ACIT, CIRCLE-1(1), CUTTACK vs. PARADEEP PORT TRUST, JAGATSINGHPUR

Provisions for accrued expenses ( current liabilities): Whether in the facts acid circumstances bf the case the CIT(A) is justified in deleting the various additions made for Rs.279,24,45,158 under the head accrued expenses shown as the liability on the ground that there is no change in the nature of such claim of current liabilities in the balance sheet and very much part of the current liabilities- when unascertained liabilities can not be claimed as expenditure as per accounting system.

(Interest accrued on investment:) Whether in the facts and circumstances of the care, Id. CIT(A) is justified in relying upon the ratio of decision passed by the Hon'ble ITAT for the A/Y:2007-08 and to hold that interest on such funds are for the specific purpose of development of the Port and not in connection with the regular operation of the assessee, hence the addition of Rs.35cr and Rs.26 cr made by the AO deleted- When the AO noticed that interest earned on those funds directly credited to such fund's accounts without reflecting in the P&L a/c of the assessee as regular business activities resulting that income earned has not been offered for taxation.

In the facts and circumstances of the case, the Ld. CIT(A) is not justified in directing the AO to allow depreciation at the higher rate @15% on Railways and Rolling Stock treating the same as "Plant and Machinery' as against depreciation of 10% ;allowed in the impugned assessment order treating the same as.

Any other matter, if any, shall be urged at the time of hearing.

Brief facts of the case are that the assessee is engaged in running a major port and filed the return of income electronically on 27.09.2012 declaring income of Rs.323,57,82,620/-. Subsequently, the assessee filed a revised return on 28.03.2014 with total income of Rs.294,24,11,700/- and the case was selected for scrutiny and notice u/s.143(2) and 142(1) along with questionnaire was issued to the assessee. In compliance, ld. AR of the assessee appeared and filed details and the case was discussed. The AO on perusal of the financial statements found that the assessee has disclosed liability of Rs.279,24,45,158/- under the head accrued expenses and the explanations were called for. The AO found that the assessee is following mercantile system of accounting and as per AS-9 only ascertained liabilities can be claimed and unascertained liability cannot be claimed as expenditure. The AO referred to the accrued expenses in his order at page 2. The AO further perused the reasons submitted in respect of liability. Since the expenses were disallowed in earlier years, the AO following the precedence has made disallowance of provisions for accrued expenses.

Similarly, the AO made addition in respect of replacement, rehabilitation, modernization of capital asset fund of Rs.35,82,00,000/-. Further, the AO disallowed on account of development repayment of 3 loans and contingencies fund and also made addition of claim of depreciation on railways and rolling stock Rs.11,68,37,837/- along with other additions, assessed the total income of Rs.647,61,94,700/- and passed the order u/s.143(3) of the Act dated 25.02.2015. 5. Aggrieved by the additions, the assessee filed appeal before the CIT(A). In the appellate proceedings the AR of the assessee reiterated the submissions and argued the grounds. Ld. CIT(A) dealt on the issues in respect of provisions of accrued expenses and found that there is no reason to consider the claim as unascertained liability and observed at para 5 page 3 of the order, which reads as under :- “I have carefully perused the assessment order and the submissions made by the AO on the issue. 1The appellant submitted that the above amounts were in the nature of ascertained current liabilities and have furnished the details of the same. The appellant further submitted that out of such Rs.245.88 Crores relate to interest liability on Government of India Loan which is an ascertained liability. The appellant has also stated that in the following F.Y. 2012-13, the total liability of Rs.1,20,00,000/- was released to C & AG towards audit fees. The appellant had produced some of the bills regarding payment to contractors and other charges which were verified by the undersigned. The AO also in the assessment order mentioned that the details submitted by the assessee regarding accrued liabilities were perused by him. The AO has not mentioned why he has considered such accrued liabilities as not ascertained liabilities. The appellant had been consistently providing for such accrued liabilities in its balance sheet every year which at the end of the financial year were considered as ascertained liabilities and the payments were released during the following year. In earlier years also the claims were verified by the CIT(A) and the AO through remand report and the finding has been that such current liabilities provided by the appellant in the balance sheet are to be considered as ascertained liabilities. There has been no change in the nature of such claim of current liabilities made by the appellant in the balance sheet for all these years. I find no reasons to treat the same as unascertained liabilities and therefore the AO is directed to delete the addition.”

Similarly, the CIT(A) in respect of accrued interest of investment, has relied on the decision of assessee’s own case for the assessment year 2007-08 at page 4 which reads as under :- “The Hon,ble ITAT, Cuttack in the case of the appellant for the AY 2007-08 (ITA No.99 & 114/CTK/2011) have held "Considering the issue of treatment of Rs.42 crore being interest on investment on Capital 4sset Replacement Reserve Fund and on investment on Development 1epayment of Loan and Contingency Reserve Fund, as income of the assessee, it is found that these funds were created under the specific directions of the Govt. of India contained in its Memo No.GR-15024/7/93-PG, dated 16.6.1994 and No. P & F-25/78 dated 20.3.1978. As per the said directions, the interests on the funds along with the corpus thereof are required to be utilized for the specific purposes of development of the Port and not in connection with the regular operations of the assessee. In that view of the matter, we are of the considered view that this is a diversion of the interest amounts at source and thereby the said interest amounts cannot be added to the revenue income of the assessee. Hence, the contention taken by the Department is not sustainable for legal scrutiny. Accordingly, the additions made by the Department are hereby directed to be deleted.”

In respect of claim of depreciation the CIT(A) allowed the depreciation and observed at para 12 page 5 of the order, which reads as under :- “The Honble ITAT,Cuttack in the case of the appellant for the AY 2007-08 (ITA No.99 & 114/CTK/201.1) held that "The assessee was denied of the higher rate of depreciation on the assets finding that they are not "plant & machinery". But as can be seen from the admitted facts and circumstances of the case, the fixed assets serve some special purpose of the working and thereby they are considered as "plant & machinery" in the working process of the assessee. This claim of the assessee is fortified by the decision of Hon'ble Supreme Court rendered in the case of CIT Vs. Dr. B.Venkatrao (243 ITR 82), CCI (Admn) v. Viswesarayya Iron & Steel Ltd., Karnataka (199 ITR 98) and Kalinga Tubes Ltd. v. CIT (96 ITR 20). In the light of the dictums stated supra, the assessee’s claim is substantiated and hence found entitled to higher rate of depreciation at 15% on the fixed assets as claimed by the assessee.”

Aggrieved by the order of the CIT(A), the Revenue is in appeal before us.

Ld. DR argued the grounds and relied on the order of AO land prayed for allowing the appeal.

Contra, ld. AR of the assessee supported the order of CIT(A) and relied on the order of Tribunal for earlier assessment years in assessee’s own case.

We have heard rival submissions and perused the material on record. In respect of first issue of Revenue that the provisions for accrued expenses, ld. DR submitted that the CIT(A) has erred in deleting the addition as the liabilities are unascertained liabilities, whereas ld. AR submitted that these are the ascertained liabilities and the assessee has filed details before the appellate proceedings. We found that the ld. DR could not controvert with any new findings of the CIT(A) except relying on the order of AO and on perusal of the CIT(A)’s order we found that the assessee has produced the bills and supported documents and the CIT(A) having considered these facts and also claim made by the assessee has passed a reasoned decision treating as ascertained liabilities and directed the AO to delete the addition. Accordingly, we uphold the same and dismiss this ground of Revenue

In respect of second ground of interest accrued investment, ld. AR submitted that the issue is covered in favour of the assessee in assessee’s own case for the assessment year 2009-2010 by the decision of the Tribunal in ITA No.356/CTK/2013. We perused the order of the Tribunal, wherein the Tribunal has observed as under :-

3 We have heard rival contentions and perused the record carefully and found that the ld. CIT(A) observed that interest on 6 funds are in connection with the regular operations of the assessee and the AO observed as per the notes on accounts, the income from investment of funds are credited directly to the respective fund accounts and interest income is not credited to profit and loss accounts, whereas the assessee submitted that the funds were created as per specific directions of Govt. of India and the interest on the funds are utilised for specific development of Port and is not in connection with regular operation of the business. Ld. CIT(A) observed that the issue is squarely covered by the decision of the Tribunal in assessee’s own case for assessment year 2007-08 in ITA No.099/CTK/2011 and ITA No.114/CTK/2011, observed at page 8 of the CIT(A) order, which reads as under:- “Considering the issue of treatment of Rs.42 crore being interest on investment on Capital Asset Replacement Reserve Fund and on investment on Development Repayment of Loan and Contingency Reserve Fund, as income of the assessee, it is found that these funds were created under the specific directions of the Govt. of India contained in its Memo No.GR-15024/7/93-PG, dated 16.6.1994 and No.P&F-25/78 dated 20.3.1978. As per the said directions, the interests on the funds along with the corpus therefore required to be utilized for the specific purposes of development of the Port and not in connection with the regular operations of the assessee. In that view of the matter, we are of the considered view that this is a diversion of the interest amounts at source and thereby the said interest amounts cannot be added to the revenue income of the assessee. Hence, the contention taken by the department is not sustainable for legal scrutiny. Accordingly, the additions made by the Department are hereby directed to be deleted.” We found that this issue is settled by the coordinate bench of the Tribunal for the assessment year 2007-08 in assessee’s own case and accordingly, we uphold the action of CIT(A) on this ground and dismiss the ground of revenue. We respectfully follow the judicial decision and looking to the facts and circumstances of the case, uphold the order of the CIT(A) and dismiss this ground of Revenue.

In respect of claim of depreciation on railways and rolling stock of plant and machinery, the Tribunal has decided this issue in assessee’s own case for the assessment year 2009-2010 in ITA No.356/CTK/2013 and observed as under :- “19.3 We have heard rival contentions and perused the record carefully and found that the fixed assets serve some special

3 The Hon'ble ITAT.Cuttack Bench, Cuttack in the case of the appellant (ITA No.099/CTK/2011 for assessment year 2007-08 & ITA No.114/CTK/2011 for assessment year 2007-08) held: "The assessee was denied of the higher rate of depreciation on the assets finding that theyare not "plant & machinery". But as can be seen from the admitted facts and circumstances of the case, the fixed assets serve some special purpose of the working and thereby they are considered as "plant & machinery" in the working process of the assessee. This claim of the assessee is fortified by the decision of Hon'ble Supreme Court rendered in the case of CIT v. Dr. B.Venkatrao(243 ITR 82), CCI(Admn) v. Viswesarayya Iron & Steel Ltd.,Karnataka(199 ITR 98) and Kalinga Tubes Ltd. v. CIT (96 ITR 20). In the light of the dictums stated supra, the assessee's claim is substantiated and hence found entitled to higher rate of depreciation at 15% on the fixed assets as claimed by the assessee."

In the result, appeal of the Revenue is dismissed. Order pronounced in the open court on this 27/04/2018. (N. S. SAINI) (PAVAN KUMAR GADALE) ऱेखा सदस्य / ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनांक Dated 27/04/2018 प्र.कु.मि/PKM, Senior Private Secretary आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : Appellant-