2018 (6) TMI 31 - AT - Income Tax

Addition on account of the interest income - Disallowance of interest expenses and depreciation allowance against interest income from fixed deposits - Held that - Interest expenses on overdraft facility taken against fixed deposits, have not been incurred in the earning of interest on FD - thus it cannot be allowed as deduction against the interest income on fixed deposits u/s 57 - Decided against the assessee. Depreciation claimed by the assessee against such interest income on fixed deposits - Held that - Since the assessee has withdrawn the claim of depreciation in his return submission therefore, there is no reason to adjudicate the same - Hence dismissed.

Summary

Issues:
Confirmation of addition to interest income in income from other sources.

Analysis:
The appeal was filed by the assessee against the appellate order of the Commissioner of Income Tax (Appeals) regarding the addition of a specific amount to the interest income in the assessment order under the Income Tax Act, 1961 for the Assessment Year 2013-14. The primary issue raised by the assessee was the confirmation of the addition made by the Assessing Officer for a certain amount on account of interest income. The assessee earned interest income from fixed deposits with banks and claimed deductions for interest expenses and depreciation against this income. However, the Assessing Officer disallowed these deductions, leading to the addition of the disallowed amounts to the total income of the assessee.

During the proceedings, the assessee argued that the deductions were legitimate as the interest expenses were directly related to the income earned from fixed deposits. The assessee explained that the overdraft facility was utilized for personal purposes and investments, and the interest expenses on the overdraft should be allowed as a deduction against the interest income from fixed deposits. The assessee presented a detailed explanation and examples to support this claim.

The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, stating that the interest expenses on the overdraft were not incurred for the purpose of earning the interest income from fixed deposits. The Commissioner cited relevant provisions of the Income Tax Act to support the disallowance of the deductions claimed by the assessee. The Commissioner dismissed the appeal, leading the assessee to file a second appeal before the Appellate Tribunal.

Upon further review, the Appellate Tribunal considered the arguments presented by both parties. The Tribunal noted that the interest expenses on the overdraft facility were not directly related to the earning of interest income from fixed deposits, as required by the provisions of the Income Tax Act. Therefore, the Tribunal concluded that the deductions claimed by the assessee for the interest expenses on the overdraft could not be allowed against the interest income from fixed deposits. Additionally, as the assessee had withdrawn the claim for depreciation during the proceedings, the Tribunal did not address this issue further.

Ultimately, the Tribunal dismissed the assessee's appeal, upholding the decision of the lower authorities. The Tribunal concluded that the interest expenses on the overdraft facility were not incurred for the purpose of earning the interest income from fixed deposits, and therefore, the deductions claimed by the assessee were not allowable under the Income Tax Act.