AMNS PORTS VIZAG LIMITED (FORMERLY KNOWN AS ESSAR VIZAG TERMINALS LIMITED),SURAT vs. PR. COMMISSIONER OF INCOME TAX, AHMEDABAD-1, AHMEDABAD

The grounds of appeal raised by assessee are as under:- “GROUND NO. I IMPUGNED ORDER PASSED BY INYOKING PROVISIONS OF SECTION 263 OF THE ACT IS BAD IN LAW:

We have gone through the order of ld. PCIT, heard both the parties and have also taken note of the documents referred to before us filed in the form of paper book, as also the case laws relied upon by both the sides.

The order of the ld. PCIT reveals that he found the assessment order passed by the AO u/s 143(3) of the Act in the case of the assessee for the impugned year erroneous causing prejudice to the revenue on two counts, for the AO having allowed the assessee: (i) claim of employers contribution to staff provident fund in excess of 27% of the salary ,which was contrary to Rule 87 of the Income Tax Rules, 1962, (ii) depreciation on addition of new plant and machineries amounting to Rs. 35,73,93,105/- while the same ought to have been limited to the amortized value of the assets amounting to Rs. 4,81,095/-.

Ld. Counsel for the assessee during the course of hearing before us demonstrated that with respect to both the issues the assessee had filed detailed submissions to the Ld. PCIT to the effect that the impugned issues were examined during assessment proceedings and a plausible and correct view taken by the Assessing Officer and also that both the claims were allowable as per law. Our attention was drawn to the letter filed by the assessee during revisionary proceedings dated 19th Feb, 2024 ,which was placed before us in paper book at page nos. 97 to 155. Our attention was also drawn to all the documents, placed in the paper book at pages 1-93 evidencing the examination of both the issues by the AO during assessment proceedings. Submissions regarding examination of issue of excess contribution to PF by AO

With respect to the examination by the AO of the issue of allowance of contribution to staff provident fund it was pointed out that during the course of assessment proceedings, the Assessing Officer vide its notice dated 10-01-2020(P.B 50-52) had asked the assessee to furnish copy of ITR, Computation of income, tax audit report and audited financial statements and was also asked to make its submissions on the excess claim of deduction of contribution to staff provident fund and other fund. That in response to the same, the assessee had filed its reply dated 03-03-2021(P.B 57-63) pointing out that employers contribution made by the assessee was in line with the Provident Fund Act and that two employees had opted for voluntary provident fund scheme therefore employees contribution towards provident fund was higher than 12%. It was further pointed out that another notice was issued by the Assessing Officer dated 15-12-2020(P.B 53-56) regarding the excess contribution to provident fund asking the assessee to submit details regarding the employees whose PF was deducted and the calculation sheet for calculating the percentage contribution by the employer to the provident fund and superannuation fund. That in response to the same, the assessee filed reply dated 03-03-2021 (P.B 57-63) submitting all the details.

The ld. counsel for the assessee further pointed out that the facts relating to the issue which were explained to the Assessing Officer were also pointed out to the ld. PCIT. That it was explained to him that the limit of contribution to provident fund and superannuation fund as per rule 87 of the rules was applicable only with respect to PF and superannuation fund and did not include other funds. That the excess noted by the ld. PCIT was of contribution made to other funds like gratuity fund, NPS, leave encashment etc. The Ld. Counsel for the assessee pointed out that detailed working of the contribution made to PPF and superannuation fund was also furnished to the Ld. PCIT demonstrated the contribution being to the tune of 4.07% of salary , which was well within the limit of 27% prescribed rule 87 of the Income Tax Rules. He also pointed out that the Ld. PCIT had noted this explanation of the assessee of having made no contribution in excess of the prescribed limit of 27% as per Rule 87 of Income Tax Rules, 1962 but of only 4.04% of the salary wages and bonus paid at para 4 of his order.

With respect to the issue of claim of depreciation/amortization, ld. counsel for the assessee pointed out that during assessment proceedings the Assessing Officer had examined the issue of claim of depreciation on assets acquired by it from the Vishakhapatnam Port Trust and noting that in the preceding years, the assessee had been allowed only amortization of the same, the Assessing Officer accordingly allowed amortization on these assets. Ld. counsel for the assessee pointed out that during assessment proceedings all details of assets added during the year were furnished as and when called. The Assessing Officer had examined issue of claim of depreciation/amortization on the assets of the assessee both acquired from Vishakhapatnam Port Trust and that created by the assessee. Thereafter, the ld. counsel for the assessee pointed out that even the copy of concessionaire agreement entered into with Vishakhapatnam Port Trust was furnished to the Assessing Officer wherein it was categorically mentioned that the new assets created by the assessee were to be treated as the assessee’s own assets. The ld. counsel for the assessee therefore pointed out that in view of the same considering all these facts that the new assets of the assessee were its own assets, depreciation on the same was allowable in terms of the section 32 of the Act and the AO therefore had rightly allowed the same.

