ITAT allowed deduction towards interest paid against FDR Interest as it was business-linked and served as collateral for loan facilities
ITAT Mumbai in the case of Global Tradex Ltd. v. ACIT has allowed deduction towards interest paid against FDR Interest as it was business-linked and served as collateral for loan facilities
Let us have a Short Overview of the case:
1. The assessee earned interest from fixed deposits (FDs) placed as security for business loans.
2. Interest paid on loans was adjusted against interest received from FDs, with net income offered as “Income from Other Sources.”
3. The Assessing Officer disallowed the interest expense under Section 57(iii), arguing it wasn’t incurred to earn FD interest.
4. The CIT(A) upheld the disallowance.
5. The Tribunal noted that the FDs were business-linked and served as collateral for loan facilities.
6. The netting of interest income and expense was found to be a tax-neutral adjustment in business context.
7. The Tribunal distinguished the SC ruling in Dr. V.P. Gopinathan, noting factual differences.
8. It held that the interest expense was legitimate business expenditure.
9. The disallowance of ₹2.73 crore was ruled unjustified and deleted.
10. The Tribunal allowed the appeal in favour of the assessee, setting aside the lower authorities’ orders.
The copy of the order is as under:
