2015 (4) TMI 804 - HC - Income Tax

Treatment of other income while calculating deduction u/s 80HHC of Income Tax Act, 1961 - Netting off of interest income against interest expenditure under deduction u/s 80HHC - Held that - The said issues are squarely covered by the decision of the Hon'ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd. 2012 (2) TMI 101 - SUPREME COURT OF INDIA . It is held by the Hon'ble Supreme Court in this decision that 90% of not the gross interest but only the net interest, which has been included in the profits of the business of the assessee as computed under the heads Profits and gains of business or profession is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of business. Applying the law laid down by the Hon'ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd. the aforesaid questions are held in favour of the assessee and order passed by the ITAT in ITA No.2053/Ahd/2004 for AY 1997-98 is hereby quashed and set aside. Now, the AO to recompute the deduction under Section 80HHC of the Income-tax Act considering the law laid down by the Hon'ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd. 2012 (2) TMI 101 - SUPREME COURT OF INDIA . - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of the Income Tax Appellate Tribunal's decision on mistake in the assessment order.
2. Exclusion of 90% of 'Other Income' while calculating deduction under Section 80HHC.
3. Allowance of "Netting Off" of interest income against interest expenditure.

Interpretation of ITAT Decision on Mistake in Assessment Order:
The appellant challenged the ITAT's decision regarding the apparent mistake in the assessment order for the AY 1997-98. The High Court analyzed the issue and referred to the decision in ACG Associated Capsules (P.) Ltd v. CIT, where it was clarified that only the net interest, not the gross interest, should be deducted under Section 80HHC. Following this precedent, the High Court held in favor of the appellant, quashing the ITAT's order and directing the Assessing Officer to recalculate the deduction in line with the Supreme Court's ruling.

Exclusion of 'Other Income' for Section 80HHC Deduction:
Another substantial question raised was the exclusion of 90% of 'Other Income' like Interest, Misc. Income, and Insurance Claim while calculating the deduction under Section 80HHC. The High Court pointed out that this issue was settled by the Supreme Court's decision in ACG Associated Capsules (P.) Ltd, where it was clarified that only net interest should be considered for the deduction. Consequently, the High Court ruled in favor of the appellant, setting aside the ITAT's order and instructing the AO to recompute the deduction in accordance with the Supreme Court's interpretation.

Allowance of "Netting Off" of Interest Income:
The third issue revolved around the allowance of "Netting Off" of interest income against interest expenditure. However, the High Court did not delve into this matter as the previous decisions on questions 2 and 3 had already been resolved in favor of the appellant based on the Supreme Court's ruling in ACG Associated Capsules (P.) Ltd. Consequently, the High Court allowed the appeal in favor of the appellant without any costs, as the primary issues had been addressed and decided in the appellant's favor.