TaxTMI 
TaxTMI 
2012 (7) TMI 68
X X X X Extracts X X X X
X X X X Extracts X X X X
....y 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 intere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. 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 co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 fou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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." 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 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 In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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 speci....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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 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 disallo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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." 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 acc....