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2008 (9) TMI 1010 - BOMBAY HIGH COURTClaim on loss incurred under the guarantee written off - guarantee given by Agrima was genuine or colourable - Whether the Tribunal was right in law in confirming the order of CIT(A) allowing the claim of the assessee for loss being guarantee written off, failing to appreciate that Saurashtra Cement and Chemical India Ltd.(SCCIL), Mehta Pvt.Ltd., Maharana Mills Ltd. and Agrima Project had common Directors and were under the same management and the entire exercise was collusive and only to book losses? - Agrima issued a guarantee to SCCIL in favor of Maharana Mills - Maharana Mills failed to repay the loan SCCIL thereon, called upon the assessee to make good the payment of loan with interest in terms of the guarantee executed by Agrima - In view of the amalgamation of Agrima with the assessee, the assessee paid the amount along with interest to SCCIL in instalments. HELD THAT:- We do not agree with the finding of the A.O. that clause 13 of the Memorandum of Articles of Association is a comprehensive clause and in view of that clause Agrima cannot give any guarantee without security. We are of the view that according to clause 13 of the object clause Agrima could guarantee the performance of any contract or obligation/payment of money of or by any person or company or Corporation. In addition to this, the said Object clause 13 also allows Agrima to secure any guarantee in such a manner as the company may think fit and in particular by the mortgage pledge or other security upon all or on any other properties of the company. This would not mean that Agrima cannot give guarantee without security. Contention of the revenue that the three concerns/companies were under the control and management of the same group of persons and, therefore, warranted application of principles initiated in Mc Dowel’s case, we are of the view that such a contention in the absence of any material in support thereof should be outright rejected. It is argued by the assessee before all the authorities that the said three companies are independent and acted as such at arm’s length. Infact, SCCIL is a listed company. This contention of the assessee is accepted by CIT(A) who has reached a finding of fact that the amounts received by Maharana Mills from the Banks and financial institutions and from SCCIL were utilised in purchasing new machinery which was also installed and it is not the allegation of the AO that these funds were misappropriated by the directors or were frittered away. CIT(A) have, therefore, reached a finding of fact that the guarantee given by Agrima was genuine. This finding of fact is also accepted by the Appellate Tribunal. In view of these concurrent findings of fact, we see no reason as to why we should interfere with the said finding of fact. In view thereof we are of the view that except for making a bare allegation that the entire exercise of giving guarantee by Agrima to SCCIL was collusive and only to book losses on the ground that the companies have common directors and were under the same management, the revenue has failed to produce any material in support of their case that the guarantee given by Agrima was not genuine. Only because some directors were common one cannot reach to a serious conclusion that the entire transaction was collusive and colourable only to book losses. Therefore, we answer the above question raised in the appeal against the revenue and in favour of the assessee. The appeal stands dismissed.
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