Whether interest paid on a loan taken to avoid premature encashment of fixed deposit is deductible u/s 57(iii) against interest earned on fixed deposit?

Last updated: 19 August 2014

Court :
ITAT - Agra

Brief :
The assessee had made a fixed deposit of Rs 1,00,00,000 with ICICI Bank and earned interest of Rs 11,77,574 on these deposits. The assessee claimed a deduction of Rs4,36,705 on account of interest paid on loan of Rs 75,00,000 taken, on the securityof deposits and paid interest of Rs 4,36,705 thereon. The assessee contended that loan was taken to avoid premature encashment of the fixed deposit and the interest paid on the loan had to be deducted against the interest earned on the fixed deposit u/s 57(iii). The AO and CIT(A) rejected the assessee’s contention. Aggrieved the assesse filed an appeal before the tribunal. The tribunal held that S. 57(iii) allows a deduction of “any…expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income”. It is clear that as long as the expense is incurred wholly and exclusively for the purpose of earning an income, even if it is not necessarily for earning that income, it will still be deductible in computation of income.

Citation :
Raj KumariAgarwal(Deceased; through legal heir AnshuAgarwal) – Appellant – Versus - Deputy Commissioner of Income Tax - Respondent



I.T.A. No.: 176/Agra/2013

Assessment year:2008-09

Raj Kumari Agarwal


(Deceased; through legal heir AnshuAgarwal)

21/49, Freegunj, Agra 282 004



Deputy Commissioner of Income Tax

Circle 2, Agra R


Appearances by:

Arvind Kumar Bansal, for the appellant

S D Sharma, for the respondent

Before Coram:

Pramod Kumar AM and Joginder Singh JM

Date of concluding the hearing: June 5, 2014

Date of pronouncing the order: July 18th, 2014


Per Pramod Kumar:

1. This is an appeal filed by the assessee and is directed against the order dated 20th December, 2012 passed by the learned Commissioner (Appeals), in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2008-09.

2. Ground No. 1, 4, 5 and 6, being general in nature, do not call for any adjudication and are treated as infructuous.

3. In ground no. 2, the assessee has raised the following grievance:-

Because the authorities below has wrongly and arbitrarily held that the sales consideration of land sold by the assessee was not proper without considering the reasons given by the assessee for selling the land for the price lesser than the circle rate fixed by the district was too high and as such application of section 50C is wrong, illegal and against the facts of the case speciality when no reference is made to the valuation officer. Circle rate was 258000/- sales consideration was 1,60,000

4. The relevant material facts are as follows. During the relevant previous year, the assessee had sold a piece of land for stated consideration of Rs.1,64,000. However, since stamp duty valuation of this land was Rs.2,58,000, the Assessing adopted the same for computation of long term capital gain. The assessee’s contentions, inter alia, to the effect that the stated consideration was fair market value of the land in question “as the land was situated in underdeveloped area, there was unauthorised possession of the land and as there were number of pits in the land” and “as such, the circle rate fixed in the area could not apply” was simply brushed aside. Aggrieved, assessee carried the matter in appeal but learned CIT(A) also rejected the grievance of the assessee and observed that “ I find that the AO was justified in taking the sale consideration at Rs.2,58,000 as per the provisions of Section 50 C because the assessee (appellant) could not produce any evidence showing that the market value of the land was less than the circle rate”. The assessee is not satisfied and is in further appeal before us.

5. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position.

6. We find that here is a case in which the assessee has specifically objected to the adoption of stamp duty valuation rate. The mere fact that the appellant has not challenged the stamp duty valuation cannot be put against the assessee. The authority for the this proposition is contained in, Hon’ble jurisdictional High Court’s judgment, in the case of CIT Vs Chandra Narain Chaudhuri ([2013] 38 taxmann.com 275 (Allahabad), wherein Their Lordships have observed that, “The question as to whether the assessee filed any objections before the Stamp Valuation Authority to dispute the valuation, or filed appeal or revision or made reference before any authority, court or the High Court under sub section (2) (b) of Section 50 C of the Act is not of any relevance in this case, as the AO himself observed that the assessee did not dispute the stamp valuation before the Stamp Valuation Authority. There may be several reasons for the purchaser not to file such objection. A purchaser may not go into litigation, and pay stamp duty, as fixed by the Stamp Valuation Authority, which may be over and above the fair market value of the property, as on the date of transfer, though the amount so determined has not been actually received by owner of the property”. The position as to whether reference should be made to the DVO, even when there is no specific plea to that effect by the assessee, is now well set out in Hon’ble Calcutta High Court’s judgment in the case of Sunil Kumar Agarwal CIT ( GA No 3686/2013 in ITAT No 221/ 2013; judgment dated 13th March 2014), wherein Their Lordships have, inter alia, observed as follows:-

“ ….we are of the opinion that the valuation by the departmental valuation officer, contemplated under Section 50C, is required to avoid miscarriage of justice. The legislature did not intend that the capital gain should be fixed merely on the basis of the valuation to be made by the District Sub Registrar for the purpose of stamp duty. The legislature has taken care to provide adequate machinery to give a fair treatment to the citizen/taxpayer. There is no reason why the machinery provided by the legislature should not be used and the benefit thereof should be refused. Even in a case where no such prayer is made by the learned advocate representing the assessee, who may not have been properly instructed in law, the assessing officer, discharging a quasi judicial function, has the bounden duty to act fairly and to give a fair treatment by giving him an option to follow the course provided by law.”

To read the full judgment, please find the attached file :

Attached file:



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