2005 (12) TMI 228 - AT - Income Tax

Summary

Issues:
1. Disallowance of interest received based on Tribunal's decision.
2. Question of nexus between interest received and interest paid.

Issue 1: Disallowance of Interest Received:
The appeal by the Revenue was against the order of the CIT(A) directing not to disallow 90% of the interest received based on a Tribunal decision. The Tribunal found in favor of the assessee, citing a Special Bench decision supporting the assessee's position. The Departmental Representative argued that there was no nexus between interest receipt and payment, urging reconsideration. The assessee's counsel contended that the nexus issue was not raised earlier and is a question of fact. The Tribunal held that it cannot consider a new factual issue without basis or fresh material. Referring to legal precedents, the Tribunal upheld the first appellate authority's order, emphasizing that the law does not require a nexus when net profit is the criterion.

Issue 2: Nexus Between Interest Received and Interest Paid:
The Departmental Representative referred to a Bangalore Bench decision discussing the nexus issue, where 90% of net interest was directed to be reduced after allowing set-off. The Tribunal, after considering submissions, agreed with the assessee's argument. It highlighted that the Tribunal's jurisdiction is limited to the issues raised in the appeal. As there was no finding on the nexus between interest received and paid by lower authorities, the Revenue could not raise this issue without additional grounds. The Tribunal emphasized that the law does not mandate a nexus when determining business profits under section 80HHC, distinguishing it from the "derived from" concept under section 80-I. The Tribunal dismissed the Revenue's appeal, upholding the first appellate authority's order based on consistent Tribunal decisions in the assessee's favor for earlier years.

In conclusion, the Tribunal dismissed the Revenue's appeal, emphasizing that the law does not require a nexus between interest received and interest paid when calculating business profits under section 80HHC. The decision was based on established legal principles and consistent Tribunal rulings in favor of the assessee.