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TMI Blog2023 (3) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of proper site and had kept the waste at temporary site, it had booked the expenses for the disposal of the waste at the permanent site,commensurate to income accounted for by it ,on the basis of the actual estimation of expenditure which were required to be incurred. DR was unable to controvert these factual findings of the ld.CIT(A). CIT(A) has further noted that this accounting method followed by the assessee was in consonance with the prescribed Accounting Standard and policy in accordance with the Prudence norms. That it complied accordingly with section 145 of the Act requiring income to be computed in accordance with notified accounting standards. DR was unable to controvert the same. In view of the above, we find no infirmity in the findings of the Ld.CIT(A) that the provision made by the assessee was not a contingent liability but an accrued liability, and therefore was allowable claim of the assessee. The order of the ld.CIT(A) is accordingly upheld, and the appeal of the Revenue is dismissed. - SMT. ANNAPURNA GUPTA , ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL , JUDICIAL MEMBER For the Assessee : Shri S. N. Soparkar , Sr. Advocate For the Revenue : Shri A. P. Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a contingent liability does not arise in order to allow the deduction under section 37. Accordingly, the amount claimed of Rs.7,77,73,600/- (Rs.3,53,51,500 + Rs.4,24,22,100/-), under the head of 'Solid Waste Disposal Charges on provision basis is considered as contingent liability which is not allowable and added back to the total income of the assessee for the year under consideration. 4. Before theld.CIT(A) the assessee contended that it was engaged in disposing solid waste generated by its member units in the GDIC Industrial Estate, Vatva, where 540 member units were located. It was pointed out that the procedure for dumping and disposal of solid waste was also explained to the AO, and it was pointed out that the assessee had collected solid waste of 70,703.500 MTs during the year under consideration and charged Rs.8,81,50,182/- on account of the same. He pointed out that this fact of income shown , on account of solid waste collected by the assessee during the year for disposal, was not disputed by the AO; but, it was pointed out to the ld.CIT(A), that since existing site of the assessee for disposal of waste at Vinzol was filled, the assessee was looking for a new site ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, as explained in the said reply, since the Vinzol Site of the appellant was filled up fully, the appellant had to look for new site at Modasa which also could not be opened by the end of 31 March 2015 and hence the Solid Waste collected was stored at Interim (Temporary) storage site at Vatva, GIDC for making safe disposal in the future (which in fact is so disposed in later years). It is thus abundantly clear that the appellant after having collected the solid waste and charged the member units on such solid waste which is income credited in the Profit loss account, the liability for incurring expenses against such income in terms of the contractual obligation immediately accrued and had to be provided for in the accounts. The appellant has therefore made provision of such expenses of the accrued liability in accordance with the mercantile method of accounting (noted at the body of assessment order col.7). The expenses to be incurred being accrued liability is provided at conservative rate of Rs. 500 per MT towards transportation expenses and Rs. 600 per MT for other expenses based on past experience and prevalent rates. 3. The appellant draws your kind attention to the Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accounting Standards notified by the Act (vide Note No: 9949 dated 25.01.1996 u/s 145 of IT Act) also state that: Prudence.-Provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information ; 7. The said Standard further also state that: Accrual refers to the assumption that revenues and costs are accrued, that is, recognized as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the periods to which they relate. 8. The Id AO also failed to consider the legal position emanating from the decided case laws cited before him and went wrong in relying on the decision not relevant to the facts of the appellant's case. 9. Case Laws: i) Bharat Earth Movers vs. CIT 245 ITR 428 (SC): Held: The law is settled: if a business liability has definitely arisen in the accounting ear the deduction should be allowed although the liability may have to 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 estimated with reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mines was granted to it by the State Government of Rajasthan. There was an agreement between the assessee and the State that as faras 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 assesseecompany claimed that the liability 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 land 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 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 ariseand it is entitled for deduction of the expenses which it is supposed to incur for filling those pits, as the assessee is following the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 ITR 62 it being relating to gratuity for which section 40A (7) had overriding effect. The said judgment of Sajjan Mills is also considered by Rajasthan High Court in said case of Om Metals and followed Supreme court judgments in Bharat earth Movers rotor Controls.) In view of above factual and legal position, the Id AO erred in placing reliance on the said judgments which are distinguishable and considering binding judgments of Apex Court as well as identical facts in the case of Ahmedabad ITAT in Environ technology EX-G above, the disallowance of provision of Rs.7,77,73,600/- is not justified. It be so held now and disallowance be deleted. 5. The Ld.CIT(A) was convinced with the contentions of the assessee and accordingly deleted the disallowance made holding at para 2.6-2.7 of its order as under: 2.6. On careful consideration of entire facts, it is observed that AO has not disputed the business activity carried out by Appellant nor disputed the quantum of income shown by Appellant. In the year under consideration, Appellant has offered income of Rs. 8,81, 50, 182/- being solid waste income generated during the course of its business of disposing of solid waste as described in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant has also submitted ledger account of solid waste disposal charges of AY 2014-15 along with bills wherein also Appellant has paid Rs.1,100 per MT towards disposal of solid waste to Naroda Enviro Projects Limited. 2.6.2. These details clearly support the contention of Appellant that it is required to incur expenses on solid waste disposal, provision made in the Books of Account is against income recognized in profit loss account and rate of provision is as per actual expenditure incurred in the past and future for same activity as against the receipt of income there is corresponding obligation and liability. By adopting the method of accounting as suggested by AO, it would lead to anomaly meaning thereby income is recognized on collection of waste whereas expenditure is recognized on disposal of waste and which will entirely disturb the profit loss account. In one year there would be huge income without any corresponding expenditure and in subsequent year there would be losses higher than income. The AO has claimed that entire provision made in year under consideration is not actually expended in subsequent year, it is observed that from the details submitted by Appellant vid ..... 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