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TMI Blog2016 (11) TMI 1721X X X X Extracts X X X X X X X X Extracts X X X X ..... edly accepted the miscellaneous income under head profits and gains of business . As explained that the appellant-company had set aside the amount for expenditures to be incurred for inherent cost relating to the maintenance of the pits. Therefore, the interest income has a direct nexus with the business activity of the assessee, therefore eligible for deduction u/s. 80IA. As in the case of Empire Pumps Pvt. Ltd. [ 2014 (11) TMI 563 - GUJARAT HIGH COURT ] held that interest income is held to be eligible for deduction u/s. 80IA. Disallowance of provision for Pit Covering Expenses - assessee explained that the liability to incur expenditure on pit covering arises as soon as the pits were dug and the pits are required to be covered after each pit is completely filled as per guidelines issued by GPCB - A.O. denied the contention of the assessee on the ground that the pit is closed immediately and, therefore, the difference between the provision and the amount actually spent could not be explained properly - HELD THAT:- We direct the A.O. to allow the provision for pit covering expenses in totality. Computation of book profit u/s. 115JB - Hon ble Supreme Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illaiya, Accountant Member And Shri Mahavir Prasad, Judicial Member For the Appellant : Shri S. N. Soparkar, AR For the Respondent : Shri Jamesh Kurian, Sr. D.R. ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA Nos. 1242/Ahd/2007, 733/Ahd/2007, 4389/Ahd/2007, 29/Ahd/2007, 29/Ahd/2009 and 123/Ahd/2010 are appeals by the assessee preferred against separate orders of the ld. CIT(A) pertaining to A.Y. 2002-03, 2003-04, 2004-05, 2005-06 and 2006-07 respectively. ITA No. 4408/Ahd/2007 is the cross appeal of the revenue for A.Y. 2004-05. 2. Since common issues are involved in all these impugned appeals, these appeals were heard together and are disposed of by this common order for the sake of convenience. 3. Common issues raised by the assessee in these appeals can be categorized as under:- (1) Exclusion of subsidy received towards the consumption of Pit and Land Expenses from the deduction claimed u/s. 80IA. (2) Exclusion of other income and miscellaneous income from the deduction claimed u/s. 80IA. (3) Disallowance of provision for Pit Covering Expenses. (4) Disallowance of Post Closure Expenses. (5) Levy of interest u/s. 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to tax and included in computing the profit and gains eligible for deduction u/s. 80IA of the Act. 12. The lower authorities denied this claim of deduction on the ground that the subsidy amount has been granted specifically for land/building and plant machinery. 13. It is say of the ld. counsel that the assessee has charged the cost to its Profit and Loss account. Therefore, the subsidy received from the State Government is nothing but the recoupment of the cost and, therefore, a direct nexus has been established which entitles the assessee for the claim of deduction u/s. 80IA of the Act. The Hon ble Supreme Court in the case of Meghalaya Steels Ltd. 383 ITR 217 has held that Whether the assessee has received subsidy which was reimbursements of manufacturing cost incurred by assessee, deduction of said subsidies was allowed u/s. 80-IB and 80IC of the Act . The relevant findings of the Hon ble Supreme Court need a special mention here and the same reads as under:- 18. The judgment in Sterling Foods ease (supra) lays down a very important test in order to determine whether profits and gains are derived from business or an industrial undertaking. This Court has sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r gains derived from eligible business. 17. A perusal of the financial statements vis- -vis the computation of income shows that the only head of income shown in the return is profits and gains of business or profession . The A.O. has also proceeded by computing the assessed income taking the figure from profits and gains of business or profession . This means that the A.O. has admittedly accepted the miscellaneous income under head profits and gains of business . 18. It was explained that the appellant-company had set aside the amount for expenditures to be incurred for inherent cost relating to the maintenance of the pits. Therefore, the interest income has a direct nexus with the business activity of the assessee, therefore eligible for deduction u/s. 80IA. 19. The Hon ble Jurisdictional High Court in the case of Empire Pumps Pvt. Ltd.229 taxmann.com 379. Has held that whether assessee was compelled to park a part of its funds in fixed deposits under insistence of financial institutions, interest income received on said deposits was to be regarded as business income for the purpose of computing amount of deduction u/s. 80-I of the Act. The Hon ble Jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained properly. The A.O. further added the excess provision to the book profit treating the same as unascertained liability for the computation of book profit u/s. 115JB of the Act. The Hon ble Rajasthan High Court in the case of Udaipur Mineral Development Syndicate Pvt. Ltd. 261 ITR 706 had held that as soon as the assessee dig the pits its liability to refill them arose and it was entitled to deduction of the expenses incurred for filling those pits, as the assessee was following mercantile system of accounting . Similar view was taken by the Co-ordinate Bench of Hyderabad in the case of NMDC Ltd. 56 taxmann.com 396. The Coordinate Bench at Ahmedabad in the case of Enviro Technology Ltd. in ITA No. 426, 734 to 736/Ahd/2007 following the order of the Hon ble Rajasthan High Court (supra) allowed the claim of the assessee. 23. In the light of the aforementioned judicial decisions, we direct the A.O. to allow the provision for pit covering expenses in totality. Insofar as the applicability of Section 115JB of the Act is concerned, the Hon ble Supreme Court in the case of Appollo Tyres Ltd. 255 ITR 273 has held that while determining the book profits u/s.115J, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losure of the portion/full part of the land fill . Pursuant to this stipulation, the assessee had scientifically computed the provision as under:- Bharuch Enviro Infrastructure Limited Assessment Year 2003-04 Working showing computation of Prov. For Post-Closure Care Expenses Made During the Year. Total sludge Received during the year (Qty. in M.T.) 61,484,737 Post Closure Care Fund @ Rs. 50/- per M.T. 3,074,237 (Working as per last year Notes enclosed herewith at annexure A) Opening Balance 7,700,000 Interest @ 7.15% on Opening Balance required to be recovered 550,550 3,624,787 Say Rs. 3,625,000 28. Considering the totality of the facts, in the light of the stipulation of Gujarat Pollution Control Board (supra) and the Scientific Working (supra), we direct the A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) Area of Phase (Pit 1 to 4) = 17028.60 x 100 36,360 (e) Total Capacity of Phase 1 (Pit to 4) = 46.80% of 6,04,041 = 2,35,878 MT Say = 2,36,000 MT Bharuch Enviro Infrastructure Limited Statement No. 05 Provision to be Made For Closure Of Pit (During 2001-2002) (a) Total Sludge Solid Waste Received up to 31.03.2002 = Rs. 1,54,589.649MT (b) Cost of Top Liner (Closure Pit) = 137.80 per MT (c) Total cost of closure up to 31.03.2002 = 2,13,02,453 Less already debited A/cs up to 31.03.2002 = 60,97,451 Provision to be made from closure of pit = 1,49,05,002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 715 MT (b) Cost of Pit to be written off = 51406.715 x 131.20 = Rs. 67,44,561 33. A perusal of the above shows that the revised computation is scientific. We further find that the expenditures claimed in the earlier years were allowed by the revenue. Therefore, write back of the same has a direct nexus with the business activity of the assessee. Hence, the assessee is eligible for the deduction u/s. 80IA of the Act. Ground no. 1 is accordingly allowed. ITA No.4398/Ahd/2007 for A.Y. 2004-05 34. Ground No. 3 is not pressed and is dismissed accordingly. 35. Ground no. 6 relates to the non-adjudication of ground no. 5 relating to the computation of accumulated profits. We find that the First Appellate Authority has not adjudicated this grievance of the assessee. Therefore, we restore this issue to the files of the ld. CIT(A). The ld. CIT(A) is directed to decide the grievance raised vide ground no. 5. after giving a reasonable and sufficient opportunity of being heard to the assessee. Ground No. 6 7 are allowed for statistical purpo ..... 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