Income Tax Appellate Tribunal - Ahmedabad
Hynoup Food & Oil Indus.Ltd.,, ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C" AHMEDABAD
Before Shri, A.K.Garodia, Accountant Member and
Shri Kul Bharat, Judicial Member
IT A No.465 & 587/Ahd/2008
Assessment Year:2003-04
Hynoup Food & Oil Inds. V/s. Incom e Tax Officer,
Ltd. W ard-4(3),
Maruti House, Opp. Air Ahm edabad
India, Ashram Road,
Ahm edabad
PAN No. AAACH5534M
Income Tax Officer, V/s.
W ard-4(3), Ahmedabad Hynoup Food and Oil
Inds. Ltd.
Maruti House, Opp. Air
India, Ashram Road,
Ahm edabad
(Appellant) .. (Respondent)
IT A No.466 & 588/Ahd/2008
Assessment Year:2004-05
Hynoup Food & Oil Inds. V/s. Income Tax Officer,
Ltd. W ard-4(3), Ahmedabad
Maruti House, Opp. Air
India, Ashram Road,
Ahmedabad
Income Tax Officer, V/s. Hynoup Food and Oil
W ard-4(3), Ahmedabad Inds. Ltd.
Maruti House, Opp. Air
India, Ashram Road,
Ahmedabad
(Appellant) .. (Respondent)
ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06
Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 2
ITA No.2366/Ahd/2009 &
C.O. No.56/Ahd/2012
(arising out ITA No.2366/Ahd/2009)
Assessment Year:2005-06
Income Tax Officer, V/s. Hynoup Food and Oil
W ard-4(3), Room Inds. Ltd.
No.106, 1 s t Floor, Maruti House, Opp. Air
Navjivan Trust Building, India, Ashram Road,
Ahmedabad Ahmedabad
Hynoup Food and Oil V/s. Income Tax Officer,
Inds. Ltd. W ard-4(3), Room
Maruti House, Opp. Air No.106, 1 s t Floor
India, Ashram Road, Navjivan Trust Building,
Ahmedabad Ahmedabad
(Appellant) .. (Respondent)
आवेदक कȧ ओर से/By Assessee Shri S.V. Agarwal, AR
राजःव कȧ ओर से/By Revenue Shri S.K.Gupta, CIT-DR
सुनवाई कȧ तारȣख/Date of Hearing 03-04-2012
घोषणा कȧ तारȣख/Date of Pronouncement 31-05-2012
ORDER
PER Kul Bharat, Judicial Member:-
These are two set of cross-appeals and an appeal & Cross Objection (CO) filed by the assessee and Revenue are against the different orders of Ld. Commissioner of Income-tax (Appeals)-VIII, Ahmedabad vide dated 27-11- 2007 and 28-03-2009 for the assessment years 2003-04 to 2005-06 respectively. The facts and issues are similar, therefore taken together and heard together are being disposed of by a consolidate order.
First we take up assessee's appeal in ITA No.465/Ahd/2008 & Revenue's appeal in ITA No.587/Ahd/2008 for A.Y. 2003-04.
2. The assessee has raised the following grounds of appeal:-
ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 3 "1. The learned Commissioner of I. Tax (Appeals)-VIII, A'bad [called CIT(A)] has erred partly in confirming disallowance made by A.O in respect of interest of Rs.12,70,692/- u/s 36(1)(iii) [related to Hytaisun Magnetics Ltd. & Neelu Investment Pvt. Ltd.] out of total financial charges of Rs.62,53,530/- on the ground that interest bearing funds were used for interest free advances. In as much as financial charges paid is not interest paid on interest bearing funds but it is mainly draft commission paid to shroffs for purchase of drafts in favour of supplier of raw materials.
2. The learned CIT(A) has erred in confirming that MAT charged by A.O. and in not allowing deduction of profit u/s. 115JB(1) [Explanation VII of I.T. Act). The Co. is sick unit declared by BIFR"
2.1 The learned CIT(A) has erred in directing the A.O to allow lower of the b/f business loss and depreciation instead of allowing the exemption available to sick unit under Sick Industrial Companies Act, 1985, while computing Book Profit.
3. The learned CIT(A) has erred in confirming disallowance of deferred tax of Rs.1,25,32,281/- for working out Book Profit u/s. 115JB in as much as it is not tax paid or payable, hence do not qualified for disallowance.
4. The learned CIT(A) has erred in confirming interest charged u/s. 234B/C in as much as assessee did not expect that for working Book Profit u/s. 115JB deduction of profit of Sick Industrial Company will not be allowed to it."
