IN THE INCOME TAX APPELLATE TRIBUNAL DELHI `A' BENCH
BEFORE SHRI A.D. JAIN, JM & SHRI A.N. PAHUJA, AM
ITA No.2939/Del/2012
Assessment year:2001-02
Assistant CIT,Circle-22(1), V/s . Ankit Jain,C-599, New Friends
New Delhi Colony,Phase-1, New Delhi
[PAN : AASPJ 5472 J]
(Appellant) (Respondent)
Assessee by S/Shri V.P.Gupta &
Amar Mittal,ARs
Revenue by Mrs. Anusha Khurana, DR
Date of hearing 21-08-2012
Date of pronouncement 14-09-2012
ORDER
A.N.Pahuja:- This appeal filed on 12.06.2012 by the Revenue against an order
dated 14.03.2012 of the learned CIT(A)-XI, New Delhi, raises the following
ground:-
"1) On the facts and in the circumstances of the case,
the ld. CIT(A) has erred in holding the interest income as
business income and only the netted interest is to be
taxed as per provisions of section 80HHC and further
90% of the netted interest will be reduced from the profit
of business as per explanation baa below sub-section 4B
of section 80HHC of the Act.
2. The appellant craves leave to add or amend any of
the grounds of appeal before or during the course of
hearing of the appeal. "
2. Facts, in brief, as per relevant orders are that return declaring
income of ``89,13,264/- filed on 31.10.2001 by the assessee, exporting
readymade garments, was selected for scrutiny with the service of a notice u/s
2 ITA no.2939/Del./2012
143(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act), issued on
20th September, 2002. During the course of assessment proceedings, the
Assessing Officer (A.O. in short) noticed that the assessee claimed deduction of
``1,85,55,055/- u/s 80HHC of the Act. Inter alia, on perusal of profit and loss
account, the AO noticed that the assessee credited an amount of ``47,49,445/-
on account of net interest . To a query by the AO, the assessee replied that in
order to avail packing credit and LC limits,, he purchased fixed deposits from the
bank from which interest was earned while interest was paid on the actual use of
the limit. Accordingly, in the books only one interest account was maintained. To
a further query by the AO, seeking details of gross interest, the assessee
furnished the following details:-
[In` ]
Amount of accrued interest from I0B 54,28,269/-
Amount of interest recoverable from
Mr. Anand Gupta 7,92,740/-
Amount of interest refunded paid at
the time of export bills negotiation 1,14,171/-
Gross interest received 63,35,180/-
Less: Amount of interest paid to I0B
during the year as per copy of
Statement filed. 15,85,735/-
Net amount of interest 47,49,445/-
2.1 After examining the aforesaid details, the AO asked the assessee
as to why interest be not taxed as income under the head other sources.
However, the assessee did not furnish any explanation and reiterated their
submissions already furnished vide letter dated 6th August, 2003. Accordingly,
the AO while rejecting the submissions of the assessee concluded that interest
income was not derived from the activity of export of goods or merchandise.
Since interest income was not directly related to export activities, the AO while
relying upon decision in Cambay Electric Supply Industrial Co. Ltd. Vs. CIT
(1978) 113 ITR 84 (SC) and CIT Vs. Sterling Foods (1999) 237 ITR 579 (SC);
Hindustan Lever Ltd. Vs. CIT (1999) 239 ITR 297 (SC); CIT vs. Shirke
Constructions Equipments Ltd.,246 ITR 430(Bom.);CIT vs. K.K Doshi & Co.,245
3 ITA no.2939/Del./2012
ITr 849(Bom.)and K. Ravindranathan Nair Vs. Dy. CIT,262 ITR
669(Kerala),following decisions in 243 ITR 192;253 ITR 553;&253 ITR 319,
brought to tax the gross amount of interest of ``63,35,180/- under the head
"Income from other sources" while concluding that the interest was not derived
from the export activities. Accordingly deduction u/s 80 HHC was reduced to
``1,69,06,511/-.