Ld. Counsel for the assessee pointed out that during revisionary proceedings, it was clarified to the ld. PCIT that the ratio applied for amortizing the assets which were acquired by the assessee from Vishakhapatnam Port Trust was not applicable to the assets which were created by the assessee since there was a difference in the fact situation of both the assets. It was pointed out to the ld. PCIT that there is no reason at all for the Assessing Officer to have followed the same proposition as followed in the case of acquired assets to the assets created by the assessee since the assets created by the assessee were owned by it and the assessee was therefore entitled to depreciation on the same. It was also pointed out to the ld. PCIT that there was several rulings of the ITAT including Special Bench of the ITAT in the case of ACIT vs. Progressive Construction Ltd. (2018) 92 taxman 104, Hyderabad holding that even in the case of assets acquired through concessionaire agreement, the assessee was entitled to depreciation and not amortization of the same. It was pointed out that the Special Bench in the said case had held the CBDT Circular No. 9 of 2014 dated 23-01-2014, relied on by the revenue for allowing only amortization of acquired assets , to be not applicable . Besides that, it was pointed out, several other decisions were referred before PCIT ruling in favour of assessee allowing depreciation on assets acquired for a specified period by virtue of concessionaire agreements.

It is evident from the above that the assessee had made detailed submissions on both the issues being examined by the AO during assessment proceedings and also of the same being rightly claimed by the assessee in accordance with law.

We find that at para 4, the PCIT briefly notes the contentions of the assessee before him with respect to both the issues which were to the effect: (i) on the issue of contribution to staff provident fund, the contention of the assessee was noted to be that its contribution was not in excess of the prescribed limit of 27% as per Rule 87 of Income Tax Rules, 1962 but was only 4.04% of the salary wages and bonus paid.

Beyond the above there is no other finding in the entire order of the ld. PCIT running into 13 pages. The maximum number of pages from 3 to 13 are devoted to various legal proposition relating to exercise of revisionary powers u/s. 263 of the Act referring to various decisions of judicial authorities and thereafter at para 7.1 the ld. PCIT notes that the impugned assessment order has been passed without making proper verification and examination on the issues and therefore the order is erroneous and prejudicial to the revenue. The contents of para 7 and 7.1 of the Ld. PCIT’s order are as under:-

Thereafter, the ld. PCIT at para 8 of his order sets aside the assessment order directing the Assessing Officer to pass fresh order in accordance with law after duly examining the facts of the case on the extant issues.

Thus, the finding of error by the ld. PCIT is confined to para 5.2 and para 7.1 of his order and a perusal of the same reveal that the finding is clearly without any application of mind or consideration of the submissions of the assessee before him.

Regarding his finding that the AO had not conducted proper inquiry on the issues, we find, that the assessee had demonstrated both the issues being examined by the AO and even the ld. PCIT notes the same in his order. He however finds to the contrary that the Assessing Officer had not made inquiry with respect to these issues without specifying as to how he found so. No attempt has been made by the Ld. PCIT to contradict the contention of the assessee before him after dealing with the specifics relating A.Y. 2018-19 Page No. 12 AMNS Vizag Ports Ltd. (Formerly Known as Essar Vizag Terminals Ltd. vs. Pr. CIT to the same. It is just a general cursory finding of the Ld. PCIT, without considering or dealing with the contention of the assessee before him.

With regard to his finding of the assessment order being erroneous for having wrongly allowed the contribution made by the assessee to PF in excess of the limit specified u/r87 of the Rules, we find that the assessee had explained no excess claim to have been made and had pointed out the demonstration of this fact to the AO with details during assessment proceedings. He had also explained how the excess had been erroneously calculated by the Ld. PCIT by considering contribution to funds which were not covered u/R87 of the Rules. The ld. PCIT however we find completely ignores these submissions and goes on to record a contrary finding , of the assessee having contributed to PF in excess of the limits specified under Rule 87 of the Rules. There is nothing in his order mentioning why and how he contradicts this factual contention of the assessee.

With regards to the Ld. PCIT finding the assessee to have been wrongly allowed depreciation on new plant and machinery by the AO as opposed to being allowed to amortize the assets over their life, the Ld. PCIT notes in his order that the assessee had contended that this depreciation had been claimed on new assets created by it and the circular no. CBDT Circular No. 9 of 2014 dated 23-01-20214 did not apply. Without dealing with the contentions of the assessee, the ld. PCIT holds the assessment order erroneous on this count simply by noting the impugned assets ought to have amortized and depreciation ought not to have been allowed to the assessee.

Thus, it is abundantly clear that the impugned order passed by the ld. PCIT is in gross violation of the principles of natural justice, passed without considering the contentions of the assessee before him and a completely non-speaking order .The impugned order of the Ld. PCIT therefore is clearly not sustainable.

In the light of above, the order passed by the ld. PCIT is set aside and grounds raised by the assessee allowed.

In the result, the appeal of the assessee is allowed.