The granular structure and electrical transport behavior of ball milled magnetic permalloy particles and graphite forming (Ni 0.8Fe 0.2) 10C 90 granular composites have been reported. Retaining the composite composition to be 90:10 and varying the particle size of permalloy, the electronic transport properties have been carried out down to 4 K under the external applied magnetic field of 50 kOe. All the samples show semiconducting like behavior and positive magnetoresistance (MR) in the temperature range 4-300 K. A strong anisotropic magnetoresistance in these samples has also been observed. The highest 31% longitudinal and 6.8% transverse magnetoresistance values have been observed in 40 hrs ball milled (Ni 0.8Fe 0.2) 10C 90 composite. From these studies, we suggest that the magnetic component present in the sample may not be playing a major role in obtaining large positive MR values, which is in deviation with the earlier reports. © 2011 American Scientific Publishers.