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TMI Blog2015 (2) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... hether Ld. CIT(A) was correct on facts 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 records 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 managing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 purchase 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 period 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 interest 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 and it was submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s MTIL) and Indian Overseas Bank (hereinafter referred to as "IOB") and were utilized primarily for taking over the old assets of the hotels and these funds were not 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 temporary discontinuation of business from 31.07.2003 to 31.03.2004 and there was no evidence on record that the business had been permanently discontinued. Referring to the record it was submitted that the assessee had taken a loan of 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 assessment 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 hotel. The interest accordingly on loans ought not to have been disallowed as it was for business purposes. It was submitted that the hotel was running its operation on 08.10.2008 when it was acquired by MITL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itional 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 01-04-2003 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 accepted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pronouncements, 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 disallowing 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 fetters 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 required to address any specific reasoning or inaccuracy in the direction given so as to warrant any interference as without any valid argument or reason the request for modification in the direction of the CIT(A) cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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