MEGHALAYA ENERGY CORPORATION LIMITED GPF TRUST,LUMJINGSHAI ,EAST KHASI HILLS vs. ACIT-CIRCLE, SHILLONG

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ITA 240/GTY/2025Status: DisposedITAT Guwahati13 March 2026AY 2017-18Bench: SHRIDUVVURU RL REDDY, VP\nAND\nSHRI RAJESH KUMAR (Accountant Member)3 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the issue was squarely covered by the decision of a co-ordinate bench in the assessee's own case for AY 2016-17. In that prior decision, the co-ordinate bench had allowed the interest expenditure paid to the members of the GPF Trust. The reasoning provided in the prior decision was that the assessee is a GPF Trust and an association of persons, receiving funds from employee subscriptions. These funds are invested, and part is given as loans to the holding company. The Tribunal found no merit in the revenue authorities' finding that there was no nexus between the funds received and applied towards investments, stating that outright disallowance of total interest expenditure was uncalled for. The Tribunal also noted a procedural issue in the prior case regarding the enhancement of disallowance by the CIT(A) without a show cause notice, which violated principles of natural justice. Following the precedent, the Tribunal set aside the order of the Ld. CIT(A) and directed the Ld. AO to delete the addition. The appeal was allowed.

What were the facts?

The assessee, Meghalaya Energy Corporation Limited GPF Trust, filed an appeal against the order of the National Faceless Appeal Centre, Delhi (NFAC), dated 26.06.2025, for Assessment Year 2017-18. The Assessing Officer (AO) had disallowed interest expenditure of ₹7,38,47,533/- paid to the members of the GPF Trust, adding it to the assessee's income on the grounds of no nexus between the interest expenditure and income earned. The NFAC affirmed this disallowance. The assessee contended that the issue was covered by a co-ordinate bench's decision in its own case for AY 2016-17, which had decided in favour of the assessee.

What were the issues?

1. Whether the interest expenditure paid to the members of the appellant GPF Trust amounting to ₹7,38,47,533/- was rightly disallowed and added to the income of the assessee, as confirmed by the Ld. CIT(A), on the ground that there is no nexus between the interest expenditure and income earned (Question of law and fact, concerning the allowability of expenditure). Assessee's Contention: The issue is squarely covered by the decision of a co-ordinate bench in the assessee's own case for AY 2016-17 (ITA No. 364/GTY/2019), wherein the interest expenditure was decided in favour of the assessee. Therefore, the appeal should be allowed by following the precedent. Revenue's Contention: The Ld. DR candidly agreed that the issue was decided by the co-ordinate bench for AY 2016-17 but relied heavily on the order of the lower authorities.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, GAUHATI BENCH, GUWAHATI

Before: SHRIDUVVURU RL REDDY, VP & SHRI RAJESH KUMAR, AM

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 26.06.2025 for the AY 2017-18.

2.

The only issue raised by the assessee is against the order of ld. CIT (A) confirming the order of ld. AO wherein the interest expenditure paid to the members of the appellant GPF Trust amounting to ₹7,38,47,533/- was disallowed and added to the income of the assessee by the ld. AO on the ground that there is no nexus between the interest expenditure and income earned which was affirmed by the ld. CIT(A).

4.

The ld. DR on the other hand candidly agreed that the issue has been decided by the co-ordinate Bench in the year 2016-17, however, relied heavily on the order of ld. lower authorities.

5.

After hearing the rival contentions and perusing the materials available on record, we find that the issue is squarely covered by the decision of the co-ordinate bench in own case in which the interest expenditure paid to the members of the GPF Trust was allowed by observing and holding as under:-

“10.2. Ground no. 2 relates to disallowance of interest expenditure at Rs. 6,42,82,320/-. We notice that the assessee has claimed the expenditure towards accrued interest on G.P.F. subscriptions at Rs. 6,91,33,739/-. Ld. AO firstly computed the disallowance u/s 14A of the Act at Rs. 3,67,13,164/- and thereafter, while dealing with the interest expenditure came to a conclusion that the said expenditures are not allowable as the assessee did not have any business which generated any revenue. But while computing the disallowance, reduced the disallowance made u/s 14A of the Act and confirmed the remaining amount as the interest disallowed as having no direct nexus to income at Rs. 3,24,20,575/-. When the issue came before ld. CIT(A), he, on one hand, reduced the disallowance u/s 14A of the Act to the extent of the exempt income but enhanced the interest disallowance to Rs. 6,42,82,320/-. The basis of disallowance by the Revenue authority is that there is no nexus between the interest expenditure and the income earned thereon. We, however, fail to find any merit in such finding of the Revenue authorities because the assessee is a G.P.F. Trust and is an association of persons. Source of funds are from the subscriptions collected from its employees on account of provident fund. These funds are invested for earning income and part of such funds are given as loan and advance to the holding company. One cannot question the fact that there is no nexus between the funds received and the funds applied towards investments. Therefore, outrightly the disallowance of the total interest expenditure is uncalled for Ad. Counsel for the assessee also raised an issue that no show cause notice was issued to the assessee before the enhancement of the

7.

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

Order pronounced on 13.03.2026.

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