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Facts
Visakhapatnam Port Authority, an assessee engaged in providing port facilities, filed nil income for AY 2017-18. The Assessing Officer made several additions/disallowances, including upfront premium, excess depreciation on capital dredging, provision for interest on government loan, prior period expenditure, and excess contribution to pension fund. The CIT(A) partly allowed the assessee's appeal, leading to cross-appeals by both the assessee and the Revenue before the ITAT.
Held
The Tribunal, applying the principle of consistency and relying on its own previous orders in the assessee's cases for earlier assessment years, dismissed both the assessee's appeal and the revenue's appeal. It confirmed the treatment of capital dredging as 'buildings' for 10% depreciation, upheld the assessee's consistent accounting method for recognizing upfront premium over the lease period, and allowed prior period expenditure as it crystallized in the current year. It also allowed excess pension fund contribution under Section 37 and held Section 43B is not applicable to interest on Government loans, and upheld the treatment of Railway Permanent Way as 'plant' for 15% depreciation.
Key Issues
1. Whether capital dredging and Railway Permanent Way should be treated as 'plant' (15% depreciation) or 'buildings' (10% depreciation). 2. Whether upfront premium received on lease of land should be taxed as income in the year of receipt or amortized over the lease period. 3. Allowability of prior period expenditure that crystallized in the current assessment year. 4. Allowability of excess contribution to pension fund under Section 36(1)(iv) or Section 37 of the Income Tax Act. 5. Applicability of Section 43B for disallowance of provision for interest on Government loans.
Sections Cited
143(3), 143(2), 142(1), 36(1)(iv), 43B, 37, 37(1), 145, 43(3)
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Income Tax Appellate Tribunal, VISAKHAPATNAM “DIVISION” BENCH, VISAKHAPATNAM
Before: SHRI RAVISH SOOD, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER: 1. These cross appeals are filed by assessee and revenue against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal centre, Delhi [hereinafter in short “Ld.CIT(A)”] vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1071593781(1) dated 26.12.2024 for the A.Y.2017-18 arising out of the order passed under section 143(3) of Income Tax Act, 1961 (in short ‘Act’) dated 28.12.2019.
(A.Y. 2017-18) – ASSESSEE APPEAL.
Briefly stated the facts of the case are that the assessee is a Port Trust which came into existence under the Major Port Trusts Act, 1963 and engaged in providing various facilities in Visakhapatnam Port as required under the said Act. The assessee has filed its original return of income for the A.Y.2017-18 declaring Nil Income on 26.10.2017. Thereafter, a revised return of income was filed by the assessee declaring Nil Income on 27.03.2018. The case was selected for scrutiny under CASS. Accordingly, Ld. Assessing Officer [hereinafter in short “Ld. AO"] issued notice under section 143(2) of the Act on 14.08.2018 and notice under section 142(1) of the Act was issued on 09.09.2019 & 19.09.2019 calling for certain information. In response to the above notices, assessee furnished its submissions/information
Page. No 2
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority through e-proceedings module from time to time as called for. After considering the submissions of the assessee and after examining the books of accounts and other relevant information obtained during the course of scrutiny proceedings, the Ld. AO completed the assessment under section 143(3) of the Act by making the following additions / disallowances:
Sl Amount Nature of addition / disallowance No (Rs.) 1. Upfront premium added as income 75,14,24,443 2. Disallowance of Excess claim of depreciation 18,42,68,301 3. Disallowance of provision for interest on Government 3,50,00,000 Loan for Outer harbor 4. Disallowance of prior period expenditure 5,69,36,269 5. Disallowance of contribution made in excess of 27% 66,79,96,472 u/s. 36(1)(In view of the) r.w.r. 87
Accordingly, the Ld. AO determined the total income at Rs.169,83,25,485/- and passed the assessment order on 28.12.2019.
Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A) partly allowed the appeal of the assessee.
