DCIT, New Delhi V. Hotel Queen Road Pvt. Ltd., New Delhi

ITA 5197/DEL/2013

• Counselvise Citation: 519720114 RSA 2013
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 17-02-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 13-09-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GAURAV DUDEJA
• Keywords: Capital asset; Depreciation; Revenue expenditure
• Section: 143(3); 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. J.S.REDDY, ACCOUNTANT MEMBER I.T.A .NO. - 5197 /DEL/201 3 (ASSESSMENT YEAR - 2 004 - 05 ) DC IT, CIRCLE - 12(1), NEW DELHI. (APPELLANT) VS HOTEL QUEEN ROAD PVT. LTD, 19, ASHOK ROAD , NEW DELHI PAN - AABCH1600H (RESPONDENT) C.O. - 192/DEL/2014 (IN I.T. A .NO. - 5197 /DEL/201 3) (ASSESSMENT YEAR - 2 004 - 05 ) HOTEL QUEEN ROAD PVT. LTD, 19, ASHOK ROAD , NEW DELHI (APPELLANT) VS DCI T, CIRCLE - 12(1), NEW DELHI. (RESPONDENT) APPELLANT BY SH.GAURAV DUDEJA, SR. DR RESPONDENT BY SH. GAUTAM JAIN, FCA & SH. PIYUSH KUMAR KAMAL, ADV. ORDER PER DIVA SINGH, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 12.07 . 2013 OF CIT(A) - X , NEW DELHI PERTAINING TO 200 4 - 0 5 ASSESSMENT YEAR ON THE FOLLOWING GROUNDS: - 1. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN HOLDING THAT AMENDED PROVISION OF SECTION 36(1)( III) OF THE I.T.ACT WAS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS NO NEW ASSETS WERE ACQUIRED AND THE DISALLOWANCE OF INTEREST OF RS.1,38,91,736/ - & RS.95,09,228/ - WAS NOT PROPER; WITHOUT CONSIDERING THAT THE LOAN AMOUNT PERTAINING OF WHICH THESE INTE RESTS WERE DISALLOWED, WAS UTILIZED FOR EXTENSIVE REPAIRS & RENOVATION OF THE ASSETS, WHICH WAS OF CAPITAL NATURE NOT ALLOWABLE FOR DEDUCTION U/S 31 OF THE ACT AND, THEREFORE THESE INTERESTS SHOULD HAVE BEEN CAPITALIZED? 2 I.T.A .NO. - 5197 /DEL/201 3 & C.O. - 192 /DEL/201 4 2. WHETHER LD. CIT(A) WAS CORRECT ON F ACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE FACTS REGARDING THE FIXED ASSETS RELATED TO THE TERM LOANS FROM MTIL AND IOB AS ON 31.03.2003 & TO VERIFY THE CONTENTIONS OF THE A.R OF THE APPELLANT FROM RECORD S TO ENSURE THAT THE SAME BUSINESS ACTIVITY HAD BEEN CONTINUED AFTER RENOVATION AS APPEARED TO BE PRIMA FACIE TRUE ON ACCOUNT OF ASSESSMENT ORDERS FOR 2008 - 09, AND THEREAFTER ALLOW THE INTEREST EXPENSES AND BY DOING SO THE LD. CIT(A) HAS OVER EXERCISED HIS JURISDICTIONAL BY SETTING ASIDE THE MATTER? 3. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN RESTRICTING THE ADDITION OF RS.95,100/ - TO RS.19,020/ - WHICH WAS MADE BY AO BY INVOKING PROVISIONS OF SECTION 14A? 4. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF PROVIDING HOSPITALITY SERVICES INCLUDING OWNING AND MA NAGING HOTELS AND RELATED SERVICES RETURNED A LOSS INCOME OF RS.7,43,57,718/ - . THE SAID RETURN WAS PICKED UP FOR SCRUTINY BY ISSUANCE OF NOT ICE U/S 143(2) ETC. A PERUSAL O F THE ASSESSMENT ORDER SHOWS THAT THE AO FOLLOWING THE DIRECTION OF THE ACIT, RANGE - 12 U/S 144A OF THE ACT MADE THE ADDITIONS BY WAY OF DISALLOWANCE OF RS. 95,09,228/ - OUT OF TOTAL CLAIM OF INTEREST OF RS.1,,38,91,736/ - CLAIMED AS REVENUE EXPENSES DISALLOWED BY THE AO HOLDING THE SAME TO BE CAPITAL IN NATURE. THE CIT(A) WHO HAVE SUMMED U P IN PARA 3.1 THE FACTUAL BACKGROUND OF THE DIRECTION GIVEN AT PAGES 2 TO 5. THE SAME IS REPRODUCED HEREUNDER FOR READY - REFERENCE: - 3.1. ON GOING THROUGH THE ASSESSMENT ORDER IT IS OBSERVED THAT THE ASSESSING OFFICER HAS PASSED THE ORDER BY MAKING THIS ADDITION KEEPING IN VIEW THE DIRECTIONS OF THE ADDL.CIT, RANGE - 12 U/S 144A OF THE LT. ACT. THE DIRECTIONS OF THE ADDL CIT AND THE VIEWS OF T HE A.O. IN THIS REGARD CAN BE SUMMARIZED AS FOLLOWS: (A) IT HAS BEEN STATED THAT THE ASSESSEE COMPANY TOOK OVER THE ASSETS AND LIABILITIES OF ASHOK YATRI NIWAS VIDE AGREEMENT DT. 08 - 10 - 2002 WITH THE GOVERNMENT OF INDIA. THE LEASE FOR THE HOTEL PREMISE WA S GRANTED FOR A PERIOD OF 99 YEARS FROM 08 - 10 - 2002 ON AN ANNUAL LEASE RENTAL. AFTER TAKING OVER THE HOTEL FROM 08 - 10 - 2002, THE ASSESSEE COMPANY RAN THE HOTEL TILL 30 - 06 - 2003, AFTER WHICH THE HOTEL OPERATIONS WERE STOPPED. DURING THIS PERIOD OF 01 - 04 - 2003 T O 30 - 06 - 2003 THE RECEIPTS FROM ROOM SALE AND OTHER 3 I.T.A .NO. - 5197 /DEL/201 3 & C.O. - 192 /DEL/201 4 MISC. INCOME WAS SHOWN AT RS.23,30,058/ - . (B) IT WAS OBSERVED THAT AS ON 31 - 03 - 2004, THERE WAS AN OUTSTANDING BALANCE OF SECURED TERM LOANS AMOUNTING TO RS.23,33,08,137/ - . APART FROM THE SECURED TERM LOA NS THE COMPANY ALSO TOOK UNSECURED LOANS FROM ITS HOLDING COMPANY M/S MORAL TRADING AND INVESTMENT LTD. (MTIL). THE OPENING BALANCE OF MTIL WAS RS.39.33 CRORES WHEREAS THE CLOSING BALANCE AS ON 31 - 03 - 2004 WAS RS.10.25 CRORES. IT WAS OBSERVED THAT THE SALE S HAD GONE DOWN DURING THIS YEAR SUBSTANTIALLY AND THE INTEREST IN THE P&L A/C HAD GONE UP SUBSTANTIALLY COMPARED TO EARLIER YEAR. THE ASSESSEE COMPANY HAD EXPLAINED THAT SINCE THE OPERATIONS OF THE HOTELS WERE SUSPENDED ON 30 - 06 - 2003 FOR MAJOR RENOVATIONS AND FURNISHING OF THE HOTEL PREMISE, THE REVENUE HAD FALLEN DURING THE YEAR. (C) THE A.O. STATED THAT EXPLANATION WAS CALLED FROM THE ASSESSEE REGARDING THE SEGREGATION OF INTEREST ON CAPITAL AND REVENUE ACCOUNT AND THE BREAK UP REGARDING THE EXPENDITUR E INCURRED ON REPAIRS AND FURNISHING OF HOTEL ROOMS. FURTHER THE SANCTIONED LETTER OF THE INDIAN OVERSEAS BANK REGARDING TERM LOAN NO.004 AND TERM LOAN NO.003 WERE ALSO EXAMINED WHICH INDICATED THAT THE TERM LOAN NO.4 RELATED TO RENOVATION OF HOTEL AND PUR CHASE OF FURNITURE AND FIXTURE. THE TERM LOAN NO.3 RELATED TO TERM LOAN OF M/S MTIL (TO BE TRANSFERRED). THE A.O. OBSERVED THAT BOTH THESE TERM LOANS WERE SANCTIONED BY THE BANK FOR A SPECIFIC PURPOSE OF RENOVATION OF THE HOTEL PREMISE AND SUBSTITUTING THE OLD TERM LOAN STANDING IN THE NAME OF MTIL. THE A.O. HELD THAT THE TERM LOAN NO.4 WAS UTILIZED FOR CREATION OF NEW ASSETS AND THE ERSTWHILE MTIL LOAN WAS ALSO IN THE NATURE OF A CAPITAL ASSET AND, THEREFORE, THE INTEREST PAID ON THE TWO LOANS DURING THE P ERIOD 