TaxTMI 
TaxTMI 
2023 (3) TMI 365
X X X X Extracts X X X X
X X X X Extracts X X X X
....expenses of solid waste disposal. The said amount comprised of provision for such expenses as under: * Rs.3,53,51,500/- being transportation charges payable for transporting for interim SW site Vatva to proposed solid waste site at Semalia Bayad and , * Rs.4,24,22,100/- being provision made for solid waste (sludge) to be dumped in site from solid waste interim site to new solid waste site. Since, as per the AO, the assessee did not submit any documentary evidence clarifying whether the amount for which provision was made was based on actual incurrence of expenses and inquiry revealed that expenses actually incurred in subsequent years i.e. financial years 2015-16, 2016-17 & 2017-18 fell short of the amount provided for,the AO held that the provision related only to a contingent liability and disallowed the same. He held that only actual liability could be allowed tobe considered as expenditure. The relevant findings of the AO reproduced at para 4 of the Ld.CIT(A)'s order is as under: "4. In view of the above discussion facts, it is clear that theassessee is not eligible for claiming expenses on provision basis under head of Solid Waste Disposal Charges. A liability which is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed out that the provision has been done on the basis of section 145 of the Act as per the prescribed accounting policy and Accounting Standards. Further, several case laws in support were referred to. Pleadings of the assessee before the ld.CIT(A) are reproduced at para 2.2 of the order as under: 2.2. The appellant's submission before the CIT(A) is as under: 1. At the outset, your appellant draws your kind attention to the reply dated 26.12.2017 reproduced by AO at Para 4 of the assessment order. It is undisputed fact that the appellant society is engaged in disposing the solid waste generated by its members in the GIDC Industrial Estate Vatva. Nearly 540 members units located in GIDC, Vatva are the beneficiary of Common Effluent Treatment Plant who booked their quantity of such waste based on their production planning. The procedure of the treatment and disposal (dumping) of the waste is explained in the said reply. The Income of the appellant comprises of the charges levied on the members units based on the quantity of solid waste generated by them which then is required to be disposed off by the appellant in accordance with the norms and guidelines of Gujarat Pollution ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as on 30.11.2017. The AO failed to appreciate that solid waste collected during the previous year relevant to assessment year under consideration was completely disposed off and it was the provision for later years which continued in the said account. The Id AO for the reasons best known to him did not raise any query regarding documentary evidence of expenditure so incurred in later years after appellant submitted the ledger accounts. The books of account of appellant are duly c-cited and all the expenses (as in the past and current year) are fully supported by relevant vouchers. 5. Surprisingly, the Id AO at Para 4 (iii) has made observations that it is not binding to the assessee that sludge is compulsorily dumber at another new site. This is quite contrary to the objects under which the appellant is established me also the norms and guidelines as per which the appellant has undertaken the liability for disposal of solid waste. In fact under the authorization of the GPCB and with the intention of upliftment of the public health only, the appellant society is formed for carrying on activity of Pollution Control and it is always me obligation to fill such solid waste at approve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and gains of its business and the profits and gains of the business cannot be determined unless and until the expenses or the obligations which have been incurred are set off against the receipts. The expression "profits and gains" has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted there from- whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date." iii) DCIT vs. Enviro Technology Ltd ITA No: 2836/Ahd/2010 [ Copy attached EXHIBIT-G Page No: 25 to 37 ] Held: Following earlier orders that: "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 sets generated. The Company is following mercantile system of accounting and accordingly provided for the sludge disposal charges to be incurred on the sludge generated up to 31.March of the relevant year but could not be disposed off as on that date. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....edabad ITAT ] iv) Rotork Controls India (P) Ltd vs. CIT 314 ITR 62 (SC) holding that "A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources from the enterprise embodying economic benefits. v) CIT vs. Om Metals & Minerals (P) Ltd 373 ITR 406 (Rajasthan) [copy attached EXHIBIT-H page No: 38 to 42 Following Bharat Earth Movers &Rotork Control & Calcutta Co Ltd judgments] vi) Shree Drain Auto Transport Corporation vs. ACIT 148 TTJ 41 Ahmedabad) [Copy attached EXHIBIT-! Page No: 43 to 47 following Bharat earth Movers, Metal Box India and Rotork Control judgments] 10. Hon'ble ITAT has considered the decision of Rajasthan High Court in Rajasthan State Mines ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been earned in such process or there is no availability of site as per approval given by Gujarat Pollution Control Board hence it was required to store solid waste material collected from GIDC, Vatva, at temporary site. The only dispute of the AO is regarding contingency of such expenditure. It is settled legal law that Assessee is eligible for claiming expenditure incurred or to be incurred against income offered to tax in current year. The Appellant is not following cash system of accounting but has been consistently following mercantile system of accounting and as per accepted accounting standards issued by ICAI, all the accrued expenditure are required to be booked as expenditure and as per principle of prudence, provision should be made for all known liabilities and losses even though amount cannot be determined with certainty and represent only best estimate in the light of available information. The Appellant has provided for such expenditure at Rs.1,100 per MT which comprises of Rs.500 per MT towards transportation expenses and Rs.600 per MT for other expenses. The Appellant has also submitted ledger account of provision for expenses for current year as well as in subsequen....