For Expl (baa) to s. 80HHC, netting of income from expenditure is allowed

ACG Associated Capsules Pvt. Ltd vs. CIT (Supreme Court)

The AO & CIT(A) computed s. 80HHC deduction by deducting 90% of the gross interest received from the profits of business. However, the Tribunal, relying on Lalsons Enterprises 89 ITD 25 (Del) (SB) & Shri Ram Honda Power Equip 289 ITR 475 (Del), held that only the net interest could be deducted (subject to nexus between the expenditure and income being proved). On appeal by the department, the High Court (CIT vs. Asian Star Co Ltd 326 ITR 56 (Bom)) reversed the Tribunal and held that the gross receipts had to be excluded. On appeal by the assessee, HELD reversing the High Court: