VENKATASAMY MANIMEGALAI,COIMBATORE vs. ACIT, NCC-4,, COIMBATORE

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ITA 2823/CHNY/2025Status: DisposedITAT Chennai30 June 2026AY 2020-213 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the utilization of the loan is irrelevant for claiming deduction under Section 57(iii) of the Act. The nexus between the borrowed funds and the interest income earned on deposits is what matters. Therefore, the assessee is entitled to a deduction of interest paid to the extent of interest income earned.

What were the facts?

The assessee claimed a deduction for interest paid on a loan taken against fixed deposits. The loan was utilized to invest in the son's business, and the interest income from the fixed deposits was offered to tax. The Assessing Officer disallowed the entire interest payment.

What were the issues?

Whether the interest paid on a loan taken against fixed deposits is deductible under Section 57(iii) of the Income-tax Act, 1961, when the loan was utilized for a different purpose?

Which sections of the Income-tax Act were involved?

Section 57

AI-generated summary — verify with the full judgment below

Before: Shri M. Balaganesh & Shri S.S. Viswanethra Ravi

Hearing: 25.06.2026Pronounced: 30.06.2026

आयकर अपीलीय अिधकरण, ‘‘सी’’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी ऐम. बालगनेश, लेखा सद� एवं �ी एस.एस. िव�ने� रिव, �ाियक सद� के सम� Before Shri M. Balaganesh, Accountant Member & Shri S.S. Viswanethra Ravi, Judicial Member आयकर अपील सं./I.T.A. No.2823/Chny/2025 िनधा�रण वष�/Assessment Year: 2020-21 Venkatasamy Manimegalai, Vs. The ACIT, 2/1-A Sri Venkateswara Ginning Non Corporate Circle 4, Coimbtore Factory, Avinashi Road, 641018. Chinniampalayam, Combatore Tamil Nadu-641602. [PAN: AETPM1495C] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Mr. N. Arjunraj, Advocate ��थ� की ओर से/Respondent by : Ms. Swarnalatha, Adl CIT सुनवाई की तारीख/ Date of hearing : 25.06.2026 घोषणा की तारीख /Date of Pronouncement : 30.06.2026 आदेश /O R D E R PER M. BALAGANESH, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order dated 01.10.2025 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi for the assessment year 2020-21. 2. The only effective issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the disallowance of claim of deduction under Section 57 of the Income-tax Act, 1961 (for short, the Act) in the sum of ₹97,12,404/- in the facts and circumstances of the instant case.

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3.

We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee had invested in fixed deposits and earned interest income thereon to the tune of ₹91,91,882/-. This interest income has been duly offered to tax as income from other sources by the assessee in the return. The assessee took a loan against the fixed deposits and paid interest in the sum of ₹97,12,404/-. This interest payment was claimed as deduction under Section 57 of the Act against the interest income of the fixed deposits. The ld. AO proceeded to disallow the entire interest payment of ₹97,12,404/- on the ground that the loan borrowed against the fixed deposits was utilized by the assessee to invest in the business carried out by the assessee’s son, from which the assessee had not earned any interest income. This is the main reasoning given by the Revenue for effecting the disallowance of interest payment. This action of the ld. AO was upheld by the ld. CIT(A).

4.

In our considered opinion, what is relevant for the purpose of allowability of interest payment as deduction under Section 57(iii) of the Act is only the nexus between the borrowed funds and the interest income earned on deposits. As stated in the earlier part of the order, the assessee earned interest income on fixed deposits and had taken a loan against his own fixed deposits from the bank and paid interest on such loan. The utilization of the loan is of no relevance. What is relevant is that the loan has been taken against the fixed deposits which were fetching him interest income. Hence, the assessee, as per the provisions of Section 57(iii) of the Act, would be entitled to deduction of interest paid to the extent of interest income. Hence, the alternative plea of the assessee in this regard deserves to be accepted and accordingly we hold that the

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assessee would be entitled to deduction of interest payment only to the extent of interest income. In other words, the assessee would be entitled to deduction of ₹91,91,882/- and the remaining sum of ₹5,20,522/- is to be disallowed. Thus, the grounds raised by the assessee are partly allowed.

5.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced on 30th June, 2026 at Chennai.

Sd/- Sd/- (M. BALAGANESH) (S.S. VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 30.06.2026 MM/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR & 5. गाड� फाईल/GF.

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