Income Tax Appellate Tribunal - Rajkot
The Dy. Commr. Income Tax, Gandhidham ... vs M/S Kandla Port Trust,, Gandhidham on 8 June, 2018
ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 &
ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014
Kandla Port Trust Vs JCIT and vice versa
Bunch of 10 appeals
Page 1 of 19
IN THE INCOME TAX APPELLATE TRIBUNAL,
RAJKOT BENCH, RAJKOT
(Through Video conferencing from E Court at Ahmedabad)
[Coram: Pramod Kumar AM and Rajpal Yadav JM]
ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014
Assessment year: 2004-05, 2005-06, 2005-06, 2006-07 & 2008-09 respectively
Kandla Port Trust ....................Appellant
Administrative Office Building
Tagore Road, Gandhidham, Kutch
[PAN: AAALK0046N]
Vs
Joint Commissioner of Income Tax
Gandhidham Range, Gandhidham ...................Respondent
ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014
Assessment year: 2004-05, 2005-06, 2005-06, 2006-07 & 2008-09 respectively
Deputy Commissioner of Income Tax
Gandhidham Circle, Gandhidham ......................Appellant
Vs
Kandla Port Trust ...................Respondent
Administrative Office Building
Tagore Road, Gandhidham, Kutch
[PAN: AAALK0046N]
Appearances by
Tushar P Hemani, P B Parmar, T V Thacker and Aditi Sheth for the assessee
Hargovind Singh and Ranjit Singh for the revenue
Date of hearing of the appeal : March 12, 2018
Date of pronouncing this order: June 08, 2018
O R D E R
Per Pramod Kumar, AM:
1. These ten appeals pertain to the same assessee, involve some common issues and were heard together. As a matter of convenience, therefore, all the ten appeals are being disposed of by this consolidated order.
2. We will first take up the assessment year 2004-05.
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3. In the appeal filed by the assessee, ground no. 1 is as follows:
Learned CIT(A) has erred in law and on facts in not allowing depreciation claim over and above the claim of section 11 and 12 of the Act. Under the facts and circumstances of the case, both depreciation and exemptions under section 11 and 12 should have been granted simultaneously.
4. This issue is now settled, in favour of the assessee, by Hon'ble Supreme Court's judgment in the case of CIT Vs Rajasthan and Gujarati Charitable Foundation [(2018) 402 ITR 441 (SC)] wherein Their Lordships have, inter alia, observed as follows:
1. These are the petitions and appeals filed by the Income Tax Department against the orders passed by various High Courts granting benefit of depreciation on the assets acquired by the respondents-assessees. It is a matter of record that all the assessees are charitable institutions registered under Section 12A of the Income Tax Act (hereinafter referred to as 'Act'). For this reason, in the previous year to the year with which we are concerned and in which year the depreciation was claimed, the entire expenditure incurred for acquisition of capital assets was treated as application of income for charitable purposes under Section 11(1)(a) of the Act. The view taken by the Assessing Officer in disallowing the depreciation which was claimed under Section 32 of the Act was that once the capital expenditure is treated as application of income for charitable purposes, the assessees had virtually enjoyed a 100 per cent write off of the cost of assets and, therefore, the grant of depreciation would amount to giving double benefit to the assessee. Though it appears that in most of these cases, the CIT (Appeals) had affirmed the view, but the ITAT reversed the same and the High Courts have accepted the decision of the ITAT thereby dismissing the appeals of the Income Tax Department.
From the judgments of the High Courts, it can be discerned that the High Courts have primarily followed the judgment of the Bombay High Court in 'CIT v. Institute of Banking Personnel Selection (IBPS)'(2003) 131 Taxman 386 (Bombay). In the said judgment, the contention of the Department predicated on double benefit was turned down in the following manner:
"3. As stated above, the first question which requires consideration by this Court is: whether depreciation was allowable on the assets, the cost of which has been fully allowed as application of income under section 11 in the past years? In the case of CIT v. Munisuvrat Jain 1994 Tax Law Reporter, 1084 the facts were as follows. The assessee was a Charitable Trust. It was registered as a Public Charitable Trust. It was also registered with the Commissioner of Income Tax, Pune. The assessee derived income from the temple property which was a Trust property. During the course of assessment proceedings for assessment years 1977-78, 1978-79 and 1979-80, the assessee claimed depreciation on the value of the building @2½% and they also claimed depreciation on furniture @ 5%. The question which arose before the Court for determination was : whether depreciation could be denied to the assessee, as expenditure on acquisition of the assets had been treated as application of income in the year of acquisition? It was held by the Bombay High Court that section 11 of the Income Tax Act makes provision in respect of computation of income of the Trust from the property held for charitable or religious purposes and it also provides for application and accumulation of income. On the other hand, section 28 of the Income Tax Act deals with chargeability of income from profits and gains of business and section 29 provides that income from profits and gains of business ahll be computed in accordance with section 30 to section 43C. That, section ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 3 of 19 32(1) of the Act provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. It further provides for deduction subject to section 34. In that matter also, a similar argument, as in the present case, was advanced on behalf of the revenue, namely, that depreciation can be allowed as deduction only under section 32 of the Income Tax Act and not under general principles. The Court rejected this argument. It was held that normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Income Tax Act. The Court rejected the argument on behalf of the revenue that section 32of the Income Tax Act was the only section granting benefit of deduction on account of depreciation. It was held that income of a Charitable Trust derived form building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income Tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the Trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. In view of the aforesatated judgment of the Bombay High Curt, we answer question No. 1 in the affirmative i.e., in favour of the assessee and against the Department.
4. Question No. 2 herein is identical to the question which was raised before the Bombay High Court in the case of Director of Income-tax (Exemption) v. Framjee Cawasjee Institute [1993] 109 CTR 463. In that case, the facts were as follows: The assessee was the Trust. It derived its income from depreciable assets. The assessee took into account depreciation on those assets in computing the income of the Trust. The ITO held that depreciation could not be taken into account because, full capital expenditure had been allowed in the year of acquisition of the assets. The assessee went in appeal before the Assistant Appellate Commissioner. The Appeal was rejected. The Tribunal, however, took the view that when the ITO stated that full expenditure had been allowed in the year of acquisition of the assets, what he really meant was that the amount spent on acquiring those assets had been treated as 'application of income' of the Trust in the year in which the income was spent in acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. This view of the Tribunal has been confirmed by the Bombay High Court in the above judgment. Hence, Question No. 2 is covered by the decision of the Bombay High Court in the above Judgment. Consequently, Question No. 2 is answered in the Affirmative i.e., in favour of the assessee and against the Department."
2. After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same.
3. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in 'Lissie Medical Institutions v. CIT [2012] 24 taxmann.com 9/209 Taxman 19 (Mag.)/348 ITR 344 (Ker.)'.
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4. It may also be mentioned at this stage that the legislature, realising that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature.
5. It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well.
5. Grievance of the assessee thus indeed merits acceptance. The assessee is, over and above the claim under section 11 and 12, entitled to the depreciation as well. Learned CIT(A) had declined the same on the ground that since the assessee is allowed exemption under section 11, there is no question of grant of depreciation. The view so taken by the learned CIT(A), in the light of binding judicial precedents, does not merit our approval. We, therefore, direct the Assessing Officer to grant the depreciation as well.
6. Ground no. 1 is thus allowed.
7. In ground 2 of the appeal filed by the assessee, grievance is that the CIT(A) erred in not adjudicating upon ground nos. 8,9 and 10 before him as academic and general.
8. Learned representatives fairly agree that as the matter has not been decided upon by the CIT(A) on merits, these issues may be remitted to the file of the CIT(A) for adjudication on merits. We, accordingly, remit the matter to the file of the CIT(A) for adjudication de novo in accordance with the law, by way of a speaking order and after giving an opportunity of hearing to the assessee.
9. Ground no. 2 is thus allowed for statistical purposes in the terms indicated above.
10. The appeal filed by the assessee for the assessment year 2004-05 is thus partly allowed in the terms indicated above.
11. Turning to the appeal filed by the Assessing Officer, in ground nos. 1 and 2, the Assessing Officer has raised the following grievance:
Learned CIT(A) erred in allowing the assessee's claim of its income exempt under section 11 of the Act, while the assessee had not satisfied various conditions laid down for such exemption.
Ld. CIT(A) has erred in deleting addition made on account of disallowing accumulation claimed by assessee u/s 11(2) while assessee has contravened various provisions of such accumulation to be allowed.
12. So far as this grievance of the Assessing Officer is concerned, the relevant material facts are like this. This is second round of proceedings on this issue. A coordinate bench of this Tribunal, vide order dated 31st May 2011, remitted the matter to the file of the Assessing Officer for examining the issue with respect to exemption under section 11. In these set aside proceedings, the Assessing Officer declined the exemption under section 11 on the grounds that (i) since the assessee had filed return of income as per the normal provisions without ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 5 of 19 claiming exemption under section 11, and, therefore, fresh claim cannot be entertained without a revised return of income. In this regard reliance was placed on Hon'ble Supreme Court's judgment in the case of Goetze India Ltd Vs CIT [(2006) 284 ITR 323 (SC)]. The Assessing Officer further held that the audit report in form 10 B has not been submitted before filing of the return of income, even though the Assessing Officer did accept that the audit report was duly filed- though at a much later point of time. It was also noted that the conditions under section 13(1)(d)(iii) have not been fulfilled as the appellant has invested in Kutch Railways and Petronet, and, therefore, the assessee is ineligible for exemption under section 11. The Assessing Officer further observed that the assessee has not maintained the books of accounts as per the Major Port Trust Act, 1963. Even in the second round of proceedings thus, the exemption under section 11 was declined. Aggrieved by the stand of the Assessing Officer, assessee carried the matter in appeal before the CIT(A) who upheld the claim of the assessee, in respect of exemption under section 11, by observing as follows:
"6.3 I have carefully considered the contention of the appellant and the various orders. The main issue which requires to be considered is whether the appellant is entitled for exemption u/s. 11 or not, in view of the registration granted to it u/s. 12A. The A.O. has given four reasons for denying the exemption, which have been reproduced earlier in para-6.1 above. The four reasons are being discussed individually in the succeeding paragraphs.
6.4 The first reason given by the A.O. is that no claim of exemption u/s.11 or 12 was filed in the original return of income. As per the decision of the Hon'ble Supreme Court in case of Goetz India (supra), it is beyond the scope of the A.O. to grant the exemption if it was not claimed in the original return of income. It is true that the Hon'ble Apex Court's decision prevents the A.O. to accept a fresh / new claim, otherwise than a revised return of income. However, the same restriction is not enclosed on the appellate authorities, i.e. CIT(A) / ITAT. In the case of CIT-I vs. Arvind Mills Ltd. in Tax Appeal No.1407 of 2011, the Hon'ble Gujarat High Court has held that - "as such in Goetz (supra), the Supreme court while dismissing the appeal clarified that its decision was restricted to the power of assessing officer to entertain a claim for deduction otherwise than by a revised return and did not impinge on the powers of the appellate authority v/s.254 of the Act." Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT vs. Symphony Comfort Systems Ltd. in Tax Appeal No.97 of 2010. The Hon'ble High Court has relied upon the decision of the Hon'ble Delhi High Court in case of CIT vs. Jai Parabolic Springs Ltd. 306 ITR 42, wherein it is held as under:-
"In Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 (SC), wherein deduction claimed by way of a letter before Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal."
6.5 In the present ease, the Hon'ble ITAT, Rajkot Bench had given a clear direction to the A.O. to examine whether the appellant was eligible for exemption u/s.11 or not in view of the registration being granted by the CIT u/s 12A. The A.O. was now working as per the directions of Hon'ble ITAT. Therefore, just because the exemption u/s.11 was not claimed in the original return of income, the same cannot be denied relying on the decision of Goetz India decision. If the claim was made suo moto before the A.O. by the ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 6 of 19 appellant, the A.O. would have been justified in rejecting the same. However, now as the A.O. is working under the directions of the Hon'ble ITAT. Rajkot Bench, the claim of exemption has to be considered as directed.
