These cross-appeals, one by assessee and other by Department, are directed against order of CIT(A)-XII, Kolkata dt. 21st Nov., 2006 pertaining to asst. yr. 2003-04. In both these appeals, some common grounds are raised. Therefore, for sake of convenience, these appeals were heard together and are disposed of by this consolidated order. Ground No. 1 of assessee s appeal and ground No. (b) of Department s appeal both relate to question as to whether while computing profits of business in terms of Expln. (baa) to s. 80HHC of IT Act, 1961, deduction should be made of 90 per cent of gross interest or net interest. AO observed that assessee excluded 90 per cent of net interest received of Rs. 1,07,14,765 in place of gross interest of Rs. 2,66,99,555 which is not permissible to compute export profit under s. 80HHC of Act. Accordingly, AO took gross interest value and excluded same to arrive at export profit under s. 80HHC of Act. Before CIT(A), assessee relied upon decision of Special Bench of Tribunal, Delhi in case of Lalsons Enterprises vs. Dy. CIT (2004) 82 TTJ (Del)(SB) 1048: (2004) 89 ITD 25 (Del)(SB) in support of contention that 90 per cent of net interest should be deducted, it being not in dispute that interest paid had nexus with interest received. CIT(A) observed that assessee s case had considerable merit and supported by said Special Bench decision. However, he directed AO to examine claim of assessee in light of said decision and allow same. During course of hearing before us, it was contended by assessee s learned counsel that once CIT(A) had found that assessee s claim is duly covered and supported by Special Bench decision in case of Lalsons Enterprises (supra) since approved by Hon ble Delhi High Court in case of CIT vs. Shri Ram Honda Power Equip (2007) 207 CTR (Del) 689: (2007) 289 ITR 475 (Del) at pp. 505-507, CIT(A) should have granted relief instead of directing AO to re-examine claim in light of said decision. He further submitted that when one talks of profits , one means net amount left after deducting expenditure from receipts. What is included in profits is only such net amount. Where assessee is in receipt of interest and has incurred interest expenditure for earning same, what is included in profits is only net interest after deducting interest expenditure from interest received. He, therefore, submitted that deduction has to be made of 90 per cent of net interest included in profits . On other hand, learned Departmental Representative submitted that CIT(A) erred in holding that interest paid had nexus with interest received and in directing AO to exclude 90 per cent net interest of Rs. 1,07,14,765 instead of gross interest of Rs. 2,66,99,555. Furthermore, he submitted that CIT(A) has given relief to assessee relying on Special Bench decision of Tribunal in case of Lalsons Enterprises (supra) which is distinguishable from facts of present case. According to him, Special Bench proceeded on assumption that interest income was categorized as business income , whereas in present case interest income has been taken as income from other sources . He, therefore, submitted that decisions of Hon ble Supreme Court in case of CIT vs. Dr. V.P. Gopinathan (2001) 166 CTR (SC) 504: (2001) 248 ITR 449 (SC) and Hon ble Kerala High Court in K. Ravindranathan Nair vs. Dy. CIT (2003) 181 CTR (Ker) 310: (2003) 262 ITR 669 (Ker) where special leave petition has been dismissed by Supreme Court in (2003) 262 ITR (St) 3 are squarely applicable to case of assessee and support action of AO. On s m e ground, learned Departmental Representative distinguished decision of Hon ble Delhi High Court relied upon by assessee s learned counsel in case of Shri Ram Honda Power Equip (supra) as same is not applicable to facts and circumstances of assessee s case. In rejoinder, assessee s learned counsel submitted that assertion of learned Departmental Representative that interest income has been categorized as income from other sources is incorrect on face of accounts maintained by assessee. interest income has been treated by assessee as business income in its accounts as well as in computation of income. Interest income has been reflected in P&L a/c as part of other income separately from sales or turnover because provisions of Part II of Sch. VI to Companies Act, 1956 require separate disclosure of sales/turnover and other income, such as interest. Such presentation as per requirements of Companies Act does not amount to treatment of interest income as income from other sources . Only dividend of Rs. 350 was shown by assessee in computation of income as income from other sources . In assessment order also, only said dividend income of Rs. 350 was assessed under head Other sources and interest income was assessed under head Business . Therefore, distinction drawn by him to facts of present case is out of context and has no relevance. We have heard parties, considered their rival arguments and perused material placed before us. On perusal of assessment order it is evident that AO did not dispute that assessee incurred interest expenditure for earning interest income but held that law required exclusion of 90 per cent of gross interest. interest income has been treated by assessee and assessed by AO as business income and not under head Other sources . Accordingly, decisions relied upon by learned Departmental Representative have no application in facts of this case and on other hand, decisions relied upon on behalf of assessee are squarely applicable. It is admitted position that where interest income is treated as business income, amount of interest to be reduced in terms of cl. (baa) of Explanation to s. 80HHC is net interest, i.e., gross interest less expenditure incurred by assessee for earning such interest income. Special Bench of Tribunal in case of Lalsons Enterprises (supra) has laid down how to compute net interest and held as under: "For purpose of applying Expln. (baa) below sub-s. (4B) of s. 80HHC and while reducing 90 per cent of receipt by way of interest from profits of business, it is only 90 per cent of net interest remaining after allowing set-off of interest paid, which has nexus with interest received, that can be reduced and not 90 per cent of gross interest." Identical view has also been taken by Hon ble Delhi High Court in case of Shri Ram Honda Power Equip (supra). In view of above settled position and respectfully following above decisions, we set aside orders of Revenue authorities on this point and direct AO to work out deduction under s. 80HHC by excluding 90 per cent of net interest. In view of our finding above, ground No. 1 of assessee s appeal is allowed and ground No. (b) of Department s appeal is dismissed. Ground No. 2 of assessee s appeal and Ground No. (c) of Department s appeal pertain to question as to whether taxable portion of profits of 100 per cent EOU should be taken into consideration while computing profits of business in terms of Expln. (baa) to s. 80HHC. assessee is in appeal because CIT(A) in spite of finding force in assessee s contention restored matter to AO. Department is in appeal on ground that CIT(A) erred in directing AO to take into consideration taxable portion of profits of 100 per cent EOU for computing profits of business for purposes of s. 80HHC. assessee carries on business of inter alia, manufacturing Guar Gum Refined Split, Guar Gum Powder and Guar Meal etc. assessee has three units. unit at Jodhpur is 100 per cent Export Oriented Undertaking in which assessee manufactures Guar Gum Refined Split. According to assessee, it is entitled to exemption under s. 10B in respect of income of 100 per cent EOU to extent of 90 per cent Exports are also made from other units of assessee and hence assessee is also entitled to deduction under s. 80HHC in respect of its export profits. While computing deduction under s. 80HHC, AO did not treat 10 per cent taxable income of Rs. 2,58,81,120 of 100 per cent EOU as part of profits and gains of business or profession . On appeal, CIT(A) found considerable force in submissions of assessee. He thus held that AO has not correctly appreciated position as provided in related Statute. He thus directed AO to have fresh look in issue after giving due weightage to explanation of assessee and recompute working as per law. assessee s learned counsel narrated facts and submitted that on perusal of calculation statement forming part of assessment order it would appear that against serial No. 3, AO started with figure of Rs. 9,63,75,791 which is figure of profit as per assessee s computation before including 10 per cent taxable income of Rs. 2,58,81,120 of 100 per cent EOU. It was submitted that Expln. (baa) provides for taking as starting figure profits of business as computed under head Profits and gains of business or profession . Accordingly, AO had to take into consideration entire income computed under head Business including taxable income of 100 per cent EOU. Further, AO should have taken into consideration assessed business income and not returned