2019
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB-A
Tribunal Order Date 19-11-2019
Date Of Final Hearing 22-08-2019
Next Hearing Date 22-08-2019
Last Hearing Date 13-08-2019
First Hearing Date 13-03-2019
Assessment Year 2012-2013
Appeal Filed On 01-11-2018
Judgment Text
ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 1 OF 17 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH HYDERABAD BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN ACCOUNTANT MEMBER ITA NOS.2092 2093 AND 2094/ HYD/2018 ASSESSMENT YEARS: 2011-12 2012-13 & 2015-16 A.P. GAS POWER CORPORATION LTD HYDERABAD PAN:AABCA9105C VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI V. SIVAKUMAR REVENUE BY : SRI Y.V.S.T. SAI CIT-DR DATE OF HEARING: 22/08/2019 DATE OF PRONOUNCEMENT: 19/11/2019 ORDER PER SMT. P. MADHAVI DEVI J.M. ALL THE THREE ARE ASSESSEES APPEALS FOR THE A.YS 2 011- 12 2012-13 & 2015-16 RESPECTIVELY AGAINST THE ORDE R OF THE CIT (A)-1 HYDERABAD DATED 20.09.2018. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY ENGAGED IN THE BUSINESS OF GENERATING POWER USING N ATURAL GAS AS FUEL FILED ITS RETURN OF INCOME FOR THE RELEVANT A .YS BOTH UNDER THE NORMAL PROVISIONS OF THE ACT AND UNDER SECTION 115J B OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) FOR TH E A.YS 2011- 12 AND 2012-13 THE ASSESSMENTS WERE INITIALLY COMP LETED U/S ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 2 OF 17 143(3). LATER IT WAS NOTICED THAT THE ASSESSEE COMP ANY HAS PAID $4.30 PER MMBTU FOR RAVVA SATELLITE GAS TO GAIL AND FURTHER MADE A PROVISION FOR RS.15 17 68 889/- OVER AND ABO VE $4.30 PER MMBUT TO THE CREDIT OF GAIL $1.43 PER MMBTU. IN VIE W OF THE EXCESS CLAIM THE CASE THE CASE WAS REOPENED FOR B OTH THE A.YS BY ISSUANCE OF A NOTICE U/S 148 DATED 30.03.2017. 3. DURING THE RE-ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE HAD ENTERED INTO A SHORT TERM AGREEMENT WITH GAIL IN DECEMBER 2008 FOR SUPPLY OF NATURAL GAS FROM RAVVA SATELLITE GAS FIELD OWNED BY CAIRN ENERG Y LTD WHICH IS A JOINT VENTURE OF THE GAIL @ $5.73 PER MMBTU BUT G AIL HAS BEEN RAISING INVOICES ONLY AT $4.30 PER MMBTU AND T HAT THE ASSESSEE HAS MADE A PROVISION FOR THE BALANCE PRICE OF $1.43 PER MMBTU SINCE THE PRICE PAYABLE AS AGREED UPON WAS $ 5.73 PER MMBTU. IT WAS SUBMITTED THAT GAIL CAN CLAIM SUCH DI FFERENTIAL AMOUNT AT ANY TIME AND APGPCL IS BOUND TO PAY SUCH AMOUNT AS PER THE TERMS OF CONTRACT ENTERED INTO BY IT WITH G AIL. THE AO IN ORDER TO VERIFY THE RATE AT WHICH GAIL HAD RAISED T HE INVOICES ADDRESSED A LETTER TO GAIL. IN RESPONSE TO THE SAME GAIL VIDE LETTER DATED 24.08.2017 STATED THAT IT HAS NEVER FI XED THE PRICE OF $5.73 PER MMBTU BUT IT HAS ONLY CHARGED $4.30 PER MMBTU TO APGPCL AND THAT THE SAME WAS ADMITTED AS ITS INCOME FOR THE RELEVANT FINANCIAL YEAR 2011-12. 4. THEREFORE A SHOW-CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY THE EXCESS OF AMOUNT WHICH IS PR OVIDED IN THE BOOKS TO THE CREDIT OF GAIL SHOULD NOT BE DISALLOWE D U/S 37 OF THE I.T. ACT. IN RESPONSE TO THE SAME THE ASSESSEE HAS SUBMITTED THAT ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 3 OF 17 THE PURCHASE PRICE WAS ADMITTED IN THE BOOKS AS PER CONTRACTUAL OBLIGATIONS WAS MADE AND A PROVISION FOR THE EXCESS OF THE AMOUNT COLLECTED OVER THE PAYMENT MADE BY THE ASSES SEE AND AFTER THE CORRECT PRICE WAS CRYSTALLISED IN FEB. 20 17 AS PER THE LETTER ISSUED BY GAIL TAXES ON THE EXCESS AMOUNT C OLLECTED BY THE