ITAT Restricts Section 14A Disallowance to Investments Earning Exempt Income

Paradip Port Authority Vs DCIT (ITAT Cuttack)

The appeal was filed by the assessee, Paradip Port Authority, against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi dated October 13, 2025, for the Assessment Year (AY) 2023-24. The Income Tax Appellate Tribunal (ITAT) Cuttack Bench delivered its order on June 22, 2026, adjudicating multiple grounds raised by the assessee.

On the first issue concerning the disallowance under Section 14A of the Income-tax Act, 1961, read with Rule 8D, the Assessing Officer (AO) had made an addition of ₹4,76,36,626. The assessee argued that the AO had not recorded satisfaction and that disallowance should be restricted to investments that yielded exempt income during the year. The Tribunal held that the AO had duly recorded satisfaction in the assessment order. However, on the second aspect, the Tribunal accepted the assessee’s submission that disallowance under Section 14A read with Rule 8D must be calculated only on average investments that yielded exempt income during the year. Based on the details provided, the annual average of such investments (in Dredging Corporation of India Ltd. Bonds and Kamarajar Port Ltd. Bonds) was ₹28,75,00,000. Applying 1%, the Tribunal restricted the disallowance to ₹28,75,000 and set aside the CIT(A)’s confirmation of the full addition, partly allowing the ground.

On the second issue, the AO had disallowed ₹10,00,00,000 incurred as Corporate Social Responsibility (CSR) expenses under Section 37(1), applying Explanation 2 to Section 37(1). The assessee submitted that it is a local authority registered under the Major Port Trust Act, 1963, and not under the Companies Act, 2013. The Tribunal observed that Explanation 2 to Section 37(1) applies specifically to CSR activities under Section 135 of the Companies Act, 2013, making it inapplicable to the assessee. The Tribunal noted that the expenses were incurred per the guidelines of the Ministry of Shipping, Government of India, and that identical expenses were accepted by the Revenue in AY 2015-16. Relying on the principle of consistency, the Tribunal set aside the CIT(A)’s order and directed the AO to delete the addition.

On the third issue, the AO restricted deductions under Section 36(1)(iv) read with Rule 87 of the Income Tax Rules, 1962, to 27% of salary (₹21,22,50,706) and disallowed ₹1,38,93,12,461 out of total pension and provident fund contributions. The Tribunal held that the 27% ceiling under Rule 87 applies only to ordinary annual contributions. The contribution made by the assessee was a one-time payment to make good an actuarially certified deficit of ₹139.18 crores reported by LIC of India. Because the payment fell outside the scope of Rule 87, the restriction did not apply. The Tribunal set aside the CIT(A)’s order and directed the AO to allow the entire deduction of ₹1,38,93,12,461.

On the fourth issue, the AO disallowed ₹2,10,07,620 paid to M/s Formula One Solutions (P) Ltd. for software development and annual maintenance, treating it as bogus because the party was a non-filer for AY 2021-22 onwards, did not respond to notice under Section 133(6), and had been struck off. The Tribunal found that the assessee had furnished all details, including invoices, PAN, and proof of payment through banking channels after deducting TDS deposited in the Government Treasury. The Tribunal held that the failure of the payee to respond or file returns could not be a ground to disallow payments made by the assessee. The order of the CIT(A) was set aside and the addition was ordered to be deleted.

On grounds five to seven, the CIT(A) had remanded to the AO for verification additions made on account of accrued expenses (₹1,13,08,93,220), salary and wages provisions (₹1,56,53,662), and provident fund provisions (₹1,76,72,856). The Tribunal noted that as a statutory authority under the Major Port Authorities Act, 2021, the assessee is mandatorily required to follow the Ministry of Shipping’s government-approved accrual accounting framework and Common Framework for Financial Reporting. It noted that the accounts were audited by the C&AG without reservation, the liabilities were ascertained, and similar additions were deleted in earlier years. Holding that remanding for verification was improper, the Tribunal set aside the CIT(A)’s direction and ordered the complete deletion of the additions of ₹1,13,08,93,220, ₹1,56,53,662, and ₹1,76,72,856.

