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TMI Blog2025 (1) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... as "CIT(A)"] passed under Section 250 of the Income Tax Act, 1961[hereinafter referred to as "the Act"]. The CIT(A) orders arose from the assessment orders passed under Section 143(3) of the Act, by the Deputy Commissioner of Income Tax, Circle 1(1)(1), Vadodara [hereinafter referred to as "AO"], dated 25.02.2015 (AY 2012-13) and 28.12.2018 (AY 2016-17). 2. The primary issue in both the appeals concerns the treatment of interest income on loans and advances provided to employees, amounting to Rs. 4,56,05,000/- (AY 2012-13) and Rs. 8,00,35,000/- (AY 2016-17). 2.1. Since the issues involved are identical except for the quantum of income, both appeals are disposed of together by this consolidated order. Facts of the case: 3. The assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Orissa High Court in Odisha Power Generation Corporation Ltd., which held that interest income from staff loans and welfare activities is incidental to business and qualifies as "business income." For AY 2012-13, the CIT(A) deleted the addition of Rs. 4,56,05,000/- made by the AO, holding that the interest income was rightly classified as "business income." For AY 2016-17, the CIT(A) similarly deleted the addition of Rs. 8,00,35,000/-, reiterating that the loans were incidental to the assessee's business operations. 4. Aggrieved by the orders of CIT(A), the Revenue is in appeal(s) before us with the following grounds of appeal(s): In ITA No. 1654/Ahd/2024 for A.Y. 2012-13 "i) Whether on the facts and circumstances of case and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ujarat Urja Vikas Nigam Ltd. dismissed the appeal of Revenue on the similar issue. The AR further placed reliance on the Co-ordinate Bench decision dated 08/08/2024in case of Gujarat Urja Vikas Nigam Ltd. (ITA Nos. 166/Ahd/2022, 231/Ahd/2024, 223/Ahd/2022 and 293/Ahd/2024). 6. The Departmental Representative (DR) argued that the primary business of the assessee is power generation, not lending or earning interest income. Interest income earned from staff loans and advances was thus unrelated to the core business activity and should be classified as "income from other sources." The DR contended that the loans provided to employees were for their personal benefit and lacked a direct connection to the business operations of the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssification made by the AO. 7.1. The primary issue under consideration is whether interest income earned from staff loans and advances is incidental to the business of power generation and should be classified as "business income", or whether it constitutes "income from other sources" as claimed by the Revenue. We note that the CIT(A) relied on binding judicial precedents, particularly the decision of the Orissa High Court in Odisha Power Generation Corporation Ltd., which unequivocally held that interest income from employee loans and welfare activities is incidental to the business and qualifies as "business income." We also note the decision of the Gujarat High Court in Gujarat Urja Vikas Nigam Ltd., which upheld a similar classificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in Odisha Power Generation Corporation Ltd. focused on the incidental nature of the income to business operations, which applies equally to the present case. We note that employee welfare measures, including loans and advances, play a vital role in retaining skilled personnel, ensuring uninterrupted business operations, and improving overall efficiency. Such measures are particularly critical in industries like power generation that demand consistent and reliable operations. 7.5. Based on the above findings, we conclude that he interest income of Rs. 4,56,05,000/- (AY 2012-13) and Rs. 8,00,35,000/- (AY 2016-17) earned from loans and advances provided to employees is incidental to the business of power generation and qualifies as "busines ..... X X X X Extracts X X X X X X X X Extracts X X X X
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