Premature closure of fd when paying interest on accrual

These days some banks have started taxing FD interest on accrual. However, if the FD is closed prematurely it can lead to a tricky tax situation. Consider this:
Principal P INR invested on Oct 1 2010 in a FD maturing on sep 30 2011

Interest I INR accrued on mar 31, T INR cut as TDS.

Now FD is premature broken on Jun 30 2011.

Interest I2 INR is paid out on jun 30 as Interest for Q1 of 2011-2012. T2 INR is deducted as TDS.

Also, due to premature breakage, INR I3 is deducted as penalty.

Case 1) I2 > I3.

This is simpler case.

Income is shown as I2-I3 for 2011-2012 and T2 is shown as tax deducted

Case 2) I2 < I3

I think this is the tricky case.

In this case, investor only got I + I2 - I3 (which is even less than I) as interest on the FD but paid T + T2 as tax.

How should this case be handled on the FY2011-2012 return? Can loss on interest income be offset against regular income? If yes, then

I2-I3 (which is negative) can reduce the other income (salary income, other FD income etc.) of the investor and T2 can be shown as tax deducted.

Please let me if I have handled both cases correctly.

Thanks!

Disclaimer: I am not a CA or a CA student.