ASSESSEE WAS PAID IN THE A.Y 2017-18 AND REQUESTED TO DROP THE PROCEEDINGS U/S 148 OF THE I.T. ACT. HOWEVER THE A O DID NOT AGREE WITH THE ASSESSEES CONTENTIONS AND DISALLOWED THE PROVISION MADE AND BROUGHT THE PROVISION TO TAX IN THE YEARS OF COLLECTION. FURTHER FOR THE A.Y 2015-16 THE ASSESSMENT WAS CO MPLETED U/S 143(3) DISALLOWING THE PROVISION CLAIMED U/S 37 OF THE I.T. ACT. AGGRIEVED THE ASSESSEE PREFERRED APPEALS FOR THE A .YS 2011-12 & 2012-13 BEFORE THE CIT (A) WHO CONFIRMED THE ORDER S OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US BY R AISING THE FOLLOWING GROUNDS OF APPEAL FOR THE A.YS 2011-12 & 2012-13 WHICH ARE THE SAME EXCEPT FOR THE QUANTUM OF DISALL OWANCE. 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (AP PEALS)-1 HYDERABAD DATED 20-09-2018 IS ERRONEOUS CONTRARY T O LAW AND FACTS OF THE CASE. 2. A) THE COMMISSIONER OF INCOME TAX (APPEALS) IS N OT JUSTIFIED IN SUSTAINING THE ADDITION OF RS. 15 17 6 8 889/- MADE BY THE ASSESSING OFFICER REPRESENTING PROVISI ON MADE BY THE APPELLANT IN ITS BOOKS ON ACCOUNT OF NATURAL GAS SUPPLIED BY GAS AUTHORITY OF INDIA LIMITED (GAIL) F ROM RAWA SATELLITE FIELD STATING THAT SUCH AMOUNT IS ONLY A PROVISION MADE IN THE ACCOUNTS TOWARDS DIFFERENTIAL PRICE FOR SUPPLY OF NATURAL GAS. B) COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HA VE SEEN THAT THE SAID PROVISION WAS MADE AS PER -UNDERSTAND ING THE APPELLANT HAD WITH GAIL. IT IS FURTHER RELEVANT TO NOTE THAT THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING ACCORDING TO WHICH ALL CONTRACTUAL LIABILITIES ARE TO BE TAKEN INTO ACCOUNT AS AND WHEN THEY ARISE AS OTHERWISE SU CH EXPENDITURE MAY NOT BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH IT IS PAID STATING IT TO BE PRIOR PERIOD EXPE NDITURE. ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 4 OF 17 THEREFORE COMMISSIONER OF INCOME TAX (APPEALS) IS N OT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 15 17 6 8 889/- BEING THE DIFFERENTIAL PRICE APPELLANT HAD INCURRED FOR GAS SUPPLIED BY GAIL FROM RAVVA SATELLITE FIELD. 3. FOR ALL OF THE ABOVE AND SUCH OTHER GROUNDS AS M AY BE URGED AT THE TIME OF HEARING IT IS MOST RESPECTFULL Y PRAYED THAT THIS HON'BLE TRIBUNAL MAY BE PLEASED TO ALLOW THE APPEAL AND SUITABLE DIRECTIONS BE GIVEN TO ASSESSIN G OFFICER TO DELETE DISALLOWANCE OF RS. 15 17 68 889/- IN THE INTEREST OF JUSTICE. FOR THE A.Y 2015-16 ALSO THE GROUNDS ARE AS FOLLO WS: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (AP PEALS)-1 HYDERABAD DATED 20-09-2018 IS ERRONEOUS CONTRARY T O LAW AND FACTS OF THE CASE. 2. A) THE COMMISSIONER OF INCOME TAX (APPEALS) IS N OT JUSTIFIED IN SUSTAINING THE ADDITION OF RS.3 25 22 021/- MADE BY THE ASSESSING OFFICER REPRESENTING PROVISION MA DE BY THE APPELLANT IN ITS BOOKS ON ACCOUNT OF NATURAL GAS SU PPLIED BY GAS AUTHORITY OF INDIA LIMITED (GAIL) FROM RAVVA SA TELLITE FIELD STATING THAT SUCH AMOUNT IS ONLY A PROVISION MADE IN THE ACCOUNTS TOWARDS DIFFERENTIAL PRICE FOR SUPPLY OF N ATURAL GAS. B) COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HA VE SEEN THAT THE SAID PROVISION WAS MADE AS PER UNDERSTANDI NG THE APPELLANT HAD WITH GAIL. IT IS FURTHER RELEVANT TO NOTE THAT THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING ACCORDING TO WHICH ALL CONTRACTUAL LIABILITIES ARE TO BE TAKEN INTO ACCOUNT AS AND WHEN THEY ARISE AS OTHERWISE SU CH EXPENDITURE MAY NOT BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH IT IS PAID STATING IT TO BE PRIOR PERIOD EXPE NDITURE. THEREFORE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 3 25 22 021/- BEING THE DIFFERENTIAL PRICE APPELLANT HAD INCURRED FOR G AS SUPPLIED BY GAIL FROM RAWA SATELLITE FIELD. 3. COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUST IFIED IN CONFIRMING THE DISALLOWANCE OF EMPLOYEES SHARE OF P F OF RS.2 58 244/- U/S.36(1)(VA) ON THE GROUND THAT SUCH PAYMENTS WERE MADE BEYOND THE DUE DATES UNDER THE P F ACT. COMMISSIONER OF INCOME TAX (APPEALS) IN THIS R EGARD OUGHT TO HAVE SEEN THAT HON'BLE APEX COURT HELD IN THE CASE OF ALOM EXTRUSIONS LTD (SUPRA) THAT EVEN PAYMENTS M ADE ON ACCOUNT OF PF AND ESI BEFORE DUE DATE FOR FILING OF RETURN ARE ALLOWABLE AS DEDUCTION. HENCE THE COMMISSIONER OF I NCOME TAX (APPEALS) SHOULD NOT HAVE CONFIRMED THE DISALLO WANCE OF RS.2 58 244/--. ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 5 OF 17 4. FOR ALL OF THE ABOVE AND SUCH OTHER GROUNDS AS M AY BE URGED AT THE TIME OF HEARING IT IS MOST RESPECTFULL Y PRAYED THAT THIS HON'BLE TRIBUNAL MAY BE PLEASED TO ALLOW THE APPEAL AND SUITABLE DIRECTIONS BE GIVEN TO ASSESSIN G OFFICER TO DELETE DISALLOWANCES MADE IN THE ASSESSMENT ORDE R IN THE INTEREST OF JUSTICE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE COMPANY BY APSEB ALONG WITH A GROUP OF COMPANIES WHICH ARE INTO MANUFACTURING OF CEMENT C AST IRON FREE ALLOY ETC. WHICH CONSUME SUBSTANTIAL POWER T O MEET THEIR NEEDS OF POWER BY SETTING UP THEIR OWN PLANT TO GEN ERATE POWER. THE POWER THUS GENERATED WAS DISTRIBUTED TO THE SHA REHOLDERS IN THE PROPORTION OF THEIR SHAREHOLDING. THE SHAREHOLD ERS WERE FREE TO TRANSFER OR DISBURSE THEIR SHARES AND IN THEIR P LACE NEW SHAREHOLDERS COULD JOIN THE COMPANY AND WERE TO GET THE POWER IN THE PLACE OF ORIGINAL SHAREHOLDERS AS SHAREHOLDING IS THE CRITERION FOR GETTING POWER FROM THE COMPANY. 6. IT IS SUBMITTED THAT FOR GENERATING THE POWER T O MEET THE REQUIREMENT OF RAW MATERIAL THE ASSESSEE HAD E NTERED INTO AN AGREEMENT WITH GAIL FOR SUPPLY OF NATURAL GAS AND S INCE GAIL WAS NOT IN A POSITION TO SUPPLY THE REQUIRED QUANTI TY OF FUEL IT SOUGHT FUEL FROM CAIRN ENERGY LTD FROM ITS RAVVA SA TELLITE GAS FIELD. INITIALLY THE AGREEMENT BETWEEN THE ASSESSE E COMPANY AND GAIL WAS ENTERED INTO ON 21.11.1990 AND THE SAME WA S BEING EXTENDED FROM TIME TO TIME. THE LEARNED COUNSEL FOR THE ASSESSEE HAS TAKEN US THROUGH THE RELEVANT COPIES OF THE COR RESPONDENCE BETWEEN THE ASSESSEE AND GAIL THROUGH WHICH THE A GREEMENT HAS BEEN EXTENDED FROM TIME TO TIME AND SUBMITTED T HAT IN THE YEAR 2008 IN THE LETTER DATED 29.10.2008 GAIL INFO RMED THE ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 6 OF 17 ASSESSEE THAT THE PRICE OF GAS TO BE SUPPLIED FROM RAVVA FIELD WILL BE REVISED W.E.F. 1.12.2008 AND INDICATED THE PRICE FOR SUCH GAS AT $5.73/MMBTU WITH A VALIDITY OF SUCH PRICE FOR THREE YEARS FROM 1.12.2008. HE ALSO DREW OUR ATTENTION TO THE LETTER DATED 28.11.2008 WHEREIN IT IS MENTIONED THAT AS AND WHE N THE AGREEMENT OF RAVVA SATELLITE GAS PRICE AS STIPULATE D WITH RAVVA JV WAS FINALIZED THE SAME WOULD BE APPLICABLE TO T HE RAVVA SATELLITE GAS SUPPLIED TO THE ASSESSEES PLANT W.E. F. 1.4.2008 AND THAT THE ASSESSEE AGREED TO PAY THE SELLER THE PRI CE AS AGREED TO BY AND BETWEEN GAIL AND RAVVA JV. SUBSEQUENT LETTER S WERE ALSO REFERRED TO TO SHOW THAT THE REVISION OF GAS PRICE WAS INCONCLUSIVE AND IT CONTINUED TO BE SO UPTO FEB.2017 WHEN