3. On appeal, the ld. CIT(A) allowed the claim of the assessee,
holding as under:-
"11. I have considered the submissions made. The issue
in this case is as to whether the interest income was from business
activity of the appellant or from other sources. Also whether the
interest income is inextricably connected with the business of the
appellant. In this context, the appellant has relied a copy of
appellate order of the learned CIT(A)-XXVI. New Delhi for the
assessment year 2001-02 in the case of Shri Ajay Kumar Jain, a
relation of the appellant to impress upon the point that in the similar
circumstances, the interest income was held to be business income
and deduction u/s 80HHC was allowed accordingly.
12. Following the decision of learned CIT(A)-XXVI, New
Delhi in appeal No.272/02-03 of 25.02.2004 in the case of Shri Ajay
Kumar Jain for the assessment year 2001-02 and so also the
decision of Hon'ble Spl. Bench ITAT, Delhi in I.T.A. No.2990/D/99,
and as per facts I direct the learned AO to recompute the deduction
u/s 80HHC by way of taking into account net interest as business
receipt."
4. On further appeal, the ITAT upheld the findings of the ld. CIT(A) in
the following terms.
"7. We have considered the rival contentions carefully
gone through the orders of the lower authorities and also
deliberated upon the various case laws relied on by the lower
authorities in their respective orders as well as cited by the learned
AR and DR in the course of hearing before us. From the record,
we found that the assessee firm is doing the export business of
fashion garments. For the export business, the assessee has been
4 ITA no.2939/Del./2012
sanctioned packing credit limit and in order to secure this limit the
assessee has been keeping a deposit from year to year with the
bank. These deposits are kept by assessee in fixed deposits but
assessee is also charged interest on the actual use of the limits.
However, in the books of account only one interest account is
maintained where both the debit and credit entries of the interest
are recorded. The net balance is shown in the final P & L account.
According to the requirement of the bank for giving facility to the
assessee, the assessee has been required to maintain recurring
deposit receipts with the bank to cover the facilities being provided
by the bank to the assessee such as packing credit, cash credit, bill
discounting and bank guarantee limits. The assessee has made
these recurring deposits by debiting the overdraft amount or cash
credit amount and not out of any surplus non-interest bearing funds
i.e. the assessee has increased its borrowing with the bank to
create these deposits. The direct nexus has existed when this was
done as the bank has a lien over these deposits. We also found
that whenever any recurring deposit receipt is matured, the bank
has immediately deposited it against its loan account outstanding
on that date. There has not been a single instance where the
recurring deposit receipts have been en-cashed and money has
been given to the assessee. That whenever the interest has been
credited against these receipts, the same has been done
simultaneously with debit of interest on the overdraft facilities.
There is direct nexus between the interest paid to the bank and the
interest received from bank and the principle of mutuality is clearly
established. There is no dispute to the fact that deposit was placed
with the bank as a matter of business compulsion in the course of
assessee's business of export where LC is required to be opened
and other credit facilities are needed in the course of export
business. The amount deposited in the bank was not out of surplus
fund available with the assessee and which has been put to the
bank for earning interest income, but the fund was transferred to
the deposit account out of the overdraft facilities already availed by
the assessee on which assessee was paying interest to the bank.
Thus, by making the deposit and transferring the fund, liability for
interest bearing funds have been increased. With the increase in
such liability for interest bearing funds, the assessee has
correspondingly earned, interest income out of such deposit with
the bank. The assessee has maintained only one interest account
and what has gone to the P & L account of the assessee was net
interest income which he was liable to pay on its borrowings.