3. The facts in brief are that assessee a limited company is engaged in the business of manufacture and trading of edible oils such as cotton seeds oil, groundnut oil, sunflower oil and soybean oil. During the year under consideration the total sales amounted to Rs.165.44 crores was made after deducting the expenses, the profit before tax as per the profit and loss account worked out to Rs.3.76 crores. After making the adjustment, the total income was computed at Rs.3,59,72,212/- and this was set off against the brought forward business loss. The return of income was Nil. Subsequently, the case was taken up for scrutiny assessment. The Assessing Officer after verifying the details furnished by the assessee in support of the audited accounts filed along with return of income made disallowance of ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 4 Rs.1,58,67,033/- on account of process loss and Rs.12,70,692/- out of financial expenditure. Thus, total disallowance of Rs.1,71,37,725/- was added back to the income of the assessee. Against the assessment order, the assessee filed appeal before Ld. CIT(A), Ld. CIT(A) after considering the submissions of Ld. Authorized Representative for the assessee observed that as process loss has been allowed @ 2% by the AO in A.Ys. 1996-97 to 1998- 99 and has been allowed in full by ITAT as claimed by the assessee for the A.Y. 1987-88 to 1995-96. The process loss claimed by the assessee at 1.61% was found to be within reasonable limit. Thus, the ground of assessee's appeal against the disallowance of the process loss was allowed by Ld. CIT(A). The other ground raised by assessee was against the disallowance of Rs.12,70,692/- u/s 36(1)(iii) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). However, after the considering the submissions of Ld. Authorized Representative, this addition was sustained.
4. Another ground raised before Ld. CIT(A) was against the working out book profit u/s. 115JB of the Act at Rs.5,34,78,337/-. The submission of Ld. Authorized Representative before Ld. CIT(A) was that the assessee-company was registered as a sick unit on 11-04-2000 and 17-03-2002 with the BIFR. However, Ld. CIT(A) after considering the submission of the Ld. AR dismissed this ground of assessee's appeal. However, Ld. CIT(A) directed the Assessing Officer to work out the book profit as per Sec. 115JB of the Act after allowing minimum of unabsorbed business loss and unabsorbed depreciation for each year while working out the book profit as per u/s.115JB of the Act. The last ground raised before Ld. CIT(A) was about charging of interest u/s.234B of the Act on MAT worked out by the Assessing Officer. This ground of assessee's appeal was dismissed by the Ld. CIT(A) and ground raised against initiation of penalty u/s. 271(1)(c) of the Act was not adjudicated and treating the same as premature. Thus, appeal before Ld. CIT(A) was partly allowed against the order of Ld. CIT(A). Both Revenue as well as assessee have filed appeal before the Tribunal.
ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 5
5. Ground No.1 is with regard to disallowance u/s. 36(1)(iii) of the Act. Ld. Authorized Representative for the assessee submitted that Ld. CIT(A) erred in law in partly confirming the disallowance made by Assessing Officer for interest of Rs.12,70,692/- u/s. 36(1)(iii) related to Hytaisun Magnetics Ltd. and Nilu Investment Pvt. Ltd. Ld. AR submitted that the advances were given to protect the investment of the company as well as directors. The shares of the said company Hytaisun Magnetics Ltd. was a 100% export oriented unit and due to delay of approval by the Central Govt. the project cost was overrun. Ld. AR placed reliance on the judgment of Hon'ble Supreme Court in the case of S.A. Builders v. CIT (2007) 288 ITR 1 (SC). Ld. AR submitted that it was demonstrated that the loan advanced was for protection of the business and investment of the assessee-company Ld. CIT(A) failed to appreciate this fact. Further, Ld. AR submitted that the advances were essential for the business purposes.
6. On the contrary, Ld. CIT-DR submitted that the assessee has failed to establish that the advances were given out of interest free funds available.
7. We have heard the rival contentions, perused the material available on record and the judgments cited by the respective parties. We find that Ld. CIT(A) has given his finding on this issue in para-3.2 of his order, same is reproduced as under:-
"3.2 I have considered the submissions of the A.R carefully. As the advance has been given to Metal Form Industries for business consideration the interest relating to advance to this party is directed to be allowed. As regards advance to Hytaisun Magnetics Ltd and Nilu Investment Pvt. Ltd., the same have been given not for commercial expediency and not for the purpose of business of the appellant. Hence the decision cited by the ld. A.R of S.A. Builders would not be applicable. Reliance is made on the following decisions to sustain the disallowance of interest relating to the said advance:-
(1) Triveni Engg. Work Ltd. 167 ITR 742 (All) (2) Phalaton Sugar Work Ltd. vs. CIT - 208 ITR 989 (Bom) (3) Highway Construction Pvt. Ltd. - 199 ITR 702 (Gauhati) ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 6 (4) HR Sugar Factory - 187 ITR 363 (All) - earlier year deposit can also be considered for disallowance of interest (5) K.Somasundaram & Bros. -238 ITR 939 (Mad) wherein it has been held that burden of proof is on the assessee to prove that borrowed funds were utilized for business purpose and liquidity of funds is to be seen on the date of giving interest free loans & advance. (6) CIT vs. Abhishek Industries Ltd. 286 ITR 1 (P&H) Loans advanced interest free to sister concerns while payment outstanding on borrowings by company - inference that advances were from borrowed funds and for non business purpose - onus is on the assessee to show borrowings were used for business purposes.
