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TMI Blog2022 (4) TMI 1386X X X X Extracts X X X X X X X X Extracts X X X X ..... tee fee of that amount - HELD THAT:- It is an undisputed fact that guarantees fee is an expenditure incurred by the assessee. It is also not in dispute that it has been incurred by the assessee during the year and crystallized during the year. Therefore, the corporate guarantee fee payable by the assessee to the government of Maharashtra has OF an expenditure incurred by the assessee for the purposes of the business. Therefore, we hold that the expenditure has been incurred by the assessee during the year for the purposes of the business therefore it is allowable to the assessee under the provisions of Section 37 (1) of the. Mere fact that it has been converted into equity capital by government of Maharashtra does not change the character of expenditure of guarantee fee paid by the assessee. It is a manner of payment of such expenditure by assessee to government of Maharashtra. Further, the conversion of guarantee fee is also backed by the Cabinet committee decision of the government of Maharashtra. Therefore, it cannot be stated that these are mere paper transactions. In view of this, we reverse the findings of the lower authority and direct the learned assessing officer to delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2% as guarantee fees by the Maharashtra government and then converting it into a capital by disallowing the guarantee fee of that amount 06. Assessee preferred an appeal before the learned CIT A on both these counts which were confirmed. Therefore assessee is in appeal before us 07. First ground of appeal is with respect to the disallowance of ₹ 68,030,000/ . The fact shows that as per note number 4.6 of schedule forming part of the accounts it is mentioned that as per exercise undertaken by the Corporation there have been instances of excess recovery of interest are different banks to the extent of an identified sum of ₹ 680.30 lakhs. The steps are taken with respective banks and reconcile the accounts. The learned assessing officer noted that since the company is following mercantile system of accounting any payment should be treated as an advance and only the interest allowable should be provided in the books of accounts of therefore the assessee was questioned that why above sum should not be disallowed. Assessee explained that as per the exercise undertaken by the assessee there have been instances of excess recovery of interest by different banks to the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcess charge by the bankers to the assessee and identified by the assessee itself, there is no question of granting deduction of such interest expenditure as according to assessee itself it was not an expenditure incurred. 010. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that assessee has made an exercise and found that there are several banks which has charged excess interest amounting to ₹ 68,029,972/ . This working is placed at page number 10 of the paper book. The reason to list of approximately 17 banks wherein for different years it was found that the interest has been charged excessively by those banks. Such excessive charged interest up to accounting year 2006 07 is ₹ 50,503,714/ , for accounting year 2007 08 of ₹ 1,48,96,609 and for accounting year 2008 09 relevant to assessment year 2009 10 is ₹ 2,629,649/ . In fact, such interest expenditure, which is excess charge by the bank, has been already claimed as deduction in the respective years. For this year only such excess interest claimed by the assessee as deduction is ₹ 2,629,649/ . As the assessee itself has worked ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on tenuously increasing capital of the company. Accordingly, he disallowed the guarantee fee paid of ₹ 9 283 lakhs. Assessee preferred appeal before the learned CIT A who also confirmed the same is no stating that such losses accumulated and also pertain for earlier years also that is why it is claimed as a prior period expenses. At the time of filing of the original return, the appellant has not claimed such expenses because in real terms it is not expenditure because the entire amount is coming back to the appellant company in the form of share capital from the government. He further held that it is a paper transaction between the State government and the appellant company whose permanent result is increasing the capital of the appellant from the funds of the appellant. He therefore held that under the circumstances, the disallowance of such circular transaction on paper has correctly been disallowed by the AO and the same is confirmed. 012. Contesting the above addition, the learned authorised representative made following submissions The appellant is wholly owned undertaking of the State Government of Maharashtra. The appellant charged additional Guarantee fees p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 014. We have carefully considered the rival contention and perused the orders of the lower authorities. Fact shows that government of Maharashtra in view of guarantee given for the funding of the various projects of the assessee, is charging guarantee commission. Such guarantee commission is never paid by the assessee to the government of Maharashtra but is converted into equity capital by government of Maharashtra. Now the question that arises is whether the government guarantees charges recovered by the government of Maharashtra from assessee is an allowable expenditure or not. The lower authorities have stated that this is a circular transaction is no amount is paid by the assessee but it is converted by government of Maharashtra into equity capital. The assessee has claimed deduction of the above sum stating that it has accrued before the due date of finalization of accounts and therefore, as events are occurring after the balance sheet date, such provisions are made and claim is made for deduction of the government guarantee fee. It is an undisputed fact that guarantees fee is an expenditure incurred by the assessee. It is also not in dispute that it has been incurred by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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