2015 (10) TMI 535 - AT - Income Tax

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 the order of the learned Commissioner of Income Tax (Appeals) - Decided in favour of assessee.

Summary

Issues:
Disallowance of expenses on guarantee payments made by the assessee to banks and other parties on behalf of its subsidiary company.

Analysis:
The Revenue raised grounds against the deletion of the disallowance of expenses on guarantee payments made by the assessee to banks and other parties on behalf of its subsidiary company. The Revenue contended that such payments were not related to the assessee's business and were merely a provision for contingent liability. The Assessing Officer disallowed the claimed amount as a provision for contingent liability, citing precedents that contingent liabilities not arising presently and crystallizing in the future cannot be allowed as business expenditure in the current assessment year.

The CIT(Appeals) directed the AO to delete the addition and allowed the claim of the assessee based on a previous Tribunal order. The Tribunal, in the previous order, considered the genuineness of the expenses incurred by the assessee on corporate guarantees and advances given to subsidiary companies. It was observed that these expenses were incidental to the assessee's business, especially in supplying materials essential for the business. The Tribunal emphasized that the expenses were commercially expedient and in the interest of the assessee company.

The Tribunal referred to various legal precedents, including decisions by the Hon'ble Apex Court and the Hon'ble Madras High Court, to support the allowance of the guarantee payments as a revenue expenditure. The Tribunal highlighted that the corporate guarantee was one of the objects of the assessee company as per its Memorandum of Association, and therefore, the expenses incurred were in line with the company's business activities. The Tribunal concluded that the guarantee payments were made in a commercially expedient manner and were allowable as a deduction.

The Tribunal dismissed the Revenue's appeal, upholding the order of the CIT(Appeals) based on the consistent view taken in previous decisions. The Tribunal's decision was grounded in the commercial expediency and business interest of the assessee company, supported by legal precedents and the company's Memorandum of Association.