The Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) criticized the Principal Commissioner of Income Tax ( PCIT ) for disallowing Rs. 4.18 crores as interest on unutilized government grants claimed by Gujarat Power Corporation Ltd. ( GPCL ).
Gujarat Power Corporation Ltd. (GPCL), the assessee is a government undertaking, issues related to the assessment year 2018-19. The Assessing Officer (AO) had passed an assessment order allowing the assessee’s claim of Rs. 4.18 crore as interest expenditure on unutilized government grants, which included Rs. 2.10 crore paid to Solar Energy Corporation of India (SECI) and Rs. 2.08 crore paid to various government entities.
The Principal Commissioner of Income Tax (PCIT) invoked Section 263 of the Income Tax Act to revise the AO’s order alleging it was erroneous and prejudicial to the interest of revenue. The PCIT claimed that the AO failed to conduct proper inquiries and verify whether the interest expenditure on unutilized grants was allowable as revenue expenditure because the grants are not loans.
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Aggrieved, the assessee challenged the PCIT’s revision order before the ITAT arguing that the AO had made detailed and specific inquiries during the assessment proceedings, issuing multiple notices and receiving detailed responses and submissions.
The assessee’s counsel submitted evidence, including government guidelines from the Ministry of New and Renewable Energy (MNRE) which required that funds received from SECI for renewable energy projects be kept in interest-bearing accounts, with accrued interest credited to the government.
The counsel further argued that the interest payments of Rs. 2.10 crore to SECI and Rs. 2.08 crore to other government entities complied with these guidelines and were directly related to the management of government grants. The counsel also claimed that the interest expense was necessary to offset the taxable interest income earned from the deposits and was correctly accounted for as revenue expenditure.
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The two-member bench comprising Annapurna Gupta (Accountant Member) and Siddhartha Nautiyal (Judicial Member) observed that PCIT failed to substantiate why the AO’s order was erroneous or how the interest expenditure claims prejudiced revenue interests.
The tribunal explained Section 263 cannot be invoked merely because the PCIT disagrees with a plausible and lawful view taken by the AO and that the PCIT violated principles of natural justice by failing to consider the assessee’s detailed submissions during the Section 263 proceedings.
So, the tribunal upheld the AO’s decision and the appeal of the assessee was allowed.
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