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

At the outset, the ld. Counsel for the assessee stated that the issue is squarely covered by the decision of the co-ordinate bench in assessee’s own case in ITA No. 364/GTY/2019, for A.Y. 2016-17 and others, vide order dated 28.02.2023, wherein the co-ordinate Bench has decided the issue in favour of the assessee. The ld. AR therefore prayed that following the decision of the co-ordinate Bench in assessee’s own case the case of the assessee may be allowed. 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 Meghalaya Energy Corporation Limited GPF Trust; A.Y. 2017-18