M/s. PLAZA HOTELS P. LTD., MUMBAI V. ACIT 8(2), MUMBAI

ITA 159/MUM/2006

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8600 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 01-10-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 09-01-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS SASMITA MISRA
• Assessee Lawyers: J D MISTRI
• Keywords: Capital asset; Business income; Earning of tax free income; Retrospective amendment; Deemed dividend; Notional interest; Capital receipt
• Section: 143(3); 14A; 28

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI . .. . . .. . , ,, , ! ! ! ! , ' ' ' ' # $% # $% # $% # $% , ,, , & ! & ! & ! & ! ' ' ' ' BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 159/MUM./2006 ( &( ) '*) / ASSESSMENT YEAR : 200203 ) PLAZA HOTELS PVT. LTD. 70C, NEHRU ROAD VILE PARLE (E), MUMBAI 400 099 .. +, / APPELLANT ( V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE8(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 099 .... -.+, / RESPONDENT !+ . / PERMANENT ACCOUNT NUMBER AAACP2117N . / ITA NO. 714/MUM./2006 ( &( ) '*) / ASSESSMENT YEAR : 200203 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE8(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 099 .. +, / APPELLANT ( V/S PLAZA HOTELS PVT. LTD. 70C, NEHRU ROAD VILE PARLE (E), MUMBAI 400 099 .... -.+, / RESPONDENT !+ . / PERMANENT ACCOUNT NUMBER AAACP2117N &( )0 1 2 / ASSESSEE BY : MR. J.D. MISTRI !' 1 2 / REVENUE BY : MRS. SASMITA MISRA (' 1 / DATE OF HEARING 01.10.2012 $ 34* 1 / DATE OF ORDER 10.10.2012 PLAZA HOTELS PVT. LTD. 2 $ $ $ $ / ORDER # $% # $% # $% # $% , ,, , & ! & ! & ! & ! 5 5 5 5 / PER AMIT SHUKLA, J.M. THE CROSS APPEALS ARE DIRECTED AGAINST THE IMPUGNED ORDER DATED 31 ST 24 TH NOVEMBER 2005, PASSED BY THE LEARNED COMMISSIONER (APPEALS), MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ), FOR ASSESSMENT YEAR 200203. SINCE THESE ARE THE CROSS APPEALS AND WERE HEARD TO GETHER, THEREFORE, AS A MATTER OF CONVENIENCE, ARE BEING DISPOSED OFF BY WA Y OF THIS CONSOLIDATED ORDER. 2. WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO.159/MUM./2006 , FOR ASSESSMENT YEAR 200203. THE ASSESSEE HAS RAISED TH REE GROUNDS WHICH ALSO CONSIST OF VARIOUS SUBGROUNDS. FOLLOWING ISSU ES HAVE BEEN RAISED IN THESE GROUNDS: I) GROUND NO.1.1 DISALLOWANCE OF DEDUCTION FOR IR RECOVERABLE ADVANCE OF ` 27,51,086, WRITTENOFF WHICH WAS GIVEN TO M/S. SUP PLYCO FOODS (INDIA) LTD. FOR THE PURCHASE OF RAW MATERIAL S IN THE COURSE OF ASSESSEES BUSINESS; II) GROUND NO.1.2 DISALLOWANCE OF DEDUCTION ON AC COUNT OF BAD DEBT OF ` 13,40,259, IN RESPECT OF INTEREST INCOME; III) GROUND NO.1.3 DISALLOWANCE OF DEDUCTION OF B AD DEBT ON ACCOUNT OF IRRECOVERABLE LOAN OF ` 3,00,000; IV) GROUND NO.2 DIRECTIONS FOR DEEMED DIVIDEND UN DER SECTION 2(22)(E) MADE BY THE ASSESSING OFFICER; AND V) GROUND NO.3 LEVY OF INTEREST UNDER SECTION 234 D. 3. THE FACTS, APROPOS THE FIRST ISSUE ARE THAT, THE AS SESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF HOTEL SINCE YEAR 1967. T HE ASSESSEE HAD SETUP A FLIGHT CATERING UNIT WHICH SUPPLIED FOOD AND BEVERA GES TO VARIOUS FOREIGN AND DOMESTIC AIRLINES. IN THE YEAR 1974, THE ASSESSEE C OMPANY CONSTRUCTED A STAR CATEGORY RESIDENTIAL HOTEL IN THE NAME OF AIRP ORT PLAZA AT VILE PARLE (E), PLAZA HOTELS PVT. LTD. 3 MUMBAI, WITH VARIOUS FACILITIES WHICH ARE ASSOCIATE D WITH A STAR CATEGORY HOTEL. IN THE YEAR, AROUND 198586, THE ASSESSEE CO MPANY SUSPENDED ITS FLIGHT CATERING ACTIVITIES DUE TO HEAVY LOSS AND IN OCTOBER 1990, THE KAMAT GROUP OF HOTELS TOOK OVER THE MANAGEMENT AND OPERAT ION OF ASSESSEE COMPANY AND CONTINUED THE SAME BUSINESS I.E., MANAG ING AND OPERATING THE HOTEL. ON 1 ST APRIL 1994, THE ASSESSEE COMPANY ENTERED INTO AN A GREEMENT WITH KAMAT HOTEL INDIA LTD. UNDER WHICH THE MANAGEM ENT AND THE OPERATION OF THE SAID HOTEL WAS GIVEN TO THEM WITH CERTAIN RI GHTS FOR FURTHER EXPANSION, ETC. HOWEVER, ALL THE HOTEL OPERATING LICENCES CONT INUED TO BE IN THE NAME OF THE ASSESSEE COMPANY AND, AS SUCH, CONTINUED TO BE THE OWNER OF THE HOTEL PROPERTY TILL DATE. IN CONSIDERATION THEREOF, THE A SSESSEE COMPANY EARNED FEES FROM THE SAID KAMAT HOTEL INDIA LTD. AT ONE PE RCENT (1%) OF THE HOTEL SALES WHICH WERE SUBJECT TO ASSESSMENT UNDER THE HE AD INCOME FROM HOTEL BUSINESS . THE KAMAT GROUP OF HOTELS WHICH CONSISTED OF VARI OUS HOTELS AND RESTAURANTS HAS FORMED A COMPANY IN THE NAME OF SU PPLYCO FOOD INDIA LTD. WHICH WAS FORMERLY KNOWN AS MC DONALD INDIA LTD. TO ACT AS A CENTRALIZED PURCHASING AGENCY FOR THE GROUP WITH THE MAIN OBJEC T OF PROCURING FOOD AND BEVERAGES, RAW MATERIAL AND OTHER HOTEL SUPPLIES FR OM VARIOUS SUPPLIERS ON BEHALF OF VARIOUS HOTELS AND RESTAURANTS IN THE KAM AT GROUP ON A CONTINUED BASIS AT COMPETITIVE RATES. THE SAID SUPPLYCO FOOD INDIA LTD., WAS OBLIGED TO PAY COMPENSATION FOR ANY DISRUPTION IN THE DAYTOD AY OPERATION OF THE HOTEL OR RESTAURANT DUE TO ANY NONSUPPLY OR DELAYE D SUPPLY. FOR ALL THESE SERVICES AND OBLIGATIONS, THE SAID COMPANY WAS CHAR GING SERVICE CHARGE OF 5% OF THE COST OF THE FOOD PURCHASES BESIDES SUFFIC IENT ADVANCE TO ENSURE CONTINUOUS SUPPLY OF FOOD AND BEVERAGES AND OTHER S UPPLIES. SINCE THE ASSESSEE WAS ALSO A PART OF KAMAT GROUP OF HOTELS F ROM THE YEAR 1991, IT HAD ALSO ENTERED INTO AN ARRANGEMENT WITH THE SAID COMPANY IN MARCH 1992, FOR SUPPLY OF FOOD AND BEVERAGES, RAW MATERIAL FOR ITS AIRPORT PLAZA HOTEL ON THE SAME TERMS AND CONDITIONS FOR AN INITIAL PERIOD OF FIVE YEARS. FROM THE PERIOD 1 ST APRIL 1992 ONWARDS, THE ASSESSEE HAD GIVEN ADVANCE S IN LIEU OF PURCHASE OF VARIOUS FOOD AND BEVERAGES AND OTHER RA W MATERIALS RELATING TO THE SUPPLY FOR THE HOTEL OPERATIONS WHICH ALSO INCL UDED SERVICE CHARGES. PLAZA HOTELS PVT. LTD. 4 4. AFTER THE ASSESSEE COMPANY HAD ENTERED INTO AGREEME NT WITH KAMAT HOTEL INDIA LTD. ON 1 ST APRIL 1994, UNDER WHICH THE MANAGEMENT AND OPERATIONS OF THE ASSESSEES HOTEL WAS HANDED OVER TO KAMAT HOTELS IN CONSIDERATION OF FEES OF ONE PERCENT ON THE HOTEL T URNOVER, AS A RESULT OF THIS, ARRANGEMENT WITH SUPPLYCO FOOD INDIA LTD. ABRUPTLY CAME TO AN END FROM 1 ST APRIL 1994 AND ACCORDINGLY, ADVANCES GIVEN TO THE E XTENT OF ` 32,21,086, BECAME IRRECOVERABLE FROM THE SAID COMPANY. OUT OF SUCH SUMS, THE SUM OF ` 4,70,000 COULD ONLY BE RECOVERED AFTER LOT OF EFFO RTS. THE BALANCE SUM OF ` 27,51,086, COULD NOT BE RECOVERED. ACCORDINGLY, THE DIRECTORS OF THE COMPANY IN THE MEETING HELD IN MARCH 2002, RESOLVED TO WRITEOFF THE IRRECOVERABLE AMOUNT OF ` 27,51,086, AND THE SAME WAS WRITTENOFF DURING THE YEAR ENDING ON 31 ST MARCH 2002. THIS IRRECOVERABLE AMOUNT WAS CLAIMED AS A BUSINESS LOSS ALLOWABLE AS A DEDUCTION UNDER S ECTION 28(1) R/W SECTION 29 OF THE ACT. 5. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEES CLAIM FOR THE AFORESAID DEDUCTION IS NOT ALLOWABLE FOR THE FOLLOW ING REASONS: (I) THE ASSESSEE HAD ADVANCED THESE SUMS LONG BACK AND THE BUSINESS DURING THE COURSE OF WHICH THE ADVANCES WE RE MADE IS NOW DISCONTINUED. IN ORDER TO ATTRACT THE APPLICATION O F SECTION 28, THE SAME SHOULD HAVE BEEN CARRIED IN THE YEAR UNDER REF ERENCE AS WELL. (II) IT IS AN ADMITTED FACT THAT ALLOWANCES CAN BE DEDUCTED ONLY FROM THE PROFIT OF THE SPECIFIC BUSINESS TO WHICH THE AL LOWANCES RELATE. NO EXPENDITURE OR ALLOWANCE CAN BE CLAIMED IN RESPECT OF A BUSINESS WHICH HAS BEEN DISCONTINUED. (III) IN FACT, THE EARLIER BUSINESS WAS TRANSFERRED TO KAMAT HOTELS (I) LTD. AND THAT TOO FOR A CONSIDERATION, HENCE THE LO SS OF RS.27,51,086/- IS NOT EVEN A REVENUE LOSS. (IV) WHERE THE ASSESSEE SEEKS TO DEDUCT ANY SUM FRO M THE INCOME FROM BUSINESS OR PROFESSION THE ONUS OF PROVING THA T SUCH DEDUCTIONS ARE PERMISSIBLE FALLS ON THE ASSESSEE. HOWEVER, THE ASSESSEE HAS NOT DISCHARGED THIS BURDEN THAT THE WRITE OFF OF RS.27, 51,086/- IS FOR ANY BUSINESS PURPOSES OR IS CONNECTED WITH THE BUSINESS CARRIED OUT BY THE ASSESSEE. (IV) A DEDUCTION IS ALLOWABLE IN RESPECT OF THOSE E XPENSES WHICH ARE INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS, WH EREAS IN THE CASE THE AMOUNT OF RS.27,51,086/- IS NOT AN ITEM OF EXPE NSES AT ALL, HENCE IT DOES NOT BECOME ALLOWABLE AS AN EXPENSE AS WELL. PLAZA HOTELS PVT. LTD. 5 (V) IT IS ALSO SEEN THAT THE ASSESSEE PAID M/S SUPP LYCO LARGER SUMS THAN THAT WAS NECESSARY OR REQUIRED FOR THE PURCHAS E OF FOOD AND BEVERAGES FOR THE F.Y. 1992-93 IF THE PURCHASES ARE RS.11,82,831/-, THE ADVANCES AMOUNT TO RS.26,77,000/. FOR THE F.Y. 1993-94, THE PURCHASES ARE RS.27,39,194/- WHEREAS THE ASSESSEE A DVANCED RS.40,89,803/-. BUSINESS PRUDENCE DEMANDS THAT PAYM ENTS TOWARDS PURCHASES ARE MADE TO THE EXTENT THEY ARE WORTH. (VI) IT IS AN ADMITTED FACT THAT KAMAT HOTELS (I) L TD. TOOK OVER THE MANAGEMENT AND THE OPERATION OF THE COMPANYS HOTEL WITH EFFECT FROM 1.4.1994. THE ASSESSEE REPRESENTED THAT THE TA KEOVER WAS ABRUPT. HOWEVER, IN ANY MATTER OF TAKE OVER OF MANA GEMENT, THERE IS A PROCESS OF DUE DILIGENCE WHICH IS CARRIED OUT A P ERIOD OF TIME AND HENCE THE ASSESSEE WAS FULLY AWARE THAT THE MANAGEM ENT CHANGE WITH EFFECT FROM 1.4.1994 AND BUSINESS PRUDENCE DEMANDED THAT THE PAYMENT TO M/S SUPPLYCO OUGHT NOT TO HAVE EXCEEDED THE COST OF THE SUPPLIES RECEIVED. IT IS, THEREFORE, CLEAR THAT THE ADVANCE OF ` 27,51,086 WRITTEN OFF BY THE ASSESSEE WHICH IS FOR EXTRANEOUS AND NONBUSINESS PURPOSES AND HENCE DISALLOWED. THUS, THE ENTIRE IRRECOVERABLE AMOUNT OUTSTANDING A S ON 31 ST MARCH 2002, WHICH WAS WRITTENOFF AND CLAIMED IN THIS YEA R STOOD DISALLOWED BY THE ASSESSING OFFICER. 