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INCOME TAX OFFICER WARD 49 (2) , BARODA Versus M/s. PUNJAB STEEL ROLLING MILLS (BARODA) PVT. LTD

2016 (3) TMI 147 - GUJARAT HIGH COURT

Revision u/s 263 - Accrual of liability - whether contingent - interest liability debited in profit and loss account and accordingly allowed the same on the principle of mercantile accounting by AO - Held that:- At any rate the assesse’s liability to pay interest computed at simple rate was crystallized on 26.7.2001, and at no later point of time. Merely because the asseessee was negotiating with the ONGC alongwith other members of the association for softer terms and for charging simple interes .....

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M PARIKH, ADVOCATE FOR THE OPPONENT : MRS SWATI SOPARKAR, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. This appeal is filed by the Revenue challenging the judgment of Income-tax Appellate Tribunal ('Tribunal' for short) dated 9.6.2006. While admitting the appeal following substantial question of law was framed. Whether the ITAT was right in law and on facts in deleting the addition of ₹ 3,67,18,706 made by the CIT u/s.263 of the IT Act, 1961 for A.Y. 200203, .....

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(round about). 3. In the return assessee had claimed deduction of ₹ 3.67 crores (round about) towards interest liability payable to ONGC. According to the assessee, regarding the price of gas rate at which supplied by ONGC, there were multiple disputes. Pending such proceedings before the Supreme Court, ONGC was precluded from recovering revised charges. The Supreme Court ultimately ruled in favour of ONGC and thereupon the assessee was liable to pay the differential charges. However, in s .....

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ordingly claimed the same on the principle of mercantile accounting. The assessing officer allowed such claim. However, the Commissioner of Income-tax was of the opinion that the same was wrongly granted, since the liability to pay such interest did not crystallize during the said year. He, therefore, after putting the assessee to notice revised the order of assessment under his order dated 31.1.2006 and disallowed the claim of interest. Before the Commissioner the assessee had pointed out that .....

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acceptance of the offer. The Board of Directors of the Company had accepted such offer on 17.7.2002. The liability of interest of ₹ 3.67 crores was work out as simple interest and was relatable to the judgment of Supreme Court dated 26.7.2001. The Commissioner, however, observed that the interest payable to ONGC was not a statutory liability and the same can be stated to have crystallized only in April, 2002 and cannot be stated to have crystallized before April, 2002 when the ONGC made a .....

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had to be computed on compounded basis, whereas as per the assessee the simple interest was to be paid which was worked out at ₹ 3.67 crores. Thus, there was no dispute as regards the assessee's liability for interest amount of ₹ 3.67 crores. The only dispute which lingered on till April, 2002 was whether the assessee would pay compounded interest or simple interest. The Tribunal observed that the CIT would have been justified had the assessee claimed compound interest of ₹ .....

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Till then the liability was merely a contingent liability. Since such liability was not crystallized during the previous year relevant to the assessment year in question, the CIT correctly disallowed the same and Tribunal committed an error in reversing such a decision. 7. On the other hand, learned counsel Shri Bandish Soparkar for the assessee opposed the appeal contending that the liability of assessee to pay interest was decided by the Supreme Court in the judgment dated 26.7.2001. The asses .....

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ied on decision of Kerala High Court in case of Commissioner of Income-tax vs. Kerala Transport Co., 239 ITR page 183 in which the Court found that the assessee as a carrier has an absolute liability under Section 9 of the Carriers Act, 1865 to make good the loss to the claimants whose goods were lost or destroyed. It was observed that such liability stands under the provisions of the said Act and was thus a statutory liability. It was held that such liability could be claimed in the previous ye .....

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harged on such delayed payment. It was therefore when ONGC again approached the Supreme Court, under judgment dated 26.7.2001 the Supreme Court applied the principles of restitution and permitted the ONGC to recover the dues with interest. Significantly the Supreme Court has used the words interest as claimed by ONGC . Such claim arose at the rate specified in clause (5) of the agreement between the parties. Thus by virtue of this judgment the liability of the assessee to pay interest got crysta .....

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