31 - 07 - 2003 TO 31 - 03 - 2004 (INTEREST AMOUNTING TO RS.42,74,241/ - HAD BEEN CAPITALIZED AND INTEREST OF RS.1,38,91,736/ - HAD BEEN CLAIMED AS REVENUE EXPENSE). (D ) THE A.O. HAS STATED THAT EXPLANATION WAS CALLED FOR FROM THE ASSESSEE AS TO WHY THE INTER EST CLAIMED AS REVENUE EXPENSE ON THE TERM LOANS FOR THE PERIOD 31 - 07 - 2003 TO 31 - 03 - 2004 SHOULD NOT BE CAPITALIZED AS THEY WERE RESULTING IN CREATION OF CAPITAL ASSETS. IN RESPONSE TO THIS QUERY, THE ASSESSEE RELIED UPON VARIOUS JUDICIAL PRONOUNCEMENTS A ND IT WAS SUBMITTED THAT WHERE THE ASSESSEE CLAIMS DEDUCTION IN RESPECT OF INTEREST PAID ON BORROWED CAPITAL, THE ASSESSEE ONLY HAS TO ESTABLISH THAT THE CAPITAL WAS BORROWED FOR BUSINESS PURPOSES AND IT DID NOT MATTER WHETHER IT WAS FOR ACQUIRING A REVENU E ASSET OR A CAPITAL ASSET. ( E ) THE A.O/ADDL.CIT CONSIDERED THE VARIOUS CONTENTIONS OF THE ASSESSEE AND OBSERVED THAT AS PER THE AMENDED PROVISO TO SECTION 36(1)(III) INTRODUCED FROM A.Y. 2004 - 05 THE ONUS WAS ON THE ASSESSEE TO ESTABLISH HOW THE INTEREST ON TERM LOAN WAS ALLOWABLE AS A REVENUE EXPENSE . IN VIEW OF THE REPLY OF THE A.R. DT. 15 - 12 - 2004, WHERE THE ASSESSEE HAD STATED THAT IT WAS NOT POSSIBLE TO SEGREGATE THE 4 I.T.A .NO. - 5197 /DEL/201 3 & C.O. - 192 /DEL/201 4 QUANTUM OF INTEREST INTO REVENUE / CAPITAL ACCOUNT AND THE SAME SHOULD BE CONSIDERE D AS EXPENDITURE PENDING CAPITALIZATION. IN VIEW OF THIS SUBMISSION OF THE ASSESSEE, THE AMOUNT OF RS.1,38,91,736/ - WAS NOT ALLOWED AS A REVENUE EXPENSE BUT WAS TREATED TO BE CAPITALIZED. (F) WITH REGARD TO THE INTEREST PAID TO HOLDING COMPANY, MTIL, ALS O KEEPING IN VIEW TO AMENDED PROVISO TO SECTION 36(1)(III) SINCE THE ASSESSEE WAS NOT IN A POSITION TO EXPLAIN HOW THIS INTEREST SHOULD BE ALLOWED AS A REVENUE EXPENSE, THE AMOUNT OF RS.95,09,228/ - WAS DISALLOWED AS A REVENUE EXPENSE AND WAS DIRECTED TO BE CAPITALIZED. IN THIS REGARD, THE A.O. ALSO POINTED IN THIS REGARD, THE AO ALSO POINTED OUT THAT AFTER EXAMINING THE LEDGER ACCOUNT OF MTIL IT WAS OBSERVED THAT THERE WERE CERTAIN EXPENSES WHERE EXPENSES HAD BEEN INCURRED FOR CAPITAL PURPOSES AND ALSO DISALLOWED RS.95,09,228/ - AS INTEREST PAID TO MTIL, SINCE THE AMOUNT OF LOAN WAS USED FOR CAPITAL PURPOSES. ACCORDINGLY, BOTH THESE DISALLOWANCES WERE MADE ON SIMILAR ARGUMENTS THAT IN VIEW OF THE AMENDED PROVISO TO SECTION 36(1)(III), THESE AMOUNTS COULD NOT BE ALLOWED AS A REVENUE EXPENSE . 3. A PERUSAL OF THE IMPUGNED ORDER FURTHER SHOWS THAT IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT DURING THE ASSESSMENT PROCEEDINGS THE SUBMISSIONS BY THE EARLIER CA, MR. KAMAL CHANANA DID NOT ADDRESS THE FULL FA CTS AS HE HAD BEEN ENGAGED DURING THE PERIOD WHE N DUE TO THE R ENOVATION OF H O TELS ETC THE REGULAR ACTIVITIES OF THE HOTEL S WERE TEMPORARILY SUSPENDED A CCORDINGLY DUE TO THE CONSEQUENT ABSENCE OF OLD STAFF THE REQUISITE DETAILS WERE NOT AVAILABLE. HOWEVER IT IS SUBMITTED THAT THE LOANS HAVE BEEN TAKEN FROM M/S MORAL TR ADING AND INVESTMENT LTD. (HERE INAFTER REFERRED TO AS MTIL ) AND I NDIAN O VERSEAS B ANK (HEREINAFTER REFERRED TO AS IOB ) AND WERE UTILIZED PRIMARILY FOR TAKING OVER THE OLD ASSETS OF THE HOTELS AND THESE FUNDS WERE N O T UTILIZED FOR PURCHASING OF ANY NEW ASSETS. THE DETAILED SUBMISSIONS ON FACTS DATED 04.07.2013 HAVE BEEN EXTRACTED IN THE IMPUGNED ORDER. A PERUSAL OF THE SAME SHOWS THAT IT WAS SUBMITTED THAT THE COMPANY WAS A GOING CONCERN AND THERE WAS ONLY A TEMPORAR Y DISCONTINU ATION OF BUSINESS FROM 3 1.07.2003 TO 31.03.2004 AND THERE WAS NO EVIDENCE ON RECORD THAT THE BUSINESS HA D BEEN PERMANENTLY DISCONTINUED. REFERRING TO THE RECORD IT WAS SUBMITTED THAT THE ASSESSEE HAD TAKEN A LOAN OF 5 I.T.A .NO. - 5197 /DEL/201 3 & C.O. - 192 /DEL/201 4 RS.30 CRORES FOR RENOVATION OF HOTELS IN JULY 2003 AND RE - STARTED ITS HOTELS ACTIVITIES W.E.F 01.10.2008 . THE SAID FACT IT WAS SUBMITTED WAS SUPPORTED BY THE ASS ESSMENT ORDER PASSED BY THE AO U/S 143(3) FOR A.Y.2009 - 10. THE LULL IN BUSINESS OR TEMPORARY SUSPENSION OF BUSINESS IT WAS ARGUED WAS FOR NECESSARY RENOVATION AND UPGRADATION OF THE H O TEL. THE INTEREST ACCORDINGLY ON LOANS OUGHT NOT TO HAVE BEEN DISA LLOWED AS IT WAS FOR BUSINESS PURPOSES. IT WAS SUBMITTED THAT THE HOTEL WAS RUNNING ITS OPERATION ON 08.10.2008 WHEN IT WAS AC QUIRED BY MITL AND THE AMOUNT OF RS.15 CRORES AVAILED BY MITL WAS UTILIZED FOR MEETING THE WORKING REQUIREMENTS AND PAYMENTS TOW ARDS UNEARNED INCREASE ON LOANS HELD BY HOTEL QUEEN ROAD PVT. LTD. (HEREINAFTER REFERRED TO AS HQRPL ) AND PAID TO L& DO. THE CLAIM OF INTEREST IT WAS SUBMITTED HAS BEEN ALLOWED BY THE AO IN 2003 - 04 ASSESSMENT YEAR PAID BY THE ASSESSEE BY AN ORDER U/S 143(3) AND THE ASSETS OWNED BY HQPRL AS ON 31.02.2003 WERE IN USE EXCEPT A SUM OF RS. 1,24,80,507/ - WHICH WAS SHOWN AS CAPITAL WORK IN PROGRESS IN THE BALANCE SHEET ON 31.03.2003. ACCORDINGLY ALL THE AMOUNTS BORROWED BY HQRPL FROM MITL IT WAS SUBMITTED EX CEPT FOR THI S AMOUNT WAS USED BY THE ASSESSEE FOR MEETING WORKING REQUIREMENTS OR WERE IN RESPECT OF ASSETS WHICH WERE ALREADY IN USE UPTO 31.03.2003. IT WAS ALSO SUBMITTED THAT NO DEDUCTION IN RESPECT OF INTEREST PAID ON THE SUM OF RS.1,24,80,507/ - HAD BEEN CLAIMED AND THE INTEREST IN THE SAME AMOUNTING OF RS.13,25,326/ - HAVE BEEN CAPITALIZED IN THE ACCOUNTS FOR 2004 - 05 A.Y AND THE AMOUNT OF RS.1,40,40,661/ - HAD BEEN CLAIMED AS REVENUE EXPENDITURE ON THE BASIS OF UTILIZATION OF THESE FUNDS FOR EXISTING ASSETS AND FOR WORKING CAPITAL REQUIREMENTS. CONSIDERING THE SAME THE ISSUE WAS DECIDED BY THE CIT(A) HOLD AS UNDER: - 3.3. AFTER GOING THROUGH THE FACTS OF THE CASE, OBSERVATIONS OF THE ASSESSING OFFICER AND SUBMISSIONS OF THE A. R. OF THE APPELLANT AS WELL AS THE DIRECTIONS OF THE HON'BLE ITAT, THERE ARE THREE INTERE - RELATED ISSUES IN THE VARIOUS GROUNDS TAKEN BY THE A.R. OF THE APPELLANT. THE PRIMARY ISSUE RAISED BY THE A. R. OF THE APPELLANT RELATES TO DISALLOWANCE OF INTEREST ON LOANS WHICH HAVE BEEN TREATED TO BE CAPITAL IN NATURE BY THE ASSESSING OFFICER. 6 I.T.A .NO. - 5197 /DEL/201 3 & C.O. - 192 /DEL/201 4 AT THE TIME OF FILING THE APPEAL BEFORE THE CIT(A), THE APPELLANT HAS PRIMARILY EMPHASIZED THE DISALLOWANCE OF RS.95,09,228/ - OUT OF RS.1,40,40,661/ - ON ACCOUNT OF THIS INTEREST BEING PAID TO MTIL WAS NOT JUSTIFIED. THE A.R. OF THE APPELLANT ALSO FILED ADDITIONAL GROUNDS OF APPEAL DURING THIS APPELLATE PROCEEDINGS WHEREIN IT WAS SUBMITTED THAT THE DISALLOWANCE OF RS.1,38,91,736/ - WAS THE AMOUNT PAID TO LOB TOWARDS INTEREST ON LOAN WHICH HAD BEEN SA NCTIONED FOR TAKING OVER ALL OLD ASSETS. IT WAS SUBMITTED BY THE A.R. OF THE APPELLANT THAT THIS WAS A LEGAL GROUND AND IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENTS OF NTPC 229 ITR (SE) AND VARAS INTERNATIONAL PVT LTD. 284 ITR, THIS ADDITIONAL GROUND SHOULD BE ADMITTED. ANOTHER INTER - RELATED ISSUE WAS THE ALLOWANCE OF INTEREST AS REVENUE EXPENDITURE FOR THE 9 MONTHS PERIOD OF 01 - 07 - 2003 TO 31 - 03 - 2004. IT WAS ARGUED THAT DURING THE A.Y. 2004 - 05 THERE WERE REGULAR OPERATIONS OF THE HOTEL AND FOR THE PERIOD 01 - 0 4 - 2003 TO 30 - 06 - 2003 ALL THE EXPENSES INCLUDING THIS INTEREST EXPENSE HAD BEEN ALLOWED BY THE DEPARTMENT. ACCORDINGLY, IT WOULD NOT POSSIBLE FOR THE A.O. TO DISALLOW THIS INTEREST ON THE SAME LOAN FOR THE BALANCE PERIOD OF 9 MONTHS. THE A.R. FURTHER ARGUED THAT IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENTS, THIS TEMPORARY SUSPENSION OF BUSINESS ACTIVITY ON ACCOUNT OF RENOVATION COULD NOT BE TREATED AS CLOSURE OF BUSINESS SINCE THE HOTEL ACTIVITY HAD BEEN RESTORED AFTER THE RENOVATION AND THE SAME HAD BEEN ACCE PTED BY THE DEPARTMENT FROM A.Y. 2008 - 09 ONWARDS. SINCE ALL THE 3 ISSUES RAISED BY THE APPELLANT ARE INTER - RELATED THEY ARE BEING CONSIDERED TOGETHER AND BEFORE ARRIVING AT THE CONCLUSION THE FOLLOWING OBSERVATIONS ARE BEING MADE: (A) THE A.R. OF THE APPELLANT HAS SUBMITTED THAT THE ASSESSING OFFICER MADE THE DISALLOWANCE OF INTEREST PAID TO MTIL AND IOB ON THE BASIS OF THE PROVISO TO SECTION 36(1)(III) OF THE LT. ACT FOR THE PERIOD 01 - 07 - 2003 TO 31 - 03 - 2004. THE A.R. OF THE APPELLANT H AS SUBMITTED THAT THERE WERE TWO LOANS TAKEN BY THE APPELLANT DURING THE YEAR OF WHICH THERE WAS TERM LOAN NO.3 OF RS.15 CRORES TAKEN BY THE APPELLANT WHICH IS ONLY A TRANSFER FROM THE TERM LOAN ACCOUNT OF MTIL TO THE APPELLANT BY THE LOB AND IS ONLY A SUB STITUTION OF LIABILITY. IT WAS, THEREFORE, ARGUED THAT THERE WAS NO QUESTION OF ANY ACQUISITION OF NEW ASSETS, BUT WAS ONLY A TAKE OVER OF EXISTING ASSETS BY TRANSFER OF THE LOAN ACCOUNT. (B) THE A.R. FURTHER SUBMITTED THAT THE APPELLANT TOOK A TERM LOAN OF RS.25 CRORES AS TERM LOAN ACCOUNT 004 FROM THE LOB FOR PURPOSES OF RENOVATION AND UPGRADATION IN JULY, 2003, FOR THE PURPOSE OF ACQUIRING NEW ASSETS, AND SINCE THIS WAS COVERED IN THE AMENDED PROVISO OF SECTION 36(1)(III) OF THE I.T. ACT, THE INTEREST ON THIS AMOUNT HAD BEEN CAPITALIZED BY THE APPELLANT ON ITS OWN. IN THIS REGARD, THE A.R. OF THE APPELLANT HAS ALSO ARGUED THAT DEPRECIATION ON THE VARIOUS ASSETS WHICH WERE BORROWED AGAINST THE LOAN TAKEN OVER LOB / MTIL HAD BEEN ALLOWED BY THE DEPARTMENT IN A.Y. 2003 - 04, EXCEPT A DEPRECIATION OF RS.1,24,80,507/ - BEING AMOUNTS SPENT ON CAPITAL WORK - IN - PROGRESS UPTO 31 - 03 - 2003. (C) AFTER CAREFULLY CONSIDERING THIS CONTENTION OF THE A.R. OF THE APPELLANT, IT APPEARS THAT THE TERM LOAN TAKEN FROM MTIL AND L OB, ON WHICH THE INTEREST AMOUNT HAD BEEN DISALLOWED BY THE ASSESSING OFFICER IS 7 I.T.A .NO. - 5197 /DEL/201 3 & C.O. - 192 /DEL/201 4 RELATED TO EXISTING ASSETS OF THE APPELLANT COMPANY ON WHICH DEPRECIATION HAS ALSO BEEN ALLOWED IN THE EARLIER ASSESSMENT ORDER. THE TWO INTEREST AMOUNTS WHICH HAD BEEN DISALL OWED NAMELY RS.95,09,228/ - AND RS.1,38,91,736/ - PERTAINED TO EXISTING ASSETS OF THE COMPANY WHICH HAD BEEN TAKEN OVER BY THE APPELLANT IN THE EARLIER YEAR. IT, THEREFORE, APPEARS THAT THE AMENDED PROVISIONS OF SECTION 36(1)(III) OF THE I.T. ACT WOULD NOT B E APPLICABLE IF THESE WERE NOT NEW ASSETS ACQUIRED BY THE APPELLANT. THE PROVISIONS OF SECTION 36(1)(III) RELIED UPON BY THE ASSESSING OFFICER ARE REPRODUCED AS FOLLOWS: 'PROVIDED THAT ANY AMOUNT OF INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUI SITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSE T WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION' IN VIEW OF THIS PROVISO IT IS CLEAR THAT THE DISALLOWANCE OF SUCH INTEREST CAN BE MADE ONLY WHEN IF THERE IS ANY EXTENSION OF ANY EXISTING BUSINESS OR PROFESSION FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF ASSETS TILL THE DATE ON WHICH SUCH ASSETS WAS FIRST PUT TO USE. THE PRESENT SET OF FACTS PRIMA FACIE INDICATE THAT THESE LOANS WERE ACTUALLY ONLY RELATING TO OLD ASSETS OF THE COMPANY AND ON ACCOUNT OF SPECIFIC CIRCUMSTANCES RELATING TO VARIOUS PROCEDURES OF DIS - INVESTMENT, THAT THE LOAN AMOUNT COULD NOT HAVE BEEN DISBURSED IN THE NAME OF THE APPELLANT COMPANY, THAT SUCH AN ARRANGEMENT HAD BEEN MADE BETWEEN THE APPELLANT COMPANY AND ITS PARENT COMPAN Y MTIL. (D) THE A.R. OF THE APPELLANT HAS VEHEMENTLY ARGUED THAT THE ASSESSING OFFICER HAD NOT APPRECIATED THIS ISSUE AND IT WAS CLEAR THAT THESE ASSETS WERE EXISTING AS ON 31 - 03 - 2003 WHICH COULD BE VERIFIED FROM THE RECORDS. IT WAS ALSO SUBMITTED THAT SINCE THE MATTER COULD BE CLEARLY VERIFIED IF THE ASSESSING OFFICER LOOKED INTO THE BOOKS OF ACCOUNTS AND ASCERTAIN THE EXISTENCE OF ASSETS FROM THE BOOKS ITSELF, THE A.R. WAS WILLING TO PRODUCE ALL DETAILS RELATING TO THE ASSETS LINKED WITH THESE LOANS. I T WAS EMPHATICALLY ARGUED THAT THE ASSESSING OFFICER HAD HIMSELF ALLOWED THE INTEREST ON THE SAME LOANS FOR THREE MONTHS IN THE SAME ASSESSMENT YEAR. FURTHER, DEPRECIATION ON THE SAME ASSETS HAD ALSO BEEN ALLOWED BY THE ASSESSING OFFICER IN THE EARLIER YEA R. THERE COULD BE NO JUSTIFICATION FOR DISALLOWING THE INTEREST ON THESE LOANS IF THEY WERE OLD ASSETS AND HAD NOT BEEN ACQUIRED FOR EXTENSION OF BUSINESS DURING THE YEAR. THE A.R. HAS ALSO RELIED UPON VARIOUS JUDICIAL PRONOUNCEMENTS TO ARGUE THAT THIS WAS ONLY A TEMPORARY SUSPENSION OF BUSINESS ACTIVITIES ON ACCOUNT OF RENOVATION OF THE HOTEL. THE HOTEL BUSINESS HAD BEEN ACTIVATED AFTER RENOVATION AND THE SAME HAD BEEN REFLECTED BY THE APPELLANT FROM A.Y. 2008 - 09 ONWARDS FOR WHICH THE ASSESSMENT ORDERS U/S 143(3) HAD ALSO BEEN SUBMITTED. FROM THE SUBMISSION OF THE A. R. OF THE APPELLANT, IT IS CLEAR THAT IF THE BUSINESS HAS BEEN CONTINUED AFTER RENOVATION, IT CANNOT BE TREATED AS CLOSURE OF BUSINESS AND, THEREFORE, THE INTEREST AMOUNT FOR THIS PERIOD OF 9 MONTHS FROM THE ASSESSMENT YEAR CANNOT BE DISALLOWED ON THIS ACCOUNT. 8 I.T.A .NO. - 5197 /DEL/201 3 & C.O. - 192 /DEL/201 4 THE CASES RELIED UPON BY THE A.R. OF THE APPELLANT CIT V. NORTHERN INDIA IRON & STEEL CO. LTD. (1995) 211 ITR 370,375,376, 377 (DEL), ITAT CHANDIGARH (SMC) BENCH DT. 30 - 07 - 2001 OF META L PRODUCTS OF INDIA) (IN IT APPEAL NO. 748 TO 751 (CHD) OF 1992), VISHAL INTERNATIONAL PRODUCTION V. LAC (1993) 46 ITD 312 (DEL), CIT V. CALIKULTTY (K.B.)(1969) 73 ITR 553 (SC). (E) AFTER CAREFULLY CONSIDERING THE ARGUMENTS OF THE A.R. OF THE APPELLANT A ND THE FACTUAL MATRIX OF THE PRESENT CASE, THE A.O. IS DIRECTED TO VERIFY THE FACTS REGARDING THE FIXED ASSETS RELATED TO THE TERM LOANS FROM MTIL AND I OB AS ON 31 - 03 - 2003. IF THE CONTENTION OF THE A.R. OF THE APPELLANT IS FOUND TO BE CORRECT AND THE FIXED ASSETS LINKED WITH THE TERM LOAN ARE FOUND TO BE AS PER THE FACTUAL SUBMISSION OF THE A.R. OF THE APPELLANT, THIS DISALLOWANCE OF INTEREST CANNOT BE SUSTAINED SINCE THE AMENDED PROVISO TO SECTION 36(1)(III) WOULD NOT BE ATTRACTED IN THIS CASE. SIMILARLY, THE A.O. IS FURTHER DIRECTED TO VERIFY THE CONTENTIONS OF THE A.R. OF THE APPELLANT FROM RECORDS TO ENSURE THAT THE SAME BUSINESS ACTIVITY HAD BEEN CONTINUED AFTER RENOVATION AS APPEARS TO BE PRIMA FACIE TRUE ON ACCOUNT OF ASSESSMENT ORDERS FOR 2008 - 09, PR OVIDED BY THE A.R. IF IT IS FOUND TO BE TRUE, THE A.O. IS NOT JUSTIFIED TO MAKE THIS DISALLOWANCE OF INTEREST SINCE IT SHOULD BE TREATED AS TEMPORARILY SUSPENSION OF BUSINESS FOR PURPOSES OF RENOVATION. ACCORDINGLY, IN VIEW OF THE VARIOUS JUDICIAL PRONOUNC EMENTS, THIS TEMPORARY SUSPENSION OF BUSINESS CANNOT BE EQUATED WITH CLOSURE OF BUSINESS. IT IS ALSO PERTINENT TO NOTE THAT IF DEPRECIATION AND INTEREST HAD BEEN ALLOWED FOR THREE MONTHS OF THE RELEVANT ASSESSMENT YEAR, THERE WAS NO JUSTIFICATION FOR DISAL LOWING THE INTEREST COMPONENT FOR THE REMAINING 9 MONTHS OF THE ASSESSMENT YEAR. THEREFORE, THESE GROUNDS ARE BEING TREATED AS PARTLY ALLOWED SUBJECT TO VERIFICATION BY THE ASSESSING OFFICER. 4. AGGRIEVED BY THIS BOTH THE REVENUE AND THE ASSESSEE ARE IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. SR. DR SUBMITTED THAT THE ISSUE SHOULD BE RESTORED TO THE AO WITHOUT ANY F E T T E R S AND THE DIRECTIONS GIVEN BY THE CIT(A ) SHOULD NOT BOUND THE AO SO THAT HE CAN DECIDE THE ISSUE AFRESH. THE LD. SR. DR WAS REQUIRE D TO ADDRESS ANY SPECIFIC REASONING OR INACCURACY IN THE DIRECTION GIVEN SO AS TO WARRANT ANY INTERFERENCE A S WITHOUT ANY VALID ARGUMENT OR REASON THE REQUEST FOR MODIFICATION IN THE DIRECTION OF THE CIT(A) CANNOT BE A C C E P T E D . ON CONSIDERING THE SAME IT WAS POINT ED OUT TO THE LD. SR. DR THAT THE DIRECTIONS GIVEN IN SUB - PARA (E) OF PARA 3.3 AT PAGE 17 APPEARS TO FULLY ADDRESS THE ISSUE . OF COURSE SUBJECT TO ANY INFIRMITY BEING POINTED AT BY THE LD. SR. DR. HOWEVER LD. SR. DR 9 I.T.A .NO. - 5197 /DEL/201 3 & C.O. - 192 /DEL/201 4 COULD POINT OUT NO INFIRMITY. THE LD. AR ON THE OTHER HELD INVITING ATTENTION TO THE CO FILED WHICH IT WAS POINTED OUT IS DELAY BY 183 DAY S T H A T THE ASSESSEE IS AGGRIEVED THAT THE CIT(A ) HA S N O T GRANTED NECESSARY RELIEF. ADDRESSING THE CO FILED IT WAS EXPLAINED THAT IT WAS FILED LATE ON ACCOUN T OF THE ADVICE RECEIVED FROM HIS COUNSEL BY THE ASSESSEE WHO POINT E D OUT THAT SINCE THE ISSUES REQUIRE VERIFICATION AT THE LEVEL OF THE AO , T HERE WAS NO NEED TO FILE APPEAL BEFORE THE ITAT. ON CONSIDERING THE APPLICATION OF THE ASSESSEE THE LD. SR. DR ON THE DELAY HAD NO OBJECTION HOWEVER IT WAS HIS GENERAL REQUEST THAT THE ISSUE BE RESTORED TO THE AO WITHOUT THE DIRECTIONS GIVEN BY THE CIT(A) . 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. A PERUSAL OF THE IMPUGNED ORDER SHOWS THAT THE CIT(A) AFTER THE SUBMISSIONS OF THE ASSESSEE AT PAGES 6 - 9 HAS FURTHER SUMMED UP THESE SUBMISSIONS ALONGWITH ARGUMENTS AT PAGES 10 - 12 AND AFTER RE - ADDRESS ING THE FACTS AT PAGES 13 TO 17 IN PARA 3.3 SUB - PARA (A - D) HAS GIVEN THE DIRECTION S TO THE AO IN SUB - PARA (E) TO VERIFY THE FACTUAL ASSERTIONS. ON A CONSIDERATION OF THE DIRECTION S CONTAINED WHICH HAVE BEEN REPRODUCED IN THE EARLIER PART OF THIS ORDER, WE FIND NO INFIRMITY IN THE DIRECTION GIVEN. HOWEVER CONSIDERING THE FACT THAT THE CIT(A) AS PER SECTION 251( 1 )(A) OF THE ACT HAS THE POWERS ONLY TO CONFIRM, REDUCE, ENHANCE OR AN UL L THE ASSESSMENT AND SPECIFICALLY DOES NO T HAVE THE POWER TO SET ASIDE AS PER THE FINANCE ACT, 2001 W.E.F 01.06.2001 . A CCORDINGLY FINDING OURSELVES IN AGREEMENT WITH THE DIRECTIONS GIVEN, WE SUBSTITUTE THE SAME BY OUR SIMILAR DIRECTION TO THE AO AS THE STATUTE BARS THE C I T ( A ) TO SET ASIDE THE ISSUE TO THE AO. THE IMPUGNED ORDER IS MODIFIED TO THIS EXTENT . ACCORDINGLY THE DEPARTMENTAL APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. TO THE EXTENT THAT THE CONCLUSIONS REMAINS THE SAME . 7. SINCE NO SPECIFIC ARGUMENTS IN SUPPORT OF THE CO FILED WERE ADVA NCED BY THE LD. AR , THE CO FILED BY THE ASSESSEE IS DISMISSED. 10 I.T.A .NO. - 5197 /DEL/201 3 & C.O. - 192 /DEL/201 4 8 . IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AND THE CO FILED BY THE ASSESSEE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 0 T H OF FEBRUARY 2015 . S D / - S D / - ( J.S.REDDY ) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 0 / 02 /201 5 *AMIT KUMAR /AKS * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI