1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1943 OF 2009 The Commissioner of Income Tax – 18, Mumbai .. ..Appellant. Versus M/s.Metropolitan Trading Company, Mumbai .. .. ..Respondent. Mr.K.R. Chaudhari for the appellant. Ms.Vasanti B. Patel for the respondent. CORAM : Dr.D.Y. Chandrachud & J.P. Devadhar, JJ. DATE : 7th January, 2010. P.C. : 1. In the appeal filed by the revenue under Section 260A of the Income Tax Act, 1961, the following questions of law have been formulated. a) Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that the Business centre receipts amounting to Rs.25,20,000/- being in the nature of business income should not be excluded under the explanation (baa) to the section 80 HC without appreciating the express provisions contained in the words “included in such profits” in the explanation (baa) to the Section 80HHC laying down that such business receipts have to be excluded to the extent of 90% for computing “the profits of the business” for the purpose of the Section 80HHC ? b) Whether on the facts and circumstances of the case and in law, the Tribunal had erred in allowing part of interest expenditure in favour of the Assessee without appreciating the judgment laid down by the Hon’ble Punjab and Haryana High Court in the case of CIT Vs. Abhishek Industries Limited (156 Texman 257) wherein it was held that there is no need to prove the nexus of advance and the Assessee will not be entitled to claim 2 deduction of interest on the borrowing to the extent which are diverted to sister concerns or other persons without interest ? 2. For convenience of exposition, it would be appropriate to take up the second question of law first. The assessee had, during the course of the assessment year in question, which is 1999-2000, made interest free advances in the amount of Rs.24,60,291.19 to sister concerns / associates. In the Profit & Loss Account, the assessee had claimed interest expenditure in the amount of Rs.20,76,819/-. The assessing officer disallowed part of the interest expenditure on the ground that the assessee had given interest free advances to its associates. The Tribunal has relied on the order passed in the case of assessee itself for assessment year 1998-1999. The finding of fact which has been recorded by the Tribunal is that the assessee had established that it had more interest free funds available than the interest free advances, which were given to various associate concerns. In these circumstances, the Tribunal held that it could not be presumed that the assessee had utilized interest free funds in making interest free advances. In our view, this is a pure finding of fact and would not give rise to any substantial question of law. 3. In so far as the first question is concerned, the assessing officer had observed that the nature of the receipts appears to be more in the nature of rent and consequently explanation (baa) of Section 80HHC would have to be applied. Accordingly, 90% of the receipts would have to be reduced from the profits of the business. The Tribunal has not dealt with this finding of the assessing officer in its judgment. Instead, the Tribunal relied upon its own order relating to assessment year 1998-1999, wherein it is held that the moment the assessing officer treated the receipts as business receipts while determining the total income, then no deduction 3 could be made under explanation (baa). On this reasoning, the Tribunal has directed the assessing officer not to exclude these business receipts while computing the deduction under Section 80HHC. 4. We have perused the order of the Tribunal dated 10th October 2006 pertaining to assessment year 1998-1999 (ITA No.6213/Mum/03). Neither in the order pertaining to the earlier assessment year nor in the order pertaining to the assessment year which forms the subject matter of the present proceedings, has the issue as to whether explanation (baa) would be attracted been squarely addressed. In our view, having regard to the finding which was specifically arrived at by the assessing officer, it was both necessary and proper for the Tribunal to address itself to the correctness of that finding. During the course of hearing, we suggested to the learned counsel that in these circumstances, it would be appropriate to remand the proceedings back to the Tribunal for a fresh decision on the aforesaid issue. The learned counsel appearing on behalf of the revenue and the learned counsel appearing for the assessee have agreed to the aforesaid course of action. 5. In these circumstances, in order to facilitate a fresh determination on the first question as formulated by the revenue, the order of the Tribunal to that extent is by consent set aside. The proceeding shall stand remanded back to the Tribunal for a fresh decision on that question. The appeal shall accordingly stand disposed of. There shall be no order as to costs. (J.P. Devadhar, J.) (Dr.D.Y. Chandrachud, J.)