ITO, NEW DELHI vs. M/S. CARAF BUILDERS & CONSTRUCTIONS PVT. LTD., NEW DELHI

This appeal is time barred by 38 days. The ld. AR did not raise any objection to the late filing of the appeal. As such, the delay is condoned and the appeal is admitted for hearing.

Two issues have been raised in this appeal viz., one, towards confirmation of disallowance u/s 14A to the tune of Rs.75,89,66,443/- instead of Rs.145.22 crore and the second, against the allowing of set off of interest expenditure against interest income u/s 57(iii) of the Act.

Briefly stated, the facts of the case are that the assessee earned dividend income of Rs.19,25,655/- which was claimed as exempt u/s 10(34) of the Act. The assessee also voluntarily made disallowance u/s 14A to the tune of Rs.70,20,602/-. The Assessing Officer applied the provisions of Rule 8D and worked out disallowance u/s 14A at Rs.144.52 crore. Thereafter, it was observed that the assessee earned interest income of Rs.41.81 crore and had paid interest of Rs.153.08 crore. After setting off interest expenditure against the interest income, no interest income was offered under the head ‘Income from other sources.’ The Assessing Officer, on perusal of the assessee’s balance sheet, observed that it had raised a term

We have heard both the sides and perused the relevant material on record. It is noticed from the assessee’s balance sheet, a copy of which has been placed on record, that apart from share capital of Rs.1.02 lac, the only other loan liability is that of Rs.10,46,08,34,442/-, being the amount of unsecured loans. Thus, it is seen that apart from certain current liabilities, the assessee had unsecured loans available with it to the tune of Rs.1,046.08 crore. It is only such amount of unsecured loans which was at its disposal, out of which advances were made to sister concerns on which the assessee earned interest income. As such, it is clear that there is a close nexus between the interest expenditure and interest income and, hence, the ld. CIT(A) was right in making appropriate set off.

As regards the confirmation of disallowance u/s 14A, in our considered opinion, the ld. CIT(A) has rightly treated the interest of Rs.75.89 crore, as relating to the exempt income and accordingly made such disallowance u/s 14A. The ld. AR also candidly accepted that such disallowance sustained in the first appeal at Rs.75.89 crore, despite there being exempt income only of Rs.19.25 lac and the suo motu disallowance at Rs.70.20 lac, is in order. We, therefore, uphold the impugned order. 4

In the result, the appeal of the Revenue is dismissed.