DCIT, Circle-1(1)(1), Baroda V. Gujarat Urja Vikas Nigam Ltd., Baroda

ITA 569/AHD/2019

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which had provided relief to Gujarat Urja Vikas Nigam Ltd. on several tax-related issues for the Assessment Year 2015-16. The primary issues included the treatment of interest income and miscellaneous income as business income, the disallowance under Section 14A of the Income Tax Act, and the treatment of capital grants. The Tribunal examined precedents and statutory provisions, and after detailed consideration, upheld the CIT(A)'s decision on most grounds while remanding some issues back to the Assessing Officer for re-evaluation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125035 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-08-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 03-04-2019
• Other Referred Cases: M/s. Dakshin Gujrat Vij Co. Ltd. vs. ACIT, Shree Bhagawathy Textiles Ltd vs. Assistant Commissioner of Income-tax, Godrej and Boyce Mfg. Co. Ltd. vs. Dy.CIT, Aditya Midcals vs. ACIT, CIT vs. Alembic Ltd, CIT vs. Gujarat State Fertilizers & Chemicals Ltd, CIT vs. Vireet Investment Pvt. Ltd., CIT vs. Goetze India Ltd., CIT vs. Bengal Finance & Investment P. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JIMI
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Proportionate interest; Retrospective amendment; Question of law; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 147; 142(1); 14A; 115JB; 250; 143(2); 264; 64; 10(33); 10(33); 13; 22; 101; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./I. T. A. No . 569/Ahd/20 19 ( नधा रण वष / A ss es sment Year : 2015-16) T h e D e pu t y C o mm is s i on e r o f I n c om e- t ax C ir cl e - 1 ( 1 ) ( 1 ) , Va d o da r a बनाम/ Vs . G u j a r at U rj a V ik a s N i ga m L i mit e d S ar da r Pa te l V id yu t B h av a n, R a c e C o ur s e C ir c l e, V ad oda r a थायी लेखा सं./जीआइआर सं./P A N/ G I R N o . : A A C C G 2 8 6 1 L (अपीलाथ /Appellant) . . ( यथ / Respondent) अपीलाथ ओर से /Appellant by : Shri Sudhendu Das, CIT.DR यथ क ओर से/Respondent by : Shri Manish J. Shah & Shri Jimi Patel, A.Rs. स ु नवाई क तार ख / D a t e o f H e a r i ng 03/08/2023 घोषणा क तार ख /D a t e o f P ro n o u nc e me n t 31/08/2023 O R D E R PER Ms. MADHUMITA ROY - JM: The instant appeal filed at the behest of the Revenue is directed against the order dated 18.01.2019 passed by the Ld. Commissioner of Income Tax (Appeals)-1, Vadodara (in short ‘CIT(A)’) arising out of the order dated 05.12.2017 passed by the ACIT, Circle-1(1)(1), Ahmedabad under Section ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 2 - 143(3) of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’) for Assessment Year 2015-16. 2. The Revenue has challenged the following grounds of appeal: "1. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in by restricting the disallowance U/S.14A of the Income tax Act, 1961 made by the AO and directed the AO to recompute the disallowance as the disallowance made by the Assessing Officer was as per the formula given in Rule-8D for deriving proportionate interest disallowance. In the rule there is nowhere mentioned to reduce the interest portion which is related to business purposes. In Rule - 8D the formula is given for deriving proportionate interest disallowance and the AO had already had made computation of disallowance u/s.!4A r.w. rule 8D accordingly. 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to allow the Guarantee fee after verification disregarding the applicable statutory provisions contained under S 37 of the I.T.Act which do not allow any expenditure of capital nature." 3. "On the facts and in the circumstances of the case and in law, without following the ratio taken earlier in the case of M/s. Dakshin Gujrat Vij Co. Ltd. and other subsidiary companies of the assessee, the Id. CIT(A) erred in deleting the addition of Rs. 3750 lacs being 15% of capital grant received by the assessee which was neither reduced from the cost of capital assets nor offered portion of it as revenue receipts as treatments of grants/ subsidies given by the subsidiary companies in their accounts, but taken to 'reserve and surplus' account and utilized in investment activities." 4. "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to treat the interest income of Rs. 65.88 lacs and miscellaneous income of 16.34 lacs as business income instead of income from other sources without appreciating that the nature of the income is of purely interest and not from any activities of business or profession." 5. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that adjustment made on account of disallowance u/s 14A of the Act in computation of Book Profit u/s 115JB of the Act is section 14A is covered under clause (f) of Explanation 1 to section 115JB(2) and, thus, said amount has to be added back while computing amount of book profits?" 6. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in by deleting the addition on account of prior period expenses and income amounting to Rs.49,000/- made by the AO without appreciating the fact that assessee is following the mercantile system of accounting in which the expenses/income related to the prior period are not an allowable expense and also in view the latest decision of the Hon'ble High Court in Kerala in the case of Shree ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 3 - Bhagawathy Textiles Ltd vs. Assistant Commissioner of Income-tax (2011) 199 Taxman 14 (Ker.)" 7. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in by deleting the addition on account of capital grants amounting to Rs.37,50,00,000/- made by the AO without appreciating the finding of AO" 3. The appellant, a company, engaged in the business of purchase of sale of electricity, filed its return of income on 29.09.2015 declaring total income under normal provisions of Act of Nil after setting off brought forward losses to the extent of Rs.1,00,32,94,857/-. Book profit was returned at Rs.1,01,85,46,109/-. Upon selection of the case under scrutiny, the relevant notice under Section 143(2) and 142(1) of the Act alongwith questions were issued. Final assessment was made against the assessee on very many issues, inter alia, upon making disallowance under Section 14A of the Act claim of interest, disallowance of guarantee fees, disallowance of prior period expenses, addition of capital grant, disallowance of 14A claim of interest while computing book profit under Section 115JB of the Act. However, the Ld. CIT(A) granted relief partly. Hence, the appeal preferred by the Revenue. 4. Ground No.1 relates to disallowance under Section 14A of the Act. 5. At the very threshold of the matter, Ld. Counsel appearing for the assessee and the Representative of the Revenue contended that the issue is directly covered in assessee’s own case for A.Y. 2015-16 whereby and whereunder the issue has been remitted to the file of the Ld. AO for fresh adjudication upon examination of the facts and figures and to calculate the disallowance to be made under Section 14A of the Act. Copy of order dated 14.12.2022 passed by the Co-ordinate Bench has been duly submitted before us by the Ld. AR. On perusal of which, it appears that the contention made by ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 4 - the assessee is acceptable. The Co-ordinate Bench in ITA No.406/Ahd/2019 for A.Y. 2015-16 on identical issue passed order in the following manner: “3.2. The assessing officer has made an addition in the book profit by adding the amount of disallowance made u/s. 14A while calculating the taxable profit u/s. 115JB of the Act. The Ld. CIT(A) following the decision of the Co-ordinate Bench in the case of Gujarat State Energy Generation Ltd. in ITA No. 1777/Ahd/2009 for the Assessment Year 2006-07 has given relief to the assessee by holding that disallowance made u/s. 14A is not required to add back to the book profit. However the Ld. CIT(A) issued a direction to the Assessing Officer to include the dividend income while computing book profit. 4. Aggrieved against these additions, the assessee is in appeal before us raising the following Grounds of Appeal: 1.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has held to consider the interest on loans raised by erstwhile GEB for the purpose of disallowance under section 14A of the I T Act, 1961. It is submitted that the disallowance is uncalled for and be directed to be deleted. 1.1 The learned Commissioner of Income Tax (Appeals) further erred in law and on facts has held that in the event the disallowance under section 14A of the Act computed as per the directions comes out to be lesser than the dividend income, then such dividend income shall be treated as taxable income. 1.2 The learned Commissioner of Income Tax (Appeals) also erred in law and on facts has not given any findings and/or observations on the disallowance made under section 14A of the Act in excess the actual interest expenditure ignoring the provisions of sub-rule (2) to Rule 8D of I T Rules. 2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts has set aside the additions of Rs.80,34,000/- being Guarantee Fees paid to the Government of Gujarat in consideration of it issuing the guarantee for various unsecured loans with the direction to re-verify the claim despite the fact that the documents establishing the facts were submitted at the time of appeal hearing. 3.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has held that no deduction be allowed on account of Dividend Income, being an exempt income, while computing the Book Profit under section 115JB of the I T Act. ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 5 - 4.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has dismissed the ground relating to the initiation of penalty proceedings under section 271 (l)(c) of the I T Act. 5.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the charging of interest under section 234B, 234C and 234D of the Income Tax Act, 1961. 4.1. Regarding grounds no. 1.0 to 1.2 namely disallowance u/s. 14A. Both the parties submitted that this issue is squarely covered in assessee’s own case by Co- ordinate Bench of this Tribunal in ITA Nos. 11 & 37/Ahd/2013 dated 22.10.2020 wherein the Hon’ble ITAT remanded the matter back to the Assessing Officer for fresh adjudication by directing as follows: 10. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, there is no ambiguity that the Learned CIT (A) has decided the issue on hand after relying on the order of his predecessor for the Assessment Year 2008-09 which was subsequently set aside by the ITAT for fresh adjudication. The relevant finding of the ITAT reads as under: “8. On the other hand, ld. DR supported the orders of lower authorities. 9. We have heard the rival contentions and perused the material on record. In these grounds raised by the assessee and the Revenue challenge the action of ld. CIT(A). We observe that an addition of Rs.152.46 crores was sustained, made by ld. Assessing Officer which was sustained to Rs.61.46 crores by ld. CIT(A) and, therefore, assessee has raised the ground against the sustained addition of Rs.61.46 crores whereas Revenue has challenged the deletion of Rs.91 crores out of the disallowance u/s 14A of the Act. 10. In ITA No.1874/Ahd/2010 vide its order dated 20.6.2014 the Tribunal adjudicated the issue relating to disallowance u/s 14A and held as under :- 7. We have heard the rival submissions and perused the orders of lower authorities and materials available on record. The undisputed facts of the case are that the Assessing Officer found that the assessee has earned tax free dividend income of Rs 1283.95 lakhs and that the assessee has claimed interest expenditure of Rs 18,325.41 lakhs. The assessee has not attributed any expenditure towards earning of exempt dividend income. Therefore, by invoking the section 14A read with Rule 8D he made disallowance of Rs 197.80 crores. We find that a similar issue had come up before this ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 6 - Tribunal in assessee’s own case in the immediately preceding Assessment Year 2006-07 wherein the Tribunal restored the matter back to the file of the Assessing Officer for adjudication afresh by observing as under: “2. At the outset, our attention has been drawn on an additional ground of appeal raised by the Revenue Department reads as under: "1(a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition ofRs.187.97 crores u/s 14A of the Act on account of interest attributable to investment in shares without appreciating the fact that in view of Section 106 of the Indian Evidence Act, it was up to the assessee company to adduce evidence that all the borrowings were used for the purposes of business and its is assessee' s own surplus fund that were invested in the shares and deposits earning exempted income, and, even in case of mixed funds, the disallowance of interest could be made." 1(b) As an alternate plea, the Id. CIT(A) erred in not upholding the addition u/s. 14A on account of interest attributable to investment in shares to the extent in view of provisions of section 14A read with Rule 8D. " 3. Learned DR has pleaded that an addition of Rs. 187.97 crores which was made u/s 14A was deleted by learned CIT(A), however, it was not adjudicated as per the grounds of appeal. Learned DR has also argued that the assessee was required to adduce evidence that all the borrowings were used for the purpose of the business and the assessee's own surplus funds were invested in the shares. Learned DR has also informed that in A.Y. 2007-08, the addition of similar nature was upheld by learned CIT(A). He has thus pleaded that the issue being legal in nature which has emerged from the facts already on record, therefore, the additional ground deserves to be admitted for adjudication. 4. After hearing both the sides, the additional ground of the Revenue Department is hereby admitted for adjudication. At the outset, it is worth to mention that the impugned addition of Rs.18796.82 lacs was made by the AO without having any discussion in respect of the applicability of Section 14A of the IT Act. Likewise, learned CIT(A) has also not discussed the applicability of the provisions of Section ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 7 - 14A of IT Act, however, after considering the merits of the case, deleted the addition. With this clarification, we have examined the facts and the issue as emerged from the corresponding assessment order passed u/s. 143(3), dated 26.12.2008. It was noted by the AO that the assessee had claimed a huge amount of interest expenditure of Rs. 19360.59 lacs, as per the following bifurcation. (Rs. in lacs) Particulars Amount Interest on Term Loans 8981.35 Working Capital 8184.50 Others 677.63 Bank Charges & Guarantee Fees 591.65 19435.13 Less: Interest Capitalized 74.54 19360.59 4.1 At the same time, it was also found by the AO that the assessee had made the investment of Rs.5,47,709.74 lacs on which dividend earned was at Rs.508.18 lacs. The AO's objection was that on one hand the assessee has diverted the huge funds towards such investment having exempted income and on the other hand borrowed huge funds of Rs.3,46,272.51 lacs on which claimed interest of Rs. 19360.59 lacs. Therefore, the AO was of the view that the assessee had diverted the borrowed funds for earning exempted income. The assessee's contention was that the investment during the year was only Rs.102.32 lacs and rest of the investment was made in the earlier years. According to the AO, if the assessee had not made such investment either in the year under consideration or in earlier years then the assessee would not have been required to borrow interest bearing loans. The AO has placed reliance upon the case of H.R Sugar Factory, 187 ITR 366 (Aid) for the legal proposition that the assessee could have otherwise avoided its liability of interest by not giving interest free funds to its group concerns. The addition in the question was thus made by the AO in the following conclusion. "In view of the above discussion and provision of law, the interest attributable to the investment is not allowable expenditure. The assessee was required to give the rates of interest paid to various sources. The assessee vide its reply did not furnish the rates of interest paid. It simply submitted that loans from ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 8 - various banks with varying interest rates were obtained. During the year under consideration, the market rate of interest was 12%. Therefore, interest at the rate of 12% works out to Rs.65725.17 lacs on investments of Rs.547709.74 lacs. However, the assessee has claimed interest expenditure of Rs.19360.59 lacs and has shown interest income of Rs.55.59 lacs and dividend income of Rs.508.18 lacs. Hence, against the interest expenditure of Rs.19360.59 lacs assessee has grown interest and dividend income of Rs.563.77 lacs. Thus, net disallowance is made of Rs.18796.82 lacs." 5. Being aggrieved the matter was carried before the First Appellate Authority who has decided the issue in assessee's favour in the following manner: "Thus, the only test to be applied is that of "commercial expediency". In the instant case, it is seen that no investment was made by the assessee company by using borrowed funds.The entire investment, except minor investment of Rs.11.25 lacs was inherited in the demerger exercise. The investment in shares was due to the restructuring carried out at the behest of GOG. The investments were in the form of shares of subsidiary companies as pan of the financial restructuring plan approved by the Government of Gujarat which was integral to the demerger. This was clearly commercially expedient for the appellant company. The business itself was viable only under the plan of restructuring, which required the company to have crossholdings in the unbundled companies of GEB. In fact, the appellant became the holding company of the generating and transmission companies. Looking to the facts and circumstances of the case, I am of the opinion that there was no diversion of borrowed funds for non- business purposes. Accordingly, the addition of Rs. 18796.82 lacs is directed to be deleted." 6. With this factual background, we have heard both the sides. Learned DR has primarily placed reliance on a decision of respected Special Bench of ITAT Mumbai in the case of ITO V/s. Daga Capital Management Pvt. Ltd., 117 ITD 169 (Mum) (SB). Learned DR has also pleaded that in one of the assessment year, i.e., in A.Y. 2007-08 learned ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 9 - CIT(A) had sustained the same nature of addition. From the facts of the case, we have noted that there was re-structuring according to which erstwhile GEB was demerged into seven different companies. Post restructuring; the assessment year under consideration is the first year of operation of the assessee company. On one hand, those were the facts which were relied upon by the learned CIT(A). However, on the other hand, the AO has reproduced some of the replies of the assessee through which it was claimed that the said investment was not made by the assessee company out of the borrowed funds but from the consumers, contribution and subsidiaries. There was a reference of the annual accounts of the year 2005-06. The assessee has also informed that during the year under consideration the assessee company had invested only a sum of Rs.11.25 lacs. Rest of the investments were the share capital of the subsidiary companies as per the terms of the Financial Restructuring Plan approved by the Government of Gujarat. We have noted that the learned CIT(A) has granted relief only on the ground that the assessee company had become the holding company and the investments were in the form of shares of subsidiary companies which was an integral part of the demerger arrangement. Therefore, it was nothing but commercial decision. 6.2 According to us, the issue has been mixed up by the Revenue Department. The first step should be to examine the scheme of demerger and thereafter the issue could have been streamlined. As per the definition of "demerger" prescribed u/s.2(19AA) means; the transfer pursuant to a scheme of arrangement by a demerged company of its one or more undertakings to any resulting company in such a manner that all the property of the undertaking/unit being transferred by the demerged company immediately before the demerger, which becomes the property of the resulting company by virtue of the demerger. Therefore, it was necessary for the AO to examine the balance sheet of the demerged company and the position of the accounts of the undertaking which is demerged with the resulting company. The AO has to examine the liabilities related to the said undertaking whether being transferred under the scheme of arrangement which were in existence immediately before the demerger. The AO has to examine the value of the property in the books of accounts immediately before the demerger which was transferred. The AO has also to examine the financial position of the "resulting company", as defined u/s.2(41A) of ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 10 - IT Act. In general, an undertaking of the demerged company is transferred in a demerger scheme and as a result a resulting company comes into existence. The resulting company in consideration of such transfer of an undertaking ofthe demergerd company issues shares to the share holders of the demerged company. Therefore, the responsibility of the "resulting company" was also required to be ascertained by the AO. This is the first aspect, which was not examined by the AO and the order of the Revenue Authorities are silent on this subject. 6.3 Next question is about the huge amount of interest expenditure claimed by the assessee. The AO is required to examine first the correctness of the claim. Whether the interest on term loans, bank charges and guarantee fees were in respect of the business of the assessee. Thereafter, the AO is also required to give a clear finding about the borrowings made by the assessee on which the said interest was paid. The next step is that the AO has to examine the sources of the funds which were invested for earning the dividend income. If the source of such investment is out of the interest bearing borrowings, then only the question of disallowance of interest would arise, otherwise not. On the other hand, the claim of the assessee is that there were sufficient non interest bearing reserves or surplus available. The AO is required to investigate the correctness of the claim that whether the assessee had sufficient non interest bearing fund available and in what form those were utilized by the assessee. If the assessee is in a position to demonstrate that the non-interest bearing funds have actually been invested to earn exempted income then the assessee's claim is legally correct. Thereafter, the question of the invocation of Section 14A comes into play. As far as the applicability of the decision of Special Bench is concerned the same now stood covered by the decision of Hon'ble Bombay High Court pronounced in the case of Godrej and Boyce, 328 ITR 81 (Bom). For the sake of completeness herein below reproduced a portion of an ITAT order viz., Aditya Midcals as follows: "5. With this brief background, we have examined the facts of the case as also the law pronounced in this regard. 