9911796707
TMI Blog2023 (1) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... ls filed by the Revenue, pertaining to different assessment years, are directed against the separate orders passed by the Learned Commissioner of Income Tax (Appeals), [in short "the ld. CIT(A)"], which in turn arise out of separate assessment orders passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the "Act"]. 2. Since the issues involved in all these appeals are common and identical, therefore these six appeals of assessees and three cross-appeals of Revenue have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 3. Although, these appeals filed by the Assessees and Revenue, contain multiple grounds of appeals. However, at the time of hearing, we have carefully perused all the grounds raised by the Assessee as well as Revenue. We find that most of the grounds raised by the Assessee as well as Revenue are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of assessee and the Revenue as well. With this background, we summarize and concise the grounds raised by A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.1910/Ahd/15, A.Y. 2010-11, Rs.4,55,383/- (4) Learned CIT(A) has erred in law and on facts in confirming income computed by assessing officer under section 115JB of the Act, by making adjustments to the book profit: (a) ITA No.1393/Ahd/10, A.Y.2007-08 (b) ITA No.1048/Ahd/12, A.Y.2009-10 (5) Learned CIT(A) has erred in disallowing employees contribution towards ESIC of Rs.3,46,338/- ignoring the fact that same was paid before due date of filing of return on income. This ground is raised by the assessee in ITA No.2605/Ahd/2016 for assessment year 2012-13. (6) Initiation of levy of interest u/s 234B and 234C of the Act is not justified (a) ITA No.1393/Ahd/2010 for A.Y.2007-08 (b) ITA No.1048/Ahd/2012 for A.Y.2009-10 (7) Initiation of penalty u/s 271(1) (c) of the Act is not justified (a) ITA No.1393/Ahd/10, A.Y.2007-08 (b) ITA No.1048/Ahd/12, A.Y. 2009-10 (c) ITA No.1910/Ahd/15, A.Y. 2010-11 (d) ITA No.2605/Ahd/16, A.Y. 2012-13 (8) Grounds of appeal not pressed by the assessee: (i) In ITA No.1393/Ahd/2010, for A.Y.2007-08: Assessee did not press ground No.3 and ground No.5. (ii) In ITA No.1910/Ahd/2015, for A.Y.2010-11: Assessee did not press ground No.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract of which was awarded by some other person and executed by the assessee-company and the same was allowed by the Assessing Officer while finalizing the assessment u/s 143(3) of the Act, on 26.12.2006. Further, it was noticed that assessee-company has not fulfilled the conditions laid down for claiming deduction u/s 80IA of the Act and therefore the assessee was not eligible for deduction u/s 80IA(4) of the Act, in respect of profit derived from Alang unit of the assessee-company. Since the deduction of Rs.1,18,364/- claimed by the assessee was wrongly allowed by the Assessing Officer while finalising the assessment u/s 143(3) of the Act, there was an underassessment of income to the extent of Rs.1,18,364/-. Therefore, the case was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act, dated 25.02.2010, after recording the reasons for doing so. The notice u/s 148 of the Act dated 25.02.2010 was duly served upon the assessee on 26.02.2010. In response to the same the assessee vide letter dated 15.03.2010 stated that the return of income filed on 20.12.2006 may be treated as the return of income filed in response to notice issued u/s 148 of the Act, dated 25.02.2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, which went to falsify the statement made by the assessee at the time of original assessment and, therefore, he would be permitted under the law to draw fresh inference from such facts and material. The Court also went to an extent of saying that there are two distinct and different situations where the transaction itself on the basis of subsequent information is found to be bogus transaction and in such event, mere disclosure of the transaction cannot be said to be true and full disclosure and the Income-tax Officer would have jurisdiction to reopen the concluded assessment. The Apex Court in the case of Phul Ghand Bajrang Lal (supra), observed as following: "...one has to look to the purpose and intent of the provisions. One of the purposes of Section 147 appears to be to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice to turn around and say you accepted my lie, now your hands are tied and you can do nothing'. It would, be travesty of justice to allow the assessee that latitude." 11. The Hon'ble Gujarat High Court in the case of Dishman Pharmaceuticals and Che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Act, 2009. 15. In order to adjudicate the issue relating to deduction under section 80IA(4) in respect of the above units, we take lead case of Alang Unit-assessment year 2010-11. The facts narrated by the assessing officer in respect of Alang Unit for assessment year 2010-11, are as follows: The assessee has claimed deduction u/s 80IA(4) of the I.T. Act of Rs,30,66,609/-. The assessee company has works contract of which was awarded by some other person and executed by the assessee company. Since the assessee company is not the owner of the project, deduction u/s 80IA(4) will not be allowable to the assesseecompany in respect of Alang Unit in view of the amended provision of Explanation to Section 80IA inserted by the Finance Act (No.2) 2009 effective with retrospective effect from 01.04.2000. Accordingly, the assessee was asked to explain and justify the claim of deduction u/s 80IA(4) in respect of income derived from Alang Unit with supporting proof and documentary evidences. 