Gujarat High Court
Petronet V K Limited vs Assistant Commissioner Of Income Tax on 7 January, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/1628/2010 ORDER DATED: 07/01/2025
undefined
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 1628 of 2010
==========================================================
PETRONET V K LIMITED
Versus
ASSISTANT COMMISSIONER OF INCOME TAX
==========================================================
Appearance:
MR S.N. SOPARKAR(870) for the Appellant(s) No. 1
==========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 07/01/2025
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Advocate Mr.S.N.Soparkar
with learned advocate Mr.B.S.Soparkar for the
appellant.
2. This Tax Appeal is preferred under Section
260A of the Income Tax Act, 1961 (for short'The
Act') proposing the following substantial
questions of law arising out of the order dated
27th August, 2008 passed by the Income Tax
Appellate Tribunal (for short'Tribunal') in ITA
No.213/RJT/06 for the assessment year 2003-04.
(i) Whether, in the facts and circumstances
of the case the Income Tax Appellate Tribunal
was right in law in confirming the
disallowance of depreciation of
Rs.2,81,25,000/- crores?
(ii) Whether, in the facts and circumstances
NEUTRAL CITATION
C/TAXAP/1628/2010 ORDER DATED: 07/01/2025
undefined
of the case, the Income Tax Appellate
Tribunal was right in law in not treating
Rs.20 crores as the cost of the pipeline
eligible for depreciation?
(iii) Whether, in the facts and
circumstances of the case, the Income Tax
Appellate Tribunal was right in law in
treating the minimum liability payable by the
appellate to the Gujarat Maritime Board and
the Kandla Port Trust of Rs.10 crores each as
neither contractual nor legal, but a
contingent liability and thereby not treating
Rs.20 crores as the cost of the pipeline
eligible for depreciation?
3. Brief facts of the case are as under.
The appellant company was incorporated with
the object of laying and operating the pipeline
for the transportation of petroleum products from
Sikka to Kandla. The pipeline was commissioned on
30th May, 2000. The appellate company claimed
depreciation of Rs.80,30,74,526/- in respect of
the pipeline in the return filed for the
Assessment Year 2001-02.
The Assessing Officer found that the cost of
pipeline on which the depreciation was claimed
includes sum of Rs.10 crores each shown payable
NEUTRAL CITATION
C/TAXAP/1628/2010 ORDER DATED: 07/01/2025
undefined
Kandla Port Trust (KPT) and Gujarat Maritime
Board (GMB). The Assessing Officer, after making
an inquiry with KPT and GMB, held that the
liability provided in the books was of mere
contingent liability, which cannot be considered
as installation cost of the pipeline and
therefore, the depreciation of Rs.5 crores in
respect of Rs.20 crores was disallowed.
4. Being aggrieved, the appellant company
preferred an appeal before the CIT(A), Jamnagar
who confirmed the order of the Assessing Officer.
The appellant, therefore, preferred an appeal
being ITA No.213/RJT/06 before the tribunal.
5. The tribunal, after taking into consideration
the terms of the Memorandum of Understanding
(MOU) between the appellant KPT and the GMB,
upheld the orders passed by the Assessing Officer
by observing as under.
"7. We have heard the rival contentions of
the parties. Looking to the facts and
circumstances of the case, we find it is
not in dispute and it Is not disputed by
the assessee-company that the assessee has
laid down the pipeline from Moti to KPT for
transportation of petroleum product. It is
also the fact on record that the assessee
NEUTRAL CITATION
C/TAXAP/1628/2010 ORDER DATED: 07/01/2025
undefined
and KPT and GMB has not made any agreement
that no MOU nor agreement is signed in
between the assessee-company and GMB and
KPT. The assessee has to pay amount in
question to both corporations for laying
down the payments but this liability is
either legal or contractual. This ability
is not legal but contractual liability and
can be said to have been arise and agreed
that all the parties to contract agreed. In
the case on hand the assessee has
unilaterally created the liability in his
books of account. We find that as per the
Indian Contract Act, an agreement between
competent parties to do or to abstain from
doing some act. Every contract is founded
upon the mutual agreement of the parties,
the other essentials are legality, capacity
(depending on age, mental ability, sex and
status) a mutual identity of consent. When
the agreement is stated either verbally or
in writing, it is usually called as express
contract and when the agreement is matter
of inference and deduction, it is called
upon an implied contract. There is a
difference between an agreement which is
based solely on concern parties and a law
which derives its sanction from the will of
NEUTRAL CITATION
C/TAXAP/1628/2010 ORDER DATED: 07/01/2025
undefined
the sovereign./ A contract is essentially a
compact between two or more parties, a law
is not an agreement betweens parties but is
a binding rule of conduct deriving its
sanction from the sovereign authority. The
contingent lability is condition of
contract. In this performance become due
only upon submission of some evidence,
certainor uncertain mere postponing of time
of performance or facts of performance
being made depend upon conditions which
must Happened upon a time or other will not
make a contract conditional. If contingent,
it is essential that contract must be
distinguished from fuluri. We find that
here in this case the assessee was to pay
Rs.10 crorers to éach organization for
transportation of petroleum product from
Sikka to Kandla. We find that the initial
agreement with KPT and GMB was for laying
down pipeline subject to satisfactory
payment mutually agreed. We find during the
course of hearing the learned AR was
specifically asked whether the work of any
pipeline has been carried out or as on
today whether any agreement has been
executed between the KPT, GMB and assessee.
The learned AR submitted that no such
NEUTRAL CITATION
C/TAXAP/1628/2010 ORDER DATED: 07/01/2025
undefined
agreement has been carried out as on today.
We find that the assessee has unilaterally
created the liability and this liability
has not been accepted by KPT and GMB.
Therefore, this liability cannot be allowed
as deduction and this is only recreated
liability. Learned AR has relied upon the
decision of Gujarat High Court in the case
of Amrish and Company (supra) where the
amount debited by the assessee in accounts
payable to another firm for the use of the
office, telephone and other facilities.
Since the assessee was following mercantile
system of accounting.
8. We have heard the parties, and perused
the material on record. Rival contentions
of the parties, we find that the assessee
has relied upon the decision of the Hon'ble
Supreme Court in the case of Bharat Earth
Movers (supra) where in provisions for
liability for encasement of earned leave,
Wherein the Hon'ble Supreme Court held that
if the business liability has definitely
arisen in accounting year, the deduction is
allowable although the liability may have
to be quantified and discharged at a future
date. What should be served is incurring of
NEUTRAL CITATION
C/TAXAP/1628/2010 ORDER DATED: 07/01/2025
undefined
liability. It should also being established
with reasonable certainty, though the
actual quantification must be possible. We
find that Hon'ble Gujarat High Court in the
case of Amrish and Co. (supra), wherein it
has been held that the amount is debited by
the assessee which is payable to another
firm for the use of their office and staff
and other facilities was deductible since
the assessee was following mercantile
system. Wherein the Hon'ble Gujarat High
Court in paragraph 11 of judgment has held
that applying the aforesaid test, it is
apparent on the facts of the represent case
that the assessee as a trader while
computing its taxable profits for the year
under consideration was properly required
to deduct not only the payments actually
made for use of premises and facilities but
also the present value of any payments in
respect of such use in that year though
payable in a subsequent year in case of
such liability could be satisfactorily
estimated. The assessee has given detailed
working of the estimated liability for the
year under consideration and there is no
dispute as regard the same. Here in the
instant case on hand, the Assessing Officer
NEUTRAL CITATION
C/TAXAP/1628/2010 ORDER DATED: 07/01/2025
undefined
has disputed the liability of the assessee.
We find that the assessee company has not
made any contractual payment to KPT or GMB
and the amount of Rs.10 crores was to be
paid. to the corporations. For that this
liability has not been agreed by the KPT
and GMB. We find that the assessee has
written a letter to KPT and assessee has
proposed for one time payment of Rs. 10
crores but the proposal was rejected by the
KPT and the similar proposal was made to
GMB, the same was also refused by the GMB.
Therefore, the Assessing Officer has
disputed about the liability itself.
Therefore, we are of the view that the
CIT(A) is justified in his action.
Moreover, the year under consideration is
2000-01 and we find that upto the date of
hearing the assessee has not made any
contract with the both the corporations.
Therefore, firstly, there is no contract
entered between these parties and it is one
sided proposal. When the assesses is
following the mercantile system, if it is
one time proposal no deduction can be
allowed for the same money. Therefore, we
are of the view that the CIT(A) is
justified in his action. Our interference
NEUTRAL CITATION
C/TAXAP/1628/2010 ORDER DATED: 07/01/2025
undefined
is not required. Both the grounds raised in
this appeal are dismissed."
6. From the above observations of the tribunal,
it is clear that the tribunal arrived at the
finding of the fact after taking into
consideration the terms of the Memorandum of
Understanding (MOU) between the KPT and GMB and
came to conclusion that the detailed working of
the estimated liability worked out by the
appellant company for the year under
consideration is without making any contractual
payment to KPT or GMB and as such liability was
not agreed by the KPT or GMB and the proposal
made by the appellant was rejected.
7. In view of such concurrent findings of the
fact arrived at by the authorities below, we are
of the opinion that no question of law, much
less, any substantial question of law arises from
the impugned order of the tribunal. The appeal
therefore being devoided of merits, the same is
dismissed accordingly.
(BHARGAV D. KARIA, J)
(D.N.RAY,J)
MOHMMEDSHAHID
