2014 (11) TMI 770 - AT - Income Tax

Reduction of 90% of interest under Explanation (baa) to Section 80HHC - Netting off of interest expenses have nexus between interest income or not Held that - The word is receipt and not income accordingly while computing deduction u/s 80HHC 90% of gross receipt is to be reduced and not net of interest - stand of assessee has been that interest was earned on over due collection of sales bills, margin money deposits with the Bank and turnover tax refund from State Government etc. and these have direct business connection and were necessitated by primary business needs and do not represent any investment of surplus funds the AO is directed to reduce 90% of the interest by netting of interest expenses having nexus with interest income the order of the CIT(A) for reducing 90% of the interest by netting of interest expenses having nexus with interest income as held in ACG Associated Capsules (P) Ltd. v. CIT 2012 (2) TMI 101 - SUPREME COURT OF INDIA - Decided against revenue. Deduction u/s 80HHC Computation of export of trading goods - Held that - CIT(A) rightly observed that apart from expenses of ₹ 1,10,79,522/-, auditor s expenses of ₹ 17,27,437/- need to be allocated proportionately which makes total income of ₹ 1,28,06,959/- for allocation - thus, the AO was rightly directed to rework the indirect expenses for export of trading goods Decided against revenue.

Summary

Issues Involved:
1. Reduction of interest income for deduction under Section 80HHC
2. Disallowance of deduction claimed under Section 80HHC
3. Validity of reopening of assessment

Reduction of Interest Income for Deduction under Section 80HHC:
The issue revolved around the exclusion of 90% of gross interest from profits of business under Explanation (baa) to Section 80HHC. The contention was whether the interest income should be netted out with expenses or not. The assessee argued that interest earned had a direct business connection and should be netted out with expenses. The CIT(A) directed the Assessing Officer to reduce 90% of the interest by netting off interest expenses having nexus with interest income. The Tribunal upheld this decision citing the ACG Associated Capsules case. Thus, the order of the CIT(A) on this issue was upheld.

Disallowance of Deduction claimed under Section 80HHC:
The Assessing Officer disallowed the deduction claimed by the assessee under Section 80HHC based on various calculations related to export of trading goods. The AO calculated interest expenses and determined the deduction as a negative figure, leading to disallowance of the claimed deduction. The CIT(A) directed the Assessing Officer to rework the indirect expenses for export of trading goods, considering various expenses already allocated proportionately. The Tribunal upheld the CIT(A)'s decision on this issue as well.

Validity of Reopening of Assessment:
The assessee challenged the reopening of assessment, arguing that there was no fresh material or information for the reassessment. The authorized representative contended that the re-opening was based on a mere change of opinion and not justified. The Tribunal found in favor of the assessee, upholding the order of the CIT(A) on merit. The issue of reopening was deemed academic, and the assessee was given the liberty to raise it when necessary. Consequently, the Cross Objection filed by the assessee was dismissed.

In conclusion, both the Revenue's appeal and the assessee's Cross Objection were dismissed by the Tribunal in the judgment delivered on November 13, 2014, by Shri Shailendra Kumar Yadav, J. M., and Shri N. S. Saini, J.