THE ACIT, KAKINADA., Kakinada V. M/s SAR Chandra Environ (P) Ltd, Kakinada

ITA 286/VIZ/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0303 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 02-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TH LUCAS PETIA
• Keywords: Difference of opinion; Tax effect; Revenue expenditure; Capital expenditure
• Section: 115JB; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, VISHAKHAPATNAM BENCH, VISHAKHAPATNAM BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI B.R.BASKARAN, ACCOUNTANT MEMBER I.T.A. NO.286/VIZ/2012 ASSESSMENT YEAR : 2008-2009 I.T.A. NO.120/VIZ/2015 ASSESSMENT YEAR : 2011-2012 ACIT, CIRCLE - 1, KAKINADA, VS. SAR CHANDRA ENVIRON SOLUTION (P) LTD., 2 ND BLOCK, 2 ND FLOOR, SUBHADRA ARCADE, BHANUGUDI JUNCTION, KAKINADA, E.G. DIST: KAKINADA PAN/GIR NO. : AAKCS 0054 K APPELLANT ) .. RESPONDENT ) I.T.A. NO.333/VIZ/2013 ASSESSMENT YEAR :2009-2010 DCIT, CIRCLE - 1, KAKINADA, VS. SAR CHANDRA ENVIRON SOLUTION (P) LTD., 2 ND BLOCK, 2 ND FLOOR, SUBHADRA ARCADE, BHANUGUDI JUNCTION, KAKINADA, E.G. DIST: KAKINADA PAN/GIR NO. : AAKCS 0054 K APPELLANT ) .. RESPONDENT ) I.T.A. NO.285/VIZ/2012 ASSESSMENT YEAR :2008-2009 SAR CHANDRA ENVIRON SOLUTION (P) LTD., 2 ND BLOCK, 2 ND FLOOR, SUBHADRA ARCADE, BHANUGUDI JUNCTION, KAKINADA, E.G. DIST: KAKINADA VS. ITO, WARD - 1, TUNI. PAN/GIR NO. : AAKCS 0054 K APPELLANT ) .. RESPONDENT ) 2 I.T.A. NO.267/VIZ/2013 ASSESSMENT YEAR :2009-2010 C.O.NO.20/VIZ/2015 (ARISING OUT OF ITA NO.120/VIZ/2015) ASSESSMENT YEAR: 2011-2012 SAR CHANDRA ENVIRON SOLUTION (P) LTD., 2 ND BLOCK, 2 ND FLOOR, SUBHADRA ARCADE, BHANUGUDI JUNCTION, KAKINADA, E.G. DIST: KAKINADA VS. ACIT, CIRCLE - 1, KAKINANDA PAN/GIR NO. : AAKCS 0054 K APPELLANT ) .. RESPONDENT ) ASSESSEE BY : SHRI G.V.N. HARI, ADV REVENUE BY : SHRI TH.LUCAS PETIA, CIT DR DATE OF HEARING : 28/07/ 2015 DATE OF PRONOUNCEMENT : 10/08/2015 O R D E R PER BENCH: THE APPEALS AND CROSS OBJECTION FILED BY THE ASSESS EE AND THE APPEALS FILED BY THE REVENUE ARE RELATED TO ASSESSMENT YEARS 2008-09, 20 09-2010 AND 2011-12 AND ALL OF THEM ARE DIRECTED AGAINST THE ORDERS PASSED BY THE LD CIT(A) . SINCE IDENTICAL ISSUES ARE INVOLVED, ALL OF THEM WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. WE FIRST TAKE UP THE APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2008-2009 IN ITA NO.286/VIZ/2012. 3 3. THE REVENUE IS AGGRIEVED BY THE DECISION OF THE LD CIT(A) IN DELETING THE EXPENDITURE CLAIMED UNDER THE HEAD PROVISION TOWARDS SOBM AND DRILL CUTTING DISPOSAL EXPENSES. THE ASSESSING OFFICER COMPUTED TOTAL INCOME UNDER THE N ORMAL PROVISIONS OF THE ACT AND ALSO BOOK PROFIT UNDER SECTION 115JB OF THE ACT. THE AO DISA LLOWED THE CLAIM, CITED ABOVE, IN BOTH THE COMPUTATIONS. 4. THE FACTS RELATING TO THE SAID DISALLOWANCE ARE STATED IN BRIEF. THE ASSESSEE IS IN THE BUSINESS OF DISPOSAL OF WASTE MATERIAL GENERATED OU T OF OFFSHORE OIL RIGGING. AS PER THE NORMS PRESCRIBED BY POLLUTION CONTROL BOARD (PCB) AND MIN ISTRY OF ENVIRONMENT, OIL EXPLORATION COMPANIES HAVE TO DISPOSE OF THE WASTE GENERATED OU T OF OIL DRILLING PROCESS BY UNDERTAKING CERTAIN PRESCRIBED METHODS OF PROCESS. THE ASSESSEE POSSESSED NECESSARY EQUIPMENTS AND EXPERTISE IN COLLECTING THE SAID WASTE FROM THE DRI LLING COMPANIES AND PROCESSING THE SAME BY MEETING THE STANDARDS OF PCB. SUCH PROCESSED WASTE IS DUMPED IN THE FILLING SITE AS PER THE PCB STANDARDS. DURING THE YEAR RELEVANT TO THE AY 2008-09, THE ASSESSEE-COMPANY ENTERED INTO AN AGREEMENT WITH GUJARAT STATE PETROLEUM CORP ORATION LTD (GSPC) FOR WASTE MANAGEMENT OF DRILL CUTTING OF SOBM SYSTEM AND CLEANING THE SA ME FOR KG EXPLORATION BLOCK. THE SCOPE OF THE WORK AS PER THE CONTRACT ENTERED INTO IS AS FOL LOWS. A. THE CONTRACTOR SHALL HAVE FACILITY FOR TANK CL EANING AND TREATING OFFSHORE DRILLING WASTE, VACUUM EQUIPMENT, TANKS, TREATMENT FACILITIE S AND ALL OTHER REQUIRED INSTRUMENTS AS PER STANDARDS APPLICABLE FOR OFFSHORE CERTIFICAT E SPECIFICATIONS. THIS FACILITY SHALL BE APPROVED BY RELEVANT CENTRAL/STATE GOVERNMENT AUTHO RITY. B. THE CONTRACTOR SHALL MEET ALL THE REQUIREMENTS PRESCRIBED BY THE REGULATORY AUTHORITIES FOR COLLECTION AND TREATMENT OF OFFSHOR E DRILLING WASTE AND OTHER WASTE/SLOPS COLLECTED FROM VESSEL//TANK CLEANING AS THEY APPLY TO THE OIL DRILLING AND GAS EXTRACTION INDUSTRY IN INDIA. C. THE CONTRACTOR SHALL PROVIDE FOLLOWING SERVIC ES: CLEANING OF OSV TANKS AT KAKINADA PORT & GSPC SHORE BASE MUD PLANT TANKS. COLLECTION, TRANSPORTATION AND TREATMENT OF WASTE / SLUDGE RECOVERED FROM TANK CLEANING OF OSV & GSPC SHOREBASE MUD PLANT TANKS. 4 COLLECTION, TRANSPORTATION AND TREATMENT OF WASTE/S LUDGE RECOVERED FROM MUD PLANT AT GSPC SHOREBASE. TREATMENT OF DRILL FLUIDS, MUD FOR RECOVERY OF VALU ABLE MUDS AND BASE OIL AND RECOVERED BASE OIL & VALUABLE MUD SHALL BE PROVIDED TO GSPC AT NO COST. DRILL CUTTINGS TREATMENT & DISPOSAL AT SAR CHANDRA'S FACILITY. COL LECTION, TRANSPORTATION AND DISPOSAL OF DRILL CUTTINGS FROM GSPC WAREHOUSE. SKIPS SHALL BE PROVIDED BY GSPC FOR CARRYING OUT ABOVE MENTIONED WORK. IF REQUIRED GSPC WOULD HIRE T HE SKIPS FROM CONTRACTOR. D. ALL THE APPLICABLE IS/API/ASTM/ POLLUTION CONTR OL (CONCERN AUTHORITY ) FOR CARRYING OUT ABOVE MENTIONED ACTIVITY/PROCESS. THE ASSESSEE-COMPANY RAISED BILLS ON ITS CLIENT VIZ ., M/S GSPC FOR ENTIRE CONTRACT AMOUNT UPON LIFTING OF DRILLING WASTE. THE WASTES SO LIFTED WE RE TRANSPORTED TO THE ASSESSEE'S FACILITY, WHICH IS PROCESSED LATER. 