2000 (7) TMI 206 - AT - Income Tax

Summary

Issues:
1. Disallowance of interest payment on overdraft bank account.
2. Disallowance of deduction under s. 80CCA for investments in NSS.
3. Disallowance of deduction under s. 80CCB for investments in Canpep.

Analysis:

Issue 1: Disallowance of interest payment on overdraft bank account
The AO disallowed the interest payment of Rs. 16,777 on the overdraft bank account, stating it was not related to earning income. The CIT(A) upheld this decision, considering the interest paid on the overdraft account not towards earning income. However, the ITAT found that the interest accrued on the fixed deposit (FD) account was Rs. 81,600, against which the overdraft interest of Rs. 16,777 was claimed. The ITAT concluded that the investments in NSS and Canpep, along with the overdraft interest, were less than the interest income shown by the assessee for taxable purposes. Therefore, it was held that the investments were not made out of borrowed funds but from income chargeable to tax. Consequently, the ITAT allowed the deduction of interest of Rs. 16,777 on the overdraft account.

Issue 2: Disallowance of deduction under s. 80CCA for investments in NSS
The AO disallowed the deduction under s. 80CCA for investments in NSS, stating they were made out of the overdraft account, not from income chargeable to tax. The CIT(A) confirmed this decision. However, the ITAT found that the financial transactions were related to the FD account, from which interest income was earned and offered for taxation. As the investments were not made from borrowed funds but from income chargeable to tax, the ITAT reversed the lower authorities' orders and directed the AO to allow the deduction of Rs. 40,000 under s. 80CCA.

Issue 3: Disallowance of deduction under s. 80CCB for investments in Canpep
Similar to the disallowance under s. 80CCA, the AO disallowed the deduction under s. 80CCB for investments in Canpep, stating they were made from the overdraft account. The CIT(A) upheld this decision. However, the ITAT, considering the overall financial transactions related to the FD account, allowed the deduction of Rs. 10,000 under s. 80CCB as the investments were found to be from income chargeable to tax. Therefore, the ITAT reversed the lower authorities' orders and allowed the deduction.

In conclusion, the ITAT allowed the appeal, directing the AO to permit the deductions of Rs. 16,777 under s. 57, Rs. 40,000 under s. 80CCA, and Rs. 10,000 under s. 80CCB, as claimed by the assessee.