M/s. Enviro Technology Ltd., Ankleshwar V. The Dy.CIT.,Bharuch Circle, Bharuch

ITA 2224/AHD/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2173 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 01-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: S N SOPARKAR
• Section: 143(3); 37

Judgement Text

ITA NOS. 222 4 & 22 25/AHD/2010 . A.YS.2006-07 & 2007- 08 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NOS. 2224 & 2225/AHD/2010 (ASSESSMENT YEA RS: 2006-07 & 2007-08) ENVIRO TECHNOLOGY LIMITED, 2413/14, G.I.D.C., ANKLESHWAR- 393002. (APPELLANT) VS. THE DCIT, BHARUCH CIRCLE, BHARUCH (RESPONDENT) PAN: AAACE 4126 G APPELLANT BY : SHRI S.N. SOPARKAR SR. ADV . RESPONDENT BY : SHRI O.P. BATHEJA SR. D.R. ( )/ ORDER DATE OF HEARING : 09-07-201 3 DATE OF PRONOUNCEMENT : 26 -07-2013 PER SHRI ANIL CHATURVEDI,A.M. THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-VI, BARODA DATED 19.04.2010 & 9.04.2010 FOR A.YS. 2006- 07 & 2007-08 RESPECTIVELY. 1. BEFORE US, THE LEARNED A.R. SUBMITTED THAT THE FACTS BOTH THE APPEALS ARE IDENTICAL EXCEPT FOR THE AMOUNT AND THEREFORE THE S AME CAN BE HEARD TOGETHER. WE THEREFORE PROCEED TO DISPOSE OF BOTH THE APPEALS TOGETHER FOR THE SAKE OF CONVENIENCE. WE FIRST TAKE UP ITA NO. 2224/AHD/2010 FOR A.Y. 200 6-07. ITA NOS. 222 4 & 22 25/AHD/2010 . A.YS.2006-07 & 2007- 08 2 2. THE FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUTHORITIES ARE AS UNDER 3. ASSESSEE IS COMPANY ENGAGED IN THE BUSINESS OF T REATING INDUSTRIAL EFFLUENTS OF SMALL SCALE INDUSTRIES OF ANKLESHWAR INDUSTRIAL ESTATE. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2006-07 ON 22.12.2006 DECLARING TOTAL INCOME OF RS. 18,89,830/- UNDER THE NORMAL PROVISIONS OF THE ACT AND THE BOOK PROFIT COMPUTED UNDER SECTION 115J B AMOUTING TO RS. 1,37,57,980/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) AND THE TOTAL TAXABLE INCOME WAS DETERMINED AT RS. 31,24,710/-. 4. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASS ESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 19.04.2010 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWIN G GROUNDS. A. DISALLOWANCE OF PROVISION MADE FOR SLUDGE DISPOS AL CHARGES AMOUNTING TO RS. 6,15,015/- 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOL DING THE ACTION OF THE DY. COMMISSIONER OF INCOME TAX, DISAL LOWING THE PROVISION MADE FOR SLUDGE DISPOSAL CHARGES AMOUNTIN G TO RS. 6,15,015/-. 1.2 IN DOING SO, THE COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN THE FOLLOWING RESPECTS: 1.2.1 IN NOT APPRECIATING THE FACT THAT THE PROVISI ON MADE FOR SLUDGE DISPOSAL CHARGES AMOUNTING TO RS. 6,15,015/- HAS BE EN MADE ON THE BASIS OF THE CLOSING STOCK OF SLUDGE AS ON THE LAST DAY OF THE PREVIOUS YEAR GENERATED AFTER GIVING THE TREATMENT TO THE EF FLUENT PROCESSED. 1.2.2 IN NOT APPRECIATING THE FACT THAT, AS PER THE NORMS OF THE GPCB, LIABILITY TO DISPOSE OFF THE SLUDGE ACCRUES AS SOON AS THE SLUDGE IS GENERATED DURING THE PROCESS OF EFFLUENT TREATMENT. ITA NOS. 222 4 & 22 25/AHD/2010 . A.YS.2006-07 & 2007- 08 3 THE ISSUE RAISED IN THE AFORESAID GROUNDS IN ONLY W ITH RESPECT TO SLUDGE DISPOSAL CHARGES:- 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASS ESSING OFFICER NOTICED THAT THE MODUS OPERANDI OF THE BUSINESS IS THAT THE EFFL UENT OF SSI UNIT MEMBERS IS COLLECTED THROUGH APPROVED RUBBER LINED TANKERS AT THE PLACE OF THE ASSESSEE COMPANY. BEFORE UNLOADING THE EFFLUENT IN A COMMON TANK, A SAMPLE IS OBTAINED FROM THE TANKER FOR THE PURPOSES OF TESTING OF ITS QUALITY. THEREAFTER, THIS EFFLUENT IS TREATED IN PRIMARY, SE CONDARY AND TERTIARY TREATMENT AS REQUIRED AND THE IT IS DRAINED OFF INT O THE GIDC COMMON DRAINAGE SYSTEM AND SLUDGE GENERATED IS DISPOSED OF F AS PER NORMS OF GPCB. FURTHER, THE ASSESSEE COMPANY HAS ENTERED IN TO AN AGREEMENT WITH EACH MEMBER FOR PROVIDING SUCH FACILITY. EVERY MEMB ER IS REQUIRED TO PAY UNAVAILED TANKER CHARGES, IN CASE THEY DO NOT FULFI LL THE COMMITMENT ABOUT THE NUMBER OF TANKERS THAT THEY HAVE AGREED TO BRING AS PER THE TERMS AND CONDITIONS OF THE SAID AGREEMENT. HE NOTICED THAT T HE ASSESSEE HAD DEBITED 1,28,48,714/- UNDER THE HEAD SLUDGE DISPOSAL CHARG ES WHICH INCLUDED PROVISION MADE FOR RS. 6,15,015/-. THE ASSESSEE WA S ASKED TO JUSTIFY THE PROVISION. ASSESSEE INTERALIA SUBMITTED THAT THE AF ORESAID AMOUNT WAS PAYABLE TO BHARUCH ENVIRO INFRASTRUCTURE LIMITED @ RS.550 PER METRIC TON TOWARDS SLUDGE DISPOSAL CHARGES AND RS. 36 PER METR IC TON TOWARDS TRANSPORTATION AND LABOUR CHARGES. THE SUBMISSION M ADE BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER F OR THE REASON THAT THE SIMILAR PROVISIONS MADE DURING A.Y. 2001-2002, 2002 -03, 2003-04 AND 2005- 06 WERE DISALLOWED BY ASSESSING OFFICER. FOLLOWI NG THE STAND TAKEN IN EARLIER YEARS, HE CONSIDERED THE PROVISION TO BE IN THE NATURE OF CONTINGENT LIABILITY AND ACCORDINGLY DISALLOWED THE SAME. AG GRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFO RE CIT(A). CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR FOR A.Y. 200 5-06 CONFIRMED THE DISALLOWANCE BY HOLDING AS UNDER: ITA NOS. 222 4 & 22 25/AHD/2010 . A.YS.2006-07 & 2007- 08 4 3.3 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS AND ALSO THE JUDICIAL DECISIONS CITED IN THIS REGARD. IT IS A FACT THAT T HE APPELLANT HAS IN A.Y. 1999-00 DEBITED THE SLUDGE DISPOSAL CHARGES ON ACTUAL BASIS AND DEPARTING FROM THE SAME SUBSEQUENTLY THE ASSESSEE STARTED MAKING PROVI SIONS. IT HAS NOT BEEN ARGUED IN ASSESSMENT OR ESTABLISHED IN APPEAL THAT SAID LIABILITY COULD BE ESTIMATED WITH REASONABLE CERTAINTY. IN OTHER WORDS THE PROVISION MADE FOR FUTURE DISPOSAL OF SLUDGE WHEN THE ACTUAL LIABILITY HAS NOT ARISEN IS NOT AN ALLOWABLE EXPENDITURE. MY PREDECESSOR IN APPELLANT' S OWN CASE HAS HELD A SIMILAR VIEW FOR A.Y. 2005-06, THE DISALLOWANCE BY ASSESSING OFFICER IS THEREFORE CONFIRMED. 6. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, THE LEARNED A.R. AT THE OUTSET, SUBMI TTED THAT ON IDENTICAL FACTS, IN THE ASSESSEES OWN CASE FOR A.Y. 2005-06, THE HON. TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. HE PLACED ON RECORD T HE COPY OF THE AFORESAID ORDER. HE THEREFORE SUBMITTED THAT SINCE THE FACTS IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF A.Y. 2005-06 THE DECISION OF E ARLIER YEARS BE FOLLOWED AND THE APPEAL OF ASSESSEE BE ALLOWED. THE LEARNED D.R. ON THE OTHER HAND RELIED ON THE ORDER OF ASSESSING OFFICER AND CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE FACTS OF THE PRESENT APPEAL ARE IDENTICAL TO THAT OF A.Y. 2005-06. IN A.Y. 2005-06 THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO 1921/AHD/2009 ORDER DATED 11.02.2011 HAS DEC IDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS BROUGHT TO OUR NOTICE THAT ITAT AHMEDABAD 'A' BENCH IN THE CASE OF THE SAME AS SESSEE CONSIDERED THE IDENTICAL ISSUE OF DISALLOWANCE OF PROVISION MA DE IN RESPECT OF SLUDGE DISPOSAL CHARGES IN VARIOUS YEARS IN ITA NO. 734 - 736/AHD/2007 AND C. O. NO.5/AHD/2007 FOR ASSESSMENT YEARS 1999-2000, 2001- 02, 2002-03 AND 2003-04 AND THE CLAIM OF THE ASSESSEE HAS BEEN ALLO WED VIDE ORDER DATED 04- 02-2011. THE RELEVANT FINDINGS IN PARA 9 AND 10 ARE REPRODUCED AS UNDER: '9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS OF THE CASE. WE FIND THAT THE ASSESSEE-COMPANY ENVIRO TECH NOLOGY LIMITED IS ITA NOS. 222 4 & 22 25/AHD/2010 . A.YS.2006-07 & 2007- 08 5 ENGAGED IN COMMON EFFLUENT TREATMENT FACILITY FOR T HE TREATMENT OF EFFLUENT (WASTE WATER) GENERATED FROM 225 MEMBER INDUSTRIES. THE ASSESSEE EXPLAINED THE SLUDGE GENERATION PROCESS ALONG WITH JUSTIFICATION ON SLUDGE DISPOSAL CHARGES BY STATING THAT THE WASTE WATER IS IN THE HIGHLY ACIDIC NATURE AND ALSO CONTAINING ORGANIC CHEMICALS. THE WASTE WA TER IS RECEIVED BY RUBBER LINED TANKER AND UNLOADED IN THE UNDER GROUND TANK SPECIALLY CONSTRUCTED BY ACID PROOF TILE LINER. IT IS MIXED BY AIR SUPPLY AN D MADE HOMOGENEOUS. THIS ACIDIC EFFLUENT IS FIRST TREATED WITH HYDRATED LIME TO MAKE IT NEUTRAL TO REMOVE ITS ACIDITY. THE LIME IS CONSUMED BY ITS ACIDITY AS WELL AS ORGANICS MATTER. THE ACIDITY MAINLY DUE TO SULPHURIC ACID REACTS WITH HY DRATED LIME AND GENERATED SOLID. THE MIXED SLURRY IS SETTLED IN A PRIMARY CLA RIFIER. THE SOLID CONTAINING SLURRY IS REMOVED FROM THE BOTTOM OF CLARIFIER AND SUPERNANT CLEAR WATERS TAKEN FOR FURTHER TREATMENT OF BIOLOGICAL TREATMENT . BIOLOGICAL TREATMENT IS SECONDARY TREATMENT WHERE THE WASTE WATER IS TREATE D BY BACTERIA (BIO MASS). BACTERIA'S REACTS BIOLOGICALLY WITH ORGANIC CHEMICA LS AND GENERATE BIO SLUDGE, WHICH IS SEPARATED AND MIXED WITH PRIMARY SLURRY. T HE SOLID CONTAINING SLURRY ALONG WITH BIO SLUDGE ARE FILTERED THROUGH THE ROTA RY VACUUM DRUM FILTERS (RVDF). THE LIKE-IS REMOVED FROM THE FILTER AND STO RED FOR SUN DRYING. THIS SLUDGE IS ALWAYS HAVING DIFFERENT QUALITY BECAUSE O F THE WATER RECEIVED FROM DIFFERENT INDUSTRIES IS VARYING NATURE DAILY. THIS SOLID SLUDGE IS TO BE DISPOSED OFF AS PER GPCB AND REGULATIONS. THE SLUDGE DISPOSA L CHARGES THUS DEPEND UPON THE GENERATION OF SLUDGE, NATURE AND QUALITY O F SLUDGE. AS PER THE RULES OF GUJARAT POLLUTION CONTROL BOARD (GPCB), THE SLUD GE THAT IS OF THE NATURE HAS TO BE SENT ONLY TO THE COMPANY OPERATING A SECU RED LAND FILL FACILITY FOR SOLID WASTE. BHARUCH ENVUO INFRASTRUCTURE LTD. (BEI L) IS THE ONLY COMPANY IN A SECURED LAND FILL FACILITY FOR THE DISPOSAL OF SO LID WASTE GENERATED BY THE INDUSTRIES IN AND AROUND BHARUCH DISTRICT AND ACCOR DINGLY THE SOLID WASTE GENERATEDT IS SENT TO BEBL. THE SLUDGE GENERATED WH ICH MATCH EXACTLY WITH THE SPECIFICATION OF CEMENT INDUSTRY IS SENT TO THE CEMENT INDUSTRY AS PER THEIR REQUIREMENT AS PER THE GPCB RULES THE SLUDGE GENERATED READY FOR DISPATCH HAS TO BE REMOVED FROM THE SITE AND ACCORD INGLY THE BALANCE OF NON- TOXIC SLUDGE WHICH IS NOT LIFTED BY THE INDUSTRY HA S TO BE SENT TO BEIL BEING THE ONLY COMPANY OPERATING A SECURED LAND FOR THE D ISPOSAL OF SOLID WASTE GENERATED BY THE INDUSTRIES IN AND AROUND BHARUCH D ISTRICT. THE GENERATION OF SLUDGE DEPENDS UPON THE QUANTITY OF LIME CONSUMED. THE LIME IS RED BY ITS ACIDITY AS WELL AS ORGANICS MATTER. HOWEVER TREATME NT CHARGES DEPEND UPON THE QUALITY AND QUANTITY OF THE EFFLUENT I.E. ITS A CIDIC AND TOXIC NATURE. THUS THE TREATMENT CHARGES RECEIVED AND SLUDGE DISPOSAL CHAR GES INCURRED ARE NOT COMPARABLE WITH EACH OTHER BECAUSE OF THE COMPLEX N ATURE OF THE EFFLUENT. FURTHER, THE COMPANY HAS ENTERED INTO AN AGREEMENT WITH EACH MEMBER FOR PROVIDING COMMON EFFLUENT TREATMENT FACILITY. EVERY MEMBER HAS TO PAY UN- AVAILED TANKER CHARGES. IN CASE, HE DOES NOT FULFIL L THE COMMITMENT ABOUT THE NUMBER OF TANKERS THAT HE HAS AGREED TO BRING AS PE R THE TERMS AND CONDITIONS OF THE SAID AGREEMENT DURING THE YEAR, T HE UN-AVAILED TANKER CHARGES RECEIVED HAVE BEEN REDUCED FROM RS.31,36,50 0/- TO RS,25,96,000/- WHICH AGAIN JUSTIFIES THE INCREASE IN SLUDGE GENERA TION AND CONSEQUENTLY THE ITA NOS. 222 4 & 22 25/AHD/2010 . A.YS.2006-07 & 2007- 08 6 INCREASE IN SLUDGE DISPOSAL CHARGES. IN VIEW OF THE ABOVE FACTS AND PROCEDURE THE SLUDGE DISPOSAL CHARGES INCURRED IN M ARCH, 2000 AND MARCH, 2001 ARE HIGHER COMPARE TO WHOLE OF THE YEAR, AS TH E SLUDGE GENERATED HAS TO BE DRIED UP IN SUN AND ACCORDINGLY THE SLUDGE DISPO SAL CHARGE OF YEAR. THE ASSESSEE HAS ENCLOSED THE DETAILS OF SLUDGE DISPATC HED DURING THE MONTH, WHICH JUSTIFIES AFORESAID FACTS. IT CAN BE OBSERVED THAT SLUDGE DISPATCHED DURING THE YEAR HAD MAJOR PORTION OF THE SLUDGE DIS POSAL CHARGES INCURRED DURING THE AFORESAID MONTHS. 10. WE FIND THAT THE SLUDGE IS GENERATED IN THE .LE NT TREATMENT, WHICH HAS TO BE DISPOSED OFF AS PER THE RULES AND REGULATION OF GPC B, AND THE LIABILITY OF SLUDGE DISPOSAL .CHARGES ACCRUES THE MOMENT SLUDGE GETS GENERATED. THE COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTIN G AND ACCORDINGLY PROVIDED FOR THE SLUDGE DISPOSAL CHARGES TO BE INCU RRED ON THE SLUDGE GENERATED UPTO 3I.MARCH OF THE RELEVANT YEAR BUT CO ULD NOT BE DISPOSED OFF AS ON THAT DATE. THE AVERAGE RATE OF SLUDGE DISPOSAL W ORKS OUT TO RS.430/- PER MT, TO BE ON THE CONSERVATIVE SIDE THE PROVISION FO R DISPOSAL CHARGES HAVE BEEN MADE AT THE RATE OF RS.330.72 PER MT ON 5371.8 20 MT OF SLUDGE THAT COULD NOT BE REMOVED AS ON 31 .03.2001. WE FIND THA T THIS ISSUE IS COVERED BY THE DECISION OF THE RAJASTHAN HIGH COURT IN THE CAS E OF UDAIPUR MINERAL DEVELOPMENT SYNDICATE PVT. LTD. VS. DCIT (261 ITR 7 06 (RAJ), WHEREIN IT IS STATED THAT THE ASSESSEE COMPANY WAS ENGAGED IN OPE N CAST MINING OF SOAP STONE CEUDE. A LEASE FOR EXPLORATION OF MINES WAS G RANTED TO IT BY THE STATE GOVERNMENT OF RAJASTHAN. THERE WAS AN AGREEMENT BET WEEN THE ASSESSEE AND THE STATE THAT AS FAR AS POSSIBLE A LEASE SHALL RESTORE THE SURFACE LAND SO USED TO ITS ORIGINAL CONDITION. THE ESTIMATED COST OF REFILLING THE PIT WAS COMING TO RS. 1,51,360/- ARID THE PROVISION FOR THE SAME W AS MADE AS PER THE CLAUSE 2 OF PART V OF THE LEASE AGREEMENT. THE ASSESSEE-CO MPANY CLAIMED THAT THE LIABILITY TO REFILL PITS ACCRUED AS SOON AS THE PIT S WERE DUG. THE AO DENIED THE CLAIM ON THE GROUND THAT THE LIABILITY STIPULATED I N THE LEASE AGREEMENT TO RESTORE THE LAND HAS NOT ACCRUED IN THE ASSESSMENT YEAR IN HAND AND IT DOES ARISE WHEN THE ASSESSEE HAS FILLED THE PITS. THE CO MMISSIONER OF INCOME-TAX (APPEALS) HAS ALLOWED THE CLAIM. IN APPEAL BEFORE T HE TRIBUNAL, THE TRIBUNAL RESTORED THE VIEW TAKEN BY THE ASSESSING OFFICER. O N THE FURTHER APPEAL TO HIGH COURT AT PAGE 708 OF 261 ITR, IT WAS HELD THAT WE AGREE WITH THE VIEW TAKEN BY THE COMMISSIONER OF INCOME-TAX (APPEALS) T HAT THE ASSESSEE DIGS THE PITS, THE LIABILITY DOES ARISE AND IT IS ENTITL ED FOR DEDUCTION OF THE EXPENSES WHICH IT IS SUPPOSED TO INCUR FOR FILLING THOSE PIT S, AS THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. IT CAN CLAIM T HE EXPENSES INCUR AS SOON AS IT DIGS THE PITS. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES AND RELYING UPON THE AFORESAID DECISION OF RAJASTHAN HIGH COURT , WE ALLOW THE LIABILITY OF SLUDGE DISPOSAL CHARGES ACCRUES THE MOMENT THE SLUD GE IS GENERATED AND ACCORDINGLY THE PROVISION FOR SLUDGE DISPOSAL CHARG ES OUGHT TO BE ALLOWED AS DEDUCTION UNDER SECTION 37 OF THE ACT AS THE SAME I S PROVIDED FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. IN THE RESULT, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. ITA NOS. 222 4 & 22 25/AHD/2010 . A.YS.2006-07 & 2007- 08 7 BY FOLLOWING THE SAME ORDER WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION. IN THE RESULT, GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 11. BEFORE US, THE REVENUE COLD NOT BRING ANY MATER IAL TO DISTINGUISH THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE NOR COULD BRING ANY MATERIAL TO DISTINGUISH THE FACTS OF THE CASE WITH THAT OF EARLIER YEARS. W E THEREFORE RESPECTFULLY FOLLOWING THE ORDER OF CO-ORDINATE BENCH FOR A.Y. 2 005-06 SET ASIDE THE ORDER OF ASSESSING OFFICER AND ALLOW THE CLAIM OF THE ASS ESSEE FOR DEDUCTION. THUS THIS GROUND OF ASSESSEE IS ALLOWED. 12. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ITA NO. 2225/AHD/2010 (A.Y. 2007-08) 13. GROUNDS RAISED BY ASSESSEE READS AS UNDER: A. DISALLOWANCE OF PROVISION MADE FOR SLUDGE DISPOS AL CHARGES AMOUNTING TO RS. 6,96,574/-. 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOL DING THE ACTION OF THE DY. COMMISSIONER OF INCOME TAX, DISAL LOWING THE PROVISION MADE FOR SLUDGE DISPOSAL CHARGES AMOUNTIN G TO RS. 6,96,574/-. 1.2 IN DOING SO, THE COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN THE FOLLOWING RESPECTS: 1.2.1 IN NOT APPRECIATING THE FACT THAT THE PROVISI ON MADE FOR SLUDGE DISPOSAL CHARGES AMOUNTING TO RS. 6,96,574/- HAS BE EN MADE ON THE BASIS OF THE CLOSING STOCK OF SLUDGE AS ON THE LAST DAY OF THE PREVIOUS YEAR GENERATED AFTER GIVING THE TREATMENT TO THE EF FLUENT PROCESSED. 1.2.2 IN NOT APPRECIATING THE FACT THAT, AS PER THE NORMS OF THE GPCB, LIABILITY TO DISPOSE OFF THE SLUDGE ACCRUES AS SOON AS THE SLUDGE IS GENERATED DURING THE PROCESS OF EFFLUENT TREATMENT. 1 ST GROUND IS WITH RESPECT TO SLUDGE DISPOSAL CHARGES: - 14. BOTH THE PARTIES BEFORE US SUBMITTED THAT THE F ACTS IN PRESENT GROUND ARE IDENTICAL TO THAT OF GROUND NO. 1 IN ITA NO. 2224 F OR A.Y. 2006-07 AND THE SUBMISSIONS MADE BY THEM IN A.Y. 2006-07 ARE EQUALL Y APPLICABLE TO PRESENT ITA NOS. 222 4 & 22 25/AHD/2010 . A.YS.2006-07 & 2007- 08 8 APPEAL. SINCE THE FACTS OF THE CASE IN THE PRESENT GROUND ARE IDENTICAL TO THAT OF A.Y. 2006-07. WE FOR REASONS GIVEN WHILE DISPOS ING OF THIS GROUND OF A.Y. 2006-07 ALSO DECIDE THIS GROUND IN FAVOUR OF ASSESS EE. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED. GROUND NO. 2 IS WITH RESPECT TO DISALLOWING EXPENDI TURE WHILE CLAIMING DEDUCTION U/S 80IA:- 15. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS SESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IA O F RS. 1,15,67,000/- & HAD REDUCED 22,84,941/- AS OTHER INCOME,THE DETAILS OF WHICH ARE AS UNDER:- INTEREST INCOME RS. 25,38,823/- LESS: EXPENSES INCURRED TO EARN OTHER INCOME (10% OF RS. 25,38,823/-) RS. 2,53,882/- RS. 22,84,941/- 16. HE FURTHER NOTICED THAT THOUGH THE ASSESSEE H AD RECEIVED INTEREST OF RS. 36,90,144/- BUT HAD REDUCED ONLY 22,84,941/- FOR CA LCULATING THE ELIGIBLE PROFIT FOR DEDUCTION UNDER 80IA. HE ALSO NOTICED THAT ASS ESSEE HAD REDUCED EXPENSES OF RS. 2,53,882/- BEING EXPENSES INCURRED TO EARN OTHER INCOME. IN THE ABSENCE OF ANY DETAILS OR REASON FOR DEDUCTION IN THE INTEREST INCOME, HE CALCULATED THE ELIGIBLE PROFIT FOR DEDUCTION UNDER 80IA AS UNDER:- PROFIT BEFORE DEDUCTING THE INTEREST INCOME RS. 1,38,46,144/- LESS: INTEREST INCOME RS. 36,90,144/- ELIGIBLE PROFIT FOR DEDUCTION U/S. 80IA OF THE I.T. ACT RS. 1,01,55,970/ ALLOWABLE DEDUCTION U/S. 80IA RS. 1,01,55,970/- 17. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, AS SESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER OF ASSESSIN G OFFICER BY HOLDING AS UNDER:- ITA NOS. 222 4 & 22 25/AHD/2010 . A.YS.2006-07 & 2007- 08 9 6.1 DURING THE PREVIOUS YEAR, THE APPELLANT HAS EAR NED OTHER INCOME AMOUNTING TO RS. 36,90,144/-. THE BREAK-UP OF THE O THER INCOME AS REFLECTED IN SCHEDULE 15 OF THE ACCOUNTS IS AS UNDE R: SR. NO. PARTICULARS AMOUNT 1 INTEREST ON FIXED DEPOSITS 5,85,368 2 INTEREST ON LOAN 24,07,233 3 INTEREST ON I.T. REFUND 1,31,590 4 INTEREST ON DELAYED PAYMENT FROM CUSTOMERS 5,65,953 TOTAL 36,90,144 IT WAS FOUND BY THE ASSESSING OFFICER THAT WHILE CA LCULATING THE ELIGIBLE PROFIT FOR DEDUCTION U/S. 80IA OF THE ACT, THE ASSE SSEE HAS REDUCED RS. 25,38,823/- ONLY AS AGAINST INTEREST INCOME OF RS. 36,90,144/-. THE ASSESSEE HAS REDUCED THE INTEREST INCOME BY 10% FOR THE PURPOSE OF EXPENSES INCURRED FOR EARNING THE PROFIT. THE ASSE SSEE HAS NOT SUBMITTED ANY DETAILS/ REASONS FOR REDUCTION IN THE INTEREST INCOME. ACCORDINGLY EXCESS DEDUCTION OF RS. 14,05,203/- WAS DISALLOWED BY THE ASSESSING OFFICER. 6.2 IN APPEAL, THE LD. A.R. SUBMITTED THAT DURING T HE YEAR UNDER REFERENCE THE APPELLANT HAS EARNED OTHER INCOME AMOUNTING TO RS. 36,90,144/-. THE BREAK UP OF THE OTHER INCOME AS REFLECTED IN SC HEDULE 15 OF THE ACCOUNTS IS AS UNDER: SR. NO. PARTICULARS AMOUNT 1 INTEREST ON FIXED DEPOSITS 5,85,368 2 INTEREST ON LOAN 24,07,233 3 INTEREST ON IT REFUND 1,31,590 4 INTEREST ON DELAYED PAYMENT FROM CUSTOMERS 5,65,953 TOTAL 36,90,144 OUT OF THE AFORESAID INTEREST, DEDUCTION UNDER SECT ION 80IA OF THE ACT HAS BEEN CLAIMED ON INTEREST ON FIXED DEPOSITS AMOUNTIN G TO RS. 5,85,368/- AND INTEREST ON DELAYED PAYMENTS FROM CUSTOMERS AMOUNTI NG TO RS. 5,65,953/-, TOTAL AGGREGATING TO RS. 11,51,321/- BEING INCOME D ERIVED BY THE INDUSTRIAL UNDERTAKING FROM BUSINESS OF INFRASTRUCTURE DEVELOP MENT. THE APPELLANT HAS CLAIMED 10% OF THE BALANCE OF INTEREST AMOUTING TO RS.25,38,823/-AS EXPENDITURE INCURRED TOWARDS EARNING THE AFORESAID INCOME WHILE COMPUTING THE DEDUCTION UNDER SECTION 80IA OF THE ACT, THE AC TUAL INTEREST EXPENDITURE INCURRED BY THE APPELLANT ON MEMBERSHIP DEPOSITS DU RING THE YEAR UNDER REFERENCE AMOUNTS TO RS,15,62,744/- WHICH IS MUCH H IGHER THAN THE AMOUNT OF RELIEF CLAIMED IN THE APPEAL. IT IS SUBMITTED TH AT IN CASE THE GROUND OF APPEAL IS DECIDED AGAINST THE APPELLANT, THE DEDUCT ION UNDER SECTION 80IA OF THE ACT BE INCREASED TO ACCOUNT FOR DISALLOWANCE ON ACCOUNT OF INTEREST. THE ASSESSING OFFICER HAS EXCLUDED THE ENTIRE INTEREST INCOME IN COMPUTING THE ITA NOS. 222 4 & 22 25/AHD/2010 . A.YS.2006-07 & 2007- 08 10 DEDUCTION UNDER SECTION 80IA OF THE ACT AGGREGATING TO RS. 36,90,144/- IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT. 6.3 I HAVE CONSIDERED THE SUBMISSION OF THE ID. AR AND FACTS OF THE CASE. IT MAY BE NOTED HERE THAT THE AO HAS MADE A DIAMETRICA LLY OPPOSITE ADDITION IN THIS REGARD, WHEN COMPARED TO THE ABOVE GROUND OF APPEAL NO.3, WHERE TOTAL INCOME EARNED AT RS. 36,90,144 WA S DISALLOWED BY THE AO, IN WHICH, THE UNDERSIGNED HAD DIRECTED THE AO TO INCLUDE THE INTEREST EARNED OUT OF DELAYED PAYMENTS FROM CUSTOM ERS AS SUCH AN INTEREST WAS HAVING BUSINESS NEXUS. FOLLOWING THE S AME DECISION, IN THIS GROUND, THE AO IS DIRECTED TO INCLUDE THE EXPE NDITURE INCURRED BY THE APPELLANT IN EARNING SUCH INTEREST. SINCE THE A PPELLANT HAS NOT INCURRED ANY EXPENDITURE IN EARNING INTEREST FROM P AYMENTS FROM CUSTOMERS, THE ACTION OF THE AO IN THIS CONTEXT IS UPHELD AND THUS, THIS GROUND OF ASSESSEE IS DISMISSED. 18. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS N OW IN APPEAL BEFORE US. 19. BEFORE US, THE LEARNED A.R. SUBMITTED THAT ASSE SSEE HAS CONSIDERED 10% OF EXPENSES FOR EARNING INTEREST INCOME FOR WHICH HE A LSO RELIED ON THE DECISION OF SPECIAL BENCH IN THE CASE OF LALSON ENTERPRISES (2004) 89 ITD 25 (DELHI) SPECIAL BENCH. HE FURTHER SUBMITTED THAT THE ISSUE HAS NOT BEEN EXAMINED IN THE LIGHT OF THE AFORESAID SPECIAL BENCH DECISION A ND THEREFORE THE SAME NEEDS TO BE EXAMINED AND THEREFORE, THE MATTER BE R EMITTED TO THE FILE OF ASSESSING OFFICER. THE LEARNED D.R. ON THE OTHER H AND RELIED ON THE ORDER OF ASSESSING OFFICER AND CIT(A). 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT ASSESSEE HAS CONSIDERED 10% OF INTERES T INCOME AMOUNTING TO RS. 2,53,882/- AS BEING EXPENSES INCURRED FOR EARNI NG THE INTEREST INCOME. WE FIND THAT WHETHER THE EXPENDITURE INCURRED HAS A CONNECTION OR NEXUS WITH THE INTEREST RECEIPT HAS NOT BEEN EXAMINED BY LOWER AUTHORITIES AND THERE IS NO FINDING TO THAT EFFECT. WE THEREFORE FEEL THAT THE MATTER NEEDS TO BE EXAMINED AFRESH IN THE LIGHT OF DECISION OF LALSON ENTERPRISES (SUPRA). WE THEREFORE REMIT THE ISSUE TO THE FILE OF ASSESSING OFFICER TO DECIDE IT AFRESH IN THE LIGHT OF ASSESSEES SUBMISSIONS AND THE DECISIO N OF SPECIAL BENCH OF ITA NOS. 222 4 & 22 25/AHD/2010 . A.YS.2006-07 & 2007- 08 11 TRIBUNAL IN THE CASE OF LALSON ENTERPRISE (SUPRA). THE ASSESSING OFFICER IS THEREFORE DIRECTED TO VERIFY THE NEXUS BETWEEN THE EXPENSE INCURRED AND THE INTEREST INCOME AND THEREAFTER CONSIDER ITS ALLOWAB ILITY THE SAME AS PER LAW AND AFTER GIVING A REASONABLE OPPORTUNITY OF HEARIN G TO THE ASSESSEE. THUS THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 21. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 26 - 07- 2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD