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Issues involved:
1. Validity of assessment due to service of notice u/s 143(2) beyond the limitation period. 2. Disallowance of interest on borrowed capital. Issue 1: Validity of assessment due to service of notice u/s 143(2) beyond the limitation period: The assessee contended that the assessment made by the Assessing Officer was invalid as the notice u/s 143(2) was served beyond the 12-month limitation period. The Supreme Court and Mysore High Court decisions were cited in support. The department argued that the notice was sent to the address provided by the assessee and that the department was not at fault for the delayed service. However, the Tribunal held that the assessment based on a notice served beyond the 12-month period was not valid, citing the Supreme Court and Mysore High Court judgments. Consequently, the assessment was deemed to be canceled. Issue 2: Disallowance of interest on borrowed capital: The Assessing Officer disallowed the deduction of interest on borrowed capital, stating there was no nexus between the hotel business and interest earned on investments. The CIT(A) upheld this decision. The assessee argued that the borrowed funds were used for renovation and reconstruction of the hotel, and investments were made to earn interest income, citing the memorandum of association. Case laws were presented to support the claim. The Tribunal found that the borrowal was for the purpose of business and the assessee was entitled to adjust the interest earned against the interest paid on borrowed funds. Consequently, the appeal of the assessee was allowed. In conclusion, the Tribunal canceled the assessment due to the invalid notice served beyond the limitation period u/s 143(2). The disallowance of interest on borrowed capital was overturned, and the assessee was allowed to adjust the interest earned against the interest paid. The charging of interest under sections 234A, 234B, etc., was deemed consequential and not applicable due to the cancellation of the assessment.
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