Aggrieved by the order of the Ld. CIT(A), the assessee is in 4. appeal before the Tribunal by raising the following grounds of appeal:
Page. No 3
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority “1. The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts. 2. The learned Commissioner of Income Tax (Appeals) is not justified in restricting the rate of depreciation to 10 percent as against 15 percent claimed by the appellant in respect of Capital Dredging of Rs.16,07,99,557. 3. Any other ground that may be urged at the time of appeal hearing”
At the outset, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted before us a summary of Grounds of Appeal to state that the issues involved in the appeal are exactly identical to that of the issues adjudicated by the Tribunal in the assessee’s own case vide order dated 27.09.2023. The Ld. AR further submitted before us a Reference to Relevant Paras of the Tribunal order dated 27.09.2023 wherein it was demonstrated that the issue wise adjudication was done by the Tribunal and therefore considering the similarity of the issues, the ground raised by the assessee in the present appeal may be allowed.
Per contra, The Ld. Departmental Representative [DR] heavily relied on the order of the Revenue Authorities and supported the decision taken by them. However, the Ld. DR did not controvert to the submission of the Ld. AR that the issues involved in the present appeal are identical to that of the issues adjudicated by the Tribunal
Page. No 4
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority and therefore the same decision of the Tribunal may be applied to the grounds involved in the present case.
We have heard both the sides perused the material available on 7. record as well as the orders of the Ld. Revenue Authorities. We have also perused the order of this Tribunal in the assessee’s own case vide order dated 27/09/2023 wherein identical issues were raised by the assessee and the Tribunal has adjudicated the same. Therefore, considering the identicalness of the issues in the present appeal as well as that of the appeals decided by this Bench of the Tribunal, we hereby give our Ground wise adjudication in the following paragraphs.
Ground Nos. 1 and 3 are general in nature and needs no adjudication.
Ground No.2 which is in respect to restricting the rate of 9. depreciation to 10% as against 15% claimed by the assessee in respect of Capital Dredging of Rs.16,07,99,557/-. With respect to capital dredging, this Bench of the Tribunal has already dealt with this issue and decided the issue against the assessee in the assessee’s own case for the A.Y.2010-11 in dated 27.09.2023. For the sake of reference, relevant paras from the order of the Tribunal (supra) are extracted herein below:
Page. No 5
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority “28. Ground No.4 pertains to disallowance of excess depreciation of Rs. 5,20,74,400/- as claimed by the assessee in respect of capital dredging. The Ld. AR argued that the assessee has incurred a certain capital expenditure on capital dredging of the Port to facilitate free movements of Ships and hence to be considered as Plant & Machinery and accordingly the assessee is entitled for depreciation @ 15%. The Ld. AR relied on the order of the Coordinate Bench of Hyderabad decision in the case of DCIT, Circle-2(1), Hyderabad vs. Kakinada Sea Ports Limited in to 39/Hyd/2015 (AYs: 2007 -08 to 2010-11), dated 4/09/2015 and submitted that the Coordinate Bench by relying on various case laws considered the assessee’s claim of depreciation @ 15% on capital dredging and hence pleaded that the same decision may be applied to the instant case. Per contra, the Ld. DR submitted that the capital dredging is akin to roads being developed on land for free facilitation of the vehicles and hence it should be treated as buildings and the assessee is entitled for depreciation @ 10% only. The Ld. DR relied on the decision of the Hon’ble High Court of Bombay in the case of CIT vs. Mazagaon Dock Ltd reported in [1994] 206 ITR 260 (Bom.).
We have heard both the parties and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly, the assessee has incurred expenditure of capital dredging on which the assessee claimed depreciation @ 15% considering the capital dredging as “Plant & Machinery”. The Ld. 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”. We also find th at the Ld. CIT(A) by relied on the decision of the Hon’ble High Court of Bombay in the case of CIT vs. Mazagaon Dock Ltd (supra) wherein it was held as under: “11. On a careful consideration of the rival submissions of the counsels for the parties, we find ourselves in agreement with the counsel for the revenue that the approach channel made 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: “We have no hesitation to hold that the roads laid within the factory premises as links or providing approach to the buildings are necessary adjuncts to the factory buildings to carry on the business activity of the assessee and would be building within the meaning of section 32 of the Act. The capital expenditure incurred thereon is admissible to depreciation as per the provisions of the Act read with Rules in the Appendix.”
Page. No 6 I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority 12. To our mind, there is no material difference between an approach road to the factory which has been treated as a building or approach road or channel to a dry dock or wet dock from surface or the sea. The learned counsel for the assessee tried to get out of the above Supreme Court judgment by pointing out that in the instant case there is a ‘finding of fact’ by the Tribunal that the channel is necessary for the purpose of working of the dock and, as such, functional test is satisfied. We find it difficult to accept this submission because, in our opinion, the ratio of the decision of the Supreme Court squarely applies to the present case. It makes no difference whether the approach road is for a dry dock, wet dock or a factory or for any other premises because the basic fact that it provides approach to the dock or the factory remains the same. The Supreme Court has clearly held that such approach road should be treated at par with factory building and not as ‘plant’. In that view of the matter, we do not find any force in the submission of the counsel for the assessee that the approach channel should be treated not as ‘road’ but ‘plant’. In our opinion, the distinction sought to be made between the Supreme Court case and the present case is not well-founded. Accordingly, we hold that the approach channel constructed by dredging the sea is at par with the roads and culverts constructed in the factory premises and the depreciation allowable at the rates applicable to the factory will be allowable thereon. It cannot be held to be ‘plant’ as contended by the assessee. In that view of the matter, question No. 2 referred to us is answered in the negative, i.e., in favour of the revenue and against the assessee. The other three questions have already been answered in favour of the assessee and against the revenue by us earlier. This reference is, therefore, disposed of accordingly. On the facts and circumstances of the case, we make no order as to costs.”
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.”
Accordingly, we hereby dismiss the issue with respect to capital dredging raised in Ground No.2 by the assessee following the decision of the Tribunal (supra) in the assessee’s own case for the A.Y.2010-11 as well as by following principle of consistency. Accordingly, Ground No.2 raised by the assessee is dismissed.
In the result, appeal of the assessee is dismissed.
Page. No 7
Revenue has raised following grounds of appeal: -
1. The Order of the Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi is erroneous in law and to the facts of the case.
2. The Ld.CIT(A), NFAC has erred in deleting the addition made towards upfront premium of Rs.75,41,24,443/- by holding that 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 arevenue income 2.1 The Ld.CIT(A), NFAC has failed to appreciate the fact that the right to receive accrued during the year and as the nature of receipt is revenue in nature, the amount is assessable as income and does not violate the mercantile system of accounting. The lump-sum lease amount would take the characteristics of 'Income'.
3. The Ld. CIT(A), NFAC has erred in allowing the Prior period Expenditure of Rs.5,69,36,269/- as these expenses did not pertain to the subject year and is as such not allowable for the impugned assessment year i.e. A.Y.2017-18. 4. The Ld. CIT(A), NFAC has erred in deleting the addition made towards claim of the excess contribution to Pension fund for earlier years for Rs.66,79,96,472/- paid during the year being part of provision of excess contribution to Pension fund exceeding the prescribed limit made in earlier years. Any expenditure that falls within the purview of Section 43B of the Act can be claimed as an expense in the year of payment provided that it is otherwise allowable under the Act. Therefore, once excess contribution is not allowable u/s.36(1)(iv) of the Act r.w.r. 87, such excess contribution cannot be allowed u/s 43B of the Act also on payment basis. 4.1. The Ld.CIT(A) has erred in allowing the contribution to pension fund in excess of 27% on account of salaries, wages and pension u/s.37 of the Act by not appreciating the fact that Sec.37(1) is applicable only for those expenditures that are not covered within Sections 30 to 36 since contribution to pension fund is described in Sec.36(1)(iv) of the Act. 5. The Ld.CIT(A), NFAC has erred in deleting the addition of Rs.3,50,00,000/- made towards disallowance of provision for interest on Government Loan for Outer Harbour without observing the fact that the assessee did not pay the outstanding liability before the due date for furnishing of return of income.
Page. No 8 I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority 6. The Ld.CIT(A), NFAC has erred in deleting the addition of Rs.2,34,68,744/- towards excess claim of depreciation on railway permanent way and allowing the claim of depreciation on Railway Permanent Way @ 15% as against 10% restricted in the assessment order, ignoring the section 43(3) of the Income-tax Act, 1961.
The appellant craves leave to add or delete or amend or substitute any ground of appeal before and/or at the time of hearing of appeal.
8. For these and other grounds that may be urged at the time of appeal hearing, it is prayed that all these above additions be restored.”
Ground Nos. 1, 7 & 8 are general in nature and needs no specific 13. adjudication.
Ground Nos. 2 & 2.1 relating to the decision of the Ld. CIT(A) in 14. deleting the advance upfront premium of Rs.75,41,24,443/- on receipts basis as current year income. This ground raised by the revenue is identical to that of the Ground No.5 raised by the assessee in its own appeal for the AY 2010-11 in ITA No. 396/Viz/2014. This Bench of the Tribunal vide its order dated 27.09.2023 has already adjudicated this issue vide paras 31 to 33 of the Tribunal order (supra) and thereby allow the issue in favour of the assessee. For the sake of reference, the relevant paras from the order of the Tribunal (supra) are extracted herein below:
“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 pertain to one Financial Year and hence credited to the current liabilities and the proportionate land rental revenue of the financial year is recognized as revenue in the P & L Account for the particular year. The Ld. AR also referred to the agreement entered into with M/s. Indian
Page. No 9 I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority Potash Limited by the assessee. It is further submitted that the lease is not automatically renewable and risk & rewards incidental to the ownership were not transferred to the lessee. It was submitted by the Ld. AR that in the mercantile system of accounting being regularly followed by the assessee recognizing the rent which was received on upfront for a period of 30 years over the lease period is in accordance with the accounting policy and also complying with the provisions of section 145 of the Act. On this issue, the Ld. AR relied on the following case laws: (i) CIT vs. McMillan & Co. [1958] 33 ITR 182 (SC). (ii) Investment Ltd vs. CIT [1970] 77 ITR 533 (SC) (iii) MKB Asia (P.) Ltd vs. CIT [2008] 167 Taxman 256 (Gau.) (iv) JuggilalKamlaat Bankers vs. CIT [1975] 101 ITR 40 (All.) (v) CIT vs. Smt. Vimala D. Sonwand [1994] 75 Taxman 335 (Bom.) 32. The Ld. AR further submitted that the assessee can cancel the agreement and reassume the possession of the land by giving six months prior notice, and in case of such cancelation necessary compensation has to be paid to the lessee. The Ld. AR further submitted that in the case law relied on by the Ld. AO in the case of P.L. Ganapathi Rao & ANR vs. CIT [2006] 285 ITR 501 (AP), cash basis accounting system was followed. Further, the Ld. AR also in his written submissions stated that the Ld. Assessing Officers in the earlier assessment years have accepted the amortization of income and without prejudice an amount of Rs. 9,14,57,284/- which was received in earlier years as upfront premium and accrued as income proportionately during the current AY, cannot be subjected to tax in the impugned assessment year. Per contra, the Ld. DR in his written submissions relied on the decision of the ITAT, Bangalore Bench in the case of New Mangalore Port Trust vs. ACIT, Circle-1(1), Mangalore reported in [2016] 65 taxmann.com 210 (Bangalore-Trib). The Ld. DR refered to para 9.4 of the said order wherein it was stated that under similar circumstances, the consideration received by the assessee in that case as upfront premium for 30 years was 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.
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 premium to the lessor in addition to the provisional upfront free for a period of 30 years from the date of taking possession of land. It is also observed from the recitals of the lease agreement that a nominal rent of Rs. 1/- per sqmt per annum up to 30 years from the date of handing over of the land is payable by the lessee in advance on or before of 01st April of each year. Further, we observed that the assessee is following mercantile system of accounting and has also followed consistent policy of treating the revenue from upfront premium over the period of lease. This method of accounting is being followed by the assessee on regular basis which was not disputed by the Revenue in earlier years.The Hon’ble High Court of Page. No 10
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority Gauhati in the case of MKB (Asia) (P.) Ltd. v. Commissioner of Income-tax [167 Taxman 256] held as follows: “13. We, therefore, hold that the income-tax authority has no option/jurisdiction to meddle in the matter either by directing the assessee to maintain its accounts in a particular manner or adopted different method for valuing the work-in- progress. We reiterate the decision in Doom Dooma India Ltd.'s case (supra) and hold that an assessee has as the option/liberty to adopt any recognized method of accounting for his business and the income shall be computed in accordance with such regularly maintained accounting system.” The following are observations of the hon'ble Supreme Court in Investment Ltd.'s case (supra): "...A taxpayer is free to employ, for the purpose of his trade, his own method of keeping accounts, and for that purpose to value his stock-in-trade either at cost or market price. A method of accounting adopted by the trader consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping account or of valuation. The method of accounting regularly employed may be discarded only if, in the opinion of the taxing authorities income of the trade cannot be properly deduced therefrom. Valuation of stock at cost is one of the recognized methods. No inference may, therefore, arise from the employment by the company of the method of valuing stock at cost, that the stock valued was not stock-in-trade...." (p. 537) The alternative plea made by the Ld. AR in his written submissions wherein an amount of Rs. 9,14,57,284/- 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.”