5. THE PROCESSING OF WASTE TAKES ITS OWN TIME DEPENDING UPON THE TYPE OF WASTE. AS THERE IS A TIME LAG BETWEEN COLLECTION AND FINAL PROCESSI NG, THE COST OF PROCESSING RELATING TO THE UNPROCESSED WASTE LYING IN STOCK AT THE END OF THE YEAR SPILLS OVER TO THE NEXT FINANCIAL YEAR. SINCE THE ASSESSEE FOLLOWED THE ACCOUNTING PRACTICE OF OFFERING THE ENTIRE AMOUNT OF CONTRACT RECEIPTS AS ITS INCOME IN THE YEAR OF RECEIPT, IT M ADE A PROVISION IN THE BOOKS OF ACCOUNT TOWARDS THE COST OF PROCESSING WASTE LYING AT THE Y EAR END, APPARENTLY, UNDER REVENUE-COST MATCHING PRINCIPLE. 6. DURING THE YEAR RELEVANT TO AY 2008-09, THE ASSE SSEE LIFTED 8018.340 TONNES OF WASTE FROM M/S. GUJARAT STATE PETROLEUM CORPORATION LTD., (GSPC) AND RECEIVED THE ENTIRE AMOUNT PRESCRIBED UNDER THE CONTRACT AND OFFERED THE SAME AS ITS REVENUE RECEIPT IN THE PROFIT AND LOSS ACCOUNT. HOWEVER, DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE COULD PROCESS WASTE TO THE EXTENT OF 946.640 TONNES ONLY AND THE REMAINING QUANTITY OF 7071.700 TONNES WAS TAKEN AS CLOSING STOCK. AS STATED EARLIER, THE ASSESSEE HAD ACCOUNTED FOR THE ENTIRE CONTRACT RECEIPT AS 5 ITS INCOME AND ADMITTEDLY, ENTIRE GROSS CONTRACT RE CEIPT CANNOT BE ITS NET PROFIT, SINCE IT HAS GOT THE RESPONSIBILITY TO PROCESS THE WASTE AS PER THE NORMS PRESCRIBED BY THE PCB AND HENCE IT HAS TO NECESSARILY INCUR EXPENDITURE ON SUCH PROCES SING IN ORDER TO DISCHARGE THE RESPONSIBILITY FIXED UPON IT BY THE CONTRACT. HENCE, IT MADE PROV ISION FOR THE EXPENSES THAT IS REQUIRED TO BE INCURRED FOR PROCESSING THE WASTE LYING AS CLOSING STOCK AND CLAIMED THE SAME AS DEDUCTION. THE PROVISION SO MADE DURING AY 2008-09 WAS RS.2.70 CRORES. THE ASSESSING OFFICER TOOK THE VIEW THAT THE PROVISION SO MADE BY THE ASSESSEE WAS NOT EXPENDITURE ALLOWABLE UNDER SECTION 37(1) OF THE ACT. IN THIS REGARD, THE ASSESSING OF FICER PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF INDIAN MOLASS ES COMPANY PVT.LTD. VS CIT, 37 ITR 66 (SC). THOUGH THE ASSESSEE CONTENDED THAT UNDER THE ACCOUNTING STANDARD ISSUED BY ICAI, THE REVENUE COST MATCHING PRINCIPLE SHOULD BE FOLLOWED AND HENCE, THE EXPENDITURE RELATING TO THE INCOME HAS TO BE PROVIDED FOR, THE AO WAS NOT CONVI NCED WITH THE SAID EXPLANATION. BY PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT R ENDERED IN THE CASE OF M/S. TUTICORIN ALKALI CHEMICALS AND FERTILISERS LTD VS. CIT (227 ITR 172) (SC), THE AO HELD THAT THE PROVISIONS OF INCOME TAX SHALL OVERRIDE THE ACCOUNTING PRACTICE. ACCORDINGLY, THE AO HELD THAT THE PROVISION SO MADE BY THE ASSESSEE WAS RELATING TO THE FUTURE EXPENSES, WHICH IS NEITHER CRYSTALISED NOR ACCRUED. ACCORDINGLY, HE HELD THAT THE ASSESSEE HA S ADOPTED A COLOURABLE DEVICE IN ORDER TO UNDERSTATE ITS INCOME. ACCORDINGLY, THE AO DISALLO WED THE CLAIM WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AND ALSO WHI LE COMPUTING THE BOOK PROFIT UNDER SECTION 115 JB OF THE ACT. 7. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) AGRE ED WITH THE SUBMISSIONS OF THE ASSESSEE AND, ACCORDINGLY, HELD THAT THE ASSESSEE, UNDER THE CONTRACT ENTERED WITH GSPC, HAS UNDERTAKEN A LEGAL AND CONTRACTUAL LIABILITY TO PRO CESS THE MATERIAL LIFTED FROM GSPC. HENCE THE GROSS CONTRACT AMOUNT RECEIVED BY THE ASSESSEE IS A TTACHED WITH THE LEGAL AND CONTRACTUAL LIABILITY TO PROCESS THE MATERIALS. ACCORDINGLY, T HE LD CIT(A) HELD THAT THE ASSESSEE IS OBLIGED TO 6 PROVIDE FOR EXPENDITURE RELATING TO THE CONTRACT RE CEIPTS, SINCE THE ENTIRE CONTRACT RECEIPTS WAS OFFERED AS ITS INCOME. WITH REGARD TO THE CONTENTI ON OF THE AO THAT IT WAS A PROVISION MADE TOWARDS FUTURE EXPENSES, THE LD CIT(A) HELD THAT TH E PROVISION MADE FOR A LIABILITY WHICH HAS ALREADY ACCRUED IS A PRESENT LIABILITY, EVEN THOUG H IT MAY BE INCURRED IN FUTURE AND HENCE THE AMOUNT TO BE EXPENDED IN DISCHARGE OF THE LIABILITY WOULD HAVE TO BE ESTIMATED UNDER THE MERCANTILE SYSTEM OF ACCOUNTING AND THE SAME IS TO BE ALLOWED AS DEDUCTION. IN THIS REGARD, THE LD CIT(A) PLACED RELIANCE ON THE DECISION OF HONBL E SUPREME COURT RENDERED IN THE CASE OF BHARAT EARTH MOVERS, 245 ITR 428 (SC) AND THE DECIS ION RENDERED BY HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. SWARUP VEGETABLE PRODU CTS, 210 ITR 716 (ALL). ACCORDINGLY, THE LD CIT(A) HELD THAT THE PROVISION SO MADE BY THE ASSES SEE IS IN THE NATURE OF ASCERTAINED LIABILITY AND SAME IS DEDUCTIBLE BOTH UNDER THE NORMAL PROVIS IONS OF THE ACT AND ALSO WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. AG GRIEVED BY THE ORDER OF THE LD CIT(A), THE REVENUE HAS FILED THE APPEAL BEFORE US. 8. AT THE TIME OF HEARING BEFORE US, LD DEPARTMENTA L REPRESENTATIVE STRONGLY SUPPORTED THE ORDER PASSED BY THE AO BY PLACING RELIANCE UPON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF INDIAN MOLASSES COMPANY PVT. L TD (SUPRA). LD D.R. SUBMITTED THAT THE ASSESSEE HAS PROVIDED THE EXPENDITURE BY ADOPTING A RATE OF RS.3,850/- PER M.T., WHEREAS IN THE SUCCEEDING YEAR, IT HAS ACTUALLY SPENT A SUM OF RS.5,628.