6. As far as the Assessing Officer's action is concerned, the disallowance has been made on the basis of a calculation of the proportionate interest alleged to be attributable to the investment earning exempted dividend income. It is also to be ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 11 - noted that while doing so for the years under consideration the A.O. has not followed the past method of calculation of the disallowance. As per AO it was seen that the working of disallowance was wrong because while calculating the proportionate interest attributable to dividend income the ratio of dividend income and total sales have been taken though there was no direct relation between the two. The Assessing Officer had thus made the calculation after taking into account the proportion of the interest on the ratio between the investment in shares and total assets including investment in shares. Apart from this, there is nothing in the assessment order which can establish the nexus of utilization of borrowed interest-bearing funds diverted towards investment in debentures. But there are other discussions in this very assessment order wherein the provisions of section 36(l)(iii) of the Act have also been touched upon. The Assessing Officer was expected to correlate the said discussion with the exempted dividend income u/s. 10(33) of the Act. As far as the law pronounced in this regard is concerned, first of all, we have to follow a latest decision of Hon'ble Bombay High Court pronounced in the case of Godrej & Boyce Mfg. Co.Ltd. Mumbai vs. Dy.CIT in Income tax Appeal No.626 of 2010 and Writ Petition No.758 of 2010 order dated 12/08/2010, { now reported as 328 ITR 81(Bom) } wherein the Hon'ble High Court has upheld the constitutional validity of section 14A of the I.T. Act, 1961 and held that the Assessing Officer should determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income and/or income from mutual fund which do not form part of the total income as contemplated U/S.14A of the I.T. Act, 1961. It has also been directed that the Assessing Officer can adopt a reasonable basis for effecting the apportionment. It has also been observed by the Hon'ble Court that while making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing its accounts and material having a bearing on the facts and circumstances of the case. 6.1. In this judgement at the end, the Hon'ble Court has also recapitulated the conclusion and pronounced that a finding is required whether the investment in shares is made out of own funds or out of borrowed funds. A nexus is required to be established between the investments and the borrowings. In section 14A of the Act expenditure incurred in relation to exempted income is to be disallowed only if the ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 12 - Assessing Officer is satisfied with the expenditure claimed by the assessee pertaining to the said exempt income. Rather, the Court was very specific that in case, no such exercise was carried out by the Assessing Officer then the matter is to be remanded back for afresh investigation. It has also been made clear that the proviso to section 14A of the Act was effective from 2001-02. The Hon'ble Court has also pointed out the importance of Rule 8D of the I.T.Rules, 1962. It was made clear that sub-section (1) to section 14A was inserted with retrospective effect from 01/04/1962, however, sub- sections (2) & (3) were made applicable with effect from 01/04/2007. The proviso was inserted with retrospective effect from 11/05/2001 , however Rule 8D was inserted by the Income Tax (Fifth Amendment), Rules, 2008 by publication in the Gazette dated 24/03/2008; reproduced below:- "a) The ITAT had recorded a finding in the earlier assessments that the investments in shares and mutual funds have been made out of own funds and not out of borrowed funds and that there is no nexus between the investments and the borrowings. However, in none of those decisions was the disallow ability of expenses incurred in relation to exempt income earned out of investments made out of own funds considered. Moreover, under Section 14A, expenditure incurred in relation to exempt income can be disallowed only if the assessing officer is not satisfied with the correctness of the expenditure claimed by the assessee. In the present case, no such exercise has been carried out and, therefore, the Tribunal was justified in remanding the matter. b) Section 14A was introduced by the Finance Act 2001 with retrospective effect from 1 April 1962. However, in view of the proviso to that Section, the disallowance thereunder could be effectively made from assessment year 2001-2002 onwards. The fact that the Tribunal failed to consider the applicability of Section 14A in its proper perspective, for assessment year 2001 -2002 would not bar the Tribunal from considering disallowance under Section 14A in assessment year 2002- 2003. c) The decisions reported in Sridev Enterprises (supra), Munjal Sales Corporation (supra) and Radhasoami Satsang (supra) holding that there must be consistency and definiteness in the approach of the revenue would not apply to the facts of the present case, because of the material change introduced by Section 14A by way of statutory ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 13 - disallowance in certain cases. There, the decisions of the Tribunal in the earlier years would have no relevance in considering disallowance in assessment year 2002-2003 in the light of Section 14A of the Act. 73. For the reasons which we have indicated, we have come to the conclusion that under Section 14A(1) it is for the Assessing Officer to determine as to whether the assessee had incurred any expenditure in relation to the earning of income which does not form pan of the total income under the Act and if so to quantify the extent of the disallowance. The Assessing Officer would have to arrive at his determination after furnishing an opportunity to the assessee to produce its accounts and to place on the record all relevant material in support of the circumstances which are considered to be relevant and germane. For this purpose and in light of our observations made earlier in this section of the judgment, we deem it appropriate and proper to remand the proceedings back to the Assessing Officer for a fresh determination. Conclusion: 74. Our conclusions in this judgment are as follows; i) Dividend income and income from mutual funds falling within the ambit of Section 10(33) of the Income Tax Act 1961, as was applicable for Assessment Year 2002-03 is not includible in computing the total income of the assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 14A(1); ii) The payment by a domestic company under Section 115O(1) of additional income tax on profits declared, distributed or paid is a charge on a component of the profits of the company. The company is chargeable to tax on its profits as a distinct taxable entity and it pays tax in discharge of its own liability and not on behalf of or as an agent for its shareholders. In the hands of the shareholder as the recipient of dividend, income by way of dividend does not form part of the total income by virtue of the provisions of Section 10(33). Income from mutual funds stands on the same basis; iii) The provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 14 - iv) The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution;; v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24th March, 2008 shall apply with effect from Assessment Year 2008-09; (vi) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record; vii) The proceedings for Assessment year 2002-03 shall stand remanded back to the Assessing Officer. The Assessing Officer shall determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income / income from mutual funds which does not form part of the total income as contemplated under Section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer shall provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case." 6.4 Due to the decision of the Hon'ble Bombay High Court, it is legally correct to refer this issue back to the stage of the AO to be decided de novo as per the guidelines of the Hon'ble Court. The outcome of the above discussion is that the "Additional Ground" raised by the Revenue may be treated as allowed but only for statistical purpose.” 8. In the absence of any distinguishing features pointed out by the Departmental Representative, facts being identical, respectfully following the precedent we restore this issue back to the file of the Assessing Officer for adjudication afresh with the same directions as given by the Tribunal in the Assessment Year 2006- 07 in the above ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 15 - quoted order. Needless to mention that he shall allow reasonable and proper opportunity of hearing to the assessee before adjudicating the issue. Thus, this ground is allowed for statistical purpose. 11. We further observe that Rule-8D of the IT Rules came into effect from Asst. Year 2008-09 with respect to provisions of section 14A of the Act which reads as follows :- Sec. 14A. Expenditure incurred in relation to income not includible in total income.—(1)For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.’ 2. New Rule 8D : 2.1 In exercise of the powers given in S. 14A(2) C.B.D.T. has issued a Notification No. S.O. 547(E) on 24-3-2008 (299 ITR (ST) 88). This notification amends the Income-tax Rules by insertion of a new Rule 8D providing for a "Method for determining amount of expenditure in relation to income not includible in total income". Reading this Rule it is evident that the Rule provides for disallowance of not only direct expenditure incurred for earning the exempt income but also for disallowance of proportionate indirect expenditure. This is clearly contrary to the main objective with which S. 14A was enacted. ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 16 - 2.2 Broadly stated, the new Rule 8D provides as under : (i) The method prescribed in the Rule is to be applied only if the AO is not satisfied with : (a) The correctness of the claim of expenditure incurred for earning the exempt income made by the assessee or (b) The claim made by the assessee that no expenditure has been incurred for earning exempt income. (ii) The method prescribed in the Rule states that the expenditure in relation to income which does not form part of the total income shall be the aggregate of the following amounts : (a) The amount of expenditure directly relating to income which does not form part of total income. (b) In the case of interest on borrowed funds which is not directly attributable to any particular income or receipt, the amount computed in accordance with this following formula : A x B C A = Amount of interest, other than the amount of interest which is directly attributable to the exempt income stated in (a) above. B = The average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the relevant accounting year. C = The average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the relevant accounting year. The term ‘Total Assets’ means total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. (c) An amount equal to ½ % of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the relevant accounting year. ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 17 - 12. We also observe that ld. Assessing Officer applied the facts and figures of the assessee company into the method provided under Rule 8D of the IT Rules because assessee was having an average investment of Rs.5529.57 crores, interest paid during the year at Rs.131.22 crores and exempt income of Rs.249 crores. Going through these figures ld. Assessing Officer felt appropriate to applying the method of Rule 8D but did not look into the following facts :- (i) As on 1.7.205 when the company was given a balance sheet duly notified by the State Govt., the company had total investment of Rs.5580.20 crores considering all investment in subsidiary companies at Rs.5336.43 crores, investment in other companies at Rs.243.69 crores and balance in petty investment. (ii) Opening balance of investment as on 1.4.2007 stood at Rs.5477.16 crores. (iii) Few investments were made during Financial Year 2005-06 to 2007-08 and in subsidiary companies and funds for the same were partly received from State Government as equity and remaining from net profit earned. (iv) Interest expenditure of Rs.131.32 crores represents mostly the interest paid on bill discounting of IPPs and working capital loan from banks which are specifically meant for the business purpose; and (v) Total exempt income earned by assessee during the year stood at Rs.249 crores. 13. We observe that ld. Assessing Officer has made disallowance u/s 14A of the Act without examining the facts referred above which were very crucial to reach at the final disallowance u/s 14A of the Act. There are series of judgments of the co-ordinate benches that the disallowance u/s 14A of the Act should not exceed the exempt income earned during the year and also decisions wherein the disallowance u/s 14A of the Act on account of interest expenditure are held to be incorrect if the assessee has sufficient equity and general reserve to cover the investments. 14. We are, therefore, of the view that applying the decision of the coordinate bench in assessee’s own case in ITA No.1874 & 1821/Ahd/2010 for Asst. Year 2007-08 is dated 20.6.2014 the matter is set aside to the file of Assessing Officer to examine the facts and ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 18 - figures of the case in the light of our observations made above in order to arrive at a final conclusion as to whether disallowance u/s 14A is to be made and if so, then the amount thereof which in no case should exceed the exempted income earned by assessee during the year under appeal. It is needless to mention that ld. Assessing Officer shall allow reasonable and sufficient opportunity of hearing to the assessee before adjudicating the same. These grounds of assessee and the Revenue are allowed for statistical purposes. 15. Now we take ground no.3 of assessee’s appeal which reads as below :- 3.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the enhancement of Book Profit computed under section 115JB of the Income Tax Act, 1961 by Rs.61,45,72,000/- on account of disallowance made under section 14A of the Income Tax Act, 1961. 16. At the outset ld. AR submitted that this ground relates to the disallowance under section 14A of the Act due to which book profit u/s 115JB was enhanced by ld. Assessing Officer and the fate of this ground depends on the decision to be taken for ground no.1 raised by them.” 10.1 As the facts of the case on hand are identical to the facts of the case as discussed above which has been set aside to the file of the AO for fresh adjudication as per the provisions of law by the ITAT as discussed above. Respectfully following the order of this Coordinate Bench in the own case of the assessee, we set aside the issue on hand to the file of the AO for fresh adjudication in terms of the finding of the ITAT in its own case for the Assessment Year 2008-09 (Supra) as well as in accordance to the provisions of law. Hence, the ground of appeal of the assessee and the Revenue are allowed for the statistical purposes. 4.2. Respectfully following the above decision of our Co-ordinate Bench, for this assessment year 2015-16, we set aside the matter back to the file of Assessing Officer for fresh adjudication by examining the facts and figures and calculate the disallowance u/s. 14A of the Act. “ 6. It appears that the Ld. AO made addition in the book profit by adding the amount of disallowance under Section 14A of the Act while calculating taxable profit under Section 115JB of the Act, whereupon, the Co-ordinate Bench has been pleased to hold that disallowance made under Section 14A of ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 19 - the Act is not required to be added back to the book profit and relief accordingly was granted. However, the Ld. CIT(A) issued direction to the Ld. AO to include the dividend income while computing book profit. We, therefore, do not find any reason to deviate from the stand taken by the Co- ordinate Bench which has upheld such direction passed by the Ld. CIT(A). We, therefore, respectfully relying upon the same, do not find any reason to interfere with such order passed by the Ld. CIT(A). This ground of appeal appears to have been no merit and thus dismissed. 7. Ground No.2 relates to disallowance of Rs.80,34,000/- being guarantee fees paid to Government of Gujarat. 8. The guarantee fee paid to the Government of Gujarat relates to capital work-in-progress needs to be capitalized. Accordingly, it was submitted by the Ld. Counsel that certificate of utilization was furnished before the Ld. CIT(A) contending that the loans on which guarantee fee was paid were utilized for construction of power plant and there was no work-in-progress in respect of such loans borrowed during the F.Y. 2014-15. It was further submitted that identical issue was considered by the Tribunal in assessee’s own case for A.Y. 2015-16. A copy whereof has duly been submitted before us. The issue has been directed to be verified and to be adjudicated by the Ld. AO on the basis of the submission made by the Ld. Counsel appearing for the assessee before us which has not been controverted by the Ld. DR. Upon perusal of the order passed by the Co-ordinate Bench, it appears that by setting aside the issue to the file of the Ld. AO, the Co-ordinate Bench has been pleased to observe as follows: ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 20 - “4.3. Regarding ground no. 2 namely guarantee fees paid to Govt. of Gujarat related to capital work-in-progress which needs to be capitalized. The Ld. Counsel for the assessee submitted that the certificate of utilization was already furnished before the Ld. CIT(A) stating that the loans on which guarantee fees was paid were utilized for construction of power plant and there was no capital work-in-progress in respect of such loans borrowed during the Financial Year 2015-16. Similar issue was being considered by the Co-ordinate Bench of this Tribunal in assessee’s own case in ITA Nos. 11 & 37/Ahd/2013 dated 22.10.2020, which held as follows: 19. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, there is no ambiguity that the Learned CIT (A) has decided the issue on hand after relying on the order of his predecessor for the Assessment Years 2008-09 which was also subsequently upheld by the ITAT in ITA No. 899/AHD/2012 vide order dated 22 nd June 2016. The relevant finding of the ITAT reads as under: “38. We have heard the rival contentions and perused the material on record and gone through the decision referred and relied upon by both the parties. Through this ground Revenue has challenged the action of ld. CIT(A) deleting the disallowance of guarantee fees at Rs.4.76 crores. 39. We observe that ld. AR has referred and relied on the decision of the co- ordinate bench in the case of Gujarat Energy Transmission Corpn. Ltd. (supra), wherein similar issue regarding the claim of guarantee fees paid to Government of Gujarat has been dealt with by the Tribunal as to whether the guarantee fees is an expenditure of capital in nature or revenue in nature and has observed as under :- 35. We find that the Tribunal in its order dated 8.5.2015 cited supra has held as under: "6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) decided these issues in paras- 5.2 & 5.3 and 6.2 respectively by observing as under:- "5.2. I have considered the submissions of the ld.AR and the facts of the case. The issue relating to whether an item of expenditure lies in the capital or the revenue field has exercised the courts in numerous cases. From an analysis of such cases a few guiding principles/tests can be identified. One of the important tests for categorizing any expenditure as capital in nature is whether the laying out of the impugned expenditure results in the acquisition of creation of any new asset. Where no such asset is created, it would be indicative of an expenditure which was not capital in nature. Another test relates to the principle of "enduring benefit". "Enduring benefit" may be in the form of long lasting use of an asset or the acquisition of a right to exploit certain commercial processes, etc. In the instant case, the assessee did not acquire any right to exploit a commercial technology or process, and neither was the benefit "enduring", since the payment of guarantee commission was an annual charge. The benefit derived from payment of such commission thus lasted for exactly one year only. Such ITA No.704 and ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 21 - 761/Ahd/2012shortlived benefit cannot be categorized as "enduring". Hence, I am inclined to the view that the payment of guarantee commission was a revenue expenditure. 5.3. Further, the jurisdictional Bench of ITAT had occasion to consider the allowability of guarantee commission paid to a Director of the company in respect of loans taken from the bank. In the case of Himalaya Machinery Pvt.Ltd. (ITA No.738/Ahd/2009) for AY 2006-07, the Tribunal held, vide order dt.5.6.2009, following the decision of the Rajasthan High Court in CIT v. Metalising Equipment Co.Pvt.Ltd., 8 DTR 12, that the payment of commission for guaranteeing repayment of loan was allowable as revenue expense. In the instant case, the loan has been guaranteed by the Government of Gujarat. Hence, quite apart from the other sound reasons for treating the expenditure as revenue, it would be unrealistic to say that the appellant company could derive any undue advantage or collateral benefit by making such payment to the GOG. In view of the totality of the circumstances, I am of the opinion that the AO was not justified in treating the payment of guarantee commission (Rs.8,39,04,550/-) as capital in nature. The addition is directed to be deleted. 6.2. I have considered the submissions of the ld.AR and the facts of the case. The jurisdictional Bench of ITAT has held in the case of Shri Rama Multi Tech vs. ACIT, 92 TTJ 568, that in determining the nature of expenditure incurred for obtaining loan, it is irrelevant to consider the purpose of loan. The amount spent on stamp duty, lawyer fees, etc. for obtaining loan secured by charge on its fixed assets is a revenue expenditure, because the transactions were entered into directly to facilitate the business of the company and payment of consultancy charges was made on ground of commercial expediency.In India Cements Ltd. vs. CIT, 60 ITR 52, the Supreme Court had also held that the expenditure incurred for securing the use of money for a certain period was revenue expenditure. In the instant case, the assessee has secured the loan by creating a charge (hypothecation of its assets). Hence the ratio of the above mentioned two cases would squarely apply. Accordingly, it is held that the AO was not justified in making the disallowance of Rs.45,24,582/-, which is directed to be deleted." 6.1 The ld.CIT(A) has followed the decision of the Tribunal passed in ITA No.738/Ahd/2009 for AY 2006-07 in the case of Himalaya Machinery Pvt.Ltd., dated 5.6.2009 and in the case of Shri Rama Multi Tech vs. ACIT reported at 92 TTJ 568. 6.2. The ld.CIT-DR could not distinguish the facts of the case, therefore we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, these two grounds raised in the Revenue's appeal are rejected." 36. DR could not point out any good reason as to why the above quoted order of the Tribunal should not be followed for the year under consideration. In the absence of distinguishing features being pointed out by the DR, and the facts being identical, respectfully following the above quoted decision of the Tribunal, we confirm the order of the CIT(A), and dismiss this ground of appeal of the Revenue. ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 22 - 40. We are of the view that the issue raised in this ground is squarely covered by the decision of co-ordinate bench referred above in the case of Gujarat Energy Transmission Corpn. (supra) and respectfully following the same, we find no reason to interfere with the order of ld. CIT(A) and uphold the same. This ground of Revenue is dismissed.” 20. As the facts of the case on hand are identical to the facts of the case as discussed above, we are incline to uphold the finding of the Ld. CIT-A. 21. Before parting, it is important to note that the revenue was in appeal in the immediate preceding Assessment Year i.e. 2008-09 before us on the following grounds of appeal: “On the facts and in the circumstances of the case and in law, the ld. CIT (Appeals) erred in deleting the addition on account of disallowance of claim of guarantee fees of Rs. 4.76 crores without appreciating that the disallowance was made as the same are enduring nature in the assessee’s business.” 21.1 The above ground of appeal raised by the Revenue for the Assessment Year 2008-09 in ITA No. 899/AHD/2012 was dismissed by the ITAT vide order dated 22 nd June 2016 which has been elaborated in the preceding paragraph. What flows from the conjoint reading of the order of the Learned CIT (A) and the ITAT for the Assessment Year 2008-09 as discussed above is that there was no enduring benefit accrued to the assessee out of guarantee fees paid by it to the government of Gujarat. As such the finding of the ITAT has to be seen in the context of the ruling of the AO and the Learned CIT (A) for the Assessment Year 2008-09. In fact, the Learned CIT(A) for the assessment Year 2008-09 held that there was no benefit accrued to the assessee which is in the enduring nature but directed the AO to verify whether such guarantee fees relates to the capital work in progress and if that be so, the same needs to be capitalized. 22. However, the assessee did not prefer any appeal against the order of the Learned CIT(A) for the Assessment Year 2008-09. In other words, the assessee was not aggrieved by the direction of the Learned CIT (A) to verify the claim of the assessee whether such guarantee fees relates to the capital work in progress for the Assessment Year 2008-09. But the assessee for the year under consideration has challenged the direction of the Learned CIT (A) to verify whether such guarantee fee relates to the capital working progress. As the assessee did not challenge such direction of the Learned CIT(A) for the assessment Year 2008-09 before the ITAT, it implies that such direction has reached to its finality for that assessment year. Therefore, there was no dispute for the ITAT for the Assessment Year 2008-09 for the direction issued by the Learned CIT(A). Accordingly, it cannot be inferred that the order of the Learned CIT(A) for the Assessment Year 2008-09 has merged with the order of the Learned ITAT insofar the direction issued by the Learned CIT(A) to verify the claim of the assessee for the guarantee fees whether such fees relates to the capital work in progress. Accordingly, it cannot be said that the issue raised by the assessee is a covered issue by the order of the ITAT in the own case of the assessee for the Assessment Year 2008-09 as contended by the ld. AR for the assessee. In view of the above and after considering the facts in totality, the grounds of appeal of the assessee and the Revenue are dismissed. ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 23 - 4.4. Though the Ld. CIT(A) directed to verify the certificate filed during the appellate proceedings that the loans on which guarantee fees was paid were utilized for construction of power plants at that time and there was no capital work-in- progress in respect of such loans during the Financial Year 2014-15. Both the assessee counsel as well as the Ld. D.R. could not place on record what is the giving effect order passed by the A.O. thereafter, pursuant to the direction of the Ld. CIT(A). Therefore this ground no. 2 is also set aside to the Assessing Officer for proper verification and adjudication. 9. We find that the Ld. CIT(A) following the order passed by his predecessor for A.Ys. 2008-09 & 2014-15, wherein guarantee fees to the tune of Rs.80,34,000/- was directed to be allowed as revenue expenditure subject to verification of the certificate filed during the appellate proceedings that the loans on which guarantee fees was paid were duly utilized for construction of power plants at that time and there was no capital work-in-progress in respect of such loans during F.Y. 2014-15. Thus, we do not find any reason to interfere with the observations passed by the Ld. CIT(A). Hence, we uphold the same. This ground of appeal preferred by the Revenue is found to be devoid of any and thus, dismissed. 10. Ground No.3 relates to addition of Rs.3750 Lacs being 15% of capital grants is under challenge before us. 11. We have heard the rival contentions made by the respective parties and we have also perused the relevant materials available on record. 12. Ld. Counsel appearing for the assessee contended that in the year under consideration the assessee had not received any fresh grant, and hence, it had not offered any income on account of receipt of grant in the P&L account. The Ld. A.O. without appreciating the vital fact of non-receipt of grant in the ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 24 - year under consideration, made an addition on the premise that assessee should have offered 15% of a year end balance of capital grant as revenue as the capital grant is either required to reduce from the cost of fixed assets or grant in nature of receipts should be offered for taxation in the year of receipts. It was further stated that the impugned issue is covered in favour of assessee by the judgment of Hon'ble Gujarat High Court in Assessee's own case for A.Y. 2010-11 in Tax Appeal No.63 of 2020, judgment dated 17.02.2020. Recently, the ITAT by following the aforesaid judgment of Hon'ble Gujarat High Court, in assessee's own case for Asst. Years 2013-14 & 2014-15 in ITA Nos.281 & 282/Ahd/2018 & 323 & 324/Ahd/2018 has deleted the addition made on the aforesaid issue of capital grant. 13. Such contention made by the Ld. AR has not been controverted by the Ld. DR with all his fairness. 14. We have perused the order passed by the Co-ordinate Bench in ITA Nos.281 & 282/Ahd/2018 & 323 & 324/Ahd/2018 in assessee’s own case, wherein issue has been discussed and decided in favour of the assessee upon deleting the addition made by the Ld. AO being addition of 15% of capital grant. The relevant portion whereof is as follows: “14. Ground No. 3 deleting the addition of Rs. 37.50 crores being 15% of capital grant received by the assessee. It is submitted by the Ld. Counsel that the assessee has not received any fresh grant from Government of Gujarat during the Financial Year, hence the assessee has not offered any income on account of receipt of grant in the Profit and Loss Account. However the Ld. A.O. without appreciating the vital fact of non-receipt of grant made an addition on the wrong premises that the assessee should have offered 15% out of total grant of 250 crores which works out to Rs. 37.50 crores and added to the total income of the assessee. ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 25 - 14.1. Ld. Counsel further submitted that this issue is now in settled in favour of the assessee by the Hon’ble High Court of Gujarat in assessee’s own case for A.Y. 2010-11 filed by the Revenue in Tax Appeal No. 63 of 2020 vide judgment dated 17-02-2020 wherein it was held as follows: “....9 So far as question No.2[c] proposed by the Revenue is concerned, the Assessing Officer in the assessment order has stated that the assessee has not received any grant of subsidy during the year under consideration but the subsidy or grant which was received in the earlier years was to be considered as income or to be reduced from the cost of assets. Therefore, the Assessing Officer estimated 15% of grant of Rs.2500 Lac which worked out at of Rs.3750 Lac as income of the assessee. 10 The assessee, therefore, being dissatisfied, filed an appeal before the CIT(A). The CIT(A) deleted the addition holding that the assessee has not acquired any fixed assets on which depreciation has been claimed, and therefore, such grants cannot be reduced from cost of fixed asset of the assessee on the basis of estimate. 11 The Revenue, therefore, went in appeal before the Tribunal and the Tribunal confirmed the order passed by the CIT(A) by holding as under: “28. We have heard the rival contention and produced the material on record on this issue. During assessment, the assessing officer has stated that the assessee has not received the grant or subsidy during the year but was of the view that the subsidy or grant which was received in earlier years was to be taken to the revenue or to be reduced from the cost of assets. Therefore, the assessing officer has estimated 15% of grant of Rs. 2500 lacs which worked out at Rs.3750 lacs as income of the assessee. The Ld. CIT(A) has deleted the aforesaid addition holding that the assessee has not acquired an fixed assets on which depreciation has been claimed, therefore, such grants cannot be reduced from cost of fixed asset of the assessee company. With the assistance of ld. Authorized representatives, we have gone through the material on record pertaining to the submission of the assessee stating that the assessee has not received any grant during the year and the grants received originally from the Govt. of Gujarat were apportioned against the subsidiary companies appropriate basis. In F.Y.2007-08, the State Government vide various GRS decided to convert the grant given during the F.Y. 2005-06 to 2007-08 for implementation of Jyoti Gram Yojna (JGY) into equity share capital. Accordingly, the total grants received during the aforesaid financial years were allocated among the four distribution companies for implementation of the aforesaid scheme of the State Government. In view of the above facts and circumstances, we do not find any infirmity with the decision of the Ld. Therefore, the aforesaid grants received cannot be treated as income of the assessee company. Accordingly, this ground of the appeal is dismissed.” ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 26 - 12 We are in agreement with the concurrent finding of fact arrived at by the CIT(A) as well as the Tribunal as the assessee did not acquire any fixed assets on which depreciation has been claimed, and therefore, grants cannot be reduced from cost of fixed asset of the assessee. Therefore, appeal stands dismissed qua question No.2[c] proposed by the Revenue. 14.2. Respectfully following the Jurisdictional High Court judgment, we hereby delete the addition made by the Assessing Officer and the Grounds raised by the Revenue is hereby rejected.” 15. Considering the above order passed by the Co-ordinate Bench, we do not find any reason to interfere with the order passed by the Ld. CIT(A) in deleting such addition made by the Ld. AO. This ground of appeal found to be devoid of any merit and thus dismissed. 16. Ground No. 4 relates to treatment of interest income amounting to Rs.65.88 Lacs and miscellaneous income of Rs.16.34 Lacs. 17. Ld. Counsel appearing for the assessee submitted that the issue is covered in favour of assessee by the order of the Co-ordinate Bench in assessee’s own case for Asst. Years 2013-14 & 2014-15 in ITA Nos.281 & 282/Ahd/2018 & 323 & 324/Ahd/2018, wherein Tribunal has deleted the identical addition made on the issue of taxability of interest income and miscellaneous income. 18. Such contention made by the Ld. AR has not been controverted by the Ld. DR with all his fairness. 19. We have perused the order passed by the Co-ordinate Bench in ITA Nos.281 & 282/Ahd/2018 & 323 & 324/Ahd/2018 in assessee’s own case, wherein issue has been discussed and decided in favour of the assessee upon ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 27 - deleting the addition made by the Ld. AO. The relevant portion whereof is as follows: “15. Ground No. 4 namely treatment of interest income of Rs. 62.67 lacs and miscellaneous income of Rs. 270.83 lacs as “business income” instead of “income from other sources”. The Ld. Counsel submitted that his issue is also covered against the Revenue’s appeal before the High Court of Gujarat in Tax Appeal No. 63 of 2020 wherein it was held as follows: 13 With regard to question No.2[d], the Assessing Officer noticed that as per Schedule 14, the assessee has shown other income consisting of interest on loan and advances, incentives from CPSU, etc. The Assessing Officer was of the view that this income was to be assessed as income from other sources instead of business income shown by the assessee. 14 On appeal, the CIT(A) as well as the Tribunal held that the interest income is required to be treated as business income instead of income from other sources. The Tribunal in its order observed as under: “10 We have heard the rival contentions and perused the material on record on this issue. The assessing Officer has treated the aforesaid income under the head income from other sources without controverting the submission of the assessee on the basis of which it was claimed that these income were of the nature of business income as elaborated in para seven of this order. The ld. CIT(A) has decided the issue in favour of the assessees taking that this issue was decided in favour of the assessee for assessment year 2009-10. During the course of appellate proceedings, the Revenue has failed to controvert the aforesaid contention and the findings of the ld. ClT(A),therefore after considering the material fact that interest earned on loan and advances from deposit placed with Mega Power Project toward sits sharing of power and interest of UL pool account received from M/s. Power Grid Corporation India Ltd were directly related to the business of the assessee ,therefore, this ground of appeal of the Revenue stands dismissed.” 15 In view of above findings of acts arrived at by the Tribunal that interest earned by the assessee was directly related to the business of the assessee, no question of law much less substantial question of law arises. Therefore, appeal stands dismissed qua question No.2[d]. 15.1. Respectfully following the Jurisdictional High Court judgment which has confirmed Tribunal’s decision in assessee’s own case, we hereby held that the interest income and miscellaneous income earned by the assessee were directly related to the business of the assessee and assessable as “business income” only and not as “income from other sources”. Thus the Ground no. 4 raised by the Revenue is hereby rejected.” ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 28 - 20. We do not find any reason to interfere with the order passed by the Ld. CIT(A) in deleting such addition made by the Ld. AO. This ground of appeal found to be devoid of any merit and thus dismissed. 21. Ground No.5 relates to adjustment in book profit under Section 115JB of the Act for the disallowance under Section 14A of the Act. 22. Ld. Counsel appearing for the assessee submitted that the impugned issue is covered in favour of assessee by the judgment of Hon'ble Gujarat High Court in Assessee's own case for A.Y. 2010-11 in Tax Appeal No.63 of 2020, judgment dated 17.02.2020. Recently, the ITAT by following the aforesaid judgment of Hon'ble Gujarat High Court, in assessee's own case for Asst. Years 2013-14 & 2014-15 in ITA Nos.281 & 282/Ahd/2018 & 323 & 324/Ahd/2018 has deleted the addition made on the aforesaid issue of adjustment in book profit under Section 115JB for disallowance made under Section 14A of the Act. 23. Such contention made by the Ld. AR has not been controverted by the Ld. DR with all his fairness. 24. We have perused the order passed by the Co-ordinate Bench in ITA Nos.281 & 282/Ahd/2018 & 323 & 324/Ahd/2018 in assessee’s own case, wherein issue has been discussed and decided in favour of the assessee upon deleting the addition made by the Ld. AO. The relevant portion whereof is as follows: “16. Ground no. 5 namely adjustment made on account of disallowance u/s. 14A to be added in the computation of book profit u/s. 115JB of the Act. Ld. Counsel submitted ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 29 - that this issue is also held against the Revenue by the High Court of Gujarat in Tax Appeal No. 63 of 2020 as follows: “....4 The question No.2[b] proposed by the Revenue is with regard to deleting the addition under Section 14A of the Act, 1961 while computing book profit under Section 115JB of the Act, 1961. The Assessing Officer while computing taxable income under Section 115JB of the Act, 1961 also added addition made under Section 14A of the Act, 1961 to the book profit. 5. The assessee being aggrieved by the addition made by the Assessing Officer under Section 14A while computing book profit of the assessee under Section 115JB of the Act, 1961 preferred an appeal before the CIT(A). The CIT(A), however, deleted addition made in the book profit on the ground that no addition could have been made in view of the decision of this Court in the case of Alembic Ltd (Tax Appeal No.1249 of 2014) and the provisions of sub - sections (2) and (3) of Section 14A cannot be made applicable to clause (f) of Explanation to Section 115JB of the Act, 1961. 6. The Revenue, therefore, went in appeal before the Tribunal and the Tribunal relying upon the decision of the Special Bench of the ITAT in the case of ACIT vs. Vineet Investment vide 165 ITD 27 (Delhi) and the decision in Alembic Ltd upheld the order passed by the CIT(A). 7. The issue as to whether the addition made under Section 14A of the Act, 1961 while computing book profit under Section 115JB of the Act, 1961 is no more res integra. Accordingly, this Court in the case of Principal Commissioner of Income Tax vs. Gujarat Fluorochemicals Ltd [Tax Appeal No.28 of 2019 decided on 17 th June 2019] has dismissed the appeal filed by the Revenue by holding as under: “22. The third question proposed by the revenue is in context with the adjustment made on account of the disallowance under section14A in computing the book profit. In this context, the findings recorded by the ITAT are as follows: 17. Next common issue involved in both years is, whether the amount disallowed under section 14A read with rule 8D deserves to be added back in the book profit for the purpose of section 115JB. In other words, whether the additions which have been confirmed by the Tribunal at Rs.1.55 crores in the assessment year 201213 and Rs.75 lakhs in the assessment year 201314, deserves to be added back in the book profit computed for the purpose of section 115JB. 17.1 The ld. Counsel for the assessee at the very outset contended that this issue is covered in favour of the assessee by the judgment of Hon’ble Gujarat High Court in the case of CIT Vs. Alembic Ltd. in Tax Appeal No.1249 of 2014 as well as decision of Hon’ble Bombay High Court in the case of CIT Vs. Bengal Finance & Investment P. Ltd. in ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 30 - Tax Appeal No.337 of 2013. He placed on record copies both these decisions. Apart from the above, he placed upon reliance Special Bench decision of the ITAT in the case of CIT Vs. Vireet Investment P. Ltd. 165 ITD 27. On the other hand, ld. CITDR relied upon the order of DRP. 18. We have duly considered rival contentions and gone through the record carefully. We find that ld. DRP has relied upon the order of the ITAT, Mumbai in the case of DCIT Vs. Viraj Profiles Ltd., (2016) 46 ITR (Trib) 0626 (Mum) and held that addition required to be made in the book profit could be calculated as per Rule 8D of the Income Tax Rules. The ld. DRP thereafter made reference to decision of Hon’ble Delhi High Court in the case of CIT Vs. Geotze India Ltd., 361 ITR 505. According to the ld. DRP, this decision has been considered by the Special Bench in the case of Vireet Investment P. Ltd. (supra) but placed reliance upon Hon’ble Bombay High Court in the case of Vodafone India Services P. Ltd. ACIT, 361 ITR 0531 (Bom) and held that DRP is not bound by the ratio laid down by the Special Bench. The discussion made by the DRP on this issue in the assessment year 201314 reads as under: “10.3 In the case of Viraj Profiles Ltd. [2015] 64 taxmann.com 52 (Mum Trib), the Hon’ble Bench has elaborately discussed the issue and held that the disallowance is liable to be calculated as per Rule 8 D of the Rules. After discussing the decisions which have also been relied on by the appellant, the Hon’ble Bench has concluded that; “In view of our foregoing discussion, we find no infirmity with the orders of the AO and we hold that the AO has rightly disallowed the expenditure of Rs.73,07,018/by invoking the provisions of Section 14a of the Act read with the Rule 8D of Income Tax Rules, 1962 for computing book profit u/s.115JB(2) of the Act read with clause (f) to Explanation 1 to clause 115JB(2) of the Act. We, therefore, set aside the orders of the CIT(A) and restore the orders of the AO. We order accordingly. In the case of CIT (Central-II) Vs. Goetze (India) Limited, the Hon’ble Delhi High Court has in ITA No.1179/2010 vide order dated 09.12.2013, held that the disallowance u/s.14A is to be taken into consideration for the purposes of calculating book profits u/s.115JB. The relevant paras of the judgment are reproduced below. “36. By order dated 16th May, 2012, the following substantial questions of law were framed in the present appeals:” (i) Whether the Income Tax Appellate Tribunal was right in holding that while computing book profit under Section 115JA (sic. Section 115JB) of the Income Tax Act, 1961, no disallowance under Section 14A was required to be made? Learned counsel for the respondents-assessee, during the course of hearing, has fairly conceded that the first question has to be answered in favour of the Revenue and against the assessee in view of specific provisions in the Explanation 1 below Section 115JB(2) clause (f). ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 31 - The Assessing Officer it is stated had made an addition of Rs.88,292/- to the book profits towards expenditure incurred having nexus with dividend income, which were exempt under Section 10(33). Recording the said statement, the first question is answered in favour of the appellant-Revenue and against the respondent-assessee.” The assessee has relied upon the judgment of ITAT special bench in the case of Vireet Investment Pvt. Ltd. In this regard, it is pertinent to mention that Hon’ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. Vs. Additional Commissioner of Income Tax & Ors. (2014) 264 CTR 0030 (Bom) : (2013) 96 DTR 0193 (Bom) : (2014) 361 ITR 0531 (Bom) : (2014) 221 Taxman 0166 (Bom); has held that the proceedings before DRP are extension of assessment proceedings. Therefore, they are not bound by the decision of Tribunals unlike CIT(A) as long as the issue is not acceptable on merit and/or the issue is being contested by the department. In this case, the decision of Hon’ble Delhi High Court in the case of Goetze (India) Ltd cited above is also in favour to the department on this issue which also shows that the view of AO confirmed by the Panel is a plausible view. 19. There were contradictory orders at the end of the Tribunal. Therefore, Special Bench was constituted to consider the following question: “Whether expenditure incurred to earn exempt income computed under section 14A could not be added while computing book profit under section 115JB of the Act.” 20. When the Special Bench has considered this question, it was confronted with two decisions of the Hon’ble Delhi High Court diagonally opposite to each other. One referred by the ld. DRP also in the present case, rendered in the case of CIR Vs. Goetze India Ltd. (Supra) and other in the case of Pr. CIT Vs. Bhushan Steel. ITAT, Special Bench has reproduced both these orders in Vireet Investment P. Ltd. (supra) and thereafter it considered as to which decision ought to be followed by a subordinate authority. The department advanced an argument that in the case of Bhushan Steel, Hon’ble Delhi High Court failed to consider subsequent decision of CIT Vs. Goetze India Ltd. (supra). However, the Tribunal after placing reliance upon the decision of Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd., 88 ITR 192 (SC) and other decisions has held that it is incumbent upon it follow the decision of Hon’ble Delhi High Court in the case of Bhushan Steel. In this case, Hon’ble Delhi High Court has held as under: ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 32 - “ However, Ld. Senior Counsel has relied on the decision in the case of Bhushan Steel Ltd. (supra) wherein it has been held as under: “ ITA 593/2015 PR. CIT .....Appellant Through: Mr. N.P. Sahni, Senior Standing Counsel with Mr. Nitin Gulati, Advocate Versus BHUSHAN STEEL LTD. ...Respondent Through: Ms. Kavita Jha, Advocate with Ms. Roopali Gupta, Advocate. ORDER 29.09.2015 ** ** ** ** ** ** 7. Question No.6 concerns deletion of addition of Rs.89,00,000 made by the AO for computation of the income for the purposes of Minimum Alternate Tax (MAT) under section 115JB of the Act. This pertained to the expenditure incurred for earning exempt income under section 14A read with Rule 8D. The ITAT has rightly held that this being in the nature of disallowance, and with Explanation 115JB not specifically mentioning Section 14A of the Act, the addition of Rs.89,00,000 was not justified. The view taken by the ITAT cannot be faulted with. It is consistent with the decision in Apollo Tyres Ltd. V. Commissioner of Income Tax 255 ITR 273 (SC) which held that “the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J.” The Court declines to frame a question on the above issue.” 21. Apart from the above, we have a binding precedent before us – one from Hon’ble jurisdictional High Court and other from the Hon’ble Bombay High Court. The question considered by the Hon’ble Gujarat High Court in the case of Alembic Ltd. (supra) is as under: “ Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that adjustment made on account of disallowance u/s.14A of the Act in computation of book profit u/s. 115JB of the Act is not as per law without appreciating that the amount disallwable under section 14A is covered under clause (f) of Explanation to section 115JB(2) and, thus, said amount has to be added back while computing amount of book profit? 22. The Hon’ble Gujarat High Court has replied this question as under: ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 33 - 7. So far as issue Nos.(iii) and (iv) are concerned, the learned counsel for the assessee has relied on the decision of this court in the case of Commissioner of Income tax-I v. Gujarat State Fertilizers & Chemicals Ltd., reported in (2013) 358 ITR 323 (Gujarat) Where this court has held in paragraph Nos.6 to 6.5 this court has observed as under: 6. So far as the fourth question is concerned, it pertains to addition of Rs.1,14,43,040/under Section 115JB of the Act being the expenditure estimated on earning of dividend income under Section 14A of the Act. 6.1 The Assessing Officer on referring to the said provision of Section 115JB(2) of the Act added the said amount considering that any amount of expenditure relatable to the income exempted under Section 10 of the Act shall need to be added in the profit shown in the ‘Profit and Loss Account’. When the matter travelled to the CIT (Appeals), since it deleted the addition of Rs.1,14,43,040/while deciding the question No.1, it consequently deleted such addition under Section 115JB of the Act on the ground that this would not serve any purpose. The Tribunal decided the said issue as follows: “94. We have considered the rival submissions and we find that similar issue was raised by Revenue as per ground No.3 above in respect of regular assessment of income and while deciding that ground, we have already upheld that disallowance of Rs.5 lakh in respect of administrative expenses will meet the ends of justice and no disallowance is called for in respect of interest expenditure. Hence, for the purpose of computing book profit u/s.115JB of the Act also, we hold accordingly and confirm the addition of Rs.5 lakh. This ground of Revenue’s appeal is partly allowed.” As rightly held by both, the CIT (Appeals) and the Tribunal, this issue has a direct correlation with the first question. It was argued by the Revenue that while computing the book profit under Section 115JB of the Act, the disallowance of interest expenditure on exempt income was wrongly negatived by both the authorities on the ground that it was not the liability for expenses, but a liability relating to assets. We find no fault in the approach adopted by both the authorities. The addition under section 115JB of the Act of a sum of Rs.1,14,43,040/-when was made as an expenditure estimated on earning of dividend income under Section 14A of the Act, without reiterating the rationale of confirming deletion of such amount as has ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 34 - been elaborately done at the time of deciding question No.1, this deletion requires to be confirmed.” 8. Taking into consideration the evidence on record and considering the decision of this court in the case of Commissioner of Income tax-I vs. Gujarat State Fertilizers & Chemicals Ltd. (supra), we are of the opinion that issue Nos.(iii) and (iv) required to be answered in favour of the assessee and against the revenue. In that view of the matter, we answer questions (iii) and (iv) referred to us in favour of the assessee and against the revenue. The appeal ofrevenue is dismissed. 23. Similarly, Hon’ble Bombay High Court has formulated following question in the case of Bengal Finance & Investments P. Ltd. (supra) and replied as under: (b) Whether on the facts and in the circumstances of the case, and in law, the ITAT is justified in deleting the addition of Rs.78,84,387/- under clause (f) of Explanation 1 to Section 115JB relying upon the decision in the case of Goetze (India) Ltd. Vs. CIT (2009) 32 SOT 101 (Del.), which has been followed by ITAT, Mumbai in the cases referred to in para 5 of the impugned order without appreciating that the above decision in the case of Goetze (India) Ltd. was rendered by the ITAT, Delhi Bench on completely distinguishable set of facts, peculiar to the said case?” ...... 4. So far as question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s. Essar Teleholdings Ltd. Vs. DCIT in ITA No.3850/Mum/2010 to held that an amount disallowed under section 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue’s Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No.438 of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not raise any substantial question of law. 24. Respectfully following the above decision, we hold that no addition in the book profit would be made on the basis of calculations worked out under section 14A of the Act. We allow this ground of appeal in both the years and delete the additions.” 23. We take notice of the fact that in context with the third proposed question, the ITAT placed reliance on the following decisions: (1)CIT Vs. Alembic Ltd. (Tax Appeal No.1249/2014) (2)CITI Vs. Gujarat State Fertilizers & Chemicals Ltd. (2013) 358 ITR 323 24. The issue is squarely covered and in our opinion, no error could be said to have been committed by the ITAT in taking the view that no ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 35 - addition in the book profit can be made on the basis of the calculations worked out under section14A of the Act.” 8. In view of above, this Tax Appeal stands dismissed so far as question No.2[b] is concerned.” 16.1. Respectfully following the Jurisdictional High Court judgment, the ground raised by the Revenue to include the disallowance u/s. 14A for the purpose of computation of book profit u/s. 115JB of the Act is hereby deleted and the Ground no. 5 raised by the Revenue is hereby dismissed.” 25. In view of the above, we do not find any reason to interfere with the order passed by the Ld. CIT(A) in deleting such addition made by the Ld. AO. This ground of appeal found to be devoid of any merit and thus dismissed. 26. Ground No. 6 relates to disallowance of prior period expenditure of Rs.49000/-. 