Accordingly, we hereby dismiss the Ground Nos.2 & 2.1 raised by the revenue following the decision of the Tribunal (supra) in the assessee’s own case for the A.Y.2010-11 as well as by following principle of consistency. Accordingly, Ground Nos. 2 & 2.1 are dismissed.
Ground No.3 relates to the Ld. CIT(A) decision in allowing the prior period expenditure of Rs.5,69,36,269/-. On perusal of the Tribunal’s order in Page. No 11
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority the assessee’s own case for the AY 2010-11 in (assessee’s appeal), dated 27/09/2023, this issue was dealt with by the Tribunal and adjudicated in favour of the assessee. For the sake of reference, the relevant paras from the order of the Tribunal are extracted herein below:
“22. With respect to Ground No.2 regarding the disallowance of prior period expenses of Rs. 59,10,546/-, the Ld. AR submitted that these expenses even though relates to previous years have been crystallized only during the impugned assessment years. The Ld. AR referred to Accounting Standard-5 (AS-5) issued by the Institute of Chartered Accountants of India [ICAI] and stated that “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”. The Ld. AR further submitted that as per the definition of prior period item ‘only errors or omissions in the earlier periods which are accounted in the current assessment year shall be considered as prior period items’. The Ld. AR further submitted that in the instant case, the liability for the wages, operating expenses and other expenses only crystallized during the impugned assessment year and hence it does not fall within the definition of prior period expenses. The Ld. AR also further referred to paper book page No.175 wherein a Memorandum of Settlement of Wages has been arrived between the Major Ports and All India Port & Dock Workers Federation (HMS). The Ld. AR also referred to Wage Settlement Memorandum and stated that the arrears due to the employees / workers have been agreed w.e.f 1/1/2007 onwards. The Ld. AR further submitted that this Wage Settlement was signed on 19/1/2010 and hence the arrears payable w.e.f 1/1/2007 has been provided in the books of account during the AY 2010-11. The Ld. AR relied on the various case laws as submitted in the paper book. Per contra, the Ld. DR fully supported the order of the Ld. Revenue Authorities.
We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. We find from the submissions made by the Ld. AR that the Memorandum of Wage Settlement was signed on 19/1/2010 giving retrospective effect from 1/1/2007. The Memorandum of Settlement which was arrived at U/s. 12(3) of the Industrial Disputes Act, 1947 between the Five Major 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”.
Page. No 12
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority 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 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 accrued 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.”
Accordingly, we hereby dismiss the Ground No.3 raised by the 17. Revenue following the decision of this Tribunal (supra) in the assessee’s own case for the A.Y.2010-11 as well as following the principle of consistency. Accordingly, Ground No. 3 raised by the revenue is dismissed.
Ground Nos.4 &4.1 relate to the Ld. CIT(A) decision in allowing the claim of excess contribution to Pension Fund for earlier years for Rs. 66,79,96,472/-. On perusal of the order of the Tribunal dated 27/09/2023 in the assessee’s own case for the A.Y.2011-12 in we find that this Bench has dealt with this issue vide Ground No.5 of the said assessee’s
Page. No 13
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority appeal. For the sake of reference, we hereby extract the relevant paras from the Tribunal’s order dated 27/09/2023 (supra):
“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 employees. The Ld. AR relied on the decision of the Coordinate Bench decision in dated 28/01/2011 in the case of Glaxo Smithkline Pharmaceuticals. Further, Ld. AR submitted that the view taken by the ITAT, Mumbai Bench in the case of Glaxo Smithkline Pharmaceuticals (supra) was also affirmed by the Hon’ble High Court of Bombay in CIT-6 vs. Glaxo Smithkline Pharmaceuticals. He therefore pleaded that the addition made and confirmed by the Ld.Revenue Authorities may please be deleted. Per contra, the Ld. DR relied on the orders of the Ld. Revenue Authorities and argued in support of the same.
We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. During the appellant proceedings, it was submitted by the Ld. AR that the contribution to the Pension Fund was made with respect to salaries and wages and also for the pension payments. It is found that the Ld. AO has computed the 27% on the total salaries and wages paid during the year to compute the disallowance of Rs. 14,72,27,627/-. In submissions made by the Ld. AR we find that similar contributions have also made with respect to pension payments made during the year. Further, we also accept the contention of the Ld. AR that the actuarial valuation as on 31/3/2011 works out to Rs. 1,896.07 Crs and the assessee due to the cash flow issues is providing the contribution to Pension Fund over a number of years subject to availability of funds. The case law relied by the Ld. AR in GlaxoSmithkline Pharmaceuticals (supra), the Hon’ble High Court of Bombay Held as follows: “3. Similar issue had been raised by the Revenue in the matter of Commissioner of Income Tax vs. Suashish Diamonds Limited being Income Tax Appeal No. 568 of 2012. By an order dated 1stMarch, 2013 in the matter of Suashish Diamonds Limited (supra), this Court has held that even if the expenditure as claimed is not allowable U/s. 36(1)(iv) of the Act, the same is allowable U/s. 37 of the Act. The Tribunal in the above case had followed the decision of this Court in the matter of Commissioner of Income Tax vs. Western India Paper and Paperboard Private Limited reported in 189 ITR 309.
In view of the above, we see no reason to entertain the question of law as proposed as the assessee in any view of the matter is entitled to the deduction U/s. 37 of the Act. Therefore, the question as raised is academic.”
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 Page. No 14
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority 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.”
Accordingly, we hereby dismiss the Grounds Nos.4 &4.1 raised by the Revenue with respect to contribution to pension fund by following the order of the Tribunal (supra) as well as following the principles of consistency.
Ground No.5 is with respect to the deleting the addition of 20. Rs.3,50,00,000/- made towards disallowance of provision for interest on Government Loan for Outer Harbour. On perusal of the order of the Tribunal dated 27/09/2023 (supra), we find that an identical issue was raised by the assessee in its own case in for the AY 2016-17 wherein the Tribunal has discussed the issue at length and allowed the ground in favour of the assessee. For the sake of reference, the relevant paras from the order of the Tribunal dated 27/09/2023 (supra) are extracted herein below:
“84. Ground No.4 is with respect to disallowance of provision made towards interest payable on Government Loans for Rs. 7 Crs. Before us, on this issue the Ld. AR argued that interest is payable by the assessee on the loans obtained from Government of India and hence the provisions of section 43B of the Act are not applicable. The Ld. AR further submitted that as per the provisions of section 43B of the Act, interest payable on loans borrowed from any Financial Institutions and Banks only are covered. He therefore pleaded that the interest payable on the loans obtained from Government of India are not covered under the provisions and accordingly no disallowance can be made. The Ld. AR relied on the case of CIT-1, Lucknow vs. U.P. Rajya Vidyut Utpadan Nigam Ltd reported in [2013] 37 taxmann.com 164 (Allahabad). Per contra, the Ld. DR relied on the orders of the Ld. Revenue Authorities and pleaded that they may be upheld.
