GUJARAT STATE ELECTRICITY CORPN. LTD.,VADODARA V. THE ACIT, CIRCLE-1(1)(1), VADODARA

ITA 1597/AHD/2024

AI Insights

The case involves multiple appeals by the Gujarat State Electricity Corporation Limited (GSECL) and the Deputy Commissioner of Income Tax concerning the treatment of interest income from loans to employees and the disallowance of expenses under Section 14A of the Income Tax Act. The Tribunal examined whether the interest income should be classified as 'income from business and profession' or 'income from other sources', and whether the disallowance of expenses under Section 14A was justified. The Tribunal also addressed the issue of penalties levied for concealing income, which was contingent on the outcome of the quantum appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717599 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 06-09-2024
• Other Referred Cases: Odisha Power Generation Corporation Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: MANISH J SHAH; RUSHIN
• Keywords: Set aside; Business income; Capital asset; Depreciation; Earning of tax free income; Unabsorbed depreciation
• Section: 271(1)(c); 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE: SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No. 1655/Ahd/2024 (िनधा[रण वष[ / Assessment Year : 2014-15) Deputy Commissioner of Income Tax Circle 1(1)(1), Vadodara बनाम/ Vs. Gujarat State Electricity Corporation Limited Sardar Patel Vidyut Bhavan, Race Course Circle, Alkapuri, Baroda, Vadodara, Gujarat – 390007 (Appellant) .. (Respondent) & आयकर अपील सं./I.T.A. Nos. 1597 & 1598/Ahd/2024 (िनधा[रण वष[ / Assessment Years : 2015-16 & 2016-17) Gujarat State Electricity Corporation Limited Sardar Patel Vidyut Bhavan, Race Course Circle, Alkapuri, Baroda, Vadodara, Gujarat - 390007 बनाम/ Vs. Assistant Commissioner of Income Tax Circle-1(1)(1), Vadodara Öथायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACG6864F (Appellant ) .. (Respondent) Assessee by : Shri Manish J Shah & Shri Rushin Patel, A.Rs. Revenue by : Shri Rignesh Das, CIT. DR Date of Hearing 11/08/2025 Date of Pronouncement 12/ 08/2025 Printed from counselvise.com ITA Nos. 1655, 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 2 – (आदेश)/ORDER PER SMT. ANNAPURNA GUPTA, AM: The present three appeals all relate to the same assessee; one by the Revenue and two by the assessee, filed against separate orders of the Ld. Commissioner of Income Tax (Appeals), (hereinafter referred to as “CIT(A)”), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi all dated 22.07.2024 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) , relating to Assessment Year (A.Y.) 2014-15, 2015-16 & 2016-17. 2. Since, all three appeals relate to the same assessee and the issues arising therein being admittedly common, they are being disposed of by this common order for the sake of convenience. 3. We shall first take up the Department’s appeal in ITA No.1655/Ahd/2024 pertaining to A.Y. 2014-15. 4. Ground of appeal raised by the Revenue reads as under: \"Whether on the facts and circumstances of case and in lam, the Ld.CIT(A) is justified in deleting the addition of Rs.6.17,31.000 made by the AO on accord of treating Interest income earned from loans to staff and other loans as \"Income from other sources without appreciating the fact that the assessee is not in the business of advancing loans to the staff?\" Printed from counselvise.com ITA Nos. 1655, 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 3 – 5. The solitary issue in the present appeal relates to the treatment of interest income earned by the assessee from loans to staffs and others. The order of the Ld. CIT(A) reveals that the ITAT in its order passed for the impugned year had restored the issue of adjudicating the nature of interest income received by the assessee from loans given to employees and others, whether to be treated as ‘income from other sources’ or ‘income from business and profession’, to the file of the Ld. CIT(A). The quantum of interest income so involved amounts to Rs.6,17,31,000/-. The assessee had claimed the said income to be in the nature of business income while the Revenue had treated the same as ‘income from other sources’. The order of the Ld. CIT(A) reveals that he agreed with the assessee’s claim of treating the impugned income as being in the nature of ‘business income’ following the decision of the Hon’ble Orissa High Court in the case of Odisha Power Generation Corporation Ltd., which the ITAT had directed the Ld. CIT(A) to consider while deciding the issue in the restored proceedings. His findings in this regard are contained at para 4 & 5 of his order as under: “4. A hearing notice, dated 01/05/2024 was issued the appellant, fixing date of hearing on before 10/05/2024. In response, the appellant submitted its reply on 10/05/2024. In its reply, it is submitted that the interest received from staff loans and advances for Rs. 817,31,000/- during the year under consideration does not fall in any of the incomes which are always taxable under the head \"Income from other sources\" as per Sec. 50(2) of the IT Act. Such interest on loans is ordinary business income and cannot be treated as income Rom other sources. This is particularly because the employees are retained to run the business of the company and accordingly the loans given to them is out of such business expediency and the Printed from counselvise.com ITA Nos. 1655, 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 4 – interest earned thereon is business income. While treating the interest on staff loans as income from other sources, it was contended that the business of the assessee company is not lending money to earn interest. It may be appreciated that the company has not given loans to public at large, it has given loans only to its employees and that too only to the eligible employees. The activity of advancing loans to its employees and charging interest on such loan is totally incidental to the business of the company and such interest income can under no circumstances be treated as income from Other Sources. It is submitted that regarding the interest received from staff loan and advances the ITAT has referred to the Hon'ble Orissa High Court in the case of Odisha Power Generation Corporation Ltd. wherein the Court has observed as under: 12. The Assessee offered an explanation regarding interest income earned by it from, advances given to its employees as well as provision of electricity and water charges collected from water through its employees and contractors for facilities in the township, receipt from transit hostel, sale of scrap, insurance claim etc. The facilities were given to its employees for better conditions of employment. This was to improve the overall efficiency of the undertaking which is devoted to the single Purpose of generation of power. The Court, therefore, has no difficulty in accepting the submission of the Assessee that the interest received on advances and loans given to its employees are receipts in normal course of carrying its business and should be considered as income derived from its essential business activities. Likewise, the late payment by GRIDCO for the electricity supplied, is sought to be made up by GRIDCO by issuing bonds on which the Assessee earns interest. This also therefore, has a direct nexus with the essential business activity of the Assessee.\" (Emphasis Supplied) From the perusal of above judgment, the interest on staff loans is allowable as per directions of ITAT. In view of the facts and circumstances, we submit that the interest on staff loan is ordinary business income and set off of brought forward business losses of earlier years from the same should be allowed. 5. 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 Printed from counselvise.com ITA Nos. 1655, 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/-.” 6. 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 ITA Nos. 1654 & 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. 7. 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. Printed from counselvise.com ITA Nos. 1655, 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 6 – 8. 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. 9. In effect, appeal filed by the Revenue is dismissed. 10. We shall now take up the appeal filed by the assessee in ITA No.1597/Ahd/2024 pertaining to A.Y. 2015-16. 11. The grounds raised by the assessee are as under: “1. The learned CIT(A) erred in law and facts in confirming the disallowance of Rs.1,21,63,897/- u/s.14A of the Act without appreciating the law and facts of the case properly. 2. The learned CIT(A) erred in law and on facts in confirming the addition of Rs.47,17,19,100/- being 15% of year end balance of capital grant without appreciating the law and facts of the case properly. Printed from counselvise.com ITA Nos. 1655, 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 7 – 3. 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. 4. The learned CIT(A) erred in law and on facts in issuing direction to the Assessing Officer to verify the claim of MAT credit and instead of issuing the direction, the learned CIT(A) ought to have allowed the MAT credit himself. 5. The appellant craves leave to add, amend or alter the grounds of appeal at the time of hearing, if need arise.” 12. With respect to Ground Nos. 3 & 4, Ld. Counsel for the assessee contended that in the said grounds, the assessee had raised its grievance against the order of the Ld. CIT(A) on two issues i.e. claim of unabsorbed depreciation and claim of MAT credit, which the Ld. CIT(A) had directed the AO to verify and allow the said claims as per law. Ld. Counsel for the assessee stated that the Ld. CIT(A) ought to have allowed the said claim himself and he contended that he had nothing more to say in the matter. 13. We are not in agreement with the Ld. Counsel for the assessee on this score, since, we find that the Ld. CIT(A) has primarily agreed with the assessee’s contentions of being allowed the benefit of unabsorbed business losses and unabsorbed depreciation and also MAT credit as per law subject to verification of the said claim by the AO. There can be no grievance of the assesse on this score, particularly, when the facts needed to be and Printed from counselvise.com ITA Nos. 1655, 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 8 – can be verified by the AO alone. In the light of the same, we do not find any merit in Ground Nos. 3 & 4 raised by the assessee and accordingly dismiss the same. 14. Ground No.1 raised by the assessee relates to the issue of disallowance of expenses incurred for earning exempt income which expenses were disallowed invoking the provisions of Section 14A of the Act. 15. 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 Printed from counselvise.com ITA Nos. 1655, 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. 16. 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 ITA Nos.3125 & 3165/Ahd/2015 and ITA Nos. 787 & 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. 17. Ld. DR fairly agreed with the same. 18. In the light of the same, since admittedly identical issue relating to disallowance of expenses u/s.14A of the Act has been Printed from counselvise.com ITA Nos. 1655, 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. 19. Ground of appeal no.1 is accordingly allowed for statistical purposes. 20. Ground of appeal no.2 relates to addition of 15% of capital grants received by the assessee amounting to Rs.47,17,19,100/-. 21. 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 Printed from counselvise.com ITA Nos. 1655, 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. 22. 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 ITA Nos.3125 & 3165/Ahd/2015 and ITA Nos. 787 & 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. 23. Ld. DR fairly agreed with the same. Printed from counselvise.com ITA Nos. 1655, 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 12 – 24. In the light of the same, we restore the issue of treatment of capital grants as income of the assessee to the extent of 15% thereof, back to the file of the AO to be adjudicated in accordance with the directions given in the case of the assessee itself in ITA No.753/Ahd/2018, order dated 24.08.2022 and in ITA Nos.3125 & 3165/Ahd/2015 and ITA Nos. 787 & 849/Ahd/2018 order dated 18.08.2023. Ground of appeal no.2 raised by the assessee is allowed for statistical purposes. 25. In effect, appeal filed by the assessee for A.Y. 2015-16 is partly allowed for statistical purposes. 26. We now take up appeal of the assessee in ITA No.1598/Ahd/2024 for A.Y. 2016-17. 27. 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 Printed from counselvise.com ITA Nos. 1655, 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: “8. Decision I have perused the written submission as well as order of the Hon’ble ITAT, Ahmedabad, pronounced on 19/09/2023 for the AY 2016-17 in its own case. The quantum issue on which penalty in question levied has been adjudicated by the Hon'ble Tribunal vide para 9 to 13 under the headnote \"Ground No. 2 of the assessee's appeal:- Addition of Rs. 47.14 crores being 15% of yearend balance of Capital Grant. Ongoing through the order, I find that the Hon'ble Tribunal has held in para 12 of order \"In view of the order passed by the ITAT Ahmedabad in assessee's own case on identical issue, the matter is remitted back to the file of the Assessing Officer for fresh adjudication after giving due opportunity to the assessee to present its case on merits\". Since, the questionable issue in quantum appeal has already been set aside and remitted back to AO for afresh adjudication, in my view, this penalty appeal becomes infructuous.” 28. 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. Printed from counselvise.com ITA Nos. 1655, 1597 & 1598/Ahd/2024 [Gujarat State Electricity Corporation Limited] A.Ys. 2014-15, 2015-16 & 2016-17 - 14 – 29. In effect, appeal filed by the assessee for A.Y. 2016-17 is allowed. 30. 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. This Order pronounced on 12/08/2025 Sd/- Sd/- (SUCHITRA KAMBLE) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 12/08/2025 S. K. SINHA True Copy आदेश कȧ Ĥितिलǒप अĒेǒषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंिधत आयकर आयुƠ / Concerned CIT 4. आयकर आयुƠ(अपील) / The CIT(A)- 5. ǒवभागीय Ĥितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड[ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad Printed from counselvise.com "