TMI Blog2019 (10) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... stimation 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - ITA No. 1454/Del/2019 - - - Dated:- 9-10-2019 - Shri Amit Shukla, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri Sachit Jolly, Adv For the Revenue : Smt Sulekha Verma, CIT DR ORDER PER PRASHANT MAHARISHI, A. M. 1. The above appeal is filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings of the Appellant itself were sub-judice before the Hon ble Madras High Court and the Hon'ble Court had granted stay against the operation of the assessment order passed for AY 2010-11. 7. That on facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO in disallowing the amount of ₹ 259,31,00,000 towards provision for copper purchase despite having recorded that no directions in this regard were issued by the Principal Commissioner of Income Tax ( PCIT ) in the order dated 27.03.2017 passed under Section 263 of the Act 8. That on facts and circumstances of the case and in law, the C1T(A) erred in holding that once the PCIT issued directions under Section 263 of the Act, the entire assessment was open for scrutiny. 9. Without prejudice, that on facts and circumstances of the case and in law, the CIT(A) despite specifically recording the issue of netting off raised by the Appellant, i.e., reducing ₹ 140,67,55,306, being the provision under the same head in the prior year from the disallowance of ₹ 259,31,00,000 being provision for the current year, abjectly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to para No. 3(1) of the above letter and stated that same has been discussed in the show cause notice and therefore the contention of the assessee is not correct. 5. On the merits of the issue the ld AO considered the reply of the assessee, he dealt with the whole issue at para No. 14 to 17 of his order at page No. 9 to 12 of the assessment order as under:- 14. The assessee in his replies on even dates further claimed: Without prejudice to above it is submitted that, the Assessee Company has provided for ₹ 259.31 as other provisions during the financial year ended 31-march-2010 which was the liability recognized as final price settlement on purchase of copper concentrate. The Assessee Company purchases copper concentrate for production of copper anode/ copper cathode. In view of fluctuations in price of copper and as per prevailing international practices, the Assessee Company purchases copper concentrate on the basis of provisional price for the Quotational Period. The final price payable on copper concentrate is finalized at the end of the Quotational Period. When the Quotulionul Period ends after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been credited to Profit and Loss Account under raw-materials consumption. Liability recognised under this class for the year is ₹ 152.77 Cr which is outstanding as on 31s' March 2011. Actual outflow is expected on fmalisation of quotational period price in the next financial year. The Assessee Company submits that the liability recognized to the extent of ₹ 259.31 cr is an allowable deduction in view of the decision of the Hon'ble Supreme Court in Bharat Earth Movers vs CIT (245 ITR 428). This view has been upheld by the jurisdictional Tribunal, Chennai in the case of Cognizant Technology Conclusions Ltd in ITA 114 and 1400/ Mds/ 2011 dated 23-Jan-2013. Extracts are given below: - The next ground of the Revenue is that the provision made by the assessee for liabilities of expenditure was in the nature of provision and should not have been allowed by the Commissioner of Income-tax (Appeals) as expenditure in computing the income. The assessee is providing provision for expenditure incurred in the previous year itself. The amount was not paid by the end of the year and in certain cases bills were not received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow' from the enterprise of resources embodying economic benefits. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as a provision. In accordance with Ihe provisions of the I T. Act, 1961, though an assessee company has to incur the expenditure for its business, the creation of a mere provision in lieu of this expenditure is not entitled for deduction under the I.T Act, 1961, It is pertinent to note that a Special Bench of the Hon ble IT A T, Mumbai in the case of DCfT vs. Bank of Bahrain and Kuwait has held that anticipated liability which are contingent in nature are not allowable, and anlieipaled liability coupled with a present obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the I.T. Act, 1961 have been conferred on the CIT/PC1T in the Statute. Furthermore, such powers were held to he of wide amplitude by the Hon ble Supreme Court in the case of CIT v/s. Shree Manjunathcswarc Packing Products Camphut Works (1998) 231 ITR 53/96 Taxman I. Therefore, normally when an AO has not conducted a proper enquiry on a particular issue leading to a loss of revenue, then such order's has to be construed as erroneous and prejudicial lo the interests of revenue Moreover, in terms of the specific language of Explanation 2 to section 263( I) of the I T. Act, 1961 an order passed by the AO is deemed to be erroneous and prejudicial to the interests of revenue if the order is passed without making enquiries