High Court Of Gujarat
CIT Vs. Mahendra Mills Ltd.
Assessment Year : 1984-85
Section : 37(1)
A. L. Dave And K. A. Puja, JJ.
IT Reference No. 5 Of 2008
July 27, 2009
A. L. Dave, J. – This reference, at the instance of the Revenue, is made to this court for its opinion, raising the following question of law for the assessment year 1984-85 :
“Whether the Appellate Tribunal is right in law and on facts in holding that deduction in respect of purchase price payable by the assessee in respect of supply of gas received from ONGC should be allowed in the respective years when such supply of gas was received on the basis of price which had been finally determined by the Supreme Court ?”
2. We have heard learned standing counsel Mrs. Mauna M. Bhatt for the Revenue.
3. The facts leading to this reference are that the respondent-assessee claimed deduction of Rs. 1,28,54,737 being the demand raised by ONGC by increasing the price of goods (gas) supplied by it. The Assessing Officer rejected the claim of the assessee and the Commissioner of Income-tax (Appeals) confirmed the said order of disallowance.
4. The matter came up before the Tribunal and the Tribunal after considering the submissions made before it came to the conclusion that deduction in respect of purchase price payable by the assessee in respect of supply of gas received from the ONGC should be allowed in the respective years when such supply of gas was received on the basis of price which had been finally determined by the hon’ble Supreme Court. Therefore, at the instance of the Revenue, this reference is made.
5. We have considered the submissions, the provisions contained in the Income-tax Act and the legal position as established.
6. We find that the assessee has been following the mercantile method of accounting. The gas was supplied for the respective years. But there was a dispute about its price. As a result, there was no dispute about the liability of the assessee. But the question was that of quantification of the liability. Differently put, the liability had accrued in the respective years which came to be quantified and crystallized by virtue of the hon’ble Supreme Court deciding a price. The Tribunal was of the view that uncertainty and difficulty or the pendency of litigation relating to estimation or the pendency of litigation relating to estimation of the purchase price or fixing of purchase price would not convert the accrued liability into a contingent liability and since there remained no uncertainty or difficulty in estimation of the amount of such liability which had accrued in the respective assessment years of supply of gas, the deduction would be allowable for the respective years.
7. Having taken a look at Alembic Chemical Works Ltd. v. Deputy CIT  133 Taxman 833/ 266 ITR 47 (Guj.), we are of the view that the Tribunal was justified in its view. This court held in the said case of Alembic Chemical Works Ltd. (supra) that in the case of an assessee following the mercantile system of accounting, a liability is said to be properly incurred when the dispute between the parties is amicably settled or finally adjudicated, where the liability in question is not a statutory liability.
8. In the instant case also, the liability of the assessee was contractual which came to be crystallized by virtue of the decision of the apex court by fixing the price of the gas supplied by ONGC. We are, therefore, of the view that the view taken by the Tribunal is correct and, therefore, we answer the reference in the affirmative, i.e., in favour of the assessee and against the Revenue.
9. The reference stands answered accordingly.
[Citation : 334 ITR 254]