ACIT, CUTTACK vs. PARADIP PORT TRUST, JAGATSINGHPUR

Against the order of CIT(A), the revenue has filed an appeal before the Tribunal on the following grounds :- 1.Prior Period Expenses : Whether in the facts and circumstances of the case the ld. CIT(A) is justified in deleting the addition made under the head prior period expenses to the tune of Rs.2,88,05,359/- 2.Provisions for accrued expenses : Whether in the facts and circumstances of the case the CIT(A) is justified in deleting the various additions made amounting to Rs.3,78,73,42,287/- under the head provisions for accrued expenses on the ground 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 assessee failed to produce the details of loan payment from Govt of India.

(Provision towards pension fund): Whether in the facts and circumstance of the case Id.CIT(A) is justified in deleting the addition made by the AO in the impugned assessment order for provision towards Pension Fund of Rs.2,94,94,640 relying upon the decision passed by the Hon'ble ITAT for the same assessee for the A/Y:2007-08 - When the recognition of such pension fund was approved by the CIT w.e.f. 03.02.2009, since the trust was formalized through the trust deed executed on 03.02.2009 and the contribution of Rs.40,17,34,360 was remitted by the assessee during the financial year:2009-10 out of the total provision made for Rs.43,12,29,000 for which the differential amount added to the total income of the assessee ..

Interest accrued on investment on Capital Asset:) Whether in the facts and circumstances of the case, 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 not in connection with the regular operation of the assessee, hence the addition of Rs.67,49,34,515 crores made by the AO deleted - When the AO noticed that interest earned on those funds directly credited

Capital expenditure claimed as revenue expenditure) :In the facts and circumstance of the case, Id. CIT(A) is not justified in considering the expenditures relating to capital-expenses as revenue expenses of Rs.61.54Iakh, RS.1,43cr and Rs.58.17Iakh/- - When during the assessment proceeding assessee failed to furnish any support of its claim as revenue expenses, only claiming such expenses inadvertently in the P&L etc is not to be allowed as revenue expenditure ..

In the facts and circumstances of the case, the Ld. CIT(A) is not justified in directing the AO to allowance of 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 "Building:' ..

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

Ground No.1 is with regard to disallowance of prior period expenses: This issue is covered by the decision of Tribunal in assessee’s own case in ITA No.356/CTK/2012 & other connected appeals, dated 09.08.2017, wherein the Tribunal has observed at page 10 which reads as under :-

3 We heard the rival contentions and perused the record carefully and found that the finance and miscellaneous expenses relating to previous year has been shown by the assessee at Rs.1,55,81,270/- in Schedule-17 and in Schedule 16 it has been shown at Rs.43,84,412/-. We are of the opinion that the CIT(A) took a reasoned decision based on remand report in restricting the disallowance to Rs.1,11,96,858/-, which is in accordance with the accounting system and, accordingly, we are not inclined to interfere with the order of CIT(A) on this ground and uphold the same and dismiss the ground of appeal of revenue. In the present assessment year the claim of the assessee is similar and following the judicial precedence, we are not inclined to interfere with the order of CIT(A) on this ground and dismiss this ground of appeal of revenue.

Ground No.2 in regard to provision for accrued expenses.

1 Before us, ld. DR submitted that the CIT(A) is not justified in deleting the additions on the provision for accrued expenses, and also there is no change in the nature of its claims. The assessee has failed to produce the details of loans obtained from Government of India. Contra, ld. AR submitted the information with regard to break up of current liabilities of Rs.3,78,73,42,287/- as under :- a) Audit Fee - Rs. 80,00,000/- b) Payment to contractors - Rs. 7,74,56,094/- c) Other Payments - Rs. 45,03,51,527/- d) Interest on Govt. of India Loan- Rs.255,45,34,666/- Total - Rs.378,73,42,287/- In the assessment proceedings the AO dealt on the disputed issue and found that the assessee has not produced evidence in respect of claims. Further details of interest on loans to financial institutions where the provisions of Section 43B of the Act are applicable are not available and the AO could not verify the interest on loan from Government of India whereas ld. CIT(A) considered the submissions of the assessee, where the amounts are in nature of current liabilities and has deleted the addition and observed at page 3 of the order as under :- “The appellant submitted that the above amounts were in the nature of current liabilities and have furnished the details of the same. The appellant further submitted that there has been no provision claim for such liabilities in the P&L A/c. except for interest payable on initial investment of govt. of Odisha and India amounting to Rs.21,30,459/- for both the years. In fact the amount has been kept in the provision for a number of years from earlier period as the same was though ascertained have not yet been paid to the Govt. of Odisha/India. I have gone through the order f the CIT(A), Cuttack in the case of the assessee for AY 2009-10 where the CIT(A), Cuttack had forwarded the details submitted by the AO for further verification. After considering the remand report given by the AO the learned CIT(A) as considered the provisions for accrued

