No Deduction on Interest Income received from Bank on FDRs Pledged as Security Deposit: ITAT [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) while dismissing the appeal preferred by the assessee ordered that the assessee shall not be entitled to deduction on Interest Income received on account of interest received from bank on FDRs pledged as security deposit if it has no direct nexus to primary business of the assessee.

To lay the facts of the case, the assessee firm is located at the notified Industrial Area for claiming deduction filed a return of income declaring NIL income after claiming deduction under Section 80IC of the Income Tax Act on its interest income. It was submitted by the assessee that the interest income was received on account of interest received from bank on FDRs pledged as security deposit/performance guarantee with government in lieu of tender of contracts. The Assessing Officer (AO) and the Commissioner of Income Tax Appeals (CIT(A)) disallowed the deduction on interest earned on FDRs and made the addition.

It was submitted by the assessee that the furnishing of FDRs arising in direct nexus and co-relation to the primary business of manufacture and supply of electrical metres to the various bodies and hence, qualifies for the said deduction.

The AO on the contrary contended that the deduction is to be allowed on the profits derived from eligible business and interest earned on FDRs is not derived from manufacturing activities of the assessee. Furthermore, the CIT (A) also noted that interest income is merely incidental to the industrial undertaking cannot be considered to have a direct nexus with it.

Hence, the Tribunal after hearing the contentions of both parties, relying upon the decisions of the present Court held that the deduction cannot be claimed by the assessee since there exists no direct nexus between the interest income earned by the assessee to primary business of the assessee.