Page. No 15
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority 85. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. The main contention of the Ld. AO is that whether the interest is payable on loans borrowed from Government of India are eligible for deduction U/s. 43B of the Act in respect of its non-payment. The Ld. Revenue Authorities contention is that the outstanding liability being interest payable was not paid to the Government by the assessee before the due date and hence is not an allowable expenditure U/s. 43B of the Act. Further, the Ld. CIT(A) has also stated that the Governments are custodians of funds and the Banks and Financial Institutions are also organs of the Government and hence 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”
Further, the Explanation-4 to section 43B of the Act is also extracted below: “Explanation 4.—For the purposes of this section,— 4. “public financial institutions” shall have the meaning assigned to it in section 4Aof the Companies Act, 1956 (1 of 1956); (aa) “scheduled bank” shall have the meaning assigned to it in the Explanation to clause (iii) of sub-section (5) of section 11; (b) “State financial corporation” means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951); I“State industrial investment corporation” means a Government company within the meaning of section 617of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and eligible for deduction under clause (viii) of sub-section (1) of section 36; (d) “co-operative bank”, “primary agricultural credit society” and “primary co- operative agricultural and rural development bank” shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P; (e) “deposit taking non-banking financial company” means a non-banking financial company which is accepting or holding public deposits and is registered with the Reserve Bank of India under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934); Following clause (e) shall be substituted for the existing clause (e) of Explanation 4 to section 43B by the Finance Act, 2023, w.e.f. 1-4-2024: (e) “micro enterprise” shall have the meaning assigned to it in clause (h) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006);
Page. No 16 I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority (f) “non-banking financial company” shall have the meaning assigned to it in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934); (g) “systemically important non-deposit taking non-banking financial company” means a non-banking financial company which is not accepting or holding public deposits and having total assets of not less than five hundred crore rupees as per the last audited balance sheet and is registered with the Reserve Bank of India under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934). Following clause (g) shall be substituted for the existing clause (g) of Explanation 4 to section 43B by the Finance Act, 2023, w.e.f. 1-4-2024: (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).” From the bare reading of the above provisions and Explanation to Section 87. 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.
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 allowance which could not be paid to employees before prescribed date – Deduction on account of short provision of DA arrears of employees in accounts was claimed by assessee but same was disallowed by Assessing Officer – Whether since section 43B is not applicable to interest on Government loans and for DA arrears of employees, assessee’s claim was to be allowed – Held, yes [Para 11] [In favour of assessee]”
In the instant case the interest is payable on loans taken from Government of India. In our opinion interest payable on loans taken from Government of India is not covered u/s 43B of the Act. Respectfully following the decision of the Hon’ble High Court of Allahabad (supra), we have no hesitation 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.”
Accordingly, we hereby dismiss the Ground No.5 raised by the revenue in the present appeal by following the decision of this Bench of the Tribunal in the assessee’s own case and also following the principles of consistency. Ground No. 5 raised by the revenue is dismissed.
Ground No. 6 is with respect to deleting the addition of Rs.2,34,68,744/- towards excess claim of depreciation on Railway Permanent Way. On perusal of Page. No 17
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority the Tribunal’s order in the assessee’s own case (supra), we have observed that this Bench of the Tribunal has dealt with this issue while adjudicating the Revenue’s Appeal in (AY: 2016-17) and dismissed the ground raised by the Revenue vide paras 117 and 118 of the Tribunal order (supra). For the sake of reference, the relevant paras are extracted herein below:
“117. With respect to Ground No.2, the Revenue has contended that the Ld. CIT(A) has erred in treating the Railway Permanent Way as Plant & Machinery instead of treating it as roads on part with buildings and accordingly allowed depreciation @ 15% instead of depreciation @ 10% on buildings. On this 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.
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 wherein it was held that the Railway Permanent Way should be treated as part of the “plant”. From the records produced before us, we find that this decision was not challenged by the Revenue before the Higher Appellate Authorities. Therefore, the Ld. CIT(A) has been consistently following the decision as laid down in dated 28/04/2008 by considering the Railway Permanent Way as “plant and machinery” and accordingly allowed the depreciation @ 15%. Since the decision of the Ld. CIT(A) was not challenged by the Revenue, we are inclined to uphold the order of the Ld. CIT(A) in the instant case and accordingly we do not find any infirmity in the order of the Ld. CIT(A) on this issue. Thus, this ground raised by the Revenue is dismissed.”
23. Accordingly, we hereby dismiss the issue with respect to depreciation on Railway Permanent Way raised in Ground No.6 by the revenue following the Page. No 18
I.T.A.No.100 & 103/VIZ/2025 Visakhapatnam Port Authority decision of the Tribunal (supra) in the assessee’s own case for the AY 2010-11 as well as by following principle of consistency.
In the result, appeal filed by the revenue is dismissed.
To sum-up, appeal filed by the assessee as well as revenue are dismissed.
Order pronounced in the open court on 27th June, 2025.