6.6 The second reason given by A.O. is that audit report in Form 10B has not been submitted before filing the return of income and the same is obtained much after. It is held by the A.O. that as per s.12A(1)(b) read with Rule 17B, audit, report in Form 10B has to be submitted before the A.O. along with the return of income on or before due date prescribed u/s.139. It was noticed by the A.O. that Form 10B was signed by the auditor on 15/10/2009 while the registration u/s.12AA was granted by CIT-1, Rajkot on 15/12/2008. Therefore, there is an inordinate delay in filing of the audit report. The A.O. therefore denied the exemption.
6.7 During the course of appellate proceedings, it was contended by the appellant that various authorities, including the Hon'ble Gujarat High Court, have held that the filing of the audit report is a directory and not a mandatory condition and if the defect is cured by appropriate rectification carried out at a subsequent stage, the same should be allowed. The appellant has also relied upon the decision of the Hon'ble Gujarat High Court in case of Nanjibhai Dungarbhai in 1TA No.56 of 1985, wherein it is held that exemption u/s. 11 cannot be denied merely on the ground that the auditor's report was not filed along with the return of income but was filed later on. The SLP filed by the department against this decision has been dismissed by the Hon'ble Supreme Court, vide SLP Civil No.1498 of 1986. The appellant has also relied upon several other decisions wherein the same view has been expressed. Respectfully following the decision of the Hon'ble Gujarat High Court as well as the other decisions relied upon by the appellant, it is held that exemption u/s. 11 cannot be denied because the audit report in Form 10B was filed subsequently during the course of hearing.
6.8 The third reason given by the A.O. is that the appellant has not followed the conditions prescribed in s. 13(1)(d)(iii) and thus not eligible for exemption u/s 11. It was observed by the A.O. that the appellant had made equity participation in Kutch Railways and Petronet. As per s. 13(l)(d)(iii), the trust should, in order to be eligible for exemption, invest the surplus in the shares of a public sector company or as prescribed u/s. 11(5)(xii). As the appellant had invested in Kutch Railways and Petronet, it had violated the provisions of s.13(l)(d)(iii) and thus not eligible for exemption. It was contended by the appellant before the A.O. as well as during appellate proceedings that these two companies are public sector companies and the investment has been made on the basis of directives issued by the Government of India. The appellant has contended that 'Public sector undertaking" as defined in s.2(36A) of the Act means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956. A government company as per s.617 of the Companies Act means any company in which not less than 51% of the paid up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments. and includes a company which is a subsidiary of a Government Company as thus defined.
6.9 It is now required to be examined whether the two companies are public sector undertakings as defined. In case of Kutch Railway Company, 50% of the share holding is held by Rail Vikas Nigam Ltd. and 26% is held by Kandla Port Trust. Rail Vikas Nigam Ltd. is wholly owned government company u/s.617 of the Companies Act while Kandla Port Trust is a local authority incorporated under the Major Port Trust Act, 1963 and therefore a public sector undertaking. The share holding by the Central ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 7 of 19 Government in Kutch Railway Company therefore exceeds 51% and thus it is a government company as defined u/s.617 of the Companies Act. In respect of Petronet VK India Ltd., various government companies hold 69% of the shareholding as under :-
Indian Oil Corporation - 26%
Petronet India Ltd - 26%
State Bank of India - 5%
Kandla Port Trust - 5%
GIIC - 5%
Canara Bank - 2%
6.10 As regards Petronet India Ltd., it is also a government company as more than 51% shareholding is held by central government as under:-
Indian Oil Corporation - 18%
HPCL - 16%
BPCL - 16%
Stale Bank of India - 10%
6.11 It pan thus be seen that both the companies are public sector undertakings / company as mentioned in s.l3(l)(d)(iii) and the investment made in in shares of these companies is as per me provisions of the section. As there is no violation of s. 13(1)(d)(iii),the appellant is held to be eligible for exemption u/s. 11 and the said exemption cannot be denied to it on this account. It is also contended by the appellant that the investment made was as per the directions of the government and thus there was no mala fide intention to violate provisions of s.l3(l)(d)(iii). It was also claimed that the investment in Petronet VK Ltd. is strategic deployment of funds for developing LNG terminal at port owned and operated by the appellant. The investment therefore is application of income. Be that as it may, as it is held that the investment u/s.13(1)(d)(iii) is a valid investment, these alternative contentions are not required to be considered separately.
6.12 The fourth reason given by the A.O. is that the books of accounts are not maintained as per the Major Port Trust Act, 1963. It is held by the A.O. that it is mentioned by the C&AG that the appellant does not maintain the books of accounts as prescribed in the MPT Act, 1963 and thus the accounts do not give the true picture of utilization of funds. It is contended by the appellant that the observations of the A.O. are wrong. The C&AG have given a certificate that the books are properly drawn up as per the MPT Act, 1963 and exhibited true and fair picture of the state of affairs of Kandla Port Trust. The appellant has enclosed a copy of the audit certificate issued by the A.G., Rajkot, dt. 9/11/2004 as part of the paper-book. In view of this, this reason held by the A.O. for denying the exemption u/s. 11 is held to be without any basis and thus not upheld.
13. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us.
14. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position.
