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

ITA 2836/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1976 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 11-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Onus to prove
• Section: 244A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.2836/AHD/2010 A. Y.: 2005-06 THE D. C. I. T., BHARUCH CIRCLE, ABOVE BANK OF BARODA BUILDING, STATION ROAD, BHARUCH VS ENVIRO TECHNOLOGY LTD., 2413/14, GIDC ESTATE, ANKLESHWAR, DIST. BHARUCH PA NO. AAACE 4126 G (APPELLANT) (RESPONDENT) ITA NO.1921/AHD/2009 A. Y.: 2005-06 ENVIRO TECHNOLOGY LTD., 2413/14, GIDC ESTATE, ANKLESHWAR, DIST. BHARUCH VS THE D. C. I. T., BHARUCH CIRCLE, ABOVE BANK OF BARODA BUILDING, STATION ROAD, BHARUCH PA NO. AAACE 4126 G (APPELLANT) (RESPONDENT) DEPARTMENT BY SHRI R. K. DHANISTA, DR RESPONDENT BY SHRI S. N. SOPARKAR, AR O R D E R PER BHAVNESH SAINI: THE DEPARTMENTAL APPEAL IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A)-VI, BARODA DATE D 28-06-2010 FOR ASSESSMENT YEAR 2005-06, CHALLENGING THE DELETION O F PENALTY U/S 271(1) ( C ) OF THE IT ACT ON THE FOLLOWING GROUNDS : 1(I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE PE NALTY U/S. 271 (1) (C) OF RS.3,80,610/- LEVIED ON THE ADD ITION ON ACCOUNT OF DISALLOWANCE OF PROVISION FOR SLUDGE DIS POSAL CHARGES AMOUNTING TO RS.10,40,131/-. ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 2 1(II) THE CIT(A) ERRED IN NOT APPRECIATING THE FACT S THAT THE ASSESSEE COMPANY HAS SUDDENLY CHANGED ITS ACCOUNTING POLICY AND STARTED MAKING PROVISIONS. IN MAKING SUCH A DEPARTURE FROM THE EXISTING ACCOUNTIN G POLICY, THE ASSESSEE COMPANY HAS NOT COMPLIED WITH ACCOUNTING STANDARD I AND II NOTIFIED BY THE BOARD. AS PER STANDARD I & II, ANY CHANGE IN AN ACCOUNTING ESTIMA TE HAVE A MATERIAL EFFECT IN THE PREVIOUS YEAR SHALL B E DISCLOSED AND QUANTIFIED. BUT NO SUCH DISCLOSURE HA S BEEN MADE BY THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS MADE AN ATTEMPT TO REDUCE ITS TAX LIABI LITY BY MAKING PROVISION OF RS.10,40,131/- FOR SLUDGE DISPO SAL CHARGES AND THEREBY FILED INACCURATE PARTICULARS OF ITS INCOME, WHICH CLEARLY ATTRACTED LEVY OF PENALTY U/S . 271(1)(C) OF THE INCOME-TAX ACT, 1961. 2. THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LEARNED CIT(A)-VI, BARODA DATED 19-03-2009 FOR ASSE SSMENT YEAR 2005-06 ON THE FOLLOWING GROUNDS: 1. DISALLOWANCE OF PROVISION MADE FOR SLUDGE DISPOSAL CHARGES AMOUNTING TO RS.10,40,131/- 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE DY. COMMISSIONER OF INCOME TAX, DISALLOWING THE PROVISION MADE FOR SLUDGE DISPOSAL CHARGES AMOUNTING TO RS.10,40,131/-. 1.2 IN DOING SO, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN THE FOLLOWING RESPECTS: 1.2.1 IN NOT APPRECIATING THE FACT THAT THE PROVISION MADE FOR SLUDGE DISPOSAL ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 3 CHARGES AMOUNTING TO RS.10,40,131/- HAS BEEN 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 EFFLUENT 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. 2. LEVY OF INTEREST UNDER SECTION 234D OF THE ACT. 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE DY. COMMISSIONER OF INCOME TAX, COMPUTING INTEREST UNDER SECTION 234D OF THE ACT AMOUNTING TO RS.83,010/-. 2.2 IN DOING SO, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN THE FOLLOWING RESPECTS: 2.2.1 IN COMPUTING INTEREST UNDER SECTION 234D OF THE ACT ON THE AGGREGATE OF AMOUNT OF REFUND GRANTED UNDER SECTION 143(1) OF THE ACT AND INTEREST UNDER SECTION 244A OF THE ACT. 2.2.2 IN IGNORING THE FACT THAT ACCORDING TO THE PROVISIONS OF SECTION 234D OF THE ACT, INTEREST IS LEVIABLE ONLY ON EXCESS AMOUNT OF TAX REFUNDED. ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 4 2.2.3 IN NOT APPRECIATING THE FACT THAT REFUND ACCORDING TO THE PROVISIONS OF SECTION 237 OF THE ACT IS AMOUNT OF TAX PAID OR TREATED AS PAID BY THE ASSESSEE AND DOES NOT INCLUDE INTEREST UNDER SECTION 244A OF THE ACT. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. 4. THE FACTS OF THE CASE IN BOTH THE APPEALS ARE TH AT ON QUANTUM APPEAL THE ASSESSEE CHALLENGED THE ADDITION OF RS.1 0,40,131/-. IT WAS OBSERVED BY THE AO ON PERUSAL OF THE DETAILS OF SLU DGE DISPOSAL CHARGES THAT THE ASSESSEE HAS MADE PROVISION OF RS. 10,40,131/- UNDER THE HEAD SLUDGE DISPOSAL CHARGES. IT WAS NO TED THAT THE PROVISION OF RS.10,95,250/- WAS MADE ON THE LAST DA Y OF THE PREVIOUS YEAR AND NO ACTUAL EXPENSES WERE INCURRED BY THE AS SESSEE. IT WAS FURTHER NOTED THAT THE ASSESSEE COMPANY HAD NOT COM PLIED WITH THE ACCOUNTING STANDARD I AND II NOTIFIED BY THE BOARD. SINCE FROM THE ASSESSMENT YEAR 1998-99 TO 2000-01, THE ASSESSEE HA D PAID TAXES U/S 115JA/JB (MAT) AND FOR THE SUBSEQUENT YEARS WHE N TAX WAS COMPUTED AS PER THE NORMAL PROVISIONS THE ASSESSEE COMPANY CHANGED ITS ACCOUNTING POLICY AND STARTED MAKING PR OVISIONS FOR ITS VARIOUS LIABILITIES. IT WAS ALSO REMARKED THAT IN S CHEDULE 18 OF THE ACCOUNTS FOR THE RELEVANT ASSESSMENT YEAR THERE IS NO MENTION ABOUT THE CHANGE IN ACCOUNTING POLICY. IT WAS ALSO OPINED BY THE AO THAT IN ASSESSMENT YEAR 1999-2000 THE ASSESSEE INCURRED SLU DGE DISPOSAL CHARGES FOR THE FIRST TIME AND THE SAME WERE DEBITE D TO THE PROFIT & LOSS ACCOUNT ON ACTUAL BASIS. RELYING ON THE DECISI ON IN THE CASE OF ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 5 NEW INDIA MINING CORPORATION LTD. VS CIT 168 ITR 43 1 (BOM.) WHICH WAS SUBSEQUENTLY CONFIRMED BY THE HONBLE SUPREME C OURT IN THE CASE REPORTED IN 243 ITR 640, THE AO CONCLUDED BY H OLDING THAT THE PROVISION WAS NOTHING BUT A CONTINGENT LIABILITY CR EATED IN THE BOOKS TO REDUCE THE TAXABLE INCOME AND DISALLOWED THE SAME. ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) AND IT WAS SUB MITTED THAT PROVISION HAS BEEN MADE ON THE BASIS OF CLOSING BAL ANCE OF SLUDGE ON THE LAST DAY OF THE PREVIOUS YEAR AND THAT THE PROV ISION IS BASED ON GENUINE FACTS. IT WAS ALSO SUBMITTED THAT IN CASE T HE PROVISION IS NOT ALLOWED THEN, LAST YEARS PROVISION WHICH WAS ACTUA LLY INCURRED DURING THE YEAR MAY BE ALLOWED. DECISION IN THE CASE OF UD AIPUR MINERAL DEVELOPMENT SYNDICATE PVT. LTD. VS DCIT 261 ITR 706 (RAJ.) WAS RELIED UPON. THE LEARNED CIT(A) NOTED THAT IN FACT THE ASSESSEE HAS IN THE ASSESSMENT YEAR 1999-2000 DEBITED THE SLUDGE DI SPOSAL CHARGES ON ACTUAL BASIS AND IN SUBSEQUENT YEARS STARTED MAK ING THE SAME ON THE BASIS OF PROVISION. THE LEARNED CIT(A) ALSO NOT ED THAT IT HAS NOT BEEN ARGUED IN ASSESSMENT OR IN APPEAL THAT THE SAI D LIABILITY CAN BE ESTIMATED WITH REASONABLE CERTAINITY. IN OTHER WORD S THE PROVISION MADE FOR FUTURE DISPOSAL OF SLUDGE WHEN THE ACTUAL LIABILITY IS NOT ARISING IS NOT ALLOWABLE EXPENDITURE. THE LEARNED C IT(A) FOLLOWED ORDER OF HIS PREDECESSOR DATED 28-08-2006 IN THE CA SE OF THE ASSESSEE IN ASSESSMENT YEAR 2002-03 AND CONFIRMED T HE DISALLOWANCE. WITH REGARD TO INTEREST U/S 234D OF T HE IT ACT THE AO WAS DIRECTED TO VERIFY THE INTEREST CALCULATION. 5. BOTH THE PARTIES SUBMITTED THAT THE APPEAL FOR A SSESSMENT YEAR 2002-03 IS CONSIDERED SEPARATELY AND THE ORDER IN T HAT CASE MAY BE ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 6 FOLLOWED ON QUANTUM. THE INTEREST POINT IS NOT ARGU ED. THE SAME IS , THEREFORE, DISMISSED. 6. ON PENALTY APPEAL, THE AO ON CONFIRMING THE ADDI TION BY THE LEARNED CIT(A) LEVIED PENALTY OF RS.3,80,610/- BY A PPLYING EXPLANATION (1) TO SECTION 271 (1) (C) OF THE IT AC T. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO HAS IGNORED T HE FACT THAT THE CHANGE IN ACCOUNTING POLICY RELATING TO PROVISION F OR SLUDGE DISPOSAL CHARGES HAS BEEN ADOPTED BY THE ASSESSEE TO CLAIM E XPENSES ON ACTUAL BASIS TO HARMONIZE WITH THE FACT THAT THE CO RRESPONDING INCOME IS OFFERED TO TAX IN THE PREVIOUS YEAR AND THE SAME HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE IN SUBSEQUENT YEARS. FURTHER, AS PER THE NORMS OF THE GPCB, THE LIABILITY TO DISP OSE OFF THE SLUDGE ACCRUES AS SOON AS THE SLUDGE IS GENERATED DURING T HE PROCESS OF TREATMENT OF THE LIQUID WASTE RECEIVED FROM THE CHE MICAL INDUSTRIES AND THAT THE ASSESSEE COMPANY FOLLOWS THE MERCANTIL E SYSTEM OF ACCOUNTING AND HAD ACCORDINGLY MADE THE PROVISION F OR SLUDGE DISPOSAL CHARGES ON THE CLOSING STOCK OF SLUDGE GEN ERATED DURING THE PROCESS OF TREATMENT OF LIQUID WASTE RECEIVED FROM THE CHEMICAL INDUSTRIES BUT NOT DISPATCHED DURING THE YEAR. THE FOLLOWING DECISIONS WERE RELIED UPON BY THE ASSESSEE. GUJARAT CREDIT CORPORATION LTD. VS ACIT, AHMEDABAD (2008- TIOL-224-AHM-ITAT) DILIP N. SHROFF VS JOINT COMMISSIONER OF INCOME TAX (2007) 210 CTR (SC) 228 DCIT, CIRCLE-4(1), BARODA VS AIMS INDUSTRIES LTD. ( 2008- TIOL 294 ITAT-AHM) ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 7 THE COMMISSIONER OF INCOME TAX VS AJAIB SINGH AND C O. (2002, 253 ITR 630 (P & H). THE ASSTT. COMMISSIONER OF INCOME TAX VS SHIV NADAR (MANU/ID/5036/2007) THE ADDITIONAL COMMISSIONER OF INCOME TAX VS DELHI CLOTH AND GENERAL MILLS LTD. (1986) 157 ITR 822 (DELHI) M/S. KOOLNEST (P) LTD. VS THE ASSTT. COMMISSIONER O F INCOME TAX, BANGALORE (2008 TIOL -227 ITAT BANG) SIR SHADI LAL SUGAR AND GENERAL MILLS LTD. VS COMMI SSIONER OF INCOME TAX, DELHI CIT AHMEDABAD VS RELIANCE PETROPRODUCTS (P) LTD. SUPREME COURT. 7. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION O F THE ASSESSEE CANCELLED THE PENALTY. HIS FINDINGS IN PAR A 3.2 AND 4 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER: 3.2 I HAVE CONSIDERED THE SUBMISSION OF THE LD. A. R. AND FACTS OF THE CASE. ON PERUSAL OF SUBMISSIONS FI LED DURING THE COURSE OF APPELLATE PROCEEDINGS IT IS NO TED THAT THE APPELLANT HAS SUBMITTED BEFORE THE ASSESSING OF FICER DETAILED NOTE DESCRIBING THE SLUDGE GENERATION PROC ESS ALONG WITH THE JUSTIFICATION FOR SLUDGE DISPOSAL CH ARGES. FURTHER, THE APPELLANT HAS SUBMITTED DURING THE COU RSE OF ASSESSMENT PROCEEDINGS DETAILED STATEMENT GIVING DE TAILS OF SLUDGE DISPOSAL CHARGES INCURRED. ALSO, THE APPE LLANT HAS SUBMITTED TO THE ASSESSING OFFICER DURING THE C OURSE OF ASSESSMENT PROCEEDINGS DETAILED NOTE ON PROVISIO N FOR SLUDGE DISPOSAL CHARGES WITH RESPECT TO ALL THE YEA RS. ON PERUSAL OF PAPER BOOK AND THE DETAILED SUBMISSION M ADE BY THE APPELLANT, I AM OF THE CONSIDERED VIEW THAT THE ENTIRE FACTS ABOUT PROVISION FOR SLUDGE DISPOSAL CH ARGES ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 8 HAS BEEN DISCLOSED BY THE APPELLANT IN THE SUBMISSI ONS MADE TO THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE APPELLANT HAS PROVIDED COMPLETE DETAILS AND EXPLANATIONS WHENEVER THE SAME WERE REQUIRED BY THE ASSESSING OFFICER AND THE ASSESSMENT PROCEEDINGS WERE ALSO COMPLETED ON THE BASIS OF THE INFORMATION PROVIDED BY THE APPELLANT. THE DISALLOWANCES MADE BY THE ASSESSING OFFICER ARE A MATTER OF LEGAL INTERPRETATION AND THE APPELLANT HA S NEITHER CONCEALED ANY PARTICULARS OF INCOME NOR FURNISHED INACCURATE PARTICULARS THEREOF. THUS, THE AO IS NOT JUSTIFIED IN LEVYING PENALTY WITH RESPECT TO BOTH THE ADDITIO NS, CONFIRMED BY THE CIT(A), AS THE VERY BASIS FOR LEVY ING THE PENALTY UNDER SECTION 271(1) (C), FOR FURNISHING IN ACCURATE PARTICULARS OR CONCEALING PARTICULARS OF INCOME, WH ICH I PRE-CONDITION TO LEVY OF PENALTY, DO NOT EXIT. BY N OW IT IS ESTABLISHED THAT DHARMENDRA TEXTILES PROCESSORS CAS E HAS BEEN DISTINGUISHED BY VARIOUS APPELLATE AUTHORI TIES THAT IN CASES WHERE ADDITION WAS MADE BY THE AO, LE VY OF PENALTY IS NOT AUTOMATIC AND THAT THE PENALTY PROVI SION REQUIRES A STRICTER ADHERENCE AND ONUS TO PROVE THA T THERE WAS A CONCEALMENT WITH A VIEW TO AVOID TAX IS ON TH E REVENUE. THE APPELLANT HAS FILED CITATIONS OF VARIO US APPELLATE AUTHORITIES, WHEREIN, IN ALMOST SIMILAR CIRCUMSTANCES, THE APPELLANTS POINT OF VIEW WAS UP HELD. WHEN THERE ARE DIFFERENT VIEWS ON THE POINT INVOLVE D IN THE ISSUE, THE AO IS NOT JUSTIFIED IN LEVYING PENAL TY UNDER SECTION 271(1)(C). FURTHER PENALTY PROCEEDINGS AND ASSESSMENT PROCEEDINGS ARE DISTINCT AND SEPARATE FR OM EACH OTHER AND ON THE BASIS OF QUANTUM ADDITION IN THE ASSESSMENT ORDER WHICH IS A MATTER OF LEGAL INTERPR ETATION NO PENALTY CAN BE IMPOSED ON THE GROUND OF FURNISHI NG OF INACCURATE PARTICULARS OF INCOME. THUS, IN THE GIVE N FACTS AND CIRCUMSTANCES OF THE CASE, IN MY VIEW, THE AO I S NOT JUSTIFIED IN LEVYING PENALTY U/S. 271 (1)( C ) THE SAME IS THEREFORE CANCELLED. 4. IN THE RESULT, THE APPEAL IS ALLOWED. ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 9 8. THE LEARNED DR RELIED ON THE ORDER OF THE AO ON PENALTY. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS BROUGHT TO OUR NOTICE THAT ITAT AHMEDABAD A BENCH IN THE CASE OF THE SAME ASSESSEE CONSIDERED THE IDENTICAL ISSUE OF DISALLOW ANCE OF PROVISION MADE IN RESPECT OF SLUDGE DISPOSAL CHARGES IN VARIO US 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 CLA IM OF THE ASSESSEE HAS BEEN ALLOWED VIDE ORDER DATED 04-02-20 11. THE RELEVANT FINDINGS IN PARA 9 AND 10 ARE REPRODUCED A S UNDER: 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE ASS ESSEE- COMPANY ENVIRO TECHNOLOGY LIMITED IS ENGAGED IN COMMON EFFLUENT TREATMENT FACILITY FOR THE TREATMEN T OF EFFLUENT (WASTE WATER) GENERATED FROM 225 MEMBER INDUSTRIES. THE ASSESSEE EXPLAINED THE SLUDGE GENER ATION PROCESS ALONG WITH JUSTIFICATION ON SLUDGE DISPOSAL CHARGES BY STATING THAT THE WASTE WATER IS IN THE H IGHLY ACIDIC NATURE AND ALSO CONTAINING ORGANIC CHEMICALS . THE WASTE WATER IS RECEIVED BY RUBBER LINED TANKER AND UNLOADED IN THE UNDER GROUND TANK SPECIALLY CONSTRU CTED BY ACID PROOF TILE LINER. IT IS MIXED BY AIR SUPPLY AND MADE HOMOGENEOUS. THIS ACIDIC EFFLUENT IS FIRST TREATED WITH HYDRATED LIME TO MAKE IT NEUTRAL TO REMOVE ITS ACID ITY. THE LIME IS CONSUMED BY ITS ACIDITY AS WELL AS ORGA NICS MATTER. THE ACIDITY MAINLY DUE TO SULPHURIC ACID RE ACTS WITH HYDRATED LIME AND GENERATED SOLID. THE MIXED S LURRY IS SETTLED IN A PRIMARY CLARIFIER. THE SOLID CONTAI NING SLURRY IS REMOVED FROM THE BOTTOM OF CLARIFIER AND SUPERNA NT CLEAR WATERS TAKEN FOR FURTHER TREATMENT OF BIOLOGI CAL TREATMENT. BIOLOGICAL TREATMENT IS SECONDARY TREATM ENT ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 10 WHERE THE WASTE WATER IS TREATED BY BACTERIA (BIO M ASS). BACTERIAS REACTS BIOLOGICALLY WITH ORGANIC CHEMICA LS AND GENERATE BIO SLUDGE, WHICH IS SEPARATED AND MIXED W ITH PRIMARY SLURRY. THE SOLID CONTAINING SLURRY ALONG W ITH BIO SLUDGE ARE FILTERED THROUGH THE ROTARY 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 OF THE WATER RECEIVED FROM DIFFERENT INDUST RIES IS VARYING NATURE DAILY. THIS SOLID SLUDGE IS TO BE DI SPOSED OFF AS PER GPCB AND REGULATIONS. THE SLUDGE DISPOSA L CHARGES THUS DEPEND UPON THE GENERATION OF SLUDGE, NATURE AND QUALITY OF SLUDGE. AS PER THE RULES OF G UJ'ARAT POLLUTION CONTROL BOARD (GPCB), THE SLUDGE THAT IS OF THE NATURE HAS TO BE SENT ONLY TO THE COMPANY OPERATING A SECURED LAND FILL FACILITY FOR SOLID WASTE. BHARUCH ENVUO INFRASTRUCTURE LTD. (BEIL) IS THE ONLY COMPANY IN A SECURED LAND FILL FACILITY FOR THE DISPOSAL OF SOLI D WASTE GENERATED BY THE INDUSTRIES IN AND AROUND BHARUCH DISTRICT AND ACCORDINGLY THE SOLID WASTE GENERATED THAT IS SENT TO BEBL. THE SLUDGE GENERATED WHICH MATCH EXAC TLY WITH THE SPECIFICATION OF CEMENT INDUSTRY IS SENT T O 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 ACCORDINGLY THE BAL ANCE OF NON-TOXIC SLUDGE WHICH IS NOT LIFTED BY THE INDU STRY HAS TO BE SENT TO BEIL BEING THE ONLY COMPANY OPERATING A SECURED LAND FOR THE DISPOSAL OF SOLID WASTE GENERA TED BY THE INDUSTRIES IN AND AROUND BHARUCH DISTRICT. T HE GENERATION OF SLUDGE DEPENDS UPON THE QUANTITY OF L IME CONSUMED. THE LIME IS RED BY ITS ACIDITY AS WELL AS ORGANICS MATTER. HOWEVER TREATMENT CHARGES DEPEND UPON THE QUALITY AND QUANTITY OF THE EFFLUENT I.E. ITS ACIDIC AND TOXIC NATURE. THUS THE TREATMENT CHARGES RECEIV ED AND SLUDGE DISPOSAL CHARGES INCURRED ARE NOT COMPAR ABLE WITH EACH OTHER BECAUSE OF THE COMPLEX NATURE OF TH E EFFLUENT. FURTHER, THE COMPANY HAS ENTERED INTO AN AGREEMENT WITH EACH MEMBER FOR PROVIDING COMMON EFFLUENT TREATMENT FACILITY. EVERY MEMBER HAS TO PA Y UN- AVAILED TANKER CHARGES. IN CASE, HE DOES NOT FULFIL L THE COMMITMENT ABOUT THE NUMBER OF TANKERS THAT HE HAS ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 11 AGREED TO BRING AS PER THE TERMS AND CONDITIONS OF THE SAID AGREEMENT DURING THE YEAR, THE UN-AVAILED TANK ER CHARGES RECEIVED HAVE BEEN REDUCED FROM RS.31,36,5007- TO RS,25,96,000/- WHICH AGAIN JUSTIF IES THE INCREASE IN SLUDGE GENERATION AND CONSEQUENTLY THE INCREASE IN SLUDGE DISPOSAL CHARGES. IN VIEW OF THE ABOVE FACTS AND PROCEDURE THE SLUDGE DISPOSAL CHARGES INC URRED IN MARCH, 2000 AND MARCH, 2001 ARE HIGHER COMPARE T O WHOLE OF THE YEAR, AS THE SLUDGE GENERATED HAS TO B E DRIED UP IN SUN AND ACCORDINGLY THE SLUDGE DISPOSAL CHARGE OF YEAR. THE ASSESSEE HAS ENCLOSED THE DETAI LS OF SLUDGE DISPATCHED DURING THE MONTH, WHICH JUSTIFIES AFORESAID FACTS. IT CAN BE OBSERVED THAT SLUDGE DIS PATCHED 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 GPCB, AND THE LIABILITY OF SLUDGE DISPOSAL .CHARGES ACCRUES THE MOMENT SLUDGE GETS GENERATED. THE COMPANY IS FOLLOWING MERCANTILE SYS TEM OF ACCOUNTING AND ACCORDINGLY PROVIDED FOR THE SLUD GE DISPOSAL CHARGES TO BE INCURRED ON THE SLUDGE GENER ATED UPTO 31.MARCH OF THE RELEVANT YEAR BUT COULD NOT BE DISPOSED OFF AS ON THAT DATE. THE AVERAGE RATE OF S LUDGE DISPOSAL WORKS OUT TO RS.430/- PER MT, TO BE ON THE CONSERVATIVE SIDE THE PROVISION FOR DISPOSAL CHARGE S HAVE BEEN MADE AT THE RATE OF RS.330.72 PER MT ON 5371.8 20 MT OF SLEDGE THAT COULD NOT BE REMOVED AS ON 31 .03.2001. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF THE RAJASTHAN HIGH COURT IN THE CASE OF UDAIPUR MINERAL DEVELOPMENT SYNDICATE PVT. LTD. VS. DCIT (261 ITR 706 (RAJ), WHEREIN IT IS STATED THAT THE ASSESSEE COMPANY WAS ENGAGED IN OPEN CAST MINING OF SOAP STONE CEUDE. A LEAST FOR EXPLORATION OF MINES WAS GRANTED TO IT BY THE STATE GOVERNMENT OF RAJASTHAN. THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE AND THE STATE THAT AS FAR AS POSSIBLE A LEASE SHALL RESTORE THE SURFACE LAND SO USED TO ITS ORIGINAL CONDITION. THE ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 12 ESTIMATED COST OF REFILLING THE PIT WAS COMING TO RS.1,51,360/- ARID THE PROVISION FOR THE SAME WAS M ADE AS PER THE CLAUSE 2 OF PART V OF THE LEASE AGREEMEN T. THE ASSESSEE-COMPANY CLAIMED THAT THE LIABILITY TO REFI LL PITS ACCRUED AS SOON AS THE PITS 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 TH E ASSESSMENT YEAR IN HAND AND IT DOES ARISE WHEN THE ASSESSEE HAS FILLED THE PITS. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ALLOWED THE CLAIM. IN APPE AL BEFORE THE TRIBUNAL, THE TRIBUNAL RESTORED THE VIEW TAKEN BY THE ASSESSING OFFICER. ON THE FURTHER APPEAL TO HIGH COURT AT PAGE 708 OF 261 ITR, IT WAS HELD THAT WE A GREE WITH THE VIEW TAKEN BY THE COMMISSIONER OF INCOME-T AX (APPEALS) THAT THE ASSESSEE DIGS THE PITS, THE LIAB ILITY DOES ARISE AND IT IS ENTITLED FOR DEDUCTION OF THE EXPEN SES WHICH IT IS SUPPOSED TO INCUR FOR FILLING THOSE PITS, AS THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. IT CAN CLAIM THE EXPENSES INCUR AS SOON AS IT DIGS THE PITS. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES AND RELYING UPON THE AFORESAID DECISI ON OF RAJASTHAN HIGH COURT, WE ALLOW THE LIABILITY OF SLU DGE DISPOSAL CHARGES ACCRUES THE MOMENT THE SLUDGE IS GENERATED AND ACCORDINGLY THE PROVISION FOR SLUDGE DISPOSAL CHARGES OUGHT TO BE ALLOWED AS DEDUCTION U NDER SECTION 37 OF THE ACT AS THE SAME IS PROVIDED FOLLO WING THE MERCANTILE SYSTEM OF ACCOUNTING. IN THE RESULT, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. BY FOLLOWING THE SAME ORDER WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUC TION. IN THE RESULT, GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWE D. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.1921/AHD/2009 IS PARTLY ALLOWED. ITA NO.2836/AHD/2010 AND 1921/AHD/2009 ENVIRO TECHNOLOGY LTD. 13 11. THE LEARNED CIT(A) HAS ALREADY CANCELLED THE P ENALTY ON THE ABOVE ISSUE ON MERIT CONSIDERING THAT IT IS NOT A C ASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME. CONSIDERING THE FACT THAT ADDITION ON MERIT IS DELE TED IN THE PRECEDING ASSESSMENT YEAR BY THE TRIBUNAL AND BY FOLLOWING TH E SAME ORDER, WE ALSO DELETE THE ADDITION ON MERIT, THERE IS NO PURP OSE IN LEVY OF THE PENALTY ON THE SAME MATTER IN ISSUE ON WHICH ADDITI ON ON MERIT HAS ALREADY BEEN DELETED. SINCE THE SUBJECT MATTER OF T HE PENALTY ITSELF HAS GONE, WE DO NOT FIND ANY MERIT IN THE DEPARTMEN TAL APPEAL. THE SAME IS ACCORDINGLY DISMISSED. 12. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMI SSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11-02-2011 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 11-02-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD