2007 (9) TMI 453

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....Explanation (baa) of section 80HHC of the Income-tax Act, 1961, whereas assessee is aggrieved for not allowing netting of interest paid on overdraft obtained against these FDRs, out of interest received on the FDRs, while computing deduction in terms of Explanation (baa) of section 80HHC of the Act. 3. Facts in brief are that the assessee was engaged in the business of export of scarves, bags, fashion accessories, handicrafts, furnishings, artificial jewellery etc. Besides business income, the assessee has also shown income from other sources as well during the year under consideration. The assessee had shown interest income of Rs. 8,11,669 under the head 'Business income' and claimed deduction under section 80HHC. The Assessing Officer ....

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....me as 'income from business', on the plea that such interest income was inextricably linked with the export business. Here we are concerned with first category where Assessing Officer treats such income as not related to business of exports, but as 'income from other sources'. However, the Jurisdictional High Court in such situation have held that these receipts merits separate treatment under section 56 of the Act which is outside the ring of 'profit and gains from business and profession'. The court has further provided that to give effect to this position, the Assessing Officer while computing the profits of the export business will have to remove from the debit side of the Profit & Loss Account, the corresponding interest expenditure th....

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....bank deposit. Taking out such interest income and interest expenditure out of the Profit & Loss Account prepared for computing export profits, will change such export profit, therefore, Assessing Officer is to recalculate permissible deduction under section 80HHC with reference to such revised export profits. On the other hand, such interest expenditure is to be allowed as a deduction while computing net interest income to be taxed under section 56 as income from other sources. In view of the proposition laid down by Jurisdictional High Court as discussed above, the Assessing Officer is required to exclude any interest expenditure if any relatable to such income from the Profit & Loss Account of export business. At the very same time such i....