income. learned counsel, therefore, submitted that claim of assessee should have been allowed by CIT(A) instead of sending same back to AO for recomputation as per law, more so when CIT(A) himself was convinced with explanation of assessee and legal position on issue. learned Departmental Representative, on other hand, placed reliance on order of AO. He submitted that as per scheme of IT Act, s. 10B relates to income which is exempt from taxation altogether whereas s. 80HHC refers to deduction to be made in computing total income. Thus, it presupposes that figure of gross total income is to be first arrived at and then deductions are to be given to arrive at total income. According to learned Departmental Representative, income which is exempt cannot logically go into calculation of deduction which is to be given from gross total income. AO s action, therefore, was logical and in consonance with statute. We have heard parties and considered their rival submissions. fa c ts stated above have not been disputed by Department. We find substantial force in contention of learned counsel for assessee. As has been rightly stated by assessee s counsel (vide p. 1 of assessee s paper book), AO in his calculation started with figure of Rs. 9,63,75,791 which was profit as per assessee s computation before including 10 per cent taxable income of Rs. 2,58,81,120 of 100 per cent EOU, whereas cl. (baa) of Explanation to s. 80HHC provides for starting figure of profits of business as computed under head Profits and gains of business or profession . In view of t h e above, in our considered opinion, AO should have also taken into consideration 10 per cent taxable income of 100 per cent EOU as consideration 10 per cent taxable income of 100 per cent EOU as forming part of profits of business for purposes of s. 80HHC. Department would have had point if assessee had sought to include even exempt portion of EOU income (90 per cent) in profits of business but that is not case here. Further it is also settled position that AO should take into consideration assessed business income and not returned income while computing profits of business in terms of cl. (baa) of Explanation to s. 80HHC of Act. That not being done, order of AO on this issue suffers from infirmity. In view of our discussions above, we direct AO to add taxable income of EOU to arrive at profit of business for purpose of computing deduction under s. 80HHC for year under appeal. Consequently, direction of CIT(A) to AO, especially when he himself admitted explanation of assessee and legal position to be in favour of assessee, to have fresh look is not called for and hence vacated. Ground No. 2 of assessee s appeal is thus allowed and ground No. (c) of Department is dismissed. Ground No. (a) of Department s appeal is against exclusion of excise duty in computing total turnover of business for purpose of s. 80HHC. This ground is no longer res integra and is covered against Department by judgments of Hon ble Supreme Court in CIT vs. Lakshmi Machine Works (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) and CIT vs. Catapharma (India) (P) Ltd. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC). It has been held in those judgments that excise duty and sales-tax are indirect taxes and, do not involve any turnover and, therefore, such taxes have to be excluded from total turnover under s. 80HHC(3) of Act. In view of above, this ground of Department fails. Ground Nos. (d) and (e) of Department s appeal pertain to computation of profits of business of 100 per cent EOU. According to Department, CIT(A) erred in directing AO to take travelling and conveyance expenses of 100 per cent EOU at Rs. 1,25,565 instead of Rs. 97,85,388 taken by AO. Department has also contended that CIT(A) s decision was in contravention of provisions of r. 46A because he took into consideration fresh evidence. While computing profits of business of 100 per cent EOU, A O apportioned 21 per cent of travelling and conveyance expenses (Rs. 97,85,388), directors fees (Rs. 44,000) and auditor s remuneration (Rs. 3,97,620) appearing in consolidated accounts of assessee for its entire business as expenditure relating to 100 per cent EOU and accordingly reduced profits of business of 100 per cent EOU by Rs. 21,47,671. AO divided total turnover of 100 per cent EOU by total turnover of assessee s entire business to arrive at percentage of 21 per cent for apportioning said expenditure. It is not case, as contended in Department s ground of appeal that AO took sum of Rs. 97,85,388 as travelling and conveyance expenditure relating to 100 per cent EOU. AO actually took 21 per cent of Rs. 97,85,388. Before CIT(A), assessee did not dispute AO s action in taking portion of directors fees and auditor s remuneration as relating to 100 per cent EOU. However, assessee objected to action of AO in attributing 21 per cent of travelling and conveyance expenses appearing in consolidated accounts of assessee of its entire business as relating to 100 per cent EOU. material portion of written submissions filed by assessee before CIT(A) on this issue is reproduced hereinbelow: "7.2 It is submitted that AO s action in taking portion of directors fees and auditor s remuneration as relating to 100 per cent EOU cannot be faulted. However, there was no justification whatsoever for AO to attribute any part of travelling and conveyance expenses appearing in consolidated accounts of assessee as referable to 100 per cent EOU. accounts of 100 per cent EOU are at pp. 21 to 23 of paper book and assessee by its letter dt. 20th March, 2006 (p. 24 of paper book) had furnished to AO break up of miscellaneous expenses of 100 per cent EOU which included Rs. 1,25,565 on account of travelling and conveyance expenses. Since entire travelling and conveyance expenses of 100 per cent EOU were debited in its accounts, there was no justification whatsoever for apportioning any part of travelling and conveyance expenses debited in consolidated accounts of assessee as referable to 100 per cent EOU. It is submitted that 93 per cent of exports of 100 per cent EOU are to Joint Venture partner Rhodia/Meyhall. Apart from said customer, there are two customers in U.S., two customers in China and one customer in Japan. customers of 100 per cent EOU are fixed and specifications of goods required by them were also fixed long time back. No travel including foreign travel is required to be undertaken for selling products of 100 per cent EOU. In respect of assessee s 100 per cent EOU, only local travelling and conveyance expenses are incurred which stand debited in its accounts. On other land, for selling Guar Gum Powder manufactured in other units, extensive travelling is required including foreign travel. Guar Gum Powder is used by various industries for number of applications, such as, textile printing, oil well drilling, food, industrial applications, explosive, paper, etc. products are made according to requirement and specifications of customers. Further, assessee is exporting these products to more than 20 countries in world with large customer base. assessee has also appointed representative in USA, who is travelling to South American countries for export promotion where only Guar Gum Powder is sold. It is submitted that no part of travelling and conveyance expenses debited to consolidated accounts of assessee which relate to other units of assessee can be allocated to 100 per cent EOU." CIT(A) accepted submissions of assessee and directed AO t o compute profits of business of 100 per cent EOU by taking travelling and conveyance expenses at Rs. 1,25,565. learned Departmental Representative supported order of AO on this issue and submitted that assessee maintained consolidated accounts. While computing profits of business of 100 per cent EOU, AO apportioned common administrative expenses in ratio of total turnover of 100 per cent EOU to total turnover of assessee s entire business for allocation to EOU. He thus attributed 21 per cent of travelling and conveyance expenses of Rs. 97,85,388 of assessee s entire business to 100 per cent EOU and CIT(A) by accepting new evidence which was not produced during assessment proceeding has accepted assessee s explanation in contravention of r. 46A and wrongly directed AO to take these expenses of 100 per cent EOU at Rs. 1,25,565 instead of Rs. 97,85,388. learned counsel, on other hand, supported order of CIT(A) and reiterated submissions made before CIT(A). He submitted that assessee maintained separate accounts in respect of 100 per cent EOU and prepared separate P&L a/c and balance sheet for it. entire travelling and conveyance expenses of 100 per cent EOU were debited in its accounts and formed part of miscellaneous expenses reflected in P&L a/c. He further submitted that there was no contravention of provisions of r. 46A by CIT(A) since no fresh evidence was considered by him. accounts of 100 per cent EOU as well as amount of travelling and conveyance expenses relating to 100 per cent EOU debited in such accounts were before AO. assessee duly explained reason why travelling and conveyance expenses of 100 per cent EOU were only Rs. 1,25,565. Therefore, there was no error or irregularity on facts and circumstances of case in directing AO to adopt travelling and conveyance expenses of 100 per cent EOU at Rs. 1,25,565 as against 21 per cent of Rs. 97,85,388 taken by AO. We have heard rival contentions of parties and perused material placed before us. grievance of Department was that CIT(A) in contravention of r. 46A has decided issue by taking into consideration fresh evidence which were not made available to AO. From written submission filed before CIT(A), which has been reproduced above, we find that assessee filed separate P&L a/c and balance sheet of 100 per cent EOU as well as break-up of miscellaneous expenses of 100 per cent EOU which included travelling expenses of Rs. 16,965 and conveyance expenses of Rs. 1,08,600, totalling to Rs. 1,25,565, before CIT(A) and also before AO. These papers have also been filed before us which find place on pp. 14 to 17 of paper book. Page 17 of paper book is letter dt. 20th March, 2006 addressed to ITO, Ward-12(4), Kolkata, whereby as per requisition assessee filed break-up of miscellaneous expenses appearing in P&L a/c of 100 per cent EOU, which included travelling and in P&L a/c of 100 per cent EOU, which included travelling and conveyance expenses also. Therefore, we find no justification in submission of learned Departmental Representative and grounds raised in this regard that CIT(A) decided issue on basis of new evidence which were not filed before AO. As explained by learned counsel, customers of 100 per cent EOU were fixed and no travel including foreign travel was required for selling its product and only local travelling and conveyance expenses were incurred. It was also explained as to why travelling and conveyance expenses of other units, which included foreign travel expenses for selling products of those units, were higher. Department has not disputed any of facts asserted by assessee. In that view of matter, CIT(A) was justified in accepting assessee s contention that travelling and conveyance expenses of 100 per cent EOU were Rs. 1,25,565 only which had already been debited while computing profits of business of 100 per cent EOU and that said expenditure was not required to be increased since assessee did not incur any other amount for travelling and conveyance relating to 100 per cent EOU. Further, once entire expenditure incurred on travelling and conveyance of 100 per cent EOU was debited in separate accounts maintained for it, we find no justification for apportioning expenditure under said head appearing in consolidated accounts of assessee as referable to 100 per cent EOU on basis of turnover ratio of 21 per cent worked out by AO. Keeping in view totality of facts and circumstances of case and accounts of assessee, we find no merit in grounds raised by Department and same are dismissed. order of CIT(A) on this issue, therefore, stands confirmed. Ground Nos. 3, 4 and 5 of assessee s appeal are inter-connected. said grounds involve question as to whether interest income of Rs. 28,74,473 is part of profits of business of 100 per cent EOU eligible for deduction under s. 10B. While computing profits of business of 100 per cent EOU, AO excluded interest income of Rs. 28,74,473 earned by assessee by keeping surplus business funds of 100 per cent EOU with banks for short periods on ground that such interest was income in nature of other source. AO relied upon judgment of Hon ble Supreme Court in CIT vs. Sterling Foods (1999) 153 CTR (SC) 439: (1999) 237 ITR 579 (SC) where meaning of phrase derived from used in s. 80HH was explained. AO held that there had to be direct nexus between income and undertaking and mere commercial connection was not enough. He held that source of interest income was surplus funds and not industrial undertaking and interest income was not derived from industrial undertaking. Since AO took view that aforesaid amount of Rs. 28,74,473 did not form part of profits of business of 100 per cent EOU, in computation made at p. 4 of assessment order, while deducting amount of profits of business of 100 per cent EOU from profit as per P&L a/c for separate consideration, AO took figure of Rs. 7,72,54,821 excluding interest of Rs. 28,74,473 instead of Rs. 8,01,30,294 claimed by assessee. Before CIT(A), assessee contended that interest earned by keeping temporarily surplus business funds of 100 per cent EOU with banks w s business income and that on fair interpretation of s. 10B, which was differently worded from s. 80HH considered by Hon ble Supreme Court in Sterling Foods case (supra), such interest income formed part of profits of business of 100 per cent EOU eligible for deduction under s. 10B. CIT(A) held that even if interest income constituted business income, in view of principles laid down by Hon ble Supreme Court in case of Sterling Foods (supra), nexus between interest income and industrial undertaking was not direct but incidental and such interest income could not be included in profits of business of 100 per cent EOU. learned counsel for assessee submitted that it is not in dispute that interest of Rs. 28,74,473 was earned by assessee by keeping temporarily surplus business funds of 100 per cent EOU with banks for short periods. In view of judgment of Hon ble Calcutta High Court in CIT vs. Tirupati Woollen Mills Ltd. (1992) 193 ITR 252 (Cal), such interest income has to be assessed under head Business . Referring to provisions of s. 10B of Act, he emphasized that interest income earned by keeping temporarily surplus business funds of 100 per cent EOU with banks for short period is also part of profits of business of undertaking. assessee had correctly computed amount of deduction under s. 10B by treating such correctly computed amount of deduction under s. 10B by treating such interest income as forming part of profits of business of undertaking. In regard to reliance made by AO on decision of Hon ble q Supreme Court in case of Sterling Foods (supra), learned counsel submitted that said decision was rendered with reference to s. 80HH which was materially different. He, therefore, submitted that AO should have treated interest of Rs. 28,74,473 as part of profits of business of 100 per cent EOU eligible for deduction under s. 10B and granted relief accordingly. Further, in computation at p. 4 of assessment order, AO should have deducted sum of Rs. 8,01,30,294 (Rs. 7,72,54,821 + Rs. 28,74,473) and not only Rs. 7,72,54,821 from profit as per P&L a/c for purpose of separate consideration under s. 10B. Our attention was also drawn to orders of Tribunal, Kolkata Benches in case of Cheviot Co. Ltd. for asst. yrs. 2003-04 and 2004-05 (ITA No. 2010/Kol/2006, dt. 25th May, 2007) and ITA Nos. 1296 & 1490/Kol/2007 decided on 30th Oct., 2007 wherein identical issue has been dealt with. learned Departmental Representative submitted that AO while ascertaining claim for deduction under s. 10B had excluded amount of interest income as same was not arising out of manufacturing activity of that Unit. It is clearly mentioned in assessment order that this interest mainly arose due to keeping of surplus funds in banks, etc., for short periods which is nothing but income in nature of other source. This is duly supported by decision of Hon ble Supreme Court in case of Sterling Foods (supra). He further submitted that assessee itself disclosed interest as income from other sources in accounts and hence exclusion of interest income of Rs. 28,74,473 earned by assessee by keeping surplus business funds of 100 per cent EOU with banks for short periods was justified and CIT(A) has rightly upheld same. We have considered rival contentions of parties and perused material placed before us. As already noted above, interest income earned by assessee has not been treated by it as income from other sources . assessee did not show any interest income under head Other sources in its computation of income. In assessment order, interest income has been assessed under business head and not as other source income. AO s observation in assessment order that interest income on surplus business funds of 100 per cent EOU was nothing but income in nature of other source is only to highlight his view point that there was no direct nexus between interest income and industrial undertaking. This is quiet apparent from fact that in his final computation, AO assessed interest income under head Business and not other sources . In any event, as held by jurisdictional High Court in Tirupati Woollen Mills Ltd. s case (supra), such interest income has to be assessed under head Business . judgment of Hon ble Supreme Court in Sterling Foods case (supra) relied upon by Department was rendered with reference to provisions of s. 80HH which are found to be materially different. Sub-s. (1) of s. 80HH reads as follows: "Where gross total income of assessee includes any profits and gains derived from industrial undertaking, or business of hotel, to which this section applies, there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, deduction from such profits and gains of amount equal to twenty per cent thereof." (Emphasis supplied) Sec. 80HH provides for deduction of 20 per cent of profits and gains derived from industrial undertaking. However, s. 80HH, unlike ss. 10B and 80HHC, does not lay down manner of computation of such profits. In absence of statutory prescription, it was held by Hon ble Supreme Court that derived from denoted direct nexus between profits and gains and industrial undertaking. Sec. 10B refers to profits and gains derived by 100 per cent EOU from export and then goes on to lay down method of computation of such profits with reference to profits of business of undertaking . language of s. 10B being unequivocal, decision of Hon ble Supreme Court rendered in context of s. 80HH, language employed wherein is materially different, has no application in instant case. material portions of sub-ss. (1) and (4) of s. 10B are as under: "(1) Subject to provisions of this section, deduction of such profits and gains as are derived by hundred per cent export-oriented undertaking from export of articles or things or computer software..........shall be allowed from total income of assessee. (Emphasis supplied) (4) For purposes of sub-s. (1), profits derived from export of articles or things or computer software shall be amount which bears to profits of business of undertaking, same proportion as export turnover in respect of such articles or things or computer software bears to total turnover of business carried on by undertaking." (Emphasis supplied) deduction of profits and gains derived by 100 per cent EOU from export provided for in sub-s. (1) of s. 10B is subject to provisions of said section, sub-s. (4) lays down its own formula for computing profits derived by undertaking from export. formula is as follows: Profits of business of undertaking Export turnover Total turnover or business carried on by undertaking Therefore, profits and gains derived by undertaking from export for purposes of s. 10B are required to be computed in accordance with sub-s. (4) of s. 10B. Sub-s. (4) speaks of profits of business of undertaking . To such figure of profits, ratio of export turnover to total turnover of business carried on by undertaking is to be applied to determine profits eligible for deduction. There is no requirement for purposes of s. 10B to establish direct nexus between income and undertaking. entire business income of 100 per cent EOU will be profits of business of undertaking . It has been held above that interest earned on temporarily surplus business funds of 100 per cent EOU deposited with banks for short periods is business income and has in fact been so assessed. It is not in dispute that surplus funds were of 100 per cent EOU. As such, interest earned thereon has to be regarded as part of profits of business of undertaking . We further find that Tribunal in case of Cheviot Co. Ltd. (supra) for asst. yrs. 2003-04 and 2004-05, relied upon by assessee, has dealt with similar issue. In those cases, difference between provisions of ss. 10B and 80HH was noted and after considering judgments of Hon ble Supreme Court in Sterling Foods case (supra) and in P.R. Prabhakar vs. CIT (2006) 204 CTR (SC) 27: (2006) 284 ITR 548 (SC) approving Special Bench decision of Tribunal in International Research Park Laboratories Ltd. vs. Asstt. CIT (1994) 50 TTJ (Del)(SB) 661: (1995) 212 ITR 1 (Del)(SB)(AT), it was held that profits of business of undertaking would include its entire business income. Keeping in view above discussion and decision of Tribunal, we are of considered opinion that assessee has to succeed. AO is directed to treat interest of Rs. 28,74,473 as part of profits of business of 100 per cent EOU eligible for deduction under s. 10B and compute deduction accordingly. AO should deduct sum of Rs. 8,01,30,294 (Rs. 7,72,54,821 + Rs. 28,74,473) and not only Rs. 7,72,54,821 from profit as per P&L a/c for purpose of separate consideration under s. 10B. Ground Nos. 3, 4 and 5 of assessee s appeal are thus allowed. last ground in assessee s appeal, i.e., ground No. 6, pertains to its claim for deduction of sum of Rs. 47,972 which was disallowed by AO as earlier years expenses. Before CIT(A) assessee contended that tax auditors identified sum of Rs. 47,972 as prior period expenses and income of Rs. 31,64,850 as relating to earlier years. AO was not justified in taking into consideration income of Rs. 31,64,850 but excluding expenditure of Rs. 47,972. Income could not be treated differently from expenditure. If expenditure of Rs. 47,972 was excluded as relating to earlier years, income of Rs. 31,64,850 was also required to be excluded on same basis. further submissions of assessee before CIT(A) were as follows: "8.2 It is submitted that out of Rs. 47,972, sum of Rs. 23,888 is on "8.2 It is submitted that out of Rs. 47,972, sum of Rs. 23,888 is on account of rates and taxes. said amount having in fact not been paid by assessee, it self-disallowed same under s. 43B as would be evident from details annexed hereto and marked . Thus, there has been double disallowance of sum of Rs. 23,888 once under s. 43B and second time as prior period expenses. It is submitted that in fact liability for sum of Rs. 47,972 crystallised during year. For instance, in respect of interest of Rs. 6,769.69 p., assessee received debit advice dt. 1st April, 2002 of bank (copy annexed hereto and marked B ) during previous year relevant to asst. yr. 2003-04. It is submitted that AO was not justified in disallowing said sum of Rs. 47,972." CIT(A) restored issue back to AO with observation that if contention of assessee that liability for Rs. 47,972 had crystallized during relevant previous year was factually correct, deduction should be allowed. Being aggrieved further, assessee is in appeal. learned counsel submitted that CIT(A) did not consider other submissions of assessee. It is submitted that since out of Rs. 47,972, sum of Rs. 23,888 on account of fire tax was already disallowed by assessee under s. 43B because of non-payment, said sum of Rs. 23,888 is required to be straightway reduced from Rs. 47,972, as there can be no double disallowance of same amount, once under s. 43B and second time as prior period expenses. This leaves only sum of Rs. 24,084. He further submitted that if AO wanted to disallow any expenses as relating to earlier years on same basis, income of Rs. 31,64,850 relating to earlier years could not also b e included in asst. yr. 2003-04. It is well known that at times, for various reasons, some year-end items get left out from consideration in particular year and are accounted for in year following. For instance, out of sum of Rs. 24,084, sum of Rs. 6,769 was on account of interest for which debit advice was issued by bank on 1st April, 2002. As such, said amount got left out from consideration in accounts for earlier year ended 31st March, 2002 but was reflected in accounts for previous year ended 31st March, 2003 relevant to asst. yr. 2003-04. It is submitted that AO should not have taken inconsistent stands and should not have disallowed such minor items of expenses while subjecting to tax income of Rs. 31,64,850 pertaining to earlier years. learned Departmental Representative, on other hand, submitted that CIT(A) considering submission of assessee restored matter back to file of AO to verify factual correctness of same. Therefore, said direction of CIT(A) considering claim of assessee should be upheld. We have heard parties and perused material placed before us. As p e r tax audit report, sum of Rs. 47,972 was prior period expenses and income of Rs. 31,64,850 was also relating to earlier years. AO took into consideration income excluding expenditure. We find that out of expenditure of Rs. 47,972, sum of Rs. 23,888 was on account of rates and taxes, which was admittedly not paid during relevant year. However, as has been pointed out before CIT(A) and contended before us, assessee itself has disallowed said expenditure under s. 43B. Out of remaining expenditure of Rs. 24,084 (Rs. 47,972 - Rs. 23,888): sum of Rs. 6,769 was on account of interest for which, according to assessee, debit advice was issued by bank on 1st April, 2002 and hence said amount got left out from consideration in accounts for year ended 31st March, 2002, but reflected in accounts as on 31st March, 2003. Considering totality of facts and circumstance of case, we find substantial force in contention of assessee s learned counsel that AO was not justified in taking into consideration only income excluding related expenditure of earlier years and disallowing expenditure as prior period expenditure. Income and expenditure is correlated. If income is to be considered, then automatically expenditure in relation to such income needs to be taken care of. assessee deserves to succeed on this ground. In result, appeal of assessee is allowed and that of Department is dismissed. *** HINDUSTAN GUM & CHEMICALS LTD. v. INCOME TAX OFFICER