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Hynoup Food & Oil Inds.Ltd.Maruti House, Opp. Air India, Ashram Road, Ahmedabad V/s . Incom e Tax Officer, W ard-4(3), Ahm edabad
June, 01st 2012
   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)

                /By Assessee                                  Shri S.V. Agarwal, AR
                /By Revenue                                   Shri S.K.Gupta, CIT-DR
               /Date of Hearing                               03-04-2012
               /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

- 31/05/2012                  
     / Copy of Order Forwarded to:-
1.  / Appellant
2.  / Respondent
3.    / Concerned CIT
4.  -  / CIT (A)
5.  ,   ,  / DR, ITAT, Ahmedabad
6. [  / Guard file.
                                                                            By order/  ,
                                                         /True Copy/
                                                                           / 
                                                                            ,
                                                                                   
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
 
 
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