TMI Blog2005 (8) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... ing relief under section 80HHC, 90 per cent of gross interest received from customers was to be reduced from the profits of the business. While doing so, he has arbitrarily rejected the contention raised by the appellant that only net interest should be reduced from the profits of business for calculation of relief under section 80HHC. 4. That the ld. CIT (Appeals) has erred in law and on the facts while rejecting assessee s contention that while calculating relief under proviso to section 80HHC(3) of the Income-tax Act, the negative figure arising as result of deduction of 90 per cent incentive and other income was to be ignored. Accordingly, he has erroneously upheld the action of ld. Assessing Officer inasmuch as it related to the reduction of deduction under section 80HHC from Rs. 39,68,328 as claimed by the appellant to Rs. 17,59,228. 5. That the ld. CIT (Appeals) has erred in law and on the facts while upholding the disallowance of Rs. 1,90,000 being the amount of interest on loans made to sister concern." 2. We have heard the arguments of both the sides and also perused the relevant material on record. As regards ground No. 1 relating to the disallowance made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset." As is evident, the aforesaid explanation deals with determination of actual cost of asset and in this context, it has been clarified that interest payable or paid in connection with the acquisition of an asset shall not be included and shall be deemed never to have been included in the actual cost of such asset to the extent it is attributable or relatable to any period after such asset is first put to use. The provisions contained in Explanation 8 , however, do not specifically deal with the situation where the assessee takes a loan in connection with the expansion of his existing business and interest on such loan being an expenditure incurred in the course of business is claimed to be deductible under section 36(1)( iii ) even though the assets purchased from such borrowed funds are not put to use during the relevant previous year. It is observed that this issue had directly arisen for consideration before the Hon ble Bombay High Court in the case of Calico Dyeing Printing Works v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be ( a )in accordance with the method of accounting regularly employed by the assessee; and ( b )further adjusted to include the amount of any tax, duty, cess, or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation . For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment." 5. A perusal of the aforesaid provisions would clearly reveal that the same specifically deal with the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession". The issue before us, however, is not relating to valuation of purchase and sale of goods for the purposes of determining the income chargeable under the head "Profits and gains of business or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per Explanation ( baa ) to section 80HHC. In support of this contention, he has relied on the decision of Hon ble Punjab Haryana High Court in the case of Rani Paliwal v. CIT [2004] 268 ITR 220. We, however, find it difficult to accept this contention of the learned DR. The issue before us is not whether the interest income is derived by the assessee-company from its export business but it relates to the computation of deduction under section 80HHC which itself contains formula for determining the export profit of the assessee. As per the said formula, interest, inter alia , has to be excluded to the extent of 90 per cent for computing the "profits of the business" in accordance with Explanation ( baa ). In this context, the question before us is whether 90 per cent of gross interest or net interest is to be excluded and this question has been directly answered in favour of the assessee by the Delhi Special Bench of ITAT in the case of Lalsons Enterprises v. Dy. CIT [2004] 89 ITD 25 wherein it was held that if there is direct nexus between the interest earned and the interest paid by the assessee, only the net amount of such interest to the extent of 90 per cent sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs before us, ld. AR submitted that this issue is covered in favour of the assessee by the decision of the Third Member in the assessee s own case dated 10-12-2003 in ITA Nos. 409/96 and 313/97 for assessment years 1992-93 and 1993-94, copy filed at pages 7-20 in the paperbook. Ld. AR also submitted that the loan was old one and nothing was disallowed in the year of advance. He, therefore, strongly assailed the order of the CIT(A). Ld.DR. on the other hand, did not controvert the submissions made by ld. AR. We, after hearing both the parties and perusing the order of the Third Member ( supra ) in the assessee s own case, are of the opinion that the issue involved is the same. We, therefore, respectfully following the aforesaid order dated 10-12-2003 decide the issue in favour of the assessee and against the revenue. Accordingly, the disallowance made by the Assessing Officer and sustained by the CIT(A) under section 36( i )( iii ) is deleted. Ground succeeds." 10. A perusal of the above clearly shows that the impugned loan of Rs. 9,50,000 was given by the assessee-company to its sister concern i.e. M/s Manipur Vanaspati in the past and no disallowance on account of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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