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2022 (3) TMI 539 - HC - Income TaxDeduction u/s 80-IA - Nature of Interest income - Advances extended to Employees - interest on the bonds issued by GRIDCO in lieu of unpaid energy bills - Nexus with business activity - Disallowing deduction towards ‘power profit’ under Section 80-IA (4)(iv) - HELD THAT:- The Assessee offered an explanation regarding interest income earned by it, from advances given to its employees as well as provision of electricity and water charges collected from water through its employees and contractors for facilities in the township, receipt from transit hostel, sale of scrap, insurance claim etc. The facilities were given to its employees for better conditions of employment. This was to improve the overall efficiency of the undertaking which is devoted to the single purpose of generation of power. The Court, therefore, has no difficulty in accepting the submission of the Assessee that the interest received on advances and loans given to its employees are receipts in normal course of carrying its business and should be considered as income derived from its essential business activities. Likewise, the late payment by GRIDCO for the electricity supplied, is sought to be made up by GRIDCO by issuing bonds on which the Assessee earns interest. This also therefore, has a direct nexus with the essential business activity of the Assessee. In CIT v. Meghalaya Steels Ltd [2016 (3) TMI 375 - SUPREME COURT] held that subsidies were reimbursement for either the entire or partial costs incurred towards transporting raw materials to the Assessee’s factory or finished products to its dealers, who then sell the finished products. Further, power subsidy, interest subsidy and insurance subsidy were also reimbursed, either wholly or partially, power being a necessary element of the cost of manufacture of the Respondent’s products. Extending the same analogy and reasoning to the interpretation of Section 80-IA, this Court is satisfied that on the netting principle, since there is no other activity of the Assessee except power generation, the AO, the CIT(A) and the ITAT, were in error in disallowing the aforementioned sum as deduction under 80-IA of the IT Act. There is merit in the contention of the Assessee that the interest received from the bonds issued by GRIDCO have a direct nexus with its essential business activity and therefore, was income derived from it, thus, making it eligible for such deduction. The question framed by this Court is, therefore, answered in the negative i.e. in favour of the Assessee and against the Department. The impugned orders of the ITAT and the corresponding orders of the AO and the CIT (A) to the above extent for the AYs 2002-03, 2003-04, 2007-08 and 2008-09 are hereby set aside. Disallowing the expenditure incurred by the Assessee on development of periphery of the industry claimed by the Assessee to be wholly and exclusively for the purposes of business - HELD THAT:- Following the rule of consistency, the Court answers the sole question framed in the negative i.e. in favour of the Department and against the Assessee.
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