27. Ld. Counsel appearing for the assessee submitted before us that the Ld. CIT(A) had given a finding of fact that assessee had accounted for net prior period expenditure of Rs.48,636/- which was duly disallowed in the computation of income and therefore, the Ld. CIT(A) deleted the addition. It was further submitted that nothing was brought on record by the Ld. DR to refute the aforesaid finding of fact. 28. We have also considered the order passed by the Ld. CIT(A), wherein issue has been discussed and granted relief by deleting the addition made by the Ld. AO in the following manner: “6.2 During the course of the current appellate proceedings, the AR of the appellant has submitted as under: "Grond No.4 Additions on account of Prior Period Expenses ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 36 - 1.0 The learned Assessing Officer has made an addition of Rs 49,000/- out of the prior period expenses without considering the fact that the such expenditure crystallized during the year. 1.1 It is submitted that during the year, the Company has accounted Prior Period Expenses of Rs. 48.636 under the head "Prior Period Expenses/Income" in the Profit & Loss Account. The nature of expenses explaining the fact that the liability to pay such expenditure was crystallized only during the year was explained during the assessment proceeding The learned Assessing Officer has however disallowed the prior period expenses amounting to Rs.49,000/- without appreciating the fact that the appellant on its own has offered such expenditure for disallowance in the Return of Income for the year under consideration. The copy of computation of income showing the disallowance is enclosed in Annexure-III 1.2 In view of the facts and circumstances, the appellant prays that the additions made on this count may be deleted." 6.3. I have considered the facts on record, the submission of the appellant and the AO's observations. In the audited Profit & Loss Account, the appellant had accounted for net Prior Period Expenses of Rs.48,636/-. However, the same was considered for disallowance in the Return of Income for the year under consideration. The same is visible from the copy of computation of income placed as Annexure-III. Therefore, the disallowance is not sustainable and the same stands deles. Accordingly, Ground No 4 allowed.” 29. It appears that the appellant had accounted for net prior period expenses of the impugned amount which is visible from the copy of computation of income placed at Annexure-III before the Ld. CIT(A). Considering which, the disallowance found to be not sustainable, which according to us, is just and proper so as to warrant interference. Thus, this ground of appeal is dismissed. 30. Deleting the action on account of capital grants amounting to Rs.37,50,00,000/- made by the Ld. AO is the subject matter before us. Since this similar ground has already been taken by the Department and also dealt with by us in the foregoing paragraphs it appears that addition made in respect ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 37 - of capital grant upon adjustment in book profit under section 115JB of the Act is the main challenge before us by the Revenue. 31. At the time of hearing of the instant appeal, the Ld. Counsel appearing for the assessee is submitted before us that the issue is already been decided in favour of the assessee by and under the order passed by the Co-ordinate Bench in assesses’s own case for A.Ys. 2013-14 and 2014-15 in ITA No.s 281/Ahd/2018, 282/Ahd/2018, 323/Ahd/2018 and 324/Ahd/2018 wherein similar adjustment made under Section 115JB of the Act has been deleted as the addition made in normal computation was deleted. 32. A copy of the said order passed by the Co-ordinate Bench has also been placed before us furnish to the Ld. DR. It is relevant to mention that the Ld. DR has not been able to controvert such contention made by the Ld. AR. 33. We have heard the rival contentions made by the respective parties and we have also perused the relevant materials available on record and carefully considered the order passed by the Co-ordinate Bench as mentioned herein above. While dealing with the appeal and deleting the addition made by the Revenue of the Co-ordinate Bench has been pleased to observe as follows: “14. Ground No. 3 deleting the addition of Rs. 37.50 crores being 15% of capital grant received by the assessee. It is submitted by the Ld. Counsel that the assessee has not received any fresh grant from Government of Gujarat during the Financial Year, hence the assessee has not offered any income on account of receipt of grant in the Profit and Loss Account. However the Ld. A.O. without appreciating the vital fact of non-receipt of grant made an addition on the wrong premises that the assessee should have offered 15% out of total grant of 250 crores which works out to Rs. 37.50 crores and added to the total income of the assessee. 14.1. Ld. Counsel further submitted that this issue is now in settled in favour of the assessee by the Hon’ble High Court of Gujarat in assessee’s own case for A.Y. 2010-11 ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 38 - filed by the Revenue in Tax Appeal No. 63 of 2020 vide judgment dated 17-02- 2020 wherein it was held as follows: “....9 So far as question No.2[c] proposed by the Revenue is concerned, the Assessing Officer in the assessment order has stated that the assessee has not received any grant of subsidy during the year under consideration but the subsidy or grant which was received in the earlier years was to be considered as income or to be reduced from the cost of assets. Therefore, the Assessing Officer estimated 15% of grant of Rs.2500 Lac which worked out at of Rs.3750 Lac as income of the assessee. 10 The assessee, therefore, being dissatisfied, filed an appeal before the CIT(A). The CIT(A) deleted the addition holding that the assessee has not acquired any fixed assets on which depreciation has been claimed, and therefore, such grants cannot be reduced from cost of fixed asset of the assessee on the basis of estimate. 11 The Revenue, therefore, went in appeal before the Tribunal and the Tribunal confirmed the order passed by the CIT(A) by holding as under: “28. We have heard the rival contention and produced the material on record on this issue. During assessment, the assessing officer has stated that the assessee has not received the grant or subsidy during the year but was of the view that the subsidy or grant which was received in earlier years was to be taken to the revenue or to be reduced from the cost of assets. Therefore, the assessing officer has estimated 15% of grant of Rs. 2500 lacs which worked out at Rs.3750 lacs as income of the assessee. The Ld. CIT(A) has deleted the aforesaid addition holding that the assessee has not acquired an fixed assets on which depreciation has been claimed, therefore, such grants cannot be reduced from cost of fixed asset of the assessee company. With the assistance of ld. Authorized representatives, we have gone through the material on record pertaining to the submission of the assessee stating that the assessee has not received any grant during the year and the grants received originally from the Govt. of Gujarat were apportioned against the subsidiary companies appropriate basis. In F.Y.2007-08, the State Government vide various GRS decided to convert the grant given during the F.Y. 2005-06 to 2007-08 for implementation of Jyoti Gram Yojna (JGY) into equity share capital. Accordingly, the total grants received during the aforesaid financial years were allocated among the four distribution companies for 16 implementation of the aforesaid scheme of the State Government. In view of the above facts and circumstances, we do not find any infirmity with the decision of the Ld. Therefore, the aforesaid grants received cannot be treated as income of the assessee company. Accordingly, this ground of the appeal is dismissed.” 12 We are in agreement with the concurrent finding of fact arrived at by the CIT(A) as well as the Tribunal as the assessee did not acquire ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 39 - any fixed assets on which depreciation has been claimed, and therefore, grants cannot be reduced from cost of fixed asset of the assessee. Therefore, appeal stands dismissed qua question No.2[c] proposed by the Revenue. 14.2. Respectfully following the Jurisdictional High Court judgment, we hereby delete the addition made by the Assessing Officer and the Grounds raised by the Revenue is hereby rejected. 15. Ground No. 4 namely treatment of interest income of Rs. 62.67 lacs and miscellaneous income of Rs. 270.83 lacs as “business income” instead of “income from other sources”. The Ld. Counsel submitted that his issue is also covered against the Revenue’s appeal before the High Court of Gujarat in Tax Appeal No. 63 of 2020 wherein it was held as follows: 13 With regard to question No.2[d], the Assessing Officer noticed that as per Schedule 14, the assessee has shown other income consisting of interest on loan and advances, incentives from CPSU, etc. The Assessing Officer was of the view that this income was to be assessed as income from other sources instead of business income shown by the assessee. 14 On appeal, the CIT(A) as well as the Tribunal held that the interest income is required to be treated as business income instead of income from other sources. The Tribunal in its order observed as under: “10 We have heard the rival contentions and perused the material on record on this issue. The assessing Officer has treated the aforesaid income under the head income from other sources without controverting the submission of the assessee on the basis of which it was claimed that these income were of the nature of business income as elaborated in para seven of this order. The ld. CIT(A) has decided the issue in favour of the assessees taking that this issue was decided in favour of the assessee for assessment year 2009-10. During the course of appellate proceedings, the Revenue has failed to controvert the aforesaid contention and the findings of the ld. ClT(A),therefore after considering the material fact that interest earned on loan and advances from deposit placed with Mega Power Project toward sits sharing of power and interest of UL pool account received from M/s. Power Grid Corporation India Ltd were directly related to the business of the assessee ,therefore, this ground of appeal of the Revenue stands dismissed.” 15 In view of above findings of acts arrived at by the Tribunal that interest earned by the assessee was directly related to the business of the assessee, no question of law much less substantial question of law arises. Therefore, appeal stands dismissed qua question No.2[d]. ITA No. 569/Ahd/2019 (DCIT vs. Gujarat Urja Vikas Nigam Ltd.) A.Y.– 2015-16 - 40 - 15.1. Respectfully following the Jurisdictional High Court judgment which has confirmed Tribunal’s decision in assessee’s own case, we hereby held that the interest income and miscellaneous income earned by the assessee were directly related to the business of the assessee and assessable as “business income” only and not as “income from other sources”. Thus the Ground no. 4 raised by the Revenue is hereby rejected.” 34. Considering the entire aspect of the matter and the order passed by the Co-ordinate Bench, we do not find any reason to interfere with the order passed by the Ld. CITA in deleting the addition made by the Revenue against the assessee. This ground of appeal preferred by the Revenue is, therefore, found to be devoid of any merit and dismissed. 35. In the result, the appeal preferred by the Revenue is dismissed. This Order pronounced on 31/08/2023 Sd/- Sd/- (WASEEM AHMED) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 31/08/2023 S. K. SINHA True copy आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं%धत आयकर आय ु 'त / Concerned CIT 4. आयकर आय ु 'त(अपील) / The CIT(A)- 5. *वभागीय -त-न%ध, आयकर अपील य अ%धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड3 फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील$य अ%धकरण, अहमदाबाद / ITAT, Ahmedabad