VISAKHAPATNAM PORT AUTHORITY,VISAKHAPATNAM vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), VISAKHAPATNAM

PER DUVVURU RL REDDY, Judicial Member :

This appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [Ld. CIT(A)-NFAC] in DIN & Order No.

ITBA/NFAC/S/250/2023-24/1052850064(1), dated 15/05/2023

arising out of the order passed U/s. 143(3) of the Income Tax Act,

1961 [the Act] for the AY 2010-11.

Port Trust which 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 its return of income for the AY

2010-11 on 29/9/2010 admitting a total income of Rs.

81,20,30,260/-. The case was selected for scrutiny under CASS

and accordingly notice U/s. 143(2) dated 5/9/2011 was issued

and served on the assessee on 8/9/2011 by the DCIT, Circle-1(1),

Visakhapatnam. The assessee in response to the notice, filed a

revised return of income on 29/03/2012 admitting the same

income at Rs. 80,20,30,260/- however, by claiming a higher TDS

credit. Thereafter, the case has been assigned to the Addl. CIT,

Range-1, Visakhapatnam by the Ld. CIT-1, Visakhapatnam. 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 on 30/11/2012 by

assessing the total income at Rs. 190,60,45,090/- and raised a

demand of Rs. 37,02,13,030/-. Subsequently, the assessee filed

rectification petition U/s. 154 of the Act and sought for

rectification of the mistakes crept in the order passed U/s. 143(3)

of the Act. Thereafter, the Ld. AO [ACIT, Circle-1(1),

Visakhapatnam] passed order U/s. 154 of the Act on 31/01/2013

assessing the total income of Rs. 186,26,32,860/- by allowing the

depreciation short computed at Rs. 4,34,12,229/- in the

assessment order passed U/s. 143(3) of the Act and reduced the

demand payable to Rs. 37,62,20,940/-. Aggrieved by the order of

the Ld. AO passed U/s. 143(3), the assessee went on appeal

before the Ld. CIT(A), Visakhapatnam. On appeal, the Ld. CIT (A)

vide order dated 28/03/2014 granted relief to the assessee. The

Ld. AO, giving effect to the directions of the Ld. CIT(A), passed

consequential order on 27/05/2014 wherein the revised income

was determined at Rs.130,14,92,061/-.

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 Liability Relevant AY (Rs.) pertaining to the FY 1. Seigniorage Charges 11,33,437 Upto 2007-08 Upto 2008-09 4,21,233 2008-09 2009-10 2. Productivity Linked 36,90,328 Upto 2006-07 Upto 2007-08 Bonus 12,27,664 2007-08 2008-09 3. Leave Encashment 4,44,91,804 Upto 2007-08 Upto 2008-09 5,09,64,466

assessee has been granted registration U/s. 12A of the Act up to

the AY 2007-08, the entire income of the assessee was exempted

from income tax. Therefore, the Ld. CIT-1, Visakhapatnam

observed that in the light of the provisions of section 14A of the

Act, the expenditure of Rs. 5,09,64,466/- pertaining to the AY

2007-08 and earlier assessment years, where exemption u/s 11

was claimed by the assessee,the expenditure pertaining to those

assessment years clearly disqualified for being granted deduction

on payment basis U/s. 43B of the Act on the reasoning that such

disallowance made in the earlier years in the respective

computation of income of the assessee did not materially affect

the non-taxable status of the assessee which claimed and enjoyed

the total exemption from taxation on account of its status as a

Charitable Trust / institution. The Ld. CIT-1, Visakhapatnam

observed that allowing the deduction of expenditure relating to

the earlier assessment years during the AY 2010-11 amounted to

grant of double benefit to the assessee and therefore the order of

the Ld. AO is erroneous and also prejudicial to the interests of

the Revenue. The Ld. CIT-1, Visakhapatnam further observed

that once the income of the assessee is computed or deemed to

have been computed as per the aforesaid method for the earlier

years during which it obtained the benefit of exemption, the

profit / loss computed under the head “profits and gains of

business or profession” wherein the disallowance U/s. 43B has

been made becomes irrelevant and as such no consequential

effect would be given to the disallowed amount on payment basis

in the subsequent year. Therefore, the Ld. CIT-1, Visakhapatnam

was of the opinion that such expenditure having no correlation

with the income of the assessee earned during the relevant

assessment year, the same is clearly disallowable U/s. 14A of the

Act. Further, the Ld. CIT-1, Visakhapatnam 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 dated 21/11/2013, the assessee filed an

appeal before the Tribunal.

order of the Ld. CIT-1, Visakhapatnam passed U/s. 263 of the

Act is pending before the Hon’ble Tribunal, the Ld. AO passed

consequential order U/s. 143(3) r.w.s 263 of the Act complying

the directions of the Ld. CIT-1, Visakhapatnam and disallowed an

amount of Rs.5,09,64,466/- and determined the total income as

under:

(Amount in Rs.) Total income as per consequential order dated 130,14,92,061 27/05/2014 Add: Disallowance as per the discussion in paras 12 & 5,09,64,466 13 of the Asst. Order dated 29/01/2015 passed U/s.143(3) r.w.s 263 of the Act. Revised total income 135,24,56,527 Rounded off to 135,24,56,530

appeal before the Ld. CIT(A)-NFAC. On appeal, the Ld. CIT(A)-

NFAC partly allowed the appeal of the assessee by granting part

relief to the extent of Rs. 4,21,233/- and sustained the addition

of Rs. 5,05,43,233/-. Aggrieved by the order of the Ld. CIT(A),

the assessee filed the present appeal before the Tribunal 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. 2. The Ld. CIT(A) is not justified in disallowing the Seigniorage Charges of Rs. 11,33,437/-. 3. The Assessing Officer is not justified in disallowing the productivity lined bonus of Rs. 49,17,992/-. 4. The Assessing Officer is not justified in disallowing the leave encashment amounting Rs. 4,44,91,804/-.

proceedings, the assessee instead of contesting the consequential

order of the Ld. AO passed U/s. 143(3) r.w.s 263 of the Act, the

assessee filed an appeal against the order U/s. 263 of the Act,

dated 21/11/2013 passed by the Ld. CIT-1, Visakhapatnam. The

Ld. AR further submitted that on appeal of the assessee, the

Hon’ble Tribunal quashed the order passed U/s. 263 of the Act,

dated 21/11/2013 by the Ld. CIT-1, Visakhapatnam and allowed

the appeal of the assessee in ITA No.25/Viz/2015, dated

27/09/2023. Therefore, the Ld. AR prayed that since order

passed U/s. 263 of the Act, dated 21/11/2013 was quashed by

the Hon’ble Tribunal vide its order dated 27/09/2023, the

consequential order passed by the Ld. AO U/s. 143(3) r.w.s 263

of the Act, dated 29/01/2015 giving effect to the direction of the

Ld. CIT-1, Visakhapatnam has no legs to stand and therefore the

same deserves to be quashed.

not raise any objection to the submission of the Ld. AR.

available on record as well as the orders of the Ld. Revenue

Authorities. We have also gone through the consolidated order of

the Tribunal in the case of the assessee dated 27/09/2023. On

careful perusal of the order of this Bench of the Tribunal in the

case of the assessee, we observed that the assessee preferred an

appeal against the order of the Ld. Commissioner of Income Tax-1,

Visakhapatnam [Ld. CIT-1] passed U/s. 263 of the Income Tax Act,

1961 vide F.No. CIT-1/VSP/263/2013-14, dated 21/11/2013 for

the AY 2010-11 before the Tribunal. On the appeal of the assessee,

wherein the assessee has raised the core issue with respect to

disallowance of Rs. 5,09,64,466/- U/s. 14A of the Act, the

Tribunal allowed the assessee’s appeal vide its order in ITA

No. 25/Viz/2014 (AY:2010-11), dated 27/09/2023 and

quashed the order passed U/s. 263 of the Act, dated

21/11/2013 by the Ld. CIT-1, Visakhapatnam by observing as

under:

“10. We have heard both the sides and perused the material available on record as well the orders of the Ld. Revenue Authorities. In the instant case, we find that there was a complete scrutiny assessment with respect to the AY 2010-11 wherein various details were called for by the Ld. AO before concluding the assessment order U/s. 143(3) of the Act. The Ld. AO in his detailed order has made various disallowances U/s. 14A of the Act and further has also observed that certain expenses as described U/s. 43B are

allowed in the year of payment only. 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. The reliance placed by the Ld. AR in the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd vs. CIT reported in [2000] 243 ITR 0083 (SC) wherein it was held that both the conditions ie., the order must be erroneous and also prejudicial to the interest of the Revenue should be present while invoking the provisions of section 263 of the Actby the Ld. CIT-1, Visakhapatnam. 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 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.

assessee needs no separate adjudication and hence this ground is dismissed as infructuous. 12. In the result, appeal of the assessee (ITA No. 25/Viz/2014) is allowed.”

have no hesitation to come to a conclusion that since the Hon’ble

Tribunal has quashed the order passed U/s. 263 of the Act,

dated 21/11/2013 by the Ld. CIT-1, Visakhapatnam vide its

order in ITA No. 25/Viz/2014 (AY:2010-11), dated

27/09/2023, the consequential order passed by the Ld. AO U/s.

143(3) r.w.s 263 of the Act giving effect to the order passed U/s.

263 of the Act has no legs to stand. Accordingly, we hereby

quash the consequential order passed by the Ld. AO U/s. 143(3)

r.w.s 263, dated 29/01/2015 and set-aside the order of the Ld.

CIT(A)-NFAC, dated 15/05/2023. It is ordered accordingly.

allowed in favour of the assessee. Grounds No.1 and 5 raised by

the assessee are general in nature and therefore they need no

adjudication.

Pronounced in the open Court on 22nd January, 2024.

Sd/- Sd/- (एस बालाकृ�णन) (दु�वू� आर.एल रे�डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सद�य/ACCOUNTANT MEMBER �या�यकसद�य/JUDICIAL MEMBER Dated :22/01/2024 OKK - SPS आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- 1.�नधा�रती/ The Assessee– Visakhapatnam Port Authority, Administrative Office Building, Port Area, Visakhapatnam-530001, Andhra Pradesh. 2. राज�व/The Revenue –The Asst. Commissioner of Income Tax, Circle- 1(1), 4th Floor, Pratyakshakar Bhavan, MVP Road, Beside Post Office, Sector-8, MVP Colony, Visakhapatnam, Andhra Pradesh-530017. 3. The Principal Commissioner of Income Tax, 4.आयकर आयु�त (अपील)/ The Commissioner of Income Tax (Appeals), 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, Visakhapatnam 6.गाड� फ़ाईल / Guard file आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam