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2014 (3) TMI 1175 - AT - Income TaxComputation of deduction u/s 10A - disallowance of bank interest - assessee submitted that the interest earned had a direct nexus with the business of the assessee as the fixed deposit were kept under lien with the bank for sanction of loans - HELD THAT:- It is clear from the finding of CIT(A) that the AO was directed to consider the netting of expenses in view of the decisions of Hon’ble Supreme Court in the case of ACG Associated Capsules [2012 (2) TMI 101 - SUPREME COURT], hence no grievance is left against the order of CIT(A). Disallowance of Job Charges - We direct the AO to redo the assessment by considering only the net receipt in respect of job work. The expenditure in this respect has to be worked out on the basis of either man hours put in the job work in comparison to the own manufacturing activity or on the basis of output ratio in the own manufacturing activity and job work. The assessee is directed to produce relevant details for allocation of the expenditure regarding job work activity. If it is not possible to work out the allowable expenditure on the above said basis then the AO should work out on some reasonable basis. Disallowance is exchange difference gain on loans - We find that the assessee is having two kinds of loan one is short term loan against export bills which is clear from the schedule of the balance sheet and other is term loan. Even in the schedule 4, the assessee has shown secured loan in foreign currency which is term loan and further the working capital loan under the category of pecking credit, post shipment foreign currency account. As far as the working capital loan is concerned the exchange gain on such loan should be allowed as business income and so far as the exchange gain on secured term loan which is not for working capital the same cannot be treated as business income for the purpose of section 10A. Accordingly we direct the AO to verify the exact details of the foreign exchange gain in respect of two kinds of loan and then allow the claim of the assessee with respect to the working capital loan. Appeal of the assessee is partly allowed.
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