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2012 (7) TMI 68 - AT - Income TaxDisallowance in respect of interest u/s 36(1)(iii) - assessee submitted that the advances were given to protect the investment of the company as well as directors, the interest relating to advance to this party is need to be allowed - Held that - As per the balance-sheet available against shareholders funds of ₹ 872.96 lakh, losses is of ₹ 4492.25 lakhs. Hence, no interest free fund is available with the assessee-company, so interest bearing borrowed funds were used for giving interest free advance. Therefore, no infirmity into the order passed by Ld. CIT(A) as the explanation offered by the assessee with regard to advance is not convincing as what was the commercial expediency for making such advances, when the assessee, itself has to pay interest on the borrowed capital - against assessee. Charging of Minimum Alternate Tax and not allowing deduction u/s. 115JB - Assessee contested that it is sick company as declared by the BIFR - Held that - As the appellant filed a reference with BIFR 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. As the first reference of the company was dismissed as time barred by the Board vide order dt. 26-11-2002, and on 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. Then 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 has been declared as sick has not been mentioned - case is remitted back to the file of CIT(A) directing assessee to establish the effective date when it became sick as per the order of BIFR. Addition of deferred tax for working out book profit u/s. 115JB - Held that - Since there is retrospective amendment in this regard, this issue is decided against the assessee. Claim of process loss by assessee - Held that - As 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, the same is allowed and the consequent addition made by the A.O is deleted - 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 - in favour of assessee. Deletion of disallowance of interest expenses u/s 36(1)(iii) by CIT(A) - Held that - As 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.Therefore, CIT(A) has returned a categorically finding that the advance has been given for business consideration - in favour of assessee. Disallowance of various expenses on estimate basis - Held that - As AO as well as CIT(A) has made this addition merely on the basis of estimation, this ground of assessee s appeal is remitted back to the file of Assessing Officer to verify the claim - in favour of assessee by way of remand. Rejection of books of account - Held that - As the assessee failed to get its account audited u/s 44AB and explanation offered by the assessee is not convincing, no infirmity into the order passed by CIT(A)confirming the action of AO in respect of rejection of books of account - decided against the assessee.
Issues Involved:
1. Disallowance under Section 36(1)(iii) of the Income-tax Act. 2. Computation of Minimum Alternate Tax (MAT) under Section 115JB. 3. Disallowance of deferred tax for computing book profit under Section 115JB. 4. Charging of interest under Sections 234B and 234C. 5. Deletion of addition on account of excess claim of process loss. 6. Rejection of books of account and estimation of income. 7. Disallowance of various expenses on an estimated basis. Detailed Analysis: 1. Disallowance under Section 36(1)(iii) of the Income-tax Act: The assessee contended that the interest disallowance of Rs. 12,70,692/- related to advances given to Hytaisun Magnetics Ltd. and Nilu Investment Pvt. Ltd. was for business purposes. The CIT(A) and the Tribunal upheld the disallowance, noting that the advances were not for commercial expediency and were given out of interest-bearing borrowed funds. The Tribunal cited several precedents to support this view, including Triveni Engg. Work Ltd. and CIT vs. Abhishek Industries Ltd. 2. Computation of Minimum Alternate Tax (MAT) under Section 115JB: The assessee argued that it should not be liable to MAT as it was declared a sick unit by BIFR. The CIT(A) and Tribunal noted that the effective date of the sick status was not clearly mentioned in the BIFR order dated 04-01-2006. The Tribunal remitted the issue back to the CIT(A) to determine the effective date of the sick status and decide afresh after obtaining clarification from BIFR. 3. Disallowance of deferred tax for computing book profit under Section 115JB: The Tribunal upheld the disallowance of deferred tax of Rs. 1,25,32,281/- for computing book profit under Section 115JB, citing retrospective amendments in the law. 4. Charging of interest under Sections 234B and 234C: The Tribunal noted that the issue of charging interest under Sections 234B and 234C is consequential and should be decided accordingly. 5. Deletion of addition on account of excess claim of process loss: The CIT(A) allowed the process loss claimed by the assessee at 1.61%, noting that similar claims had been allowed in earlier years by the ITAT and the jurisdictional High Court. The Tribunal upheld this decision, dismissing the Revenue's appeal on this ground. 6. Rejection of books of account and estimation of income: The Tribunal upheld the rejection of books of account by the Assessing Officer due to the assessee's failure to get its accounts audited as required under Section 44AB. The Tribunal found no infirmity in the CIT(A)'s order confirming the rejection of books and estimation of income. 7. Disallowance of various expenses on an estimated basis: The CIT(A) reduced the disallowance of various expenses from Rs. 75 lakh to Rs. 10 lakh. The Tribunal remitted this issue back to the Assessing Officer to verify the claim of the assessee and directed the assessee to produce all supporting evidence. Conclusion: - The Tribunal dismissed the assessee's appeal regarding the disallowance under Section 36(1)(iii) and upheld the CIT(A)'s decision. - The issue of MAT computation was remitted back to the CIT(A) for fresh consideration. - The disallowance of deferred tax for computing book profit was upheld. - The charging of interest under Sections 234B and 234C was noted as consequential. - The deletion of the addition on account of excess claim of process loss was upheld. - The rejection of books of account and estimation of income was upheld. - The disallowance of various expenses on an estimated basis was remitted back to the Assessing Officer for verification. The Tribunal's decision resulted in partly allowing the assessee's appeals for statistical purposes and dismissing the Revenue's appeals.
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