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2013 (9) TMI 606 - AT - Income TaxDisallowance of provision of Sludge Disposal Charges - Held that:- Sludge is generated in the Effluents 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 accounting and accordingly provided for the sludge disposal charges to be incurred on the sludge generated upto 3I.March of the relevant year but could not be disposed off as on that date. The Average rate of sludge disposal works out to Rs.430/- per MT, to be on the conservative side the provision for disposal charges have been made at the rate of Rs.330.72 per MT on 5371.820 MT of sludge that could not be removed as on 31.03.2001 - 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 decision of Rajasthan High Court in case of Udaipur Mineral Development Syndicate Pvt. Ltd. vs. DCIT [2002 (8) TMI 26 - 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 - Decided in favour of assessee. Assessee has considered 10% of interest income amounting to Rs. 2,53,882/- as being expenses incurred for earning the interest income. We find that whether the expenditure incurred has a connection or nexus with the interest receipt has not been examined by lower authorities and there is no finding to that effect - Assessing Officer is therefore directed to verify the nexus between the expense incurred and the interest income and thereafter consider its allowability the same as per law and after giving a reasonable opportunity of hearing to the Assessee - Decided in favour of assessee.
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