or verification which should have been made. In view of the above, the impugned assessment order passed by the AO is erroneous and prejudicial to the interests of revenue since the AO failed to conduct the requisite enquiry/verification in respect of the issue on hand. 16 The assessee has further stated in its reply: Further it is submitted that the reopening of assessment proceedings for the A Y 2009-10 was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income was assessed at ₹ 9886112327/- as per order dated 29.12.2017 u/s 143 (3) rws 263 of the Act. 7. Assessee aggrieved with the order of the ld AO, preferred appeal before the ld CIT(A) who dealt with the above issue on the ground that whether same was considered u/s 263 or not as well as on the merits of the issue as under:- 5.2 During the course of appellate proceedings, the appellant filed written submission on dated 19.07.2018. The relevant portion is reproduced here under: 3.2.1 The Ld. AO assumed Power without specific direction from CIT in 263 order. The Pr. CIT issued show-cause notice U/s. 263 on two grounds as below: - You had made a provision of ₹ 259.31 crore being 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 finalisation of quotation price in the next FY. In view of this an amount of ₹ 259.31 Crores which was debited in the raw material consumption account was a mere provision which is liable to be disallowed. It is also not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues considered by the assessing authority in the order dated 02.05.2014, which is presently stayed by the Hon ble High Court of Madras vide its order dated 20.06.2014 are concerned suitable action will be taken in accordance with the directions of the Hon ble High Court, as and when the Writ petitions are disposed. 3.2.4 Thus, your honour will note that CIT in his final order never directed the AO to complete the assessment proceedings on the provision for purchase of copper concentrate. Thus, AO order disallowing provision for purchase of copper concentrate is without jurisdiction and needs to be quashed. The following judicial precedents are relied upon In CIT vs D.N. Dosani (200 CTR 76) Hon ble High Court of Gujarat held that: 12. The scheme of the Act has provided different powers to different authorities and these are required to be exercised after satisfying the pre-requisite conditions and jurisdictional facts. The AO can disturb/reopen a finalized assessment by invoking his powers either under s. 154 or under s. 147 of the Act, provided he can show that the necessary requirements are fulfilled. If, what R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. The appellant vide these grounds of appeal, has challenged the legal validity of the assessment order, by claiming that the assessment order seeks to make an addition which is in contrast with the directions issued by the Pr CIT vide order u/s 263. The appellant has submitted that the addition, so made, has not been directed by the Pr CIT in the revisionary order u/s 263. The appellant has strongly contended that the Pr CIT vide the order u/s 263 had considered the order of the AO to be prejudicial to the interest of the revenue only to the extent of ₹ 4,00,25,257/-, u/s 43B of the Act. The appellant contended that during the entirety of the proceedings u/s 263, ie, from the show cause notice to the final assessment order, there was no discussion of the now made addition of Rs . 259,31,00,000/-. It is also contended that since there is no comment of the Pr CIT, to the said extent, therefore, no addition can be made by the AO in the order u/s 143(3) rws 263, which is the order considered in the present appellate proceedings. 5.4 At the outset of this discussion, and before adjudicating the legality of the assessment order, as has been challenged by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r making necessary enquiry/verification in respect of the above mentioned issue.... The above extract more than clearly states that the Pr CIT had directed the AO, to proceed ith the assessment order afresh, but with also considering the infirmities pointed therein in the order u/s 263 of the Act. The order no where directs the AO to simply stick on to one issue, ie, the issue mentioned u/s 263 of the Act, while not considering any other issue that comes in the sight of the AO. 5.6 As has been stated above, since the Pr CIT has directed the AO to consider the assessment order afresh the AO, as apparent from the assessment records, has very well considered all the matters and records of the appellant. It is only after verification of the records of the appellant, in consonance with the direction of the Pr CIT that the AO has found the so directed addition under Sec 43B, to be justified and not fit for addition, while on the other hand, noticed infirmity with the basis of provisioning a sum of ₹ 259,31,00,000/- for purchase of copper concentrate. In the factual matrix, I do not find any legal infirmity in the assessment order. Accordingly Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognised. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. A past event that leads to present obligation is called as an obligation event. The obligation event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognised as a provision. In accordance with the provisions of the IT Act,1961. Though an assessee company has to incur the expenditure for its business the creation of a mere provision in lieu of this expenditure is not entitled for deduction under IT Act, 1961. It is pertinent to note that a special Bench of the Hon ble ITAT, Mumbai in the case of DCIT vs. Bank of Bahrain and Kuwait has held that anticipated liability which are contingent in nature are not allowable and anticipated liability coupled with a present obligation can be said to be crystallised liability. If an event has already taken place, such as the entering into the contract and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court in the case of CIT vs. Shree Manjunathesware packing products Camphor works (1998) 231 ITR 53/96 Taxman 1. Therefore, normally when an AO has not conducted a proper enquiry on particular issue leading to a loss of revenue. Moreover, in terms of the specific language of explanation 2 to section 263(1) of the IT Act,1961 an order passed by the AO is deemed to be erroneous and prejudicial to the interest of revenue if the order is passed without making enquiries or verification which should have been made. In view of the above, the impugned assessment order passed by the AO is erroneous and prejudicial to interest of revenue since the AO failed to conduct the requisite enquiry/ verification in respect of the issue in hand. 16 The assessee has further stated in its reply : Further it is submitted that the reopening of the assessment proceedings for the AY 2009-10 was also initiated by the Deptt. On the basis of the same reason as in year under consideration Against the same the assesseee had filed a WP 1129 of 2016 before the Goa Bench of the Hon ble Bombay High Court. The HC finding merit in the issue was pleased to is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrate is imported which is processed at the smelter division of the company at Tuticorin into a product called Copper Anode. This is further refined by Electrolyte process at Tuticorin and Silvassa works into a product called cathode which may further be drawn into Cast Copper Rods depending on the market requirement. 3.3.2 The Appellant Company purchases copper concentrate for production of copper anode/ copper cathode. 3.3.3 The copper concentrates are initially invoiced at a Provisional price and provisional metal content. Subsequently, based on the determination of applicable payable price and final metal content, the supplier raises the final invoice and the Appellant has to settle the bills on the basis of final pricing. In between the date of provisional invoice and the final invoicing, the copper purchase is subjected to two types of risk i.e., 1) on account of fluctuation in the rate of Copper on London Metal Stock Exchange and 2) on account of fluctuation in the Exchange rate of Rupee vis- a-vis USD. 3.3.4 In view of the increase in the price of copper on LME, the Appellant s liability to pay for the cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for copper concentrate provided is as per notified accounting standards: 3.3.8 The Appellant's accounting in respect of Copper concentrate purchases which were outstanding as on 31st March to Mark them to market to take into account the effect of the increase in the liability of the Appellant which was ascertained. From financial year 2003-04 onwards company consistently following this practice. In this regard, your honour may please note the provisions of Section 145 and Section 145A of the Income-tax Act, 1961 which stood as follows:- [Method of accounting. 145. (1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted, it can never be changed. Regular cannot in the present context mean permanent. There is no provision that a change is impermissible or barred even when it is warranted by the existing situation. Reliance in this regard is placed on the decision of Punjab Haryana High Court judgement in the case of Commissioner of Income-tax Vs. Punjab State Industrial Development Corporation Ltd reported at 255 ITR 351. ii. The Appellant had followed this policy consistently and the Audited balance sheet of the Appellant can be referred to in this regard. 3.3.11 As per the Income-tax Act, 1961 there are certain Accounting Standards which are mandatorily required to be followed by the Assessee while computing the Income under the heading business and profession. As per Notification No. SO 69(E) dated 25th January, 1996 the following Accounting Standards have been prescribed to be mandatorily followed by the Assessee:- Notified accounting standards - The following accounting standards are notified, to be followed by all assessees following mercantile system of accounting, namely:- A. Accounting Standard I relating to discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losure in respect of such assumptions is not required. If a fundamental accounting assumption is not followed, such fact shall be disclosed. vi. For the purposes of the paragraphs (1) to (5), the expressions,- (a) Accounting policies means the specific accounting principles and the methods of applying those principles adopted by the assessee in the preparation and presentation of financial statements; (b) Accrual refers to the assumption that revenues and costs are