TMI Blog2023 (10) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... so observed that certain expenses as described U/s. 43B are allowed in the year of payment only - HELD THAT:- From this observation of the Ld. AO which was also relied on by the Ld. AR, we find that the Ld. AO has applied his mind on the claim made by the assessee U/s. 43B of the Act for allowance of expenditure on payment basis pertaining to the AY 2007-08 and earlier years. In the instant case, the order of the Ld. AO is not erroneous as the Ld. AO has applied his mind while allowing the deduction claimed by the assessee U/s. 43B of the Act and therefore one of the conditions as laid down U/s. 263 of the Act is absent. Further, in the case of CIT vs. Chettinad Logistics Pvt Ltd [ 2017 (4) TMI 298 - MADRAS HIGH COURT] held that if no exempt income forming part of the total income of the assessee was earned in the relevant assessment year, additions made by the Ld. AO by relying upon section 14A of the Act read with Rule 8D is beyond the scope and content of the main provisions. Further, in the case of Redington (India) Ltd [ 2017 (1) TMI 318 - MADRAS HIGH COURT] , the same view was upheld by the Hon ble Madras High Court. In view of these facts and circumstances of the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y 2010-11. The only contention of the Ld. AO is that these expenditure related to prior period where the assessee has claimed exemption of income and hence disallowance U/s. 14A of the Act is applicable to the instant case. Based on the discussion above, we find that even though the items of expenditure pertain to the earlier period where exemption U/s. 11 was claimed by the assessee these items of expenditure was crystallized only during the current assessment year and hence cannot be approved in the previous assessment years. We therefore have no hesitation to delete the addition made by the Ld. Revenue Authorities on this ground and thereby allow the ground raised by the assessee. Disallowance of excess depreciation as claimed by the assessee in respect of capital dredging - Admittedly, the assessee has incurred expenditure of capital dredging on which the assessee claimed depreciation @ 15% considering the capital dredging as Plant Machinery - AO disallowed the excess depreciation claimed by the assessee and observed that the assessee is entitled for depreciation @ 10% on capital dredging as it has to be considered as buildings - HELD THAT:- We find that the ship way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bad debt since the whereabouts of the firm is not known is not a valid argument. Income has to be recognized when the services are rendered as per the AS-9 issued by the ICAI. Merely non-accounting of income due to the fact that the party could not be traceable is not a valid accounting procedure. Accordingly, we are of the considered view that the income has to be recognized in the books of accounts and the Ld. AO has rightly added the amount which was also confirmed by the Ld. CIT(A). Thus, we do not want to interfere in the order of the Ld. Revenue Authorities. Contribution to pension fund in excess of the annual limit of 27% of the salaries and wages - HELD THAT:- As relying on GlaxoSmithkline Pharmaceutical [ 2011 (1) TMI 1530 - ITAT MUMBAI] seven if the expenditure is not allowable U/s. 36(1)(iv) of the Act, but the same is allowable U/s. 37 of the Act. Respectfully following the above decision, we are inclined to allow the contribution to Pension Fund in excess of 27% on account of salaries, wages and pension U/s. 37 of the Act and hence this ground raised by the assessee is allowed. Since, the expenditure is allowed on contribution basis, we are of the opinion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esitation to delete the addition of Rs. 7 Crs made on account of interest payable to Government of India during the impugned assessment year. Accordingly, this ground raised by the assessee is allowed. Addition towards disallowance of contribution to VPT Employees Family Security Fund - AR submitted that a provision has been made during the FY towards the Family Security Fund of the employees of the VPT and these expenditure are incurred during the course of carrying of the assessee s business and shall be allowable U/s. 37 - HELD THAT:- The Ld. CIT(A) has therefore rightly considered the disallowance being the provision made in the books of account and hence we find no infirmity in the order of the Ld. CIT(A) on this ground and accordingly the ground raised by the assessee is dismissed. - I.T.A. No.12/Viz/2015, I.T.A. No.235/Viz/2020, I.T.A. No.325/Viz/2017, I.T.A. No.236/Viz/2020, I.T.A. No.324/Viz/2017, CO. No. 28/Viz/2022 I.T.A. No.324/Viz/2017, I.T.A. No.399/Viz/2014, I.T.A. No.67/Viz/2021, C.O. No.51/Viz/2021 I.T.A. No. 67/Viz/2021, I.T.A. No.49/Viz/2021, C.O. No.50/Viz/2021 I.T.A. No. 49/Viz/2021 Shri Duvvuru Rl Reddy, Hon ble Judicial Member And Shri S Balakri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o time and filed the details called for. After examining the books of accounts and discussing the facts of the case with the assessee s Authorized Representative, the Ld. AO passed an order U/s. 143(3) of the Act by assessing the total income at Rs. 190,60,45,090/-. The Ld. CIT-1, Visakhapatnam duly exercising his powers U/s. 263 of the Act noticed from the tax audit report annexed to the return of income that the assessee has claimed a sum of Rs. 10,15,39,759/- U/s. 43B of the Act on payment basis which included a sum of Rs. 5,09,64,466/- pertaining to the Asst. Years 2007-08, 2006-07 and earlier assessment years as per the table extracted below: Sl No. Nature of liability Amount (Rs.) Liability pertaining to the FY Relevant AY 1. Seigniorage Charges 11,33,437 Upto 2007-08 Upto 2008-09 4,21,233 2008-09 2009-10 2. Productivity Linked Bonus 36,90,328 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apatnam also observed that the assessee has made excess claim of deduction for an amount of Rs. 4,21,233/- and considered that the assessee has willfully concealed its particulars to that extent. The Ld. CIT-1, Visakhapatnam therefore directed the Ld. AO to verify the disallowability of the expenditure relatable to the exempt income in terms of the provisions of section 14A of the Act thereby setting aside the order of the Ld. AO passed U/s. 143(3) of the Act, dated 30/11/2012 by providing a reasonable opportunity of being heard to the assessee. Aggrieved by the order of the Ld. CIT-1, Visakhapatnam, the assessee is in appeal before the Tribunal. 