Premature termination of fixed deposit

This query is : Resolved

C.A. Deepak Kakkar (Querist)
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21 December 2011 Dear All

Please give your valuable opinion on following:

One of my client was having fixed deposit in bank for 10 years. Accrued interest of every year was being offered for taxation as income from other sources.

Now as on 01.04.2008 the balance of accrued interest was Rs. 10 lacs standing in the books. But on premature termination of FDR, bank credited just Rs. 5 lacs as interest on FDR during F.Y. 08-09.

I treated it a loss under the head income from other sources & Rs. 5 lacs( negative balance)was reduced from other incomes.

Was that the correct treatment, if yes, please mention any case law or section.

if no, pls suggest the correct treatment of this.

Thanks
Deepak Kakkar

CA SUMiT PATWARi

CA SUMiT PATWARi (Expert)
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21 December 2011 In my opinion, this can be allowed as a business expense.
The FD was prematured on account of business fund requirements probably and hence the loss of interest(accrued) is attributable to business need.

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C.A. Deepak Kakkar

C.A. Deepak Kakkar (Querist)
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21 December 2011 Mr. Sumit

Thanks for this opinion, but i have to quote any section or case study because this is under scrutiny assessment.

please help

Thanks

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Aijaz Shaikh

Aijaz Shaikh (Expert)
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21 December 2011 I think such loss cannot be allowed under income from other sources, since there is no such enabling section.

There can be loss under the head income from other sources only if directly attributable expenditure is greater than income.

There is no section such as 37 under the head income from other sources.

Your capital account will be debited, due to such loss.