16. In response to the same, the assessee has filed its submission dated 16.02.2013, before the assessing officer, which is reproduced as under: "As regards allowability of deduction u/s 80IA(4) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, operating and maintaining. It is therefore clear beyond doubt that undertaking which is engaged in the business of operating and maintaining infrastructure facility should be owned by Company and not that infrastructure facility should be owned by the undertaking. In view of above it is submitted that profits and gains derived by Alang unit is eligible for deduction u/s 80IA and we request your good self to please allow the same. It is submitted that even the amended explanation inserted vide, Finance Act (No,2) 2009 w.e.f. from 01-04-2000 which is reproduced hereunder does not come in way for claiming deduction under section 80IA in respect of Alang unit. The explanation was amended vide "Finance (No. 2) Act, 2009 after the assessee company entered into agreement with Gujarat Martime Board. Explanation.-For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in subsection (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1) On plain reading of above it does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act cannot be taken away by way of amendment with retrospective effect by substituting the Explanation. It is submitted that the explanation cannot override the main provisions. It is submitted that the newly inserted Explanation to section 80-IA(4) of the Act with retrospective effect from 01/01/2000 is ultra vires the Constitution of India, suffers from lack of legislative competence, violates fundamental rights of the Petitioner and also suffers from the vice of arbitrariness, unreasonableness, discrimination and it is a colourable exercise of legislative powers and therefore the same is in gross violation of Articles 14 and 19(1)(g) of the Constitution of India, The assessee Company has therefore filed writ petition in Hon'ble High Court of Gujarat challenging the amendment. In view of above deduction u/s 80IA(4) of the Act claimed in respect of profits and gains derived from the Alang unit is fully justified." 17. However, the assessing officer rejected the contention of the assessee and held that as per the amended provision of Explanation to Section 80IA, of the I.T. Act, deduction u/s 80IA(4) of the I.T. Act shall not be allowable to an assessee engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d deduction of Rs.27,40,226/- on profits derived by it from activity of developing of Municipal Solid Waste (MSW) site under a work order obtained through tender from Surat Mahanagar Seva Sadan (SMSS). The AO was of the view that since the assessee was not owner of the facility but only obtained a "works contract", it was not eligible for deduction as per amended, provision of 80IA w.e.f. 01.04.2000. As per the details filed by the assessee, an agreement was executed between GEPIL (assessee) and A.K, Patel & Co. (Const.) Pvt. Ltd. and SMSS on 23.04.2009 for approved of Rs.20,51,20,768/- towards construction of the project (i.e. MSW site) and Rs.2,88,54,370/- towards successive Operation & Maintenance of project for a period of 5 years. As per the terms of agreement, company had to first design & develop the MSW site and on completion of the same have to undertake Operation & Maintenance by levying tipping fees. During the year under consideration, SMC unit undertook development and designing of the MSW site. 8.1 During the assessment proceedings, the assessee filed the written submission which has been reproduced on page 17 to 21 of the assessment order. The ld. AO did not find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (in SCA 11286/2009), the issue is covered against the assessee. Hence, the disallowance of Rs.1,40,21,149/- made by AO is hereby sustained. This ground of appeal is dismissed." 21. Aggrieved by the order of ld CIT(A), the assessee is in appeal before us. 22. The ld Counsel for the assessee, argues that assessee company claimed deduction of Rs. 30,66,609/- being profits derived from Alang Unit. The claim of deduction u/s 80IA(4) was supported by Form No. 10 CCB which was filed alongwith the return of income. The agreement with the Gujarat Maritime Board was executed on 10.10.2005 and therefore this deduction of Rs. 30,66,609/- for Alang Unit was claimed from year to year. In the course of assessment proceedings, assessing officer issued the show cause notice. In response to the show cause notice issued by the assessing officer, assessee filed the detailed written submission which has been reproduced by the assessing officer at page no. 23 to 25. The assessing officer was not satisfied with the submission of the assessee and he made the disallowance of Rs. 30,66,609/- as per his finding given at page no. 25 on the ground that assessee entered into works contract with GMB which is h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The ld DR cited identical examples for other units and states that assessee is not eligible to claim deduction under section 80IA(4) in respect of Alang unit, VMC unit, SMC unit and NMC unit. 24. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. In respect of Alang unit, we note that assessee entered into MoU with Gujarat Maritime Board (GMB) for operation of landfill site built by GMB. The assessee is entitled to collect membership charges from Ship breakers and pay 10% of the same to GMB retaining 90% as consideration for operating the landfill site. The contract is of outsourcing of operation of infrastructure facility built and owned by GMB for contract period of 3 years. The CIT(A) held that assessee was executing a "work contract" for "operation & maintenance of Alang Facility" and thus not eligible for deduction u/s 80IA(4) of the Act. In respect of SMC unit, the assessee was not owner of the facility but only obtained a "works contract", ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export Case (supra) stands overruled." 27. Under the facts and circumstances as well as the legal position in the matter, as explained above, we do not find any merit in assessee`s appeal, as the assessee is not eligible to claim deduction under section 80IA (4) of the Act, in respect of Alang unit, VMC unit, SMC unit and NMC unit, as noted below: (a) ITA No.1438/Ahd/11, A.Y. 2006-07, Alang Unit Rs.1,18,364/-. (b) ITA No.1393/Ahd/10, A.Y. 2007-08, Alang Unit Rs.9,00,178 /- (c) ITA No.1048/Ahd/12, A.Y. 2009-10, Alang Unit Rs.44,33,160/- (d) ITA No.1048/Ahd/12, A.Y. 2009-10, VMC Unit Vadodara, Rs.1,01,40,667/- (e) ITA No.1910/Ahd/15, A.Y. 2010-11, Alang Unit, Rs.30,66,609/- (f) ITA No.1910/Ahd/15, A.Y. 2010-11, SMC Unit Rs.27,40,226 /- (g) ITA No.1910/Ahd/15, A.Y. 2010-11, NMC Unit Rs.1,01,40,667/- (h) ITA No.2605/Ahd/16, A.Y. 2012-13, Alang Unit Rs.57,74,450/- (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges as per tonne considering the cost estimated to be incurred on the Top Liner systems. As the cost of Top Liner system has already been built up into the revenue a view has been taken that based on the matching principle and mercantile system of accounting provision for the cost to be incurred on Top Liner system is required to be made in books to give true and fair view as on the date of balance sheet. The assessing officer noted that during the year, the assessee has claimed provision for top cover at Rs.54,96,526/-. Further assessee has also claimed Rs.32,41,860/- in its balance sheet under the head provision for post monitoring expenses, and an amount of Rs.33,65,220/- is debited to profit and loss account of the assessee. In view of that assessee was asked to show cause why not provision kept aside for top liner expenses and post monitoring expenses should not be disallowed as they are not incurred during the year. 32. In response to the show cause notice, the assessee has furnished the following explanation, vide his reply dated 27.02.2013, which is reproduced as below. "Vide above referred letter we have been asked to show cause as to why top cover expenses of Rs.54,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of GEPIL of providing top cover as a part of ICHWTSDF operations is annexed as annexure-1.The "Landfill waste disposal charges" towards the waste treatment and disposal is paid, when the waste is sent by member unit to ICHWTSDF. This charge includes cost towards the landfill bottom and side liner construction cost, top cover construction cost, landfill operation and post closure monitoring and maintenance of SLF, Administrative, Selling and Finance cost etc. The amount towards part of the landfill components like Bottom liner system, side liner system and Leachate collection system is spent before the same is paid by the user or member industry. The amount towards the landfill operation is spent when the waste is received. The amount towards the top cover is spent when the SLF is filled and requires to be closed i.e. after the amount is paid by the user. In view of the above, it can be concluded that the user charges paid by the member industry is actually spent in 3 phases namely before the user charges is received, at the time of wastes/user charges receipt and after the wastes receipt. The member is paying once and not paying in phases. Therefore, in view of matching princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary for the purpose of earning the receipts is deductible 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. Without prejudice to above, we have to further submit that the provision for expenses for top cover attributable to the waste received are built into the charges received and credit to profit and loss account. As stated above the Company is collecting charges from its members only once at the time of receipt of waste. Even assuming without admitting that if the expenses on top cover and post monitoring built into the charges received during the year are not allowable than, under the circumstances we request your good self to please tax the waste collection charges, attributable to these expenses taxed in the year in which the these expenses are otherwise allowable. It is submitted that the department cannot on one hand tax the entire revenue in previous year and disallow the liability for expenses attributable and necessary to earn that revenue." 33. However, assessing officer rejected the contention of the assessee and held that as per the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is a well-established law that such type of contingent liability expenditure is not an allowable expenditure from the total income. (iii) In this regard support is found in the Apex Court's decision in the case of New India Mining Corporation Ltd. The above views have been affirmed by the Hon'ble Supreme Court in the case law mentioned below: New India Mining Corporation Pvt. Ltd. Vs. C1T (2000) 243 ITR 640 (SC). In this case the Hon'ble Supreme Court, on the facts of that case, has held as under: "Once it is held that no expense was incurred by the assessee, the question of any allowable expense being deducted in computing the income form the profits and gains of the assessee does not arise. However, the assessee is aggrieved by the observations of the High Court as well as of the Tribunal that on the interpretation of the clauses aforesaid there was no obligation on the assessee to restore the lands to its original condition. Mr. Bahuguna, honored senior counsel appearing for the assessee, refers to the aforesaid clauses of the lease and also to rule 14 of the Mining Concession Rules, 1960. He submits that it is obligatory in law on the lessee to restore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is sort of depreciation on land. Under Income-tax law, no depreciation is allowable on land. The assessee has claimed this item as on expenditure but it is a depreciation in disguise. When asked to justify this expenditure, the assessee has made submission which is reproduced as below: "As regards land utilisation expenses we have to inform that Rs.5,60,870/- is debited to profit and loss on this account. As regards land utilization expenses allowability debited to profit and loss account, we have to submit that the assesses Company has to acquire a piece of land, make cell into it and solid waste is then filled into the cell. Before such hazardous industrial waste is dumped into cells protective liners are to be put on the bottom as also sides of the cells to ensure that hazardous industrial waste does not go out of such landfill so as to environmentally damage the surrounding area. After the whole cell is filled with waste, the assessee Company has to put top liner and seal the same. This is to ensure that even from the top the industrial hazardous waste does not pollute the environment. Effectively, therefore, it may be appreciated that the Company is using the land for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration relying on the decision of Supreme Court in case of New India Mining Corporation Pvt. Ltd. v/s. CIT (2000) 243 ITR 640. The ld. CIT(A) confirmed the addition on the basis of the order of CIT(A) of the earlier year. It is to be noted that the similar disallowance was made in A.Y. 2004-05 to 2009-10 where the Tribunal confirmed the disallowance. The Honourable Tribunal also dismissed the miscellaneous application on the ground that it was the case of review and not the case of mistake apparent from records. Arguments: The assessee relies on the same arguments that it were made by it in assessment year 2007-08 at para no. 5 to 12 of the written submission. Alternative Argument: Even assuming without admitting that if the expenses on top cover and post monitoring built into the charges received during the year are not allowable than, under the circumstances we request your good self to please tax the waste collection charges received, attributable to these expenses taxed in the year in which the these expenses are otherwise allowable. It is submitted that the department cannot on one hand tax the entire revenue in previous year and disallow the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture being in the nature of provision and not actually incurred. The made disallowance of Rs.88,611,746/- (54,96,526 + 33,65,220) and added to the total income. 10.2 The AO noticed that as has debited Rs.5,60,870//- on account of land utilization for the reasons stated that after using the land for Solid Waste Management, the land will be of nouse and dtherefore certain percentage of cost of land is charged to P&L A/c. It is claimed that this nothing but just like depreciation. The AO being not convinced with this argument held that land is a capital assets and therefore cannot be allowed as expenditure. The AO disallowed the claim of Rs.5,60,870/- and added to the total income. 10.3 In respect of Ground No.5,6, & 7, the AR of the assessee has submitted the reply on 16.03.2015 vide paper book on page No.54 to 67. The same is considered. However, it is seen that these issues are squarely covered against the assessee by the decision of Hon'ble ITAT, Ahmedabad for A.Y 2004-05, 2005-06 & 2006-07 dated 30.11.2011. Respectfully following the binding precedent, all these grounds are dismissed." 41. In assessment years 2007-08, and 2009-10, the similar and identical issues are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ESIC of Rs.3,46,338/- ignoring the fact that same was paid before due date of filing of return on income. This ground is raised by the assessee in ITA No.2605/Ahd/2016 for assessment year 2012-13. 47. We have heard both the parties. Learned Counsel for the assessee submits that assessee paid the ESIC before the due date of filing return of income, hence no disallowance should be made. On the other hand, learned DR for the Revenue reiterated the stand taken by the assessing officer. We note that issue under consideration is squirely covered against the assessee by the judgment of Hon`ble Supreme Court in the case of CHECKMATE SERVICES P. LTD in CIVIL APPEAL NO. 2833 of 2016, wherein, the Hon`ble Supreme Court held as follows: "30. Analysis and Conclusions The factual narration reveals two diametrically opposed views in regard to the interpretation of Section 36(1)(va) on the one hand and proviso to Section 43(b) on the other. If one goes by the legislative history of these provisions, what is discernible is that Parliament's endeavour in introducing Section 43B [which opens with its non-obstante clause] was to primarily ensure that deductions otherwise permissible and hitherto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, by Section 3(b), Section 2(24) - which defines various kinds of "income" - inserted clause (x). This is a significant amendment, 19 because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions, or otherwise, as receipts, were to be treated as income. The inclusion of a class of receipt, i.e., amounts received (or deducted from the employees) were to be part of the employer/assessee's income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Section 36(1)(va) was inserted specifically to ensure that if these receipts were deposited in the EPF/ESI accounts of the employees concerned, they could be treated as deductions. Section 36(1)(va) was hedged with the condition that the amounts/receipts had to be deposited by the employer, with the EPF/ESI, on or before the due date. The last expression "due date" was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no deduction will be allowed in the assessment of the employer, unless such contribution is paid into the fund on or before the due date. "Due date" means the date by which an employer is required to credit the contribution to the employees account in the relevant fund or under the relevant provisions of any law or term of the contract of service or otherwise. (Explanation to Section 36 (1) of the Finance Act) 12.2. In addition, contribution of the employees to the various funds which are deducted by the employer from the salaries and wages of the employees will be taxed as income within brackets insertion of new [clause (x) in clause (24) of Section 2] of the employer, if such contribution is not credited by the employer in the account of the employee in the relevant fund by the due date. Where such income is not chargeable to tax under the head "profits and gains of business or profession" it will be assessed under the head "income from other sources." 36. Significantly, the same Finance Act, 1987 also introduced provisos to Section 43B, through amendment (clause 10 of the Finance Bill). The 21 memorandum explaining the Bill, pertinently states, in relation to second proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch payment has been made otherwise than in cash, the same has been realised within 15 days from the due date." 40. The position in law remained unchanged for 14 years. The Central Government then constituted the Kelkar Committee, to suggest tax reforms. The report suggested amendments inter alia, to Section 43B. The relevant extract of the report is as follows: "In terms of the provisions of section 43B of the Income-tax Act, deduction for statutory payments relating to labour, taxes and State and public financial institutions are allowed as deductions, if they are paid during the financial year. However, under the provisions payment of taxes and interest to State and public financial institution are deemed to have been paid during the financial year even if they are paid by the due date of filing of return. Further if the liability is discharged in the subsequent year after the due date of filing of return, the payment is allowed as a deduction in the subsequent year. In the case of statutory payment relating to labour, the deduction for the payment is disallowed if such payment is made any time after the last date of payment of the about related liability. Trade and industry a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly on actual payment. This is made clear by the nonobstante Clause contained in the beginning of the provision, coupled with the deduction being allowed irrespective of the previous years in which the liability to pay such sum was incurred by the Assessee according to the method of accounting regularly employed by it. In short, a mercantile system of accounting cannot be looked at when a deduction is claimed under this Section, making it clear that incurring of liability cannot allow for a deduction, but only "actual payment", as contrasted with incurring of a liability, can allow for a deduction." 43. This condition, i.e., of payment of actual amount on or before the due date to enable deduction, continued for 14 years. By the amendment of 2003, the second proviso was deleted. This court interpreted the law, in the light of these developments, in Alom Extrusions. The court considered the effect of omission of the second proviso, and observed as follows: "10. "Income" has been defined under Section 2(24) of the Act to include profits and gains. Under Section 2(24)(x), any sum received by the assessee from his employees as contributions to any provident fund/superannuation fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of tax, duty, cess and fee on the one hand with contributions to the Employees' Provident Fund, superannuation fund and other welfare funds on the other. However, the Finance Act, 2003, bringing about this uniformity came into force with effect from 1-4-2004. Therefore, the argument of the assessee(s) is that the Finance Act, 2003, was curative in nature, it was not amendatory and, therefore, it applied retrospectively from 1-4-1988, whereas the argument of the Department was that the Finance Act, 2003, was amendatory and it applied prospectively, particularly when Parliament had expressly made the Finance Act, 2003 applicable only with effect from 1-4-2004. *** 18. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of the Finance Act, 2003, deleting 25 the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by Parliament only with effect from 1-4-2004, woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee(s) would not be entitled to deduction under Section 43-B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right up to 1-4-2004, and who pays 26 the contribution after 1-4- 2004, would get the benefit of deduction under Section 43-B of the Act." 44. There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Section 43B, which mandated that unless the amount of employers' contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be available. This court was of the opinion that the omission was curative, and that as long as the employer deposited the dues, before filing the return of income tax, the deduction was available. 45. A reading of the judgment in Alom Extrusions, would reveal that this court, did not consider Sections 2(24)(x) and 36(1)(va). Furthermore, the separate provisions in Section 36(1) for employers' contribution and employees' contribution, too went unnoticed. The court observed inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income17 this court held as follows: "27. It is trite law that a taxing statute is to be construed strictly. In a taxing Act one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. There is no room for any intendment. There is no equity about a tax. (See: Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) 1 KB 64 and Federation of A.P. Chambers of Commerce and Industry and Ors. v. State of A.P. and Ors.(2000) 6 SCC 550. In interpreting a taxing statute, the Court must look squarely at the words of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of place in interpreting a taxing statute. (Also see: Commissioner of Sales Tax, Uttar Pradesh v. The Modi Sugar Mills Ltd. 1961 (2) SCR 189.)" 47. Likewise, this court underlined the rule, regarding interpretation of taxing statutes, in Commissioner of Income Tax-III v Calcutta Knitwears, Ludhiana. 18 Recently, in Union of India & Ors. vs. Exide Industries Limited & Ors, 19 this court examined, and repelled a challenge to the constitutionality of Section 43B, especially th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sage of time, the legislature inserted more deductions to Section 43B including cess, bonus or commission payable by employer, interest on loans payable to financial institutions, scheduled banks etc., payment in lieu of leave encashment by the employer and repayment of dues to the railways. Thus understood, there is no oneness or uniformity in the nature of deductions included in Section 43B. It holds no merit to urge that this Section only provides for deductions concerning statutory liabilities. Section 43B is a mix bag and new and dissimilar entries have been inserted therein from time to time to cater to different fiscal scenarios, which are best determined by the government of the day. It is not unusual or abnormal for the legislature to create a new liability, exempt an existing liability, create a deduction or subject an existing deduction to override regulations or conditions. 24. The leave encashment scheme envisages the payment of a certain amount to the employees in lieu of their unused paid leaves in a year. The nature of this payment is beneficial and pro-employee. However, it is not in the form of a bounty and forms a part of the conditions of service of the employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, noncompliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein." 20 See for e.g., Eagle Flask Industries Ltd. v. Commissioner of Central Excise, 2004 Supp (4) SCR 35. 21 State of Jharkhand v Ambay Cements, (2005) 1 SCC 368. 30 This was also reaffirmed in a number of judgments, such as Commissioner of Income Tax v. Ace Multi Axes Systems Ltd.22 50. The Constitution Bench, in Commissioner. of Customs v. Dilip Kumar & Co. 23 endorsed as following: "24. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocents might become victims of discretionary decision-making. Insofar as taxation statutes are concerned, Article 265 of the Constitution [ "265. Taxes not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. 27 and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced Section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer's contribution which is its primary liability under law - in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such 33 amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. 54. In the opinion of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the judgment of Hon`ble Supreme Court in the case of CHECKMATE SERVICES P. LTD (supra), we dismiss ground no.5 raised by the assessee. 49. In the result, concise and summarized ground No.5 raised by the assessee is dismissed. 50. The concise and summarized ground No.6 of appeals of Assessee, is reproduced below: "(6) Initiation of levy of interest u/s 234B and 234C of the Act is not justified (a) ITA No.1393/Ahd/2010 for A.Y.2007-08 (b) ITA No.1048/Ahd/2012 for A.Y.2009-10" 51. We have heard both the parties and direct the assessing officer to compute interest in accordance with the provisions of sections 234B and 234C of the Act. Ground No.6 of appeals of Assessee, is allowed for statistical purposes. 52. In the result, concise and summarized ground No.6 of appeals of Assessee, is allowed for statistical purposes. 53. The concise and summarized ground No.7 of appeals of Assessee, is reproduced below: "(7) Initiation of penalty u/s 271(1) (c) of the Act is not justified (a) ITA No.1393/Ahd/10, A.Y.2007-08 (b) ITA No.1048/Ahd/12, A.Y. 2009-10 (c) ITA No.1910/Ahd/15, A.Y. 2010-11 (d) ITA No.2605/Ahd/16, A.Y. 2012-13 54. We note that the concise and summarized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pollution control Board. In order to examine the eligibility of the assessee, to claim the deduction U/s 80IA of the I.T. Act, the assessing officer analysed the provisions of section 80IA(4) of the Act which is reproduced here below for ready reference: "[Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA.(4) (4) This section applies to- (i) any enterprise carrying on the business[of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining) any infrastructure facility which fulfils all the following conditions, namely : (a) it is owned by a company registered in India or by a consortium of such companies [or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing or operating and maintaining or _ developing, operating and maintaining a new infrastructure facility; (c) it has started or starts_ operating and maintaining the infrastr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority/statutory authority for developing operating, maintaining the infrastructural facility. This means for the planned infrastructure development government plans for different infrastructure projects. Accordingly central/state governments entered into lot of agreements in the form of MoU with private sector players for Build, own, operate, transfer (BOOT), Build, operate, lease, transfer (BOLT) etc. with single objective to promote private investment in the infrastructure of country. However, in the case of assessee there is no such agreement made with central and state government for developing, operating, maintaining the infrastructural facility. In view of that assessee was asked to prove his eligibility for second condition mentioned in the section 801A of the I.T Act 1961 and why not the deduction claimed U/s 80IA with respect to Gabheni Unit, Surat be disallowed. For which assessee has replied as follows which is reproduced as below. "The company has entered into an agreement with MOEF and Gujarat industrial development corporation B agreed to grant authorization in 2001.Copy of the agreement is already furnished during earlier submission and the same is on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt it, as this MoU is entered with the objective of getting subsidy from the MOEF which can be seen from the wordings of the MOU which is reproduced as below. "MEMORANDUM OF UNDERSTANDING This Memorandum of Understanding (here in after called as MoU) entered on the day of January 2004. BETWEEN The Ministry of Environment and Forests (hereinafter called as MoEF), Government of India, having its office at Paryavaran Bhavan, CGO Complex, Lodhi Road, New Delhi, represented by its Director Dr N H Hosabettu, or Additional Director - Dr (Mrs) Usha Subramanium, on the first part AND The Gujarat Industrial Development Corporation hereafter called as G1DC having its office at Udyog Bhavan, Block 4, "GH" Road, Sector-II, Gandhinagar, Gujarat, 382 01" represented by its Mr. P.G Vinod, Dy. Chief Engineer on the second part. AND The Gujarat Enviro Protection & Infrastructure Ltd, Surat hereafter called as ICHWMF (Integrated Common Hazardous Waste Management Facility) having its registered office at plot No. 252/2 Luthra Mills Compound, Pandesara, Surat, Gujarat represented by its Chairman and Managing Director Shri, Ginsh R. Luthra on the third part WHEREAS * A. ICHWMF facility i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which cannot be taken as agreement for developing, operating, maintaining the infrastructural facility as laid down in section 80IA of the I.T Act. Assessee neither have development agreement and operation and maintenance agreement with any of the authorities mentioned in section 80IA(4)(i)(b ) of the I.T Act 1961. Hence the contention of the assessee that he meets the requirement of the provisions laid down as per section 80IA of the I.T Act for claiming deduction is not acceptable and squarely rejected. 64. The Assessing Officer also noted that assessee`s activities were came into limelight recently due to allegation and agitation of the local habitants that without treating the hazardous waste received from the industry assessee through underground pipe line discharging waste in to outside the premises. Due to this untreated hazardous waste effects on health of animals and habitants placed in and around the facility. In this scenario Gujarat Pollution control board has taken up enquiry and came with findings and asked the facility to stop its activities and take up corrective steps to make it fit for treatment of hazardous waste. The findings of the GPCB during their inspection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and not for discharge of wastes. However the lines could not be used subsequently which fire corroded over a period. Because of corrosion it got punctured and broken at number of places as observed by GPCB during digging. They are unfit to carry any kind of liquid. The pipelines are not connected to any our storages but passes below storage yard building and terminate within the boundary of the company's premises. GIDC pipeline is located at about 22 meter away from GEPIL boundary wall. GPCB has excavated trenches parallel and perpendicular to boundary wall and no line found beyond boundary wall. 2 You have failed to operate the co-processing plant as per the legal requirements as result of which hazardous waste in excess quantity is accumulated beyond prescribed time limits under the rules. The co-processing (waste preparation plant for coprocessing] plant was made operational since February' 11 with some teething troubles since these type of plant is very new and not established subject and first time in India. GPCB has at no time during its visit observed that we have failed to operate the Co processing plant as per legal requirements. We have produced an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention of the assessee and held that preliminary enquiry proved that assessee was not treating the hazardous waste as per requisite norms and failed to fulfil the status of solid waste treatment plant eligible for deduction u/s 80IA of the I.T Act. Further assessee was also not fulfilling the conditions laid down u/s 80IA of the I.T Act, to be eligible for deduction. The conditions, facts and circumstances of the assessee company has not changed yet and due to irregularities noticed by the authorities as well as opposed by the local residents at large, have resulted into further legal enquiries and action. As no change to the conditions and facts as was prevailing in last year noticed in the present year under scrutiny also therefore, despite of (rule of Res Judicata), the proceeding during the year under scrutiny being separate than any other year in the past, gravity of the facts contains in this year also. In view of all these facts amount of Rs.19,32,33,992/- deduction claimed by assessee u/s 80IA of the I.T Act was disallowed by the assessing officer. 67. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld CIT(A), who has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the MoEF for securing financial assistance and not for development or operation or maintenance of the infrastructure facility. He further observed that the authorization letter from GPCB could not be considered as agreement and preliminary inquiry was conducted by GPCB which indicated that assessee was violating the environmental laws and not treating the waste properly. The Ld. CIT(A) allowed the assessee's ground on the basis of his findings at Para No 6 (page no. 39 to 46) of the appellate order. Arguments: Assessee relies on the same written submission made for A.Y. 2009-10 at para no. 21 to 27. In view of the above, your honours are requested to allow assessee's appeal and dismiss revenue's appeal." 69. On the other hand, ld DR for the Revenue submits that MOU furnished by assessee is nothing but subsidy disbursal agreement. The assessee has not entered into any separate agreement with MOEF & GIDC for the purpose of developing, Operating, maintaining of the facility ICHWMF and nor it produced any other document in support of his claim. The preliminary enquiry proved that assessee was not treating the hazardous waste as per requisite norms and failed to fulfil the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, in the case of assessee there is no such agreement made with central and state government for developing, operating, and maintaining the infrastructural facility. The MOU entered into by the Assessee with MOEF and GIDC is just a subsidy agreement. We do not agree with the findings of ld CIT(A) to the effect that it is an agreement with Government to claim deduction under section 80IA(4) of the Act. 71. The Assessing Officer has rightly held that assessee has not entered into any separate agreement with MOEF & GIDC for the purpose of developing, Operating, maintaining of the facility ICHWMF and nor it produced any other document in support of his claim, apart from the MOU discussed above. The only document available with the assessee is sanction letter From MOEF & authorization letter from Gujarat Pollution control Board (GPCB) for dealing with Hazardous waste materials as per statutory requirements which cannot be taken as agreement for developing, operating, maintaining the infrastructural facility as laid down in section 80IA of the I.T Act. The Assessee neither have development agreement and operation and maintenance agreement with any of the authorities mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olid waste treatment plant. When infrastructural facility itself not following the treatment of manual of hazardous waste it won't be eligible to claim the deduction on profits which was envisaged for genuine treatment plants. Therefore, we are of the view that due to irregularities noticed by the authorities, the assessee is not eligible to claim deduction under section 80IA(4) of the Act. 74. We note that ld CIT(A) has allowed the appeal of the assessee based on the principle of consistency by relying on the judgment of Hon'ble Apex Court in case of Radhasparnj Satsang Vs. CIT (1992) 193 ITR 321 (SC). The order of ld CIT(A) is not acceptable as it is well established that res- judicata does not apply to the Income Tax proceedings, which are independent from each other for different years. Hon'ble Courts have held that when an assessee claims exemption/deduction, it is the bounder duty of the assessee to fully substantiate it, and if this is not done, the deduction claimed by the assessee may be disallowed. It has been held by the Hon`ble Supreme Court in the case of Dwarkadas Keshavdas Morarka (1962) 44 ITR 529 (SC) that an assessment year under the Act, is self-cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Dilip Kumar & Co. 2018 (9) SCC 123, held as follows: "24. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocents might become victims of discretionary decision-making. Insofar as taxation statutes are concerned, Article 265 of the Constitution [ "265. Taxes not to be imposed save by authority of law.-No tax shall be levied or collected except by authority of law."] prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because the State cannot at their whims and fancies burden the citizens without authority of law. In other words, when the competent legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the legislature. *** 34. The passages extracted above, were quoted with approval by this Court in at least two decisions being CIT v. Kasturi & Sons Ltd. [CIT v. Kasturi & Sons Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t event the exemption would not operate. 24. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and the exemption notifications. 25. In our view, the failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rule must be strictly observed, substantial compliance might suffice in the case of a directory rule. 26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance with the same mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and maintaining any infrastructure facility, the nature of a work contract awarded by any person [including the Central, or State Government] and executed by the undertaking or enterprise referred to Section (1) of Section 80IA. In the instant case, the enterprise has not entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing, maintaining and operating a new infrastructure facility. Therefore, as per the amended provision of Explanation to Section 80IA inserted by the Finance Act (No.2) 2009 with retrospective effect from 01.04.2000, the deduction under section 80IB(4) claimed by the assessee from the profits and gains of Co Processing Unit of the assessee company is not allowable and hence the same was disallowed by AO to the tune of Rs.1,25,70,515/-. 84. On appeal, ld CIT(A) deleted the disallowance. Aggrieved, the Revenue is in appeal before us. 85. Learned Counsel for the assessee, submitted that Co-processing unit, Surat involved in the business of developing operating and maintaining solid waste management system. In the solid waste management system, assessee was claiming that he was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - company in respect of Palsana Unit in view of the amended provision of Explanation to Section 80IA inserted by the Finance Act (No.2) 2009 with retrospective effect, from 01.04.2000. Accordingly, the assessee was asked to explain and justify the claim of deduction u/s 80IA(4) in respect of income derived from Palsana Unit with supporting proof and documentary evidences. In response to the same, the assessee has filed its submission dated 09.01.2015 which is reproduced by the assessing officer in the assessment order. 89. The Assessing Officer observed that as per the amended provision of Explanation to Section 80IA of the I.T. Act, deduction u/s 80IA(4) of the I.T. Act shall not be allowable to an assessee engaged in the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility, the nature of a work contract awarded by any person [including the Central, or State Government] and executed by the undertaking or enterprise referred to Section (1) of Section 80IA. The AO noted that in the instant case the assessee is engaged in executing works contract. In the instant case, the enterprise has not entered into an agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the project. The ld. CIT(A) has given detailed finding in assessee's favour at para no. 11 of the appellate order. The reliance is placed on the above decisions narrated at para no. 20 above. In view of the above submission, your honours are requested to allow assessee's appeal and dismiss assessee's appeal." 93. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that assessee has entered into works contract, hence not eligible for deduction under section 80IA(4) of the Act. Besides, the assessee has not followed the due procedure for establishing Palsana unit. The letter received by assessee from GPCB for its authorization, is not a valid document to claim deduction under section 80IA(4) of the Act. Moreover, the assessee has not entered into an agreement with the Central Government or a State Government or a local authority for developing, maintaining and operating a new infrastructure facility. Therefore, as per the amended provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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