Cit vs Punjab Stainless Steel Ind.
2007 Latest Caselaw 125 Del

ORDER

1. By order dated 13-10-2006, after hearing counsel for both parties, the following substantial questions of law were framed by the court in the present appeal for consideration :

1. Whether ITAT was legally correct in holding that assessed is entitled to reduce interest paid by it from the interest received, by it while calculating deduction under Section 80HHC read with Explanation (baa) of the Income Tax Act?

2. Whether ITAT was legally correct in holding that the sale proceeds of scrap received by the assessed were not to be included in the income while computing deduction under Section 80HHC?

2. The facts of the present case are that the assessing officer treated the interest income as business income but did not allow netting of interest. As a result, he directed 90 per cent of the interest income be deducted from the business profits although interest paid by the assessed was much greater than the said interest income. The Commissioner (Appeals), by order dated 18-6-2001 allowed the assessed's appeal and held that the assessing officer had erred in reducing from the profits 90 per cent of the interest for computing deduction under Section 80 HHC.

3. In the appeal by the department to the ITAT the ground urged in this regard, (as set out in para 3 of the impugned order dated 17-3-2006 of the ITAT) related "to calculation of deduction under Section 80HHC." Clearly no challenge was made to the finding of the assessing officer that the interest income was business income. This also was not the question on which this appeal was admitted by this Court. Therefore the only question that arises in the present case whether netting should be allowed.

4. In view of the judgment rendered by us on 12-1-2007 in the batch of appeals (ITA No. 166/2000 etc.) of which the present appeal forms part, we hold that netting should be allowed since the interest income has been treated as business income. Therefore we have answered the first question in the affirmative and against the revenue.

5. As regards the second question, we hold that the Tribunal was right in its conclusion that the income from the sale of scrap generated during the manufacture of goods which are entirely exported, was not incidental to the export activity and could not be treated as business income. Therefore this income was rightly not included for the purposes of computation for deduction under Section 80HHC. Therefore question No. 2 is also answered in the affirmative and against the revenue.

6. Accordingly the appeal is dismissed with no orders as to costs.