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

Cases Discussed

• PCIT vs. Shalimar Pellet Feeds Ltd. (HC), [2023] 453 ITR 547 (Cal)
• PCIT vs. Exide Industries Ltd. (HC), [2023] 146 taxmann.com 21 (Cal)
• PCIT vs. REI Agro Ltd. (HC), [2022] 140 taxmann.com 71 (Cal)
• Kesoram Industries Ltd. vs. PCIT (HC), [2022] 441 ITR 648 (Cal)
• CIT / PCIT vs. Paradeep Port Trust (HC), ITA NO. 48 of 2011 and ITA NO. 89 of 2017
• CIT vs. Glaxosmithkline (HC), IT Appeal No. 2232 of 2011
• Radhasoami Satsang vs. CIT (SC), [1992] 193 ITR 321 (SC)
• CIT vs. Orissa Corporation Ltd. (SC), [1986] 159 ITR 0078 (SC)
• REI Agro Ltd. vs. DCIT (ITAT), ITA NO. 1331/Kol/2011
• ACIT vs. Glaxosmithkline Pharmaceuticals (ITAT), ITA No. 6444/Mum/2007

FULL TEXT OF THE ORDER OF ITAT CUTTACK

This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 13.10.2025 for the AY 2023-24.

2. Issue raised in ground no. 1 is against the confirmation of addition of Rs. 4,76,36,626/- by the Ld. CIT(A) as made by the AO u/s 14A of the Act on account of expenses relating to earning of exempt income.

3. Facts in brief are that during the course of assessment proceedings, the AO noted that the assessee has shown large investments in balance sheet and accordingly was asked to furnish detail/ justification and working of disallowance u/s 14A of the Act in respect of exempt income and expenses relatable to earning exempt income which was replied by the assessee. The submission was not tenable and thereafter the AO computed the disallowance by invoking Rule 8D at Rs. 4,76,36,626/- being 1% of the average value of investment and accordingly issued a show cause notice as to how the same should not be disallowed and added to the income of the assessee. When the assessee did not reply , the AO added the same to the income of the assessee.

4. In the appellate proceedings, the Ld. CIT(A) affirmed the order of AO.

5. We have heard the rival contentions and perused the material on record. We find that the AO rejected the reply of the assessee filed during the course of assessment proceedings by noting that the submission of the assessee is not acceptable. Therefore, in our opinion, so far as the issue of satisfaction is concerned, the same is recorded in the assessment order and therefore the plea of the assessee that the AO has not recorded any satisfaction and consequently no disallowance was called for, is not rejected . So far as the second plea is concerned that the disallowance is to be computed only on those investments which yielded income during the year. We find merit in the claim of the assessee. We observe from the details furnished by the assessee before us that the following securities / investments yielded exempt income :

Therefore, the disallowance has to be restricted to the exempt income which this security has yielded during the year as is clear from the above the annual average investments which were Rs. 28,75,00,000/-. Therefore, by applying @1% on the said amount Rs. 28,75,000/- is the disallowance to be made u/s 14A Rule 8D. The case of the assessee is squarely covered by the decision of Co-ordinate Bench of Kolkata in the case of REI Agro Ltd. vs. DCIT in ITA NO. 1331/Kol/2011 wherein it was held as under:

“It is only the average of the value of this investment from which the income has been earned which is not falling within the part of the total income that is to be considered. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered …….. not all investments become the subject-matter of consideration when computing disallowance under section 14A read with Rule 8D. The disallowance under Section 14A read with Rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income.”

We also observe that the revenue has preferred an appeal before the Hon’ble Calcutta High Court against the decision of Co-ordinate Bench and the Hon’ble Calcutta High Court in PCIT vs. REI Agro Ltd. in [2022] 140 taxmann.com 71 (Cal) dated 07.03.2022 has decided the issue in favour of the assessee by holding that the issue stands concluded in its own case for earlier assessment years and no different view is warranted. The case of the assessee is also covered by the decision of jurisdictional High Court in the case of Kesoram Industries Ltd. vs. PCIT in [2022] 441 ITR 648 (Cal) and PCIT vs. Shalimar Pellet Feeds Ltd. in [2023] 453 ITR 547 (Cal). Consequently we set aside the order of Ld. CIT(A) on this issue and direct the AO to restrict the addition of Rs. 4,76,36,626/-. Accordingly, ground raised by the assessee is partly allowed.

6. Issue raised in ground no. 2 is against the confirmation of addition of Rs. 10,00,00,000/- by the Ld. CIT(A) as made by the AO u/s 37(1) of the Act on account of CSR expenses.

7. Facts in brief are that during the FY 2022-23, the assessee has incurred CSR expenses amounting to Rs. 10,00,00,000/-. The assessee is a local authority under the Ministry of Finance, Govt. of India and is registered under Major Port Trust Act, 1963 and not registered under the Companies Act, 2013. As per explanation 2 to Section 37 of the Act, any expenditure incurred by the assessee on the activities relating to corporate social responsibility referred to section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purpose of business or profession. It was submitted before the AO that the said expenses are not covered under explanation 2 to section 37(1) of the Act as the assessee is registered under Major Port Trust Act, 1963 and not under the Companies Act,2013. However, the plea of the assessee did not find favour and the AO added the same to the income of the assessee.

8. In the appellate proceedings, the Ld. CIT(A) also affirmed the order of AO.

9. After hearing the rival contentions and perusing the material on record, we find that undisputedly the assessee is registered under Major Port Trust Act, 1963., Therefore, the explanation 2 to Section 37(1) of the Act is not applicable to the assessee and the expenses incurred by the assessee on CSR expenses are beyond the scope of the said explanation. We note that the assessee has incurred this expense as per the guidelines of Ministry of Shipping. The direction on CSR expenditure by Ministry of Shipping, Govt. of India available at page 181-221 and the detailed break up of CSR expenses was also available from page 119-173. In our opinion, expenses incurred by the assessee relating to CSR expenses are allowable expesnes. Moreso, when the similar expenditure has been accepted by the revenue in the AY 2015-16 under identical facts. Since, there is no change in the facts during the year vis-à-vis AY 2015-16. Therefore, the revenue cannot be allowed to take a different stand on the same facts. The case of the assessee supported by the decision of Hon’ble Supreme Court in the case of Radhasoami Satsang vs. CIT [1992] 193 ITR 321 (SC). Consequently we set aside the order of Ld. CIT(A) and direct the AO to delete the addition.

10. Issue raised in ground no. 3 is against the confirmation of disallowance of Rs. 1,38,93,12,461/- by the Ld. CIT(A) as made by the AO u/s 36(1)(iv) of the Act read with Rule 87 of the Income Tax Rules, 1962.

11. Facts in brief are that during the course of assessment proceedings, the AO noted that the assessee has paid salary and wages of Rs. 78,61,13,726/- and also had debited Rs. 1,57,95,27,072/- on account of pension contribution and Rs. 2,20,36,095/-on account of employer’s contribution to PF during the year. The AO held that the expenses were contrary to Rule 87 of the IT Rules, 1962 and restricted the deduction for contribution to Provident Fund, superannuation fund and pension to Rs. 21,22,50,706/- being 27% of salary thereby disallowing the balance of Rs. 1,38,93,12,461/- [Rs. 1,60,15,63,167/- Rs. 21,22,50,706/-]. The assessee submitted before the AO that the said expenses were governed by the actuarial valuations done by LIC of India. The assessee submitted that the port can contribute without any limit till the fund value reaches the actuarial valuation amount, and that the limit under Rule 87 applies only to initial contribution and ordinary annual contribution. In defense of argument the assessee relied on the decision of Co-ordinate Bench of Mumbai in ACIT vs. Glaxosmithkline Pharmaceuticals in ITA No. 6444/Mum/2007. The contention of the assessee did not find any favour with the AO and he added the same to the income of the assessee.

12. In the appellate proceedings, the disallowance was confirmed by holding that more than 27% falls squarely under ordinary annual contribution as per the definition of Rule 87 and 88 and the reliance on the decision of Co-ordinate Bench of Mumbai in the case of Glaxosmithkline Pharmaceuticals (supra) was not acceptable.

13. After hearing the rival contentions and perusing the material on record including Rule 87 of the Income Tax Rules,1962, we find that the said Rule provides that ordinary annual contribution by the employer to a fund in respect of any employee shall not exceed 27% of his salary for each year as reduced by employer’s contribution , if any, to any provident fund whether recognized or not in respect of the same employee for that year. Thus, the rule is confined to ordinary annual contributions and it did not say about exceptional payments made to bridge an actuarially certified deficit. We note that the contribution made by the assessee is neither an ordinary annual contribution nor an initial contribution . It is a payment to make good the shortfall of Rs. 139.18 crores certified by LIC in its actuarial valuation report. Thus, the payment is obviously falls outside the scope of Rule 87. Therefore, we are not in agreement with the conclusion drawn by Ld. CIT(A) on this issue. The case of the assessee is squarely covered by the decision of Co-ordinate Bench of Mumbai in the case of Glaxosmithkline Pharmaceuticals (supra) wherein the Bench has held as under:

7. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.