6. THE LEARNED COMMISSIONER (APPEALS) TOO REJECTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE ADVANCES WHICH WERE GIVEN EARLIER AND HAS BEEN CLAIMED AS DEDUCTION, HAD ARISEN IN THE ERSTWH ILE BUSINESS OF THE ASSESSEE, WHICH HAS CEASED TO EXIST W.E.F. 1 ST APRIL 1994, WHEN THE NEW ARRANGEMENT HAD COME WITH THE KAMAT HOTEL. THEREFOR E, THE SAME CANNOT BE ALLOWED. THE RELEVANT FINDINGS OF THE LEARNED COMMI SSIONER (APPEALS) ARE REPRODUCED HEREIN BELOW: 18. THEREFORE IN SO FAR AS THE CLAIM FOR BUSINESS L OSS AMOUNTING TO ` 27,51,086, IS CONCERNED, WHERE THE BUSINESS WHERE T HE ADVANCE WAS GIVEN CEASED TO EXIST THERE IS NO REASON FOR CLAIMI NG THE AMOUNT AS DEDUCTION EVEN IF THE ADVANCE HAD BECOME IRRECOVERA BLE AGAINST THE NEW SOURCE OF BUSINESS INCOME. FURTHER CONSIDERING THAT THE NATURE OF ADVANCE GIVEN IN SUCH THAT THE CONDITION PRESCRIBED IN SECTION 36(1)(VII) OF THE ACT IS NOT SATISFIED, IN ORDER TO CLAIM THE ADVANCE IRRECOVERABLE AS ADMISSIBLE AS BUSINESS LOSS UNDER SECTION 29 OF THE ACT, IT IS FOR THE APPELLANT TO ESTABLISH AND SUBST ANTIATE THE FACT THAT THE LOSS HAS ARISEN IN THE ACCOUNTING YEAR IN WHICH IT HAS BEEN CLAIMED AS DEDUCTION. PLAZA HOTELS PVT. LTD. 6 19. IN THIS DIRECTION THERE IS NO EVIDENCE AVAILABL E ON RECORD. IN THE CIRCUMSTANCES CONSIDERING THE FACT OF THE CASE IT I S EVIDENT THAT THE LOSS CLAIMED BY THE APPELLANT COMPANY ON THE ADVANC E GIVEN WHICH THE CONNECTION WITH THE ERSTWHILE BUSINESS WHICH BECAME SUBSEQUENTLY IRRECOVERABLE CANNOT BE ALLOWED AS DEDUCTION IN THE COMPUTATION OF BUSINESS PROFITS. CONSEQUENTLY, THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER IN THIS RESPECT HAS TO BE UPHELD. 7. BEFORE US, THE LEARNED SR. ADVOCATE, MR. J.D. MISTR Y, APPEARING ON BEHALF OF THE ASSESSEE AFTER REITERATING THE FACTS AS INCORPORATED ABOVE, SUBMITTED THAT THE VIEW TAKEN BY BOTH THE AUTHORITI ES THAT ASSESSEES BUSINESS HAS CEASED TO EXIST FROM 1 ST APRIL 1994, IS ERRONEOUS AS THE ASSESSEES INCOME STILL CONTINUED TO BE ASSESSED FR OM THE HOTEL BUSINESS ONLY. THE ADVANCES WERE GIVEN DURING THE COURSE OF CARRYING OF ITS BUSINESS AND THE LOSS WHICH HAS BEEN INCURRED ON ACCOUNT OF SUCH ADVANCES HAS ALSO ARISEN IN THE COURSE OF THE BUSINESS ONLY AND, THER EFORE, THE SAME IS ALLOWABLE UNDER SECTION 28 R/W SECTION 29. HE DREW OUR ATTENTION TO THE AGREEMENT DATED 1 ST APRIL 1992, BETWEEN MC DONALD INDIA LTD. (ERSTWHIL E SUPPLYCO FOOD AND BEVERAGES LTD.) WHEREIN THERE WAS A SPECIFIC CLAUSE4, WHICH PROVIDED THAT THE ASSESSEE HAD TO PAY SUFFICI ENT ADVANCES FROM TIME TO TIME TO ENSURE CONTINUOUS SUPPLY OF FOOD AND BEVERA GES AND OTHER HOTEL SUPPLIES. HE ALSO DREW OUR ATTENTION TO COPY OF LED GER ACCOUNT OF THE SAID PARTIES ALONG WITH VARIOUS COPIES OF BILLS ON SAMPL E BASIS WHICH WERE PLACED IN THE PAPER BOOK AT PAGES53 TO 63 TO SHOW THAT FA CTUM OF ADVANCE AND IT WAS FOR THE BUSINESS PURPOSE IS NOT IN DISPUTE. FRO M THESE DOCUMENTS, HE SUBMITTED THAT THESE ADVANCES WERE PART OF BUSINESS ACTIVITIES CARRIED OUT BY THE ASSESSEE AND ONCE THE ADVANCES HAVE BECOME IRRE COVERABLE AFTER MAKING VARIOUS EFFORTS TO RECOVER, THE SAME HAS BEEN CLAIM ED AS LOSS IN THE BOOKS OF ACCOUNT RELEVANT FOR THE ASSESSMENT YEAR 200203 WH ICH DESERVES TO BE ALLOWED ON THE FACTS AND IN LAW. IN SUPPORT OF HIS CONTENTIONS HE PLACED HEAVY RELIANCE ON THE LATEST JUDGMENT OF DELHI HIGH COURT IN ITA NO.405 OF 2007, MOHAN MEAKIN LTD. V/S CIT , DATED 11 TH MAY 2011. 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE, RELYING ON THE REASONING GIVEN BY THE LEARNED COMMISSIONER (APPEALS) AS WELL AS BY THE ASSESSING OFFICER, SUBMITTED THAT THE ADVANCES WERE GIVEN IN RELATION TO PLAZA HOTELS PVT. LTD. 7 THE BUSINESS WHICH WAS CARRIED OUT PRIOR TO 1 ST APRIL 1994, AND SUCH A BUSINESS HAD CEASED TO EXIST AND, THEREFORE, IT CAN NOT BE SAID THAT THE LOSS HAS INCURRED IN THE RELEVANT ACCOUNTING YEAR AND FO R THE SAME BUSINESS. THEREFORE, THE SAME CANNOT BE ALLOWED. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL PLACED ON RECORD. INSOFAR AS THE FACTS WHICH HAVE BEEN NARRA TED IN THE FORGOING PARAGRAPHS, THERE IS NO DISPUTE. THE ASSESSEE HAS G IVEN ADVANCES FOR THE SUPPLY OF FOOD AND BEVERAGES, RAW MATERIALS AND OTH ER HOTEL SUPPLIES FOR THE PURPOSE OF ITS HOTEL BUSINESS WHICH WAS BEING CARRI ED OUT BY IT. SUCH A HOTEL BUSINESS CONTINUED EVEN IN THE IMPUGNED ASSESSMENT YEAR ALBEIT SUCH A HOTEL BUSINESS IS BEING RUN ON A DIFFERENT ARRANGEM ENT I.E., FROM 1 ST APRIL 1994, THE ASSESSEES INCOME FROM HOTEL BUSINESS AMO UNTS TO ONE PERCENT OF THE SALE PROCEEDS WHICH IS BEING OPERATED BY KAMAT HOTELS PVT. LTD. IN SUCH A SITUATION, IT CANNOT BE SAID THAT THERE IS A CESS ATION OF HOTEL BUSINESS ALTOGETHER. THIS FACT IS ALSO EVIDENT FROM THE COND UCT OF THE REVENUE THAT ASSESSEES INCOME WHICH HAS BEEN OFFERED AS BUSINES S INCOME HAS BEEN ACCEPTED AS SUCH, NOT ONLY PRIOR TO 1 ST APRIL 1994, BUT ALSO FROM THE ASSESSMENT YEAR 199495 ONWARDS. A COPY OF THE ASSE SSMENT ORDERS ACCEPTING THE BUSINESS INCOME FROM HOTEL HAS BEEN P LACED IN THE PAPER BOOK. IT HAS NOT BEEN DISPUTED BY THE DEPARTMENT THAT THE SE ADVANCES WERE GIVEN BY THE ASSESSEE TO MC DOWEL INDIA LTD. FOR SUPPLY O F GOODS AS PER THE AGREEMENT AND WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF ASSESSEES BUSINESS AT THAT TIME. IT IS ALSO NOT IN DISPUTE THAT THE PA RT OF THE ADVANCES HAD BECOME IRRECOVERABLE AND HAD BEEN WRITTENOFF IN TH IS YEAR. THE ONLY POINT OF CONTENTION BY THE DEPARTMENT IS THAT THE SAME BUSIN ESS IS NOT CONTINUING IN THIS ASSESSMENT YEAR AND, THEREFORE, THE SAME SHOUL D NOT BE ALLOWED. 10. IN OUR CONSIDERED OPINION, FIRSTLY , AS STATED ABOVE, THERE WAS NO CESSATION OF HOTEL BUSINESS AND THE ASSESSEE IS STI LL AN ONGOING CONCERN, ENGAGED IN HOTEL BUSINESS ALBEIT THROUGH DIFFERENT ARRANGEMENT AND IT IS NOT A CASE THAT ASSESSEE HAS STOPPED ITS BUSINESS AND C EASED TO EXIST; SECONDLY , ONCE THE AMOUNT HAS BEEN ADVANCED BY THE ASSESSEE F OR THE PURPOSE OF ITS PLAZA HOTELS PVT. LTD. 8 BUSINESS AND A PART OF SUCH ADVANCE HAS BECOME IRRE COVERABLE, THEN THE SAME HAS TO BE TREATED AS LOSS INCURRED DURING THE COURSE OF BUSINESS AND SUCH A LOSS HAS TO BE COMPUTED AND ALLOWED UNDER SE CTION 28(1) R/W SECTION 29 AS BUSINESS LOSS; AND LASTLY , WHEN THE ASSESSEE HAS SHOWN THAT AFTER LOT OF EFFORTS ONLY A PART OF THE SUM HAS BEEN RECOVERE D AND SUBSTANTIAL PART REMAINED IRRECOVERABLE, AND THE ASSESSEE COMPANY, V IDE RESOLUTION PASSED IN THE MEETING HELD BY THE BOARD OF DIRECTORS IN THE M ONTH OF MARCH 2002, TOOK A DECISION THAT THE SAME SHOULD BE WRITTENOFF FROM THE BOOKS OF ACCOUNT, THEN IT IS ON THE SAID DATE, IT CAN BE SAID THAT LO SS HAS ARISEN TO THE ASSESSEE IN THE RELEVANT ACCOUNTING YEAR AND THE SAME HAS TO BE ALLOWED AS DEDUCTION. THE DELHI HIGH COURT JUDGMENT IN MOHAN MEAKIN LTD. (SUPRA) RELIED ON BY THE LEARNED SR. ADVOCATE, CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE WHICH WAS RENDERED ON ALMOST SIMILAR SET O F FACTS WHERE THE HIGH COURT, AFTER RELYING UPON THE DECISIONS OF CHENAB FOREST CO. V/S CIT, 96 ITR 568 , AND CIT V/S MYSORE SUGAR CO. LTD. 46 ITR 649 , HAS HELD THAT ADVANCE WHICH WAS GIVEN DURING THE COURSE OF BUSINESS WHICH HAS BECOME IRRECOVERABLE, NOT ONLY HAS TO BE TREATED AS BUSINE SS LOSS BUT ALSO IS ALLOWABLE AS DEDUCTION UNDER THE PROVISIONS OF SECT ION 37. THUS, IN VIEW OF OUR AFORESAID FINDINGS, WE ALLOW THE CLAIM OF LOSS TO THE ASSESSEE AND SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMM ISSIONER (APPEALS) ON THIS ISSUE AND ALLOW THE GROUND RAISED BY THE ASSES SEE. 11. THE SECOND ISSUE WHICH HAS BEEN RAISED IN GROUND NO .1.2, RELATES TO DISALLOWANCE OF DEDUCTION ON ACCOUNT OF BAD DEBT OF ` 13,40,259. 12. THE FACTS RELEVANT TO THE ISSUE ARE THAT IN THE BOO KS OF ACCOUNT THE ASSESSEE HAS TREATED THE FOLLOWING INTEREST INCOME AS BAD DEBT AND HAS BEEN WRITTENOFF IN THE ACCOUNTS IN THIS YEAR: NSC INTEREST 114357 INT. ON LOAN TO SANTOSH TRUST 227293 INT. ON LOAN TO VITHAL HOTEL P. LTD. 168590 INT. LOAN TO VITHAL V. KAMAT & BROS 830019 1340239 13. IN RESPECT OF THE AMOUNT OF ` 1,14,357, IT WAS SUBMITTED BY THE ASSESSEE THAT THE SAID AMOUNT WAS IN RESPECT OF INT EREST ON NSC, RECEIVABLE PLAZA HOTELS PVT. LTD. 9 AS PER THE BOOKS OF ACCOUNT UP TO 31 ST MARCH 1991, WHICH RELATES TO THE PERIOD BEFORE THE TAKE OVER BY THE KAMAT GROUP IN T HE YEAR 199091. THE INTEREST RECEIVABLE WAS DULY SHOWN IN THE BOOKS OF ACCOUNT AND WAS TAXED IN THE EARLIER YEARS. SINCE THE SAME HAS NOT BEEN RECE IVED NOR THERE WAS ANY CHANCE OF RECOVERY FROM THE KAMAT GROUP THE DIRECTO RS DEEMED IT APPROPRIATE TO WRITEOFF AS BAD DEBT. AS REGARDS OT HER INTEREST INCOME WRITTENOFF, IN RESPECT OF THREE PARTIES, IT WAS SU BMITTED THAT THE ASSESSEE COMPANY HAD GIVEN LOAN TO THE SAID PARTIES IN THE E ARLIER YEARS AND IT CHARGED INTEREST ON THE SAME AS UNDER: PERIOD SANTOSH TRUST VITHAL HOTELS PVT. LTD. V.V. KAMAT & BROS. LOAN GIVEN 2,50,000 1,87,000 13,94,280 INTT. CHARGED BUT NOT RECOVERED GROSS (NET OF TDS) (NET OF TDS) 199293 20,960 16,683 199394 2,296 21,060 30,133 199495 45,000 24,379 30,064 199596 45,000 24,660 1,19,028 199697 45,000 24,660 2,11,370 199798 36,000 19,728 1,69,096 199899 54,000 33,143 2,53,644 TOTAL RUPEES 2,27,293 1,68,590 8,30,018 14. ALL THE ABOVE INTEREST INCOME WERE ASSESSED UNDER T HE HEAD BUSINESS INCOME IN ALL THE ABOVE ASSESSMENT YEARS. LATER ON, CERTA IN DISPUTES AND DIFFERENCES AMONG THE MEMBERS OF KAMAT GROUP HAD AR ISEN AND TO RESOLVE THE DISPUTES AND DIFFERENCES AMONG THE DIRECTORS AN D SHAREHOLDERS MOSTLY BEING A MEMBERS OF KAMAT FAMILY, ENTERED INTO A FAM ILY ARRANGEMENT AND THE LOANS GIVEN WERE, INTERSE, ADJUSTED AND AS A R ESULT, INTEREST RECEIVABLE ON THESE LOSSES HAD BECOME NONRECOVERABLE AND THE SAME WERE WRITTEN OFF. THE ASSESSING OFFICER DISALLOWED THE ENTIRE CL AIM ON THE FOLLOWING GROUNDS: PLAZA HOTELS PVT. LTD. 10 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND THE RELEVANT DETAILS FILED FROM TIME TO TIME. ON PERUSA L OF THE SAME, THE CLAIM OF THE ASSESSEE IN RESPECT OF RS.114357 + 122 5901 = RS. 1340258/- IS NOT FOUND TENABLE ON THE FOLLOWING COU NTS: (I) THE ASSESSEE NEVER PRODUCED THE COPY OF ANY ALL EGED FAMILY ARRANGEMENT ARRIVED AT AMONGST THE MEMBERS OF THE K AMAT FAMILY. (II) WITHOUT PREJUDICE TO THE ABOVE, GENERALLY SPEA KING WHENEVER A FAMILY BUSINESS IS DISRUPTED ON ACCOUNT OF PARTITIO N, THE DEBTS DUE TO THE FAMILY BUSINESS ARE DIVIDED AMONGST THE FAMILY MEMBERS, WHAT THE MEMBERS GET BY WAY OF THEIR RESPECTIVE SHARE IN THE ASSETS OF THE DISCONTINUED OLD BUSINESS BECOME CAPITAL RECEIPT IN THEIR HAND AND IF ANY OF THE DEBTS BECOME IRRECOVERABLE THE RESULTANT LOSS WOU. BE IN THE NATURE OF A CAPITAL LOSS AS WAS HELD ION THE CA SE OF JAIKISHAN (50 ITR 700 ) AND CIT VS. S.P. KARAM 9 ITR 685 AND RAMA SWAMY VS CIT 48 ITR 771 AND M/S CHIMANLAL 8 ITR 408 AND BISSENT DOYAL 6 ITR 165. (III) MOREOVER, THE COMPANY IS A SEPARATE ENTITY AN D CANNOT BE LINKED WITH THE OTHER FAMILY BUSINESS OF THE ASSESSEE. THE QUESTION OF PARTITION OF BUSINESS OF THE ASSESSEE COMPANY DOES NOT ARISE IN THIS CASE. (IV) DEBT IS SOMETHING MORE THAN AN ADVANCE, WHICH IS RELATED TO AND RESULTS DIRECTLY FROM THE BUSINESS OF THE ASSESSEE. BEFORE A DEBT CAN BE CLAIMED AS BAD, IT MUST FIRST BE A DEBT. A DEBT IS AN OUTSTANDING WHICH IF RECOVERED WOULD HAVE SWELLED THE PROFITS. IT IS NOT MONEY HANDED OVER TO SOMEONE FOR PURCHASING A THING WHICH THAT PERSON FAILED TO RETURN EVEN THOUGH NO PURCHASE WAS MADE. IT MEANS, A DEBT IS SOMETHING MORE THAN A MERE ADVANCE. HOWEVER, IN THIS CASE THE ASSESSEE HAS WRITTEN OFF A CAPITAL ASSET RECEIVED O N THE ALLEGED UNDERSTANDING AMONG THEIR FAMILY MEMBERS, IT IS NOT ELIGIBLE TO BE CLAIMED AS BAD DEBT U/S 36(1 )(VII) I 36(2) OF THE L.T. ACT. 15. THE LEARNED COMMISSIONER (APPEALS) TOO CONFIRMED TH E SAID ADDITION MAINLY ON THE GROUNDS THAT EVEN AFTER THE AMENDMENT W.E.F. 1 ST APRIL 1989, ALLOWANCE OF BAD DEBT HAS REMAINED UNCHANGED AND TH ERE HAS TO BE EVIDENCE THAT THE ASSESSEE HAS ARRIVED AT A BONAFIDE CONCLUS ION THAT THE DEBT HAS BECOME BAD. FURTHER, THE SAID BONAFIDE CONCLUSION H AS TO BE OF A PRUDENT BUSINESSMAN. THERE SHOULD ALSO BE EVIDENCE FOR THE EFFORTS HAVING BEEN MADE TO RECOVER THE AMOUNT OR THE ASSESSEE IS UNABL E TO TAKE SUCH STEPS FOR RECOVERY OF THE AMOUNT FOR THE SUMS ADVANCED. AFTER RELYING ON THE VARIOUS JUDGMENT WHICH ARE ENUMERATED IN PARAS24 TO 29, HE CONFIRMED THE DISALLOWANCE AS MADE BY THE ASSESSING OFFICER. PLAZA HOTELS PVT. LTD. 11 16. BEFORE US, THE LEARNED SR. ADVOCATE, ON BEHALF OF T HE ASSESSEE, SUBMITTED THAT SUCH A VIEW TAKEN BY THE LEARNED COM MISSIONER (APPEALS) IS WHOLLY UNTENABLE IN VIEW OF THE LAW LAID DOWN BY TH E HON'BLE SUPREME COURT IN TRF LTD. V/S CIT, [2010] 323 ITR 397 (SC) , AND SUBMITTED ONCE IT IS AN UNDISPUTED FACT THAT INTEREST INCOME HAS BEEN OF FERED AS INCOME IN THE PROFIT & LOSS ACCOUNT IN THE EARLIER YEARS, AND THE SAME HAS BEEN WRITTENOFF ON ACCOUNT OF BEING IRRECOVERABLE, SIMPLY WRITINGO FF THE SAME IN THE BOOKS OF ACCOUNT IS SUFFICIENT TO CLAIM THE BAD DEBT IN T HIS YEAR. 17. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, RELIED UPON THE ORDERS PASSED BY THE LEARNED COMMISSIONER (APPE ALS). 18. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL PLACED ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT THESE INTERESTS INCOME WERE DULY SHOWN AND WERE PART OF PROFIT & LOSS ACCOUNT I N THE EARLIER YEARS. IT IS ALSO NOT IN DISPUTE THAT THE SAME HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE IN THIS YEAR. THUS, THE CO NDITIONS LAID DOWN IN SECTION 36(1)(VII) READ WITH SECTION 36(2) STANDS F ULFILLED AND, ACCORDINGLY, IN VIEW OF THE LAW UPHELD BY THE HON'BLE SUPREME COURT IN TRF LTD. (SUPRA) , WE ARE OF THE CONSIDERED OPINION THAT AFTER THE AME NDMENT IN SECTION 36(1)(VII) W.E.F. 1 ST APRIL 1989, IT IS NOT NECESSARY FOR THE ASSESSEE T O ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE AND IT IS ENOUGH IF SUCH BAD DEBT IS WRITTENOFF IN THE BOOKS OF ACCOUN T OF THE ASSESSEE. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSE D BY THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE AND ALLOW THE CLAIM OF BAD DEBT. ACCORDINGLY, THE GROUND NO.1.2, RAISED BY THE ASSES SEE STANDS ALLOWED. 19. THE THIRD ISSUE TAKEN IN GROUND NO.1.3, RELATES TO DISALLOWANCE OF DEDUCTION ON IRRECOVERABLE LOAN OF ` 3,00,000, AS BAD DEBT. 20. THE ASSESSEE COMPANY HAS GIVEN A LOAN OF ` 3,00,000, TO M/S. NIRAV CONSTRUCTION CO., ON 13 TH JANUARY 1997, ON WHICH IT WAS DULY RECEIVING THE INTEREST. HOWEVER, ON THE DUE DATE OF LOAN, THE SAI D PARTY DEFAULTED IN PLAZA HOTELS PVT. LTD. 12 MAKING THE PAYMENT AND DESPITE ALL THE EFFORTS, THE ASSESSEE COULD NOT RECOVER THE SAID LOAN. THE SAME WAS WRITTENOFF IN THE PROFIT & LOSS ACCOUNT AS IRRECOVERABLE. THE MAIN CONTENTION OF THE ASSESS EE HAS BEEN THAT IT WAS IN THE BUSINESS OF FINANCING AND IN PURSUANCE OF WHICH LOAN WAS GIVEN. THE SAID LOAN HAD BECOME IRRECOVERABLE, THEREFORE, THE SAME WAS WRITTEN OFF WHICH SHOULD BE ALLOWED AS DEDUCTION. THE ASSESSING OFFIC ER REJECTED THE SAID CLAIM ON THE GROUND THAT FIRSTLY, IT WAS NOT THE MAIN OR OTHER OBJECT OF THE COMPANY AND SECONDLY, THE ASSESSEE HAS NEVER PRODUC ED ANY CERTIFICATE TO THE FACT THAT THE ASSESSEE IS REGISTERED AS NONBAN KING FINANCIAL COMPANY WHICH IS MANDATORY AFTER THE YEAR 199798. ON PERUS AL OF THE DETAILS OF INCOME GIVEN IN THE PROFIT & LOSS ACCOUNT, HE CAME TO THE CONCLUSION THAT INTEREST INCOME IS LESS THAN THE INCOME FROM BUSINE SS AND INVESTMENT AND THEREFORE, THE MAIN BUSINESS OF THE ASSESSEE CANNOT BE SAID TO BE ADVANCING OF LOANS TO THE PARTIES. ACCORDINGLY, HE DISALLOWED THE ASSESSEES CLAIM OF BAD DEBT. 21. IN THE FIRST APPEAL, THE LEARNED COMMISSIONER (APPE ALS) OBSERVED THAT IN THE CASE OF THE ASSESSEE THERE WERE NO SUCH SYST EMATIC ACTIVITIES OF ADVANCING OF LOAN AND IT WAS A SOLITARY TRANSACTION AND, THEREFORE, THE SINGLE LOAN TRANSACTION CANNOT BE HELD AS REPRESENTING BUS INESS TRANSACTIONS OF MONEY LENDING. CONSEQUENTLY, THE LOSS ARISING TO TH E ASSESSEE ON ACCOUNT OF FAILURE TO RECOVER THE AMOUNT OF LOAN IS A CAPITAL LOSS AND CANNOT BE ALLOWED AS DEDUCTION WHILE COMPUTING BUSINESS INCOME WHILE COMING TO THIS CONCLUSION. HE RELIED UPON THE JUDGMENT OF JURISDIC TIONAL HIGH COURT IN GREAVES LTD. V/S CIT, [2001] 251 ITR 190 (BOM.) . 22. THE LEARNED SR. ADVOCATE, APPEARING ON BEHALF OF TH E ASSESSEE, SUBMITTED BEFORE US THAT THE COMPANY WAS AUTHORISED TO CARRY ON FINANCING BUSINESS AND IN PURSUANCE OF WHICH IT HAS BEEN GIVE N LOANS AND HAS BEEN EARNING INTEREST. THIS IS EVIDENT FROM THE FACT THA T INTEREST INCOME WHICH HAS BEEN OFFERED EARLIER HAS BEEN TREATED AS BUSINESS I NCOME AND THE SAME HAS BEEN ACCEPTED AS SUCH BY THE DEPARTMENT. HE REFERRE D TO THE COPY OF THE ACCOUNT GIVEN AT PAGES103 AND 104, AND ALSO COPY O F TDS CERTIFICATE WHICH PLAZA HOTELS PVT. LTD. 13 IS APPEARING AT PAGE105. HE SUBMITTED THAT THE SAM E SHOULD BE ALLOWED AS BAD DEBT ONCE THE SAID LOAN AMOUNT ITSELF HAS BECOM E IRRECOVERABLE. 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, HEAVILY RELIED UPON THE FINDINGS GIVEN BY THE LEARNED COMMI SSIONER (APPEALS). 24. AFTER CAREFUL CONSIDERATION OF THE RIVAL CONTENTION S OF THE PARTIES, PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL PLACED ON RECORD, WE FIND THAT IT IS NOT COMING FROM THE RECO RD THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MONEY LENDING OR IT HAS BEEN LENDING MONEY IN ITS ORDINARY COURSE OF BUSINESS OF BANKING. ONCE TH E CONDITION LAID DOWN IN CLAUSE (I) IN SUBSECTION (2) OF SECTION 36, IS NOT FULFILLED, THE DEDUCTION ON ACCOUNT OF BAD DEBT CANNOT BE ALLOWED UNDER SECTION 36(1)(VII). IF THE ASSESSEE HAS NOT TAKEN INTO ACCOUNT IN COMPUTING TH E INCOME OF THE PREVIOUS YEAR, WHICH REPRESENTS MONEY LEANT IN THE ORDINARY COURSE OF BUSINESS OF BANKING OR MONEY LENDING, THE SINGLE LOAN TRANSACTI ON CANNOT BE HELD TO BE REPRESENTING BUSINESS TRANSACTION OF MONEY LENDING IN THE CASE OF THE ASSESSEE WHEN IT IS AN ADMITTED FACT THAT THE ASSES SEES MAIN BUSINESS IS FROM HOTEL. THEREFORE, WE DO NOT FIND ANY MERIT IN THE CLAIM OF THE ASSESSEE AND THE VIEW TAKEN BY THE LEARNED COMMISSIONER (APP EALS) IS WHOLLY JUSTIFIED AND THE SAME IS UPHELD. THUS, THE GROUND NO.1.3, RA ISED BY THE ASSESSEE IS HEREBY DISMISSED. 25. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DIR ECTION OF THE ASSESSING OFFICER WITH REGARD TO DEEMED DIVIDEND UN DER SECTION 2(22)(E). 26. IN THIS REGARD, THE LEARNED COMMISSIONER (APPEALS) HAS GIVEN THE FOLLOWING FINDINGS: 41 A PERUSAL OF THE ASSESSMENT ORDER IN THIS RESPEC T REVEAL THAT THE ASSESSING OFFICER HAD ARRIVED AT THE CONCLUSION ON THE BASIS OF HIS FINDINGS THAT THE AMOUNT ADVANCED TO THE THREE CONC ERNS FAR EXCEEDED THE RESERVE THE APPELLANT COMPANY HAD. THEREFORE IN HIS VIEW THE SAID AMOUNT IS CHARGEABLE TO TAX AS DEEMED DIVIDEND IN T HE HANDS OF THE RESPECTIVE RECIPIENTS WHO ARE SUBSTANTIAL SHAREHOLD ERS IN THE APPELLANT COMPANY. PLAZA HOTELS PVT. LTD. 14 42. IN REGARD TO THE ACTION OF THE ASSESSING OFFICE R THE APPELLANTS REPRESENTATIVE SUBMITTED THAT THE SAID ACTION IS WI THOUT CORRECT APPRECIATION OF FACTS OF THE CASE. THE APPELLANT HA D NOT GIVEN ANY LOAN OR ADVANCE DURING THE RELEVANT ACCOUNTING YEAR. THE LOANS AND ADVANCES WERE GIVEN IN THE PAST. THEREFORE IT WAS R ATHER INCORRECT TO HOLD THAT THE SAID AMOUNT REPRESENTED DEEMED DIVIDE ND IN TERMS OF SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE RES PECTIVE RECIPIENTS. HENCE, THE DIRECTIONS GIVEN BY THE ASSESSING OFFICE R ARE NOT WARRANTED AND THEREFORE BE EXPUNGED. 43. THE SUBMISSION MADE BY THE APPELLANTS REPRESEN TATIVE HAS BEEN CONSIDERED. HOWEVER THE CLAIM IN THIS REGARD CANNOT BE CONSIDERED HERE CONSIDERING THAT THE ISSUE IS PREMATURE. IT IS FOR THE ASSESSING OFFICER OF THE RESPECTIVE RECIPIENTS TO EXAMINE THE CLAIM AS TO WHETHER THE NATURE OF AMOUNT RECEIVED BY THEM IS OF LOAN AN D ADVANCES AND WHETHER OF SECTION 2(22)(E) ARE APPLICABLE OR NOT. ANY DIRECTION GIVEN AT THIS STAGE WOULD THE APPEAL RAISED IN GROUND NO. 5 IS THEREFORE DISPOSED OF AS DISMISSED . 27. IN VIEW OF THE AFORESAID FINDINGS OF THE LEARNED CO MMISSIONER (APPEALS), WE AGREE WITH THE CONCLUSION DRAWN BY HI M THAT SUCH A GROUND IS PREMATURE AND, THEREFORE, ARE NOT REQUIRED TO BE A DJUDICATED. CONSEQUENTLY, WE UPHOLD THE ORDER PASSED BY THE LEA RNED COMMISSIONER (APPEALS) ON THIS ISSUE AND DO NOT FIND IT FIT TO A DJUDICATE THE SAME. THUS, GROUND NO.2, RAISED BY THE ASSESSEE STANDS DISMISSE D. 28. GROUND NO.3, RELATES TO LEVY OF INTEREST UNDER SECT ION 234D OF THE ACT. 29. BEFORE US, THE LEARNED SR. ADVOCATE, APPEARING ON B EHALF OF THE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFICER, WHI LE PASSING THE ASSESSMENT ORDER, HAS NOT CHARGED INTEREST UNDER SE CTION 234D, WHICH IS EVIDENT FROM THE LAST PARAGRAPH OF THE ASSESSMENT O RDER. THEREFORE, IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN CIT V/S RANCHI CLUB LTD., [2001] 247 ITR 209 (SC) , SUCH AN INTEREST CANNOT BE LEVIED. 30. AFTER HEARING BOTH THE PARTIES, WE FIND THAT SUCH A N ARGUMENT BY THE LEARNED SR. COUNSEL, IS NOT TENABLE IN VIEW OF THE FACT THAT AS PER THE EXPLANATION2 TO SECTION 234D, WHICH HAS BEEN BROUGHT IN THE STA TUTE BY FINANCE ACT, 2012, WITH RETROSPECTIVE EFFECT FROM 1 ST JUNE 2003, PROVIDES THAT THE PROVISIONS OF THIS SECTION WILL ALSO APPLY TO THE ASSESSMENT YEAR COMMENCING BEFORE THE 1 ST JUNE 2003, IF THE PROCEEDINGS OF SUCH ASSESSMENT PLAZA HOTELS PVT. LTD. 15 YEAR IS COMPLETED AFTER THE SAID DATE. THE PROVISIO NS OF SECTION 234D IS NOT ONLY MANDATORY BUT ALSO IS CONSEQUENTIAL AND, THERE FORE, WE DO NOT FIND ANY MERIT IN THE CONTENTIONS OF THE LEARNED SR. ADVOCAT E. CONSEQUENTLY, WE UPHOLD THE ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE AND DISMISS THE GROUND RAISED BY THE ASSESSEE . 31. 0 6 &( )0 1 #$ !' 7 1 89 : 31. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. WE NOW TAKE UP THE REVENUES APPEAL IN ITA NO.714/MUM./2006 . THE GROUNDS RAISED ARE AS FOLLOWS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN D IRECTING THE ASSESSING OFFICER TO TREAT THE INTEREST INCOME OF R S. 16,40,913/- ON 14% NON-CONVERTIBLE DEBENTURES AS BUSINESS INCOME I NSTEAD OF TREATING THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN D IRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.2,63 ,19,535/- ON ACCOUNT OF NOTIONAL INTEREST ON INTEREST FREE LOAN GIVEN TO DIRECTOR, SHRI V. V. KAMAT (HUF). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN D IRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON AC COUNT OF IRRECOVERABLE TRADE DEPOSITS WRITTEN OFF BY THE ASS ESSEE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN D IRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE U/S. 14A OF THE ACT. 32. AT THE OUTSET, IT HAS BEEN BROUGHT TO OUR NOTICE BY BOTH THE PARTIES THAT GROUND NO.1 AND 2 CAME UP FOR CONSIDERATION IN THE EARLIER YEARS IN ASSESSEES OWN CASE RIGHT FROM ASSESSMENT YEAR 1998 99 TO 200102, THE COPIES OF WHICH HAS BEEN PLACED IN PAPER BOOK FROM PAGES2 TO 40. 33. AFTER GOING THROUGH THE ORDERS PASSED BY THE TRIBUN AL IN EARLIER YEARS, WE FIND THAT THIS ISSUE IS ALREADY DECIDED IN FAVOU R OF THE ASSESSEE. FOR THE SAKE OF READY REFERENCE, THE DECISION GIVEN IN ITA NO.5877/MUM./2004, IN ASSESSMENT YEAR 200102, IS REPRODUCED HEREIN BELOW : PLAZA HOTELS PVT. LTD. 16 ..THE GROUND OF APPEAL NO.1 OF THE REVENUE IS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT INTEREST E ARNED BY THE ASSESSEE COMPANY ON INVESTMENT MADE IN 14% NON- CONVERTIBLE SHARES IS CHARGEABLE TO TAX AS INCOME F ROM BUSINESS PROFITS AND NOT AS INCOME FROM OTHER SOURC ES WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE OF ASSESSMENT OF INTEREST EARNED ON INVESTMENTS MADE I N NON-CONVERTIBLE SHARES AS INCOME FROM BUSINESS PROFITS AND NOT AS I NCOME FROM OTHER SOURCE IS COVERED IN FAVOUR OF THE ASSESSEE WITH TH E DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1998-99 & 1999-00 IN ITA NO.1147/M/02 & ITA NO1479/M/03 DT.6. 1.04. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT TH E SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. VV HAVE CONSIDERE D THE RIVAL SUBMISSIONS THE ISSUE IN THIS GROUND OF APPEAL OF T HE REVENUE REGARDING ASSESSBILITY OF INTEREST OF INVESTMENTS M ADE IN NON- CONVERTIBLE SHARES CHARGEABLE TO TAX AS INCOME FROM BUSINESS IS COVERED IN FAVOUR OF THE ASSESSEE WITH THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 998- 9 9 & 1999-00 CITED SUPRA AND ACCORDINGLY, THE GROUND OF APPEAL N O.1 OF THE REVENUE IS DISMISSED. 3. THE GROUND OF APPEAL NO.2 OF THE REVENUE IS AS U NDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION O F RS. 2,17,58,261/- ON ACCOUNT OF ACCRUED INCOME ON LOAN GIVEN TO V. V. KAMAT, HUE, FOR WHICH ASSESSEE DID N OT CHARGE INTEREST AND/OR WAIVED INTEREST WITHOUT ANY JURISDICTION. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN THIS GROUND OF APPEAL OF THE REVENUE IS COVERED IN FAVOU R OF THE ASSESSEE WITH THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1998-99 & 1999-O0 IN TA NO.1147/M/ 02 & ITA NO.1479/M103 DT.6.1.04. THE LD. DEPARTMENTAL REPRES ENTATIVE COULD NOT CONTROVERT THE SUBMISSION OF THE LD. COUNSEL FO R THE ASSESSEE. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ISSUE IN THIS GROUND OF APPEAL OF THE REVENUE REGARDING ADDITION ON ACCOUNT OF ACCRUED INCOME ON LOAN GIVEN TO SHRI V.V. KAMAT, HUF, IS COVERED I N FAVOUR OF THE ASSESSEE WITH THE DECISION OF THE TRIBUNAL IN ASSES SEES OWN CASE FOR THE ASSESSMENT YEARS 1998-99 & 1999-00 AND ACCORDIN GLY, THE GROUND OF APPEAL NO.2 OF THE REVENUE IS DISMISSED. 34. THE SAID ORDER PASSED BY THE TRIBUNAL HAS ALSO ATTA INED FINALITY AS THE APPEAL PREFERRED BY THE REVENUE UNDER SECTION 260A, BEFORE THE HONBLE HIGH COURT HAS BEEN DISMISSED BY THE JURISDICTIONAL HIGH COURT. PLAZA HOTELS PVT. LTD. 17 CONSEQUENTLY, CONSISTENT WITH THE VIEW TAKEN IN ASS ESSEES OWN CASE, WE UPHOLD THE ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE AND DISMISS THE GROUNDS RAISED BY THE REVENUE . 35. INSOFAR AS GROUND NO.3, IS CONCERNED, THE LEARNED C OMMISSIONER (APPEALS), ON PERUSAL OF THE DETAILS SUBMITTED BY T HE ASSESSEE FOUND THAT ALL THE DEPOSITS WERE MADE TO THE VARIOUS GOVT. AGENCIE S FOR AVAILING OF FACILITIES NECESSARY FOR THE ASSESSEES BUSINESS AND WAS IN CO NNECTION WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE COMPANY. THESE DEPOSITS COULD NOT BE REFUNDED AND, THEREFORE, HE HELD THAT IT IS A BUSIN ESS LOSS AND IS ADMISSIBLE AS DEDUCTION UNDER SECTION 28 OF THE ACT AND THE AS SESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE ASSESSEES CLAIM. 36. AFTER CAREFULLY GOING THROUGH THE FINDINGS OF THE L EARNED COMMISSIONER (APPEALS) AS WELL AS OF THE ASSESSING OFFICER, WE F IND THAT ONCE THE AMOUNT HAS BEEN DEPOSITED WITH THE GOVT. AGENCY SOLELY FOR THE BUSINESS PURPOSE AND THE SAME HAS NOT BEEN REFUNDED, THEN IT HAS TO BE TREATED AS BUSINESS LOSS INCURRED DURING THE COURSE OF RUNNING OF ITS B USINESS. WE DO NOT FIND ANY INFIRMITY IN SUCH A FINDING OF THE LEARNED COMMISSI ONER (APPEALS) AND, THEREFORE, THE SAME IS AFFIRMED AND THE GROUND RAIS ED BY THE REVENUE IS DISMISSED. 37. IN GROUND NO.4, THE REVENUE HAS CHALLENGED THE DELE TION OF ADDITION MADE UNDER SECTION 14A OF THE ACT. 38. ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE, TH E ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS EARNED DIVIDEND INCO ME OF ` 52,14,495, WHICH HAS BEEN CLAIMED AS EXEMPT UNDER SECTION 10(3 3) OF THE ACT. THE ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE PERTAIN ING TO THE SAME AND, ACCORDINGLY, A SUM OF ` 5,21,449, WAS DISALLOWED BEING 10% OF THE INCOME TOWARDS EXPENDITURE UNDER SECTION 10A. 39. BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS S UBMITTED THAT THE ASSESSEE HAS MADE INVESTMENT IN EQUITY SHARES OF KA MAT HOTELS INDIA LTD. AS PER THE AGREEMENT FROM WHICH IT HAD RECEIVED DIV IDEND OF ` 52,14,495, PLAZA HOTELS PVT. LTD. 18 DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSEE DID NOT INCUR ANY EXPENDITURE TO EARN THE AFORESAID DIVIDEND CONSIDER ING THE FACT THAT THE COMPANY IS AN ASSOCIATED COMPANY WITH COMMON SHAREH OLDER, THEREFORE, THERE WAS NO CASE FOR MAKING ANY DISALLOWANCE OF EX PENDITURE IN TERMS OF SECTION 14A OF THE ACT. FURTHER, THE DIVIDEND AMOUN T WAS RECEIVED BY WAY OF BOOK ENTRY AND NO EXPENDITURE WAS INCURRED. THE LEA RNED COMMISSIONER (APPEALS) ACCEPTED THE CONTENTIONS OF THE ASSESSEE AFTER OBSERVING AND HOLDING AS UNDER: 39. THE SUBMISSION MADE BY THE APPELLANTS REPRESEN TATIVE HAS BEEN CONSIDERED. CONSIDERING THAT THE APPELLANT HAD RECEIVED THE DIVIDEND AMOUNT BY WAY OF BOOK ENTRY AND THE FACT T HAT THE INVESTMENT MADE BY THE APPELLANT COMPANY WAS IN THE SHARES OF ANOTHER ASSOCIATE COMPANY OF THE SAME GROUP, THERE IS NO CASE FOR HOLDING THAT ANY EXPENDITURE HAD BEEN INCURRED FOR EARNING THE DIVIDEND INCOME. IN THE CIRCUMSTANCES THERE IS NO C ASE FOR MAKING ANY DISALLOWANCE OUT OF EXPENDITURE IN TERMS OF SECTION 14A OF THE ACT. THE DISALLOWANCE OF ` 5,21,450, MADE ON THIS ACCOUNT IS THEREFORE, HELD AS UNCALLED FOR AND IS THEREFORE DELETED. THE APPEAL I N RESPECT OF GROUND NO.4 IS DISPOSED OF AS ALLOWED. 40. IN VIEW OF THE AFORESAID FINDINGS OF THE LEARNED CO MMISSIONER (APPEALS), WHICH HAS NOT BEEN CONTROVERTED BEFORE U S, WE DO NOT FIND THAT ANY KIND OF DISALLOWANCE OF EXPENDITURE IN TERMS OF SECTION 14A, IS CALLED FOR IN THESE FACTS. IT IS NOT AUTOMATIC THAT IN EVERY C ASE, WHERE THERE IS EXEMPT INCOME, DISALLOWANCE OF EXPENDITURE UNDER SECTION 1 4A, HAS TO BE MADE. FOR SECTION 14A TO APPLY, THERE SHOULD BE PROXIMATE REL ATIONSHIP BETWEEN THE EXPENDITURE AND TAX FREE INCOME. ONCE FROM THE RECO RD, IT HAS BEEN FOUND THAT THERE IS NO DIRECT OR INDIRECT EXPENDITURE WHI CH CAN BE APPORTIONED FOR THE EXEMPT INCOME, SECTION 14A, WILL COME IN FOREPL AY. ACCORDINGLY, THE REASONS GIVEN BY THE LEARNED COMMISSIONER (APPEALS) FOR DELETING THE ADDITION UNDER SECTION 14A IS BEING UPHELD. THUS, G ROUND NO.4, STANDS DISMISSED. PLAZA HOTELS PVT. LTD. 19 41. 0 6 !' 1 0 1 89 : 41. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 42. &( ); $!'<, &( )0 1 #$ !' 7 1 89 ' ' ' ' !' 1 0 1 89 : 42. TO SUM UP, ASSESSEES APPEAL IS PARTLY ALLOWED AND REVENUES APPEAL IS DISMISSED. $ 1 4* = > (6 10 TH OCTOBERBER 2012 4 1 : ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH OCTOBER 2012 SD/- . .. . . .. . ! ! ! ! P.M. JAGTAP ACCOUNTANT MEMBER SD/- # # # # $% $% $% $% & ! & ! & ! & ! AMIT SHUKLA JUDICIAL MEMBER MUMBAI, > ( > ( > ( > ( DATED: 12 TH OCTOBER 2012 $ 1 -&#? @?* / COPY OF THE ORDER FORWARDED TO : (1) &( )0 / THE ASSESSEE; (2) !' / THE REVENUE; (3) A () / THE CIT(A); (4) A / THE CIT, MUMBAI CITY CONCERNED; (5) ?'D -&&( , , / THE DR, ITAT, MUMBAI; (6) E) F / GUARD FILE. .? -& / TRUE COPY $( / BY ORDER - . GH / PRADEEP J. CHOWDHURY '0I &( G' / SR. PRIVATE SECRETARY J / 8 / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI