TMI Blog1996 (11) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... showing the income as 'NIL' on 5-1-1993. The Assessing Officer issued a notice under section 143(2) and it was served on the assessee on 20-7-1994. The service was beyond the period of 12 months. According to the learned counsel for the assessee, Shri Javali, the assessment passed on the basis of the notice, which was not valid, is bad in law. In support of this contention the learned counsel for the assessee relied on the decision of the Supreme Court of India in the case of CIT v. Kurban Hussain Ibrahimji Mithiborwala [1971] 82 ITR 821 and of the Mysore High Court in the case of C.N. Nataraj v. Fifth ITO [1965] 56 ITR 250. 4. It is the contention of the learned departmental representative that the assessee was not available to receive t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him is invalid for the reason that it is served on the assessee beyond the period of limitation of 12 months. The decision of the Mysore High Court in the case of C.N. Nataraj on which also reliance is placed for the assessee, also supports our view. It is held therein : ". . . the notices which formed the basis of the proceedings under section 147 of the Act were wholly invalid and the petitioners could not be assessed in pursuance of those notices. While issuing notices under section 148, the Income-tax Officer is not acting judicially or quasi-judicially and, consequently, no writ of certiorari or prohibition can be issued. But it is well-settled that the High Court has power to issue in a fit case an order prohibiting the executi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The next ground is against disallowance of interest on borrowed capital. Since we have held that the assessment passed by the Assessing Officer is to be cancelled because it is passed in pursuance of an invalid notice, the second ground raised by the assessee does not survive for consideration. But as detailed arguments were addressed on both sides, we proceed to consider this ground on merits. 7. The assessee was running a hotel which was destroyed by fire. For reconstruction of the hotel the assessee borrowed moneys from Vijaya Bank and other financial institutions. The assessee paid interest on the loans borrowed for the purpose of reconstruction of the hotel and also for renovation and rehabilitation of the hotel. The excess fund wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us. Clause 6 of the objects incidental or ancillary to the attainment of the main objects reads as follows : "To borrow or raise money for the performance or discharge of any liabilities of the Company ; to create, execute, grant or issue any mortgages, debentures, stocks, bonds, or other obligations of the Company either at par, premium or discount founded or based upon all or any of the property and rights of the Company present or future including its uncalled capital and upon such terms as the Company shall think fit and to purchase, redeem, pay off or allot any of such securities, obligations and liabilities." Relying on the above clause it is argued that the assessee-company is authorised to borrow and raise money for the perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 ITR 185/86 Taxman 243 (SC) (ii) CIT v. Rajeeva Lochan Kanoria [1994] 208 ITR 616 (Cal.) (iii) C.T. Desai v. CIT [1979] 120 ITR 240 (Kar.) (iv) Seth Banarsi Das Gupta v. CIT [1977] 106 ITR 559 (All.). 9. In the case of Veecumees, the Supreme Court held, allowing the appeal of the assessee, as follows : ". . . the Tribunal was right in concluding that such interest had to be treated as a deduction under section 36(1)(iii) of the Act. The loans had been obtained for the purposes of the assessee's business. The fact that the particular part of the business for which the loans had been obtained had been transferred or closed down did not alter the fact that the loans had, when obtained, been for the purpose of the assessee's busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of interest paid thereon under section 36(1)(iii) of the Income-tax Act, 1961 and that it is not necessary that the assessee must have used that business asset for doing business in the relevant accounting year. 12. The case of the revenue is that there is no nexus between the borrowal and the earning of interest. It is also the case of the revenue that making investments for earning interest income is not the business of the assessee. That is why the authorities below did not allow the claim of the assessee to adjust the interest earned with the interest paid on the amount borrowed. We are not impressed by the argument of the learned departmental representative. It cannot be said that there is no nexus between the borrowal and the ear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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