8. We find that Section 36(1)(iv), which deals with the deductions on account of contribution to a recognised provident fund or an approved superannuation fund, provides as follows : “36. Other deductions.—(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— (i) to (iii) ** ** ** (iv) any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head ‘Salaries’ or to the contributions or to the number of members of the fund ;”

9. We may now refer to the Fourth Schedule. Part B of the Schedule deals with the approved superannuation funds. Conditions relating to the grant of approval and the procedure therefor are set out in these, two Parts. Rule 11 of Part B provides, that in addition to any power conferred by Part B, the CBDT may make rules, inter alia, limiting the ordinary annual contribution and any other contributions to an approved superannuation fund by an employer. Rules 87 and 88 of the Income-tax Rules, 1962 (‘the Rules’), are prescribed in pursuance of section 36(1)(iv). For convenient reference these rules are reproduced below :

“87. Ordinary annual contributions.—The ordinary annual contribution by the employer to a fund in respect of any particular employee shall not exceed twenty-five per cent of his salary for each year as reduced by the employer’s contribution, if any, to any provident fund (whether recognised or not) in respect of the same employee for that year. 88. Initial contributions.—Subject to any condition which the Board may think fit to specify under clause (iv) of sub-section (1) of section 36, the amount to be allowed as a deduction on account of an initial contribution which an employer may make in respect of the past services of an employee admitted to the benefits of a fund shall not exceed twenty-five per cent of the employee’s salary for each year of his past service with the employer as reduced by the employer’s contribution, if any, to any provident fund (whether recognised or not) in respect of that employee for each such year.”

10. What follows is that, in terms of the above provisions, a contribution to approved superannuation fund is deductible in principle as long as the quantum of the said contribution does not exceed the prescribed limits. The limits are, however, prescribed only for the initial contribution and ordinary annual contribution to the fund. As a corollary to these limits having been prescribed, amounts paid in excess of such limits, towards initial contribution and for ordinary annual contribution, are not allowed as deduction. That is the only limitation for quantum of deduction under section 36(1)(iv). However, it is not in dispute that the amounts paid in excess of the 27% of salaries of the employees, are neither towards the ordinary annual contribution nor towards the initial contribution. This payment has been necessitated due to shortfall discovered in the course of actuarial valuation of the fund, and is in the nature of a one time exceptional payment to ensure that the superannuation fund is able to discharge its obligation. Its neither an annual contribution, nor an ordinary contribution. Limitations placed under rule 87 relevant for ‘ordinary annual contribution’, as have been invoked in this case, cannot be pressed into service in such a case. In our considered view, the disallowance under section 36(1)(iv) read with Rule 87 do not come into play in the case of a payment to make good the shortfall, on the basis of actuarial valuation, in the superannuation fund. In this view of the matter, the very foundation of the impugned disallowance did not have legally sustainable basis; the amount was deductible, in principle, under section 36(1)(iv) and the restriction on deductibility, as set out in the said section as also in Rule 87, did not apply in this case. The conclusions arrived at by the CIT(A), though for the reasons other than the reasons adopted by the CIT(A), are correct and do not call for any interference.

We note that the Ld. CIT(A) without specifying as to how the said decision is not applicable which is wrong and is not acceptable. We further find that the assessee is squarely covered by the decision of Hon’ble Calcutta High Court in the case of PCIT vs. Exide Industries Ltd. [2023] 146 taxmann.com 21 (Cal) dated 22.09.2022 wherein the Hon’ble High Court has held as under:

“This has not been disputed by the revenue that the amount paid by the respondent/ assessee in excess of 27% of the salaries of the employees are neither towards ordinary annual contribution nor towards initial contribution and the payment was necessitated due to short­fall discovered in the course of actuarial valuation of the funds which is in exceptional circumstances and has been made to ensure that the superannuation funds will be able to discharge its obligation to the employees… We are satisfied that the amount which was remitted by the respondent/assessee is neither towards an initial contribution nor towards an ordinary annual contribution and, therefore, the ceiling fixed under the rules will not apply to such a contribution. That apart, this contribution had to be made considering the peculiar circumstances and it was a one-time payment.”

We further note that the decision in the case of ACIT vs. Glaxosmithkline (supra) was challenged before the Hon’ble Bombay High Court in CIT vs. Glaxosmithkline in IT Appeal No. 2232 of 2011. The appeal was dismissed by the Hon’ble Bombay High Court vide order dated 06.03.2013. Therefore, the contribution of Rs. 130 crores to LIC fund was within the actuarially certified deficit of Rs. 139.18 crores and direct pension payment of Rs. 27.95 crores to retired employees was a statutory discharge of pension obligation. In our opinion both components are genuine and tenable. Consequently, we set aside the order of Ld. CIT(A) and direct the AO to allow the deduction of Rs. 1,38,93,12,461/-. Accordingly, ground no. 3 is allowed.

14. Issue raised in ground no. 4 is against the order of Ld. CIT(A) confirming the disallowance of Rs. 2,10,07,620/- as made by the AO on account of payment made to M/s Formula One Solutions (P) Ltd. when all the documentary evidences proving the genuineness of the transactions were furnished before the AO.

15. Facts in brief are that the AO during the course of assessment proceedings noted from the insight portal that the assessee has made payment of Rs. 2,10,07,620/-to M/s Formula One solutions Pvt. Ltd. after deducting TDS u/s 194J of the Act which was deposited into the Govt Treasury. The AO noted that the said party has not filed any return of income and consequently directed the assessee to provide the details of payment made to this party along with documentary evidences. The assessee submitted before the AO that the payment of Rs. 2,10,07,620/- was made to the said company during the year for developing customized software and also for payment of annual maintenance charges after the development of software. It was submitted that the said company raised invoices amounting to Rs. 2,10,07,620/- excluding GST on which TDS at source was deducted. The assessee furnished before the AO all the bills and vouchers, the copies of which are also available before us from page 184 to 221. However, the AO noted that the said party was non-filer of return for AY 2021-22 onwards and genuineness of the transactions could not be verified even by issuing notice u/s 133(6) as the said entity has not provided any documentary evidences regarding the above transactions. The AO also noted that the said entity was struck off and thus treated the transactions as bogus and held that genuineness of the transaction was not proved and disallowed the said payment. The Ld. CIT(A) sustained the addition on the same reasoning.

16. After hearing the rival contention and perusing the material on record, we find that undisputedly and admittedly the assessee has furnished all the details/ evidences such as invoices, bills and vouchers before the AO as well as before the Ld. CIT(A). The assessee has made payment through banking channel after deduction TDS at source and the TDS was also deposited in the Govt. treasury. We also note that the payment has been made for development of customize software and in connection with the annual maintenance charges. The payments were made through banking channels. The mere fact that the recipient has not filed return of income or is struck off and has not responded u/s 133(6) cannot be a ground for disallowing payment made by the assessee. We further note that the assessee has provided all the details qua the said party namely PAN, name and addresses etc. and it is not the fault of the assessee that the said company did not respond or not traceable. The case of the assessee finds support from the decision of Hon’ble Supreme Court in the case of CIT vs. Orissa Corporation Ltd. [1986] 159 ITR 0078 (SC) wherein it has held as under:

“It is not in all cases that by mere rejection of the explanation of the assessee, the character of a particular receipt as income could be said to have been established, but where the circumstances of the rejection were such that the only proper inference was that the receipt must be treated as income in the hands of the assessee, there is no reason why the assessing authority should not draw such an inference. Such as inference is an inference of fact and not of law.

(Para 10)

The assessee had given the names and addresses of the alleged creditors. It was in the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the allowed loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or any further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises. It cannot, therefore, he said that any question of law arose in these cases. The High Court was, therefore, right in refusing to refer the questions sought for.”

Therefore, in our opinion, once the evidences relating to the transactions were submitted by the assessee and the payment was made through banking channel,the AO cannot disallow the same on the ground of the said party has not filed the return of income or not responded to the notices. Consequently, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition.

17. Issue raised in ground no. 5 to 7 are against the order of Ld. CIT(A) sustaining the disallowance of accrued expenses Rs. 1,13,08,93,220/-, salary and wages of Rs. 1,56,53,662/- and provident fund of Rs. 1,76,72,856/-.

18. During the course of assessment proceedings, the AO noted that the assessee has reported a sum of Rs. 1,13,08,93,220/- under the head other provisions – Accrued expenses in schedule-6 under the head current liability in the balance sheet as on 31.03.2023. Besides the assessee has also reported Rs. 1,76,72,856/- under employee related benefits and provident fund and Rs. 1,56,53,662/- under salary and wages in the same schedule. The assessee was accordingly asked to explain and justify the said provisions with supporting documentary evidences. In response , the assessee submitted the details that the expenses were incurred in the regular course of business and recurring in nature. The assessee claimed that these expenses were discharged in the next financial year. The assessee submitted before the AO that these expenses are not contingent and uncertain expenses but certain expenses which were paid subsequently. The assessee submitted that books of account were prepared as per the common framework for financial reporting approved by Indian Port Association and duly approved by Ministry of Shipping, Govt. Of India and audited by Comptroller and Auditor General of India (C & AG). It was submitted that accrual or provision was approved on specific criteria or relevant historical data and all the provisions/ accruals are reported under major head “Current Liabilities” sub-head “Provisions” under the common framework for financial reporting. The assessee also submitted Annexure IX a detailed transaction-wise summary of all provisions and accruals were made during the year. The AO however was not satisfied with the same and made disallowance and added the same to the income of the assessee.

19. The Ld. CIT(A) sustained the disallowance on the same reasons.

20. After hearing the rival contentions and perusing the material on record, we find that it is recurring issue over the years and in AY 2013-14 and 2014-15 similar expenses were disallowed by the AO. We note that the Ld. CIT(A) in those years deleted the addition and the Co-ordinate bench has confirmed the order of Ld. CIT(A) accepting the contentions of the assessee. We note that the Ld. CIT(A) in the instant case has restored the issue to the file of AO to examine with the same with documentary evidences and only grant relief, if found genuine. We also note that the Hon’ble Orissa High Court in CIT /PCIT vs. Paradeep Port Trust in ITA NO. 48 of 2011 and ITA NO. 89 of 2017 has specifically held that the assessee is bound by the guidance note of the Ministry of Shipping and Transport, Govt. of India and is required to maintain its accounts on the accrual basis and the Hon’ble Court found no reason to take a view different from that ITAT had taken in the matter and this decision of the Hon’ble jurisdictional High Court directly applicable to the PPA, and accordingly is legally mandated and correct. Consequently, we are not in agreement with the conclusion drawn by the Ld. CIT(A). Further PPA is a statutory body mandatorily required to follow a government approved accrual accounting framework and has no discretion in that matter. PPA is a statutory authority under the Major Port Authorities Act, 2021 and mandatorily required to prepare its accounts in accordance with the Common framework for financial reporting approved by the Indian Port Association formulated on the recommendation of the Billimoria Committee and approved by the Ministry of Shipping vide communication bearing reference no. PR-20021/2/98-PG dated 06.11.2002. The said framework has been uniformly followed by all major port trust / authorities in India since 1972. Besides the assessee stated in the accounts vide note no. 12 of schedule 18 (significant accounting policies ) of the Annual Accounts for 2022-23 copy of which is available at page 65 to 118 which are audited by C & AG that accounts have been prepared as per significant accounting policies followed by all major Port Trusts since 1972 and the accrual system has been followed in recognition of Revenue and booking of expenditure except withheld amounts from different bills have not been taken into account. This is being followed consistently. Besides we note that CAG has not given any reservation in its audited report which has established the genuineness of the entries in the books of accounts. We have also perused the details furnished before us of accrued expenses amounting to Rs. 1,13,08,93,220/- and find that the same represented the ascertained liability. Therefore the Ld. CIT(A) direction to send back the matter to the AO for verification is wrong and cannot be accepted. Consequently, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition of Rs. 1,13,08,93,220/- in respect of accrued expenses, Rs. 1,76,72,856/- on account of provident fund provision and Rs. 1,56,53,662/- on account of salary and wages provision. Consequently, ground nos. 5 to 7 are allowed.

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

Order is pronounced in the open court on 22^nd June, 2026