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2015 (10) TMI 535 - ITAT CHENNAI

2015 (10) TMI 535 - ITAT CHENNAI - TMI - 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 c .....

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Revenue has raised the following grounds in this appeal: "2.1 The Id. CIT(A) erred in deleting the disallowance of ₹ 50,00,000/- made by the Assessing Officer towards the expenses on the guarantee payments made by the assessee to the banks and other parties on behalf of its subsidiary company is allowable as deduction. 2.2. The Id. CIT(A) erred in holding that the bank guarantee was given to the banks on behalf of its subsidiary company, M/s. WS Telesystems Limited on account of comm .....

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t giving guarantee was one of the objects as per the Memorandum of Understanding of the assessee company. 2.5. The decision relied on by the Id CIT(A) in the assessee's own case in ITA 1373/Mds/2008 dated 21.8.2009 has not been accepted by the department and further appeal has been filed before the Hon'ble High Court (TCA No.1118 of 201 0)." 3. The brief facts of the case are that the Assessing Officer disallowed the amount of ₹ 50,00,000/- claimed by the assessee as Corporate .....

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he assessee company is only a co-defendant (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 carefu .....

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e contingent liability could not be allowed while computing the net income, we are of the opinion that contingent liability, which is not arising in praesenti and depends on several circumstances and will crystallise only on a future date, cannot be allowed as business expenditure in the assessment year in question. We, therefore, hold that provision for contingent liability, which was not being made by the assessee in the earlier years and which is only a liability which is to accrue in future .....

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he assessee. Against this, the Revenue is in appeal before us. 4. We have heard both the sides and perused the material on record. We find that similar issue was considered by this Tribunal in assessee's own case in ITA No.1373/Mds/2008 dated 21.8.2009 for the assessment year 2004-05, wherein it was observed as follows: "10. We have heard both the counsels and perused the relevant records. The learned Departmental Representative supported the order of the Assessing Officer and claimed t .....

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ed by the Revenue, he claimed that there 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 .....

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g off of the advances has been allowed by the Revenue as business expenditure, there is no reason why the amount spent towards discharge of corporate guarantee should be treated any differently. The Assessing Officer's plea that the said expenditure has not resulted in any income is devoid of cogency as the incurring of expenditure was very much incidental to the interests of the business of the assessee. Hon'ble Apex Court in the case of CIT Vs. Walchand and Co. Private Ltd. 65 ITR 381 .....

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e. 13. We further find that in the Articles and Memorandum of Association of the assessee, it has been clearly mentioned in Clause No. 50 of the Objects, that it was one of the assessee's business to give guarantees - financial or otherwise and / or to provide security to any person either on behalf of the company or on behalf of others on such terms and conditions as the company shall determine. Hence, giving corporate guarantee duly had the sanction of Articles and Memorandum of Associatio .....

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orities and the courts should examine the 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 .....

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company from its subsidiary was ₹ 9,08,764/- and the assessee claimed this amount as a business loss in its assessment for 1958-59. The assessee received from the liquidators during the subsequent years 1959-60 to 1962-63 varying sums totaling ₹ 4,85,508.28. The officer held that the loss was not incidental to the business of the assessee and was a capital loss which did not also come under section 12B. The officer also treated the receipts during 1959-60 to 1962-63 as income as a pr .....

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ator in the previous year relevant to the assessment year 1962-63, only the balance of ₹ 4,23,256/- remained unrecoverable and it was this amount which was allowable as a deduction in the assessment year 1962-63. The Hon'ble High Court held as under:- "Held, (1) that in view of the assessee's business having been held to include furnishing guarantees to debts borrowed by its subsidiary companies, the assessee incurred this loss in the course of carrying on its business; (2) th .....

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