JUDGMENT : K.S. Jhaveri, J. 1. By way of these appeals under section 260A of the Income-tax Act, 1961, the appellant-revenue has challenged the order of the Income-tax Appellate Tribunal, Ahmedabad, whereby the Tribunal has reversed the view taken by the Commissioner (Appeals) by allowing the appeal preferred by the assessee. 2. While admitting the appeals, this court has framed the following substantial questions of law in Tax Appeal No. 1440 of 2007: "(A) Whether the Appellate Tribunal is right in law and on facts in allowing the assessee's claim for bad debt amounting to Rs. 1,31,84,176/-, when the business carried on by the assessee in respect of which the debts were written off had been discontinued since June 1999 and therefore, the claim for such debt was not allowable u/s. 36(1) (vii) of the Act? (B) Whether the Appellate Tribunal is right in law and facts in deleting the disallowance of interest of Rs. 13,50,000/- on account of interest free advance given to Sardar Patel Foundation? (C) Whether the Appellate Tribunal is right in law and in facts in deleting the disallowance of interest of Rs. 21,83,829/- on account of interest free advance of Rs. 1.21 crore given to M/s. Madhavdas Tulsidas & Co.?" 2.1 In Tax Appeal No. 1439 of 2007, this court has framed the following substantial question of law: "Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the disallowance paid in respect of interest free advances out of borrowed funds?" 2.2 This court, while admitting Tax Appeal No. 1671 of 2007, has framed the following substantial question of law: "Whether the Appellate Tribunal is right in law and on facts in confirming the order of the CIT(A) cancelling the penalty of Rs. 61,77,043/- levied under section 271(1)(c) of the Income-tax Act, 1961?" 3. For the purpose of deciding the appeals, we set out the facts of Tax Appeal No. 1440 of 2007. The facts of the said case are that the assessee filed original return of income for assessment year 2001-02 on 30.10.2001 declaring total income of Rs. 29,60,66,717/-. Thereafter, a revised return of income was filed on 13.11.2002 disclosing total income of Rs. 29,59,07,885/-. The return of income was processed under section 143(1) of the Act on 21.3.2003 on the returned income. 29,60,66,717/-. Thereafter, a revised return of income was filed on 13.11.2002 disclosing total income of Rs. 29,59,07,885/-. The return of income was processed under section 143(1) of the Act on 21.3.2003 on the returned income. The assessment was finalized under section 143(3) of the Act on 30.3.2004. While determining the income of the assessee, the Assessing Officer had made certain additions. Being aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the Commissioner of Income-tax (Appeals) who partly allowed the appeal of the assessee. Against the order of the Commissioner (Appeals), both the assessee and the revenue preferred appeal before the Tribunal. The Tribunal after hearing both the sides and considering the material on record, passed the order as aforesaid. 4. Learned counsel for the appellant-revenue Mr. Nitin Mehta has taken us through the order of the Assessing Officer and contended that the assessee was carrying on the business of manufacturing and marketing of pharmaceutical products and commission agent. The commission income from the agency business was credited to profit and loss account in the respective years. However, the activity was discontinued as it was not profitable. The main reason for discontinuance is that the company had to bear losses by way of bad debts from the customers. The assessee tried to recover the dues from the customers. However, the assessee could not recover the dues and wrote off the same. The Assessing Officer, while making assessment, took a view that the bad debts could not be allowed in respect of discontinued business as there was no business in the previous year. He, therefore, disallowed the bad debts claim of the assessee and added it to the total income. In that view of the matter, the learned counsel for the revenue has contended that the Assessing Officer and the Commissioner (Appeals) have rightly disallowed the claim of bad debts. He has relied on the decision of the Apex Court in the case of L.M. Chhabda & Sons v. Commissioner of Income-tax reported in, (1967) 65 ITR 0638, particularly, paragraph Nos. 6 and 10 which are extracted below: "6. For income of a business to be taxable under s. 10 of the Act it is one of the conditions that the assessee must carry on the business in the relevant year of account. 6 and 10 which are extracted below: "6. For income of a business to be taxable under s. 10 of the Act it is one of the conditions that the assessee must carry on the business in the relevant year of account. If the business is discontinued before the commencement of the accounting year, the income attributable to that business received in the year cannot be taxed under s. 10, because the source of income had ceased to exist. If the income of a business is not taxable under s. 10 as income of a particular year because the business was not carried on in that year, the assessee can obviously not seek to debit the expenditure incurred for carrying on that business, against his other income, for the outgoings are chargeable only against the income of a business which was carried on in the previous year. If follows that if an assessee carries on several distinct and independent business, and one of such business is closed before the previous year, he cannot claim allowance under s. 10 of the Act of an outstanding attributable to the business which is closed against the income of his other business in that year. 10. It is true that the appellants were conducting cinema theatres in Ahmedabad and Bombay, and the result of the accounts of the different ventures was entered in the accounts maintained at the head office, but from that circumstance no inference necessarily arises that the exhibition of films in different theatres constituted the same business. It was for the appellants to establish that different ventures constitute parts of the same business. There is in this case no evidence about unity of control and management or inter-relation of the business, or employment of the same staff to run the business, or the possibility of one theatre being closed without affecting the rest of the business. The AAC did, it appears, in the computation of taxable income allow certain litigation expenses in connection with the suit relating to Prakash Talkies. But the AAC did not expressly find that the business of Prakash Talkies was part of a larger business carried on by the appellants, and no such inference may be raised by implication. The AAC did, it appears, in the computation of taxable income allow certain litigation expenses in connection with the suit relating to Prakash Talkies. But the AAC did not expressly find that the business of Prakash Talkies was part of a larger business carried on by the appellants, and no such inference may be raised by implication. From the fact that no appeal was filed by the revenue against the allowance of litigation expenses, it does not follow that the Department acquiesced in the contention of the appellants." 5. He has also relied on the decision of the Apex Court in the case of State Bank of Travancore v. Commissioner of Income-tax, Kerala reported in, 158 ITR 102 and contended that in the light of the decision of the Apex Court, the view taken by the Tribunal is required to be reversed. He has also relied on the decision of the Madras High Court in the case of India Manufacturers (Madras) P. Ltd. v. Commissioner of Income-tax, reported in, (1985) 155 ITR 0774, particularly, paragraph No. 5 which is extracted below: "The learned counsel for the assessee contends that the service department which was closed down is not a separate and independent business of the assessee but is a part of the main business as distributors for the products of Rayala Corporation and, therefore, the retrenchment compensation paid on closure of a portion of the business which is beneficial to the main business that was being carried on by the assessee should be taken to be an allowable expenditure as the closure of a portion of the business was undertaken for reducing the losses and for effective carrying on the main business. The learned counsel in support of the said submission relies on the decision of the Gujarat High Court in Bansidhar Pvt. Ltd. v. CIT, (1981) 20 CTR (Guj.) 90: (1981) 127 ITR 65 (Guj.). In that case, a private limited company was carrying on different business activities at different points of time. Upon the closure of one of the businesses in the relevant year of account, the assessee in that case had to pay a sum of Rs. 9,603/- as retrenchment compensation. The assessee claimed deduction under s. 37 of the IT Act, 1961, of the said sum. Upon the closure of one of the businesses in the relevant year of account, the assessee in that case had to pay a sum of Rs. 9,603/- as retrenchment compensation. The assessee claimed deduction under s. 37 of the IT Act, 1961, of the said sum. The claim having been rejected by the ITO as well as the AAC, the matter was taken to the Tribunal which held that the deduction could not be allowed because the several business were widely different in nature and they covered both manufacturing and trading activities, and the closure of one business was not shown to have affected the other business. When the matter was taken to the Gujarat High Court, on a reference, the court took note of the various circumstances and they way in which all the businesses were carried on and held that there was, at the apex, a common management and administration with an overall control of the various business vesting in the board of directors of the assessee company and, therefore, the business that was closed was not a separate and independent business. On those facts, the court held that there was complete interconnection, interlacing, interdependence and dovetailing of the different business activities carried on by the assessee and all the activities carried on by the assessee constituted one and the same business and, therefore, the deduction on account of the retrenchment compensation paid by the assessee upon the closure of one of its business and the write off of its outstanding dues as bad debts in the other were allowable deductions under ss. 37 and 36(1)(vii), respectively. The question is whether the principle laid down in that decision will apply to the facts of this case. For the said decision to apply to the facts of this case, it has to be established by the assessee that the business that was closed was not an independent business but an integral part of the main business carried on by the assessee. For the said decision to apply to the facts of this case, it has to be established by the assessee that the business that was closed was not an independent business but an integral part of the main business carried on by the assessee. Whether two or more lines of business may be regarded as the same business or different business depends not upon the special methods prescribed by the IT Act for computation of the taxable income, but upon the nature of the business, the nature of their organisation, management, source of capital and fund utilised, the method of book keeping used and other related circumstances which stamp them as same or distinct. Thus, the test is whether one of the business can be closed without affecting the conduct of the other business. In this case, though an attempt was made by the assessee before the AAC to show that the business of servicing typewriters and the trading activities in typewriters is one and the same and, therefore, the retrenchment compensation paid on the closure of the servicing part of the business should be taken to be allowable deduction, the assessee has not adduced any evidence in support of the said assertion or claim. The assessee has not even attempted to prove, before the Tribunal that the business of servicing typewriters is part of the business of trading in typewriters. The mere fact that the assessee called the servicing organization carried on by it as a Department is not conclusive one way or the other. Unless the assessee establishes that the service organization was part of the main organisation of carrying on the business of dealing in typewriters, the assessee's assertion that it is part of the main business cannot straightaway be accepted. In the absence of materials to show that the business that was closed was only an integral part of the business that is being carried on by the assessee, the assessee cannot claim the retrenchment compensation paid after the closure of the said business as an expenditure incurred for carrying on the other business." 6. He has also relied on the decision of the Madras High Court in the case of South Indian Industrials Ltd. v. Commissioner of Income-tax reported in, (1935) 3 ITR 0011, particularly, paragraph No. 3, which is extracted below: "No purchase was made or anything manufactured during this year. He has also relied on the decision of the Madras High Court in the case of South Indian Industrials Ltd. v. Commissioner of Income-tax reported in, (1935) 3 ITR 0011, particularly, paragraph No. 3, which is extracted below: "No purchase was made or anything manufactured during this year. On the contrary, it is admitted that no business whatsoever was carried on except the sale of the old stock already referred to. The loss of Rs. 1,59,489-1-5 was made up of payment of interest on moneys borrowed, depreciation on the machinery and buildings, bad debts written off, loss in revaluation of closing stock due to deterioration and establishment and miscellaneous charges of the various concerns. The company, however, continued to retain its holding of shares in the Chittivalsah Jute Mills Co. Ltd., and to that extent the company was undoubtedly carrying on business; and this is not disputed by the CIT. What, however, is contested by him is the contention that the assessees are entitled to set off against dividends received from the Chittivalsah Jute Mills Co. Ltd., the loss in the other concerns already referred to, as in his opinion the assessee had ceased to carry on the business of those concerns and had sustained no 'loss of profits or gains' which could be set off under s.24 or otherwise against the other income. The assessees both before the CIT and before us relied upon the Full Bench decision of the High Court in Arunachalam Chetty v. CIT ILR 52 Mad. 296. There a trader having two branches in his trade, viz., a cloth business and a banking business, carried on both, each with borrowed capital and, as the cloth business, ended in a loss, he had to close it in 1924 and all that portion of the borrowed capital which was sunk in the cloth business was lost before 1924; and the trading having had to pay interest on that lost capital in 1924-25, the year of assessment, claimed deduction therefore from the assessable profits of his remaining banking business for the year 1924-25. It was held that though the branches were distinct the trade was one and though the lost capital was not available for use in the trade, namely, the banking business, in the year of assessment, the interest paid on it should be deducted under s. 10(2)(iii) of the Indian IT Act. It was held that though the branches were distinct the trade was one and though the lost capital was not available for use in the trade, namely, the banking business, in the year of assessment, the interest paid on it should be deducted under s. 10(2)(iii) of the Indian IT Act. The facts were that the assessee were a Nattukottai Chetty firm trading under the vilasam of A.L.A.R., their primary business being the usual Nattukottai Chetty business of banking and money - lending. Under the style of Ramaswami & Co., they also traded in piece-goods in Madras. That business was unsuccessful and when closed down in 1924 had sustained a loss of Rs. 11,00,000 odd. It was found by the CIT that the business of Ramaswami & Co., was quite separate and distinct from that of A.L.A.R. The Full Bench of which I was a member, however, did not agree with this finding and held that it was not a separate business but only a branch of the same business and the finding of principle arrived at is upon that basis and that basis alone. As I was a member of that Bench, I am free to express my opinion which is that the finding of the fact of the CIT ought to have been accepted and that the view of Coutts-Trotter, C.J., on this question of fact, with which of course I agreed, was erroneous. I now think that we were mistaken in holding that the piece-goods business which was carried on under a different name and in a different place was only a branch of the banking business because I am satisfied that those two business were separate and distinct. I think that the examples given by Coutts-Trotter, C.J., on p. 299 are not quite happy ones. This decision can only be taken as applying the principle to cases where the businesses are not separate. What is the position in the present case? The fallacy underlying the assessees, argument is that because a company carries on several concerns those concerns are all one business, namely, the company's business. That is not so. This decision can only be taken as applying the principle to cases where the businesses are not separate. What is the position in the present case? The fallacy underlying the assessees, argument is that because a company carries on several concerns those concerns are all one business, namely, the company's business. That is not so. A company can carry on several distinct and separate business and it must always be a question of fact whether those businesses are separate business or whether they are so interlocked with the main chief business of the company as to be really one business, for example, a railway company carrying on a steam boat business in connection with its railway. This distinction has been recognized in cases under the IT Acts in England. One of these is Scales v. George Thompson & Co. Ltd. 13 Tax Cases 83. There the respondent was incorporated in 1905 to take over as a going concern the business of George Thompson & Co., ship owners, ship and insurance brokers, underwriters and merchants. As regards their underwriting business the firm had been represented by two of their partners who acted on behalf of the partnership as 'names' or members of a syndicate whose credit was used by an underwriting agent in underwriting risks at Lloyd's. The monetary deposit made at Lloyd's in respect of these two partners was transferred to the company, but since Lloyd's will not recognise a company as a name these two partners continued to act as nominees and agents of the company to which all underwriting profits were handed over, the company being responsible for any losses. These profits were brought into the company's accounts with those of the rest of their business. In 1919 one of these nominees retired and in 1920 the other died, where upon the underwriting business ceased. The company claimed that the underwriting business was a business separate from their other activities and that it should be treated as a separate business in computing their liability. The Special Commissioners allowed their appeal. It was held by the High Court that the question was one of fact and that there was evidence on which the Commissioners could come to their decision. Rowlatt, J., in his judgment says: 'This company carried on the business of underwriting. It also had a fleet of steamers. The Special Commissioners allowed their appeal. It was held by the High Court that the question was one of fact and that there was evidence on which the Commissioners could come to their decision. Rowlatt, J., in his judgment says: 'This company carried on the business of underwriting. It also had a fleet of steamers. I cannot conceive two business that could be more easily separated than those two ..... One does not depend upon the other; they are not interlaced; they do not dovetail into each other, except that the people who are in them know about ships; but the actual conduct of the business shows no dovetailing of the one into the other at all. They might stop the underwriting; it does not affect the ships. They might stop the ships and it does not affect the underwriting.' " 7. So far as the second issue regarding deletion of disallowance of interest on account of interest free advance given to Sardar Patel Foundation is concerned, the learned counsel for the revenue has taken through paragraph Nos. 5 and 6 of the assessment order where the Assessing Officer has given reasons for disallowing the interest payments and contended that the Assessing Officer has rightly rejected the claim of interest free advance given to Sardar Patel Foundation on the ground that the assessee could not substantiate its claim for not charging interest. He has further contended that the Tribunal has committed an error in deleting the disallowance of interest made on interest free advance to Sardar Patel Foundation. Regarding issue of disallowance of interest of Rs. 21,83,829/- made on account of interest free advance of Rs. 1.21 crore given to M/s. Madhavdas Tulsidas & Co., the Assessing Officer has given reasons in his order for disallowing the same as it is of doubt nature. The Commissioner (Appeals) has confirmed the said disallowance. However, the Tribunal has wrongly deleted the disallowance made by the Assessing Officer. Hence the order of the Tribunal is required to be interfered with. 8. Learned counsel for the assessee has contended that the Tribunal has rightly deleted the disallowance made by the Assessing Officer. The Commissioner (Appeals) has confirmed the said disallowance. However, the Tribunal has wrongly deleted the disallowance made by the Assessing Officer. Hence the order of the Tribunal is required to be interfered with. 8. Learned counsel for the assessee has contended that the Tribunal has rightly deleted the disallowance made by the Assessing Officer. He has taken us through the order of the Tribunal, particularly at page No. 100 of the appeal where the Tribunal has observed as under: "From the above discussion, we find that both business activities of company is pharmaceutical and agency commission which constituted the same business as there was common management, common fund, common staff administration, consolidated accounts, balance sheet, complete unity of control in the management and administration of both business activities. Thus, we find that claim of the assessee is allowable as business is same." 9. The learned counsel for the assessee has then taken us to page No. 115 of the appeal where it is observed at paragraph No. 5.2 as under: "The CIT(A) decided the matter as under: I have considered the facts of the case and submissions of the A.R. of the appellant carefully. I have also gone through the decisions relied upon by the A.R. of the appellant, referred to above and the observations of the assessing officer in the assessment order and then in the remand report. I have also gone through the details filed before me by the A.R. of the appellant. With regard to loan of Rs. 75 lacs given to Sardar Patel Foundation, it is found that during the period, the appellant was having sufficient credit balance with IDBI Bank and the said transaction is shown in bank statement. This fact is admitted by the AO also. From the submission of the appellant it is seen that the total reserves available with the company were of nearly Rs. 23.33 crore (included in the net owned funds of Rs. 34.18 crore). The borrowing from the banks was Rs. 7.78 crore. Thus, the appellant has claimed that it has utilised its own funds for giving interest free loans. However, the assessee has not been able to prove that the loan given to Sardar Patel Foundation is out of the reserves only and not from the borrowed funds. 34.18 crore). The borrowing from the banks was Rs. 7.78 crore. Thus, the appellant has claimed that it has utilised its own funds for giving interest free loans. However, the assessee has not been able to prove that the loan given to Sardar Patel Foundation is out of the reserves only and not from the borrowed funds. The assessing officer has also not brought on record any material evidence to establish that the loans are given out of borrowed funds and there is direct nexus between the borrowed funds and the loan given, in fact, the funds are so mixed up that it is not clear whether the actual source of loan given is borrowed money or the reserves. In these circumstances, I am of the view that the disallowance of interest should be worked out in the proportion the borrowed funds have with the non-interest bearing funds, the assessee had at the time of giving loan. The AO is directed accordingly." 10. The learned counsel for the assessee has relied on the decisions of the Apex Court in the case of Commissioner of Income-tax v. Excel Industries Ltd. reported in, (2013) ITR 295 (SC), Godhra Electricity Co. Ltd. v. Commissioner of Income-tax, reported in, 225 ITR 746 (SC) and Veecumsees v. Commissioner of Income-tax, reported in, (1996) 220 ITR 185 (SC). He has further relied on the decision of Delhi High Court in the case of Commissioner of Income-tax v. Goyal M G Gases P. Ltd., reported in, (2008) 303 ITR 159 (Del). In the light of the above decisions, he has contended that the Tribunal has rightly allowed the appeal of the assessee which calls for no interference. 11. We have heard learned counsel for the parties. We have gone through the order of the Tribunal and the case laws cited by the learned counsel for the parties. So far as the business activities carried on by the assessee, namely, pharmaceutical and commission agency, are concerned, since there was common management, common fund, common staff administration, consolidated accounts, balance sheet, complete unity of control in the management and administration of both business activities, we find that both the activities constitute same business. We are, therefore, in complete agreement with the view taken by the Tribunal. In that view of the matter, we answer issue No. 1 in favour of the assessee and against the revenue. 12. We are, therefore, in complete agreement with the view taken by the Tribunal. In that view of the matter, we answer issue No. 1 in favour of the assessee and against the revenue. 12. So far as issue No. 2 regarding deletion of disallowance of interest on account of interest free advance given to Sardar Patel Foundation is concerned, the assessee was having surplus amount to give interest free advance to Sardar Patel Foundation. The Assessing Officer could not prove that there is a direct nexus between the borrowed funds and the loan given. In that view of the matter, we are of the opinion that the Tribunal has rightly deleted the disallowance. We, therefore, answer issue No. 2 in favour of the assessee and against the revenue. 13. As regards the third issue regarding disallowance of interest on account of interest free advance of Rs. 1.21 crore given to M/s. Madhavdas Tulsidas & Co., since the principal amount itself is doubtful and there was pending civil and criminal litigation, the disallowance of interest is required to be deleted. We are, therefore, of the view that the Tribunal has rightly deleted the disallowance. In that view of the matter, we answer question No. 3 in favour of the assessee and against the revenue. 14. So far as the issue in Tax Appeal No. 1439 of 2007 is concerned, since this issue is squarely covered by the decision of issue No. 2 in Tax Appeal No. 1440 of 2007, we answer this issue in favour of the assessee and against the revenue. 15. As regards the issue in Tax Appeal No. 1671 of 2007, since the disallowance made by the Assessing Officer has been deleted, proceedings under section 271(1)(c) will go. This issue is, therefore, answered in favour of the assessee and against the revenue. In the result, all the appeals are dismissed.