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2019 (10) TMI 908 - AT - Income TaxRevision u/s 263 - assessee has made a provision pending final price payable for the purchase of copper concentrate received during the year for which actual purchase price could not be finalized before the close of the financial year but soon thereafter - absence of direction in the order of the learned CIT u/s 263 of the income tax act - HELD THAT:- We found that in the show cause notice issued by the learned PCIT that assessee had made a provision being the final price payable for the purchase of copper concentrate, for which the quotation price could not be finalized. The actual outflow of money was expected to be made after the finalisation of the quotation price in the next financial year. An amount which was debited in the raw material consumption account was made a provision which was liable to be disallowed - at the time of passing of the order u/s 263 of the income tax act, PCIT has categorically held that in respect of the issue on hand the provision is a liability which can be measured only by using a substantial degree of estimation and if certain conditions are not met the provisions cannot be recognised. It is apparent that principal Commissioner of income tax invoked her powers u/s 263 of the income tax act to verify whether the provisions made by the assessee are allowable or not. While looking at the accounts of the assessee for financial year ended on 31st of March 2010, in schedule number 12, current liabilities and provisions are mentioned. The point number 2 of that schedule deals with the various provisions made by the assessee wherein under the head of the other provisions, sum of ₹ 259,31,00,000 was mentioned. Ld PCIT referred to the provisions of this amount in show cause notice, dealt with the issue of allowability of such provision in a her order, held that AO has not verified this aspect, clearly shows that, this issue was dealt with by the ld PCIT. In view of this, it cannot be said that the learned PCIT as not given any direction to the learned assessing officer to verify the above deduction claimed by the assessee. Hence, we reject the argument of the learned authorised representative that above addition made by the learned assessing officer was not emanating from the order of the learned Principal Commissioner Of Income Tax passed u/s 263 of The Income Tax Act. Accordingly ground number 7 to the extent of claim of the absence of direction in the order of the learned CIT u/s 263 of the income tax act and ground number 8 of the appeal of the assessee are dismissed. Provision pending final price payable for the purchase of copper concentrate received - Merits of the addition, on the basis of the probability, the assessee has made a provision for which it has already incurred an obligation at the time of the receipt of the goods. Estimate made by the assessee is also a reliable estimate as same is accepted by the industry as stated in the annual accounts of another’s similar company, based on the London metal exchange prices. Therefore the provision created by the assessee is a liability which has been measured by using a substantial degree of estimation. CIT – A has added in holding that such provision made in the books of account is not deductible while computing the taxable income of the assessee. We disagree with the above finding of the learned CIT – A for the reason that assessee has received the goods during the financial year for which the prices would be payable letter on but the reliable estimate is made based on the London metal exchange prices. Such provision has gone into the purchase account of the assessee. Further if, it is carried into the stock, it becomes the cost of the underlying inventory of the assessee. Therefore if the provision is not granted to the assessee as deduction then equivalent amount of the closing stock is also required to be reduced. It is also not the case of the revenue that the provision made by the assessee has not been subsequently discharged by payment to the respective parties or if there is an excess or Short has not been carried to the raw material consumption account of the subsequent year. It is not the case of the revenue that assessee is merely carrying on a provision in its books of account without discharging it reversing it into the subsequent year. Further the finding of the learned CIT – A is also incorrect that assessee has not provided the basis of working of the provisions of rupees to 59,31,00,000. The above provision has been made on the basis of the London metal exchange prices and certified by the auditors as well as approved by the shareholders of the company. Identical issue has arisen in the case of the company in earlier years when the assessee chain the method of accounting with respect to the purchase price and the matter reached to the level of the coordinate bench which did not find any infirmity in the accounting treatment made by the assessee for provisions for purchases. In the result we do not find any reason to uphold the order of the lower authorities wherein the disallowance made by the learned assessing officer is upheld by the learned CIT – A. - Decided in favour of assessee. Non granting the full claim of the tax deduction at source to the appellant - HELD THAT:- AO is directed to the follow the direction of the learned CIT – capital and grant the credit of the above tax deduction at source after proper verification.
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