Furthermore, whenever such deposit was matured, the bank has
directly adjusted the same out of the loan account of the assessee
and no fund was handed over to the assessee to represent its
surplus fund. That the principle of law involved is well explained by
5 ITA no.2939/Del./2012
the Supreme Court in two of its judgments based on similar point of
law that receipts inextricably linked have to be netted off and only
the net income could be treated as the income of business or a
capital receipt as the case may, in CIT vs Bokaro Steel Ltd., (1999)
236 ITR 315 and CIT vs. Karnal Sugar Mills Ltd., (2000) 161 CTR
(SC) 241. Applying this principle in the case of the assessee and
the facts as narrated above, the interest income emanating from
bank deposits opened only for the purposes of business of
maintaining credit limits with the Bank, letter of credits and other
facilities, the income would need to be netted i.e. from the receipt of
interest the interest paid would need to be netted and only the net
income would enter the computation of profits and gains of
business. Once the net income enters the profits and gains of
business in accordance with law, then as per Explanation baa, the
net income would need to be adjusted for purposes of calculating
deduction under sec. 80- HHC. ITAT, Delhi Special Bench in the
case of Lalsons Entrprises (supra) has held that when there is a
direct nexus between interest received and paid, netting of interest
has to be allowed. The jurisdictional High Court. in the case of
Coshika Telecom Ltd. 203 CTR 99 had observed that interest on
deposit with the bank on securing bank guarantee of DOT for
obtaining license is business income and not income from other
sources.
8. In the case of K. Ranindranathan Nair 262 ITR 669, as
referred to by the revenue in its ground of appeal, we found that
interest income received on short term deposit was held to be
income from other sources not eligible for deduction under section
80-HHC of the Act. However, in the instant case before us, we are
concerned with the' principle of netting of any expenditure/income
which goes to form part of income of the assessee. As the Act has
clearly provided for exclusion of 90% of the interest income for
computing deduction under sec. 80-HHC as per Explanation baa of
sub- section 4B, by following the decision of Lalsons Enterprises
(supra), we are inclined to hold that netting of such interest income
in the instant case was justified in so far the deposit in the bank
was made out of the overdraft account being availed by the
assessee on which interest was payable to the bank. What the
assessee has done is the debiting the net interest expenditure,
after reducing the interest income receivable from the bank from
the interest expenditure payable to the bank.
9. In view of the above, we are inclined to agree with the
learned AR Shri Amar Mittar that in view of the facts and
circumstances of the case where deposit in the bank account was
6 ITA no.2939/Del./2012
inextricably related to the export business and under business
compulsion, made out of overdraft limit availed by the assessee,
CIT(A) was justified in netting of interest expenditure payable to the
bank out of interest income receivable on the deposit made out of
funds availed from the overdraft limit."
5. On an appeal filed by the Revenue, Hon'ble High Court vide their
order dated 14.1.2009 in ITA no.1133/2007 restored the issue to the file of the
AO with the directions that assessment be framed strictly in compliance with
directions contained in CIT Vs. Shriram Honda Power Equipment Ltd. ,289 ITR
475/158 Taxman 474 (Delhi).
6. In terms of the aforesaid directions of the Hon'ble High Court, the
AO completed the assessment, reiterating that interest income has to be
assessed under the "Income from other sources" as was the case in the original
assessment order dated 29th December, 2003. The findings of the AO in the
assessment order dated 30.11.2009 read as under:-
"The submission of the assessee has been considered but found
untenable. There is no dispute on the issue that the interest earned
on FDRs is the income taxable under the head Income From Other
Sources as has been held by the then AO in original assessment
order dt. 29.12.2003. This is also in accordance with the ratio laid
down by the jurisdictional High Court in the case of Shri Ram
Honda Power Equipment Ltd., 289 ITR 475.
The only issue to be decided now as per the directions of the
Hon'ble High Court is whether the interest expenditure is to be
deducted u/s 57 of the I.T. Act from the interest income of
Rs.63,35,180/- on these FDRs and accordingly to be excluded from
the business profits for calculating deduction u/s 80HHC.
