2009 (8) TMI 827 - AT - Income Tax

Deduction u/s 80HHC - Whether the whole profit on sale of DEPB entitlement is to be treated as business profit - Whether for the profit referred to therein requires any artificial cost to be interpolated - Held that:- The face value of DEPB is chargeable to tax under section 28(iiib) at the time of accrual of income, that is, when the application for DEPB is filed with the competent authority pursuant to exports and profit on sale of DEPB representing the excess of sale proceeds of DEPB over its face value is liable to be considered under section 28(iiid) at the time of its sale. Whatever is said about DEPB, shall also hold good for DFRC, on both its components, viz., the face value of DFRC and profit on its transfer, except for the fact that the profit on sale of DFRC shall be charged to tax under section 28(iiie). There is no dispute about the duty drawback, which shall be chargeable to tax at the time of accrual of income under section 28(iiic) when application is filed with the competent authority after making exports. - Since the necessary facts for the determination of the quantum of deduction under section 80HHC, are not available on record - AO is directed to compute the amount of relief.

Disallowance of expences - Held that:- Disallowance so made on account of telephone expenses is reasonable and does not warrant any further interference. Insofar as the disallowance of motor car expenses and interest on car loan is concerned AO has made disallowance at 20 per cent of such expenses which are on higher side. Thus order to restrict it to 10 per cent of these expenses

Regarding Interest income and deduction under section 80HHC - Business income Vs. Interest income - Held that:- It as an undisputed fact that the said interest was earned from the ‘temporary deployment of business funds’, as contended by the assessee before the authorities below - If the funds of the business are parked for safe keeping or with a view to earn interest income de hors the main business activity, the interest resulting therefrom cannot assume the character of business income and hence will resultantly fall under the residual head of income, viz. ‘Income from other sources’ - Held that: the interest income has been rightly held to be taxable under the last head of income and there is no amount deductible against this income - Appeals are partly allowed for statistical purpose