- PER M.T. ACCORDINGLY, LD D.R. SUBMITTED THAT THE ASSESSEE ITSELF WAS NOT SURE ABO UT THE QUANTUM OF EXPENDITURE TO BE INCURRED IN SUCCEEDING YEAR AND HENCE, THE PROVISION SO MADE BY THE ASSESSEE CANNOT BE CONSIDERED AS AN ASCERTAINED LIABILITY. HE FURTHER SUBMITTED THA T FOLLOWING CASE LAWS RELIED UPON BY LD CIT(A) HAVE BEEN RENDERED ON DIFFERENT FACTS AND HENCE, TH EY CANNOT BE TAKEN SUPPORT FOR DECIDING THE ISSUE UNDER CONSIDERATION: A) MKB ASIA PVT LTD., 294 ITR 655 (GUJ) B) SIFY-E-LEARNING LTD., 124 TTJ 532 (MUM ITAT) 7 C) MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD VS . CIT, 225 ITR 802(MAD) D) J.K. INDUSTRIES LTD VS UOI, 297 ITR 176 E) BHARAT EARTH MOVERS, 245 ITR 428 F) TAPARIA TOOLS LTD VS JCIT, 260 ITR 102 (BOM) G) CIT VS. NAVSARI COTTON & SILK MILLS, 135 ITR 54 6 (GUJ) J) CIT VS. SWARUP VEGETABLE PRODUCTS, 210 ITR 716 (ALL) 9. LD D.R. SUBMITTED THAT THE ASSESSEE HAS CONTENDE D THAT IT HAS PROVIDED FOR FUTURE EXPENSES UNDER THE REVENUE COST MATCHING PRINCIPLE, SINCE THE ENTIRE REVENUE HAS BEEN OFFERED FOR TAX PURPOSES. LD D.R. SUBMITTED THAT THE ASSES SEE, HAVING NOT INCURRED THE EXPENDITURE AND FURTHER NOT SURE OF THE QUANTUM OF EXPENDITURE, HAS MADE PROVISION ON ESTIMATED BASIS AND HENCE, THE PROVISION SO MADE BY THE ASSESSEE SHOULD BE CONSIDERED AS UNASCERTAINED LIABILITY. HE FURTHER SUBMITTED THAT THOUGH THE ASSESSEE HAS R ECEIVED THE ENTIRE CONTRACT AMOUNT FOR SHIFTING WASTE MATERIALS FROM THE SITE, THE SAME SH OULD BE TREATED AS ADVANCE SINCE THE ASSESSEE IS OBLIGED TO COMPLY WITH VARIOUS STANDARD S PRESCRIBED BY THE POLLUTION CONTROL BOARD. HENCE, THE PROVISION SO MADE BY THE ASSESSEE IN RES PECT OF EXPENDITURE, WHICH COULD NOT BE PREDICTED BY THE ASSESSEE CANNOT BE ALLOWED AS DEDU CTION U/S.37(1) OF THE ACT, AS THE VARIOUS CONDITIONS PRESCRIBED IN THAT SECTION WERE NOT COMP LIED WITH. LD D.R. PLACED RELIANCE ON THE FOLLOWING CASE LAWS IN SUPPORT OF HIS PROPOSITIONS: 1) BROOKE BOND INDIA LTD. VS JCIT,337 ITR 482(CAL) 2) CIT V. FORBES CAMPBELL FINANCE LTD (2013) 352 ITR 602 (MAD ) 3) CIT VS. TAMIL NADU SMALL IND. DEV. CORPN LTD., 370 ITR 449(MAD) 4) CIT VS CABLE CORPORATION OF INDIA LTD [2011] 336 ITR 56 (BOM) 5) COMMISSIONER OF INCOME-TAX. VS. DENSO INDIA LIM ITED.,292 ITR 502(DEL) 6) HYDERABAD ASBESTOS CEMENT VS COMMISSIONER OF I NCOME-TAX,105 ITR 822(AP) 8 LD D.R. VEHEMENTLY CONTENDED THAT THE RATIO LAID DO WN IN THE ABOVE SAID DECISIONS WILL APPLY TO THE FACTS OF THE PRESENT CASE AND, ACCORDINGLY, PRA YED THAT THE DECISION RENDERED BY THE LD CIT(A) SHOULD BE REVERSED. 10. THE LD A.R, ON THE CONTRARY, SUBMITTED THAT THE PROVISION SO MADE BY THE ASSESSEE IS REVENUE NEUTRAL, SINCE THE ASSESSEE HAS REVERSED TH E SAME IN THE SUCCEEDING YEAR. AT THE END OF THE SUCCEEDING YEAR, IT HAS AGAIN PROVIDED FOR E XPENSES IN RESPECT OF THE UNPROCESSED STOCK LYING IN STOCK. HE SUBMITTED THAT THE HONBLE SUPR EME COURT, IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD., (2013) (358 ITR 295)(SC) HAS CONSI DERED THE CONCEPT OF ACCRUAL AND HAS HELD THAT THERE IS NO NEED FOR REVENUE TO CONTINUE WITH LITIGATION WHEN THE CLAIM MADE BY THE ASSESSEE IS REVENUE NEUTRAL. THE RELEVANT OBSERVAT IONS MADE BY HONBLE SUPREME COURT ARE EXTRACTED BELOW: THIRDLY, THE REAL QUESTION CONCERNING US IS THE YE AR IN WHICH THE ASSESSEE IS REQUIRED TO PAY TAX. THERE IS NO DISPUTE THAT IN TH E SUBSEQUENT ACCOUNTING YEAR, THE ASSESSEE DID MAKE IMPORTS AND DID DERIVE BENEFI TS UNDER THE ADVANCE LICENCE AND THE DUTY ENTITLEMENT PASS BOOK AND PAID TAX THE REON. THEREFORE, IT IS NOT AS IF THE REVENUE HAS BEEN DEPRIVED OF ANY TAX. WE ARE TOLD THAT THE RATE OF TAX REMAINED THE SAME IN THE PRESENT ASSESSMENT YEAR AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, THE DISPUTE RAISED BY T HE REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX EFFECT. TH ERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THIS LITIGATION WH EN IT WAS QUITE CLEAR THAT NOT ONLY WAS IT FRUITLESS (ON MERITS) BUT ALSO THAT IT MAY NOT HAVE ADDED ANYTHING MUCH TO THE PUBLIC COFFERS. 