IT WA S FINALLY DECIDED THAT THE GAS PRICE WOULD BE CHARGED AT $430 MMBTU ONLY TILL NOV.2014 AND THEREAFTER THE PRICE WOULD BE C HARGED AT $5.73 PER MMBTU. THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT AS A PRUDENT BUSINESS PRACTICE THE ASSESSEE WAS CO LLECTING THE CHARGES FROM ITS CUSTOMERS AT $5.73 PER MMBTU FROM 1.4.2008 THOUGH GAIL HAS BEEN RAISING INVOICES ON THE ASSESS EE AT $4.30 PER MMBTU ONLY. HE SUBMITTED THAT SINCE THE ASSESSE E WAS UNDER AN OBLIGATION TO PAY GAIL AT THE FINALLY AGREED PRI CE WITH EFFECT FROM 1.4.2008 IT HAD TO COLLECT THE PRICE FROM ITS SHAREHOLDERS AT THE PRICE TO BE REVISED AND THE EXCESS SO COLLECTED WAS TRANSFERRED TO THE PROVISION A/C AND THE PROVISION WAS CLAIMED AS AN EXPENDITURE IN THE INCOME TAX RETURN. HE SUBMITTED THAT SUBSEQUENTLY WHEN THE PRICE GOT FINALISED AND IT W AS DECIDED THAT UPTO NOV.2014 THE PRICE WOULD BE CHARGED ONLY AT $ 4.30 PER MMBTU THE ASSESSEE HAS OFFERED THE PROVISION TO TA X IN THE FINANCIAL YEAR 2016-17 I.E. THE YEAR OF CRYSTALLIZA TION RELEVANT TO THE A.Y 2017-18. THEREFORE ACCORDING TO HIM THE L IABILITY TO PAY ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 7 OF 17 THE REVISED PRICE HAD ACCRUED TO THE ASSESSEE DURIN G THE RELEVANT A.YS WHEN THE SUPPLIER GAIL HAD INTIMATED THE LIKEL Y REVISION OF THE PRICE AND ACCORDINGLY THE ASSESSEE HAD COLLECTE D THE PRICE FROM THE CUSTOMERS BUT ONLY DATE OF THE PAYMENT THE REOF WAS UNCERTAIN AND THEREFORE THE PROVISION HAS TO BE AL LOWED AS PER THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. IN SUPPORT OF HIS CONTENTION THAT SUCH A PROVISION IS ALLOWABLE AS A DEDUCTION U/S 37(1) OF THE ACT THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWING CASE LAW: I) HON'BLE SUPREME COURT IN THE CASE OF CALCUTTA CO. L TD VS.CIT (1959) 37 ITR 1 (SC) II) HON'BLE SUPREME COURT IN THE CASE OF BHARAT EAR TH MOVERS V. CIT (200) 112 TAXMAN 61 (SUPREME COURT) III) ITAT KOLKATA BENCH IN THE CASE OF IBP CO. LTD VS. ACIT (2003) 129 TAXMANN.COM 26 (KOL) IV) HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. INSILCO LTD (2009) 179 TAXMANN 55 (DEL.) V) HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MONICA INDIA (2016) 70 TAXMANN.COM 47 (BOM.) VI) ITAT HYDERABAD BENCH IN THE CASE OF SMT.ARUNA J YOTI VEDIRE VS. ADD CIT IN ITA NO.91/HYD/2017 DATED 3.5.2017. 7. FURTHER THE LEARNED COUNSEL FOR THE ASSESSEE HA S ALSO FILED A PAPER BOOK CONSISTING OF THE CORRESPONDENCE BETWEEN THE ASSESSEE AND GAIL AND THAT PAGES 46 TO 52 ARE ADDIT IONAL EVIDENCE WHICH MAY BE ADMITTED AND CONSIDERED FOR A DJUDICATION OF THE ISSUE. 8. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE GAS PRICE IS NOT DECIDED BY THE PARTIES BUT IT IS DECIDED BY THE MINISTRY OF PETROLEUM & NATURAL GAS AND THEREFORE THE ASSESSEE S CONTENTION THAT THE ASSESSEE WAS UNDER A LIABILITY TO PAY GAIL @ $5.73 PER MMBTU DURING THE RELEVANT A.YS IS NOT ACCEPTABLE. H E FURTHER ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 8 OF 17 SUBMITTED THAT EVEN OTHERWISE THE LIABILITY TO PAY THE HIGHER PRICE HAD NOT ARISEN OR WAS NOT CRYSTALLISED DURING THE R ELEVANT A.YS AS THE NEGOTIATIONS BETWEEN THE PARTIES WERE GOING ON AND THE GAIL IN ITS LETTERS HAD CLEARLY STATED THAT THE NEGOTIAT IONS WERE INCONCLUSIVE. THEREFORE ACCORDING TO HIM THE LIAB ILITY HAD NOT ARISEN TO THE ASSESSEE BUT IT IS A CONTINGENT LIABI LITY WHICH MAY OR MAY NOT ARISE EVEN IN FUTURE AND THEREFORE SUCH A PROVISION IS NOT ALLOWABLE AS