TaxTMI 
TaxTMI 
2014 (7) TMI 676
X X X X Extracts X X X X
X X X X Extracts X X X X
....961 on the interest earned on FDRs which is not derived from the eligible undertaking. 2. Whether the ld.CIT(A) is correct in not appreciating that the interest paid by the assessee in the course of its business cannot be set off with the interest earned by the assessee on FDRs which is taxable under the head income from other sources." 3. The facts of the case are that the assessee derives income from manufacturing and trading of sandalwood oil. Admittedly, it is eligible for deduction under Section 80IB. However, the Assessing Officer noticed that the interest income of Rs. 16,84,239/- credited to the profit & loss account has also been considered by the assessee while computing deduction under Section 80IB. He, therefore, reduced the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the case of Pandian Chemicals Ltd. Vs. CIT - [2003] 262 ITR 278, wherein their Lordships held as under:- "The words "derived from" in section 80HH of the Incometax Act, 1961, must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. Held accordingly, that interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and paying interest thereon (laying out the expenditure by way of interest) for the purpose of earning the interest on the fixed deposit, to draw an analogy from section 37, will require to be shown by the assessee for application of the netting principle." 6. From the above, it is evident that while computing the eligible profit of the business (in the case of industrial undertaking), only net interest is to be excluded but not the gross interest. Net interest would be gross interest reduced by expenditure incurred for earning such interest. Therefore, there has to be nexus between the payment of interest and earning of interest. We find that learned CIT(A) only compared between the interest received and interest payment. He has not at a....