11. LD A.R. SUBMITTED THAT THE ASSESSEE HAS OFFERED ENTIRE AMOUNT OF CONTRACT RECEIPTS AS ITS INCOME AND UNDER THE CONTRACT, THE RESPONSIBILITY T O PROCESS THE SAME AS PER THE REQUIREMENT OF POLLUTION CONTROL BOARD AND ALSO MINISTRY OF ENVIRO NMENT IS PLACED UPON THE ASSESSEE. IN VIEW OF THE SAID OBLIGATION, THE ENTIRE CONTRACT RECEIPT S COULD NOT CONSIDERED AS NET PROFIT OF THE ASSESSEE AND HENCE, IN ORDER TO ARRIVE AT NET PROFI T, THE ASSESSEE WAS REQUIRED TO ESTIMATE THE EXPENSES RELATING TO THE CONTRACT RECEIPTS AND MAKE PROVISION FOR EXPENDITURE. THE SAID 9 METHODOLOGY ADOPTED BY THE ASSESSEE IS ACCORDANCE W ITH REVENUE COST MATCHING PRINCIPLE. HE SUBMITTED THAT THE HONBLE SUPREME COURT HAS CONSID ERED THE CONCEPT OF REVENUE COST MATCHING PRINCIPLE IN THE CASE OF CALCUTTA CO. LTD. VS CIT, 37 ITR 1 AND HELD AS UNDER: APART, HOWEVER, FROM THE QUESTION WHETHER S, 10(2) (XV) OF THE IT ACT WOULD APPLY TO THE FACTS OF THE PRESENT CASE, THE CASE IS , IN OUR OPINION, WELL WITHIN THE PURVIEW OF S. 10(1) OF THE ACT. THE APPELLANT HERE IS BEING ASSESSED IN RESPECT OF THE PROFITS AND GAINS OF ITS BUSINESS AND THE PROFI TS AND GAINS OF THE BUSINESS CANNOT BE DETERMINED UNLESS AND UNTIL THE EXPENSES OR THE OBLIGATIONS WHICH HAVE BEEN INCURRED ARE SET OFF AGAINST THE RECEIPTS . THE EXPRESSION 'PROFITS AND GAINS' HAS TO BE UNDERSTOOD IN ITS COMMERCIAL S ENSE AND THERE CAN BE NO COMPUTATION OF SUCH PROFITS AND GAINS UNTIL T HE EXPENDITURE WHICH IS NECESSARY FOR THE PURPOSE OF EARNING THE R ECEIPTS IS DEDUCTED THEREFROMWHETHER THE EXPENDITURE IS ACTUALLY INCUR RED OR THE LIABILITY IN RESPECT THEREOF HAS ACCRUED EVEN THOUGH IT MAY H AVE TO BE DISCHARGED AT SOME FUTURE DATE. AS WAS OBSERVED BY LORD HERSCHELL IN RUSSLT VS. TOWN & COUNTRY BANK LTD. (1888) 13 APP CAS 418 : 'THE DUTY IS TO BE CHARGED UPON A SUM NOT LESS THAN THE FULL AMOUNT OF THE BALANCE OF THE PROFITS OR GAINS OF THE TRADE, MANUF ACTURE, ADVENTURE, OR CONCERN;' AND IT APPEARS TO ME THAT LANGUAGE IMPLIES THAT FOR THE PURPOSE OF ARRIVING AT THE BALANCE OF PROFITS ALL THAT EXPENDITURE, WHICH IS N ECESSARY FOR THE PURPOSE OF EARNING THE RECEIPTS MUST BE DEDUCTED, OTHERWISE YO U DO NOT ARRIVE AT THE BALANCE OF PROFITS, INDEED, YOU DO NOT ASCERTAIN, A ND CANNOT ASCERTAIN, WHETHER THERE IS SUCH A THING AS PROFIT OR NOT. THE PROFIT OF A TRADE OR BUSINESS IS THE SURPLUS BY WHICH THE RECEIPTS FROM THE TRADE OR BUS INESS EXCEED THE EXPENDITURE NECESSARY FOR THE PURPOSE O EARNING THOSE RECEIPTS. THAT SEEMS TO ME TO BE THE MEANING OF THE WORD 'PROFITS' IN RELATION TO ANY TR ADE OR BUSINESS. UNLESS AND UNTIL YOU HAVE ASCERTAINED THAT THERE IS SUCH A BAL ANCE. NOTHING EXISTS TO WHICH THE NAME 'PROFITS' CAN PROPERLY BE APPLIED.' 12. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LIABILITY TO INCUR THE EXPENDITURE IS ALREADY IMPOSED UPON THE ASSESSEE UNDER THE CONTRAC T AND HENCE THE ASSESSEE HAS ESTIMATED THE EXPENDITURE, WHICH MAY BE AT VARY AT THE TIME O F INCURRING IT. HE SUBMITTED THAT THE ACCOUNTING PRINCIPLES MANDATES THAT ALL KNOWN LIABI LITIES AND LOSSES HAVE TO BE PROVIDED FOR IN THE ACCOUNTS BY ESTIMATING THE SAME ON REASONABLE B ASIS, EVEN IF THE ACTUAL AMOUNT OF EXPENDITURE IS NOT KNOWN. ACCORDINGLY, HE SUBMITTE D THAT THE LD CIT(A) HAS DELETED THE ADDITIONS BY CORRECTLY APPRECIATING THE FACTS OF TH E PRESENT CASE AND ALSO BY APPLYING CORRECT 10 PRINCIPLES OF ACCOUNTING BY HOLDING THE PROVISION S O MADE BY THE ASSESSEE AS ASCERTAINED LIABILITY. ACCORDINGLY, HE PRAYED THAT THE ORDER OF THE LD CIT(A) SHOULD BE UPHELD. 13. WITH REGARD TO THE DECISION RENDERED IN THE CAS E OF INDIAN MOLASSES COMPANY PVT.LTD (SUPRA), LD A.R. SUBMITTED THAT THE ASSESSEE THEREI N SET APART CERTAIN AMOUNT TOWARDS SOME EXPENDITURE AND THE HONBLE SUPREME COURT NOTICED T HAT THERE WAS A CHANCE OF RECOVERING BACK THE MONEY AND HENCE, THE HONBLE SUPREME COURT HELD THAT THE AMOUNT SO SET APART BY THE ASSESSEE WAS NOT ALLOWABLE AS DEDUCTION. WITH REGA RD TO THE CASES RELIED UPON BY LD D.R., HE SUBMITTED THAT THOSE DECISIONS HAVE BEEN RENDERED I N DIFFERENT SET OF FACTS AND THEY CANNOT BE TAKEN SUPPORT BY THE REVENUE. LD A.R. SUBMITTED TH AT THE COURTS, IN THE FOLLOWING CASES, HAVE TAKEN DIFFERENT VIEW IN RESPECT OF SAME ISSUES CONT RARY TO THE DECISIONS RELIED UPON BY LD D.R. 1) CIT VS. IBM INDIA LTD., (2013) 357 ITR 0088 (KAR N) 2) CIT VS. HEWLETT PACKARD INDIA (P) LTD., (2009) 314 ITR 0055 3) HINDUSTAN SHIPYARD LTD VS DCIT (2010) 6 ITR 040 7. 14. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDER PASSED BY THE LD CIT(A). A CAREF UL PERUSAL OF THE IMPUGNED APPELLATE ORDER CLEARLY REVEALS THAT THE LD. CIT(A) HAS CONSIDERED AND ADJUDICATED THE ISSUE, IN QUESTION, AFTER APPRECIATION OF THE FACTS OF THE CASE, MATERIAL AVA ILABLE ON RECORD AND VARIOUS JUDICIAL PRECEDENTS. FOR THE SAKE OF CONVENIENCE, WE EXTRAC T THE RELEVANT OBSERVATIONS MADE BY THE LD CIT(A) AT PARAS 4.8 TO 4.12 AS UNDER: 4.8 FROM THE ABOVE, IT CAN BE SEEN THAT IT IS THE RESPONSIBILITY OF THE ASSESSEE TO COLLECT THE WASTE AND DISPOSE IT OFF AFTER TREAT MENT AT THE FACILITY OF THE ASSESSEE. THE RESPONSIBILITY OF THE OIL DRILLING COMPANY WITH REGARDS TO POLLUTION CONTROL NORMS IS DISCHARGED ONCE THE WAST E IS REMOVED BY THE ASSESSEE COMPANY FROM THE PREMISES OF OIL DRILLING COMPANY. SUBSEQUENTLY, IT BECOMES THE RESPONSIBILITY OF THE ASSESSEE COMPANY TO TREAT THE SAID WASTE AND DISPOSE IT OFF AS PER THE POLLUTION CONTROL 11 BOARD NORMS. IT IS BECAUSE THE RESPONSIBILITY SHIFTS TO THE ASS ESSEE THE ENTIRE AMOUNT IS BILLED TO THE OIL DRILLING COMPANY AS SOO N AS THE WASTE IS LIFTED FROM THE DRILLING COMPANY'S PREMISES. THUS ASSESSEE RECEIVES ENTIRE PAYMENT AS SOON AS THE WASTE MATERIAL IS LIFTED. SUCH RECEIPT CANNOT B E DEFERRED BY THE ASSESSEE TO A FUTURE DATE AS THE AMOUNT IS BOTH BILLED AND RECEIV ED DURING THE YEAR UNDER CONSIDERATION. HOWEVER PROCESSING OF SAID WASTE TAK ES TIME OF THREE MONTHS TO SIX MONTHS. THUS, AS FAR AS THE MATERIAL LIFTED DURING THE LAST THREE MONTHS THE ENTIRE REVENUE IS ACCOUNTED FOR AND THE CORRESPONDI NG EXPENDITURE NEEDS TO BE MADE IN THE COMING FINANCIAL YEAR . IT IS IN LIGHT OF THIS DELAY IN PROCESSING THE MATERIAL, ASSESSEE HAD TO RESORT TO CERTAIN ESTIMAT ED DEBIT OF PROCESSING CHARGES. IT IS BASICALLY THIS DEBIT WHICH IS THE EYE OF THE CONTROVERSY OF THE PRESENT APPEAL. AS PER THE ASSESSEE'S ARGUMENT THE SAID EXPENDITURE DEBITED IS AN ASCERTAINED LIABILITY AS IT IS THE RESPONSIBILITY OF THE ASSESS EE TO DISPOSE OFF THE WASTE MATERIAL AS PER THE NORMS OF PCB. HOWEVER AS PER AO THE SAID PROVISION IS ONLY A CONTINGENT LIABILITY TO MEET A FUTURE EXPENDITURE A ND HENCE CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. TO ANSWER THIS QUESTI ON AS TO WHETHER THE SAID PROVISION IS A CONTINGENT LIABILITY OR AN ASCERTAIN ED LIABILITY, ONE HAS TO GO THROUGH THE PROVISIONS OF SECTION 37(1). THE LANGUAGE USED IN SECTION 37(1) IS 'ANY EXPENDITURE LAID OUT OR EXPENDED'. THE SAID SECTION PRESCRIBES MANY OTHER CONDITIONS LIKE THE EXPENDITURE NOT BEING IN THE NA TURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE ETC. AS THERE IS NO DISPUTE ON THESE ISSUES AND AS THE ONLY DISPUTE IS WHETHER THE SAID DEBIT IS AN EXPENDITURE OR NOT, THE DISCUSSION IS BEING CONFINED ONLY TO THAT ASPECT. THE WORDS USED ARE L AID OUT' OR 'EXPENDED', MEANING THEREBY THAT THE EXPENDITURE SHOULD EITHER BE SPENT OR LAID OUT THE MEANING OF WORD EXPENDITURE IS ANALYZED BY THE HON' BLE APEX COURT IN THE CASE OF INDIAN MOLASSES COMPANY (P) LTD AS UNDER: 'EXPENDITURE' IS EQUAL TO 'EXPENSE' AND 'EXPENSE' I S MONEY LAID OUT BY CALCULATION AND INTENTION THOUGH IN MANY USES OF TH E WORD THIS ELEMENT MAY NOT BE PRESENT, AS WHEN WE SPEAK OF A JOKE AT A NOTHER'S EXPENSE. BUT THE IDEA OF 'SPENDING' IN THE SENSE OF 'PAYING OUT OR AWAY' MONEY IS THE PRIMARY MEANING AND IT IS WITH THAT MEANING THA T WE ARE CONCERNED. 'EXPENDITURE' IS THUS WHAT IS 'PAID OUT OR AWAY' AN D IS SOMETHING WHICH IS GONE IRRETRIEVABLY. 4.9 THE HON'BLE COURT HELD THAT THERE IS A DISTINCT ION BETWEEN THE 'CONTINGENT LIABILITY' AND A PAYMENT DEPENDING UPON A 'CONTINGE NCY'. FURTHER DISTINCTION IS MADE BETWEEN AN ACTUAL LIABILITY IN PRAESENTI AND A LIABILITY DE FUTURE WHICH, FOR THE TIME BEING, IS ONLY CONTINGENT. THE COURT HELD THAT THE FORMER IS DEDUCTIBLE BUT NOT THE LATTER. THE RECURRING LIABILITY OF PENS ION WHICH IS COMPRESSED INTO A LUMP PAYMENT SHOULD ITSELF BE A LEGAL OBLIGATION, A ND THAT, IF CONTINGENT, THE PRESENT VALUE OF THE FUTURE PAYMENTS SHOULD BE FAIR LY ESTIMABLE. IF THE PENSION ITSELF BE NOT PAYABLE AS AN OBLIGATION, AND IF THER E BE A POSSIBILITY THAT NO SUCH PAYMENT MAY BE NECESSARY IN THE FUTURE, THE WHOLE O F THE AMOUNT CANNOT BE DEDUCTED BUT ONLY THE PRESENT VALUE OF THE FUTURE L IABILITY, IF IT CAN BE ESTIMATED. FROM THE ABOVE OBSERVATIONS, IT CAN BE SEEN THAT TH E HON'BLE COURT EXAMINED TWO ISSUES. WITH REGARD TO 'PAYING OUT' IT IS HELD BY HON'BLE COURT THAT EVEN IF THE AMOUNT IS PAID OUT THE REQUIREMENT OF SUCH PAYM ENT AS PER LAW NEEDS TO BE EXAMINED AND EVERY PAYMENT AS PER THE ACCOUNTING PR ACTICE OF THE ASSESSEE IS 12 NOT ALLOWABLE UNDER INCOME-TAX LAW. SIMILARLY, WITH REGARD TO THE 'REQUIREMENT OF PAYMENT' IT IS HELD BY THE COURT THAT THE EXPENDITU RE WHICH IS DEDUCTIBLE FOR INCOME-TAX PURPOSE IS TOWARDS A LIABILITY ACTUALLY EXISTING AT THAT TIME BUT SETTING APART MONEY WHICH MAY BECOME EXPENDITURE ON HAPPENI NG OF AN EVENT IS NOT AN EXPENDITURE. 4.10 IN THE LIGHT OF ABOVE JUDGEMENT IT NEEDS TO BE EXAMINED WHETHER THERE IS ANY LIABILITY ACTUALLY EXISTING DURING THE YEAR UND ER CONSIDERATION IN THE CASE OF THE ASSESSEE. AS PER THE FACTS OF THE CASE ONCE THE MATERIAL IS LIFTED ASSESSEE IS DUTY BOUND TO PROCESS THE SAME OR FACE THE CONSEQUE NCES OF VIOLATION OF CONTRACT AS WELL AS THE LEGAL CONSEQUENCES FROM PCB . THUS THERE IS NO DOUBT THAT AS ON DATE OF LIFTING THE WASTE MATERIAL ASSES SEE IS LEGALLY AND CONTRACTUALLY BOUND BY THE LIABILITY OF DISPOSING O FF THE SAID MATERIAL. THUS THE INCOME EARNED BY THE ASSESSEE HAS STRINGS ATTACHED TO IT IN THE FORM OF THE REQUIREMENT OF PROCESSING THE MATER IAL. THEREFORE THE ASSESSEE CANNOT BE SAID TO HAVE EARNED THE ENTIRE R EVENUE WITHOUT INCURRING THE EXPENDITURE ON PROCESSING THE SAME. IN VIEW OF THE ABOVE, THE PROVISION MADE BY THE ASSESSEE ON ESTIMATED BAS IS CANNOT BE SAID TO BE A CONTINGENT LIABILITY THOUGH THE SAID EXPENDITURE CA NNOT BE FULLY QUANTIFIED AS ON THE GIVEN DATE. INCURRING OF EXPENDITURE IS CONTING ENT UPON LIFTING OF THE WASTE MATERIAL. AS THE SAID CONTINGENCY OF LIFTING OF WAS TE MATERIAL HAS HAPPENED DURING THE YEAR, REASONABLE EXPENDITURE RELATABLE T O THE SAME NEEDS TO BE ALLOWED DURING THE YEAR UNDER CONSIDERATION THOUGH THERE CAN BE DIFFERENCE OF OPINION WITH REGARD TO THE FAIR ESTIMATION AS THE S AME. REVERTING BACK TO THE LANGUAGE OF THE SECTION 37(1), THE TWO WORDS USED A RE 'LAID OUT' OR 'EXPENDED'. LAW-MAKERS HAVE DELIBERATELY USED THESE TWO WORDS T O DENOTE THAT LAYING OUT AN AMOUNT AND SPENDING THE SAME ARE NOT ONE AND THE SA ME. THE INTENTION OF THE LAW MAKERS THUS IS TO ALLOW THE EXPENDITURE WHICH I S LAID OUT THOUGH NOT EXPENDED DURING THE YEAR UNDER CONSIDERATION. HAVING SAID SO, ONE HAS TO EXAMINE WHETHER SUCH LAYING OUT IS IN THE NATURE OF CONTINGENT LIABILITY. CONTINGENT LIABILITY DOES NOT CONSTITUTE EXPENDITUR E AND CANNOT BE THE SUBJECT MATTER OF DEDUCTION EVEN UNDER MERCANTILE SYSTEM OF ACCOUNTING. EXPENDITURE WHICH IS DEDUCTIBLE FOR INCOME-TAX PURPOSE IS TOWAR DS A LIABILITY ACTUALLY EXISTING AT THE TIME. FOR DETERMINING WHETHER THERE IS AN EX PENDITURE, IT IS NECESSARY TO SEE WHETHER THERE IS AN EXISTING LIABILITY TO PAY O UT MONIES IRRETRIEVABLY. IN CALCUTTA CO LTD CASE (37 ITR 1,) THE HON'BLE APEX C OURT POINTED THAT A DISTINCTION SHOULD BE MADE BETWEEN A CONTINGENT LIA BILITY WHICH MAY OR MAY NOT ARISE IN FUTURE AND A PRESENT LIABILITY WHICH HAS T O BE PERFORMED IN FUTURE. IN THE LATER CASE THE LIABILITY HAVING ACCRUED IN THE YEAR OF ACCOUNT, THE AMOUNT TO BE EXPENDED IN DISCHARGE OF THAT LIABILITY WOULD HAVE TO BE ESTIMATED IN ORDER THAT UNDER MERCANTILE SYSTEM OF ACCOUNTING THE AMOUNT SO ESTIMATED SHOULD BE DEBITED BEFORE IT IS ACTUALLY DISBURSED. IN THE CAS E OF CIT VS. GEMINI CASHEW SALES CORPN.(65 ITR 643), THE HON'BLE SUPREME COURT OBSERVED THAT, BROADLY STATED, THE PRESENT VALUE ON COMMERCIAL VALUATION O F MONEY TO BECOME DUE IN FUTURE, UNDER A DEFINITE OBLIGATION, WILL BE A PERMISSIBLE OUTGOING OR DEDUCTION IN COMPUTING THE TAXABLE PROFITS, EVEN IF IN CERTAIN C ONDITIONS THE OBLIGATION MAY CEASE TO EXIST BECAUSE OF FORFEITURE OF THE RIGHT. IN DECIDING THE QUESTION WHETHER PRESENT LIABILITY HAS ACCRUED AGAINST THE ASSESSEE ALL THE CIRCUMSTANCES OF THE 13 CASE HAVE TO BE TAKEN INTO ACCOUNT. THE HON'BLE SUPREME COURT IN CALCUTTA CO LTD CASE FURTHER HELD THAT INCOME TAX DEPARTMENT IS PRONE TO CONSIDER WHAT IS NOT PAYABLE DURING THE YEAR IS MER ELY CONTINGENT. HOWEVER THE HON'BLE COURT LEFT A WORD OF CAUTION TH AT SUCH CONCLUSION IS NOT ALWAYS CORRECT. THE HON'BLE SUPREME COURT IN THE CA SE OF BHARAT EARTH MOVERS 245 ITR 428 HELD AS UNDER: 'THE LAW IS SETTLED: IF A BUSINESS LIABILITY HAS DE FINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED AL THOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTUR E DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SH OULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH TH E ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIR EMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILIT Y IS IN PRAESENTI THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MA KE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN '. 4.11 IT IS ALSO HELD BY VARIOUS COURTS THAT TAXABLE INCO ME IS NOT GROSS RECEIPTS BUT PROFITS AND GAINS OF BUSINESS AND PROF IT SHOULD BE UNDERSTOOD IN ITS NATURAL AND PROPER SENSE WHICH NO COMMERCIAL MAN WOULD MISUNDERSTAND . BASED ON THIS PRINCIPLE VARIOUS COURTS HAVE TIME AND AGAIN HELD THAT EVEN WARRANTY EXPENSES WHICH ARE A FUTURE LIABILITY ARE ALLOWABLE EXPENDITURE BASED ON PROPER ESTIMATION. IT IS FURTH ER HELD BY VARIOUS COURTS THAT WHERE LIABILITY CLEARLY EXISTS, THE DIFFICULTY IN E STIMATION OR QUANTIFICATION SHOULD NOT STAND IN THE WAY OF THE ASSESSEE DEBITING IT OR ELSE TRUE PROFITS CANNOT BE ASCERTAINED. BEFORE A DEDUCTION CLAIMED CAN BE ALLO WED AS EXPENDITURE, IT MUST HAVE BEEN VALUED OR QUANTIFIED ATLEAST PROVISIONALL Y. HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS SWARUP VEGETABLE PRODUCTS, 210 ITR 716 WENT TO THE EXTENT OBSERVING THAT THE LIABILITY FOR ADDITIONAL PURCHASE PRICE OF SUGARCANES WAS DEDUCTIBLE UNDER MERCANTILE SYSTEM OF ACCOUNTING BE FORE IT IS QUANTIFIED AND EVEN WHEN SUCH LIABILITY IS DISPUTED AND EVEN IF TH E ASSESSEE DOES NOT MAKE ANY PROVISION IN ITS BOOKS OF ACCOUNT. COURTS HAVE OFF LATE BEEN HOLDING THAT THE PRESENT VALUE OF A FUTURE LIABILITY IS AN ALLOWABLE EXPENDITURE PROVIDED ITS PRESENT VALUE IS ASCERTAINABLE ON A SCIENTIFIC BASIS. 4.12 IN THE LIGHT OF THE ABOVE JUDICIAL PRONOUNCE MENTS IT WOULD BE PERTINENT TO EXAMINE THE FACTS OF THE CASE AGAIN. IN THE CASE OF THE ASSESSEE THERE IS A DEFINITE LIABILITY TO PROCESS AND DISPOSED OFF THE DRILLING WASTE. AS LONG AS THE WASTE MATERIAL IS LYING IN THE COMPOUND OF THE ASSE SSEE THERE IS A LEGAL/CONTRACTUAL LIABILITY OF THE ASSESSEE TO PROC ESS SUCH MATERIAL. IF ONLY THE RECEIPT OF THE ASSESSEE IS CONSIDERED WITHOUT CONSI DERING THE CORRESPONDING EXPENDITURE RELATED TO THE SAME IT WOULD LEAD TO AB SURD RESULTS IN THE PROFITS OF THE COMPANY. THEREFORE THE ASSESSEE IS OBLIGED TO P ROVIDE FOR EXPENDITURE ON THE INCOME WHICH IS ALREADY ACCOUNTED FOR. ASSESSEE IN THE PRESENT CASE HAS DONE SO. FROM THE ESTIMATION OF EXPENDITURE MADE BY THE ASSESSEE IT CAN BE SEEN THAT IT HAS REASONABLY ESTIMATED THE EXPENDITU RE TAKING INTO ACCOUNT THE AVERAGE EXPENDITURE OVER A PERIOD OF TIME. THUS THE EXPENDITURE DEBITED IS LESS 14 THAN THE ACTUAL PER TON EXPENDITURE INCURRED DURING THE YEAR UNDER CONSIDERATION. FURTHER THERE IS NO DISPUTE REGARDIN G THE BASIS OF ESTIMATION BY THE AO. IT IS ALSO NOT THE ARGUMENT OF THE AO THAT THE SAID ESTIMATION IS DISPROPORTIONATE OR ON HIGHER SIDE. IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE CONSIDERED OPINION THAT GIVEN THE PECULIAR FACTS AN D CIRCUMSTANCES OF THE CASE THE PROVISION DEBITED BY ASSESSEE IS IN THE NATURE OF ASCERTAINED LIABILITY AND HENCE IS DEDUCTIBLE. AO IS THUS DIRECTED TO ALLOW T HE SAID PROVISION DEBITED. 