2011 (2) TMI 1425 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty u/s 271(1)(c) of the IT Act.
2. Disallowance of provision made for sludge disposal charges.
3. Levy of interest u/s 234D of the IT Act.

Summary:

1. Deletion of Penalty u/s 271(1)(c) of the IT Act:
The departmental appeal challenged the deletion of penalty u/s 271(1)(c) amounting to Rs. 3,80,610/- levied on the addition due to disallowance of provision for sludge disposal charges of Rs. 10,40,131/-. The CIT(A) had deleted the penalty, noting that the assessee had disclosed all relevant facts and provided detailed explanations during the assessment proceedings. The CIT(A) concluded that the disallowance was a matter of legal interpretation and not due to concealment or furnishing of inaccurate particulars of income. The ITAT upheld this view, emphasizing that penalty provisions require strict adherence and the onus to prove concealment lies on the Revenue. Since the addition on merit was deleted by the Tribunal in the preceding assessment year, the penalty on the same matter was deemed unnecessary and thus dismissed.

2. Disallowance of Provision Made for Sludge Disposal Charges:
The assessee's appeal contested the disallowance of the provision for sludge disposal charges amounting to Rs. 10,40,131/-. The AO had disallowed the provision, considering it a contingent liability created to reduce taxable income, as no actual expenses were incurred and the assessee had not complied with Accounting Standards I and II. The CIT(A) upheld the disallowance, noting that the provision was not based on actual liability but on future disposal of sludge. However, the ITAT, referencing its own decision in the assessee's case for previous years, allowed the provision, recognizing that the liability for sludge disposal accrues as soon as the sludge is generated, following the mercantile system of accounting. Thus, the provision for sludge disposal charges was allowed as a deduction u/s 37 of the Act.

3. Levy of Interest u/s 234D of the IT Act:
The assessee's appeal also challenged the computation of interest u/s 234D amounting to Rs. 83,010/-. The CIT(A) had upheld the AO's action of computing interest on the aggregate of the refund granted u/s 143(1) and interest u/s 244A. The assessee argued that interest u/s 234D should only be levied on the excess amount of tax refunded, excluding interest u/s 244A. The ITAT noted that the interest point was not argued further and thus dismissed this part of the appeal.

Conclusion:
The ITAT dismissed the departmental appeal regarding the penalty and allowed the assessee's appeal partly by permitting the provision for sludge disposal charges as a deductible expense. The interest computation issue u/s 234D was not further contested and thus dismissed. The order was pronounced in the open court on 11-02-2011.