15. Learned CIT(A) has, in a very well reasoned order, set out specific reasons for which the stand of the Assessing Officer cannot be approved. We find ourselves in considered ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 8 of 19 agreement with the reasoning adopted by the CIT(A). In any case, no specific infirmities therein have been pointed out by the learned Departmental Representative, as his reliance has primarily been on the stand of the Assessing Officer. As learned CIT(A) rightly notes, we find that as regards the issue of claim having been made for the first time before the Assessing Officer, other than by way of a revised return, what is important to bear in mind is the fact that the claim was admitted by the Tribunal and the matter was remitted to the file of the Assessing Officer for consideration on merits in the light of the registration under section 12A. On these facts, in our considered view, the Assessing Officer was indeed in error in applying the ratio of Goetze India decision (supra). In the light of law laid down by Hon'ble Supreme Court in the case of National Thermal Power Co Ltd Vs CIT [(1998) 229 ITR 383 (SC)], there is no bar on admission of a new claim by the assessee. In any event, Goetze decision does not apply to the appellate authorities, and, we may, in this regard, refer to Hon'ble Delhi High Court's judgment in the case of CIT Vs Jai Parabolic Springs Ltd (306 ITR 402) as also unreported decisions of Hon'ble jurisdictional High Court in the cases of CIT Vs Symphony Comfort Ltd (TA No 97 of 2000) and CIT Vs Arvind Limited (TA No. 1407 of 2011). In the light of these discussions, the CIT(A) was quite justified in rejecting the stand of the assessee. As regards the requirement of filing the audit report on form 10B alongwith the return of income, find that, as reported in 179 ITR 61 (Stat), Hon'ble Supreme Court has dismissed the SLP against Hon'ble jurisdictional High Court's declining to call a reference against this Tribunal's direction "registration of the assessee trust under section 11 of the Income Tax Act, 1961, when the auditor's report in form 10B, as required by Section 12A(b) of the Income Tax Act 1961, was not filed alongwith the return but was filed later on". No decision to the contrary was brought to our notice. As regards the investments in Kutch Railway and Petronet, we have noted that these investments in the PSUs were made pursuant to the directions of the Government of India, and, as such, disability under section 13(1)(d) will not be attracted. This aspect has been discussed in great detail in the findings of the CIT(A) which have been reproduced above, and no infirmities therein have been pointed out to us. Similarly, as far as the books of accounts are concerned, in the light of specific certificate issued by the CAG, this objection also ceases to have legally sustainable basis. As for the accumulation aspect, there are no independent discussions in the impugned order and that is covered in denial of exemption itself. In the light of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.
16. Ground nos. 1 and 2 are thus dismissed.
17. In ground no. 3, the Assessing Officer has raised the following grievance:
Ld. CIT(A) has erred in deleting the addition made on account of disallowance of depreciation despite the fact that allowing depreciation to assessee truest amounts to double deduction as capital expenditure in case of rusts is also allowed while computing income.
18. As regards ground no. 3, learned representatives fairly agree that this issue is also covered, in favour of the assessee, by a coordinate bench decision in assessee's own case for the assessment year 2003-04 - reported as Kandla Port Trust Vs ACIT [(2007) 104 ITD 1 (Rjt)]. That is precisely the judicial precedent that the learned CIT(A) has followed.
ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 9 of 19 Respectfully following the same, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.
19. Ground no. 3 is thus dismissed.
20. The appeal filed by the Assessing Officer is thus dismissed.
21. To sum up, while appeal of the assessee is partly allowed in the terms indicated above, the appeal of the Assessing Officer is dismissed.
22. We now take up the cross appeals filed against the learned CIT(A)'s order dated 8th August 2014 passed by the CIT(A) in the matter of order under section 154 r.w.s. 143(3) for the assessment year 2005-06.
23. So far these cross appeals are concerned, the issue in appeal lies in a very narrow compass of material facts. The impugned rectification was carried out as, subsequent to the assessment under section 143(3) having been finalized, the Assessing Officer noticed that the assessee had, by offering net prior period income of Rs 2,24,07,638, effectively claimed prior period expenses of Rs 1,33,31,591 and offered to tax prior period income of Rs 3,57,39,229. The Assessing Officer was of the view that this netting is impermissible since while "prior period income has to be offered to taxation, whereas prior period expenses have to be disallowed as the assessee is following mercantile method of accounting". It was in this backdrop that the Assessing Officer held that the said mistake is required to be rectified under section 154. He, accordingly, proceeded to make an addition of Rs 2,66,63,182 returned by the assessee. Aggrieved, assessee carried the matter in appeal before the CIT(A) who deleted the said adjustment on the ground that this issue regarding disallowance can be decided only after long drawn process of reasoning on the points which are capable of two views being taken. He, however, confirmed the levy of interest under section 234A,B,C and D on the ground that the same is consequential in nature. None of the parties is satisfied, and both the parties, therefore, are in appeal before us.
24. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
25. As observed by Hon'ble Supreme Court, in the case of ITO Vs Volkart Brothers [(1971) 82 ITR 50 (SC)], "A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions" and that "an error which has to be established by a long-drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record". The question whether the prior period expenses can be allowed or not, at the minimum, is a highly debatable issue inasmuch as what is crucial is not the period to which the expenses pertain but the point of when liability for such expenses crystallizes. There is no discussion on this aspect of the matter in the impugned order. We have also noted that even on merits of the stand taken by the assessee, there is a direct judgment by Hon'ble jurisdictional High Court, in the case of PCIT Vs Adani Enterprises Limited [TA No. 566 of 2016; judgment dated 20th July 2016] but then that is not even necessary to examine the matter further in this regard, since, at the minimum, the issue is highly contentious. Learned ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 10 of 19 CIT(A) was, therefore, quite justified in cancelling the rectification order. We approve the action of the CIT(A) on this point. Once the rectification order passed under section 154 itself is held to be devoid of legally sustainable basis, the matter comes to an end. We have noted, however, that the parties have raised the grievances against the order of the CIT(A) on dealing with other aspects of the matter which are not even relevant in this context. Be that as it may, we approve the action of the CIT(A) in cancelling the impugned rectification order, and decline to interfere in the matter. Once the rectification order itself stands quashed, all the corollaries will follow.
26. With these observations, the appeal filed by the Assessing Officer is dismissed and the appeal filed by the assessee is dismissed as infructuous.
27. We now take up the cross appeals against the order dated 25th September 2014 passed by the CIT(A) in the matter of assessment under section 143(3) r.w.s. 254(1) of the Income Tax Act, 1961, for the assessment year 2005-06.
28. We will first take up the appeal filed by the Assessing Officer.
29. Grievances raised by the Assessing Officer are as follows:
"1. Ld. CIT(A) has erred in allowing the assessee's claim of its income exempt u/s 11 of the Act while assessee had not satisfied various conditions laid down for claiming such exemption.
