In a recent decision the Delhi High Court ruled that actual interest expenditure to be adjusted against income earned by way of interest under the Income Tax Act, 1961.
The appeal concerns Assessment Year 2009-10. Via the instant appeal, the appellant/revenue seeks to assail the order dated 18.08.2021 passed by the Income Tax Appellate Tribunal (ITAT).
The ITAT noted that “It is an undisputed fact that the assessee has parked its surplus funds in fixed deposits of the bank from which it earned interest income of Rs.1,12,72,374/-. At the same time, we find that the assessee has also paid interest to the bank. In our considered opinion, interest earned has to be netted off with interest expenditure. We, accordingly, direct the Assessing Officer to net off interest income of Rs.1,12,72,374/- with interest expenditure.”
Ruchir Bhatia, senior standing counsel, who appeared on behalf of the appellant/revenue, cannot but accept that they are covered against the appellant/revenue by virtue of the decision rendered by the coordinate Bench in the matter of Joint Investments (P) Ltd. vs. Commissioner of Income Tax.
The Assessing Officer (AO), however, disallowed Rs.66,51,45,652/- by invoking the provisions of Section 14A read with Rule 8D of the Income Tax Rules, 1962.
A Division Bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “The AO, after noting the fact that the respondent/assessee had earned income by way of interest, adjusted the interest expended towards 90% of the income. Thus, in fact, income by way of interest was quantified by the AO at Rs.11,27,234. The Tribunal has, in our view, rightly deleted the addition by holding that the actual interest expenditure had to be adjusted against the income earned by way of interest.”
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