The assessee had borrowed the funds for obtaining bank
guarantee and credit limits {or the purpose of its exports business
and as per the requirement of the banks. Acceptance of the making
of FDRs with the banks as a precondition led to the availability of
credit facilities on which the interest expenditure was incurred and
riot that the funds borrowed against the credit facilities were
borrowed for the purpose of making the FDRs and earn the interest
income. The purpose of obtaining the loan from the Bank or the
7 ITA no.2939/Del./2012
financial institutions was not to purchase the FDRs and to earn
interest thereon but it was taken on the requirement of obtaining
credits for the export business. Therefore, the interest paid by the
assessee to the creditors/financial institution was to promote his
business income.
When the nature of assessee's business activity is examined
it is very clear that borrowing of funds was never done to earn
'Interest on FDRs. In fact borrowing was done primarily to enjoy
credit for certain period. As such borrowings were done and FDRs
were made for the purpose of enjoying credit for longer period.
Therefore, these interest outgoings are part of purchase
consideration or cost of input to the assessee in his business of
export of garments. Hence, it is held that interest paid on overdraft
facilities is a business expenses and has been rightly claimed so in
the P&L a/c.
The FDR interest receipts on the other hand are income
arising out of investments. Even if the assessee would not have
earned any interest on FDR still to enjoy credit facility it would have
incurred borrowing and paid interest. It is therefore very clear that
irrespective of assessee having earned interest or not, the
expenditure would have been necessarily made by the assessee.
Therefore, there is no nexus between earning of this interest
and interest expenditure. The expenditure was never incurred with
objective of earning interest income. The fact that even if the
assessee paid interest it is only as component of cost of goods
purchased deductible u/s 36/37 or the I.T. Act and not u/s 57. The
nexus of interest expenditure is with credit and purchase policy of
the assessee and is cost attributable directly to assessee's
purchases. The earning of interest is independent of this cost and
therefore, the nexus claimed by the assessee does not exist. The
interest expenditure not being laid out "wholly and exclusively" for
purpose of earning interest income as required for deduction u/s
57, In view of the above the assessee's claim that netting off be
done is not acceptable.
This is also in accordance with the decision of the Hon'ble
High Court of Delhi in the case of Shri Ram Honda Power
Equipment Ltd. (289 ITR 475) wherein the Court has held
"Where, as a result of the computation of profits and gains of
business and profession the Assessing Officer treats the interest
8 ITA no.2939/Del./2012
receipt as business income, then deduction should be permissible,
in terms of Explanation (baa) of the net interest, i.e., the gross
interest less the expenditure incurred for the purposes of earning
such interest. The nexus between obtaining the loan 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".
In paragraphs 35 and 36 of the same decision, the
Jurisdictional High Court has considered two categories of fixed
deposits taken by the assessee. The first category is fixed deposits
taken by the assessee for the purposes of parking of its surplus
funds. The second category is fixed deposits that have been taken
by' the assessee for mandatorily keeping the monies with the bank
for the purposes of availing of credit facilitates, etc., for its export
business. The court held on a consideration of the decisions of the
Kerala High Court in Nanji Topanbhai and Co. v. Asstt. ClT [2001]
243 ITR 192, K Ravindranathan Nair v. Deputy CIT (Assessment)
[2003] 262 ITR 669 and Urban Stanislaus Co. V. ClT [2003] 263
ITR 10, that in both the situations, the interest earned by the
assessee on the fixed deposits would have to be treated as income
from other sources and not business income.
The above mentioned observation were again affirmed by Hon'ble
Delhi High Court on 25.1.2008 in the case of Commissioner of
Income-Tax v. Pawan Kumar Jain [2008] 298 ITR 443 (Del). In this
case, the assessee had taken some fixed deposits for the purpose
of availing of Credit facilities from Bank of Rajasthan. It had claimed
a deduction on the ground that the interest earned on the fixed
deposits so obtained is business income. This was accepted by the
Assessing Officer in his assessment order as apparent from the
acceptance of the computation of income given by the assessee.
As a result Hon'ble High Court allowed the netting of interest
income as the interest income was held as business income by the
authorities below.
Following facts emerges from the above discussion
(a) Netting of interest will be allowed if A.O has given a specific
finding that interest income is business income and such
finding is not challenged by the Revenue.
9 ITA no.2939/Del./2012
(b) Netting of interest will not be allowed if interest earned by the
assessee is treated as income from other sources and
interest expenditure is held as business expenditure.
(c) Once the interest income is treated as Income from Other
Sources, the deduction of interest paid, i.e. netting will be allowable
u/s 57 of the LT. Act only if the direct nexus between earning of
interest and interest expenses exists.
In the case of the assessee there is no doubt that interest
income is 'Income from Other Sources' as held by the AO in the
original assessment order u/s 143(3) dated: 29.12.2003. Thus, the
case of the assessee is covered under clause (b) & (c) above. The
deduction of an expenditure incurred under the head 'Income from
Business & Profession' cannot be allowed against an Income
taxable under the head Income from Other Sources.
Accordingly for calculating deduction u/s 80HHC of the I.T. Act,
1961 the gross interest earned of Rs.63,35,180/- is disallowed
without deducting any interest expenditure u/s 57 as claimed by the
assessee and full amount is assessed under the head Income from
Other Sources as has been rightly done in the original assessment
order dated:"
7. On appeal, the ld. CIT(A) without even adverting to the directions of
the Hon'ble High Court that assessment be framed strictly in compliance with
directions contained in CIT Vs. Shriram Honda Power Equipment Ltd.(supra),
allowed the claim of the assessee, as under:-
"Ground No.1, 2, 3 & 4 : the assessment order and the submissions
of the appellant have been duly perused. The facts of the case are
found identical to the case of Ajay Kumar Jain wherein the CIT(A)
and the Hon'ble ITAT have held in favour of the appellant.
Following the said decisions and the facts of this case, it is held that
the appellant is only carrying on export business and no other
business and interest income has been both paid and received for
this export business and has a direct nexus with the business. The
interest income therefore is to be treated as business income.
Hence, only the netted interest is to be taxed as per provisions of
section 80HHC of the Act, and 90% of the netted interest income
will be reduced from the profit of business as per explanation baa
below section 4B of section 80HHC of the Act. The Assessing
10 ITA no.2939/Del./2012
Officer may therefore re-compute the deduction u/s 80HHC
accordingly."
8. The Revenue is now in appeal before us against the aforesaid
findings of the ld. CIT(A).The ld. DR supported the order of the AO while
contending that the assessee did not establish nexus between expenditure
incurred on interest and the interest earned by the assessee from fixed deposits
kept with the bank for obtaining packing credit limit and LC limit nor such interest
income was derived from the export activities.. On the other hand, the ld. AR on
behalf of the assessee supported the findings of the ld. CIT(A) while relying upon
decisions in CIT Vs. Shahi Export House,195 Taxman 163 (Delhi); CIT Vs.
Pawan Kumar Jain (2008), 298 ITR 443 (Del); CIT Vs. Bharat Rasayan Ltd.
(2008), 172 Taxman 338 (Delhi); M/s ACG Associated Capsules Pvt. Ltd. Vs. CIT
(2012) 18 Taxmann.com 137 (Supreme Court) and CIT Vs. High Polymer Labs
Ltd. ,2012(4)TMI 435(Delhi).
9. We have heard both the parties and gone through the facts of the
case as also the aforesaid decisions relied upon by the ld. AR on behalf of the
assessee. As is apparent from the aforesaid facts, Hon'ble High Court vide their
order dated 14.1.2009 in ITA no.1133/2007 restored the issue to the file of the
AO with the directions that assessment be framed strictly in compliance with
directions contained in Shriram Honda Power Equipment Ltd.(supra). Hon'ble
High Court in their decision in Shriram Honda Power Equipment Ltd.(supra) while
adjudicating an identical issue summarized their conclusions as under :
(i) In computing what the profits derived from exports for the purposes of section
80HHC(1) read with section 80HHC(3) are, the nexus test has to be applied to
exclude that which does not partake of profits that can be said to have been
derived from the business of exports.
(ii) In the specific context of clause (baa) of the Explanation to section 80HHC,
while determining the "profits of the business", the Assessing Officer has to
undertake a two-step exercise in the following sequence. He has to first
"compute" the profits of the business under the head "Profits and gains of
11 ITA no.2939/Del./2012
business or profession." In other words, he will have to compute business profits,
in terms of the Act, by applying the provisions of sections 28 to 44 thereof.
(iii) In arriving at profits of the business by the above method, the Assessing
Officer will exclude all such incomes which partake of the character of "income
from other sources" which in any event are treated under sections 56 and 57 of
the Act and are therefore not to be reckoned for the purposes of section 80HHC.
The Assessing Officer will apply the law as explained in the judgments of the
Kerala High Court referred to above which have been affirmed by the hon'ble
Supreme Court.
(iv) Where surplus funds are parked with the bank and interest is earned thereon
it can only be categorised as income from other sources. This receipt merits
separate treatment under section 56 of the Act which is outside the ring of profits
and gains from business and profession. It goes entirely out of the reckoning for
the purposes of section 80HHC.
(v) Interest earned on fixed deposits for the purposes of availing of credit facilities
from the bank, does not have an immediate nexus with the export business and
therefore has to necessarily be treated as income from other sources and not
business income.
(vi) Once business income has been determined by applying accounting
standards as well as the provisions contained in the Act, the assessee would be
permitted to, in terms of section 37 of the Act, claim as deduction, expenditure
laid out for the purposes of earning such business income.
(vii) In the second stage, the Assessing Officer will deduct from the profits of the
business computed under the head "Profits and gains of business or profession"
the following sums in order to arrive at the "profits of the business" for the
purposes of section 80HHC(3):
(a) 90 per cent. of any sum referred to in clauses (iiia), (iiib) and (iiic) of section
28 i.e., export incentives;
(b) 90 per cent. of any receipts by way of brokerage, commission, interest, rent,
charges or any other receipt of a similar nature included in such profits; and
(c) profits of any branch, office, warehouse or any other establishment of the
assessee situate outside India.
(viii) The word "interest" in clause (baa) of the Explanation connotes "net interest"
and not "gross interest". Therefore, in deducting such interest, the Assessing
Officer will take into account the net interest i.e., gross interest as reduced by
expenditure incurred for earning such interest. The decision of the Special Bench
of the Income-tax Appellate Tribunal in Lalsons [2004] 8 ITR 25 (Delhi) to this
12 ITA no.2939/Del./2012
effect is affirmed. In holding as above, we differ from the judgments of the Punjab
and Haryana High Court in Rani Paliwal [2004] 268 ITR 220 and the Madras
High Court in Chinnapandi [2006] 282 ITR 389 and affirm the ruling of the
Special Bench of the Income-tax Appellate Tribunal in Lalsons [2004] 8 ITR 25
(Delhi).
(ix) Where, as a result of the computation of profits and gains of business and
profession, the Assessing Officer treats the interest receipt as business income,
then deduction should be permissible, in terms of Explanation (baa) of the net
interest, i.e., the gross interest less the expenditure incurred for the purposes of
earning such interest. The nexus between obtaining the loan 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.
9.1 In terms of the aforesaid conclusions, the AO assessed the interest income
under the head 'Income from other sources'. As regards interest on FDRs with
the banks, Hon'ble Supreme Court in Tuticorin Alkali Chemicals and Fertilizers
Ltd. [1997] 227 ITR 172 held that interest earned on deposits placed for the
purposes of obtaining loans for business cannot be treated as business income
but only as income from other sources.. The decision in Tuticorin Alkali
Chemicals and Fertilizers Ltd. [1997] 227 ITR 172, which was rendered in the
context of sections 56 and 57, has been followed in CIT v. Autokast Ltd. [2001]
248 ITR 110 (SC). Likewise, in CIT v. Dr. V. P. Gopinathan [2001] 248 ITR 449
(SC) interest on fixed deposits was held not to qualify for setting off against
interest on loans borrowed. The other decisions on the same lines, in the context
of section 80HHC are CIT v. Sterling Foods [1999] 237 ITR 579 (SC) and
Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC). In these decisions, the
Hon'ble Supreme Court reiterated the nexus theory and declined to treat such
interest earned as business income. In G.T.N. Textiles Ltd. v. Dy. CIT [2005] 279
ITR 72, the Hon'ble Kerala High Court held that interest on bank deposits was
not profit derived from export of goods. The Kerala High Court have further held
that the interest earned by the assessee on fixed deposits, etc., were not
business income and consequently the assessee was not entitled to computation
of eligible deduction under section 80HHC of the Act by including those receipts
under the head business income. Given the repeated affirmation by the Hon'ble
13 ITA no.2939/Del./2012
Supreme Court in the various cases, interest earned from the bank, which does
not have an immediate nexus with the business of the industrial undertaking,
cannot be said to be derived from the business of the industrial undertaking .
9.2 As already observed, in the instant case, the AO in the original
assessment order and even in the subsequent assessment order dated
30.11.2009 in pursuance to directions of the Hon'ble Jurisdictional High Court in
Shriram Honda Power Equipment Ltd.(supra), concluded that interest on fixed
deposit kept for obtaining packing credit limit and L.C. Limit has to be assessed
under the head "income from other sources". However, the ld. CIT(A) instead of
analyzing the facts in terms of the aforesaid conclusions drawn in the case of
Shriram Honda Power Equipment Ltd.(supra) ,relied on a decision of the ITAT in
Ajay Jain and concluded that interest income has to be treated as business
income. A copy of the decision in the case of Ajay Jain has not been placed
before us nor the ld. CIT(A) narrated the facts in the said decision. Even
otherwise, the ld. CIT(A) did not examine as to whether or not there was any
nexus of borrowed funds having been utilised in purchasing FDRs nor as to
whether or not interest income had been derived from export activities of the
assessee and nor even analysed the facts of the instant case in the light of
aforesaid steps laid down by the Hon'ble jurisdictional High Court in the case of
Shriram Honda Power Equipment Ltd.(supra). In view of the foregoing,
especially when the ld. CIT(A) have not recorded his specific
findings as to whether or not the assessment order has been passed
in strict compliance of the aforesaid decision in Shriram Honda Power
Equipment Ltd.(supra) nor have followed the various steps laid down by the
Hon. Hon'ble High Court in the said decision and nor even applied
the nexus test in the light of various decisions of the Hon'ble Ape x
Court referred to above, we consider it fair and appropriate to set
aside the order of the ld. CIT(A) and restore the matter to his file for
deciding the aforesaid issue, afresh in accordance with law in the
light of the aforesaid decision in Shriram Honda Power Equipment
14 ITA no.2939/Del./2012
Ltd.(supra) as directed by the Hon'ble High Court in their order dated 14.1.2009
in ITA no.1133/2007, after allowing sufficient opportunity to both the
parties. Needless to say that while redeciding the appeal, the ld.
CIT(A) shall pass a speaking order, keeping in mind, inter alia, the
mandate of provisions of sec. 250(6) of the Act and bringing out
clearly as to whether or not the assessment order has been passed
in strict compliance of the aforesaid decision in Shriram Honda Power
Equipment Ltd.(supra) . W ith these observations, ground no. 1 in the
appeal is disposed of.
10. No additional ground having been raised before us in terms of
residuary ground no.2 in the appeal; accordingly, this ground is dismissed.
11. No other plea or argument was made before us.
12. In the result, appeal is allowed but for statistical purposes.
Order pronounced in open Court
Sd/- Sd/-
(A.D. JAIN) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
NS
Copy of the Order forwarded to:-
1. Assessee
2. Assistant CIT,Circle-22(1),New Delhi
3. CIT concerned.
4. CIT(A)-XI, New Delhi
5. DR, ITAT,'A' Bench, New Delhi
6. Guard File.
By Order,
Deputy/Asstt.Registrar
ITAT, Delhi
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