2. Ld. CIT(A) has erred in deleting the addition made on account of disallowance of depreciation despite the fact that depreciation has been allowed correctly by the Assessing Officer under provisions of the Act.
3. Ld. CIT(A) has erred in deleting addition made on account of disallowance of PL reward being contingent liability while directing the Assessing Officer to allow the same again in AY 2008-09 thereby allowing double deduction for the same.
4. It is therefore prayed that the order of Ld. CIT(A) be set aside and that of AO be restored to the above extent.
30. So far as first ground of appeal is concerned, learned representatives fairly agree that whatever we decide for the assessment year 2004-05 will equally apply for this assessment year as well. Vide our order for the assessment year 2004-05 earlier, we have upheld the stand of the CIT(A) on this issue. We see no reasons to take any other view of the matter for this assessment year. Following our aforesaid order, we uphold the conclusions arrived at by the CIT(A) and decline to interfere in the matter.
31. Ground no. 1 is thus dismissed.
32. As regards ground no. 2, learned representatives fairly agree that this issue is also covered, in favour of the assessee, by a coordinate bench decision in assessee's own case for the assessment year 2003-04 - reported as Kandla Port Trust Vs ACIT [(2007) 104 ITD 1 (Rjt)]. That is precisely the judicial precedent that the learned CIT(A) has followed.
ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 11 of 19 Respectfully following the same, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.
33. Ground no. 2 is also dismissed.
34. As regards ground no. 3, the assessee has also raised a connected grievance in ground no. 2 of his appeal, which is required to be taken up together, as follows:
2. Ld. CIT (A) has erred in law and on facts in not allowing an amount of Rs.35,19,745/- on account of productivity linked reward as per the directions of Ministry of Shipping for the year under consideration as the said amount got accrued and crystallized during the year under consideration.
35. Briefly stated, the relevant material facts are as follows. The assessee had made a provision @ 20% of salary payable, for productivity linked reward, at Rs 1,75,98,724. The Assessing Officer, however, allowed deductibility of only Rs 1,75,98,724 holding that it is only this liability which crystallized during the year and was paid. The deduction was thus allowed at 15.5% of the salary payable. The balance amount of Rs 35,19,745 was paid in May 2007, and it was not allowed by the Assessing Officer as contingent liability. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) held that this amount of Rs 35,19,745 should be allowed in the assessment year 2008- 09, i.e. the assessment year relating to the previous year in which the amount was paid. None of the parties is happy with this verdict. While the Assessing Officer is aggrieved of the direction given by the CIT(A), the assessee is aggrieved of his sustaining the disallowance. Both the parties are in appeal before us.
36. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
37. We see merits in the plea of the assessee. The quantification of productivity linked reward was not in doubt in the relevant previous year. The quantification was at 20%. The amount representing 15.5% is only "adhock payment" made during the relevant previous year. The actual payment cannot restrict the deductibility of a liability which is very well foreseen and quantified as a present liability. The amount claimed as deduction by the assessee represents present liability, and the mere fact that it was paid at a later date, as authorised by the Ministry of Shipping, Road Transport and Highways, does not restrict the deductibility. We are, therefore, of the considered view that the CIT(A) ought to have allowed the entire amount of PLR liability. We, therefore, allow ground no. 2 of the assessee and dismiss ground no. 3 of the Assessing Officer as infuctuous.
38. Ground no. 3 is thus dismissed.
39. Ground no. 4 is general and does not call for any adjudication.
40. The appeal filed by the Assessing Officer for the assessment year 2005-06 is thus dismissed.
41. We now move to the appeal filed by the assessee for the assessment year 2005-06.
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42. In the first ground of appeal, the assessee has raised the following grievance:
"1. Ld. CIT(A) has erred in law and on facts in confirming the action of learned Assessing not allowing deprecation claim over and above the claim of s. 11 & 12 of the Act. Under the facts and circumstances of the case, both depreciation and exemptions u/s 11 & 12 ought to have been granted simultaneously.
43. Learned representatives fairly agree that whatever we decide for the assessment year 2004-05 on this issue will equally apply here as well. Vide our order above, we have upheld similar plea of the assessee for the assessment year 2004-05. We have no reasons to take any other view of the matter than the view so taken by us for the said year. Respectfully following the same, we uphold the plea of the assessee and direct the Assessing Officer to allow the relief accordingly. Our observations for the AY 2004-05 will apply mutatis mutandis here as well.
44. Ground no. 1 is thus allowed.
45. Ground no. 2, as discussed a short while earlier- while dealing the cross appeal, is allowed.
46. In ground no. 3, the assessee has raised the following grievance:
3. Ld. CIT(A) has erred in law and on facts in not adjudicating the following grounds of appeal by treating them as academic and/or general:
"8. The ld. AO has erred in law and on the facts in not allowing prior period expenses as claimed by the appellant."
Under the facts and circumstances of the case, ld. CIT(A) ought to have adjudicated upon these grounds on merits
47. Learned representatives fairly agree that as the matter has not been decided upon by the CIT(A) on merits, these issues may be remitted to the file of the CIT(A) for adjudication on merits. We, accordingly, remit the matter to the file of the CIT(A) for adjudication de novo in accordance with the law, by way of a speaking order and after giving an opportunity of hearing to the assessee.
48. Ground no. 3 is thus allowed for statistical purposes in the terms indicated above.
49. In the result, the appeal filed by the assessee is partly allowed in the terms as indicated above.
50. We now take up the cross appeals against the order dated 12th September 2014 passed by the CIT(A) in the matter of assessment under section 143(3) r.w.s. 254(1) of the Income Tax Act, 1961, for the assessment year 2006-07.
51. In the appeal filed by the assessee, the grievances raised are as follows:
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1. Ld. CIT(A) has erred in law and on facts in confirming the action of learned Assessing not allowing to set-off carried forward loss of AY 2005-06 to the extent of Rs.2,66,63,182/-
2. Ld. CIT (A) has erred in law and on facts in confirming the action of learned Assessing Officer in computing the total income after taking into consideration the income assessed as per order passed u/s 154 of the Act, and accordingly, erred in not allowing to set-off of carried forward loss of Rs.26,88,28,986/- of AY 2005-06. Under the circumstances, direction may be given to the ld. AO to allow the same.
3. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld. AO in levying interest u/s 234B/C/D of the Act.
52. Vide our order dealing with the rectification proceedings under section 154 for the assessment year 2005-06, we have already quashed the rectification order passed by the Assessing Officer. Accordingly, the loss to be set off is to be modified so as to include the deduction declined by the said rectification order. To this extent, action of the CIT(A) is indeed erroneous and cannot be sustained. We, therefore, accept the plea of the assessee on this point. The Assessing Officer is directed to allow the entire loss and not to restrict the same in the light of the rectification order which has been quashed anyway.
53. In the result, appeal filed by the assessee is allowed in the terms indicated above.
54. In the appeal filed by the Assessing Officer, grievances are as follows:
1. Ld. CIT(A) has erred in allowing the assessee's claim of its income exempt u/s 11 of the Act while assessee had not satisfied various conditions laid down for claiming such exemption.
2. Ld. CIT(A) has erred in deleting the addition made on account of disallowing accumulation claimed by assessee u/s 11(2) while assessee has contravened various provisions of such accumulation to be allowed
3. Ld. CIT(A) has erred in deleting addition made on account of disallowance of depreciation despite the fact that allowing depreciation to assessee trust amounts to double deduction as capital expenditure in case of trusts is also allowed while computing income.
55. Learned representatives fairly agree that so far as ground nos. 1 and 3 are covered by the assessment year 2004-05 and whatever we decide for the said assessment year will apply mutatis mutandis for this assessment year as well. Vide our order earlier, we have dismissed ground nos. 1 and 3 of the Assessing Officer for the assessment year 2004-05 and that fate must meet these ground of appeal as well. Respectfully following the order for the assessment year 2004-05, we dismiss these grievances of the appellant and, to that extent, decline to interfere in the conclusions arrived at by the CIT(A).
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56. In this assessment year, however, ground no. 2 needs to be adjudicated on merits on a standalone basis as there are independent findings on that aspect in the orders of the authorities below. The relevant material facts are like this. Without prejudice to the stand of the Assessing Officer that the assessee is not entitled to exemption under section 11 and 12 anyway, he nonetheless proceeded to compute the income of the assessee on the assumption that the provisions of Section 11 to 13 will apply on this fact situation. He noted that the assessee has obtained form 10B on 2.12.2008 but filed the same on 14.1.2013. It was also noted that "no details of such specified amount in the modes prescribed under section 11(5) were attached" in the board resolution dated 2.12.2008. The AO was of the view that there was no specific purpose for which resolution was made, and it was totally vague and devoid of any specific purposes. The Assessing Officer further observed that the money so accumulated has not been invested as prescribed under section 11(5). He further observed, referred to judicial precedents, that "accumulation has to be conscious accumulation and not just a mass of unspent or unapplied profits". He thus concluded that "the assessee has fails to fulfil the conditions given in section 11(2), 11(5) rule 17 and thus this accepted accumulation of Rs 25,80,31,802 has to be treated as assessee's income". Aggrieved, assessee carried the matter in appeal before the CIT(A) who did not approve the stand of the Assessing Officer. In support of the conclusions so arrived at by the learned CIT(A), he reasoned as follows:
7.0 Ground No.4 is against the findings of the A.O. that the appellant has failed to fulfill the conditions u/s.11(2) r.w.s. 11(5) regarding accumulation of Rs.25,80,31,802/-. It was held by the A.O. that Form No. 10 is obtained on 2/12/2008 and submitted on 14/1/2013, specific object of accumulation has not been stated and specific amount has not been invested in prescribed in s. 11(5) of the Act. These observations are discussed individually in the succeeding paragraphs.
7.1 As regards the first observation of the A.O. that Form 10B was submitted late, it is noted that the registration u/s.12A was obtained on 20/6/2008 and the appellant could not have submitted this before obtaining the registration u/s. 12A. This issue has already been discussed in detail in para-6.5 to 6.12 above. This contention of the A.O. is therefore held to be not valid.
7.2 The second observation of the A.O. is that the accumulation is not for a specific purpose. The appellant had submitted Board's resolution dt. 2/12/2008 wherein the purpose was mentioned as 'for creation of infrastructure facilities such as roads, rails, storage facilities, deepening of channels, creation of berth, procurement of crane and other equipments'. It is held by the A.O. that as per s.11(2), the trust has to specify in writing to the A.O. the purpose for which the income is being accumulated or set apart.
These reasons cannot be vague. The A.O. has relied upon the decision of the Hon'ble Kolkata High Court in case of DIT vs. Trustee of Singhania Charitable Trust 199 ITR 819 wherein it is held that accumulation of income contemplated u/s. 11(2) should be for a definite or concrete purpose. It is contended by the appellant that in case of Singhania Charitable Trust, the assessee-trust listed all the charitable objects for which the assessee-trust was created. Under those circumstances, the decision of the Hon'ble Kolkata High Court was given. In the present case, the appellant has stated a specific purpose and the decision of Hon'ble Kolkata High Court is distinguishable on facts. The appellant has also relied upon the decision of Hon'ble ITAT, Kochin in case of Sree Seetharam Anjancya Veda Kendra vs. ADIT (Exemption) 83 ITD 235 wherein the decision of the Hon'ble Kolkata High Court has been distinguished. The Hon'ble ITAT Kochin has held as under:-
ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 15 of 19 "We also find considerable force in the arguments of the learned counsel for the assesses that, in fact, the decision of the Hon'ble Calcutta High Court in Trustees of Singhania Charitable Trust's case (supra) relied on by the authorities below is in support of the assessee's case. In that case, their Lordships of the Calcutta High Court at page 823 of the report observes thus:
"Doubtless, it is not necessary that the assessee has to mention only one specific object. There can be selling apart and accumulation of income for more objects than one but whatever the objects or purposes might be, the assessee must specify in the notice the concrete nature of the purposes for which the accumulation is being made. Plurality of the purposes for accumulation may not be precluded but it must depend on the exact and precise purposes for which the accumulation is intended for the statutory period of ten years. The generality of the objects of the mist cannot take the place of the specificity of the need for accumulation. "
Their Lordships further observed that the Tribunal was not right in allowing the benefit of the accumulation without first ascertaining whether the purpose has been precisely specified or not. In the case relied on by the department, the Hon'ble Calcutta High Court noticed that in Form No. 10 notice, the purposes of accumulation were enumerated in items (i) to (xvi), about which their Lordships observed -
"What the assessee has sought to be permitted to do here is to accumulate not for any determinate purpose or purposes but for the objects as enshrined in the trust deed in a blanket manner. Accumulation in such a global manner is definitely not in the contemplation of section 11(2) when it is considered in its setting."
Taking the totality of the facts and circumstances of the case, the reason given by the Assessing Officer to deny the benefit contemplated under section 11(2) and the reasoning adopted by the Commissioner (Appeals) in concurring with the view of the Assessing Officer is not in conformity with the intent and purport of the above section. The decision of the Hon'ble Calcutta High Court in Trustees of Singhania Charitable Trust's case (supra) relied on by the revenue in fact supports the case of the assessee. In the light of the above facts, we set aside the orders of the revenue authorities."
7.3 It is seen in the present case that the appellant has slated the objective for accumulation for setting aside the income to be creation of infrastructure facilities, such as roads, rails etc. This objective, in my opinion, looking at the quantum of spread of operations of the appellant, cannot be said to be vague as the infrastructural requirements are very high as far as appellant is concerned. If the appellant has set aside this amount for creation of infrastructural facilities, the purpose cannot said to be vague. This reasoning of the AO is rejected.
7.4 The third observation of the A.O. is that though the trust had claimed accumulation of Rs.25.8 crores u/s.11(2), the details of such investment were not given. The A.O. relied upon the decision of the Hon'ble Mumbai High Court in case of CIT Vs. State Bank of India 169 ITR 298 wherein it is held that the accumulation has to be conscious accumulation and not just mass of unspent or unapplied profits. It was contended by the appellant that total investments made in FDRs, long term bonds / deposits was amounting to Rs. 1321.82 crores as against the accumulated amount of Rs.25.8 crores.
ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 16 of 19 The investment made was much more than the amount required to be accumulated u/s.11(2) and was as per the provisions of s. 11(5) and thus the accumulation should not be treated as income as taxable income in the hands of the appellant. I have carefully considered the contention of the appellant. It is seen that the total investments made by the appellant is Rs.1321 crores which is much more than Rs.25.8 crores. The amount has also been specifically set aside for creation of infrastructure, viz. road, rails etc. The A.O's contention is proved that no one-to-one correlation between the investment made and the accumulation u/s.11(2) has been established by the appellant. However, the quantum of investment as prescribed in the modes u/s.11(5) is substantially more than the amount required' to be accumulated u/s.11(2). It is therefore held that the amount of Rs.25.8 crores has required to be accumulated u/s. 11(2) has been properly invested by the appellant as prescribed in the modes u/s. 11(5). The A.O. is directed not to treat this amount as the taxable income of the appellant. This ground of appeal is allowed.
7.5 It is also claimed by the A.O. that this amount has not been utilized within five years as specified u/s. 11(2). However, this cannot he the reason for disallowance in this year. This is because the live years end on 31/3/2011. If it found by the AO that the amount has not been utilized by 31/3/2011, the same has to be treated as income for AY 11-12 and not for this year under consideration. Separate action will have to be taken by the AO to verify this.
57. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us.
58. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
59. We have noted that in this case the assessee was granted registration under section 12A on 5.12.2008, though with retrospective effect from 1st April 2002. Under these circumstances, it would not have been possible for the assessee to file the form 10 in time. In any case, as held by Hon'ble jurisdictional High Court in the case of CIT Vs Mayur Foundation (274 ITR 562), form 10 can be filed even after completion of assessment while the assessee has filed the form 10 before the AO in the second round of assessment proceedings. The question before Their Lordships, in this case, was that "Whether, under the facts and circumstances of the assessee's case, the Tribunal was right in holding that in the absence of any specific time-limit prescribed under s. 11(2) of the IT Act, 1961, for submission of the notice in the prescribed manner to the assessing authority, and in the absence of any express or by clearly implied delegation to the rule-making authority of any power to impose any time-limit, such time-limit prescribed in r. 17 for submission of Form No. 10 by the rule-making authority is invalid and whether the Tribunal was right in holding that the appellant-trust has complied with all the conditions prescribed in s. 11(2) and is entitled to benefits allowable under the aforesaid provisions ?", and Their Lordships decided this question in favour of the assessee. The objection of the Assessing Officer has thus been rightly rejected by the CIT(A). As regards the question whether the purpose of accumulation was indeed vague, we entirely agree with the learned CIT(A) that "creation of infrastructural facilities" cannot be said to be a vague objective- particularly in a situation, like that of the assessee, where spread of operations and the need of operational infrastructure is really substantial. Its not a sweeping generalization of a statement, as has been made out by the Assessing Officer. Similarly, as regards the quantum of investment under section 11(5), it is admittedly much more than the amount required under section 11(2) and, therefore, whether ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 17 of 19 each investment is corelated on one to one basis or not, the requirements of section 11(5) are satisfied. The actual investments in permissible modes are well over Rs 1,321 crores as against the requirement of investment of Rs 25.80 crores. The objection of the Assessing Officer is unsustainable in law and on facts. As to what happens after the prescribed time with which accumulated funds must be used, that cannot determine the question of correctness of accumulation at this stage. We approve the reasoning of the CIT(A) on this point as well. In any case, learned Departmental Representative has not pointed out any specific infirmities in the impugned order. In the light of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the CIT(A) on this point as well and decline to interfere in the matter.
