Deduction u/s 57 for Bank Charges allowable as it Relates to Interest Income: ITAT Allows Claim [Read Order]

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) ruled that bank charges can be allowed as deductions under Section 57 and directed the deletion of a disallowance of ₹34,647 which was claimed as expenses against "Income from Other Sources" by the assessee.

Saroj Devi Haldiya (assessee) had declared an interest income of ₹2,71,511, sourced from savings bank accounts, Fixed Deposits (FDRs), and Recurring Deposits (RDs). Against this income, the assessee claimed a deduction of ₹34,647, which primarily included transaction charges levied by the bank.

The Assessing Officer (AO) disallowed this claim and added the amount to the total income of the assessee. Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].

The CIT(A) upheld the disallowance citing a lack of direct nexus and insufficient evidence for the expenses. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

The two-member bench, comprising Dr. S. Seethalakshmi (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member) reviewed the facts and the nature of the income as declared by the assessee.

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The bench noted that the interest income declared by the assessee was derived from managed bank investments, including S/B accounts, FDRs, and RDs. The Tribunal observed that the assessee was undisputedly generating income from these banking instruments.

The tribunal observed that the claimed expenses, such as bank transaction charges, were a necessary cost of maintaining the accounts and managing the funds that produced the interest income.

The bench held that since the expenses claimed were directly related to and incidental to earning the taxable interest income, the assessee was fully justified in claiming the deduction under Section 57 of the Income Tax Act.

Section 57 permits deductions for expenditures, not being in the nature of capital expenditure, laid out or wholly and exclusively incurred for the purpose of making or earning income chargeable under the head "Income from Other Sources."

Finding merit in the assessee's submission which had been supported by a detailed letter and documentation filed before the AO, the tribunal overturned the orders of both the AO and the CIT(A).

The tribunal allowed the claim of ₹34,647. In the result, the appeal filed by the assessee was allowed.

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