accrued, that is, recognised as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the periods to which they relate; (c) Consistency refers to the assumption that accounting policies are consistent from one period to another; (d) Financial Statements means any statement to provide information about the financial position, performance and changes in the financial position of an assessee and includes balance sheet, profit and loss account and other statements and explanatory notes forming part thereof; (e) Going concern refers to the assumption that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or a change in an accounting estimate, such a question shall be referred to the Board for decision. vii. For the purposes of above, the expressions,- (a) Accounting estimate means an estimate made for the purpose of preparation of financial statements which is based on the circumstances existing at the time when the financial statements are prepared; (b) Accounting policies means the specific accounting principles and the method of applying those principles adopted by the assessee in the preparation and presentation of financial statements; (c) Extraordinary items means gains or losses which arise from events or transactions which are distinct from the ordinary activities of the business and which are both material and expected not to recur frequently or regularly. Extraordinary items include material adjustments necessitated by circumstances which though related to years proceeding to the previous years are determined in the previous year: Provided that income or expenses arising from the ordinary activities of the business or profession or vocation of an assessee, though abnormal in amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AS-1, the accounts have to be prepared so as to present a True and fair view and as per the AS-1 itself, the accounts cannot be said to have been true and fair unless it follows the principles of Prudence as mentioned in point No. 1 hereinabove. 3.3.16 Therefore, the Appellant having knew that the its liability to pay on account of copper concentrate having gone up substantially with a view to declare true and fair results of the Appellant and correct ascertainment of Income under the heading Business and profession. The liability to pay this increased amount had been accrued as per the Contracts which the Appellant was having with the Vendors for Copper concentrate and this being the case, the Appellant was bound to account for this increase in the liability. Reliance in this regard is also placed on the decision of Hon ble Supreme Court in CIT vs Woodward Governor India (P) Ltd. and Honda Siel Power Products Ltd (312 ITR 254). 21. In conclusion, we may state that in order to find out if an expenditure is deductible the following have to be taken into account (i) whether the system of accounting followed by the assessee is mercantile system, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting regularly followed and the Appellant having shown that the method of accounting has been regularly followed by him , the Ld. AO had no power to reject the same in view of the mandatory provisions of Section 145A which takes precedence over Section 145 in view of the non-obstante clause. Thus, the addition of ₹ 259.31 crores was totally wrong. Provision for copper concentrate allowable as per judicial decisions 3.3.20 It is not in dispute as per the disclosures in financial statements that provision is in respect of purchases of copper concentrate made by the appellant company. Thus, same is an ascertained liability to be allowed as an expense under section 37 of the Act. 3.3.21 As per settled law, it follows that while computing business income chargeable to tax under section 28 of the Act, the Mercantile System of Accounting has to be followed and provision for anticipated losses and foreseeable liabilities will have to be taken into account. To substantiate the claim that ascertained liability even on accrual basis could be allowed under section 28 of the Act, the appellant relies on the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is liable to be deleted as the fall in net profit is duly explained in my considered opinion and the change in the method of accounting having been followed consistently and having not been demonstrated to be malafide the addition in this regard was wrong. The Appellant's detailed reasoning in this regard has been seen and analysed. The Appellant in the last para of his written submission that the provisions of section 145A in respect of method of valuation of purchases and sales and the said 145A starts with non-obstante clause and therefore supersedes all other provisions of the Income Tax Act and has to be read in isolation. In the instant case, the Appellant had valued his purchases in accordance with method of accounting which has been shown to have been regularly followed, the provision of Section 145A should prevail over section 145 of the Income Tax Act, 1961. Copy of CIT(A) order for AY 2004-05 enclosed at page no... to ... of paper book. 3.3.24 The Hon ble ITAT, Chennai bench in the above referred case confirmed CIT(A) order and held that 18. We have considered the rival submissions on either side and perused th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recious metals was made. As against it, during the year ₹ 153.31 Crore has been incurred towards final price settlement. The additional amount of ₹ 12.63 Crore has been charged to profit and loss account under raw-material consumption. Liability recognised under this class for the year is ₹ 259.31 Crore which is outstanding as on 31 March 2010. Actual outflow is expected on finalisation of quotational period price in the next financial year. The said Note forms part of the Annual report and is reproduced at Page No.... to ... of the Paper book 3.3.27 From the above, it can be seen that the Ld. AO completely ignored the detailed submissions made by the Appellant in this regard and did not even refer to the same in the Assessment order while framing his order. The Ld. AO wrongly and arbitrarily made this addition ignoring opening coper concentrate provision reversed during the year. Without prejudice, opening copper concentrate provision reversed during the year need to be adjusted. 6.2 I have considered the facts of the case, the grounds of appeal, the order of the AO and the submissions of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting standard might allow such treatment, even still, the main matter to be considered, prior to allowing a provision, is whether or not, the same is ascertainable or not. Simply taking the stand of some accounting standard, does not prove the ascertainability of an expenditure. Therefore, to this extent, the contention of the appellant fails. 6.5 Coming to the aspect of the ascertainably of the provision so created by the appellant, it has been stated that the purchase price of copper keeps on fluctuating. It is on account of this fluctuation that the seller does not sell the copper with a final price tag. However, what is essential to note in this entire process is that the appellant, indeed has accepted the volitality and the excessive fluctuations in the price s of copper, and hence, the appellant itself has accepted the unascertainableness of the cost towards such purchases. As a matter of fact, the stand of the appellant that the increase in the prices of LME has led to the excessive provision being created by it goes on to prove that the purchase price is inturn unascertainable and not predictive. This infirmity has rightl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alized as on 31 March, 2009, a provision of ₹ 140.68 Crore based on forward LME rate of copper and LBMA rate of precious metals was made. As against it, during the year ₹ 153.31 Crore has been incurred towards final price settlement. The additional amount of ₹ 12.63 Crore has been charged to profit and loss account under raw-material consumption. Liability recognized under this class for the year is ₹ 259.31 Crore, which is outstanding as on 31 March 2010. Actual outflow is expected on finalization of quotational period price in the next financial year. He submitted that this is the provision made by the assessee, which has been disallowed by the revenue. He explained that how the provisions are made looking at the provision made in the year ended on 31/3/2009, how it was settled in next year when the prices were finalized, how the excess amount of liability was debited to the purchase account and how for the year 2010 the further liability is created. He stressed that this method of accounting is followed by the assessee on year to year basis, accepted by revenue in earlier years, based on sound principles of prudent, accepted by the auditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e final price settlement and unused balance of ₹ 2 3,90,00,000 was reversed. Liability recognized under this class for the year is INR 553,500,000 which is outstanding as on 31st of March 2005. Actual outflow is expected on finalisation of quotation Price in the next financial year. He further referred to the order of THE COMMISSIONER OF INCOME TAX (APPEALS) I, Chennai dated 14/11/2007 for assessment year 2004 05 wherein identical addition was made by the learned assessing officer was challenged. He referred to para number 4 of the order where the grounds of appeal were raised. He specifically referred to ground number 3 to show that the identical issue was raised. He further referred to page number 242 of the paper book para number 7 wherein ground number 3 of the appeal was decided by the learned CIT A. Thereafter he referred to para number 7.6 of the order at page number 263 of the paper book wherein the learned CIT A has deleted the addition. He then submitted that revenue preferred an appeal before the coordinate bench who passed an order for assessment year 2004 05, 2005 06 and 2006 06 by consolidated order dated 29/3/2017. He referred to para number 18 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the addition made by the learned assessing officer and confirmed by the learned CIT A deserves to be deleted. 