In recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) allowed deduction for electricity charges, miscellaneous expenses and audit fees under Section 57 of Income Tax Act, 1961, for interest income earners.

The assessee was engaged in the business of manufacture of thermo equipment. Since the assessee had stopped business in the past, it had let out its properties and earned rental income from them. During the year under consideration, the AO noticed that the assessee did not declare rental income from one of the office premises titled as “Marathon Innova A-902”. The assessee submitted that the above said property has remained vacant during the whole of the year and hence rent was not received. Furthermore, the AO observed that the taxpayer had claimed expenses amounting to Rs. 7,72,901 while computing total income, against an interest income of Rs. 19.69 lakhs received from M/s. Alf Engineering Pvt. Limited. Citing Section 57, the

AO disallowed the claimed expenses as the taxpayer failed to establish their direct relevance to earning interest income. However, the AO allowed the statutory expenditure of Rs.16,636, incurred to maintain the taxpayer’s corporate status. Further noticed that the said expenses included statutory expenditure of Rs.16, 636/- incurred by the assessee to maintain the status of the assessee as ‘company’. The AO took the view that the said amount of Rs.16,636/- is allowable as deduction and accordingly disallowed balance amount of Rs. 7,56,265/-. Hence, in the facts of the present case, the entire expenses claimed by the assessee should be related to the interest income earned by the assessee from M/s. Alf Engineering Pvt. Limited. The two member bench of the tribunal comprising Aby T. Varkey ( Judicial member )

and B.R.Baskaran ( Accountant member ) noticed that the Assessing Officer has assessed interest income under the head ‘Income from other sources’. As per the provisions of Section 57 of the Income Tax Act, only those expenses which have been incurred to earn the interest income are allowable as deduction. Further noticed that the general expenses claimed by the assessee consisted of electricity charges, miscellaneous expenses, audit fees etc. It was not shown by the assessee that these expenses have been incurred to earn interest income. ITAT concluded that the tax authorities are justified in disallowing the expenses of Rs. 7, 56,265/- claimed by the assessee. Accordingly, upheld the order passed by the CIT (A) on this issue. Therefore the appeal filed by the assessee was partly allowed.