Business income - interest income and interest expesnes

An assessee doing finance business under individual license,

Earning only interest income (4,00,000) and 

Interest expenses: 

1.  Interest on loans from banks paid (40,000),

2. Interest on loans from relatives payable added to respective loans (3,00,000).

Is interest expenses allowed as deduction?

If yes, under what section? and

where it can be shown in ITR3?

Thanks,