2 We considering the apparent facts, material on record found that assessee has not filed any evidence before the AO nor before CIT(A). The CIT(A) deleted the addition based on findings of earlier assessment and CIT(A), ought to have called for the comments of AO for present assessment year. We are of the substantive view that mater has to be examined and remit the entire issue to the file of AO for verification and examination and the assessee should be provided adequate opportunity of hearing before passing the order on merits. Accordingly this ground of revenue’s appeal is allowed for statistical purposes.

Ground No.3 is in regard to provision towards pension fund : The very same issue is decided by the Tribunal in assessee’s own case for assessment year 2009-2010 in ITA No.356/CTK/2013, order dated 9.8.2017, wherein the Tribunal has observed as under :-

3 We have heard rival contentions and perused the record carefully. The CIT(A) deleted the addition made by the AO in respect of provision for pension fund of Rs.25,00,00,000/- following the decision of coordinate bench of the Tribunal in assessee’s own case. We perused the findings of the CIT(A) on the disputed issue where the assessee has made the provision of Rs.25 crores towards pension funds and was remitted to the pension fund accounts as per the schedule, whereas recognition of fund was granted by CIT on 3.2.2009. The ld. CIT(A) relied on coordinate bench decision in assessee’s own case and allowed the grounds of appeal of the assessee and observed at para 7.3 page 5 as under :-

Ground No.4 relates to interest accrued on investment on capital asset.

1 The disputed issue has been decided by the Tribunal in assessee’s own case for assessment year 2009-2010 in ITA No.356/CTK/2013, order dated 9.8.2017, 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 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 7 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 find the issue dealt in earlier assessment year in assessee’s own case is similar and we respectfully follow the decision of the Tribunal and uphold the action of CIT(A) on this ground and dismiss the ground of appeal of revenue.

Ground No.5 relates to capital expenditure claimed as revenue expenditure:

1 Ld. DR’s contention that the CIT(A) is not correct in considering the expenditure related to capital expenditure as revenue expenses and the assessee has also failed to produce the details in the assessment proceedings. Ld. AR filed paper book disclosing the computation of income and annual report and drew attention to page 64 of the paper book, where observations are made by the auditor on action of the 8 assessee. On the query from the Bench the ld. AR submitted that the assessee has made accounting system in respect of transaction in the subsequent financial year 2010-2011 and supported the order of CIT(A).

2

Ground No.6 relates to allowance of depreciation @15% on railways and rolling stock treating the same as plant and machinery as against depreciation @10% allowed in the current assessment year.

1 This disputed issue has been decided by the Tribunal in assessee’s own case in ITA No.356/CTK/2013 for the assessment year 2009-2010, order dated 9.8.2017, wherein the Tribunal observed as under :-

3 We have heard rival contentions and perused the record carefully and found that the fixed assets serve some special purposes in the working of the assessee and should be treated as plant and machinery in the operating process of the assessee. The CIT(A) relied on the order of ITAT in assessee’s own case and observed at page 16 para 16.3 of the order as under :-

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 partly allowed for statistical purposes. Order pronounced in the open court on this 24/10/2017. (N. S. SAINI) (PAVAN KUMAR GADALE) लेखा सदस्य / ACCOUNTANT MEMBER न्याधयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनांक Dated 24/10/2017 प्र.कु.धि/PKM, Senior Private Secretary आदेश की प्रधतधलधप अग्रेधषत/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant- 2. प्रत्यथी / The Respondent- 3. आयकर आयुक्त(अपील) / The CIT(A), 4. आयकर आयुक्त / CIT निभागीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, कटक / DR, ITAT, Cuttack 5. 6. गाडा फाईल / Guard file. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत ////