9911796707
TMI Blog2011 (2) TMI 1425X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the learned CIT(A)-VI, Baroda dated 28-06-2010 for assessment year 2005-06, challenging the deletion of penalty u/s 271(1) ( c ) of the IT Act on the following grounds: "1(i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty u/s. 271 (1) (c) of ₹ 3,80,610/- levied on the addition on account of disallowance of provision for sludge disposal charges amounting to ₹ 10,40,131/-. 1(ii) The CIT(A) erred in not appreciating the facts that the assessee company has suddenly changed its accounting policy and started making provisions. In making such a departure from the existing accounting policy, the assessee company has not complied with Accounting Standard I and II notified by the Board. As per Standard I & II, any change in an accounting estimate have a material effect in the previous year shall be disclosed and quantified. But no such disclosure has been made by the assessee company. The assessee company has made an attempt to reduce its tax liability by making provision of ₹ 10,40,131/- for sludge disposal charges and thereby filed inaccurate particulars of its income, which clearly attracted levy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusal of the details of sludge disposal charges that the assessee has made provision of ₹ 10,40,131/- under the head "sludge disposal charges". It was noted that the provision of ₹ 10,95,250/- was made on the last day of the previous year and no actual expenses were incurred by the assessee. It was further noted that the assessee company had not complied with the Accounting Standard I and II notified by the Board. Since from the assessment year 1998-99 to 2000-01, the assessee had paid taxes u/s 115JA/JB (MAT) and for the subsequent years when tax was computed as per the normal provisions the assessee company changed its accounting policy and started making provisions for its various liabilities. It was also remarked that in Schedule 18 of the accounts for the relevant assessment year there is no mention about the change in accounting policy. It was also opined by the AO that in assessment year 1999-2000 the assessee incurred sludge disposal charges for the first time and the same were debited to the profit & loss account on actual basis. Relying on the decision in the case of New India Mining Corporation Ltd. Vs CIT 168 ITR 431 (Bom.) which was subsequently confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the sludge is generated during the process of treatment of the liquid waste received from the chemical industries and that the assessee company follows the mercantile system of accounting and had accordingly made the provision for sludge disposal charges on the closing stock of sludge generated during the process of treatment of liquid waste received from the chemical industries but not dispatched during the year. The following decisions were relied upon by the assessee. Gujarat Credit Corporation Ltd. Vs ACIT, Ahmedabad (2008- TIOL-224-AHM-ITAT) Dilip N. Shroff Vs Joint Commissioner of Income Tax (2007) 210 CTR (SC) 228 DCIT, Circle-4(1), Baroda Vs AIMS INDUSTRIES LTD. (2008- TIOL - 294 ITAT-AHM) The Commissioner of Income Tax Vs Ajaib Singh and Co. (2002, 253 ITR 630 (P & H). The Asstt. Commissioner of Income Tax VS Shiv Nadar (Manu/ID/5036/2007) The Additional Commissioner of Income Tax Vs Delhi Cloth and General Mills Ltd. (1986) 157 ITR 822 (Delhi) M/s. Koolnest (P) Ltd. Vs The Asstt. Commissioner of Income Tax, Bangalore (2008 - TIOL -227 ITAT BANG) Sir Shadi Lal Sugar and General Mills Ltd. Vs Commissioner of Income Tax, Delhi CIT Ahmedabad Vs Reliance P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant's point of view was upheld. When there are different views on the point involved in the issue, the AO is not justified in levying penalty under section 271(1)(c). Further penalty proceedings and assessment proceedings are distinct and separate from each other and on the basis of quantum addition in the assessment order which is a matter of legal interpretation no penalty can be imposed on the ground of furnishing of inaccurate particulars of income. Thus, in the given facts and circumstances of the case, in my view, the AO is not justified in levying penalty u/s. 271 (1)( c ) the same is therefore cancelled. 4. In the result, the appeal is allowed." 8. The learned DR relied on the order of the AO on penalty. On the other hand, the learned Counsel for the assessee reiterated the submission made before the authorities below. 9. We have considered the rival submissions. It is brought to our notice that ITAT Ahmedabad "A" Bench in the case of the same assessee considered the identical issue of disallowance of provision made in respect of sludge disposal charges in various years in ITA No. 734 - 736/Ahd/2007 and C. O. No.5/Ahd/2007 for assessment years 1999-2000, 2001-02, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to BEBL. The sludge generated which match exactly with the specification of Cement Industry is sent to the Cement Industry as per their requirement as per the GPCB rules the sludge generated ready for dispatch has to be removed from the site and accordingly the balance of non-toxic sludge which is 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 around Bharuch District. The generation of sludge depends upon the quantity of lime consumed. The lime is red by its acidity as well as organics matter. However treatment charges depend upon the quality and quantity of the effluent i.e. its acidic and toxic nature. Thus the treatment charges received and sludge disposal charges incurred are not comparable with each other because of the complex nature of the effluent. Further, the company has entered into an agreement with each member for providing common effluent treatment facility. Every member has to pay unavailed tanker charges. In case, he does not fulfill the commitment about the number of tankers that he has agreed to bring as per the terms and conditions of the said ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in hand and it does arise when the assessee has filled the pits. The Commissioner of Income-tax (Appeals) has allowed the claim. In appeal before the Tribunal, the tribunal restored the view taken by the Assessing officer. On the further Appeal to High Court at page 708 of 261 ITR, it was held that we agree with the view taken by the Commissioner of income-tax (Appeals) that the assessee digs the pits, the liability does arise and it is entitled for deduction of the expenses which it is supposed to incur for filling those pits, as the assessee is following the mercantile system of accounting. It can claim the expenses incur as soon as it digs the pits. In view of the aforesaid facts and circumstances and relying upon the aforesaid decision of Rajasthan High Court, we allow the liability of sludge disposal charges accrues the moment the sludge is generated and accordingly the provision for sludge disposal charges ought to be allowed as deduction under section 37 of the Act as the same is provided following the mercantile system of accounting. In the result, the issue is decided in favour of the assessee. By following the same order we set aside the orders of the authorities below ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
