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2018 (1) TMI 1146 - AT - Income TaxEligible for deduction u/s. 10A - nature of income/ additions u/s 41(1) - inclusion of interest income and other income earned by assessee - whether these incomes are incidental to the business and are to be treated as ‘business profits’? - Held that:- For excess provisions reversed pertain to provisions created in immediately previous financial year 2007-08 which are considered excess, including audit fee excess. These amounts are incomes u/s. 41(1), if they are allowed as deduction in earlier year. Since the amounts are directly connected to the business, the excess provision reversed is certainly having a nexus with the business. As far as the bad debts recovered are concerned, as seen from the ledger copy placed on record, these bad debts are previously written-off so to that extent profit in those years has come down. Therefore, the recovery of the bad debts certainly has a business connection. Miscellaneous receipts as seen from the ledger copy, these are incentives received from airlines, recovery of subscription from the employees, notice period payments recovered from the employees who retired or resigned, recovery of salary advances etc., and also includes sale of scrap. These amounts are part of business income and has a direct nexus with the activity of assessee. Therefore, since these amounts have a direct nexus (under the Company Law, these are to be reported as other incomes), We are of the opinion that these amounts are to be considered as part of business income and cannot be excluded for the purpose of deduction u/s. 10A of the Act. For interest income it is not known in the present facts of the case whether the interest income is earned on short term deposits out of surplus funds or long term deposits which has no connection with the business activity of assessee. Even though the AO has treated the income as ‘business income’, there is no finding whether the interest income has a nexus with the business of the ‘undertaking’. Just because the assessee has earned interest income out of the business it may not be eligible for deduction unless it has nexus with the business of undertaking. Thus in the interest of justice, we restore the issue to the file of AO to give proper findings on the nature of interest income earned and accordingly, consider the claims of assessee
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