ORDER
Per S. Bandyopadhyay, AM-Since common issues are involved in most of these departmental appeals for different years and also a cross-objection by the assessee for one of the years, the appeals have been consolidated and a common order is passed for the sake of convenience.
2. We will first take up the departmental appeal for the assessment year 1980-81 in ITA No. 1385 (Bang.)/90. The first issue raised in this appeal relates to the order of the CIT(A) deleting levy of short-term capital gains of Rs. 11 lakhs . The facts of the case in a nutshell are that the assessee company held 60 shares of another viz., M/s Fonseca (P.) Ltd., the other 90 shares being held by its associate Sri A.K. Johar. The assessee company as such was running a hotel at Calcutta under the name andstyle of Spences Hotel, which ultimately got closed some time in September, 1977 (as per the version of the Auditor’s of the company) or in June 1978 as contended by the assessee before the departmental authorities, due to labour problems and other connected difficulties. However, M/s Fonseca (P.) Ltd., was running a hotel with 23 rooms at No. 1, Man Singh Road, New Delhi. Originally, this hotel is stated to have been run by one J.E.D. Fonseca under the private limited company viz., M/s Fonseca (P.) Ltd. This property is stated to have been an evacuee property held by the Director of Estates, in the Ministry of Works & Housing, Govt. of India. The property had however been leased out to Sri Fonseca for the purpose of doing business. This lease between Sri Fonseca and the Government is stated to have expired in 1968, which was however not renewed by the Government. However, the hotel was allowed to continue without any specific agreement or lease. In 1970, the shares of M/s Fonseca (P.) Ltd., were purchased by Sri A.K. Johar (60%) and the assessee-company viz., Spences Hotel (R) Ltd. (4096). The hotel business was continued for five years by the assessee-company and Sri Johar through the private limited company M/s Fonseca (P.) Ltd. On 13-3-1975, a Memorandum of Agreement was reached between one M/s Indian Hotel Company Ltd. (hereinafter called IHCL) on the one hand and the assessee-company and Sri Johar on the other, under which, IHCL would purchase all the shares of M/s Fonseca (P.) Ltd., and also would acquire its business undertaking and establishment including the possession and enjoyment of the building at No. 1, Man Singh Road, New Delhi. According to this memorandum, the price payable was Rs. 25 lakhs for the shares of M/s Fonseca (P.) Ltd. An amount of Rs. 2 lakhs was paid during the calendar year 1975, which is stated to have been appropriated by the assessee and rightly or wrongly offered by it for taxation in assessment year 1976-77.
In calendar year 1977, corresponding to assessment year 1978-79, another amount of Rs. 9.50 lakhs was also paid by IHCL out of which Rs. 4.75 lakhs was appropriated by the assessee-company and the balance by Sri A.K. Johar. With regard to this amount however, the assess cc-company contested the receipt to be non-taxable and did not offer the amount for taxation. The Assessing Officer however included the amount for taxation iii the assessment of the assessee for assessment year 1978-79.
In the meanwhile however, the Government renewed the lease in respect of the property and handed over the same to New Delhi Municipal Corporation. M/s IHCL was however able to get possession of the property back from the Directors of Estates, established a big hotel thereon andstarted carrying on the business. At thisstage, IHCL wanted to wriggle out of the memorandum of agreement dated 13-3-1975 on the ground that the terms and conditions of the memorandum could not come into effect inasmuch as the shares of M/s Fonseca Pvt. Ltd., had not been transferred to IHCL. IFICL also wanted back the refund of the amount of Rs. 11.50 lakhs paid by it to the assessee group. A dispute thus arose between IHCL on the other hand and Sri Johar, the assessee company and also Sri S.N. Singh (the main person behind the assessee company) on the other. This dispute was referred to arbitrator, who under his award dated 17-3-1979 directed that the entire payment of Rs. 25 lakhs should be made by IHCL to the assessee-company (of course, after setting off the amount already paid). In addition to the same, another amount of Rs. 3.75 lakhs was also directed to be paid towards other claims of the assessee’s including interest. This award was confirmed by the Bombay High Court on 20-3-1979. In accordance with this arbitration, the balance amount was paid by IFICL to the assessee group and the assessee appropriated its 40% share therein minus amounts already received by it.
11 has already beenstated that in assessment year 1978-79, the amount of Rs. 4.75 lakhs received by the assessee from IHCL during that year, was treated by the Assessing Officer as taxable income. In the first appeal, however, the appellate authority deleted the inclusion of this amount and held by way of a passing remark that the amount though deleted for this year could be assessed in either assessment year 1976-77 (during which year the memorandum of agreement had been arrived at between the parties) or in assessment year 1980-81 (during which year the final payment was made consequent upon the arbitration). This decision of the first appellate authority for assessment year 1978-79 was accepted by both the department as well as the assessee. So far as the assessment year 1980-81 is concerned, in the first assessment that was made on the assessee, the balance of Rs. 3.97 lakhs pertaining to assessee’s share, was brought to tax. The assessee appealed; the CIT(A) vide his order No. ITA 42/Co.C/CIT(A) IU/83-84 dated 13-3-1985 and following the earlier order of the CIT(A) for assessment year 1978-79, set aside the assessment on this issue and directed the Assessing Officer to have a fresh look at the issue and determine the question of taxability of the amount and also the year in which the amount should be included for taxation. Before this appellate order was passed, the assessment was reopened under section 147. The Assessing Officer referred to the observations of the CIT(A) for assessment year 1978-79 as mentioned above and treated this observation as ‘information’ for the purpose of reopening the assessment. In the reopened assessment, the entire payment received by the assessee was treated as its income during the assessment year 1980-81. The assessee went up in appeal and the GT(A), vide his order No. ITA 91/Co.C/CIT(A) 111/84-85 dated 18-10-1985, upheld the reopening and also confirmed the addition made. In the second appeal, the ITAT, Bangalore Bench, in its order dated 23-9-1988 in ITA No. 1656 (Bang.)/85 upheld the reopening. On the issue of quantum addition however, the matter was set aside and sent back to the file of the Assessing Officer for the purpose of firstly determining the taxability of the amount of receipt under the award and secondly the year of such taxability, if any.
3. In pursuance to the above mentioned order of the ITAT, the Assessing Officer passed the impugned order dated 31-10-1989. In the said order, after discussing the facts of the case as narrated by us above, the Assessing Officer clearly held that there had not been any transfer of the shares of M/s Fonseca (P.) Ltd., by the assessee-company or the other share-holder viz. Sri A.K. Johar. At the same again, he also held that by way of holding shares of M/s Fonseca (P.) Ltd., the assessee-company and Sri A.K. Johar had definitely had interest in the property at No.1, Man Singh Road, New Delhi and that they were also in possession and enjoyment of the said asset including the business undertaking run therein. The Assessing Officer furthermore discussed that 111CL was sure that the ownership and the enjoyment of the asset was de fact with the assessee and its associate for the purpose of transfer of shares of M/s Fonseca (P.) Ltd., the real intention of 1HCL being transfer of the right of possession and enjoyment of the asset by the assessee and its associate to IHCL. The Assessing Officer also discussed in that connection that the very fact that the IHCL had entered into an agreement and made investment in the property clearly indicated that the assessee might have given IHCL the impression that the assessee and its associate were in possession and enjoyment of the property. He also discussed that taking over the shares of the company M/ s Fonesca (P.) Ltd., was only the means to take over the possession and enjoyment of the building at No.1, Man Singh Road, New Delhi. He furthermore noted that the assessee and its associate not only handed over the possession and enjoyment of the building to IHCL but also withdrew their disputes with regard to the building at the end of Director of Estates, consequent upon which alone the possession of the building could be handed over to IHCL. The Assessing Officer thus held that the entire payments received by the assessee and its associate from IIACL, though ultimately not on account of transfer of shares of M/s Fonesco (R) Ltd., were however indeed connected with handing over of the possession and Control of the undertaking of M/s Fonseca Pvt. Ltd. at No. 1, Man Singh Road, New Delhi. He thus held that the entire receipt was liable to be taxed in the hands of the assessee and its associate as capital gains for which they had incurred certain cost. However, ultimately, the Assessing Officer added back an amount of Rs. 11 lakhs in the hands of the assessee as short term capital gains without spelling out how much amount he considered to represent the cost of acquiring the asset by the assessee.