4. The assessee has raised the following grounds of appeal: 1. The order of the Ld. CIT is contrary to the facts and also the law applicable to the facts. 2. The Ld. CIT is not justified in invoking the provisions of section 263 of the Act in as much as the order of the Assessing Officer U/s. 143(3) of the Act is neither erroneous nor prejudicial to the interests of the Revenue. 3. The Ld. CIT is not justified in directing the Assessing Officer to consider for disallowance U/s. 14A a sum of Rs. 5,09,64,466/-. 4. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved as follows: (ii). The expenditure is allowable in the year to which it relates. Except certain expenses e.g described U/s. 43B, the same are allowed in the year of payment only. (last part of para 2.1 of the order). 7. Therefore, the Ld. AR vehemently argued that the Ld. AO has applied his mind while considering the allowance claimed by the assessee U/s. 43B of the Act on payment basis and he has also examined the issue in the context of the provisions of section 14A of the Act also and therefore the Ld. AR submitted that the order of the Ld. AO cannot be termed as erroneous or prejudicial to the interest of the Revenue. The Ld. AR also relied on the following case laws: (i) CIT vs. Chettinad Logistics (P.) Ltd [2017] 248 Taxman 55 (Mad) (SLP filed by the revenue was dismissed by the Hon ble Supreme Court in [2018] 257 Taxman 2 (SC) (ii) Redington (India) Ltd vs. Addl. CIT [2017] 392 ITR 633 (Mad.) (iii) Decision of this Hon ble Bench in the case of D. Veerabhadra Reddy (HUF) vs. DCIT in ITA No. 263/Viz/2014. 8. The Ld. AR submitted that in the above mentioned case laws, it was held that no disallowance U/s. 14A can be made when there is no exempt income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Further, in the case of CIT vs. Chettinad Logistics Pvt Ltd reported in [2017] 248 Taxman 0055 (Madras) the Hon ble High Court of Madras held that if no exempt income forming part of the total income of the assessee was earned in the relevant assessment year, additions made by the Ld. AO by relying upon section 14A of the Act read with Rule 8D is beyond the scope and content of the main provisions . Further, in the case of Redington (India) Ltd vs. Addl. CIT [2017] 392 ITR 633 (Mad.), the same view was upheld by the Hon ble Madras High Court. In view of these facts and circumstances of the instant case and relying on the judicial pronouncements as discussed above, we considered it deemed to be fit that exercise of powers U/s. 263 of the Act by the Ld.CIT-1, Visakhapatnam is not valid in law and deserves to be quashed. 11. Further, with respect to Ground No.8 , wherein the assessee has submitted that an amount of Rs. 4,21,233/- pertaining to deduction U/s. 43B of the Act, we find from the written submissions made by the Ld. AR that the assessee has submitted before the Ld. CIT-1, Visakhapatnam that the expenditure of Rs. 4,21,233/- is in respect of Seigniorage Charges. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eous. 7. Any other ground that may be urged at the time of appeal hearing. 15. As per the grounds of appeal raised by the assessee, we find that the core issue is with respect to disallowance of Rs. 8,51,10,123/- U/s. 14A of the Act. This issue is identical to that the of the issue raised by the assessee in ITA No. 25/Viz/2014, AY 2010-11, which is adjudicated by us in the foregoing paragraphs of this order. Considering the identical nature of the issues involved in both the appeals, our decision given on the issue of disallowance U/s. 14A in ITA No.25/Viz/2014 (AY: 2010- 11) mutatis mutandis applies to the issue raised in ITA No. 26/Viz/2014 (AY:2011-12) also. Accordingly, grounds raised by the assessee are allowed. 16. In the result, appeal of the assessee (ITA No. 26/Viz/2014) is allowed. ITA No.396/Viz/2014 (By assessee) (AY:2010-11) 17. This appeal filed by the assessee against the combined order of Ld. Commissioner of Income Tax (Appeals), Visakhapatnam in ITA No.0266/12-13/Addl.CIT, R-1/VSP/13-14 ITA No. 0362/12-13/ACIT,C-1/VSP/2013-14 dated 28/03/2014 arising out of the order passed U/s. 143(3) of the Act for the AYs:2010- 11 and 2011-12. 18. Briefl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Expenditure on arrear salaries and wages disallowed U/s. 14A as per para 3.1 of the Asst Order 14,71,75,096 4. Expenditure on arrear pensions disallowed U/s. 14A as per para 3.2 14,63,03,516 5. Expenditure exgratia payment on VRS disallowed U/s. 14A as per para 3.3 32,34,518 6. Depreciation pertaining to earlier years disallowed U/s. 14A as per para 3.4 54,43,04,818 7. Disallowance of excess claim of depreciation on capital dredging as per para 4.0 to 4.7 5,20,74,400 8. Disallowance of excess claim of depreciation on railway permanent way as per para 5.0 to 5.4 2,60,35,204 9. Upfront premium / unexpired discounts added as income as per para 6.0 to 6.4 13,77,54,997 10. Disallowance of donation and contribution as per para 7.0 79,13,206 11. Unaccounte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edging is a plant and machinery and hence the appellant is entitled for depreciation @ 15% as against 10% allowed by the Assessing Officer. 5. (a) The Ld. CIT(A) is not justified in confirming the addition of Rs. 13,77,54,997 towards upfront premium received on lease of lands. (b) The Ld. CIT(A) ought to have appreciated that the entire upfront premium cannot be said to have accrued during the impugned assessment year (c) The Ld. CIT(A) ought to have appreciated that the appellant consistently followed mercantile system of accounting and hence upfront premium could not be taxed on receipt basis. 6. (a) The Ld. CIT(A) is not justified in confirming the addition of Rs. 9,15,000 made by the Assessing Officer towards sundry debtor not brought into account. (b) The Ld. CIT(A) ought to have appreciated that in the absence of knowledge about the whereabouts of the debtor M/s. PS And Company it would be futile to recognize the claim and then write it off. 7. Any other ground that may be urged at the time of appeal hearing. 20. The assessee has also raised an additional ground which reads as under: On the facts and in the circumstances of the case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Federations operating in Major Port Trusts and Dock Labour Boards and the Management. Further, we also find that AS-5 issued by the ICAI clearly defines prior period items as follows: Prior period items are defined as income or expenses which arise in the current period as a result of errors or omission in the preparation of the financial statements of one or more periods . 24. However, in the instant case, the assessee is following the mercantile system of accounting. These items of prior period expenses raised in the grounds are crystallized during the impugned assessment year 2010-11 and accordingly, the assessee has claimed it as an expenditure during the impugned assessment year. We also find that these prior period items are not a result of errors or omissions in the financial statements of one or more prior periods. These items / adjustments are necessitated by the circumstances which are determined in the current accounting period. Even though it relates to the prior periods, it needs to be allowed as an expenditure in the impugned assessment year as it has been crystallized only during the AY 2010-11. The only contention of the Ld. AO is that these expenditures r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial statements of one or more periods . 27. However, in the instant case, the assessee is following the mercantile system of accounting. These items of prior period expenses raised in the grounds are crystallized during the impugned assessment year 2010-11 and accordingly, the assessee has claimed it as an expenditure during the impugned assessment year. We also find that these prior period items are not a result of errors or omissions in the financial statements of one or more prior periods. These items / adjustments are necessitated by the circumstances which are determined in the current accounting period. Even though it relates to the prior periods needs to be allowed as an expenditure in the impugned assessment year as it has been crystallized only during the AY 2010-11. The only contention of the Ld. AO is that these expenditure related to prior period where the assessee has claimed exemption of income and hence disallowance U/s. 14A of the Act is applicable to the instant case. Based on the discussion above, we find that even though the items of expenditure pertain to the earlier period where exemption U/s. 11 was claimed by the assessee these items of expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by dredging the sea is more akin to road than plant . We are not impressed by the submission of the learned counsel for the assessee that judging from functional test the approach channel constructed by dredging the sea can be treated as a plant . In our opinion, the functional test has to be applied rationally Too liberal application of this test may bring in everything including the roads within the factory which have already been held by the Supreme Court to be building within the expression plant . On such liberal interpretation, even the factory building itself may have to be held to be a plant because without it the plant cannot be operated in the open. But that is not so. Structures which fall within the expression building or pathways like roads, etc., required for providing approach to the factory have been held to be buildings or roads and not plant . This controversy, as rightly pointed out by counsel for the revenue, has now been set at rest by the Supreme Court in Gwalior Rayon Silk Mfg. Co. Ltd. s case (supra). In that case, the Supreme Court considered the decisions of various Courts some of which had treated roads as plant and it was held that: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make no order as to costs. 30. After taking into account the facts of the instant case, we find that the ship way constructed for dredging is on par with the construction of roads and culverts constructed in the premises of the factory and by placing reliance on the decision of the Hon ble Bombay High Court in the case of CIT vs. Mazagaon Dock Ltd (supra), we have no hesitation to confirm the order of the Ld. Revenue Authorities on this ground and thereby dismiss the grounds raised by the assessee. 31. With respect to Ground No.5 wherein the Ld. Revenue Authorities confirmed the addition of Rs. 13,77,54,997/- towards upfront premium received on lease of lands, the Ld. AR submitted that the assessee is following the mercantile system of accounting and in accordance with the Accounting Standard on leases (AS-19) issued by the ICAI upfront premium received on leasing of lands which is amortized over the period of lease. The Ld. AR further referred to the land policy guidelines issued the Government of India, Ministry of Shipping for the allotment of land by the various Ports to various lessees and stated that the upfront premium is collected from lessees does not pertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as considered as revenue receipt. Countering the arguments of the Ld. DR, the Ld. AR referred to para 9.4 and submitted that in the said para 9.4 it was clearly mentioned that this upfront premium amount is admittedly non-refundable amount irrespective of premature termination of the concession / lease agreement . Therefore, he pleaded that this cannot be applied to the instant case as in this case it is not a non-refundable upfront premium. 33. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. In the instant case, the assessee has received an upfront premium towards lease of land for a period of 30 years from M/s. Indian Potash Limited a sum of Rs. 13,77,54,997/- and from Hindustan Petroleum Corporation Limited a sum of Rs. 3,97,586/-. The assessee company as per the accounting policy regularly followed by them has amortized this upfront premium received over the period of lease and has recognized the income for the entire period of 30 years. On perusal long term lease agreement entered into by the parties on 29/03/2010, we find that the assessee has also paid an amount of Rs. 31,77,599.84 as non-refundable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was credited to the P L Account in respect of proportionate upfront premium received on lease of land in earlier years, then the Revenue authorities should have adopted similar treatment upfront lease premium declared as income during the impugned assessment year. In these circumstances of the instant case, respectfully following the ratio laid down in the judicial precedents discussed as above, we are of the considered view that since the assessee is consistently following a method of recognizing the revenue over the period of lease, the treatment of upfront premium received by the assessee during the impugned assessment year by considering it as a revenue income deserves to be deleted and we direct the Ld. AO to delete the addition made on account of upfront premium received during the assessment year. We are therefore inclined to allow this ground raised by the assessee. 34. With respect to Ground No.6 regarding addition of Rs. 9,15,000/- towards unaccounted sundry debtors the Ld. AR submitted that the assessee has rendered dry dock services to M/s. P.S. Company amounting to Rs. 9,15,000/- but was not accounted for in the books of accounts since whereabouts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uous. ITA No. 397/Viz/2014 (By assessee) (AY: 2011-12) 40. This appeal filed by the assessee against the combined order of Ld. Commissioner of Income Tax (Appeals), Visakhapatnam in ITA No.0266/12-13/Addl.CIT, R-1/VSP/13-14 ITA No. 0362/12-13/ACIT,C-1/VSP/2013-14 dated 28/03/2014 arising out of the order passed U/s. 143(3) of the Act for the AYs: 2010- 11 2011-12. 41. Briefly stated the facts of the case are that the assessee is a Port Trust came into existence under the Major Port Trust Act, 1963 and has been carrying on commercial activities and services of a port and allied facilities relating to maritime trade and commerce since inception. The assessee being a Local Authority was exempted U/s. 10(20) of the Act up to the AY 2002-03. From AY 2003-04 to 2008-09, total income of the assessee was exempted U/s. 11 of the Act. Consequent to amendment to section 2(15) of the Act, the assessee filed its return of income for the AY 2009-10 onwards admitting its income under the head business income . Further, the registration U/s. 12AA of the Act was cancelled w.e.f 1/4/2009 vide proceedings of the Ld. CIT-1, Visakhapatnam dated 11/09/2012. The assessee filed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) ought to have appreciated that the above expenses crystallized during the impugned assessment year and that in the absence of any exempted income for the impugned assessment year, provisions of section 14A are not applicable. (c) The Ld. CIT(A) ought to have considered the fact that the prior period expenses included a sum of Rs. 3,87,63,120/- towards reversal of income offered to tax for the AY 2009-10 and hence this amount could not be disallowed U/s. 14A of the Act. (d) The Ld. CIT(A) ought to have appreciated that expenditure to the extent of Rs. 37,55,082/- crystallized during the impugned assessment year and hence the same cannot be considered as prior period expenses. 3. (a) The Ld. CIT(A) is not justified in confirming disallowance of alleged excess depreciation claimed in respect of capital dredging. (b) The Ld. CIT(A) ought to have appreciated that capital dredging is a plant and machinery and hence the appellant is entitled for depreciation @ 15% as against 10% allowed by the Assessing Officer. 4. (a) The Ld. CIT(A) is not justified in confirming the addition of Rs. 54,86,32,514/- towards upfront premium received on lease of lands. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es confirmed the addition of Rs. 54,86,32,514/- towards upfront premium received on lease of lands, we find that this issue is identical to that of the issue raised by the assessee in its appeal ITA No.396/Viz/2014 (Ground No.5) for the AY 2010-11. Since the facts and circumstances pertaining to this issue in both the appeals ie., ITA No. 396/Viz/2014 and ITA No. 397/Viz/2014 are same, our decision given while adjudicating the issue with respect to addition made by the Ld.AO and confirmed by the Ld. CIT(A) towards upfront premium received on lease of lands in ITA No. 396/Viz/2014 (AY: 2010-11) mutatis mutandis applies to the similar issue involved in Ground No.4 of ITA No. 397/Viz/2014 also. Hence, we hereby allowed the grounds raised by the assessee on this issue. 