The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT)set aside the matter for the Assessment Year (AY) 2017-18, directing a fresh adjudication on the disallowance under section 14A of the Income Tax Act,1961. This decision was based on errors in the CIT(A)’s order.
Gujarat Urja Vikas Nigam Ltd, the appellant-assessee,a public sector undertaking engaged in the purchase, sale, and distribution of electricity, had filed its Return of Income ( ROI ) for the AY 2017-18 on 18-10-2017. The return declared a total income of Rs. 90,92,02,810/- after setting off Brought Forward Losses of Rs. 75,45,22,135/,with a book profit under section 115JB of Rs. 165,54,21,963/.
The Assessing officer ( AO ), during scrutiny, made various disallowances, including a disallowance under section 14A of Rs. 154,61,81,000, interest capitalization on Capital Work in Progress(CWIP) of Rs. 6,97,664, interest income on IT refund of Rs. 10,49,47,929, interest income treated as “other sources” of Rs. 13,36,99,000, dividend income exempt under section 10(34/35) of Rs. 12,07,96,095, and adjustments to book profit under section 115JB, including the disallowance under section 14A of the act.
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The assessee, being dissatisfied with the AO’s order, filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) reviewed past appellate orders and observed that, for the current assessment year, the appellant had claimed to have paid Rs. 1.59 lakh as interest on working capital and had no fresh investments.
The CIT(A) directed the AO to recompute the disallowance under section 14A as per Rule 8D of the act, excluding the interest on working capital from the disallowance. If the recomputed disallowance was less than the exempt dividend income of Rs. 12.07 crores, the dividend income should be treated as taxable instead.
The assessee appealed to the tribunal, challenging the CIT(A)’s decision to include interest on loans from the erstwhile Gujarat Electricity Board(GEB) in the Section 14A disallowance. They argued against treating dividend income as taxable when the disallowance was less than the dividend and criticized the CIT(A) for not considering a prior order that limited disallowance to dividend income.
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Additionally, the assessee contested the dismissal of penalty proceedings under Section 270A and the confirmation of interest charges under Sections 234A, 234B, 234C, and 234D of the act.
The tribunal noted that the assessee counsel argued that the disallowance under section 14A was previously addressed in the assessee’s own case for AY 2013-14 and 2014-15. In that case, a similar disallowance was remanded to the AO for fresh adjudication, following the tribunal’s earlier decision for AY 2008-09.
The two-member bench comprising T.R. Senthil Kumar (Judicial Member) and Ramit Kochar (Accountant Member) set aside the matter for AY 2017-18, remanding it to the AO for fresh adjudication on the disallowance under section 14A of the act.
The appeal was partially allowed, with penalty and interest charges considered consequential and not requiring separate adjudication.
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