AN EXPENDITURE U/S 37 OF THE I.T. ACT DURING THE RELEVANT A.YS. IN SUPPORT OF HIS CONTENTION AS ABOV E HE PLACED RELIANCE UPON THE FOLLOWING CASE LAWS: I) HON'BLE SUPREME COURT IN THE CASE OF ROTORK CONT ROLS INDIA (P) LTD REPORTED IN 180 TAXMANN 422 (SC) DATE D 12.5.2009. II) HON'BLE MADRAS HIGH COURT IN THE CASE OF FFE MI NERALS INDIA P LTD REPORTED IN 98 TAXMANN.COM 170 (MAD.) DATED 13.8.2018. III) HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MI CRO LAND LTD REPORTED IN 18 TAXMANN.COM 80 (KAR.) DATED 21.9.2010. IV) ITAT PUNE BENCH IN THE CASE OF THERMAX BABCOCK & WILCOX LTD (2001) 79 ITD 63 (PUNE)(TM). 9. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD WE FIND THAT THE ASSESSEE HAD ENTERED IN TO AN AGREEMENT WITH GAIL FOR SUPPLY OF NATURAL GAS AND G AIL WAS SOURCING THE FUEL/RAW MATERIAL FROM CAIRN ENERGY LT D WHICH ON THE OTHER HAND WAS SOURCING THE NATURAL GAS FROM I TS 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 IN TIMATION 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 ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 9 OF 17 INCREASE IN THE RATE OF RAVVA SATELLITE GAS PRICE I S FROM 1.12.2008. IN THE LETTER DATED 28.11.2008 IT ALSO INTIMATED T O THE ASSESSEE THAT THE PRICE OF RAVVA SATELLITE GAS PRICE HAS BEE N AGREED AT US $ 4.30 PER MMBTU FOR THE PERIOD 1.10.2006 TO 30.11.20 08 AND THAT VIDE LETTER DATED 29.10.2008 IT HAS BEEN INFORMED TO THE ASSESSEE THAT IN ACCORDANCE WITH THE PROVISIONS OF UPSTREAMI NG CONTRACT RAVVA JV HAS ENTERED INTO THE RAVVA GAS FIELD HAS INDICATED A PRICE OF US $ 5.73 PER MMBTU WITH A VALIDITY OF SUC H PRICE FROM 1.12.2008. IT IS ALSO MENTIONED THAT THE NEGOTIATIO NS WITH RAVVA JV ON THE PRICE REVISION ARE INCONCLUSIVE AND THAT THE SELLER CONTINUES TO SUPPLY GAS FROM RAVVA SATELLITE GAS FI ELD TO THE ASSESSEES PLANT AS PER THE LETTER DATED 8.2.2007 W ITH CLEAR UNDERSTANDING THAT AS AND WHEN THE AGREEMENT ON R AVVA SATELLITE GAS PRICE IS REACHED WITH RAVVA JV THE S AME WOULD BE APPLICABLE FOR THE RAVVA SATELLITE GAS SUPPLIED TO THE ASSESSEES PLANT W.E.F. 1.12.2008. IT IS ALSO MENTIONED THAT T HE 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 P URCHASER HAD AGREED TO THE PRICE PROPOSED TO BE CHARGED BY T HE GAIL AND RAVVA JV. FROM THE SUBSEQUENT COMMUNICATIONS BETWEE N 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 LIABILIT Y TO PAY GAIL $ 5.73 PER MMBTU W.E.F. 1.12.2008 EVEN IF THE DISCUS SIONS ON THE PRICE REVISION CULMINATED AT A LATER DATE. THEREFOR E THE ASSESSEES COLLECTING THE CHARGES FROM ITS SHAREHOLDERS/CONSUM ERS @ 5.73 PER MMBTU IS A PRUDENT PRACTICE AS ADMITTEDLY THE RE WERE NO RESTRICTIONS ON THE SHAREHOLDERS FROM SELLING/TRANS FERRING THEIR ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 10 OF 17 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 R EVISED CHARGES FROM THE EARLIER SHAREHOLDERS WHO HAD CONSUMED THE POWER. THEREFORE THE ASSESSEE COLLECTING THE PRICE AT THE POSSIBLE REVISED PRICE FROM THE CUSTOMERS CANNOT BE FAULTED. WE FIND THAT THE ASSESSEE HAS MADE A PROVISION OF THE EXCESS OF THE AMOUNT RECEIVED AND HAS CLAIMED IT AS AN EXPENDITURE DURIN G THE YEAR OF RECEIPT ITSELF THOUGH IT HAS NOT MADE THE PAYMENT. THE ALLOWABILITY OF THIS CLAIM IS THE QUESTION BEFORE U S. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON VARIOUS CA SE LAWS FOR THE ALLOWABILITY OF SUCH A CLAIM. LET US THEREFORE SEE THE APPLICABILITY OF THE SAID CASE LAWS TO THE FACTS OF THE CASE BEFO RE US. 10. IN THE CASE OF CALCUTTA CO. LTD (SUPRA) THE AS SESSEE THEREIN WAS DEALING IN LANDED PROPERTY AND CARRIED ON LAND DEVELOPING ACTIVITY AND IN THE COURSE OF THE SAID B USINESS IT MAINTAINED ITS ACCOUNT ON MERCANTILE SYSTEM. IN THE RELEVANT ACCOUNTING PERIOD IT HAD SOLD CERTAIN PLOTS AND HA D RECEIVED THE ENTIRE SALE PRICE BUT IT HAD TO ALSO CARRY OUT DEV ELOPMENTS WITHIN SIX MONTHS FROM THE DATE OF SALE. ACCORDINGLY IT E STIMATED A SUM AS EXPENDITURE FOR DEVELOPMENTS TO BE CARRIED OUT I N RESPECT OF THE PLOTS SOLD OUT DURING THE RELEVANT YEAR AND DEBITED THE SAID SUM IN ITS BOOKS OF ACCOUNT AS ACCRUED LIABILITY. THE D EPARTMENT DID NOT ALLOW THE SAID ESTIMATED EXPENDITURE AND THE M ATTER TRAVELLED UPTO THE HON'BLE SUPREME COURT AND THE HON'BLE SUPR EME COURT HELD THAT THE ASSESSEE HAD ALREADY UNDERTAKEN A LIA BILITY UNDER THE TERMS OF ITS SALE DEEDS OF LANDS IN QUESTION AN D THEREFORE IT WAS AN ACCRUED LIABILITY AND HAD TO DISCHARGE SUCH A LIABILITY AND ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 11 OF 17 THEREFORE IT WAS ENTITLED TO DEBIT THE SAME IN ITS BOOKS OF ACCOUNT IN THE ACCOUNTING YEAR AGAINST THE RECEIPTS WHICH R EPRESENTED 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 EXPENDITURE TOWARDS A LIABILITY W HICH HAD ACCRUED TO IT AS PER THE TERMS OF THE SALE DEED. IN THE CASE BEFORE US ALSO THE ASSESSEE HAD SOLD THE POWER GENERATED BY IT BY UTILIZING THE FUEL SOURCED FROM RAVVA SATELLITE GAS FIELD AND AS THE PRICE WAS LIKELY TO BE REVISED THE LIABILITY O F 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 T HE LIABILITY TOWARDS LEAVE ENCASHMENT TO BE PAID TO ITS EMPLOYEE S PROPORTIONATE TO THE ENTITLEMENT EARNED BY THE EMPL OYEES OF THE COMPANY SUBJECT TO A CEILING ON ACCUMULATION AS AP PLICABLE ON RELEVANT DATE. ON THE QUESTION WHETHER THE ASSESSEE WOULD BE ENTITLED TO A DEDUCTION OF SUCH PROVISION OUT OF GR OSS RECEIPTS FOR THE ACCOUNTING YEAR DURING WHICH THE PROVISION WAS MADE FOR LIABILITY IN AS MUCH AS THE LIABILITY WAS A CONTING ENT LIABILITY THE HON'BLE SUPREME COURT HAS HELD THAT THE ASSESSEE WA S ENTITLED TO DO SO. IT WAS HELD THAT THE LIABILITY WAS AN ASCERT AINABLE LIABILITY AS THE ASSESSEE HAD EMPLOYEES AND THE ACTUAL EMOLUM ENTS TO BE PAID TO THEM WAS ASCERTAINABLE AND THEREFORE THE P ROVISION WHICH HAD TO BE MADE FOR FUTURE LIABILITY WAS ALLOWABLE AS EXPENDITURE. ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 12 OF 17 12. IN THE CASE OF IBP CO. LTD (SUPRA) ALSO THE AS SESSEE THEREIN HAD MADE A PROVISION FOR PAYMENT ON FINALIZ ATION OF REVISION OF PAY SCALE AND OTHER BENEFITS TO ITS OFF ICERS. THE ITAT HELD THAT IT WAS DECIDED BY THE GOVT. OF INDIA TO I NCREASE SALARY W.E.F. A CERTAIN DATE IN ACCORDANCE WITH CERTAIN NO RMS AND THEREFORE LIABILITY FOR SUCH INCREASE HAD DEFINITE LY ARISEN AND COULD NOT BE SAID TO BE A CONTINGENT LIABILITY. 13. IN THE CASE OF INSILCO LTD (SUPRA) THE HON'BLE DELHI HIGH COURT WAS CONSIDERING THE CASE OF AN ASSESSEE WHICH HAD EVOLVED A SCHEME WHEREBY EMPLOYEES WHO RENDERED LON G PERIOD OF SERVICE TO THE ASSESSEE COMPANY WERE MADE ENTITLED TO MONETARY AWARDS AT VARIOUS STAGES OF THEIR EMPLOYMENT EQUIVA LENT TO A DEFINED PERIOD OF TIME AND BASED ON ACTUARIAL CALCU LATION THE ASSESSEE MADE A PROVISION FOR LONG SERVICE AWARD PAYABLE TO ITS EMPLOYEES AND CLAIMED DEDUCTION OF THE SAME. THE HO N'BLE DELHI HIGH COURT HELD THAT SINCE THE PROVISION FOR LONG S ERVICE AWARD WAS ESTIMATED BASED ON ACTUARIAL CALCULATION THE D EDUCTION CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED. 14. IN THE CASE OF MONICA INDIA (SUPRA) THE ASSESS EE THEREIN HAD PURCHASED IMPORTED GOODS FROM TWO PARTI ES 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 CU STOMS DUTY WAS CONTINGENT LIABILITY AS SELLER/IMPORTERS HAD CH ALLENGED THE ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 13 OF 17 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 SE LLERS THE COST OF CUSTOMS DUTY ON GOODS PURCHASED IT WAS TO BE BORNE BY THE ASSESSEE PURCHASER ONLY AND THUS THE ASSESSEE WOUL D BE ENTITLED TO DEDUCT THE SAID AMOUNT AS CONSIDERATION PAID FOR GOODS IN THE RELEVANT A.Y IRRESPECTIVE OF FACT THAT SELLERS/IMP ORTERS HAD DISPUTED SUCH A LIABILITY. 15. LET US NOW CONSIDER THE APPLICABILITY OF CASE L AWS RELIED UPON BY THE LEARNED DR. IN THE CASE LAWS REL IED UPON BY THE LEARNED DR WE FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD HAS HELD THAT A PROV ISION FOR THE WARRANTY PERIOD IS ALLOWABLE WHERE ITS HISTORICAL T REND INDICATES THAT IN PAST LARGE NUMBER OF SOPHISTICATED GOODS WE RE BEING MANUFACTURED AND DEFECTS EXISTED IN SOME OF THE ITE MS MANUFACTURED AND SOLD. IT WAS HELD THAT THE PROVIS ION MADE FOR WARRANTY IN RESPECT OF ARMY OF SUCH SOPHISTICATED G OODS 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 PROJ ECTS IN WHICH THE TIME WAS ESSENCE OF CONTRACT. ONE OF THE CONDIT IONS ENUMERATED IN THE CONTRACT WAS DELIVERY OF EQUIPMEN T IN TIME WHICH IF NOT DONE WITHIN STIPULATED TIME WOULD LEA D TO LIQUIDATED DAMAGES. THE CASE OF THE ASSESSEE THEREIN WAS THAT DURING THE RELEVANT A.Y THERE WAS A DELAY IN DELIVERY OF MACHI NERY AND THUS LIABILITY TO PAY LIQUIDATED DAMAGES AROSE AND ACCOR DINGLY IT MADE ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 14 OF 17 A PROVISION FOR THE SAME AND CLAIMED DEDUCTION U/S 37(1) OF THE ACT. REVENUE REJECTED THE ASSESSEES CLAIM ON THE G ROUND 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 FIN ALLY 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 ASSES SEE THEREIN HAD CLAIMED DEDUCTION U/S 37(1) OF THE ACT IN RESPECT OF PROVISIONS MADE FOR PROVIDING A POSSIBLE FUTURE WAR RANTY CLAIM DURING YEARS OF UNEXPIRED WARRANTY IN RESPECT OF PR ODUCTS SOLD DURING THE ACCOUNTING PERIODS IN QUESTION. THE HON' BLE KARNATAKA HIGH COURT HELD THAT SINCE THERE WAS NOTHING ON REC ORD TO INDICATE THAT ANY SUCH EXPENSES HAVE BEEN INCURRED OR LAID O UT BY THE ASSESSEE AS HAS BEEN CLAIMED BEFORE THE AUTHORITIES BELOW THE AO WAS JUSTIFIED IN REJECTING THE ASSESSEES CLAIM. IT HAS REPORTED THAT IT WAS THE ASSESSEE WHO HAD NOT PLACED ANY MATERIAL EITHER BEFORE THE AO OR BEFORE THE APPELLATE AUTHORITIES. 18. IN THE CASE OF THERMAX BABCOCK & WILCOX LTD (SU PRA) THE ASSESSEE THEREIN HAD CLAIMED DEDUCTION IN RESPE CT OF WARRANTY IN ITS ACCOUNT ON THE GROUND THAT IT WAS UNDER AN O BLIGATION TO REPLACE THE DEFECTIVE COMPONENTS OF BOILERS DURING THE WARRANTY PERIOD AND THAT AMOUNTS PROVIDED REPRESENTED ESTIMA TED LIABILITIES IN RESPECT OF THAT OBLIGATION. WHEN THE LIABILITY UNDER WARRANTY CLAUSE IN CONTRACT DID NOT ACCRUE DURING T HE RELEVANT ACCOUNTING YEARS MERELY BECAUSE PROVISION HAD BEEN MADE AS PER ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 15 OF 17 ACCOUNTING STANDARDS OR THAT IT WAS IN CONSONANCE W ITH ESTABLISHED COMMERCIAL PRINCIPLES IT COULD NOT BE ALLOWED UNDER THE I.T. ACT. IT WAS FURTHER HELD THAT SINCE NO BOI LER HAD BEEN DELIVERED OR COMMISSIONED DURING THE RELEVANT A.Y THERE WAS NO MATERIAL WITH REFERENCE TO ANY LIABILITY UNDER WARR ANTY 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 ABOV E CASE LAWS RELIED UPON BY THE LEARNED COUNSEL AS WEL L AS THE REVENUE ARE THAT A PROVISION CAN BE ALLOWED AS A DE DUCTION ONLY IF IT IS AN ASCERTAINED LIABILITY AND IF IT IS COMPUTE D ON ACTUARIAL BASIS OR ON THE BASIS OF PAST EXPERIENCE AND THE PR OVISION 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 REC OGNIZED PRACTICE WHEN A PARTY HAS THE PRESENT OBLIGATION AS A RESULT OF THE PAST EVENTS SETTLEMENT OF WHICH IS EXPECTED TO RESULT I N AN OUTFLOW OF RESOURCES AND IN RESPECT OF WHICH A RELIABLE ESTIMA TE OF THE AMOUNT OF OBLIGATION IS POSSIBLE THEN A PROVISION MADE TO MEET SUCH AN OBLIGATION IS ALLOWABLE U/S 37(1) OF THE AC T. 20. IN THE CASE BEFORE US WE FIND THAT THERE IS A CASE FOR THE ASSESSEE TO COLLECT THE CHARGES FROM THE CUSTOM ERS AT $5.73 PER MMBTU W.E.F. 1.12.2008 BECAUSE AS PER THE INT IMATION DATED 29.10.2008 FROM GAIL TO THE ASSESSEE RAVVA S ATELLLITE JV WAS LIKELY TO REVISE THE PRICE AND THAT SUCH REVISE D PRICE TO $5.73 PER MMBTU IS APPLICABLE W.E.F. 1.12.2008. AFTER SUC H INTIMATION ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 16 OF 17 THE ASSESSEE HAD AGREED TO PAY AT THE FINALLY AGREE D REVISED PRICE AND ALSO RECEIVED THE FUEL FROM RAVVA SATELLITE JV THEREAFTER. THEREFORE THERE IS AN IMPLICIT OBLIGATION OF THE A SSESSEE 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 O F PRICE CONTINUED BUT REMAINED INCONCLUSIVE TILL FEB.2017 WHEN IT WAS FINALIZED THAT THE GAIL SHALL CHARGE THE ASSESSEE A T US $ 4.30 PER MMBTU ONLY TILL 2014 AND THEREAFTER AT $5.73 PER M MBTU. THEREFORE THE LIABILITY OF THE ASSESSEE TO PAY AT THE REVISED PRICE IS AN ASCERTAINED LIABILITY AND NOT A CONTINGENT LIABI LITY AS HELD BY THE REVENUE. THE ASSESSEE WAS LIABLE TO PAY THE R EVISED CHARGES W.E.F. 1.12.2008 BUT THE REVISED CHARGES WERE NOT F INALIZED THOUGH THE MAXIMUM PRICE WHICH COULD BE REVISED OR INCREAS ED WAS MENTIONED IN THE COMMUNICATION FROM GAIL. THE LEARN ED DRS SUBMISSIONS THAT THE PRICE IS FIXED BY THE GOVT. IS ALSO STRICTLY NOT CORRECT. FROM PAGE 34 OF THE PAPER BOOK FILED BY TH E ASSESSEE WHICH IS A COPY OF THE NEW DOMESTIC NATURAL GAS PRI CE 2014 DATED 25.10.2014 IT IS SEEN THAT THE COST OF THE PRICE S HALL BE DETERMINED IN ACCORDANCE WITH THE FORMULA GIVEN THE REIN AND IT WAS ALSO CLARIFIED THAT THE COST OF THE PRICE SO DE TERMINED UNDER THESE GUIDELINES WAS NOT TO BE APPLICABLE WHERE PRI CES HAVE BEEN FIXED DIRECTLY FOR A CERTAIN PERIOD OF TIME TILL T HE END OF SUCH PERIOD. THEREFORE WE ARE OF THE OPINION THAT THE C LAIM OF THE ASSESSEE U/S 37(1) OF THE ACT IS ALLOWABLE PARTICUL ARLY SINCE THE ASSESSEE ITSELF HAS OFFERED THE CESSATION OF LIABIL ITY TO TAX IN THE YEAR OF CRYSTALLIZATION. THEREFORE THE APPEALS OF THE ASSESSEE ARE ALLOWED. ITA NOS 2092 2093 AND 2094 OF 2018 AP GAS POWER CORPORATION LTD HYDERABAD. PAGE 17 OF 17 21. IN THE RESULT ASSESSEES APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH NOVEMBER 2019. SD/- SD/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD DATED 19 TH NOVEMBER 2019. VINODAN/SPS COPY TO: 1 A.P. GAS POWER CORPORATION LTD NO.201 2 ND FLOOR MY HOME SAROVAR PLAZA SECRETARIAT ROAD HYDERABAD 500063 2 DY.CIT CIRCLE 1(1) HYDERABAD 3 CIT (A)-1 HYDERABAD 4 PR. CIT 1 HYDERABAD 5 THE DR ITAT HYDERABAD 6 GUARD FILE BY ORDER