2003 (3) TMI 658 - AT - Income Tax

Tax Tribunal Upholds Setoff of Interest on FDR Against Loan Interest

The Appellate Tribunal ITAT DELHI upheld the order of CIT (Appeals) directing the Assessing Officer to allow interest received on FDR to be adjusted ... Deduction under section 80HHC - set-off of interest earned on fixed deposits against interest paid on loans - direct nexus between interest income and interest expense - precedential conflict where two views possible - benefit to assesseeDeduction under section 80HHC - set-off of interest earned on fixed deposits against interest paid on loans - direct nexus between interest income and interest expense - Whether interest received on FDR could be adjusted against interest paid on bank loans and thus excluded while computing deduction under section 80HHC for AY 1995-96 - HELD THAT: - The Tribunal confirmed the order of the CIT (Appeals) allowing the assessee to set off interest earned on FDR against interest paid on loans when computing the deduction under section 80HHC. The Tribunal observed that the assessment officer's exclusion of interest earned while computing the deduction suffered no merit in the facts of this case because there existed a direct nexus between the interest earned on FDR and the interest payable to the bank - the loan facility having been obtained subject to purchase of the FDR. The decision relied upon by the assessee, including the Third Member view in Gallium Equipment (P.) Ltd., supports allowing such set-off where nexus is established. The Tribunal distinguished the facts of Dr. V.P. Gopinathan as lacking such direct nexus and therefore inapplicable. Having considered rival precedents and the reasoning of the CIT (Appeals), the Tribunal found no infirmity in allowing the adjustment and directed recomputation of the deduction accordingly. [Paras 5, 6]Order of the CIT (Appeals) confirmed; interest on FDR to be adjusted against interest paid to bank and deduction under section 80HHC to be recomputed; departmental appeal dismissed.Final Conclusion: The departmental appeal is dismissed and the CIT (Appeals) order directing adjustment of interest received on FDR against interest paid and recomputation of deduction under section 80HHC for AY 1995-96 is confirmed. The Appellate Tribunal ITAT DELHI upheld the order of CIT (Appeals) directing the Assessing Officer to allow interest received on FDR to be adjusted against interest paid on loans for the assessment year 1995-96. The Tribunal confirmed the decision based on previous rulings and held that the interest earned on FDR was rightly set off against interest payable to the bank. The appeal of the department was dismissed.