48. Ground No.5 is with respect to the contribution to pension fund in excess of the annual limit of 27% of the salaries and wages. Before us, it was submitted by the Ld. AR that the provisions to the Pension Fund is based on actuarial valuation based on scientific principles. This provision has been made in the books of account during the impugned assessment year to cover all the employees including retired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37 of the Act. Therefore, the question as raised is academic. 50. From the judicial pronouncements as relied on by the Ld. AR as extracted above, we find that the Hon ble High Court of Bombay has held that even if the expenditure is not allowable U/s. 36(1)(iv) of the Act, but the same is allowable U/s. 37 of the Act. Respectfully following the above decision, we are inclined to allow the contribution to Pension Fund in excess of 27% on account of salaries, wages and pension U/s. 37 of the Act and hence this ground raised by the assessee is allowed. Since, the expenditure is allowed on contribution basis, we are of the opinion that the provisions of section 43B of the Act are not applicable. It is ordered accordingly. 51. The additional ground raised by the assessee is not pressed and therefore the same is dismissed as not pressed . 52. In the result, appeal of the assessee ( ITA No. 397/Viz/2014) is partly allowed. C.O. No. 27/Viz/2022 (By Revenue) (AY:2011-12) 53. This Cross Objection is raised by the Revenue additional ground raised by the assessee. Since the additional ground raised by the assessee in its appeal ITA No. 397/Viz/2014 (AY 2010-11) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal: 1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts. 2. The Ld. CIT(A) is not justified in sustaining the addition of following amounts made by the AO towards disallowance U/s. 14A of the Act. (a) Gratuity - Rs. 2,75,84,078/- (b) Provident Fund - Rs. 5,71,83,394/- 3. The Ld. CIT(A) ought to have appreciated that the above amounts are to be allowed U/s. 43B of the Act. 4. Any other ground that may be urged at the time of appeal hearing. 57. At the outset, we find that the assessee has agitated before us in ITA No.25 26/Viz/2014 (AY 2010-11 2011-12) regarding the powers exercised by the Ld. CIT U/s. 263 of the Act. We have adjudicated that appeal in ITA No.25/Viz/2014 (AY: 2010-11) in favour of the assessee by quashing the order of the Ld.CIT passed U/s. 263 of the Act in the above paragraphs of this order. Since the order passed by the Ld.CIT U/s. 263 has been quashed and hence the consequential order passed by the Ld. AO U/s. 143(3) r.w.s 263 as well as the order of the Ld. CIT(A) passed U/s. 250 of the Act have no legs to stand. It is ordered accordingly. 58. In the result, appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Upfront premium added as income as per Para-4 26,39,48,118 2. Disallowance of excess claim of depreciation as per para-5 5,16,08,835 3. Disallowance of donation and contribution as per para-6 1,56,99,298 4. Disallowance of excess claim on account of contribution to pension fund as per para 7 4,57,93,453 61. Aggrieved by the order of the Ld.AO, the assessee filed an appeal before the Ld. CIT(A)-1, Visakhapatnam. After considering the submissions made by the assessee from time to time and after discussing the case with the Ld. AR, the Ld. CIT(A) partly allowed the appeal of the assessee for the AY 2015-16. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us by raising the following grounds of appeal: 1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts of the case. 2. The Ld. CIT(A) is not justified in sustaining the addition of Rs. 26,39,48,118/- made by the Assessing Officer by treating entire upfront prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstance of the case as well as the issue involved in both the appeals are identical our decision given on Ground No.4 of the assesse s appeal in ITA No. 396/Viz/2014 mutatis mutandis applies to the Ground No.3 of the instant appeal (ITA No.235/Viz/2020) also. Accordingly, we hereby confirm the order of the Ld. Revenue Authorities on this ground and thereby dismissed the grounds raised by the assessee. 66. Ground No.4 is with respect to with respect to sustenance of addition of Rs. 1,49,325/- being the expenditure incurred towards donations and contributions. Before us, the Ld. AR submitted that the assessee has incurred contribution to the Major Ports Sports Council Board (MPSCB) and also expenditure on compassionate grounds, disaster management plant, cultural activities, Teacher s Day celebrations etc. The Ld. AR submitted that Rs. 1,55,49,973/- was incurred towards contribution to the MPSCB stands for other expenditure. The Ld. AR therefore pleaded that the other expenditure is also in connection with the business activities of the assessee and therefore it should be allowed. Per contra, the Ld. DR relied on the of the Ld. Revenue Authorities on this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result, appeal filed by the assessee (ITA No.235/Viz/2020) is partly allowed. ITA No. 325/Viz/2017 (By Assessee) (AY: 2012-13) 70. This appeal filed by the assessee is directed against the order passed by the Ld. CIT(A)-1, Visakhapatnam in ITA No. 144/2015-16/AC,C-1(1),VSP/2016-17, dated 13/3/2017 arising out of the order passed U/s. 154 of the Income Tax Act, 1961 [the Act] for the AY 2012-13. 71. The brief facts of the case are that the Ld. AO while passing the order U/s. 143(3) of the Act dated 23/3/2015 for the AY 2012-13 disallowed a provision for payment of gratuity for Rs. 30.17 Crs U/s. 40A(7) of the Act. The Ld. AO observed that this amount of Rs. 30.17 Crs was quantified by the Statutory Auditors in Point No. 17B(i) of Form-3CD as not allowable as deduction U/s. 40A(7) of the Act. The Ld. AO observed that while passing the order U/s. 143(3) this was not disallowed which is a mistake apparent from record and therefore issued a notice U/s. 154 of the Act. In response, the assessee submitted that to match with the actuarial liability of gratuity fund of Rs. 133.03 Crs, an addition contribution of Rs. 30.17 Crs was made in addition to the contribution ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to disallowance of provision for payment of Gratuity for Rs. 30.17 Crs which is beyond the scope of the rectification U/s. 154 of the Act. Before us, the Ld. AR reiterated the submissions made before the Ld. Revenue Authorities and stated that the contribution to Gratuity Fund in addition to the ordinary contributions shall be allowed as deduction U/s. 37(1) of the Act. Alternatively, the deduction shall also be otherwise allowable U/s. 43B of the Act. The Ld. AR pleaded before us that since there was non-availability of funds to match the actuarial liability during the initial period when the Gratuity Fund was approved by the Ld. CIT during the AY 2002-03, the assessee could not make contributions initially and therefore has made contribution of Rs. 30.17 Crs during the impugned assessment year. The Ld. AR therefore pleaded that this shall be allowed as an expenditure. Per contra, the Ld. DR relied on the orders of the Ld. Revenue Authorities. 74. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. It is admitted fact that the assessee has made contribution towards Gratuity fund during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g its income under the head business income . Further, the registration U/s. 12AA of the Act was cancelled w.e.f 1/4/2009 vide proceedings of the Ld. CIT-1, Visakhapatnam dated 11/09/2012. The assessee filed its original return of income for the AY 2016-17 on 13/10/2016 admitting NIL income. Subsequently, the assessee filed revised return of income for the AY 2016-17 on 22/03/2017 admitting NIL income. The case of the assessee was selected for scrutiny under CASS. Accordingly, notice U/s. 143(2) of the act was issued on 17/7/2017 which was duly served on the assessee on 25/07/2017. A notice U/s. 142(1) of the Act dated 9/2/2018 was issued which was duly served on the assessee on 15/2/2018. Due to change in incumbent, notice U/s. 143(2) of the act was issued through ITBA module on 14/08/2018. Thereafter a notice U/s. 1242(1) of the Act calling for certain information was also issued to the assessee on 31/8/2018. Thereafter, a show cause notice dated 9/11/2018 was also issued to the assessee through online. In response, the assessee filed the submissions / information through e-proceedings module from time to time. After examining the relevant information / written submissions filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,00,000/- made by the Assessing Officer towards disallowance of provision made towards interest payable on Government Loans. 5. Any other grounds that may be urged at the time of hearing. 80. The assessee has also raised an additional ground in its appeal which reads as under: On the facts and in the circumstances of the case, whether the total income of the appellant is eligible for exemption U/s 11 of the Income Tax Act, 1961? 81. Grounds No. 1 5 are general in nature and therefore they need no adjudication. 82. With respect to Ground No.2 wherein the Ld. Revenue Authorities confirmed the addition of Rs. 212,96,25,561/- towards upfront premium received on lease of lands, we find that this issue is identical to that of the issue raised by the assessee in its appeal ITA No.396/Viz/2014 (Ground No.5) for the AY 2010-11. Since the facts and circumstances pertaining to this issue in both the appeals ie., ITA No. 396/Viz/2014 and ITA No. 236/Viz/2020 are same, our decision given while adjudicating the issue with respect to addition made by the Ld.AO and confirmed by the Ld. CIT(A) towards upfront premium received on lease of lands in ITA No. 396/Viz/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence non-payable of interest in accordance with the provisions of section 43B shall be disallowed. In this regard, for the sake of brevity, we extract below section 43B of the Act: Sec. 43B: (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or (da) any sum payable by the assessee as interest on any loan or borrowing from [ a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company ] , in accordance with the terms and conditions of the agreement governing such loan or borrowing, or (e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank in accordance with the terms and conditions of the agreement governing such loan or advances, or 86. Further, the Explanation-4 to section 43B of the Act is also e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2024: (g) small enterprise shall have the meaning assigned to it in clause (m) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006). 87. From the bare reading of the above provisions and Explanation to Section 43B, the terms public financial institutions ; scheduled bank ; State industrial investment corporation ; co-operative bank , primary agricultural credit society and primary co-operative agricultural and rural development bank ; deposit taking non-banking financial company ; micro enterprise etc., have been defined. The intention of the Legislature is to disallow the interest if not paid within due date and remains payable to the above entities. Nowhere in the Explanation-4 to section 43B of the Act, the term Government of India has been used. 88. Further, from the case law relied on by the Ld. AR the Head Note is reproduced below: III. Section 43B of the Income-tax Act, 1961 Business disallowance Certain deductions to be allowed only on actual payment [Interest on unsecured loan] Assessment year 2002-03 Assessee had received a loan from State Government for purpose of distribution of dearness allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come for the AY 2012-13 on 8/2/2014 admitting total income of Rs. 45,68,31,160/-. The case was selected for scrutiny manually with the approval of the Chief Commissioner of Income Tax, Visakhapatnam in F.No. 64/CCIT/VSP/Tech/12-13, dated 19/03/2013. Accordingly, the statutory notice U/s. 143(2) of the Income Tax Act 1961 dated 26/03/2013 was issued by the then ACIT, Circle-1(1), Visakhapatnam which was duly served on the assessee on 1/4/2013. Further notice U/s. 142(1) dated 25/4/2013 along with questionnaire calling for certain information / details was issued by the then ACIT, circle-1(1), Visakhapatnam which was duly served on the assessee. Subsequently, the case was assigned to Addl. CIT, Range-1, Visakhapatnam vide order U/s. 120(4)(b) of the Act by the then CIT-1, Visakhapatnam in F.No. Tech/120(4)(b)/CIT-1/VSP/2013-14, dated 24/10/2013. Due to change in the incumbency, the statutory notice U/s. 143(2) dated 29/11/2013 and notice U/s. 142(1) dated 29/11/2013 along with questionnaire calling for certain information / details were issued by the then Addl. CIT, Range-1, Visakhapatnam which were duly served on the assessee. As per the direction of the Ld. CIT-1, Visakhapatnam vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation would be 10% as applicable to building and not 15% as applicable to plant. 4. The Ld. CIT(A) is not justified in sustaining the addition of Rs. 1,17,61,944/- made by the AO towards disallowance of prior period expenses. 5. The Ld. CIT(A) is not justified in sustaining the addition of Rs. 28,79,099/- made by the Assessing Officer towards disallowance of contribution to VPT employees family security fund. 6. The Ld. CIT(A) is not justified in sustaining the addition of Rs. 78,60,27,634/- made by the Assessing Officer towards alleged excess contribution to pension fund. 7. Any other ground that may be urged at the time of appeal hearing. 95. The assessee has also raised an additional ground in its appeal which reads as under: On the facts and in the circumstances of the case, whether the assessing Officer is justified in assessing the total income of the appellant without granting exemption U/s. 11 of the Income Tax Act, 1961? 96. Grounds No. 1 and 7 are general in nature and therefore they need no adjudication. 97. With respect to Ground No.2 wherein the Ld. Revenue Authorities confirmed the addition of Rs. 3,07,59,772/- towards upf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prior period expenditure. He therefore pleaded that this may be allowed. Per contra, the Ld. DR relied on the orders of the Ld. Revenue Authorities. 100. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. Admittedly, the prior period Staff Cost comprises of VRS ex-gratia payments, pension payments and leave encashment and difference of leave salary payable including fixation of payment to employees, refixation of pay on grant of additional increments etc. From the submissions of the Ld. AR, we find that due to certain disciplinary cases these payments could not be finalized in the earlier assessment years and hence after finalization in the FY 2011-12 these have been accounted as prior period expenses. There is no dispute on the fact that these are all business expenditures. We also find from the order of the Ld. CIT(A) in the assessee s own case this issue was decided in favour of the assessee which is extracted herein below: In the instant case, the business of the appellant is of giant proportion and therefore the principle enunciated by the Delhi High Court is fully applicable to the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12, these expenditures need to be allowed in the year of finalization. We are therefore inclined to allow this claim made by the assessee and set-aside the orders of the Ld. Revenue Authorities on this ground. 102. With respect to Ground No.5, regarding the addition of Rs. 28,79,099/- towards disallowance of contribution to VPT Employees Family Security Fund, the Ld. AR submitted that a provision has been made during the FY towards the Family Security Fund of the employees of the VPT. The Ld. AR submitted that these expenditure are incurred during the course of carrying of the assessee s business and shall be allowable U/s. 37 of the Act. Per contra, the Ld. DR relied on the orders of the Ld. Revenue Authorities. 103. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. From the submissions made by the Ld. AR we find that a provision to the extent of Rs. 28,79,099/- was made to the VPT Employees Family Security Fund. This being a provision shall be allowed in the year of payment, in accordance with the provisions of section 43B of the Act. The Ld. CIT(A) in para 9.4 of his order has held as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case. 2. The Ld. CIT(A) erred in allowing pension to be included under the head salaries and Wages for computation of allowable contribution towards Pension Fund and thus allowed excess deduction to the assessee. 3. The Ld. CIT (A) erred in not appreciating the fact that payment of pension is made out of a specific fund maintained for that purpose and not like normal business expenditure. 4. Any other ground that may be urged at the time of hearing. 