The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench upheld the deletion of addition made on account of disallowance of deduction of debit note without appreciating the other facts.
The assessee, M/s. Charotar Gas Sahakari Mandali Limited is a co-operative society and engaged in providing CNG Gas and purchase and sale of natural gas to domestic and commercial consumers and earns commission on CNG. In the course of the scrutiny assessment, the AO observed that a revised return was filed by the assessee wherein deduction of Rs.7,92,41,327/- was claimed as expenses.
To support such a claim, it was contended on behalf of the assessee before the AO that as per terms and conditions with supplier GAIL Limited, the gas purchased for domestic customers is to be distributed to the domestic customers only. The purchase price of gas for domestic customers is less as compared to gas purchased for industrial customers.
During the year, a certain amount of gas purchased for domestic customers was sold to the industrial gas customer. The GAIL Limited worked out the difference of gas sold to industrial customers out of gas purchased for domestic customer. Therefore, a debit note of Rs.7,92,41,327/- for gas purchase was issued.
It was contended that the claim for revision in cost of gas pertains to Financial Year 2014-15 and therefore revised return is filed claiming increase in value of purchase of gas and consequent reduction of total income to the extent.
It was contended that the enhancement of rate of cost of gas made by GAIL is in accordance with clause (a) of the agreement with GAIL.
The AO, however, did not find merit in the claim of the assessee. The AO observed that the accounts have been audited and return of income was filed. The debit note issued on 18.11.2015 falls in the Financial Year 2015-16. The AO observed that the liability on account of debit note was not crystallized during the year under consideration and also no provision for this liability was made in the books. He accordingly disallowed the claim so made and added the same to the total income.
The coram headed by the Vice President, Rajpal Yadav and Pradip Kumar Khedia noted that the CIT(A) observed, debit note issued by supplier (GAIL) for purchase relates to F.Y. 2014-15 on account of difference in gas price. Thus, without taking into account, the extra price payable to the gas supplier, the true and fair state of affairs of the assessee society cannot be deduced.
Therefore, the ITAT said, “we see no reason to interfere with the tax neutral claim made by the assessee. It is not the case of the Revenue that expenditure is not bonafide and not allowable at all. The expenditure, in view of the AO, is probably allowable in the next assessment year i.e. AY 2016-17 with which we do not concur. The action of the CIT(A) is completely rational and thus endorsed.”
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