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2015 (10) TMI 535

Disallowance of towards discharge of corporate guarantee obligation - CIT(A) deleted the disallowance - Held that:- As decided in assessee's own case for the assessment year 2004-05 [2009 (8) TMI 782 - ITAT, CHENNAI] giving corporate guarantee was not only one of the objects of the assessee company but the same was given for its subsidiary company and it was in the interest of the assessee company and hence the commercially expedient decision. Under the circumstances, no reason to interfere with .....

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le as deduction. 2.3. The Id. CIT(A) failed to appreciate the fact that the guarantee payments made on behalf of the assessee's subsidiary company is not allowable as deduction since such payments were not related to assessee's business in as much as the guarantee were given when the subsidiary company was already sick company before the BIFR. 2.4. The Id. CIT(A) erred in holding that guarantee payments are allowable as deduction on the ground that giving guarantee was one of the objects .....

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t (being the guarantor) and after the winding up of WS Telesytems by BIFR as sick industry, Mls. Vysya Bank Ltd. has moved to Debt Recovery Tribunal for the recovery of the money from M/s. W.S. Telesystems along with the assessee company as co-defendant. Therefore, the liability towards corporate guarantee obligation has been made by the assessee company and claimed as provision for contingent liability under the head "other costs". After careful examination of the assessee's submi .....

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e. Based on the above discussion, in the instance, the said claim is only a liability which is to accrue in future years cannot be allowed as business expenditure in the assessment year and added to the total income of the assessee". Aggrieved by this, the assessee went in appeal before the CIT(Appeals), who following the order of the Tribunal, in ITA No. 1373/Mds/2008 dated 21.8.2009, directed the AO to delete the addition and allowed the claim of the assessee. Against this, the Revenue is .....

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was no reason why the amount paid towards discharge of corporate guarantee should not be allowed. He argued that Hon'ble Madras High Court decision cited and relied upon by the learned Commissioner of Income Tax(Appeals) was very much relevant and he relied upon the order of the learned Commissioner of Income Tax (Appeals) and claimed that the amount incurred in this regard be allowed as revenue expenditure. 11. Upon careful consideration we find that assessee had incurred a sum of ₹ 1 .....

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f commercial expediency whether the expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of businessman and not of the revenue. 12. Hon'ble Apex Court in the case of CIT Vs. Indian Bank Limited 56 ITR 77 (SC) had held that there is no need to examine whether the expenditure or allowance which is permissible must be capable of producing taxable income. 13. We further find that in the Articl .....

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purpose for which the assessee advanced the money and what the sister concern did with the money. That the borrowed amount is not utilized by the assessee in its own business but had been advanced as interest free loan to its sister concern is not relevant. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits." 15. We further find that Hon'ble Madras High Court in an .....

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Commissioner on appeal held that the loss was not a business loss but held that subsequent receipts could not also be taxed as income. In the further appeals to the Tribunal both by the assessee and the department, the Tribunal held that the assessee had guaranteed the loans in the course of its carrying on its business and the loss was admissible as a deduction. It, however, held that as the assessee had received the last of the payments from the liquidator in the previous year relevant to the .....

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Court in the case of M/s Amalgamations Ltd., 226 ITR 188. 16. Hon'ble Apex Court in the case of CIT Vs. Messrs. Shoorji Vallabhdas and Co. 41 ITR 144 (Se) had held that mere book keeping entry cannot be determinative of the actual nature of the transaction. Further Hon'ble-Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Limited Vs. CIT 227 ITR 172 (SC) had held that principles of accountancy do not override provisions of taxing statute. From the above, it is evident .....

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