The Assessing Officer also held that since the receipt of the money was a direct consequence of the award dated 17-3-1979, the entire amount was taxable in calendar year 1979, i.e., assessment year 1980-81.
4. In the first appeal which is challenged by the department in the instant appeal before us, the learned CIT(A) has held that it is very clear that the shares of M/s Fonseca (P.) Ltd., were ultimately not transferred. He has final, concluded that certain rights in the business undertaking at No. 1, Man Singh Road, New Delhi had merely been transferred and such rights i.e., permission to carry on the business are of the nature of intangible rights. The learned CIT(A) considered these rights to constitute goodwill of the business. He held thereafter that since the goodwill had not been paid for by the assessee or purchased, the decision of the Supreme Court in the case of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 would apply. In the absence of any cost, he was of the view that the entire capital gains of Rs. 11 lakhs would be non-taxable. Accordingly, he deleted the entire addition. In doing so, he drew further support from the fact that in case of 60% owner of the shares of M/s Fonseca (P.) Ltd., viz., Sri A.K. Johar, at the assessmentstage itself for the assessment year 1980-81, the ITO had held that the receipt on this account by Sri Johar was of the nature of the capital receipt and hence not taxable.
5. The Dept., challenges the above order of the CIT(A). At thestage of hearing of the appeal before us, the learned DR has tried to argue that although the Assessing Officer has ultimately held that the shares of M/s Fonseca (P.) Ltd. were not transferred and the CIT(A) also upheld the same, actually however the capital gains has arisen on account of transfer of such shares alone. He thus tried to raise a new issue before us that the capital gains being on account of sale of the shares of M/s Fonseca (P.) Ltd., the purchase of which had duly been paid for by the assessee, capital gains tax would certainly be leviable on such transfer. In support of his contention that such new issue can be raised by the DR even at the Tribunalstage, he has tried to rely on a recent judgment of the Supreme Court in the case of Bhavana Chemicals Ltd. v. CIT [I998] 231 ITR 507/99 Taxman, The learned counsel for the assessee appearing before us has on the other hand,strongly contested the contention of the DR. By drawing our attention to the balance sheet of the assessee-company (or the relevant year and also to certain portions of the order of the ITAT dated 23-9-1988 in ITA No. 1656 (Bang.)/S5, he has tried to show that the shares of M/s Fonseca (P.) Ltd., were never actually transferred. He thus contends that actually was transferred was merely an intangible right as held by the learned CIT(A) for which there was no cost.
6. On a close examination of the facts of the case, we are inclined to agree with the contention of the learned counsel for the assessee on the issue as to whether any transfer of shares of M/s Fonseca (R) Ltd., did actually take place or not. All the papers clearly show that the shares were not ultimately transferred. That is the reason why the dispute arose between the two sides and the matter had to be sent for arbitration. Although the balance sheet of the assessee- company for the relevant period does not give a clear picture about the continuity of the share holding of the assessee-company in M/s Fonseca (P.) Ltd., at the same time again, it appears that those shares were not actually transferred by the assessee in favour of IHCL. The Tribunal in its order dated 23-9-1988 also found out that all along the assessee contended that there was no income as capital gains as there was no transfer of the shares. The Tribunal noted that on this argument, no doubt, the assessee succeeded. We find that the remark of the Tribunal as above refers to the findings of the CIT(A) for assessment year 1978-79. This finding was not challenged by the Department and hence the same can be considered to have become final. In the grounds of appeal before us also, the Dept. has not challenged the fresh finding of the CIT(A) in his order for assessment year 1980-81 impugned before us to the effect that the shares of M/s Fonseca (P.) Ltd., were never transferred. We cannot therefore accept the contention of the learned DR raised afresh before us.
7. In its earlier order dated 23-9-1988 for this very year, the Tribunal had held as below-
“The question is whether the assessee who had certain rights in an asset owned by it got extinguished or whether there was any relinquishment of his right because of submission to the Arbitration Award ……
This is a question to be determined upon the examination of the various terms and conditions in the award ……..
With regard to the taxability of the receipt under the award, neither the CIT(A) nor the ITO has given a proper treatment to the question ……..
Two questions that normally emerge in a situation like this are-
(1) Whether the receipts under the award dated 17-3-1979 are taxable, and
(2) If so, the year in -which they are taxable.
On both these issues a specific finding has to be recorded …….
In the circumstances, we restore this issue to the file of the ITO with a direction that he shall convert the taxability of all receipts under the (SIC). Since all the subsequent proceedings have arisen out of this order of the ITAT restoring the matter back to the file of the Assessing Officer, we are of the clear opinion that the issue relating to sale of shares of M/s Fonseca ltd. Ltd., cannot be raised at all at thisstage. As regards the taxability of the receipts under the award, both the lower authorities have held that the receipt was connected with parting by the assessee of its intangible rights of possession and enjoyment of the property belonging to M/s Fonseca Pvt. Ltd. It appears that both the lower authorities pierced the corporate veil and held that even without transfer of shares of M/s Fonseca ltd. Ltd. to IVICL, its rights in the property at No. 1, Man Singh Road, New Delhi was handed over by the shareholders of that company, one of such shareholders being the assess cc-company bef ore us. A perusal of the award also supports this contention. Certainly, 1HCL received certain benefits by way of transfer of certain rights in the property at No. 1, Man Singh Road, although the said property did not belong to M/s Fonseca Pvt. Ltd., or even its shareholders in the true legal sense. The payment of as high a sum as Rs. 25 lakhs is on that account alone. We are however unable to agree with the finding of the learned CIT(A) that in the process what was transferred was the goodwill of the business which was being run by M/s Fonseca Pvt. Ltd. There is no doubt about the facts that M/s Fonseca Pvt. Ltd., was running a hotel on that property. IFICL, on acquisition of the property, however did not continue to run on that business. On the other hand, it dismantled the entirestructure and built up a very big fivestar hotel under the name andstyle “Taj Man Singh” on the property. It is therefore clear that what 1HCL did actually acquire was not the goodwill of the earlier hotel, but merely the uninteruptted right of possession and enjoyment of the property, coupled with the withdrawal by the assessee and its associate their rights to repossess the property at the end of the Director of Estates. The question would arise therefore, as to whether this intangible right of possession and enjoyment of the property at No. 1, Man Singh Road had been acquired by the assessee and/its associate by incurring any cost or otherwise. The matter cannot be answered simply by looking into the f act that the Assessing Officer, in the assessment of Sri A.K. Johar, did not choose to tax the receipt either as business income or even as capital gains. We feel that only by acquiring the shares of M/s Fonseca Pvt. Ltd. the assessee came into the joint possession and enjoyment of the property under consideration. The cost of acquisition of such intangible rights should therefore be equated with the cost of shares of M/s Fonseca Pvt. Ltd. Accordingly, we are inclined to reverse the decision of the CIT(A) and hold that inasmuch as the assessee had acquired the intangible rights which were ultimately parted with by it in favour of 114CL, by purchasing the shares of M/s Fonseca Ltd. Ltd., capital gains tax would surely arise, the cost of acquisition of the capital asset being referable to the cost of the shares of M/s Fonseca Pvt. Ltd., in the hands ofthe assessee.
8. It would thereafter be required of us to look into the question of year of taxability of the capital gains. We cannot agree with the Assessing Officer that it is the award which ultimately led to the transfer of the capital asset under consideration. The award merely confirmed and vindicated thestand-point of the assessee and its associates about having intangible rights in the property. Such rights were however transfered in terms of the Memorandum of Agreement dated 13-3-1975. The facts of the case also show that almost immediately after arriving at this memorandum, the assessee and its associates handed over the possession of the property in favour of II-ICL, whichstarted developing the same into a full fledged fivestar hotel. We therefore hold that the transfer of the intangible rights belonging to the assessee did take place in assessment year 1976-77 and not in assessment year 1980-81. Ultimately therefore, we uphold the order of the CIT(A) in deleting the capital gains from the assessment of the assessee for assessment year 1980-81 on this ground alone.
9. Thereafter comes the other aspect of the mother as to whether the assessee can be considered to have been carrying on its earlier business or any business at all during the assessment year under consideration. As described earlier, the assessee-company was running a reputed hotel at Calcutta which was closed some time in September 1977 (June 1978, according to the assessee before the IT authorities).
Thereafter, the assessee-company took on lease/rent a small house at premise No. 6621 1stage, Indiranagar, Bangalore. It is contended by the assessee that this house was run by the assessee as a lodging house and in this manner it continued on with its earlier business. A guest-house register is stated to have been maintained for this purpose. An alternative plea was also taken that the assessee was running in partnership, a hotel in London, in support of which plea, a certificate by the British Chartered Accounts firm dated 29-5-1985 were relied on. It was thus contended by the assessee that since it continued to carry on its business, it was entitled to carry forward and set off the brought onward business loss and also the depreciation from earlier years. This issue also travelled to the ITAT.
The ITAT, Bangalore Bench examined the issue in its common order dated 5-2-1988 in ITA Nos. 838 to 841(Bang.)/S5 for assessment years 1979-80 to 1982-83. The ITAT was of the opinion that the alternative ground of running a hotel in London had not even been mentioned before the CIT(A). So far as the original issue of running the lodging house at Bangalore is concerned, the Auditor’s report showed that the hotel business in Calcutta had been discontinued right from September 1977. The Tribunal discussed that the rent receipts for the premises could not be made available to the assessee on the plea that those had been produced before the IAC and were lying with the departmental authorities. The Tribunal thus held that the matter should be restored to the file of the ITO. At the same time again, the Tribunal gave a specific direction as below-
“The assessee is directed to file the rent receipts before the ITO failing which the ITO shall draw adverse presumption against the assessee for failure to file the rent receipts in accordance with the law. The assessee shall be at liberty to produce relevant evidence on his claim of carry forward and set off of business loss and unabsorbed depreciation before the ITO. The ITO shall take into consideration the decision in the case of Addl. CIT v. Kapila Texliles (P.) Lid. [1981] 129 ITR 458 (Kar.) in deciding the admissibility of the assessee’s claim”.
10. In the fresh assessment made by the Assessing Officer, which is impugned before us, the Assessing Officer discussed the discontinuance of the earlier business of the assessee at Calcutta in September 1977. The Assessing Officer also discussed the contention of the assessee that itstarted running a private guest house exclusively for friends and relatives of the Managing Director of the assessee. The Assessing Officer held that running a private guest house exclusively for friends and relatives and not for public lodging or hotel business would not constitute a business activity. Ultimately, he held that the assessee was not having any hotel business in Bangalore and what was called a private guest house was in fact only the Director’s house. He also discussed that the assessee had not furnished any details or particulars to prove that the house had necessary and required infrastructure to run the hotel business. About the alternative contention regarding the running a hotel in London in partnership with some other concern, the Assessing Officer noted that the assessee had not made it clear as to how the running of the hotel at London might be considered to be the assessee’s own business activity.
In the first appellate order, now impugned before us, the CIT(A)states that he had seen the register belonging to the private lodging house which indicated that regular lodging business was carried on by the assessee, regular receipts were issued and the reason why licence was not renewed was that no licence would be required for running merely a lodging house. The CIT(A) was satisfied that the nature of the business carried on by the assessee was hotel business although it was run on a greatly diminished scale. He thus directed that the assessee be given the benefit of set off of carried forward losses including the unabsorbed depreciation.
11. The Department challenges the above decision of the learned CIT(A) before us. At the outset, we must note that as per the direction of the ITAT as mentioned above, it was incumbent on the part of the assessee to file the rent receipts before the IT authorities, which it did not on the plea that the said rent receipts were lying with the IAC. There is no evidence with regard to this particular assertion. It is also brought to our notice that no licence either from the Corporation or from the Health Department was taken by the assessee to run any hotel. The assessee of course contends that for merely running a lodging house, such licences are not necessary. The learned DR has brought our notice to a letter dated 6-11-1981 written by Sri L.V. Sharma, the owner of the house at Indiranagar to Shri S.N. Singh, the Managing Director of the assess cc-company. In this letter he clearly mentioned that he had all along objected to running of his house as a hotel or even as a regular lodging house. He mentioned the original purpose for taking the house on rent being purely residential purpose of tfie company’s Directors.
The assess cc certainly did not produce there not receipts for which adverse inferences are required to be taken against it. The CIT(A) noticed that on examination of a register he was convinced that a lodging house was run in a very limited scale. It is quite possible that the lodging house was run in that manner even in spite of the objection and protestation of the owner of the house. The Assessing Officer has also assessed some small income by way of receipts from the guest house. All these facts clearly show that the assessee carried on a business activity by way of running a lodging house at the premises at Indiranagar. The assessee would thus be entitled to the expense incurred by it in running such business. We uphold the order of the CIT(A) to this extent.
However that does not at all mean that the assessee was actually running a hotel business. The hotel which was earlier being run by the assessee at Calcutta was a century-old, reputed hotel. The said business was completely closed down in September, 1977. For running a fresh hotel business at Bangalore, it would have been necessary for the assessee surely, to take licence from the Municipal authorities as well as from the Health Department. The facts of the case clearly show that such licences were not there at all. Hence, merely running a lodging business cannot at all be equated to running a f ullfledged hotel business. There was also a gap between the closure of the hotel business at Calcutta andstarting of the new business at Bangalore. We are of the opinion that the old business of the assessee with regard to the hotel at Calcutta got totally closed down and the business of running a lodging house or guest house at Bangalore is completely a new business. There are no indications anywhere to show that there were interlacing of funds, management and other inputs between the old business and the new business. So far as the alternative contention of the assessee regarding a restaurant at London is concerned, we are of the opinion that firstly running of such business by the assessee itself is not clearly established factually and secondly even that business also has got to be considered as merely a new business. We are therefore of the opinion that the assessee is not at all entitled, in terms of the provisions of section 72 to carry forward its business losses from earlier years (connected with the hotel business at Calcutta) to the assessment years under present appeal and get them set off against the current income of these years. We therefore reverse the order of the CIT(A) on this, issue.
So far as however, the adjustment of unabsorbed depreciation from earlier years is concerned, the issuestands covered in favour of the assessee by the judgments of the Karnataka High Court in the case of Addl. CIT v. Kapila Textiles (P) Lid. [1981]129 ITR 458 and of the Supreme Court in the case of CITY. Virmanihidusiries (P.) Ltd. [1995] 216 ITR 607/ 83 Taxman 343. The Supreme Court has held in the latter judgment that for carry forward of unabsorbed depreciation from earlier years and adjustment of the same in subsequent years, it is not at all necessary that the same business should continue nor even that the assets in connection with which the depreciation had been allowed, should also continue to exist. Furthermore, in the assessment order dated 26-3-1990 for assessment year 1979-80, the Assessing Officer himself referred to the judgment of the Karnataka High Court in the case of Kapila Textiles (P.) Lid. (supra) and held that the assessee is allowed for set off of the unabsorbed depreciation of the previous year. We sustain the order of the CIT(A) in respect of the unabsorbed depreciation.
12. The CIT(A) has also cancelled the levy of interest under section 217 in the reassessment made by the Assessing Officer by following the judgment of the Karnataka High Court in the case Charles Dsouw v. CIT [1984] 147 ITR 694. The Department challenges the same. The learned DRstates in this connection that in the original assessment order also, interest under section 217 had been levied. If that be so, interest to that extent would remain leviable even in’ the reassessment order. We therefore direct the Assessing Officer to examine the matter and to retain the interest to the extent to which the same had been levied in the original assessment order.
13. In the crose objection filed by the assessee for the assessment year 1980-81, it is contended that the CIT(A) ought to have held that the entire amount of interest of Rs. 94,074 was not liable for taxation in the relevant assessment year. It is contended by the learned counsel for the assessee by relying on a judgment of the Supreme Court in the case of Hindustall Housing & Land Development Trust Ltd. [1984] 161 ITR 524, that inasmuch as interest accrues on year to year basis, only the interest pertaining of this year should have been included within the income of the assessee for this year.
On this issue, the CIT(A) has held that the accrual of interest came only as a result of the decree of the Bombay High Court dated 20-3-1979 approving the award dated 17-3-1979. He therefore concluded that the entire interest income arose to the assessee in the assessment year 19808 1 alone. We are also in agreement with the finding of the learned CIT(A). In the original Memorandum of Agreement, it was clearlystated that there will be moratorium on interest for two years from the date of signing the agreement and thereafter the question of payment of interest would arise. In the award again, an additional amount of Rs. 3,75,000 was ordered in favour of the assessee and its associate to cover any claims including interest. We are th~2ref ore of the opinion that this amount of Rs. 3,75,000 represent a lump sum payment by 1ECL in pursuance to the order of award as confirmed by the High Court. We therefore agree with the findings of the learned CIT(A) that the entire interest amount has rightly been taxed in the assessment year 1980-81.
14. We now come to the departmental appeal for the assessment year 1979-80. The fresh assessment arose out of setting aside the original order of the assessment by the ITAT and directing the Assessing Officer to enquire into whether business was being carried on or not and to allow the expenses claimed accordingly. By referring to his earlier appellate order in ITA No. 105/DC-Spl.R-IV/CIT(A-IH)/89-90, dated 12-3-1990 for assessment year 1980-81 and following the same, the CIT(A) held that business had been carried on in this year. In the circumstances, he directed the Assessing Officer to allow the entire expenses claimed on that ground.
In the grounds of appeal, the Department contends that the CIT(A) erred in directing the Assessing Officer to allow the benefit of set off of carried forward loss including unabsorbed depreciation. We have already held above that a minuscule business was actually carried on by the assessee during the year by way of maintaining a lodging house at Bangalore. Hence, we uphold the order of the CIT(A) to allow the entire expenses incurred during the year relating to such business. We are however of the opinion that there is no question of allowing the benefit of set-off of carried forward losses of the earlier years, although the unabsorbed depreciation of earlier years would have to be set off. This follows our discussions as above with regard to the assessment year 1980-81. The CIT(A) has also not exactly directed the set off of carried forward losses. We order accordingly as in assessment year 1980-8 1.
15. The CIT(A) noted that in the computation, the DCIT had taken the total income to be Rs. 63,370 as per his order dated 7-8-1982, although in a subsequent Year dated 25-4-1986, the income had been computed at the figure of loss of Rs. 77,938. The CIT(A) directed the Assessing Officer to take cognisance of this figure determined on 25-4-1986. The full details of the matter are not on our records. Accordingly, we direct the Assessing Officer to take into consideration the appropriate figures as per the latest order passed by him.
16. So far as the appeal in ITA No. 2285 (Bang.)/90 for Assessment year 1980-81 is concerned, the assessee was aggrieved by the order giving effect to the earlier order of the CIT( A) dated 12-3-1990 in ITA No. 105/ DC-Spl. R.1V/CIT(A-111)/S9-90. The CIT(A)states that while giving effect to this order, the Assessing Officerstarted the computation with a figure of total income as per the order dated 31-10-1989 at Rs. 12,9 1, 188 which included interest amount of Rs. 1,65,000. The assessee contended before the CIT(A) that actually the amount of interest was Rs. 94,074 and not Rs. 1,65,000. On verification of the figures, the CIT(A) directed the Assessing Officer to adopt the figure of Rs. 94,074. The CIT(A) has also directed the Assessing Officer to adopt the correct figure of carried f onward losses in accordance with his earlier order for the same ‘ year. The Department challenges this order of the CIT(A). As discussed by us above, for this very assessment year, we reverse the decision of the CIT(A) in directing the Assessing Officer to allow the set off of carried forward business loss. The same would however not hold good for unabsorbed depreciation, as discussed above.
17. For assessment years 1981-82 and 1982-83 the departmental appeals are against the orders of the CIT(A) to allow the benefit of carried forward loss including unabsorbed depreciation. For these years also, we would like to follow our earlier order for the assessment year 1980-81 to the effect that although the assessee would be entitled to deduction of the expenses for the year against its business income arising out of maintenance of the lodging house, at the same time again, no benefit of adjustment of earlier years’ business losses could be allowed to the assessee. At the same time again, the unabsorbed depreciation of the earlier Years will be required to be adjusted against current year’s income. The orders of the CIT(A) for both the Years are there modified to the abovementioned extent.
18. In the result, the Departmental appeals for all the years are partially allowed to the abovementioned extent, whereas the cross-objection filed by the assessee for assessment year 1980-81 is dismissed.