Similar finding had been given by the Assessing Officer and the CIT(Appeals) for A.Y. 98-99 and disallowance of interest was sustained by the CIT(Appeals). The facts are different till A.Y. 1996- 97 as the appellant was charging interest from the said parties. In the ITAT order referred to by the ld. A.R for A.Y. 96-97 addition 97- 98 it was part disallowance of interest which has been deleted by the ITAT. In view of the above facts as the advances to the sister concerns Hytaisun Magnetics Ltd and Nilu Investment Pvt. Ltd. have been given not for the purpose of business of the appellant and following the order of the CIT(Appeals) for A.Y. 1998-99 and the ratio laid down in the above cases, disallowance of interest relating to advances to the above parties is sustained. This ground is partly allowed."
As per the balance-sheet available on pages 59-60 of paper book, against shareholders funds of Rs.872.96 lakh, losses is of Rs.4492.25 lakhs. Hence, no interest free found is available with the assessee-company. So interest bearing borrowed funds were used for giving interest free advance. Therefore, we do not find any infirmity into the order passed by Ld. CIT(A) as the explanation offered by the assessee with regard to advance is not convincing. Rather, it is seen that advances were given out of the interest bearing borrowed funds and what was the commercial expediency for making such advances, when the assessee, itself has to pay interest on the borrowed capital. This ground of assessee's appeal is dismissed in view of the fact that the assessee failed to establish that loan and advances given to sister ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 7 concern were for business purposes. Since the same were given out of interest bearing borrowed fund.
8. Next ground relates with regard to charging of Minimum Alternate Tax (MAT in short) and not allowing deduction of entire profit u/s. 115JB of the Act by holding that the assessee-company is sick declared by the BIFR. Ld. AR submitted that assessee is not liable to MAT as it has been declared BIFR. Ld. AR submitted that effective date would be construed as date when application was registered before BIFR but not the date when the order dated 04-01-2006 was passed by BIFR.
9. On the contrary, Ld. CIT-DR submitted that the orders of authorities below is quite justified and assessee has failed to demonstrate that in this year, it is declared sick by BIFR.
10. We have herd the rival contentions, perused the materials on record. We find that Ld. CIT(A) has discussed this issue in para-4 to 4.2 of his order, same are reproduced for the sake of clarity:-
"4. The third ground of appellant is that the A.O has erred in working out book profit u/s. 115JB at Rs.5,34,78,337/- as against nil book profit shown by the appellant. The A.O has discussed the same in para 7 at page 11 to 16 of the assessment order. The appellant had contended before the A.O that the appellant was not liable to MAT as it has been declared sick by the BIFR. The A.O observed that the BIFR order has been passed on 4.1.2002, so it can not relate to the year under consideration, hence the appellant was liable to pay tax as per the provisions of section 115JB of the I.T. Act. The A.O has observe in para 7.4 of the assessment order that no unabsorbed depreciation has been carried forward to the balance sheet and the segregation of depreciation from net business loss shown in the P & L account and balance sheet is not permissible in view of the decision of Supreme Court in the case of Appoly Tyres Ltd. Therefore, he took the book profit at Rs.5,34,78,337/- and did not deduct any unabsorbed business loss or depreciation as the lesser of the two was Nil. Therefore he computed liability under MAT.
4.1 Before me the A.R submitted that the books of accounts of the appellant have been prepared in accordance with Part-II & III of ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 8 Schedule VI of Companies act, 1956 which is also requirement of section 115JB(2) of the I.T. Act. As per Schedule VI, Part-II(3)(iv), the company is required to debit expenditure of depreciation in profit and loss account. In Part-II & III of Schedule VI there is no provision of carry forward of depreciation separately like business loss. The A.R submitted that depreciation is to be set off against gross profit and if there is loss and if depreciation is not covered by gross profit there will be both unabsorbed depreciation and business loss which can be carried forward to next year. Section 115JB(2)(ii) provides for working out book profits, brought forward business loss or unabsorbed depreciation is to be reduced and sub-clause (a) provides that business loss shall not include depreciation. Therefore, A.O's holding that since there is separate carry forward of unabsorbed depreciation, unabsorbed depreciation is 'Nil' is wrong in law as well as on facts. The A.O has erred in applying decision of Supreme Court in the case of Appollo Tyres 255 ITR 273 (SC)because there is no question of recomputing profits in the P & L account by excluding depreciation. It was submitted that the company has been declared as sick unit by BIFR and therefore, the profit of the company is not liable to tax u/s.115JB(1) explanation
(vii) of the I.T. Act. The application for sick unit was registered on 11-4-
2000 and 17-3-2002. The company has been declared sick by BIFR by order dated 4-1-2006 and on declaration no of sick company it relates back to the date of registration which falls in A.Y. 2003-04. The same issue is covered by the decision of CIT(A) for A.Y. 2002-03 which has been decided in favour of the appellant.
4.2 I have considered the sub missions of the A.R carefully. The A.O has considered that BIFR order was passed on 4-1-2006 so it can not relate to the year under consideration whereas according to the AR the application of the appellant for sick unit was registered on 11-4-2000 and 17-3-2002 and on declaration of the appellant as sick company bay the BIFR though the same was made on 4-1-2006, it would relate back to the date of registration which falls in A.Y. 2003-04. I find from, the details filed by the A.R at page 207 of the paper book for A.Y. 2004-05, wherein summary record of the proceedings on 4.1.2006 before BIFR have been recorded. As mentioned therein, the appellant filed a reference with BIFR under section 15(1) of the Sick Industrial Companies Act, 1985 (SICA) on 11-4-2000 and the decision to file the reference was taken in company's Board of Directors Meeting held on 17-2-2000. It has been also mentioned therein that the first reference of the company was dismissed as time barred by the Board vide order dt. 26-11-2002. Vide order dated 8.11.2005 AAIFR remanded the case back to BIFR to consider the case of the appellant. Thereafter the appellant filed another reference on 17.3.2003 in the BIFR. Tin the order of BIFR dated 4.1.2006, it was held that the company had become a sick company. The effective date from which the company ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 9 has been declared as sick has not been mentioned. As per Explanation
(vii) to section 115JB of the I.T. Act, the book profit shall be reduced by the amount of profits of the sick industrial company for the assessment year commencing on and from the A.Y relevant to the previous year in which the said company has become a sick industrial company under sub section (1) of Sec. 17 of the Sick Industrial Companies Act, 1985 and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Question to be decided whether for the assessment year relevant to the year under consideration the said company has become a sick industrial company u/s. 17(1) of SICA. The order of BIFR is not clear as to the date as to when the appellant has become a sick company. In view of no clear cut reference to the effective date and the order of BIFR being 4.1.2006, and the fact that the reference of the appellant to BIFR dated 11.4.2000 was rejected by the BIFR on 26.11.2002 and the appellant has not furnished order u/s.17(1) of SICA by BIFR and the appellant has not been declared as a sick company u/s. 17(1) of SICA by BIFR for the relevant year in appeal, the A.O's action of rejecting the claim of the appellant for benefit under clause (vii) of the explanation to section 115JB is confirmed This ground is dismissed."
Ld. CIT(A) has recorded that the application for sick unit was registered on 11- 04-2000 and 17-03-2002. The assessee-company has been declared sick by BIFR by order dated 04-01-2006. The Ld. CIT(A) has recorded that in the order of BIFR dated 04-01-2006, the effective date from which the assessee- company has been declared as sick has not been mentioned. In this view of the matter and in the interest of justice, this ground of assessee's appeal is remitted back to the file of Ld. CIT(A) and assessee is directed to establish the effective date when it became sick as per the order of BIFR dated 04-01-2006, because it can not be decided as to what date shall be taken as the effective date for the purpose of considering the assessee as a sick company under the same is specified by BIFR. Ld. CIT(A) is directed to decide this issue afresh after giving opportunity of hearing to the assessee. We would like to observe that the view of Assessing Officer and Ld. CIT(A) that effective date should be 04-01.2006 does not appear to be convincing because in the present year and the subsequent years, which are before us, the assessee comply had earned huge book profit in each year. Then why, a company will be declared sick after 2-3 years of earning substantial book profit. We feel that clarification should be ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 10 obtained from BIFR about effective date from which the assessee-company is declared sick by BIFR.
11. Next ground is with regards to addition of deferred tax of Rs.1,25,32,281/- for working out book profit u/s. 115JB of the Act. Since there is retrospective amendment in this regard, this issue is decided against the assessee.
12. The last ground is with regard to charging of interest u/s 234B and 234C of the Act. This issue is consequential. Held accordingly.
13. In the result, assessee's appeal is partly allowed for statistical purposes.
Coming to Revenue's appeal in ITA No.587/Ahd/2008 (A.Y.03-04).
14. The facts are identical as in assessee's appeal in ITA No.465/Ahd/2008. The Revenue has raised following grounds of appeal:-
"1. The Ld. CIT(A) erred in law and on the facts of the case in deleting the addition of Rs.1,58,67,033/- made on account of excess claim of process loss.
2. The Ld. CIT(A) erred in law and on the facts of the case in deleting the disallowance of interest expenses u/s. 36(1)(iii), pertaining to the advance given to Metal Form Industries, a sister concern of the assessee.
3. The Ld. CIT(A) erred in law and on the facts of the case in directing the Assessing Officer to allow set off of minimum of brought forward business loss or unabsorbed depreciation for the purpose of working MAT liability u/s 115JB. More so, when the assessee, in the printed annual accounts carried forward only the business loss whereas the depreciation was claimed as an expenditure and set off against sales and other income. Thus, only unabsorbed business loss was carried forward while thee was no unabsorbed depreciation. The segregation of depreciation from net business loss shown in the P&L account and balance sheet is not permissible in view of the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. 255 ITR 273. As such, the Ld. CIT(A) ought to have upheld the stand of the A.O."
ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 11
15. First ground relates to claim of process loss. Ld. CIT-DR submitted that Ld. CIT(A) erred in allowing the claim of the assessee.
16. On the contrary, Ld. AR relied upon the order of Ld CIT(A) and submitted that process loss has been allowed in earlier years and he relied upon the judgment of Hon'ble jurisdictional High Court in assessee's own case in Tax Appeal No.8 of 2001 for A.Y. 90-91.
17. We have heard the rival contentions, perused the materials available on record and the judicial pronouncement as relied upon by Ld. Authorized Representative for the assessee. Ld. CIT(A) has dealt this issue in para-2.1 and 2.2 of his order, which is reproduced for the sake of clarity:-
"2.1 Before me the A.R submitted that the issue of process loss is covered by the decisions of ITAT, Ahmedabad in the appellant's own case for A.Y. 1987-88 to 1995-96 and the Hon'ble ITAT has allowed full process loss as claimed by the appellant. It was submitted that the appellant has produced the stock registers shown day to day purchase, consumption, production, opening and closing stock duly certified by the Civil & Supply Department along with books of accounts and no defects have been pointed out by the AO. A survey was conducted at the factory of the appellant in A.Y. 1994-95 and stock was found to tally with the stock records of the penalty proceedings. In the assessments of A.Y. 1996-97 to 1998-99 the A.O has accepted process loss at 2% on the same set of facts.
2.2 I have considered the submissions of the AR carefully. As process loss has been allowed upto 2% by the A.O in A.Y. 1996-97 to 1998-99 and has been allowed in full as claimed by the appellant by the ITAT for A.Y. 1987-88 to 1995-96, the process loss claimed by the appellant at 1.61% is found to be within the reasonable limit. Therefore, the same is allowed and the consequent addition made by the A.O is deleted."
It is transpired from the record that the Assessing Officer observed as below:-
"... ...It is seen from the records that the tax appeals for A.Yrs. 1990-91, 1991-92 and 1992-93 being tax appeal nos. 8 of 2001, 11 of 2001 and 13 of 2001 are pending before the Hon'ble High Court. Also reference application u/s. 256(2) for A.Yr. 1987-88 has been filed before the Hon'ble High Court which is also pending. The contention of the assessee that the process loss for A.Y. 1996-97, 1997-98 and 1998-99 ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 12 have been accepted @ 2% and as such the process loss should not be restricted to 0.66% cannot be accepted as at the relevant time, the appeals before the Hon'ble High Court as discussed above, were not filed and may be for this reason the AO took his own view for deciding the process loss. As on date, since the appeals on the issue of process loss are pending before the Hon'ble High Court, it cannot be said that the issue regarding process loss has been settled in favour of the assessee. The fact that the Hon'ble High Court has admitted the tax appeal and also framed the substantial question of law implies that matter is yet to settle finally. Under the circumstances, for the year under consideration also the process loss is restricted to 0.66% as against 1.61% claimed by the assessee."...
Now, this issue has been decided in favour of assessee by Hon'ble jurisdictional High Court in Tax Appeal No. 8 of 2001 ((supra) for A.Y. 1990- 91; Tax Appeal No. 11 of 2001 for A.Y. 1991-92 and Tax Appeal No. 13 of 2001 for A.Y. 1992-93. In this view of the matter, we do not find any merit into the contention of Ld. CIT-DR. This ground of Revenue's appeal is dismissed.
18. Next ground is with regards to deletion of disallowance of interest expenses u/s. 36()(iii) of the Act pertaining to advance to Metal Form Industries sister concern of the assessee. Ld. CIT-DR for the Revenue submitted that Ld. CIT(A) had erred in deleting the disallowance as the advances were given from the borrowed funds of the assessee could not be establish that such funds were for the commercial expediency and business purposes.
19. On the contrary, Ld. Authorized Representative for the assessee relied upon the order of Ld. CIT(A) and submitted that there is no error into the order of Ld. CIT(A).
20. We have heard the rival contentions, perused the materials available on record. We find that Ld. CIT(A) in his order has observed that the fresh advance has been given to Metal Form Industries for business consideration as the assessee was purchasing tins from the said concern for filling oil. ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 13 Therefore the assessee has made payment to the said party for purchase of tin as well as advance to buy tin plates to manufacture tins. The Ld. CIT(A) has returned a categorically finding that the advance has been given to Metal Form Industries for business consideration. In view of this matter, we do find any infirmity into the order passed by Ld. CIT(A) and same is upheld. This ground of Revenue's appeal is dismissed.
21. Next ground is with regards to allowing set off of minimum brought forward or unabsorbed depreciation for the purpose of MAT u/s. 115JB of the Act.
22. In view of clause (iii) of Explanation-1 to Section 115JB of the Act, no interference is called for in the order of Ld. CIT(A) on this issue. This ground of Revenue's appeal is rejected.
23. Next grounds No.4 & 5 are general in nature therefore do not require any adjudication.
24. In the result, Revenue's appeal is dismissed.
Coming to assessee's appeal in ITA No.466/Ahd/2008
25. The assessee has raised the following grounds of appeal:-
"1. The learned Commissioner of I. Tax (Appeals)-VIII, A'bad [called CIT(A)] has erred in confirming partly out of disallowance made by A.O of the total interest of Rs.15,55,427/- debited to Profit & Loss a/c. u/s. 36(1)(iii) [related to (1) M.B. Stock Holdings Pvt. Ltd. (2, Mrubhee Stock Holdings Pvt. Ltd.(3) Snehbhar Stock Holdings Pvt. Ltd., (4) Hysafe Investments Pvt. Ltd.(5) Maruti Fin-ca Pvt. Ltd. (6) Hytaisun Magnetics Ld. & (7) Neelu Investment Pvt. Ltd.] on the ground that interest bearing funds wee used for interest free advances.
2. The learned CIT(A) has erred in confirming lumpsum disallowance of various expenses at Rs.10 lakhs on estimated basis against Rs.75 lakhs disallowed by A.O in as much as books of Company are audited ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 14 and all vouchers of exps. Are verified by audit and no defects in vouchers and books are pointed out by them.
3. The learned CIT(A) has erred in confirming the MAT charges by AO and in not allowing deduction of profit u/s.115JB(1) [Explanation VII of I.T. Acct). The Co. is sick unit declared by 'BIFR'.
3.1 The learned CIT(A) has erred in directing the AO to allow lower of the b/f business loss and depreciation instead of allowing the exemption available to sick unit under Sick Industrial Companies Act, 1985, while computing Book Profit.
4. The learned CIT(A) has erred in confirming written back of deferred tax liability of Rs.1,25,32,281/- for working out Book Profit u/s. 115JB in as much as it is not liability for tax paid or payable, hence do not qualify for disallowance.
5. The learned CIT(A) has erred in confirming interest charged u/s. 234B & 234C in as much as assessee did not expect hat for working Book Profit u/s. 115JB deduction of profit of Sick Industrial Company will not be allowed to it."
26. The facts in brief are that case was taken up for scrutiny assessment. It was reported by the Assessing Officer that assessee-company had not filed audited report so a penalty of Rs.1 lakh was levied u/s. 271B of the Act on 14- 09-2005 by him. Subsequently, assessee filed revised return on 04-12-2006 along with audited accounts i.e. profit and loss account and balance-sheet but no audit report as envisaged u/s/ 44AB of the Act was filed. It was observed by AO that assessee was not able to file audit report even at the time of completion of assessment proceedings. The AO rejected the books of account of the assessee citing various reasons and proceeded to estimate income of the assessee u/s. 144 of the Act. The AO added various additions to the income of the assessee on account of suppressed GP, disallowance of interest expenditure, disallowance out of various expenses claimed by assessee, disallowance of process loss and proceeded to charge MAT.
27. Against this order, assessee filed appeal before Ld. CIT(A) who after considering the submission of assessee partly allowed the appeal. The ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 15 assessee being not satisfied with the order of Ld. CIT(A) has now filed present appeal before us.
28. The first ground in this appeal is against the confirming partly out of disallowance made by Assessing Officer on account of interest expenditure. Ld. Authorized Representative for the assessee submitted that Ld. CIT(A) failed to appreciate the fact that advances so given to the parties in question were for the business purposes.
29. On the contrary, Ld. CIT-DR submitted that there is a categorical finding of Ld. CIT(A) that advances in respect of M.B. Stock Holding Pvt. Ltd., Mrubhee Holding Pvt. Ltd., Snehbhar Holding Pvt. Ltd., Hysafe Invest Pvt. Ltd., and Maruti Fin Cap Ind. were not for business purposes.
30. We have heard the rival contentions, perused the materials available on record. We find that Ld. CIT(A) has recorded the submission of assessee that advances to M.B. Stock Holding Pvt. Ltd., Mrubhee Holding Pvt. Ltd., Snehbhar Holding Pvt. Ltd., Hysafe Invest Pvt. Ltd., and Maruti Fin Cap Ind. are sister-concern of assessee and also finance company. The loans had been given to these companies to invest in shares and securities and for giving loans to other group companies where finance was required to run the business. The law is well settled that for the allowance of the interest expenditure in case where the assessee has given interest free loan to sister concern out of borrowed capital the assessee is required to establish commercial expediency and that such advances were given for the business purpose. The Ld. CIT(A) in this case has given a finding of fact that the advance given to the said parties were not for commercial expediency and not for the purpose of business of the assessee. Even before us Ld. AR could not establish the commercial expediency with regard to the advance given to the aforementioned parties. In this view of the matter, we do not find any infirmity ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 16 into the order passed by Ld. CIT(A). This ground of assessee's appeal is dismissed.
31. Next ground is with regard to confirmation of disallowance of various expenses at Rs. 10 lakh on estimate basis against Rs.70 lakh disallowed by Assessing Officer.
32. Ld. AR submitted that the account of the assessee was audited, vouchers are filed and no defects are pointed out by the Assessing Officer. In such a situation, no addition was called for. On the contrary, Ld. CIT-DR submitted that the there was specific defects pointed out by the auditors themselves and the Revenue has challenged the reduction of disallowance in ITA No.588/Ahd/2008.
33. We have heard the rival contentions, perused the material available on record. It is transpired from the record that Assessing Officer as well as Ld. CIT(A) has made this addition merely on the basis of estimation. In this view of this matter, this ground of assessee's appeal is remitted back to the file of Assessing Officer to verify the claim of the assessee and assessee is directed to produce all the supporting evidences in support of its claim. This ground of assessee's appeal is allowed for statistical purpose.
34. Next ground is with regard to charging of MAT. The facts are also identical as in ITA No.465/Ahd/2008 with regard to this issue. Since this issue of assessee is remitted back to the file of Ld. CIT(A) in terms of para-10 of this order. We remit back this issue to the file of Ld. CIT(A) to decide afresh with similar directions after provided reasonable opportunity of being heard to assessee. This ground of assessee's appeal is allowed for statistical purposes.
ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 17 34.1 Next ground is with regards to addition of deferred tax of Rs.1,25,32,281/- for working out book profit u/s. 155JB of the Act. Since there is retrospective amendment in this regard, this issue is decided against the assessee.
35. In the result, assessee's appeal partly allowed for statistical purposes.
Coming to Revenue's appeal ITA No.588/Ahd/2008 A.Y.04-05.
36. The Revenue has raised the following grounds of appeal:-
"1. The Ld. CIT(A) erred in law and on the facts of the case in deleting the addition of Rs.2,54,43,878/- made on account of low G.P
2. The Ld. CIT(A) erred in law and on the facts of the case in deleting the disallowance of interest expenses u/s. 36(1)(iii), pertaining to the advances given to M/s Diamond Oil Industries Pvt. Ltd., Metal Form Industries, Maruti Nutritious Food Pvt. Ltd and Polyree Processors Pvt. Ltd.
3. The Ld. CIT(A) erred in law and on the facts of the case in reducing the disallowance of Rs.75,00,000/- made under various sections like 43B, 40A(2)(B) and 40A(3) to Rs.10,00,000/-.
4. The Ld. CIT(A) erred in law and on the facts of the case in deleting the addition of Rs.1,69,12,584/- made on account of excess claim of process loss.
5. The Ld. CIT(A) erred in law and on the facts of the case in directing the Assessing Officer to allow set off of minimum of brought forward business loss or unabsorbed depreciation for the purpose of working MAT liability u/s. 115JB. More so, when the assessee, in the printed annual accounts carried forward only the business loss whereas the depreciation was claimed as an expenditure and set off against sales and other income. Thus, only unabsorbed business loss was carried forward while there was no unabsorbed depreciation. The segregation of depreciation from net business loss shown in the P&L account and balance sheet is not permissible in view of thee decision of Hon'ble Supreme Court in the case of Apllo Tyres Ltd. 255 ITR 273. As such, the Ld. CIT(A) ought to have upheld the stand of the A.O."
37. The first ground is with regards to deletion on account of low GP. At the outset, it is noticed that Revenue has not raised any ground with regard to ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 18 rejection of books of account nor any additional ground has been taken in this regard and therefore this ground of Revenue's appeal is dismissed because if rejection of books are not justified and this findings of Ld. CIT(A) is not disallowed, no GP addition can be sustained.
38. Next ground of Revenue's appeal regarding deletion of interest expenses u/s. 36(1)(iii) of the Act. The facts are identical in Revenue's appeal in ITA No.587/Ahd/2008. In terms of para-19 of this order this ground of Revenue's appeal was dismissed. Hence, in the present year also, this issue is decided as similar line and this ground of Revenue's appeal is dismissed.
39. Next ground is with regards to reduction of disallowance from Rs.75 lakh to Rs.10 lakh. This issue was decided by us above in ITA No.466/Ahd/2008 of assessee's appeal wherein this issue has been remitted back to the file of Assessing Officer for fresh decision. In this view of the matter, this ground of Revenue's appeal is allowed for statistical purpose.
40. Next ground is with regards to deleting the addition made on account of excess claim of process loss.
41. The facts are identical as in ITA No.587/Ahd/2008 of Revenue's appeal and has been dealt in para-15, 16 of this order. Hence, relying on our decision in ITA No.587/Ahd/2008, this ground of Revenue's appeal is rejected.
42. Next ground is with regards to direction to the Assessing Officer to allow set off of minimum of brought forward business loss or unabsorbed depreciation for the purpose of working MAT. The facts are identical in ITA No.587/Ahd.2008 of Revenue's appeal whereas in terms of para-22 of this order, this ground of Revenue's appeal is rejected.
43. In the result, Revenue's appeal is partly allowed for statistical purposes. ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 19 Coming to Revenue's appeal in ITA No.2366/Ahd/2009 A.Y.05-06.
44. The Revenue has raised only effective ground of appeal:-
"1. The learned CIT(A) has erred in law and on facts in deleting the addition made on account of loss and thereby allowing the assessee to claim process loss at 1.39%."
45. Ld. CIT-DR supported the orders passed by authorities below. On the contrary Ld. Authorized Representative for the assessee pointed out that the Assessing Officer has restricted the process loss at 0.66% which have been allowed in earlier years. Ld. AR submitted that Hon'ble jurisdictional High Court has decided this issue in assessee's favour,
46. We have heard the rival contentions, perused the material on record and judgment cited by the party. We have decided this issue in favour of assessee in ITA No.587/Ahd/2008 in respect of A.Y. 2003-04 of the Revenue's appeal. This issue has been decided in favour of assessee and against the Revenue in terms of Tax Appeal No. 8 of 2001 (supra) for A.Y. 1990-91; Tax Appeal No.11 of 2001 for A.Y. 1991-92 and Tax Appeal No. 13 of 2001 for A.Y. 1992-93 of Hon'ble jurisdictional High Court. In this view of the matter, we do not find any merit into the contention of the Ld. CIT-DR. This ground of Revenue's appeal is dismissed.
47. In the result, Revenue's appeal is dismissed.
Coming to assessee's CO No.56/Ahd/2010 A.Y. 05-06.
48. The assessee has raised the grounds of CO as under:-
"1. The learned CIT(A) has erred in confirming the action of A.O for rejection of books of accounts.
2. The learned CIT(A) has erred in confirming action of A.O in rejecting the G.P disclosed by assessee and confirming disallowance of Rs.4,19,62,987/- on account of low G.P."
ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 20
49. Ground No.1 is with regard to rejection of books of account. We have heard the rival contentions, perused the material on record. It has been recorded by the Ld. CIT(A) that assessee's turnover was to the tune of Rs.122,34,10,701/-. Despite this turnover, the assessee failed to get its account audited u/s 44AB of the Act and explanation offered by the Ld. AR is not convincing. It was incumbent upon the assessee to get the books of account audited. Since the accounts were not audited, we do not find any infirmity into the order passed by Ld. CIT(A) confirming the action of Assessing Officer in respect of rejection of books of account of the assessee. This ground of assessee's CO is dismissed.
50. Next ground is with regard to confirming the disallowance of Rs.4,19,62,987/- on account of low GP. Ld. Authorized Representative vehemently argued that authorities below have erred in taking the GP at 4.44% the average rate of GP for the last 3 years. Ld. AR submitted that there is no basis of taking such an arbitrary rate of GP. On the contrary, Ld. CIT-DR supported the orders of authorities below and vehemently argued that action of authorities below are justified and there was sufficient basis for estimating the GP during the year under consideration and there is a steep fall in the GP as declared by the assessee.
51. We have heard the rival contentions, perused the materials available on record. Admittedly, there is a steep fall into the GP of the assessee. It has transpired from the records that during the assessment proceedings A.Y. 2001-02 GP was at 5.83%; A.Y. 2002-03 GP was 3.46%, A.Y. 2003-04 GP was 4.04% and A.Y. 2004-05 GP was 3.17% and during the year under consideration A.Y. 2005-06 GP is taken as 1.01%. It is undisputed facts that the accounts were not audited. It has been recorded by the Assessing Officer that during the assessment proceedings, assessee has not annexed copy of balance-sheet etc. along with return of income and same was not furnished till finalization of the assessment. In the absence of audited books of account, it ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 21 was not possible to deduce a correct figure of the profit earned by the assessee. It is also undisputed fact that the GP during the year under consideration is least in last 5 years. We are not convinced with the argument of Ld. AR and he could not point out the reasons that prevented the assessee- company to get its account audited. In this view of the fact, we do not find any infirmity into the order passed by Ld. CIT(A). This ground of assessee's CO is dismissed.
52. In the result, assessee's CO is dismissed.
53. In combined result, assessee's appeals in ITA No.465-466/Ahd/2008 are partly allowed for statistical purposes. Revenue's appeals in ITA No.587-588/Ahd/2008 & ITA No.2366/Ahd/2009 and that of assessee's CO 56/Ahd/2012 are dismissed.
Order pronounced in Open Court on the date mentioned hereinabove at caption page.
Sd/- Sd/-
(A.K.Garodia) (Kul Bharat)
(Accountant Member) (Judicial Member)
Ahmedabad,
*Dkp
Ǒदनांकः- 31/05/2012 अहमदाबाद ।
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाइल / Guard file.
By order/आदे श से, /True Copy/ उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद ।
ITA No.465-66, 587-88/Ahd/08, 2366/A/09 &CO 56/A/12 A.Ys.03-04 to 05-06 Hynoup Food And Oil INds. Ltd. v. ITO Wd-4(3) A'bd Page 22 Strengthen preparation & delivery of orders in the ITAT
1) date of taking dictation 22/05
2) direct dictation by Member straight on No computer/laptop/dragon dictate
3) date of typing & draft order place before Member 23/05, 24/05
4) date of correction 24/05,
5) date of further correction 29/05
6) date of initial sign by Members 30/05 7) order uploaded on 31/05
8) original dictation pad-part has been enclosed in the file Yes
9) final order and 2nd copy send to Bench Clerk on 31/05