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TMI Blog2014 (7) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure incurred for the purposes of earning such interest - The nexus between obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) for the purpose of earning the interest on the fixed deposit, to draw an analogy from section 37, will require to be shown by the assessee for application of the netting principle - there has to be nexus between the payment of interest and earning of interest - CIT(A) only compared between the interest received and interest payment – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO to examine the nexus between the borrowed money and money utilized for the purpose of earning interest income – Decided in favour of Revenue. - ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT(A) deleted the addition on the ground that the interest paid by the assessee is more than the interest received and therefore, there is a loss under the head interest . The relevant finding of learned CIT(A) reads as under:- 3.3 I have considered the order of the AO and the submissions of the assessee and I find considerable merit in the submission of the assessee that the assessee has paid the interest payment of ₹ 52,60,709/- against which the assessee has received the interest income of ₹ 16,84,240/- only and in the process the assessee has incurred loss under the head interest which is the part of the business activity and as such there is no claim of excess deduction u/s 80IB. It is also apparent that the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction under section 80HH. 5. The issue whether while excluding the interest from the profits and gains of business for the purpose of computing eligible profit of the industrial undertaking is considered the same is decided by Hon'ble Jurisdictional High Court in the case of CIT Vs. Shri Ram Honda Power Equip [2007] 289 ITR 475 (Delhi). Of course, in that case, the question was of computation of eligible profit for the purpose of Section 80HHC. However, the ratio laid down therein would be squarely applicable for the purpose of computing profit for the purpose of Section 80IB also. That their Lordships of the Hon'ble Jurisdictional High Court in the case of Shri Ram Honda Power Equip (supra) held as under:- The word inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lized for the purpose of earning interest income. We, therefore, set aside the orders of authorities below on this point and restore the matter to the file of the Assessing Officer. We direct him to examine the nexus between the borrowed money and money utilized for the purpose of earning interest income. He will work out the net interest in the light of the decision of Hon'ble Jurisdictional High Court in the case of Shri Ram Honda Power Equip (supra) and will exclude from the eligible profit only the net interest. Needless to mention that the Assessing Officer will allow adequate opportunity of being heard to the assessee while giving effect to this order. 7. In the result, the appeal of the Revenue is deemed to be allowed for stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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