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Deduction u/s Sec 80HHC to allow interest ofBank FDR after adjustment bank intt

Started by mgargca, December 02, 2007, 06:43:46 PM

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mgargca

Dear Friend,

Is there is any decision in favour of assessee where netting of Interest is allowed  (as business income) while computing deduction u/s 80HHC in case of 100% exporter, recent decision, Pls

The assessee has  paid bank interest agt OD facility. FDR are made in firms name out of accumulated funds generated from export business in previous years.

CA M Garg

taxationlaws

Dear Friend,

In relation to 'netting off' interest in context of section 80HHC of the Income Tax Act, useful reference may be interalia made to following judicial precedents:

1.   DHC in Kashmir Arts (available on ITATonline website: refer High Court section)

"For purposes of netting off the interest received from the interest paid u/s 80HHC, not only must be there be a nexus but it must be shown that obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) was ?wholly and exclusively? for the purpose of earning the interest on the fixed deposit, to draw an analogy from Section 37. Shriram Honda clarified."

2.   DHC in Shri Ram Honda Power Equipment 289 ITR 475
3.   Delhi ITAT SB in Lalsons Enterpsises affirmed by DHC in Shri Ram Honda (supra) 89 ITD 25

On a separate note, it seems that Supreme Court has taken cognizance of ITAT SB ruling in Lalsons case (supra) in its latest order dated 13 November 2007 (Janatha Cashew Exporting) and remanded the matter back to AO for his fresh consideration.

May be useful....

Regards
CA Kapil Goel
taxationlaws@rediffmail.com






probal_shome

Dear Mr. Garg & Mr. Goel,

In the present case, there doesn't seem to be any nexus between the interest earned and the interest paid. While the interest is received on FDRs made out of accumulated funds, the interest is paid on an OD facility. Even assuming that the FDRs are kept as security for the OD, the nexus between the two seems remote.

In the decision of Kashmir Arts cited by Mr. Goel, it is stated "not only must be there be a nexus but it must be shown that obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) was "wholly and exclusively" for the purpose of earning the interest on the fixed deposit".

This test is not satisifed on the facts of the present case.

Regards,

Probal.