15. WE NOTICE THAT THE ORDER PASSED BY LD CIT(A) IS WELL REASONED ONE AND BASED ON PROPER APPRECIATION OF FACTS AND LEGAL POSITION. THE LD CIT(A) HAS NOTICED THAT THE ASSESSEE HAD RECEIVED ENTIRE CONTRACT AMOUNT UPON L IFTING OF THE WASTE MATERIALS. FURTHER THE RESPONSIBILITY TO PROCESS THE MATERIALS IS SHIFTED TO THE ASSESSEE UPON LIFTING OF THE MATERIALS. HENCE, IT MAY NOT BE PROPER TO P RESUME THAT THE ENTIRE CONTRACT RECEIPTS REPRESENT THE INCOME OF THE ASSESSEE, SINC E INCOME REPRESENTS RECEIPTS LESS EXPENDITURE INCURRED OR REQUIRED TO BE INCURRED IN CONNECTION WITH SUCH RECEIPTS. IN THE INSTANT CASE, THE ASSESSEE HAD TO INCUR VARIOUS EXP ENSES FOR PROCESSING THE MATERIALS LIFTED BY IT AND HENCE THOSE EXPENSES SHOULD BE CON SIDERED AS THE EXPENDITURE RELATING TO THE CONTRACT RECEIPTS RECEIVED BY THE ASSESSEE. UNDER THE ACCOUNTING PRINCIPLES, ALL THE KNOWN EXPENSES, LIABILITIES AND LOSSES HAVE TO BE PROVIDED FOR, IN ORDER TO ARRIVE AT THE NET PROFIT. HENCE WE ARE OF THE VIEW THAT THE PROVISION FOR EXPENSES MADE BY THE ASSESSEE CANNOT BE CONSIDERED TO BE A CONTINGENT LI ABILITY AND IT CAN ONLY BE CONSIDERED TO BE AN ASCERTAINED LIABILITY. 16. THE AO HAS OBSERVED THAT THE ACCOUNTING PRIN CIPLES CANNOT OVERRIDE INCOME TAX PROVISIONS. HOWEVER THE SAID OBSERVATION WAS MADE BY THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIS ERS LTD (SUPRA) IN THE CONTEXT OF INCOME EARNED DURING THE CONSTRUCTION PERIOD. HERE, WE AR E CONCERNED WITH THE ACCOUNTING PRINCIPLES RELATING TO ASCERTAINING THE NET PROFIT , WHERE AS THE HONBLE SUPREME COURT, 15 IN THE ABOVE SAID CASE, DEALT WITH A MATTER RELATIN G TO TAXABILITY OF INCOME THAT HAS ALREADY ACCRUED. HENCE THE RELIANCE PLACED BY THE AO ON THE ABOVE SAID DECISION IS MISPLACED. THE LD D.R ALSO PLACED RELIANCE ON A NU MBER OF DECISIONS. WE HAVE CONSIDERED THE SAME AND WE ARE OF THE VIEW THAT THE RATIO LAID DOWN IN THOSE CASES IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. I N THE PRESENT CASE, THE UNDISPUTED FACT REMAINS THAT THE CONTRACT RECEIPTS CANNOT BE CONSID ERED TO BE FREE MONEY AVAILABLE WITH THE ASSESSEE, SINCE THERE IS OBLIGATION TO DISCHARG E THE RESPONSIBILITY TO PROCESS THE WASTE MATERIALS. HENCE THE GROSS CONTRACT RECEIPTS CANNOT CONSIDERED TO BE THE NET INCOME OF THE ASSESSEE, I.E., THE INCOME ARISING FR OM THE SAID CONTRACT ALONE CAN BE BROUGHT TO TAX, IN WHICH THE CORRESPONDING EXPENDIT URE IS REQUIRED TO BE ALLOWED AS DEDUCTION. HENCE THE LIABILITY TO PROCESS THE MATE RIALS CONSTITUTE ASCERTAINED LIABILITY IN PRAESENTI AND HENCE THE ASSESSEE IS JUSTIFIED IN PR OVIDING FOR THOSE EXPENSES IN ORDER TO ARRIVE AT THE NET PROFIT. IN RESPECT OF LIABILITY ALREADY ACCRUED, THE ACTUAL DATE OF INCURRING OF EXPENSES IS IRRELEVANT AND HENCE THE P AYMENT COULD BE POSTPONED IN SUBSEQUENT YEARS. 17. EVEN OTHERWISE, IT IS SUBMITTED THAT THE AS SESSEE HAS REVERSED THE PROVISION IN THE IMMEDIATELY SUCCEEDING YEAR, I.E., THE SAID PRO VISION IS OFFERED AS INCOME IN THE SUCCEEDING YEAR IN THE FORM OF REDUCTION OF CORRESP ONDING EXPENDITURE. AS OBSERVED BY HONBLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRI ES LTD. (SUPRA), ACCOUNTING POLICY ADOPTED BY THE ASSESSEE IS TAX NEUTRAL IN NATURE. 18. IN VIEW OF ABOVE, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF THE LD CIT(A) ON THIS ISSUE AND, ACCORDINGLY, WE UPHOLD THE SAME. 16 19. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE AS SESSEE FOR ASSESSMENT YEAR IN ITA NO.285/VIZ/2012, WHEREIN, FOLLOWING ISSUES ARE AGITATED: A) DISALLOWANCE OF CUSTOM DUTY PAID ON EQUIPMENT IM PORTED AND RETURNED BACK. B) NON-ALLOWANCE OF CREDIT FOR TDS AMOUNT. 20. THE FACTS RELATING TO THE FIRST ISSUE IS THAT T HE ASSESSEE DEBITED A SUM OF RS.30,04,154/- TO ITS PROFIT AND LOSS ACCOUNT TOWAR DS CUSTOM DUTY. IT WAS NOTICED THAT THE ASSESSEE HAD IMPORTED A DRIER MACHINERY FROM NORWAY FOR PROCESSING THE WASTE. AS THE SAID DRIER DID NOT MEET THE OPERATIONAL REQU IREMENT OF THE ASSESSEE, IT WAS RETURNED BACK TO THE SUPPLIER. SINCE THE ASSESSEE DID NOT GET REFUND OF CUSTOM DUTY PAID ON IMPORT OF THE DRIER, IT TREATED THE SAME AS REVENUE EXPENDITURE. THE ASSESSING OFFICER DISALLOWED THE SAME BY TREATING IT AS CAPIT AL EXPENDITURE AND THE LD CIT(A) ALSO CONFIRMED THE SAME. 21. THE LD A.R. OF THE ASSESSEE PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE CALCUTTA HIGH COURT IN THE CASE OF BINAMI CEMENTS L TD. VS CIT (2015) 118 DTR (CAL) 61 AND SUBMITTED THAT THE HONBLE CALCUTTA HIGH COURT, IN THE ABOVE SAID CASE, HAS HELD THAT THE EXPENDITURE INCURRED ON THE PROJECT WHICH WAS ABANDONED LATER IS REVENUE IN NATURE, SINCE THE ASSESSEE DID NOT GET ANY BENEFIT OF ENDURING NATURE. LD A.R. SUBMITTED THAT THE ASSESSEE, IN THE INSTANT CASE, I MPORTED THE MACHINERY AND PAID CUSTOM DUTY AT THAT POINT OF TIME AND SINCE THE MAC HINERY WAS NOT FOUND SUITABLE, IT WAS RETURNED BACK. HENCE, THE ASSESSEE DID NOT GET ANY BENEFIT OF ENDURING NATURE OUT OF THE CUSTOM DUTY PAID. FURTHER, THE EXPENDITURE WAS INCURRED DURING THE COURSE OF BUSINESS, THE LD A.R SUBMITTED THAT IT HAS TO BE AL LOWED AS REVENUE EXPENDITURE. 17 22. ON THE CONTRARY, THE LD D.R. SUBMITTED THAT THE CUSTOM DUTY PAID BY THE ASSESSEE WAS IN RESPECT OF MACHINERY IMPORTED WHICH IS REQUI RED TO BE CAPITALIZED. HAD THE ASSESSEE RETAINED THE MACHINERY, IT WOULD HAVE CAPI TALIZED THE CUSTOM DUTY AMOUNT AND HENCE, THE CHARACTER OF THE CUSTOM DUTY AMOUNT WILL NOT CHANGE ON RETURNING BACK OF THE MACHINERY. ACCORDINGLY, LD D.R. SUBMITTED THAT THE CUSTOM DUTY PAID BY THE ASSESSEE IS NOT REVENUE EXPENDITURE BUT IT REPRESEN TS THE CAPITAL LOSS AND HENCE, LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF THE SAME. 23. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF T HE VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE. THOUGH THE ASSESSEE I MPORTED THE DRIER MACHINERY FROM NORWAY BY PAYING CUSTOM DUTY, IT WAS CONSTRAINED TO RETURN IT BACK SINCE THE SAID DRIER DID NOT MEET THE REQUIREMENTS OF THE ASSESSEE. NOR MALLY, THE CUSTOMS DUTY PAID ON IMPORT OF MACHINERY IS REQUIRED TO BE CAPITALIZED A LONG WITH THE COST OF MACHINERY. HOWEVER, IN THE INSTANT CASE, THE MACHINERY WAS NOT ULTIMATELY PURCHASED AND HENCE THE QUESTION OF CAPITALIZING THE SAME ALONG WITH TH E COST OF MACHINERY DOES NOT ARISE AT ALL. ONCE THE MACHINERY IS RETURNED BACK, IN OUR V IEW, THE CUSTOM DUTY LOSES ITS CHARACTER AS RELATING TO MACHINERY PURCHASED, HENCE , IN OUR VIEW, THE CUSTOM DUTY PAID BY THE ASSESSEE IS IN THE NATURE OF EXPENDITURE INC URRED ON SURVEYING ABOUT SUITABILITY OF MACHINERY AND IT WAS INCURRED IN THE COURSE OF CARR YING ON BUSINESS. ACCORDINGLY, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CONTENTI ONS OF THE ASSESSEE THAT THE SAME HAS TO BE TREATED AS REVENUE EXPENDITURE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFIC ER TO ALLOW CUSTOM DUTY PAID BY THE ASSESSEE AS REVENUE EXPENDITURE. 18 24. THE NEXT ISSUE RELATES TO NON-GIVING OF DEDUCTI ON OF TDS AGAINST TAX PAYABLE. WE RESTORE THIS ISSUE TO THE FILE OF THE AO AND DIR ECT HIM TO CONSIDER THIS ISSUE AFTER AFFORDING NECESSARY OPPORTUNITY TO THE ASSESSEE. 25. NOW, WE SHALL TAKE UP THE APPEAL FILED BY THE R EVENUE AS WELL AS ASSESSEE FOR ASSESSMENT YEAR 2009-2010. 26. THE GROUND AGITATED BY BOTH THE PARTIES IN THEI R RESPECTIVE APPEAL RELATES TO PROVISIONS OF EXPENSES CLAIMED BY THE ASSESSEE. 27. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE C LAIMED A SUM OF RS.1.99 CRORES AS DEDUCTION UNDER THE HEAD PROVISIONS FOR EXPENSES. THE ASSESSING OFFICER DISALLOWED THE SAME, HOWEVER, THE LD CIT(A) ALLOWED DEDUCTION TO THE EXTENT OF R.1.89 CRORES AND CONFIRMED THE DISALLOWANCE OF REMAINING AMOUNT OF R S.10 LAKHS. AGGRIEVED BY THE ORDER OF THE LD CIT(A), BOTH THE PARTIES ARE IN APPEAL BE FORE US. 28. WHILE DEALING WITH THE APPEAL OF THE REVENUE FO R THE ASSESSMENT YEAR 2008-09, WE HAVE EXTENSIVELY DEALT WITH THIS MATTER AND HAVE HELD THAT THE PROVISIONS CREATED BY THE ASSESSEE IS ALLOWABLE AS DEDUCTION. BY FOLLOWIN G THE SAME, WE DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE. THE ORDER OF THE LD CIT (A) STANDS MODIFIED ACCORDINGLY. 29. NOW, WE SHALL TAKE UP THE APPEAL FILED BY THE R EVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2011-2012 . 19 30. THE ONLY ISSUE AGITATED BY THE REVENUE RELATES TO DISALLOWANCE OF PROVISION FOR EXPENSES, WHICH WAS DELETED BY THE LD CIT(A). THE ASSESSEE HAS FILED CROSS OBJECTION TO SUPPORT THE ORDER OF THE LD CIT(A). 31. THIS ISSUE IS COVERED BY THE DECISION RENDERED US ON IDENTICAL ISSUE IN ASSESSMENT YEAR 2008-09 AND 2009-2010 IN EARLIER PA RAGRAPHS. FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE LD CIT(A) AND DISMISS THE A PPEAL OF THE REVENUE. 32. SINCE, WE HAVE DISMISSED THE APPEAL FILED BY TH E REVENUE, THE CROSS OBJECTION FILED BY THE ASSESSEE DOES NOT SURVIVE AND SAME REQ UIRES TO BE DISMISSED. 33. IN THE RESULT, ALL THE THREE APPEALS FILED BY T HE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. BOTH THE APPEALS FI LED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/08 /2015. SD/- SD/- (D.MANMOHAN) (B.R.BASKARAN) VICE PRESIDENT ACCOUNTANT MEMBER DATED 10/08/2015 B.K.PARIDA , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE A SSESSEE: SAR CHANDRA ENVIRON SOLUTION (P) LTD.,2 ND BLOCK, 2 ND FLOOR, SUBHADRA ARCADE, BHANUGUDI JUNCTION, KAKINADA, E.G. DIST: KAKINADA 2. THE REVENUE: ACIT, CIRCLE - 1, KAKINADA, 3. THE CIT(A) - VISHAKHAPATNAM 4. CIT , RAJAHMUNDRY 5. DR, ITAT, VISHAKHAPATNAM 6. / GUARD FILE. BY ORDER, //TRUE COPY// SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM