2019 (4) TMI 859 - HC - Income Tax

Allowability of bank guarantee - guarantee given in favour of a sister concern, which was enforced the Bank - expenditure incurred in carrying on the business - HELD THAT - There is no case for the Revenue, that M/s Universal Steel and Alloys Limited is not a sister concern of the Assessee Company and since there is no dispute with regard to the loan procured from the financier offering bank guarantee and also as to the loss sustained (leading to have the debt written off), we find that the issue is covered by the dictum laid down in AMALGAMATIONS PVT. LIMITED 1997 (4) TMI 8 - SUPREME COURT - Decided against revenue.

Summary

Issues:
Challenge against Annexure C order passed by Income Tax Appellate Tribunal for assessment year 1996-97.

Analysis:
The respondent Assessee Company, engaged in manufacturing and selling automotive products, filed a return followed by a revised return for the assessment year 1996-97. The assessment was completed by the Assessing Officer under Section 143(3) of the Income Tax Act, assessing a total income of ?5,79,77,070 and determining the tax liability. The Assessee challenged this assessment by filing an appeal before the Commissioner of Income Tax. The appeal was finalized with some points in favor of the Assessee and some additions in favor of the Revenue. Both parties challenged this decision before the Income Tax Appellate Tribunal, which passed a common verdict addressing the Assessee's grievances under relevant heads, leading to the Revenue's appeal against the decision.

The main dispute revolved around the Assessee debiting ?90 lakhs under 'General Expenses' for a corporate guarantee given to a sister concern, which the Assessee had to pay when the Bank enforced the guarantee. The Assessing Officer disallowed this amount, stating it was not part of the Assessee's business. The Tribunal, considering factual aspects and legal precedent, allowed the Assessee's claim, citing that writing off the amount was justified as the sister concern was a subsidiary of the Assessee Company.

The Assessee's Senior Counsel referenced a similar case where the Tribunal had granted relief to an Assessee for a similar transaction involving a subsidiary company. The Apex Court affirmed this decision, dismissing the Revenue's appeal. The Senior Counsel argued that the facts and circumstances in the present case were akin to the previous case, making the previous judgment applicable.

The Court found merit in the Senior Counsel's arguments, noting that the relationship between the companies and the circumstances surrounding the loan and subsequent write-off aligned with the legal precedent established by the Apex Court. As there was no dispute regarding the nature of the transaction and the relationship between the companies, the Court concluded that there was no basis for interference under Section 260A of the Income Tax Act. Consequently, the Revenue's appeal was dismissed.