110. The only issue raised by the Revenue in its grounds of appeal is with respect to contribution to pension fund in excess of the annual limit of 27% of the salaries and wages . This issue was decided by us while adjudicating the assessee s appeal vide Ground No.5 of ITA No.397/Viz/2014 wherein we have respectfully followed the decision of the Coordinate Bench decision in ITA No. 6444/Mum/2007, dated 28/01/2011 in the case of Glaxo Smithkline Pharmaceuticals which was also affirmed by the Hon ble High Court of Bombay in CIT-6 vs. Glaxo Smithkline Pharmaceuticals wherein theHon ble High Court of Bombay has held that even if the expenditure is not allowable U/s. 36(1)(iv) of the Act, but the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2018. Thereafter, a show cause notice dated 9/11/2018 was also issued to the assessee through online. In response, the assessee filed the submissions / information through e-proceedings module from time to time. After examining the relevant information / written submissions filed by the assessee through ITBA module, the Ld. AO completed the assessment by making the following additions / disallowances: Sl No Nature of addition Amount (Rs.) 1. Upfront premium added as income as per para-4 212,96,25,561 2. Disallowance of excess claim of depreciation as per para 5 13,11,29,794 3. Disallowance of excess claim on account of contribution to Pension Fund as per para 6 118,00,00,000 4. Disallowance of provision for interest on government loan for outer harbour as per para-7 7,00,00,000 5. Disallowance of Prior period expenditure as per para 8 86,96,880 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ground, the Ld. DR submitted that the Railway Permanent Way is akin to road and should be treated as buildings for the purpose of calculation of depreciation. The Ld. DR also submitted that the Ld. AO has also distinguished the decision of the Hon ble Apex Court in the case of CIT vs. Karnataka Power Corporation reported in 247 ITR 268 (SC) relied on by the assessee in support of its claim. Therefore, the Ld. DR pleaded that the order of the Ld. AO be upheld. Per contra, the Ld. AR relied on the order of the Ld. CIT(A) and argued in support of the same. 118. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. In the instant case, we find that the Ld.CIT(A) following the principle of consistency has considered the Railway Permanent Way under Plant Machinery by following the adjudication of the same issue in the AY 2012-13. From the records available before us, we find that the Ld. CIT(A) in the earlier years has relied on the order of the Ld. CIT(A) for the AY 2005-06 in ITA No. 240/R-1/VSP/2007-08 wherein it was held that the Railway Permanent Way should be treated as part of the plant . From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were paid in the year 2013 itself to the employees who are on the Rolls of the Visakhapatnam Port Trust. However, where there were cases of Court attachments, these arrear payments were released during the FY 2015-16 and hence pleaded that these expenses were crystallized only during the FY 2015-16 and hence to be allowed as business expenditure. The Ld. AR therefore pleaded that the order of the Ld. CIT(A) be upheld. 121. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities on this issue. The Ld. CIT(A) in para 4.6.3 held as follows: 4.6.3. I have carefully considered the issue. Generally, the expenditure is allowed in the year in which it is incurred against the income of the year. The appellant argued that the expenditure was incurred on account of stocks arrears and interest. The reason for not claiming in the year was seemingly the delay in receipt of consumption. It is not the case of the Assessing Officer that the expenditure is not genuine or not related to business. It appears to be departmental lacuna because that made difficult in claiming the expenses. Regarding the wages, it is claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. CIT(A). While adjudicating the Revenue s appeal in ITA No. 67/Viz/2021 (supra), we have partly allowed the issues raised by the Revenue in favour of the assessee. Therefore, considering the outcome of the Revenue s appeal, these grounds of Cross Objection raised by the assessee are accordingly disposed off. 126. In the result, CO raised by the assessee is disposed off as discussed herein above. ITA No.49/Viz/2021 (By Revenue) (AY: 2015-16) 127. This appeal filed by the Revenue against the order of the Ld. CIT(A)-1, Visakhapatnam in ITA No. 10251/2017-18/CIT(A)- 1/VSP/2019-20, dated 21/09/2020 arising out of the order passed U/s. 143(3) of the Act. 128. Briefly stated the facts of the case are that the assessee is a Port Trust came into existence under the Major Port Trust Act, 1963 and has been carrying on commercial activities and services of a port and allied facilities relating to maritime trade and commerce since inception. The assessee being a Local Authority was exempted U/s. 10(20) of the Act up to the AY 2002-03. From AY 2003-04 to 2008-09, total income of the assessee was exempted U/s. 11 of the Act. Consequent to amendment to section 2(15) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. CIT(A), the Revenue is in appeal before us by raising the following grounds of appeal: 5. The order of the Ld. CIT(A) is erroneous on facts and in law. 6. The Ld. CIT(A) is not justified in restricting the rate of depreciation to 10% as against 15% in respect of Depreciation on Railway Permanent Way as the railway tract is an integral unit of the system for carrying out materials for loading and unloading up to the Railway siding of Indian Railways and accordingly, railway permanent way should be treated as roads on par with buildings, which are entitled for depreciation at 10% only instead of 15%. 7. The Ld. CIT(A) is not justified in allowing the donations and contributions of Rs. 1,56,99,298/- as the business expenditure as none of these contributions are related to the business activities of the assessee. 8. The appellant craves leave to add or delete or amend or substitute any ground of appeal before and / or as the time of hearing of appeal. 130. At the outset, it is pertinent to mention here that the Sl. No. of Grounds of appeal are given as 5, 6, 7 and 8 instead of 1, 2, 3 and 4. Therefore, to avoid confusion while adjudicating the grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
