TaxTMI 
TaxTMI 
2009 (8) TMI 782
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....ss expenditure. The Assessing Officer called for details for the same from the assessee. It was explained that assessee during the years 1984 to 1992 had an Electronics Division at Bangalore. In 1992, the company transferred its Electronics Division as a going concern to W.S. Electronics Ltd., a subsidiary of the assessee, which was later known as W.S. Telesystems (WSTL). During the years 1993 to 2000, the WSTL Telesystems Ltd. has been executing certain contracts for WSI for supply of carrier communication equipment for its contracts from power utilities. WSI had been advancing monies for the execution of the above contracts periodically and the amounts advanced accumulated and unadjusted in the supply bills were to the extent of Rs.6.11 crores over a period of time. WSI had also given to its then subsidiary WSTL corporate guarantees to ICICI for securing long term loans, Central Bank of India for working capital borrowings and Kirloskar Finance Ltd. for purchase of certain equipment on hire purchase basis for Rs.8.8 crores, Rs. 11.06 crores and Rs.0.02 crores respectively. 4. The assessee further explained that since the corporate guarantee was furnished to the financial insti....
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....ligations and are legitimately claimed as business loss as they were physically paid out to the bankers by way of cheque payments at the time of the respective settlements to them. In view of the above, the amount of Rs. 19,18,10,394 held as advance to WSTL in the books of WSI and written off during the financial year 2003-04 have been legitimately claimed as business losses of the company. 6. Upon consideration of the above, the Assessing Officer allowed the advance of Rs.6.11 lakhs to be written off. However, as regards the loss on guarantee of Rs. 13.07 crores, Assessing Officer opined that loss on guarantee incurred by the assessee has nothing to do with business activity of the assessee. He observed that any expenditure incurred by the assessee should relate to the income earned by the assessee. Hence, he held that the losses in question did not arise during the course of or incidental to his business. 7. Before the learned Commissioner of Income Tax (Appeals) it was submitted that business of the assessee company was depending on the business of WSTL as they were supplying carrier communication equipments for its contracts for power utilities. Hence, because of the clos....
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.... of Income Tax (Appeals) ought to have appreciated that there is no evidence on record to show that the loss actually arose in the previous year as the payments were made in 2001-02 and unlike in the case of Amalgamations Ltd. there was no claim from the Liquidators. • The learned Commissioner of Income Tax (Appeals) ought to have seen that the assessee has treated the loss as capital in its account by debiting the share premium account instead of debiting the profit and loss account as bad debts and treatment for tax purposes cannot be different. 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 that the said corporate guarantee has nothing to do with assessee's business. He also claimed that it was also not clear as to the year for which the same related to. He further argued that the said expenditure of the assessee has not resulted in any earning of income. The learned counsel of the assessee, on the other hand, claimed that expenditure incurred on account of corporate guarantee was a genuine expenditure. He claimed that, when the related advance ....
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....ine. Hence, (giving corporate guarantee duly had the sanction of Articles and Memorandum of Association of the company and as such it was a part of the assessee's business. 14. Moreover, when the transaction has been entered into in a commercially expedient manner, the resultant expense / loss is allowable. This is supported by Hon'ble Apex Court exposition in the case of S.A. Builders Ltd. (supra) "To consider whether one should allow deduction under section 36(1)(iii) of interest paid by the assessee on amounts borrowed by it for advancing to a sister concern, the authorities 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 that Hon'ble Madras High Court in an analogical case in the case of Amalgamations (P.) Ltd. (supra) where the facts wer....