2009 (12) TMI 703 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated u/s 147/148 of the Income-tax Act, 1961.
2. Treatment of interest income for the purpose of deduction u/s 80HHC.
3. Netting of interest received against interest paid.

Summary:

1. Validity of Reassessment Proceedings:
The assessee challenged the reassessment proceedings initiated u/s 147/148, arguing that the original assessment was completed u/s 143(3) and all material facts were disclosed fully and truly. The Tribunal noted that the Assessing Officer (AO) did not apply his mind regarding the nexus between interest received and interest payment during the original assessment. The Tribunal held that the reopening was valid as there was no application of mind by the AO, following the judgment of the Delhi High Court in CIT v. Indian Sugar and Gen. Ind. Ex. [2008] 303 ITR 155 (Delhi).

2. Treatment of Interest Income for Deduction u/s 80HHC:
The AO treated the interest income on fixed deposits as "income from other sources" and excluded 90% of it from business income while computing the deduction u/s 80HHC. The Tribunal examined past decisions and held that the matter should be remanded back to the AO to examine the nexus between interest received and interest payment. The AO should exclude only 90% of net interest income, if any, from business profit for the purpose of computing the deduction u/s 80HHC, following the judgment in Shri Ram Honda Power Equip [2007] 289 ITR 475 (Delhi).

3. Netting of Interest Received Against Interest Paid:
The Tribunal referred to its previous decisions in the assessee's own case, where it was held that the assessee is eligible for netting of interest income against interest payment. The Tribunal directed the AO to examine the nexus between interest received and interest payment and compute the net interest accordingly.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and remanded the matter back to the AO for fresh decision on the nexus between interest received and interest payment and the computation of net interest for the purpose of deduction u/s 80HHC. The reassessment proceedings were held to be valid.