Actual Interest Expenditure Had To Be Adjusted Against Income Earned By Way Of Interest: Delhi High Court

The Delhi High Court has held that actual interest expenditure had to be adjusted against the income earned by way of interest.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that the assessee has parked its surplus funds in fixed deposits of the bank from which it earned interest income. At the same time, the assessee has also paid interest to the bank. The interest earned has to be netted off with interest expenditure.

The appellant or department seeks to assail the order passed by the Income Tax Appellate Tribunal. The ITAT restricted the addition made under section 14A of the Income Tax Act read with Rule 8D to the exempt income.

The record shows that the exempt income earned by the respondent or assessee in the period in issue was Rs. 37,93,374. The Assessing Officer, however, disallowed Rs. 66,51,45,652 by invoking the provisions of Section 14A read with Rule 8D of the Income Tax Rules, 1962.

Section 14A authorizes the AO to disallow expenditures incurred for earning tax-free income, irrespective of whether the assessee maintained separate accounts or not with regard to expenditures incurred for earning non-taxable income.

The Income Tax Rules, 1962, were amended in 2008, and Rule 8D was inserted to provide for the method for determining the amount of expenditure in relation to income not included in total income.

The court directed the assessing officer to net off interest income with interest expenditure.

Counsel For Petitioner: Ruchir Bhatia

Counsel For Respondent: Nemo

Case Title: CIT Versus RRPR Holding Pvt. Ltd.

Citation: 2024 LiveLaw (Del) 3

Case No.: ITA 808/2023 & CM Appl.67255/2023

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