2014 (12) TMI 183 - HC - Income Tax

Entitlement for claim of deduction on interest income u/s 80HH and 80I - Adjustment of interest - Whether the Tribunal was right in not permitting adjustment of interest debited to the P&L Account - Held that - Following the decision in 2014 (12) TMI 171 - GUJARAT HIGH COURT - If on the basis of the discounts given by the sellers, the total profit of the assessee from the activity which was otherwise eligible for deduction 80I/80HH of the Act was to that extent increased, there is no reason why such larger sum should qualify for deduction - In M/s ACG Associated Capsules Pvt. Ltd. (Formerly M/s Associated Capsules Pvt. Ltd.) & Others Versus The Commissioner of Income Tax, Central-IV, Mumbai & Others 2012 (2) TMI 101 - SUPREME COURT OF INDIA it has been held that the foundation for the logic for excluding the net profit and not the gross profit from the claim of deduction when it is found that the source of income does not quality for such deduction u/s 80HHC - section 80HHC represents vastly different scheme of deduction and also provides for complex formula for deriving for the eligible profit for deduction under different situations depending on whether the exporter is also engaged in the local business or not - when the profit is being excluded from the claim of deduction, not the gross profit but the net thereof, that is the gross profit minus the expenditure incurred for earning such profit should be excluded Decided partly in favour ofassessee.

Summary

Issues involved:
1. Interpretation of deductions under Section 80HH and 80I of the Income Tax Act.
2. Adjustment of interest income and expenses in the Profit and Loss Account.

Comprehensive Analysis:
Issue 1: The primary issue revolved around the entitlement of the appellant to claim deductions under Section 80HH and 80I of the Income Tax Act concerning interest income. The court referred to a previous decision in Tax Appeal No.810/2013, where a similar matter was addressed. The court emphasized the concept of excluding net profit rather than gross profit for deduction purposes. It was clarified that when income does not qualify for deduction, the net profit (gross profit minus incurred expenses) should be excluded. The court relied on various precedents and upheld the exclusion of net income for determining deductions under Section 80HH and 80I. Consequently, the first part of the question of law was answered against the assessee and in favor of the Revenue.

Issue 2: The second part of the question of law involved the adjustment of interest debited to the Profit and Loss Account. The court ruled in favor of the assessee, stating that the interest debited should be permitted for adjustment. The decision was based on the understanding that the net profit should be considered for such adjustments, aligning with the principles established in the previous judgment. As a result, this part of the question of law was answered in favor of the assessee and against the Revenue.

Final Decision: The court concluded by stating that the first part of the question of law was decided in favor of the Revenue, while the second part was resolved in favor of the assessee. Consequently, both appeals were disposed of accordingly, with each issue addressed and clarified based on the interpretations of relevant provisions and precedents.