DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1), VADODARA, VADODARA vs. GUJARAT STATE ELECTRICITY CORPORATION LIMITED, VADODARA

I have perused the order/ directions of Hon'ble ITAT & written submission and other documents available on record. On perusal of above case law on which reliance was directed to be placed by the Hon'ble ITAT, I find that the case of appellant in respect of interest , 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 5 – income on loans given to employees is identical to the case before Hon'ble High Court Orissa. Hence, I have arrived at the considered decision that the interest income on loans/advances given to its employees should be treated as income from business, Accordingly, I delete the related addition of Rs. 6,17,31,000/-.”

Before us, Ld. Counsel for the assessee contended that identical issue had been restored back by the ITAT in the case of the assessee for A.Y. 2012-13 and A.Y. 2016-17, wherein the Ld. CIT(A), in restored proceedings, had allowed the claim of the assessee of treating the interest income earned from loans given to the employees as ‘income from business and profession’, following the decision of the Hon’ble Orissa High Court in the case of Odisha Power Generation Corporation Ltd. (supra). The orders of the Ld. CIT(A) for both the years were challenged by the Revenue before the ITAT, who, in turn, had confirmed the order of the Ld. CIT(A) dismissing the Revenue’s appeals filed in its order passed in & 1656/Ahd/2024, order dated 20.01.2025. Copy of the order was placed before us. Ld. Counsel for the assessee, therefore, contended that the issue stood covered in favour of the assessee by the decision of the ITAT in the case of the assessee itself in A.Ys. 2012-13 & 2016-17 and the Revenue’s appeal needed to be dismissed.

Ld. DR though fairly conceded that the issue raised in its appeal had been decided in favour of the assessee as stated by the Ld. Counsel for the assessee before us, however he relied on the order of the AO.

In view of the above, since, admittedly the issue of characterization of the nature of interest income received by the assessee on loans advanced to employees already stands adjudicated by the ITAT in the case of the assessee itself in preceding years, holding the same to be in the nature of ‘income from business and profession’, we see no reason to interfere in the order of the Ld.CIT(A). Ld. DR was unable to distinguish the decision of the ITAT in the preceding year either on facts or on law. In the light of the same, we confirm the order of the Ld. CIT(A) treating the interest income earned by the assessee amounting to Rs.6,17,31,000/- as ‘income from business and profession’. Ground raised by the Revenue is accordingly dismissed.

In effect, appeal filed by the Revenue is dismissed.

We shall now take up the appeal filed by the assessee in pertaining to A.Y. 2015-16.

The grounds raised by the assessee are as under:

The learned CIT(A) erred in law and on facts in issuing direction to the Assessing Officer to verify the claim of unabsorbed forward business losses and unabsorbed depreciation and instead of issuing the direction, the learned CIT(A) ought to have allowed himself the brought forward loss and unabsorbed depreciation.

The facts relating to the case are that the AO noted that the assessee had utilized funds for non-business activities i.e. in the investment activities. He noted the assessee to have earned exempt dividend income of Rs.110.15 Lakhs during the year and also noted it to have claimed interest expenditure on Bonds and other fixed loans of Rs.83187.48 Lakhs. To justify the same, the assessee had contended that it did not make any investment during the year nor made any borrowings. The assessee also contended that it had not claimed dividend income as exempt and, therefore, no disallowance of expenses was warranted u/s. 14A of the Act. However, the AO did not accept the contentions of the assessee in view of the CBDT Circular No. 5 of 2014 u/s.119 of the Act wherein it was specifically mentioned that the provisions of Section 14A r.w. Rul 8D of the IT Rules would apply even if the assessee did not earn any exempt income. The AO, accordingly, made disallowance of expenses u/s.14A of the Act invoking Rule , 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 9 – 8D of the IT Rules, resulting in a disallowance of Rs.1,21,63,897/-. The Ld. CIT(A) confirmed the order of the AO.

Before us, Ld. Counsel for the assessee contended that identical issue arose in the case of the assessee for A.Y. 2012-13 and A.Y 2014-15 wherein the matter was restored back to the file of the AO for fresh adjudication for examining the facts and figures with the direction to calculate the disallowance in accordance with law. Ld. Counsel for the assessee pointed out that the ITAT in its order in the case of the assessee in & 3165/Ahd/2015 and & 849/Ahd/2018 vide order dated 18.08.2023 had followed the decision of the ITAT in the case of Gujarat Urja Vikas Nigam Ltd. in ITA No.406/Ahd/2019, order dated 14.12.2022, while setting aside the issue to the file of the AO. Copy of the order of the ITAT in case of assessee for A.Y. 2012-13 & 2014-15 was placed before us and our attention was drawn to para 6 to 6.2 of the order dealing with the issue of disallowance of expenses u/s.14A of the Act restoring the matter back to the file of the AO to be decided in accordance with the directions given in the case of Gujarat Urja Vikas Nigam Ltd. (supra) in ITA No.406/Ahd/2019.

Ld. DR fairly agreed with the same.

In the light of the same, since admittedly identical issue relating to disallowance of expenses u/s.14A of the Act has been , 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 10 – considered by the ITAT in the preceding year in the case of the assessee for A.Ys. 2012-13 & 2014-15 and the matter has been restored back to the file of the AO, the present appeal before us stands covered by the decision of the ITAT in the preceding year. We, accordingly, restore the issue of disallowance of expenses u/s.14A of the Act back to the file of the AO to be decided in accordance with the directions of the ITAT in A.Ys. 2012-13 & 2014-15 in the case of the assessee.

Ground of appeal no.1 is accordingly allowed for statistical purposes.

Ground of appeal no.2 relates to addition of 15% of capital grants received by the assessee amounting to Rs.47,17,19,100/-.

The facts relating to the issue are that the AO noted from the balance sheet and P&L account of the assessee that the capital grants of the assessee reflected in the Reserve and Surplus amounted to Rs.31,427.94 Lakhs. Opening balance and the closing balance of capital accounts was noted to be the same and accordingly it was inferred that no fresh grants were received by the assessee during the year. The AO noted that in A.Y. 2013-14 this issue had been considered at length in the case of the assessee and 15% of the total grant outstanding as at the end of the year was treated as income of the assessee. The case of the AO was that the capital grant was either revenue in nature or capital in , 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 11 – nature. That if it was revenue in nature, it ought to have been routed through P&L account either entirely or on deferred basis and if it was capital in nature, it ought to have reduced the value of capital assets. But noting that identical issue had already been considered in the assessment of the assessee for A.Y. 2013-14, following the same, he computed 15% of the outstanding capital grant to be in the nature of income of the assessee and accordingly made an addition of Rs.47,17,19,100/- to the income of the assessee, which was confirmed by the Ld. CIT(A) in first appeal before him.

During the course of hearing before us, Ld. Counsel for the assessee contended that the ITAT had adjudicated this issue also in the case of the assessee in A.Y.2012-13 in & 3165/Ahd/2015 and & 849/Ahd/2018 vide order dated 18.08.2023 restoring the issue back to the AO for fresh adjudication. He pointed out that this was a legacy issue arising year-to-year and the ITAT had in A.Y. 2012-13 followed its own decision in the case of the assesse in ITA No.753/Ahd/2018, order dated 24.08.2022. He pointed out that the ITAT accordingly had directed the AO to re-adjudicate the issue in accordance with its directions in ITA No.753/Ahd/2018 in the case of the assessee itself.

Ld. DR fairly agreed with the same.

In effect, appeal filed by the assessee for A.Y. 2015-16 is partly allowed for statistical purposes.

We now take up appeal of the assessee in for A.Y. 2016-17.

In the present appeal, the assessee is aggrieved with the order of the Ld. CIT(A) dismissing the assessee’s appeal against penalty levied by the AO for furnishing inaccurate particulars of income / concealing particulars of income in terms of the provisions of Section 271(1)(c) of the Act. We have gone through the order of the Ld. CIT(A) and we find that the Ld. CIT(A) has dismissed the assessee’s appeal as infructuous noting that the issue on which penalty was levied had been restored back by the ITAT in quantum proceedings to the file of the AO for adjudication fresh. Accordingly, noting that the quantum issue was yet to be decided by the AO, therefore, the assessee’s appeal , 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 13 – against the penalty levied by the AO on an issue yet to be decided by the AO was dismissed as infructuous. The findings of the Ld. CIT(A) are contained at para 8 of his order as under:

Before us, Ld. Counsel for the assessee fairly agreed that the issue on which penalty was levied was yet to be decided by the AO on account of restoration of the same back to the file of the ITAT. In the light of the same, the penalty levied in the present case by the AO undoubtedly has no legs to stand upon. The Ld. CIT(A) ought to have set aside the order passed by the AO instead of dismissing the assessee’s appeal as infructuous. In the light of the above, we note that the penalty order is not sustainable since the quantum is yet to be decided. The assessee’s appeal is allowed in above terms.

In effect, appeal filed by the assessee for A.Y. 2016-17 is allowed.

In the combined result, appeal filed by the Revenue is dismissed, appeal filed by the assessee for A.Y. 2015-16 is partly allowed for statistical purposes and assessee’s appeal for A.Y. 2016-17 is allowed.