The DCIT, Bharuch Circle, Bharuch V. Enviro Technology Ltd., Ankleshwar

ITA 426/AHD/2007

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2147 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-12-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 29-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA SRDR
• Assessee Lawyers: S N SOPARKAR SRAR
• Keywords: Capital asset; Depreciation; Business expenditure; Bad and doubtful debts; Corroborative evidences; Assessment record; Capital receipt; Reason to believe; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 115JB; 143(2); 147; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.426/AHD/2007 & C.O. NO.5/AHD/2007 (ARISING OUT ITA NO.426/AHD/2007) [ASSTT.YEAR 2003-04] DCIT, BHARUCH CIRCLE BHARUCH -VS- ENVIRO TECHNOLOGY LIMITED BHARUCH 117/118, GIDC, ANKLESHWAR, PAN NO.AAACE4126G ENVIRO TECHNOLOGY LIMITED -VS- DCIT, BHARUCH CIRCL E, 117/118 GIDC, ANKLESHWAR BHARUCH (APPELLANT) (RESPONDENT) ITA NO.734-736/AHD/2007 [ASSTT. YEARS: 1999-00, 2001-02 & 2003-04] ENVIRO TECHNOLOGY LIMITED -VS- ACIT, BHARUCH CIRCL E, BHARUCH 2413/14 GIDC, ANKLESHWAR ITA NO.3835/AHD/2008 [ASSTT. YEAR : 1999-00] DCIT, BHARUCH CICRLE, BHARUCH -VS- ENVIRO TECHNOLOG Y LTD, ANKLESHWAR REVENUE BY : SHRI R.K. DHANESTA, SR-DR ASSESSEE BY: SHRI S.N.SOPARKAR, SR-AR O R D E R PER BENCH:- ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 2 THESE FIVE APPEALS - 2 BY REVENUE AND THREE BY ASS ESSEE AND CROSS OBJECTION (CO) BY ASSESSEE, ARE ARISING OUT OF THE ORDERS OF COMMISSIONER OF INCOME-TAX (APPEALS)-VI, BARODA IN APPEAL NO.CAB/VI -85, 178/2005-06 AND CAB/VI- 67/2006-07 OF EVEN DATE 30-11-2006. THE ASSESSMENT WAS FRAMED BY ACIT, BHARUCH CIRCLE U/S.143(3) OF THE INCOME-TAX ACT, 19 61 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDERS DATED I.E. 31-03-2005, 16-02- 2004 & 10-03-2006 FOR ASSESSMENT YEARS 1999-00, 2001-02 & 2003-04 RESPECT IVELY. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IN ITA NO.426/AHD/2007 IS AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF REPAIR EXPENSES BY CONSIDERING THE SAME AS CAPITAL IN NATURE. FOR THIS REVENUE HAS RAISED THE FOLLOWING GROUND :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.7,14,274/- BEING THE CL AIM OF REPAIR EXPENSES CONSISTING OF EXPENDITURE IN THE NATURE OF CAPITAL. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF TREATMENT OF IND USTRIAL EFFLUENTS OF SMALL SCALE INDUSTRIES LOCATED AT ANKLESHWAR INDUSTRIAL ESTATE AND PROVIDING COMMON EFFLUENTS TREATMENT OVERHEAD FOR THE TREATMENT OF EFFLUENTS G ENERATED FROM 225 MEMBER INDUSTRIES. DURING THE YEAR UNDER CONSIDERATION ASS ESSEE FILED ITS RETURN OF INCOME ON 04-11-2003, WHICH ACCOMPANIED BY AUDITED ACCOUNTS, TAX AUDIT REPORT U/S 44AB, ORIGINAL TDS CERTIFICATE, AUDIT REPORT U/S.115JB OF THE ACT AND OTHER ENCLOSURES. THE ASSESSING OFFICER AFTER ISSUING NOTICE U/S 143(2) O F THE ACT ON 07-10-2004, REQUIRED THE ASSESSEE TO EXPLAIN EXPENSES DEBITED TOWARDS RE PAIR AND MAINTENANCE OF PLANT & MACHINERY AT RS.38,31,372/-. AFTER NOTICING FROM THE DETAILS, THE ASSESSING OFFICER REQUIRED THE ASSESSEE AS TO WHY CERTAIN EXPENSES NO T TREATED AS CAPITAL IN NATURE, WHICH ARE AS UNDER:- DATE PARTICULARS 08/05/2002 PURCHASE OF STEEL FOR RCC ROAD 33,745 24/05/2002 PURCHASE OF STEEL 38,735 29/05/2002 PURCHASE OF CEMENT FOR ROAD 30,000 30/05/2002 -DO- 31,250 ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 3 -DO- -DO- 31,250 -DO- -DO- 32.500 14/06/2002 PAYMENT FOR CONSTRUCTION OF ROAD 2,86,096 06/09/2002 PAYMNT FOR RCC ROD WORK 95,572 14/11/2002 PAYMENT FOR RCC ROD CONSTRUCTION 67,246 31/03/2003 PURCHASE OF COMPLETE PUMP 67,878 TOTAL 7,14,272 ACCORDINGLY, ASSESSING OFFICER HELD THAT THESE EXPE NSES OF RS. 7,14,272/- ARE CAPITAL IN NATURE IN VIEW OF EXPLANATION-3 TO SECTION 30 AN D 31 OF THE ACT. HOWEVER, AO ALLOWED THE DEPRECIATION ON THESE EXPENSES. AGGRIEV ED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) CONFIRMED THE ACTION OF A SSESSING OFFICER VIDE PARA-6.3 OF HIS APPELLATE ORDER:- 6.3 I HAVE CONSIDERED THE ARGUMENT CAREFULLY AND I FIND SUBSTANCE IN THE ARGUMENT OF APPELLANT THAT THE EXPENSES WERE INCURR ED FOR REPAIRING AND MAINTENANCE OF PLANT AND MACHINERY WHICH ARE ESSENT IAL FOR RUNNING OF THE BUSINESS OF THE APPELLANT AND NOT FOR ENHANCING THE INCOME EARNING APPARATUS OF THE APPELLANT. THE REPAIRS ON ROADS AND BRIDGES/ REPLACEMENT OF PARTS OF PUMP ARE THEREFORE ALLOWABLE BUSINESS EXPENDITURE. THE ADDITION OF RS.6,44,511/- (RS.7,14,272 DEPRECIATION ALREADY A LLOWED OF RS.689,761) IS THEREFORE DELETED. AGGRIEVED, NOW REVENUE CAME IN APPEAL BEFORE TRIBUN AL. 4. BEFORE US, LD. SR-DR STATED THAT ASSESSING OFFIC ER HAS RIGHTLY INVOKED EXPLANATION-3 TO SECTION 30 AND 31 OF THE ACT AND T REATED THIS AS CAPITAL EXPENDITURE AS THE NATURE OF ITEMS PURCHASED BY ASSESSEE ARE CA PITAL ASSETS AND EVEN THESE ARE HEAVY REPAIRS AND MAINTENANCE OF PLANT & MACHINERY, WHICH BRINGS INTO A NEW ASSET. ON THE OTHER HAND, LD. SR-COUNSEL FOR THE ASSESSEE, SHRI S.N.SOPARKAR RELIED ON THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2464/AHD/2006 FOR ASSESSMENT YEAR 2002-03 DATED 09-04-2007, WHEREIN T HE TRIBUNAL HAS ALLOWED THE CLAIM OF ASSESSEE VIDE PARA-5 , AS UNDER:- 5. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IALS ON RECORD. THE LAW IN THE MATER WE CONSIDER AS AN AMPLY CLEAR, AND WHE RE THERE IS AN ENDURING BENEFIT TO THE ASSESSEE ARISING FROM THE EXPENDITUR E, SO AS TO RESULT IN AN ADVANTAGE IN THE CAPITAL FIELD; AN ACCRETION TO ITS PROFIT-MAKING APPARATUS, THE ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 4 SAME WOULD ONLY BE AN EXPENDITURE OF REVENUE NATURE . IN THE PRESENT CASE, ONLY A PROPER VERIFICATION OF EACH EXPENDITURE COUL D LEAD TO A PROPER FINDING WHETHER THE SAME RESULTED IN A NEW ASSET, OR AN ADD ITION TO AN EXISTING ASSET, BY WAY OF AN ENHANCEMENT IN ITS CAPACITY OR OTHERWI SE, OR THE SAME WAS BY WAY OF A SUBSTANTIAL REPLACEMENT OF THE WHOLE OF TH E RELEVANT EXISTING ASSETS, EACH OF WHICH WOULD ONLY HAVE A LIFE-TERM, SO THAT THE SAME WOULD ONLY NEED TO BE REPLACED ON THE EXPIRY THEREOF; THE CAPITAL C OST BEING RECOUPED BY WAY OF THE CAPITAL ALLOWANCE IN THE FORM OF DEPRECIATIO N; IT BEING NOBODYS CASE THAT ANY ASSET MEANS PERMANENCE OR EVERLASTINGNESS. OR, AS CONTENDED BY THE ASSESSEE, IS IN THE NATURE OF ROUTINE REPAIRS A ND MAINTENANCE, CARRIED OUT IN PART, BY REPLACEMENT OF THE WORN-OUT PARTS OF TH E EXISTING ASSETS. WE FIND, AS CONTENDED BY THE ASSESSEE, THE A.O. HAS PROCEEDE D IN THE MATTER WITHOUT VERIFYING THE FACTS, OR CALLING UPON THE ASSESSEE T O SUBSTANTIATE ITS CLAIMS, AND INFERRING AN ENDURING BENEFIT ONLY ON THE BASIS OF NATURE OF THE GOODS PURCHASED, AND WHICH IS CLEARLY FALLACIOUS. THE LD . CIT(A) ALSO HAS NOT RECORDED HIS DEFINITE FINDING IN THE MATTER. UNDER THE CIRCUMSTANCES, THE ASSESSEES CONTENTIONS WOULD NEED TO BE GIVEN CREDE NCE TO. THE REVENUE HAVING BEEN CLEARLY UNABLE TO IMPUGN THE ASSESSEES CLAIM AND WHICH, THEREFORE, MERITS ACCEPTANCE. WE DECIDE ACCORDINGLY . 5. WE FIND THAT THE ASSESSEE HAS INCURRED EXPENDITU RE TO THE TUNE OF RS.40,31,004/- TOWARDS REPAIRS AND MAINTENANCE OF P LANT & MACHINERY AND OUT OF THE SAME AN AMOUNT OF RS.38,31,372/- HAS BEEN CHARGED T O PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. ACCORDING TO ASSESSEE , IT IS RUNNING COMMON EFFLUENT PLANT AND LIQUID WASTE IS TREATED AND PROCESS WASTE CONTENTS AND VARIOUS HAZARDOUS AND CORROSIVE CHEMICALS, WHICH ERODE PLANT & MACHIN ERY CONSTANTLY, SO REPAIR AND MAINTENANCE OF PLANT & MACHINERY IS THEREFORE NECES SITATE OWING TO NATURE OF BUSINESS AND PURCHASE OF STEEL, CEMENT, RCC ROD FOR REPAIR THE SAME, IS REQUIRED FREQUENTLY AS THERE ARE MORE THAN 200 TANKERS AND D UMPERS CARRYING EFFLUENTS AND SLUDGE TO THE SITE. WE ARE IN FULL AGREEMENT WITH T HE ARGUMENTS OF LD. COUNSEL FOR THE ASSESSEE THAT EFFLUENT TREATMENT PLANT CONSTANTLY R EQUIRES REPAIR AND MAINTENANCE AND RENOVATION OF PUMP AND OTHER MACHINERY BECAUSE THE WASTE CONTAINS VARIOUS HAZARDOUS AND CORROSIVE CHEMICALS, WHICH ERODE PLAN T & MACHINERY CONSTANTLY. WE FIND FROM THE NATURE OF EXPENDITURE THAT THESE ARE ONLY STEEL, CEMENT, RCC ROD AS NOTED BY ASSESSING OFFICER, WHICH CLEARLY SHOWS THA T THESE ARE ONLY FOR REPAIR AND RENOVATION. ACCORDINGLY, THE CIT(A) HAS RIGHTLY ALL OWED THE CLAIM OF ASSESSEE AND WE CONFIRM THE SAME. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 5 6. THE NEXT COMMON ISSUE IN ITA NO.734-736/AHD/2007 & CO NO.05/AHD/ 2007 OF ASSESSEE IS AS REGARDING TO THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF PROVISION MADE FOR SLUDGE DISPOSAL CHARGES EXCEPT AMOUNT, THE GROUND ARE SAME. FOR THIS, ASSESSEE HAS RAISED FOLL OWING GROUND NO.1 :- ITA NO.736/AHD/2006 BY ASSESSEE (FOR A.Y. 03-04) . 1. DISALLOWANCE OF PROVISION MADE FOR SLUDGE DISPO SAL CHARGES AMOUNTING TO RS.10,95,250/-: 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 ASSISTANT COMMISSIONER OF INCOME TAX, DISALLOWI NG THE PROVISION MADE FOR SLUDGE DISPOSAL CHARGES AMOUNTING TO RS.10 ,95,250/- 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 PROVISION M ADE FOR THE SLUDGE DISPOSAL CHARGES AMOUNTING TO RS.10,95,250/- HAS BE EN MADE ON THE BASIS OF CLOSING STOCK OF SLUDGE AS ON THE L AST DAY OF THE PREVIOUS YEAR GENERATED AFTER GIVING TREATMENT TO T HE EFFLUENT PROCESSED. 1.2.2 IN NOT APPRECIATING THE FACT, THAT AS PER THE NORMS OF GPCB, LIABILITY TO DISPOSE OFF THE SLUDGE ACCRUES AS SOON AS THE SLUDGE IS GENERATED DURING THE PROCESS. ITA NO.734/AHD/2007 BY ASSESSEE (FOR A.Y.99-00) 2. DISALLOWANCE OF SLUDGE TESTIBILITY STUDY CHARGES OUT OF THE SLUDGE DISPOSAL CHARGES AMOUNTING TO RS.2,00,00 0 BY TREATIG THE SAME AS CAPITAL EXPENDITURE:- 2.1 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 ASSISTANT COMMISSIONER OF INCOME TAX IN DISALLOWING SLUDGE TESTABILITY STUDY CHARGES OUT OF THE SLUDGE DISPOSAL CHARGES AMOUNTIN G TO RS.2,00,000 AND TREATING THE SAME AS CAPITAL EXPENDITURE WITHOUT AP PRECIATING THE FACT THAT NO BENEFITS OF AN ENDURING NATURE ARE DERIVED THEREFRO M. 2.2 IN DOING SO, THE COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN NOT APPRECIATING THE FACT THAT THE SLUDGE TESTABILITY C HARGES ARE IN THE NATURE OF REVENUE EXPENDITURE AND ARE INCURRED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. 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 PROVISION M ADE FOR THE SLUDGE DISPOSAL CHARGES AMOUNTING TO RS.17,75,490/- HAS BEEN MADE O N THE BASIS OF THE ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 6 CLOSING STOCK OF SLUDGE AS ON THE LAST DAY OF THE P REVIOUS YEAR GENERATED AFTER GIVING TREATMENT TO THE EFFLUENT PROCESSED. 1.2.2 IN NOT APPRECIATING THE FACT, THAT AS PER THE NORMS OF GPCB, LIABILITY TO DISPOSE OFF THE SLUDGE ACCRUES AS SOON AS THE SLUDG E IS GENERATED DURING THE PROCESS. ITA NO.735/AHD/2007 BY ASSESSEE (FOR A.Y.01-02) 1. DISALLOWANCE OF PROVISIONMADE FOR SLUDGE DISPOSA L CHARGES AMOUNTING TO RS.17,75,490/-:- 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 ASSISTANT COMMISSIONER OF INCOME TAX, DISALLOWING T HE PROVISION MADE FOR SLUDGE DISPOSAL CHARGES AMOUNTING TO RS.17,75,490/- 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 PROVISION M ADE FOR THE SLUDGE DISPOSAL CHARGES AMOUNTING TO RS.17,75,490/- HAS BEEN MADE O N THE BASIS OF THE CLOSING STOCK OF SLUDGE AS ON THE LAST DAY OF THE P REVIOUS YEAR GENERATED AFTER GIVING TREATMENT TO THE EFFLUENT PROCESSED. 1.2.2 IN NOT APPRECIATING THE FACT, THAT AS PER THE NORMS OF GPCB, LIABILITY TO DISPOSE OFF THE SLUDGE ACCRUES AS SOON AS THE SLUDG E IS GENERATED DURING THE PROCESS. AND ASSESSEE CAME IN CO AGAINST THE CONFIRMATION OF DISALLOWANCE OF PROVISION MADE FOR SLUDGE DISPOSAL CHARGES. CO. NO.5/AHD/2007 BY ASSESSEE (FOR A.Y.02-03 . 1. DISALLOWANCE OF PROVISION MADE FOR SLUDGE DISPO SAL CHARGES AMOUNTING TO RS.16,32,903/-: 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS), BARODA ERRED IN CONFIRMING THE DISALLOWANCES MADE IN RESPECT OF PROVISION MADE FOR SLUDGE DISPOSAL CHARGES AMOUNTING TO RS.16,32,903/- 1.2 IN DOING SO, THE COMMISSIONER OF INCOME-TAX (AP PEALS) ERRED IN FOLLOWING RESPECTS: 1.2.1 IN NOT APPRECIATING THE FACT THAT THE RESPOND ENT COMPLIED THE MATCHING CONCEPT OF INCOME AND EXPENSES FOLLOWING T HE MERCANTILE SYSTEM OF ACCOUNTING WHICH IS BEING FOLL OWED CONSISTENTLY SINCE 2001-02 AND IN SUBSEQUENT YEARS. 1.2.2 IN WRONGLY OBSERVING THAT THE STOCK OF SLUDGE REMAINED WITHOUT EFFLUENT TREATMENT WHEREAS SLUDGE GENERATED ONLY AF TER THE EFFLUENT TREATMENT AND ONLY EXPENSES FOR ITS DISPO SAL IS PROVIDED BASED ON THE METHOD WHICH HAS BEEN CONSISTENTLY FOL LOWED: ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 7 1.3 IN VIEW OF THE ABOVE GROUNDS OF APPEAL, THE RES PONDENT PRAYS THAT THE ASSESSING OFFICER BE DIRECTED TO DELETE THE ADDITIO N MADE ON ACCOUNT OF DISALLOWANCE OF PROVISION FOR SLUDGE DISPOSAL CHARG ES AMOUNTING TO RS.16,32,903/- 7. THE BRIEF FACTS LEADING TO THE ABOVE COMMON ISSU E, AS TAKEN FROM ASSESSMENT YEAR 2002-03, ARE THAT ASSESSEE IS A LIMITED COMPAN Y ENGAGED IN THE BUSINESS OF TREATMENT OF INDUSTRIAL EFFLUENTS OF SMALL SCALE IN DUSTRIES LOCATED AT ANKLESHWAR INDUSTRIAL ESTATE AND PROVIDING COMMON EFFLUENT TRE ATMENT OVERHEAD FOR THE TREATMENT OF EFFLUENTS GENERATED FROM 225 MEMBER INDUSTRIES. DURING THE YEAR ASSESSEE FILED ITS RETURN OF INCOME ON 04-11-2003 DECLARING TOTAL INCOME WHICH WAS ACCOMPANIED BY AUDITED ACCOUNTS, TAX AUDIT REPORT U/S 44AB, ORI GINAL TDS CERTIFICATE, AUDIT REPORT U/S.115JB OF THE ACT AND OTHER ENCLOSURES. THE ASSE SSING OFFICER ON PERUSAL OF THE DETAILS OF SLUDGE DISPOSAL CHARGES NOTED THAT THE A SSESSEE HAD MADE A PROVISION OF RS.10,95,250/- UNDER THE HEAD SLUDGE DISPOSAL CHARG ES AND ALSO NOTED THAT THE PROVISION THE SAID AMOUNT WAS MADE ON THE LAST DAY OF PREVIOUS YEAR AND NO ACTUAL EXPENSES WERE INCURRED BY ASSESSEE. IT IS FURTHER N OTED THAT THE ASSESSEE-COMPANY HAD NOT COMPLIED WITH THE ACCOUNTING STANDARD 1 AND 2 NOTIFIED BY THE BOARD, SINCE FOR ASSESSMENT YEARS 1998-99 TO 2000-01 THE ASSESSE E HAD PAID TAXES U/S 115JA/JB(MAT) AND FOR SUBSEQUENT YEARS WHEN THE TAX WAS COMPUTED AS PER NORMAL PROVISIONS, THE ASSESSEE-COMPANY CHANGED ITS ACCOUNTING POLICY AND STARTED MAKING PROVISION FOR ITS VARIOUS LIABILITIES. IT IS ALSO REMARKED IN SCHEDULE-18 OF THE ACCOUNTS FOR THE RELEVANT ASSESSMENT YEAR THAT THER E IS NO MENTION ABOUT THE CHANGE IN THE ACCOUNTING POLICY. IT IS ALSO OPINED BY THE ASSESSING OFFICER THAT IN ASSESSMENT YEAR 1999-00 THE ASSESSEE INCURRED SLUDGE DISPOSAL CHARGES FOR THE FIRST TIME AND THE SAME WERE DEBITED TO THE PROFIT AND LOSS ACCOUN T ON ACTUAL BASIS. THE ASSESSEE REFERRED CASE LAW OF HONBLE BOMBAY HIGH COURT IN T HE CASE OF NEW INDIA MINING CORPORATION LTD. V. CIT 168 ITR 431 (BOM), WHICH WAS SUBSEQUENTLY CONFIRMED BY HONBLE APEX COURT REPORTED IN 243 ITR 640 (SC) AND ASSESSING OFFICER CONCLUDED BY HOLDING THAT THE PROVISION WAS NOTHING BUT A CON TINGENT LIABILITY CREATED IN THE BOOKS TO REDUCE THE TAXABLE INCOME AND DISALLOWED T HE SAME. 8. IN APPEAL BEFORE CIT(A), IT WAS ARGUED BY ASSES SEE THAT PROVISION HAS BEEN MADE ON THE BASIS OF CLOSING BALANCE OF SLUDGE ON T HE LAST DAY OF THE PREVIOUS YEAR AND THAT THE PROVISION IS BASED ON GENUINE FACTS. I T IS ALSO STATED BY ASSESSEE THAT IN ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 8 CASE THE PROVISION IS NOT ALLOWED THEN THE LAST YEA RS PROVISION WHICH WAS ACTUALLY BEEN INCURRED DURING THIS YEAR MAY BE ALLOWED AND R EFERRED CASE LAW OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF UDAIPUR MINERAL DEVELOPMENT SYNDICATE PVT. LTD. V DCIT AND ANOTHER (2003) 261 ITR 706 (RAJ). THE CIT(A) A LSO CONFIRMED THE ACTION OF ASSESSING OFFICER BY RELYING THE DECISION OF CIT(A) IN ASSESSMENT YEAR 2002-03 AS UNDER:- 4.3 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND ALSO THE JUDICIAL DECISIONS CITED IN THIS REGARD. IT IS A FACT THAT T HE APPELLANT HAS IN A.Y 1999- 2000 DEBITED THE SLUDGE DISPOSAL CHARGES ON ACTUAL BASIS AND DEPARTING FROM THE SAME SUBSEQUENTLY THE ASSESSEE STARTED MAKING P ROVISIONS. IT HAS NOT BEEN ARGUED IN ASSESSMENT OR ESTABLISHED IN APPEAL THAT SAID LIABILITY CAN 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 FOUND TO BE BONAFIDE. A SIMILAR VIEW HAS BEEN HELD BY MY COL LEAGUE CIT(A)-XIX, AHMEDABAD IN ORDER NO. CIT(A) XIX/CAB/VI-84/05-06 D ATED 28.8.2006 IN APPELLANTS OWN CASE FOR A.Y 2002-03. THE DISALLOWA NCE BY ASSESSING OFFICER IS THEREFORE CONFIRMED. THE RELEVANT ORDER OF CIT(A) IN ASSESSMENT YEAR 200 2-03, WHEREIN THE CIT(A) HAS PARTLY ALLOWED THE CLAIM OF ASSESSEE IN PARA-4.2 AND 4.3 BY HOLDING AS UNDER:- 4.2. THE CONTENTION OF THE AUTHORISED REPRESENTATI VE HAS BEEN CAREFULLY CONSIDERED AND PERUSED THE CASE LAW CALLED UPON. I HAVE CONSIDERED THE FACTS BROUGHT ON RECORD IN THE ASSESSMENT ORDER FOR MAKIN G DISALLOWANCE OF PROVISION. IT IS A FACT THAT IN INITIAL ASSESSMENT YEAR, THE APPELLANT HAS CLAIMED SLUDGE DISPOSAL EXPENSES ON ACTUAL INCURRING BASIS. DEPARTING FROM THAT SYSTEM, THE APPELLANT HAS NOT COMPILED THE ACCOUNTI NG STANDARD NO.I & II AS NOTIFIED BY THE BOARD. THE ASSESSING OFFICER HAS ME NTIONED THAT THE PROVISION MADE IS NOT FOR ASCERTAINED QUANTIFIED LIABILITY. T HE DEPARTURE FROM ITS OWN FOLLOWED SYSTEM OF ACCOUNTING IS ONLY FOR THE REASO N TO REDUCE ITS GENUINE TAX LIABILITY. THE DEPARTURE FROM ITS OWN FOLLOWED SYST EM OF ACCOUNTING IS ONLY FOR THE REASON TO REDUCE ITS GENUINE TAX LIABILITY. THE LAW IS SETTLED THAT IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACC OUNTING YEAR, THE DEDUCTIONS SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE T O BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIM ATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBL E. IF THESE REQUIREMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT ON E. THE LIABILITY IS IN PRESENTED THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. [BHA RTA EARTH MOVERS V CIT 112 TAXMAN 62 (SC)] 4.3 IN THE PRESENT CASE, THE PROVISION MADE IS FOR FURTHER DISPOSAL OF EXPENSES OF SLUDGE WHICH ARE LIKELY TO INCUR IN SUCCEEDING Y EAR. THUS, NO ACTUAL LIABILITY HAS ARISEN IN THIS YEAR BECAUSE THE APPELLANT HAS N OT GIVEN ANY EFFLUENT TREATMENT FOR THE SLUDGE SHOWN IN THE CLOSING STOCK . THE CLAIM MADE BY THE ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 9 APPELLANT IS NOT FOUND TO BE BONAFIDE. THEREFORE, I DECLINE TO INTERFERE IN THEE ACTION OF THE ASSESSING OFFICER. HOWEVER I FOUND FO RCE IN THE ALTERNATIVE ARGUMENT OF THE APPELLANT THAT IF THIS YEAR PROVISI ON IS DISALLOWED, THEN PROCEEDING YEARS PROVISION WHICH WAS DISALLOWED BY THE ASSESSING OFFICER IN THAT YEAR MAY BE ALLOWED ON THE BASIS OF ACTUAL EXP ENSES INCURRED DURING THIS YEAR. THE ASSESSING OFFICER HAS NOT DISCUSSED THIS ISSUE IN HIS ASSESSMENT ORDER. HENCE, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE ACTUAL EXPENSES INCURRED FOR CARRYING OUT EFFLUENT TREATMENT FOR WH ICH PROVISION WAS MADE AND SAME WAS DISALLOWED IN ASSESSMENT YEAR 2001-02. WHA TEVER THE ACTUAL EXPENSES INCURRED FOR SLUDGE SHOWN IN CLOSING BALAN CE IN ASSESSMENT YEAR 2001-02 AND EXPLAINED TO HAVE CARRIED OUT EFFLUENT TREATMENT IN THIS ACCOUNTING YEAR MAY BE ALLOWED IN THIS YEA. THUS, D ISALLOWANCE MADE BY THE ASSESSING OFFICER FOR PROVISION IS CONFIRMED. HOWEV ER, PROVISION OF EARLY YEAR WHICH WAS DISALLOWED MAY BE ALLOWED ON ACTUAL EXPEN DITURE BASIS AFTER VERIFICATION OF SUCH ACTUAL EXPENSES CLAIMED T HAVE INCURRED DURING THIS YEAR. THE ASSESSING OFFICER MAY ENSURE THAT NO DOUBLE ALL OWANCE OF SUCH EXPENSES MAY TAKE PLACE. AGGRIEVED, ASSESSEE CAME IN SECOND APPEAL BEFORE US ON THIS ISSUE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS OF THE CASE. WE FIND THAT THE ASSESSEE-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 GENERATION PROCESS ALONG WITH JUSTIFICATION ON SLUD GE DISPOSAL CHARGES BY STATING THAT THE WASTE WATER IS IN THE HIGHLY ACIDIC NATURE AND ALSO CONTAINING ORGANIC CHEMICALS. THE WASTE WATER IS RECEIVED BY RUBBER LINED TANKER AND UNLOADED IN THE UNDER GROUND TANK SPECIALLY CONSTRUCTED BY ACID PROOF TIL E LINER. IT IS MIXED BY AIR SUPPLY AND MADE HOMOGENEOUS. THIS ACIDIC EFFLUENT IS FIRST TRE ATED WITH HYDRATED LIME TO MAKE IT NEUTRAL TO REMOVE ITS ACIDITY. THE LIME IS CONSU MED BY ITS ACIDITY AS WELL AS ORGANICS MATTER. THE ACIDITY MAINLY DUE TO SULPHURI C ACID REACTS WITH HYDRATED LIME AND GENERATED SOLID. THE MIXED SLURRY IS SETTLED IN A PRIMARY CLARIFIER. THE SOLID CONTAINING SLURRY IS REMOVED FROM THE BOTTOM OF CLA RIFIER AND SUPERNANT CLEAR WATERS TAKEN FOR FURTHER TREATMENT OF BIOLOGICAL TREATMENT . BIOLOGICAL TREATMENT IS SECONDARY TREATMENT WHERE THE WASTE WATER IS TREATED BY BACTE RIA (BIO MASS). BACTERIAS REACTS BIOLOGICALLY WITH ORGANIC CHEMICALS AND GENERATE BI O SLUDGE, WHICH IS SEPARATED AND MIXED WITH PRIMARY SLURRY. THE SOLID CONTAINING SLU RRY ALONG WITH BIO SLUDGE ARE FILTERED THROUGH THE ROTARY VACUUM DRUM FILTERS (RV DF). THE LIKE-IS REMOVED FROM THE FILTER AND STORED FOR SUN DRYING. THIS SLUDGE IS AL WAYS HAVING DIFFERENT QUALITY BECAUSE ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 10 OF THE WATER RECEIVED FROM DIFFERENT INDUSTRIES IS VARYING NATURE DAILY. THIS SOLID SLUDGE IS TO BE DISPOSED OFF AS PER GPCB AND REGULA TIONS. THE SLUDGE DISPOSAL CHARGES THUS DEPEND UPON THE GENERATION OF SLUDGE, NATURE AND QUALITY OF SLUDGE. AS PER THE RULES OF GUJ'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. (BEI L) 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 EXACTLY W ITH THE SPECIFICATION OF CEMENT INDUSTRY IS SENT TO THE CEMENT INDUSTRY AS PER THEI R REQUIREMENT AS PER THE GPCB RULES THE SLUDGE GENERATED READY FOR DISPATCH HAS T O BE REMOVED FROM THE SITE AND ACCORDINGLY THE BALANCE OF NON-TOXIC SLUDGE WHICH I S NOT LIFTED BY THE INDUSTRY HAS TO BE SENT TO BEIL BEING THE ONLY COMPANY OPERATING A SECURED LAND FOR THE DISPOSAL OF SOLID WASTE GENERATED BY THE INDUSTRIES IN AND A ROUND BHARUCH DISTRICT. THE 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 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 HA S TO PAY UN-AVAILED TANKER CHARGES. IN CASE, HE DOES NOT FULFILL THE COMMITMEN T ABOUT THE NUMBER OF TANKERS THAT HE HAS AGREED TO BRING AS PER THE TERMS AND CONDITI ONS OF THE SAID AGREEMENT DURING THE YEAR, THE UN-AVAILED TANKER CHARGES RECEIVED HA VE 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 CHARG ES INCURRED IN MARCH, 2000 AND MARCH, 2001 ARE HIGHER COMPARE TO WHOLE OF THE YEAR , AS THE SLUDGE GENERATED HAS TO BE DRIED UP IN SUN AND ACCORDINGLY THE SLUDGE DI SPOSAL 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 DISPOSAL CHARGES IN CURRED DURING THE AFORESAID MONTHS. ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 11 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 GE NERATED. THE COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND ACCOR DINGLY PROVIDED FOR THE SLUDGE 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 T HAT DATE. THE AVERAGE RATE OF SLUDGE DISPOSAL WORKS OUT TO RS.430/- PER MT, TO BE ON THE CONSERVATIVE SIDE THE PROVISION FOR DISPOSAL CHARGES HAVE BEEN MADE AT TH E RATE OF RS.330.72 PER MT ON 5371.820 MT OF SLEDGE THAT COULD NOT BE REMOVED AS ON 31 .03.2001. WE FIND THA T THIS ISSUE IS COVERED BY THE DECISION OF THE RAJAST HAN 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 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 WAS MADE AS PER THE CLAUSE 2 OF PART V OF THE LEASE AGREEMENT. THE ASSESSEE-COMPANY CLAIMED THAT THE LI ABILITY TO REFILL PITS ACCRUED AS SOON AS THE PITS WERE DUG. THE AO DENIED THE CLAIM ON THE GROUND THAT THE LIABILITY STIPULATED IN THE LEASE AGREEMENT TO RESTORE THE LA ND HAS NOT ACCRUED IN THE ASSESSMENT YEAR IN HAND AND IT DOES ARISE WHEN THE ASSESSEE HAS FILLED THE PITS. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ALLOWED TH E CLAIM. IN APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL RESTORED THE VIEW TAKEN BY T HE ASSESSING OFFICER. ON 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 ENTITLED FOR DED UCTION OF THE EXPENSES WHICH IT IS SUPPOSED TO INCUR FOR FILLING THOSE PITS, AS THE AS SESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. IT CAN CLAIM THE EXPENSES INC UR AS SOON AS IT DIGS THE PITS. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES AND R ELYING UPON THE AFORESAID DECISION OF RAJASTHAN HIGH COURT, WE ALLOW THE LIAB ILITY OF SLUDGE DISPOSAL CHARGES ACCRUES THE MOMENT THE SLUDGE IS GENERATED AND ACCO RDINGLY THE PROVISION FOR SLUDGE DISPOSAL CHARGES OUGHT TO BE ALLOWED AS DEDU CTION UNDER SECTION 37 OF THE ACT AS THE SAME IS PROVIDED FOLLOWING THE MERCANTIL E SYSTEM OF ACCOUNTING. IN THE RESULT, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSES SEE. ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 12 11. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IN ITA NO.734/AHD/2007 IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ADJUSTMENT MADE BY ASSESSING OFFICER TO THE BOOK PROFIT BY TREATING THE PROVISION OF DOUBTFUL DEBT A S UNASCERTAINED LIABILITY WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. FOR THIS, ASSESSEE HAS RAISED THE GROUND NO.1 :- 1. MAKING ADJUSTMENT TO THE BOOK PROFIT BY TREATIN G PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO RS.6,01,2 65/- AS AN UNASCERTAINED LIABILITY WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN CONSIDERING THE PROVIS ION FOR DOUBTFUL DEBTS AMOUNTING TO RS.601,265/- AS PROVISION FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILITY AND ADDING IT TO BOOK PROFIT U/S 115JB OF THE ACT. 12. THE BRIEF FACTS LEADING TO THE ABOVE COMMON ISS UE ARE THAT ASSESSEE- COMPANY IS A LIMITED COMPANY ENGAGED IN THE BUSINES S OF TREATMENT OF INDUSTRIAL EFFLUENT OF SMALL SCALE INDUSTRIES LOCATED AT ANKLE SHWAR INDUSTRIAL ESTATE AND PROVIDING COMMON EFFLUENT TREATMENT OVERHEAD FOR TH E TREATMENT OF EFFLUENTS GENERATED FROM 225 MEMBER INDUSTRIES. DURING THE YE AR ASSESSEE FILED ITS RETURN OF INCOME ON 29-11-1999 DECLARING LOSS AT RS.2,27,920/ - UNDER THE NORMAL PROVISION OF THE ACT AND DECLARED AS INCOME AT RS.15,62,960/- UN DER THE PROVISION OF SECTION 115JB OF THE ACT. THE ASSESSEE FURTHER REVISED RETU RN ON 30-03-2001, WHEREIN TOTAL LOSS DECLARED UNDER NORMAL PROVISION WAS REVISED AT RS.211,46,083/- AND INCOME U/S 115JB WAS DECLARED AT RS.16,22,360/-. THE REVISED R ETURN WAS PROCESSED U/S.143(1)(A) OF THE ACT ON 26-03-2002. LATER ON AS SESSING OFFICER NOTICED THE PROVISION OF DOUBTFUL DEBT AT RS.6,01,265/- IS UNAS CERTAINED LIABILITY WHICH IS REQUIRED TO BE ADDED BACK TO THE PROFIT AND FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S.115JB AND THERE WAS UNDER ASSESSMENT OF INCOME TO THE EXT ENT OF RS.1,80,380/- BEING 30% OF RS.6,01,265/-. ACCORDINGLY, ASSESSING OFFICER RE OPENED THE ASSESSMENT U/S.147 AND ASSESSMENT ORDER COMPLETED U/S.143(3) R.W.S.147 OF THE ACT ON 31-03-2005. THE REASONS RECORDED BY ASSESSING OFFICER FOR REOPENING , WHICH READS AS UNDER:- ON VERIFICATION OF THE ASSESSMENT RECORDS FOR A.Y 1999-2000 IT IS OBSERVED THAT WHILE COMPUTING THE BOOK PROFIT U/S.115JA THE PROVISIONS MADE TOWARDS THE DOUBTFUL DEBT AMOUNTING TO RS.6,01,265/- DEBITE D TO PROFIT AND LOSS ACCOUNTS BEING EARNED AS UNCERTAINED LIABILITY WAS NOT ADDED BACK FOR COMPUTING BOOK PROFIT FOR PURPOSE OF COMPUTATION OF INCOME FOR MAT ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 13 PROVISIONS U/S.115J. THIS HAS RESULTED INTO THE UND ER ASSESSMENT OF INCOME TO THE EXTENT OF RS.1,80,380/- (30% OF RS.6,01,265) AN D CONSEQUENT EFFECT TO SHORT LEVY OF TAX OF RS/.61,333/-. IN VIEW OF THE A BOVE FACTS, I HAVE REASON TO BELIEVE THAT THERE IS AN ESCAPEMENT OF INCOME TO TH E EXTENT OF RS.1,80,380/- UNDER THE MAT PROVISION U/S. 115JA OF THE I.T. ACT. THEREFORE A NOTICE U/S .148 R.W.S 147 OF THE I.T. ACT, 1961 IS ISSUED. 13. AGGRIEVED AGAINST THE ACTION OF ASSESSING OFFIC ER TREATING THE PROVISION OF DOUBTFUL DEBT AS INCOME, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF ASSESSING OFFICER BY GIVING FOLLOWING FINDINGS IN PARA-6.3 OF HIS APPELLATE ORDER:- 6.3 I HAVE GONE THROUGH THE CONTENTIONS OF THE APP ELLANT AND THE ASSESSMENT ORDER. THE MOOT POINT HERE IS WHETHER THE PROVISION MADE CAN BE TREATED AS UNASCERTAINED LIABILITY. NO DOUBT THAT THESE PAYMEN TS PERTAIN TO CHARGES DUE TO THE APPELLANT FOR THE RELEVANT PREVIOUS YEAR. HO WEVER THE APPELLANT HAS NOT BEEN ABLE TO INDICATE HOW THE PREVIOUS YEARS CHARGE S CAN BE TREATED AS DOUBTFUL DEBTS. IT HAS ALSO NOT BEEN ESTABLISHED TH AT THE DEBTORS ARE NOT IN A POSITION TO PAY THESE AMOUNTS OR THESE CHARGES WERE DISPUTED. THESE DEBTS HAVE NOT BEEN SHOWN AS IRRECOVERABLE. THE DEBTS PER TAIN TO RELEVANT PREVIOUS YEAR AND IN FACTS THE SERVICES WERE PROVIDED AS LAT E AS NOVEMBER, 1997 TO ACME PETROCHEM AND SEPTEMBER, 1997 IN THE CASE OF C OLOURMAN DYE CHEM IND. PVT. LTD. IN OTHER WORDS THE DEBTS ARE NOT SHO WN TO BE BAD OR DOUBTFUL. THUS THERE WAS NO QUESTION OF QUANTIFICATION OF LIA BILITY IN THAT REGARD, MUCH LESS AN ASCERTAINED LIABILITY. THE ASSESSING OFFICE R WAS THEREFORE JUSTIFIED IN ADDING THE SAID AMOUNT U/S. 115JB. THE GROUND IS TH US DISMISSED. AGGRIEVED, ASSESSEE CAME IN SECOND APPEAL BEFORE US . 14. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT IN THE ACCO UNTS FOR THE YEAR ENDED 31 ST MARCH, 1999 AN AMOUNT OF RS.6,01,265/- AND RS.2.78 LAKH WERE PROVIDED FOR PROVISION FOR DOUBTFUL DEBTS AND PROVISION FOR CONS ULTATION CHARGES PAYABLE FOR SUPERVISION OF PLANT OPERATION FOR THE FINANCIAL YE AR 1998-99 RESPECTIVELY. THE DETAILS OF PROVISION FOR DOUBTFUL DEBTS AND THE SUPPORTING EVIDENCE FOR THE PROVISION FOR CONSULTATION CHARGES HAS BEEN SUBMITTED IN THE COMP ILATION VOLUME-III AND VOLUME-II AT PAGE NO.159 AND 145 RESPECTIVELY. WE FIND THAT T HE PROVISIONS FOR DOUBTFUL DEBT ARE COVERED BY THE AMENDMENT IN SECTION 115JB WITH THE INTRODUCTION OF CLAUSE (I) IN EXPLANATION SUBSTITUTED BY THE FINANCE (NO.2) ACT, 2009 W.R.E.F. 1-4-2001, WHICH READS AS UNDER:- SECTION115JB ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 14 EXPLANATION-I CLAUSE (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR D IMINUTION IN THE VALUE OF ANY ASSET IT MEANS ANY AMOUNT SET ASIDE TO PROVISION MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES ARE TO BE INCREASED BY THAT AMOUNT BY WAY OF THIS AMENDMENT, IT INSERTED A NEW CLAUSE (I) IN EXPLANATION-I AFTER SUB-SECTION (2) OF THE SAID SECTION SO AS TO PROVIDE THAT IF ANY PROVISION FOR DIMINUTI ON IN THE VALUE OF ANY ASSET HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT, IT SHA LL BE ADDED TO THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE PURPOS E OF COMPUTATION OF BOOK PROFIT. SIMILAR AMENDMENT IS MADE IN SECTION 115JA OF THE A CT BY WAY OF INSERTION OF A NEW CLAUSE (G) IN THE EXPLANATION AFTER SUB-SECTION (2) OF THE SAID SECTION. IN VIEW OF THE AFORESAID FACTS AND POSITION OF LAW AFTER AMENDMENT , WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS RIGHTLY NOT ALLOWED DEDUCTION IN RESPECT OF PROVISION MADE FOR DOUBTFUL DEBTS WHILE COMPUTING THE BOOK PROFIT U/S. 115JB AND PROVISION MADE FOR CONSULTATION CHARGES PAYABLE IN RESPECT OF SUPERVIS ION OF PLANT OPERATION UNDER COMPUTATION OF NORMAL INCOME AS WELL UNDER THE MAT PROVISION U/S 115JB OF THE ACT. ACCORDINGLY, THIS ISSUE OF THE ASSESSEES APPEAL IS DISMISSED. 15. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IN ITA NO.734/AHD/2007 IS AGAINST THE ORDER OF CIT(A) IN NOT ALLOWING THE ADJUSTMENT OF WDV ON CAPITAL SUBSIDY. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.3 :- 3. ADJUSTMENT TO THE COST OF OPENING W.D.V.AND ADD ITION TO THE FIXED ASSETS DURNG THE YEAR ON ACCOUNT OF CAPIT AL SUBSIDY. 3.1 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 ASSISTANT COMMISSIONER OF INCOME TAX IN COMPUTING T HE DEPRECIATION ALLOWANCE AFTER REDUCING THE CAPITAL SUBSIDY AMOU NTING TO RS.1,62,40,000/- FROM THE COST OF THE CAPITAL ASSETS. 3.2 ON DOING SO, THE COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN NOT APPRECIATING THE FACT THAT EXPLANATION 10 TO SECTIO N 43(1), WHICH IS INSERTED BY THE FINANCE ACT, 1998 W.E.F. 01.04.1999 IS NOT APPL ICABLE IN THE INSTANT CASE AS THE RELEVANT ASSETS ON WHICH THE CAPITAL SUBSIDY IS RECEIVED ARE ACQUIRED BEFORE 31.03.1998 AND ALSO NOT APPRECIATING THE FAC T THAT THOUGH THE APPELLANT HAD RECEIVED THE CAPITAL SUBSIDY DURING THE PREVIOU S YEAR, IT WAS SANCTIONED PRIOR TO 31.03.1998. ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 15 16. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT A SSESSEE-COMPANY HAS RECEIVED CAPITAL SUBSIDY OF RS.131.20 LAKH FROM STATE GOVERN MENT AND EQUIVALENT AMOUNT FROM CENTRAL GOVERNMENT. THE ASSESSING OFFICER REQU IRED THE ASSESSEE TO REDUCE THE AGGREGATING CAPITAL SUBSIDY FROM THE COST OF CA PITAL ASSET FOR THE PURPOSE OF COMPUTING THE ACTUAL COST OF ASSET FOR ALLOWING DEP RECIATION IN VIEW OF PROVISION OF SECTION 43(1) EXPLANATION 10. ACCORDINGLY, ASSESSIN G OFFICER DISALLOWED AND NOT ACCEPTED THE CONTENTION OF ASSESSEE THAT SUBSIDY SH OULD BE TREATED AS CAPITAL RECEIPT AS EXPLANATION 10 TO SECTION 43(1) IS NOT A PPLICABLE AS RELEVANT ASSET WERE ACQUIRED ON OR AFTER 1-4-1998 AND EXPLANATION 10 HA S COME INTO EFFECT W.E.F ASSESSMENT YEAR 1999-00 AND SUBSEQUENT YEARS. ACCOR DINGLY, HE RE-COMPUTE THE WDV AND DISALLOWED THE CLAIM OF ASSESSEE BY REVISIN G THE WDV AS ON 1-4-1999. THE AO NARRATED THE ENTIRE CHART AS UNDER:- SR NO BLOCK OF ASSETS WDV AS ON 01.04.98 + ADDITIONS AMOUNT OF SUBSIDY ALLOTTED TO NET BLOCK VALUE OF ASSET AFTER SUBSIDY ALLOWABLE DEPRECIATION WDV AS ON 31/03/99 1 LAND 21,39,051 6,09,200 15,29,851 - - 15,29,851 2 BUILDING (10%) 2,58,96,601 74,11,800 1,84,84,801 18,48,480 1,66,36,321 2A BUILDING (5%) 3,82,032 1,09,341 2,7 2,691 13,634 2,59,057 3 PLANT & MACHINERY (25%) 2,29,27,964 63,08,664 1,66,19,300 41,54,824 1,24,64,476 3A PLANT & MACHINERY (100%) 42,19,849 11,61,098 30,58,751 30,58,751 - - 3B PLANT & MACHINERY (50%) 23,25,615 6,39,897 16,85,718 8,42,860 8,42,858 4 FURNITURE 4,07,271 - - 4,07,271 40,827 3,66,444 4A FURNITURE 21,978 - - 21,978 1,099 20,879 TOTAL / S 583,20,261 162,40,000 420,80,361 99,60,475 321,19,5 86 AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) CONFIRMED THE ACTION OF ASSESSING OFFICER BY GIVING FOLLOWING FIN DINGS IN PARA-10.3.1 OF HIS APPELLATE ORDER:- 10.3.1. IT IS CLEAR THAT IF A PORTION OF THE COST OF ASSETS ACQUIRED BY THE ASSESSEE IS MET DIRECTLY BY CENTRAL GOVERNMENT OR S TATE GOVERNMENT IN THE FORM OF SUBSIDY THE SAME IS REQUIRED TO BE RD\REDUC ED FROM THE ACTUAL COST OF THE ASSETS. THE SAID PROVISION IS APPLICABLE WITH E FFECT FROM 1.4.1999 I.E. A.Y. 1999-2000. IT IS NOWHERE QUESTIONED THAT THE SUBSID Y WAS IN RELATION TO THE ASSTS ACQUIRED BY THE APPELLANT. THUS THE ASSESSING OFFICER WAS JUSTIFIED IN REDUCING THE ALLOWABLE DEPRECIATION TO RS.99,60,475 /- IN PLACE OF RS.1,38,28,286/- AS CLAIMED BY THE APPELLANT. ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 16 AGGRIEVED, NOW ASSESSEE CAME IN SECOND APPEAL BEFOR E US. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1998-99 AND THE PREVIOUS YEAR RELEVANT TO ASSESSMEN T YEAR 1999-00 THE ASSESSEE- COMPANY HAS RECEIVED CAPITAL SUBSIDY AMOUNTING TO R S.50 LAKH AND RS.81.20 LAKH RESPECTIVELY EACH FROM THE STATE GOVERNMENT AND CEN TRAL GOVERNMENT IN RESPECT OF THE CAPITAL ASSETS ACQUIRED ON OR BEFORE 31 ST MARCH, 1998. THE SAME HAS BEEN CREDITED TO RESERVE AND SURPLUS ACCOUNTS IN THE AUD ITED BOOKS OF ACCOUNT FOR THE RELEVANT PREVIOUS YEAR. WITH REFERENCE TO ORIGINAL APPLICATION DATED 06-08-1997 FOR SANCTION OF SUBSIDY FOR SETTING UP CEPT FOR SSI UNI TS, THE STATE GOVERNMENT SANCTIONED THE CAPITAL SUBSIDY AMOUNTING TO RS.92.9 6 LAKH VIDE LETTER DATED 24-07- 1998 ON ELIGIBLE INVESTMENTS IN FIXED ASSETS AMOUNT ING TO RS.371.86 LAKH OUT OF TOTAL INVESTMENT IN FIXED ASSETS AMOUNTING TO RS.550 LAKH AND THE ASSESSEE HAD ENCLOSED PHOTO COPY OF THE SANCTION LETTER IN ASSESSEES PAP ER BOOK AND IN THE AFORESAID LETTER, THE STATE GOVERNMENT HAS GIVEN A REFERENCE TO THE L ETTER DATED 09-02-1996 APPROVING THE TOTAL PROJECT COST AMOUNTING TO RS.55 0 LAKH. FURTHER, VIDE LETTER DATED 20-12-1996, THE STATE GOVERNMENT HAS REVISED THE TO TAL AMOUNT OF CAPITAL SUBSIDY AMOUNTING TO RS.131.20 LAKH AS AGAINST ORIGINALLY S ANCTIONED AMOUNTING TO RS.92.96 LAKHS BEING THE 25% ON THE ACTUAL INVESTMENT IN FIX ED ASSETS AMOUNTING TO RS.524.80 LAKH AND INVESTMENT IN FIXED ASSETS AGAIN ST WHICH CAPITAL SUBSIDY SANCTIONED WERE MADE ON OR BEFORE 31-03-1998. IT WA S ARGUED THAT THE STATE GOVERNMENT SANCTIONED SUBSIDY FOLLOWING THE CENTRAL ASSISTANCE @ 25% OF THE TOTAL PROJECT COST OF CETP SANCTIONED BY THE MINISTRY OF ENVIRONMENT AND FOREST GOVERNMENT OF INDIA VIDE LETTER DATED 26-03-1998. T HE STATE GOVERNMENT DISBURSED SUBSIDY AMOUNTING TO RS.81,.70 LAKH OUT OF TOTAL SU BSIDY SANCTIONED AMOUNTING TO RS.131.20 LAKHS IN THE FINANCIAL YEAR ENDED 31-03-1 999. THE PHOTO COPY OF THE LETTER IS ENCLOSED ALONG WITH CERTIFICATE OF CHARTED ACCOU NTANT IN ASSESSEE.S PAPER BOOK. ACCORDINGLY, AS PER THE PROVISO TO EXPLANATION 10 O F THE SECTION 43(1) OF THE ACT INSERTED W.E.F. 01-04-1999, REDUCTION OF CAPITAL SU BSIDY FROM THE ACTUAL COST OF CAPITAL ASSETS IS REQUIRED ONLY IN CASE WHERE THE CAPITAL A SSETS ON WHICH CAPITAL SUBSIDY RECEIVED ARE ACQUIRED ON OR AFTER 01-04-1998. BUT I N THE PRESENT CASE, THE CAPITAL SUBSIDY IS ACQUIRED BEFORE 1-4-1998 AS IS EVIDENT F ROM THE DOCUMENTS AND EVIDENCES ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 17 PRODUCED BEFORE US. WE FIND THAT THIS ISSUE IS IN F AVOUR OF THE ASSESSEE AND WE DECIDE ACCORDINGLY. 18. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IN ITA NO.735/AHD/2007 IS AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE DISAL LOWANCE OF REPAIR AND MAINTENANCE. FOR THIS, ASSESSEE HAS RAISED THE FOLL OWING GROUND NO.2 :- 2. DISALLOWANCE OF REPAIRS AND MAINTENANCE EXPENSE S AMOUNTIING TO RS 527,839/- NET OFF DEPRECIATION AMO UNTING TO RS.77,090/- OUT OF THE TOTAL EXPENSES OF RS26,89,56 9/- 2.1 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 ASSISTANT COMMISSIONER OF INCOME TAX, DISALLOWING R EPAIRS AND MAINTENANCE EXPENSES AMOUNTING TO RS527,839/- (NET OF DEPRECIAT ION AMOUNTING TO RS.77,090/-) BY TREATING THE SAME AS BEING CAPITAL IN NATURE. 2.2 IN DOING SO, THE COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN NOT APPRECIATING THE FACT THAT THE APPELLANT OUGHT TO I NCUR THE EXPENDITURE ON REPAIRS AND MAINTENANCE OF ITS TREATMENT PLANT USED TO TREAT AND PROCESSES THE LIQUID WASTE, WHEREIN VARIOUS HAZARDOUS AND COR ROSIVE CHEMICALS WHICH ERODE THE PLANT AND MACHINERY NECESSITATING THE REP AIRS AND MAINTENANCE ON A REGULAR BASIS TO AVOID ITS CORROSION. 19. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOTICED TH AT ASSESSEE-COMPANY HAS DEBITED EXPENSES TOWARDS REPAIR AND MAINTENANCE OF PLANT & MACHINERY TO RS.26,89,569/- AND ANOTHER EXPENDITURE OF RS.3,03,5 71/-. THE ASSESSING OFFICER NOTICED THAT ASSESSEE-COMPANY HAS GIVEN WORK FOR RE PAIR OF PLANT & MACHINERY TO M/S HRECK ENGINEERS AND MADE PAYMENT OF RS.5,51,34 9/-. THE AO ON VERIFICATION OF BILLS NOTED THAT THE SAID COMPANY HAS ACCOUNTED THE EXPENSES AS CAPITAL EXPENDITURE BY PASSING GENERAL ENTRIES IN THE BOOKS OF ACCOUNT BUT SUBSEQUENTLY AS ON 31-03- 2001 THOSE ENTRIES WERE REVISED BACK AND PASS GENER AL ENTRIES FROM CAPITAL EXPENDITURE ON ACCOUNT OF REPAIR AND MAINTENANCE. A CCORDINGLY, AO MADE DISALLOWANCE OF RS.5,27,839/- AFTER ALLOWING DEPREC IATION THEREON. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF AO BY GIVING FOLLOWING FINDINGS IN PARA-5.3 OF HIS APPELLATE ORDER:- 5.3 I HAVE CONSIDERED THE ARGUMENTS CAREFULLY. NO DETAILS WERE SUBMITTED IN APPEAL TO DISPROVE THE SPECIFIC DISALLOWANCES BY AS SESSING OFFICER. I FIND SUBSTANCE IN THE ARGUMENT OF ASSESSING OFFICER THAT PART OF EXPENSES INCURRED WERE CAPITAL IN NATURE AND THE ADDITION OF RS.5,27, 839/- IS CONFIRMED. ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 18 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSEE-CO MPANY IS RUNNING A COMMON EFFLUENT TREATMENT PLANT AT ANKLESHWAR. THE LIQUID WASTE FROM CHEMICAL INDUSTRIES IS TREATED AND PROCESSED IN THE COMPANY AND THEN THE S AME IS DRAINED OUT IN THE GIDC DRAINAGE SYSTEM. THE WASTE CONTAINS VARIOUS HAZARDO US AND CORROSIVE CHEMICALS THAT CORRODE THE PLANT & MACHINERY. SUCH CORROSIVE CHEMICALS ERODE THE PLANT & MACHINERY, WHICH IN TURN TRUNCATES THE LIFE OF THE PLANT & MACHINERY. THUS, THE ASSESSEE-COMPANY HAS TO FREQUENTLY BEAR REPAIRS TO KEEP THE PLANT & MACHINERY IN ITS WORKING CONDITIONS, IN ADDITION TO REGULAR DAY- TO-DAY MAINTENANCE, WHICH IS ALSO HIGH DUE TO THE NATURE OF BUSINESS OF THE COMPANY. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS INCURRED RS.26,89,5 69/- TOWARDS REPAIRS AND MAINTENANCE TO PLANT & MACHINERY COMPARE TO RS.17,1 1,176/- INCURRED IN THE IMMEDIATE PRECEDING PREVIOUS YEAR. IN THIS RESPECT ASSESSEE HAS INCURRED EXPENDITURE ON PLANT & MACHINERY AMOUNTING TO RS.26 ,69,439/- COMPARE TO RS.9,33,510/- MADE IN THE CURRENT PREVIOUS YEAR. TH IS HAS RESULTED IN INCREASE IN THE COST OF MAINTENANCE IN THE CURRENT PREVIOUS YEAR CO MPARE TO THE IMMEDIATELY PRECEDING PREVIOUS YEAR. THUS, IT BECOMES CLEAR FRO M THE ABOVE FACTS THAT THE COST OF REPAIR AND MAINTENANCE INCURRED IN THE CURRENT PREV IOUS YEAR CANNOT BE COMPARED WITH THE COST OF REPAIR AND MAINTENANCE INCURRED IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR. FURTHER, THE PLANT & MACHINERY COMPR ISES OF METAL PIPES THROUGH WHICH THE LIQUID WASTE IS FLOATED DURING THE PROCES S OF EFFLUENT TREATMENT. THE LIQUID WASTE CONTAINS VARIOUS HAZARDOUS AND CORROSIVE CHEM ICALS THAT CORRODE THE SAID PIPES, WHICH IN TURN TRUNCATES ITS LIFE AND THUS RE QUIRES TO BE REPLACED FROM TIME TO TIME. THE PIPES ALSO REQUIRE PAINTING ON A REGULAR BASIS TO AVOID ITS CORROSION AND THE SAME IS CARRIED OUT THROUGH OUT THE YEAR ON A CONTI NUOUS BASIS. FURTHER, IT MAY BE NOTED THAT DURING THE CURRENT PREVIOUS YEAR THE REP AIR AND MAINTENANCE OTHERS HAS REDUCED TO RS.3,03,571/- COMPARE TO RS.4,71,178/- I NCURRED IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE REPAIR AND MAINTENANCE ARE PURELY IN THE NATURE OF REVENUE EXPENDITURE AS THE SAME DOES NOT AMOUNT TO IMPROVEMENT IN THE CAPACITY OF EXISTING PLANT & MACHINERY BUT FACILITATES ITS MAIN TENANCE TO ITS WORKING CONDITIONS AND ENSURES ITS FUNCTIONING AT THE EXISTING CAPACIT Y. IN THE LIGHT OF THE ABOVE, WE ARE ITA NO.426/AHD/07 & CO NO.5/AHD/07 734-36/AHD/07 & 3835/AHD/08 A.Y S 99-00-01-02 & 03-04 DCIT, BHARUCH V. ENVIRO TECHNOLOGY LTD. PAGE 19 OF THE VIEW THAT REPAIRS AND MAINTENANCE IS ALLOWAB LE AS DEDUCTION AND WE ORDER ACCORDINGLY. NOW COMING TO REVENUES APPEAL IN ITA NO.3835/AHD/2 008. 21. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AG AINST THE ORDER OF CIT(A) IN CANCELING THE PENALTY LEVIED BY ASSESSING OFFICER U /S.271(1)(C) OF THE ACT. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE C.I.T.(A) HAS ERRED IN LAW IN CANCELLING THE ORDER LEVYING PENALTY OF RS.1 5,64,180/- U/S.271(1)(C) OF THE IT ACT WHILE TACITLY ADMITTING THAT THE FAILURE OF THE ASSESSEE TO REDUCE CAPITAL SUBSIDY OF RS.131.20 LAKHS FROM THE COST OF ASSETS WAS CLEARLY IN VIOLATION OF PROVISIONS OF LAW EXTANT AT THE RELEVA NT POINT OF TIME. 22. AS WE HAVE ALREADY DECIDED THIS ISSUE OF CAPIT AL SUBSIDY, IN FAVOUR OF ASSESSEE IN QUANTUM APPEAL VIDE PARA-17 OF THIS, THE PENALTY WILL NOT SURVIVE. ACCORDINGLY, WE DELETE THEN PENALTY AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 23. IN THE RESULT, REVENUES APPEALS ARE DISMISSED AND THAT OF ASSESSEES APPEALS AND CO ARE ALLOWED EXCEPT ITA NO .734/AHD/2007, WHICH IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED ON THIS DAY OF 4 TH FEB,2011 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 04/02/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-VI, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD