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2012 (11) TMI 706 - AT - Income TaxDisallowance on account of Guarantee Commissions – guarantee commissions paid to directors on account of guarantee given by them to the bank. - Following the decision of court in CIT v. Metalizing Equipment Co. (P) Ltd. (2008) as reported 8 DTR 12 (Raj)Held that:- since no difference in facts could be pointed out by DR of the Revenue, there is no reason to take a contrary view in the present year and hence, by respectfully following the precedent, issue is decided in favour of assessee in this year also - assessee’s appeal is allowed. Interest Income and Service Charges – Interest income is to be assessable as income from business or income from other sources and whether neeting should be allowed or not - Following the decision of court in case of [CIT v. Shri Ram Honda Power Equip 2007 (1) TMI 86 - HIGH COURT, DELHI] held that:- even if interest is earned on fixed deposits for the purpose of availing of credit facilities from the bank, it does not have a nexus with the export business and therefore, has to necessarily be treated as income from other sources and not business income. They have also added a cavet as per which, if in a given case, the Assessing Officer has held that interest income is business income and this aspect has not been challenged by the Department, then that question can not to be permitted to be re-opened and then the only question will be if netting should be allowed. Since this aspect is squarely covered in favour of Revenue and against the assessee by the judgment of Hon’ble Delhi High Court, this aspect is decided against the assessee and Ground of netting off of the assessee is rejected because in the present case, AO has treated the interest income as income from other sources. On netting aspect,it is held by Hon’ble Delhi High Court in this very case that to the extent the assessee can establish the nexus between interest payment and interest income by showing that interest expense was incurred for the purpose of earning interest income then to that extent netting should be allowed and only such net interest income should be considered for exclusion to the extent 90% from business profit as per clause (baa) of the Explanation to u/s 80HHC.- Decided in favor of assessee. Processing charges - deduction u/s 80HHC - held that:- such processing charges are hit by clause (baa) of Explanation to Section 80HHC and therefore 90% of the same should be excluded from the business profit and such receipts should also be included in total turnover for the purpose of computing deduction allowable to the assessee u/s.80HHC. - decided against the assessee. Disallowance of Expenses – Gift to employees - Held that:- Expenditure incurred under the welfare scheme for its employees to promote employer – employee relationship is held to have been incurred in the interest of business promotion. The disallowance made is, therefore, cancelled. Disallowance on current repairs of machinery.- Held that:- repairs and overhauling of the machines is in the nature of current repairs aimed at preserving and maintaining the already existing machines. No new assets have come into existence nor is this the proposition of the Assessing Officer. Under the circumstances, the expenditure incurred by the appellant is held to be revenue in nature. The disallowance made is cancelled. The Assessing Officer is directed to withdraw depreciation already allowed while giving effect to this order. Deduction u/s 80HHC - Appellant is accounting income on account of credit for self generated power separately as income and not reducing it from the GEB bills since the GE shows it separately as a credit. Under the circumstances, this cannot be covered under any of the items in Explanation (baa). Under the circumstances, the exclusion of 90% of the said amount from the profits of the business for the purposes of deduction u/s.80HHC is cancelled. Similarly, the warranty provision written back as income is also held to be not covered under Explanation (baa) to sec. 80HHC. Under the circumstances, the action of the Assessing Officer in excluding the said amount from the profits of the business for the purposes deduction u/s.80HHC is also cancelled. The Assessing Officer is directed to re-compute the deduction u/s.80HHC accordingly - appeal of Revenue is dismissed - In combine result, appeal of assessee is partly allowed whereas Revenue’s appeal is dismissed.
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