13. The learned departmental representative submitted that assessee has objected that the issue was not the subject matter of order u/s 263 of the act, this deserves to be rejected. She submitted that in response to notice u/s 263 of the income tax act and the reply of the appellant is reproduced in para number 4 of the order of 263. The PCIT has mentioned in para number 5 of the order of that the honourable High Court of Madras has only passed an order of interim stay of demand on the conditional payment in interim stay on penalty. This fact is also ascertainable from page number 42 and 43 of the paper book filed by the appellant where the order of the Honourable High Court of madras in MP number 1 of 2014 in WP 15937 of 2014 is enclosed. The CIT has further stated in para number 7 of the order that in this proceedings new issue has been considered which was not the subject matter of the writ petition filed by the appellant of the stay granted by the honourable High Court of madras. The CIT has also mentioned in para number 12 of the order that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,31,00,000 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. In view of this, an amount of ₹ 259,31,00,000 which was debited in the raw material consumption account was made a provision which was liable to be disallowed. Further at the time of passing of the order u/s 263 of the income tax act, in para number 10 the order , learned principal Commissioner of income tax 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. Further, in para number 11 the learned CIT A referring to the provisions made by the assessee directed the learned assessing officer to conduct a proper verification. It was also found that the learned AO in the original assessment proceedings did not make adequate enquiry and therefore it was held that the order passed by the learned assessing officer is erroneous and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges. Further, the assessee sells refined copper at LME link prices in the domestic and export markets. The assessee is sourcing copper concentrate from various global suppliers and from its Australian mines. The assessee purchases copper concentrate at the prices of the copper concentrate finalized after getting the quotations from the suppliers. The copper concentrates are normally traded in open market based on London metal exchange prices as pertaining to the agreed quotation within appropriate deduction for treatment charges and refinement charges, which are negotiated with the suppliers. The assessee makes the initial payment to the suppliers based on provisional invoices, which are prepared based on the appropriate weight, quality, and purchase price prevailing at the time of loading the copper concentrate. Final invoicing is done after considering the weight of the cargo at the port, the quality of the copper concentrate and adjustment for treatment charges and refinement charges. The assessee also undertakes the hedging function for any price differentiation between the price at the time of shipment and at the time of final invoicing. Thus if the goods are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, the price payable shall be the London metal exchange month average price of the payable copper 4 to the month of arrival of the statement and as reduced by the agreed treatment charges and refinement charges. The month average following the month of arrival court national prizes shall be the month following the month of arrival of the statement. Accordingly the price payable shall be the London metal exchange month average price of the payable copper for the month following the month of arrival of the shipment and as reduced by the treatment charges and refinement charges this methodology of the pricing is scope and in known as 1 MAMA. Further the court national. May also be 2nd month average following the month of arrival. In such cases the court national. Shall be the 2nd month following the month of arrival of the shipment. Accordingly the price payable shall be the London metal exchange month average price of the payable copper for the 2nd month following the month of arrival of the shipment as reduced by the treatment charges and refinement charges. This methodology of the pricing is nominally known as 2- MAMA. The assessee has created the provision in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 USD 8.05. The assessee has further referred consignment named Andina -35 from supplier from Chile which was provisionally built on 6/12/2009 and finally build on 14/file/2010. The another consignment Ccorna-1, was provisionally billed on 30/12/2009 by RBS Sempra commodities, for which final bill was raised and settled on 30/4/2010. Accordingly the complete details of the provision of rupees to 59,31,00,000 was provided by the assessee. The provisioning made by the assessee is based on the principles of productions where the provision should be made for all loan liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information. It is not in dispute that the assessee is not making the above provisions on the basis of industry accepted standards on year to year basis. If there is a difference in the provisioning made by the assessee in one year is in excess of the actual liability later realised, the resultant sum always goes to the credit of the profit and loss account and further if there is an excess, the same is also debited to the purchase account. On careful analysis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Further, the 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 authori ..... X X X X Extracts X X X X X X X X Extracts X X X X
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