NEW VISION IT SYSTEM P.LTD,NEW DELHI vs. ITO, WARD-18(2), NEW DELHI

This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals] - 6, New Delhi dated 14.08.2018 pertaining to assessment year 2013-14.

The sum and substance of the grievance of the assessee is that the CIT(A) erred in confirming the addition of Rs. 22,40,424/- disallowing set off of interest income.

Briefly stated, the facts of the case are that during the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has set off its interest income of Rs. 22,40,424/- earned from Fixed Deposits with the interest expenditure paid to the bank on monies borrowed for purchase of machinery. The assessee was asked to justify its claim of set off. Reply filed by the assessee did not find favour with the Assessing Officer who disallowed the claim of set off. The assessee carried the matter before the CIT(A), but without any success.

Before us, the ld. AR strongly submitted that the Assessing Officer himself has accepted that the assessee had earned interest on Fixed Deposits which were made from surplus funds of bank loans taken from the same bank on which the assessee had paid interest of Rs. 27,59,040/-. It is the say of the ld. AR that since earning of interest and payment of interest is on the same account, therefore, there is no reason why the interest should not be allowed to be set off against interest payment.

Per contra, the ld. DR strongly supported the findings of the AO.

We have given thoughtful consideration to the orders of the authorities below. There is no dispute that the Assessing Officer has himself accepted that the Fixed Deposits made in ING Vysya Bank were out of the surplus funds of bank loans.

The Hon'ble Supreme Court in the case of ACG Associated Capsules [P] Ltd 343 ITR 89m has categorically held that netting off of interest is permissible. Interest earned from the bank and interest paid to the bank has to be netted off and only surplus interest becomes income of the assessee.

Assuming, yet not accepting that interest earned by the assessee has to be taxed under the head income from other sources, then also the assessee is entitled for deduction for the payment of interest u/s 57 of the Income tax Act, 1961.

Considering the facts of the case from all possible angles, we find force in the claim of the assessee. Interest income has to be netted off and we direct the Assessing Officer to allow netting off of interest earned from interest paid.

In the result, the appeal filed by the assessee is allowed.