The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner of Income Tax (Appeals) [CIT(A)]’s decision to classify Rs. 129.03 lacs, including income from staff loans and miscellaneous income, as business income rather than income from other sources, affirming that such income was directly related to the business
Gujarat Urja Vikas Nigam Ltd, the respondent-assessee, revenue appellant had appealed against the CIT(A) order dated 20.12.2023.
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The revenue-appellant raised several grounds for appeal before the tribunal. First, it contested the CIT(A)’s decision to treat Rs. 129.03 lacs of interest and miscellaneous income as business income, rather than income from other sources.
Second, it disagreed with the CIT(A)’s removal of a Rs. 6,97,664 addition for interest on capital work-in-progress, arguing the assessee didn’t prove that no borrowed funds were used. Third, it argued that the CIT(A) wrongly excluded a disallowance under Section 14A from the Book Profit calculation under Section 115JB, which should have been included.
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The tribunal addressed the classification of Rs. 119.88 lacs in interest income from staff loans and Rs. 9.15 lacs in miscellaneous income. The CIT(A) had classified these as business income rather than income from other sources. The tribunal noted that the High Court of Gujarat had previously ruled on similar issues in the case of Gujarat Urja Vikas Nigam Ltd. vs. DCIT.
In that case, the High Court had confirmed that interest income from staff loans and advances, which the Revenue argued should be classified as income from other sources, was directly related to the business activities of the assessee.
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The High Court had upheld the view that such interest income, being incidental to the primary business operations, should be treated as business income rather than income from other sources. The tribunal followed this precedent and rejected the revenue’s appeal.
The Tribunal upheld the exclusion of Rs. 6,97,664 in interest expenses from capitalization on CWIP of Rs. 58,13,869, agreeing with the counsel that sufficient interest-free funds were available, as per Gujarat High Court precedent. Additionally, it rejected the Revenue’s claim to add Section 14A disallowances to book profit under Section 115JB of the act, following the same High Court ruling that such disallowances should not affect book profit calculations.
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The two-member bench comprising T.R. Senthil Kumar (Judicial Member) and Ramit Kochar (Accountant Member) rejected the appeal filed by the revenue.
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