2019 (6) TMI 43 - AT - Income Tax

Tribunal allows deduction for interest on fixed deposits and sets off against OD interest. Consistency emphasized with bank statements.

M/s. Sunland Alloys Versus JCIT, Range 39, (now ACIT, Circle 36 (1) ), New Delhi.

The Tribunal allowed the appeal, permitting the deduction under section 80IB for interest earned on fixed deposits and allowing the setting off of such ... Deduction u/s 80-IB - excess claim of exemption made - netting off of interest - setting off of amount of interest earned on FDRs against the amount paid to the bank on account of interest on cash credit - HELD THAT:- Assessee has come up with a specific submission that FDRs have been purchased from the cash credit account maintained with the banks and during the year under assessment, assessee firm has paid interest on these cash credit accounts and as such interest earned on fixed deposits on banks should be set off from/against the amount paid to the bank on account of interest in the cash credit accounts. We are of the considered view that when assessee has purchased the FDRs from the cash credit accounts on which it has paid interest, the interest earned on the FDRs is eligible to be set off from/against the amount paid to the bank as interest on cash credit account even by following the rule of consistency. These facts are proved from the statement of account issued by the Canara Bank and State Bank of India. We are of the considered view that when there is no change in the facts and circumstances of the case during the year under assessment and by following the rule of consistency, assessee is entitled for setting off of the interest earned on fixed deposit with the bank against the amount of interest paid to the bank on account of cash credit account on the line of earlier years as well as subsequent years. - Decided in favour of the assessee. Issues Involved:1. Validity of assessment due to notice under section 143(2) of the Income Tax Act not being issued within the limitation period.2. Disallowance of deduction under section 80IB for interest on fixed deposits.3. Setting off interest on fixed deposits against interest paid to the bank on the OD account.4. Charging of interest under sections 234D and 244A of the Act.Issue 1: Validity of Assessment Notice:The appellant contested that the assessment was invalid as no valid notice under section 143(2) of the Income Tax Act was issued within the limitation period. However, the CIT (A) upheld the assessment. The Tribunal did not provide specific adjudication on this ground as it was general in nature.Issue 2: Disallowance of Deduction under Section 80IB:The appellant claimed a deduction under section 80IB for interest earned on fixed deposits. The AO disallowed this deduction as the interest income was not considered business income. The appellant sought to set off the interest earned on fixed deposits against the interest paid to the bank on the OD account. The Tribunal found that the interest earned on fixed deposits, purchased from the OD account, could be set off against the interest paid to the bank on the cash credit account. Relying on the rule of consistency and supporting evidence from bank statements, the Tribunal ruled in favor of the appellant, allowing the deduction under section 80IB.Issue 3: Setting off Interest on Fixed Deposits:The appellant argued for setting off the interest on fixed deposits against the interest paid to the bank on the OD account. The Tribunal agreed with the appellant's contention, stating that the interest earned on fixed deposits could be set off against the interest paid on the cash credit account. The Tribunal emphasized the rule of consistency and upheld the appellant's right to set off the interest amounts.Issue 4: Charging of Interest under Sections 234D and 244A:The appellant raised concerns regarding the charging of interest under sections 234D and 244A of the Act. The Tribunal deemed this issue consequential and did not provide specific findings.In conclusion, the Tribunal allowed the appeal filed by the assessee, ruling in favor of setting off the interest earned on fixed deposits against the interest paid to the bank on the OD account. The judgment was delivered on May 29, 2019, by the Tribunal consisting of Vice President Shri G.D. Agrawal and Judicial Member Shri Kuldip Singh.