TaxTMI 
TaxTMI 
2011 (2) TMI 1594
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....pital in nature. For this Revenue has raised the following ground:- "1. On the facts and in the circumstances of the case, the CIT(A) erred in deleting the addition of Rs. 7, 14, 274/- being the claim of repair expenses consisting of expenditure in the nature of Capital." 3. The brief facts leading to the above issue are that assessee is a limited company engaged in the business of treatment of industrial effluents of small scale industries located at Ankleshwar Industrial estate and providing common effluents treatment overhead for the treatment of effluents generated from 225 member industries. During the year under consideration assessee 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) of the Act on 07-10-2004, required the assessee to explain expenses debited towards repair 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 not treated as capital in nature, which a....
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.... to its profit-making apparatus, the same would only be an expenditure of revenue nature. In the present case, only a proper verification of each expenditure could lead to a proper finding whether the same resulted in a new asset, or an addition to an existing asset, by way of an enhancement in its capacity or otherwise, or the same was by way of a substantial replacement of the whole of the 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 cost being recouped by way of the capital allowance in the form of depreciation; it being nobody's case that any asset means permanence or everlastingness. Or, as contended by the assessee, is in the nature of routine repairs and maintenance, carried out in part, by replacement of the worn-out parts of the existing assets. We find, as contended by the assessee, the A.O. has proceeded in the matter without verifying the facts, or calling upon the assessee to substantiate its claims, and inferring an enduring benefit only on the basis of nature of the goods purchased, and which is clearly fallacious. The L'd. CIT(A) also has not recorded his defin....
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....of Income Tax (Appeals) erred in the following respects: 1.2.1 In not appreciating the fact that provision made for the sludge disposal charges amounting to Rs. 10, 95, 250/- has been made on the basis of closing stock of sludge as on the last day of the previous 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 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, 000 BY TREATIG THE SAME AS CAPITAL EXPENDITURE:- 2.1 On the facts and in the circumstances of the case and in law the Commissioner of Income Tax (Appeals) erred in upholding the action of the Assistant Commissioner of Income Tax in disallowing sludge testability study charges out of the sludge disposal charges amounting to Rs. 2, 00, 000 and treating the same as capital expenditure without appreciating the fact that no benefits of an enduring nature are derived therefrom. 2.2 In doing s....
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....eals) erred in following respects: 1.2.1 In not appreciating the fact that the respondent complied the matching concept of Income and expenses following the mercantile system of accounting which is being followed 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 after the effluent treatment and only expenses for it's disposal is provided based on the method which has been consistently followed: 1.3 In view of the above grounds of appeal, the respondent prays that the Assessing Officer be directed to delete the addition made on account of disallowance of provision for sludge disposal charges amounting to Rs. 16, 32, 903/-" 7. The brief facts leading to the above common issue, as taken from assessment year 2002-03, are that assessee is a limited company engaged in the business of treatment of industrial effluents of small scale industries located at Ankleshwar Industrial estate and providing common effluent treatment overhead for the treatment of effluents generated from 225 member industries. During the year assessee filed its return o....
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....he rival contentions and also the judicial decisions cited in this regard. It is a fact that the 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 provisions. 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 colleague CIT(A)-XIX, Ahmedabad in order No. CIT(A) XIX/CAB/VI-84/05-06 dated 28.8.2006 in appellant's own case for A.Y 2002-03. The disallowance by Assessing Officer is therefore confirmed." The relevant order of CIT(A) in assessment year 2002-03, 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 Representative has been carefully considered and perused the case law called upon. I have considered the facts brought on record in the assessment order for making disallowance of provision. It is a fact that in initial assessment year, the ....
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....sion of early year which was disallowed may be allowed on actual expenditure basis after verification of such actual expenses claimed t have incurred during this year. The Assessing Officer may ensure that no double allowance 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 through the facts of the case. We find that the assessee-company Enviro Technology Limited is engaged in Common Effluent Treatment Facility for the treatment of effluent (Waste Water) generated from 225 member industries. The assessee explained the sludge generation process along with justification on sludge 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 tile liner. It is mixed by air supply and made homogeneous. This acidic effluent is first treated with Hydrated Lime to make it neutral to remove its acidity. The lime is consumed by its acidity as well as organics matter. The acidity mainly due to sulphuric acid r....
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....y un-availed 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 agreement during the year, the un-availed tanker charges received have been reduced from Rs. 31, 36, 5007- to Rs, 25, 96, 000/- which again justifies the increase in Sludge generation and consequently the increase in Sludge Disposal charges. In view of the above facts and procedure the sludge disposal charges 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 disposal charge of year. The assessee has enclosed the details of sludge dispatched 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 incurred during the aforesaid months. 10. We find that the Sludge is generated in the .lent treatment, which has to be disposed off as per the rules and regulation of GPCB, and the liability of sludge disposal .charges accrues the moment sludge gets generated. The Company is following mercantile system of accoun....
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....le system of accounting. In the result, the issue is decided in favour of the assessee. 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 as 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 TREATING PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO Rs. 6, 01, 265/- 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 the learned CIT(Appeals) erred in law and on facts in considering the provision 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 issue are that assesseecompany is a limited company engaged in the business of treatment of industrial effluent of small scale industries located at Ankleshwar Industrial estate and providin....
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....scertained liability. No doubt that these payments pertain to charges due to the appellant for the relevant previous year. However the appellant has not been able to indicate how the previous years charges can be treated as doubtful debts. It has also not been established that 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 pertain to relevant previous year and in facts the services were provided as late as November, 1997 to Acme Petrochem and September, 1997 in the case of Colourman Dye Chem Ind. Pvt. Ltd. In other words the debts are not shown to be bad or doubtful. Thus there was no question of quantification of liability in that regard, much less an ascertained liability. The Assessing Officer was therefore justified in adding the said amount u/s. 115JB. The ground is thus dismissed." Aggrieved, assessee came in second appeal before us. 14. We have heard rival contentions and gone through the facts and circumstances of the case. We find that in the accounts for the year ended 31st March, 1999 an amount of Rs. 6, 01, 265/- and Rs. 2.78 lakh were provided for provision for dou....
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....ant Commissioner of Income Tax in computing the Depreciation allowance after reducing the capital subsidy amounting to Rs. 1, 62, 40, 000/- from the cost of the capital assets. 3.2 On doing so, the Commissioner of Income Tax (Appeals) erred in not appreciating the fact that Explanation 10 to Section 43(1), which is inserted by the Finance Act, 1998 w.e.f. 01.04.1999 is not applicable 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 fact that though the appellant had received the capital subsidy during the previous year, it was sanctioned prior to 31.03.1998." 16. The brief facts leading to the above issue are that Assessing Officer during the course of assessment proceedings noticed that assessee-company has received capital subsidy of Rs. 131.20 lakh from State Government and equivalent amount from Central Government. The Assessing Officer required the assessee to reduce the aggregating capital subsidy from the cost of capital asset for the purpose of computing the actual cost of asset for allowing depreciation in view of provision of Section 43(1) Explanation 10. Accordingl....
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....e facts and circumstances of the case. During the previous year relevant to assessment year 1998-99 and the previous year relevant to assessment year 1999-00 the assesseecompany has received capital subsidy amounting to Rs. 50 lakh and Rs. 81.20 lakh respectively each from the State Government and Central Government in respect of the capital assets acquired on or before 31st March, 1998. The same has been credited to reserve and surplus accounts in the audited 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 units, the State Government sanctioned the capital subsidy amounting to Rs. 92.96 lakh vide letter dated 24-07- 1998 on eligible investments in fixed assets amounting 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 assessee's paper book and in the aforesaid letter, the State Government has given a reference to the letter dated 09-02-1996 approving the total project cost amounting to Rs. 550 lakh. Further, vide letter dated 20-12-1996, the State Government has revised th....
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....rosive chemicals which erode the plant and machinery necessitating the repairs 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 that assessee-company has debited expenses towards repair and maintenance of plant & machinery to Rs. 26, 89, 569/- and another expenditure of Rs. 3, 03, 571/-. The Assessing Officer noticed that assessee-company has given work for repair of plant & machinery to M/s H'reck Engineers and made payment of Rs. 5, 51, 349/-. 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 general entries from capital expenditure on account of repair and maintenance. Accordingly, AO made disallowance of Rs. 5, 27, 839/- after allowing depreciation 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 ca....