ITAT Allows Deduction for Bank Transaction Charges Against Interest Income.

ITAT Allows Deduction for Bank Transaction Charges Against Interest Income.

Issue

Whether bank transaction charges levied by a bank are an allowable expenditure under Section 57 of the Income-tax Act against the interest income earned by the assessee from the same bank.

Facts

• The assessee had declared interest income totaling ₹2,71,511, which was earned from a Savings Account (₹50,215), FDRs (₹83,582), and a Recurring Deposit (₹5,508).
• Against this income, the assessee claimed a deduction under Section 57, which included ₹10,945 for bank transaction charges levied by the same bank.
• The Assessing Officer (AO) had disallowed this claim.
• The assessee had submitted all these details to the AO during the assessment proceedings.

Decision

• The ITAT held that the assessee’s claim for the deduction of bank transaction charges was fully justified.
• The Tribunal found that since the assessee was earning interest income from the bank, the transaction charges levied by that bank were a directly related expenditure.
• The assessee’s submission on this issue was found to have merit, and the deduction was ordered to be allowed.

Key Takeaways

• Direct Nexus: Expenditure incurred to earn income is deductible. Bank transaction charges have a direct nexus with the bank accounts that generate interest income, making them a valid deduction under Section 57 (“Income from Other Sources”).
• Evidence is Key: The assessee’s position was strengthened by the fact that they had provided all the necessary details and computations to the AO during the assessment, even though the AO had initially disallowed the claim.
• Allowable Expenses: Any charge or commission paid for the purpose of realizing interest income is generally allowable as a deduction.