60. Ground no. 2 is also thus dismissed.
61. The appeal filed by the Assessing Officer for the assessment year 2006-07 is thus dismissed.
62. To sum up, while the appeal of the assessee for the assessment year 2006-07 is allowed in the terms indicated above, the appeal of the Assessing Officer for the assessment year 2006-07 is dismissed.
63. We now take up the cross appeals directed against the order dated 22nd July 2014 passed by the CIT(A) in the matter of assessment under section 143(3) r.w.s. 254 of the Income Tax Act, 1961, for the assessment year 2008-09.
64. Grievances raised by the assessee are as follows:
1. Ld. CIT (A) has erred in law and on facts in taxing prior period income of Rs.6,24,99,868/- for the year under consideration. Ld. CIT(A) failed to appreciate that when the appellant trust is granted benefit of S.11 & 12 of the Act, the concept of prior period income is not applicable at all.
2. The learned CIT(A) has erred in law and on facts of the case in not adjudicating upon the ground challenging the levy of interest u/s 234D of the Act. Under the facts and circumstances of the case, ld. CIT(A) ought to have adjudicated upon this ground on merits.
3. The learned CIT(A) has erred in law and on facts of the case in not adjudicating upon the ground challenging the levy of penalty u/s 271(1)(c) of the Act. Under the facts and circumstances of the case, ld. CIT(A) ought to have adjudicated upon this ground on merits.
65. Ground no. 2 and 3 were not pressed and were dismissed, as such, for want of prosecution.
66. As regards ground no. 1, the relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer disallowed Rs 1,25,27,607 as prior period expenses, on the ground that the assessee is following mercantile method of accounting under which only expenses of the current year can be allowed. Aggrieved, assessee carried the ITA Nos. 677, 678, 679, 680 & 681/Rjt/2014 & ITA Nos. 673, 608, 674, 675 & 554/Rjt/2014 Kandla Port Trust Vs JCIT and vice versa Bunch of 10 appeals Page 18 of 19 matter in appeal before the CIT(A). When the matter travelled in appeal, learned CIT(A) held that since the assessee has offered prior period income of Rs 6,24,99,868, the prior period income expenses must be allowed. The assessee is aggrieved that of learned CIT(A)'s holding that the income of Rs 6,24,99,868 was taxable in the hands of the assessee. In a connected grievance, the Assessing Officer has also raised a grievance, in ground no. 4 in his appeal, that "Ld. CIT(A) has erred in deleting addition made on account of disallowance of prior period expenses even though assessee is following mercantile system of accounting". We will also take it up together.
67. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
68. We find that the learned CIT(A) has indeed observed that "if prior period income is to be charged, then incidental prior period expenses need to be allowed from such income" but, by no stretch of logic, this observation can be construed to mean that the income in question must suffer the taxation. All this observation implies is that the accounting treatment must be uniform in respect of same type of income vis-à-vis same type of expenditure. There is no dispute in the present year that the income of the assessee was eligible for exemption, and, therefore, prior period income can not be brought to tax at all. What the assessee is contending is correct in principle but then it is not the case that the CIT(A) has specifically directed the income being brought to tax in the hands of the assessee. Be that as it may, we approve the plea of the assessee. As regards the grievance of the Assessing Officer, we are unable to see any merits in his stand on the issue. The mere fact that an expense pertains to an earlier year, it cannot be a reason enough to disallow the expense. What is really material is the point of time when the liability to pay crystallizes and it is not even the case of the Assessing Officer than the liability to pay had arisen in any prior period. In any event, the issue stands concluded in favour of the assessee by a large number of judicial precedents, including by Hon'ble jurisdictional High Court's judgment in the case of PCIT Vs Adani Enterprises Limited [TA No. 566 of 2016; judgment dated 20th July 2016]- a copy of which was placed before us in the paperbook. Grievance of the Assessing Officer is thus rejected.
69. Ground no. 1 of the assessee is thus allowed in the terms indicated above, and ground no. 4 of the Assessing Officer is rejected.
70. In the result, the appeal of the assessee is partly allowed in the terms indicated above.
71. In the appeal filed by the Assessing Officer, grievances raised in ground nos. 1, 2 and 3 are as follows:
1. Ld. CIT(A) has erred in allowing the assessee's claim of its income exempt u/s 11 of the Act while assessee had not satisfied various conditions laid down for claiming such exemption.
2. Ld. CIT(A) has erred in deleting addition made on account of disallowing accumulation claimed by assessee u/s 11(2) while assessee has contravened various provisions of such accumulation to be allowed.
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3. Ld. CIT(A) has erred in deleting the addition made on account of disallowance of depreciation despite the fact that allowing depreciation to assessee truest amounts to double deduction as capital expenditure in case of rusts is also allowed while computing income.
72. As regards the above grounds of appeal, learned representatives fairly agree that these issues are covered by the assessment year 2006-07 and whatever we decide for the said assessment year will apply mutatis mutandis for this assessment year as well. Vide our order earlier, we have dismissed these grounds of appeal for the assessment year 2006-07 and that fate must meet these ground of appeal as well. Respectfully following the order for the assessment year 2006-07, we dismiss these grievances of the appellant and, to that extent, decline to interfere in the conclusions arrived at by the CIT(A). Ground nos. 1, 2 and 3 are thus dismissed.
73. Ground no. 4, as discussed earlier- while dealing with the appeal of the assessee, is dismissed.
74. In the result, the appeal of the Assessing Officer for the assessment year 2008-09 is dismissed.
75. To sum up, while the appeal of the assessee for the assessment year 2008-09 is partly allowed, the appeal of the Assessing Officer is dismissed. All the ten appeals thus stand disposed of and this consolidated order for all the ten appeals is thus pronounced in the open court today on the 8th day of June, 2018 Sd/- Sd/-
Rajpal Yadav Pramod Kumar
(Judicial Member) (Accountant Member)
Dated the 8 th day of June, 2018
Copies to: (1) The appellant (2) The respondent
(3) CIT (4) CIT(A)
(5) DR (6) Guard File
By order etc
True Copy
Assistant Registrar
Income Tax Appellate Tribunal
Rajkot bench, Rajkot