TaxTMI 
TaxTMI 
2011 (5) TMI 1163
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.... condone the delay and admit the appeal. 3. The first issue in this appeal of the revenue is against the order of CIT(A) deleting the addition made by AO on account payment of corporate guarantee on account of loan taken by its erstwhile subsidiary company. For this, revenue has raised the following ground nos.1 to 6. "1. That, on the facts and in the circumstances of the case, the Ld. CIT(Appeals) has erred in deleting the sum of Rs. 1.60 crores being corporate guarantee amount in respect of the loan taken by its subsidiary company without appreciating the fact that the assessee itself had disallowed this amount in its revised return filed u/s. 139(5) of the I.T. Act, 1961. 2. Without prejudice to ground no 1, on the facts and in the circumstances of the case, the Ld. CIT(Appeals) has erred in deleting the sum of Rs. 1.60 crores without considering the ratio of the decision of the Hon'ble Supreme Court in the case of CIT Vs. M/s. Amalgamations (P) Ltd. [226 ITR 188] in which it is held that the expenditure incurred by the parent company for guaranteeing loan taken by its subsidiary company is not an allowable deduction. 3. Without prejudice to the gro....
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....able. In the original return of income, the assessee has claimed this amount as sundry balances written off but in the revised return of income, the assessee has included this amount in the computation of income by mentioning as "amount paid to financial institutions and debited to profit & loss account under the Head 'Sundry Balance written off (Net)' against Corporate Guarantee given on behalf of erstwhile subsidiary co. as the same is not recoverable, hence written off being business expenditure but to avoid penalty u/s. 271(1)(c) added the same under protest." The Assessing Officer noted that there was no discovery of any omission as the assessee had placed corporate guarantee on behalf of M/s. Khaitan Paper Machine (in short KPM) long time back and when KPM became a defaulter, ICICI Bank issued notice to the assessee and during assessment year 2004-05, it had complied with such notice by paying a sum of Rs.60 lakh to the bank by taking interest bearing sum from Indian Overseas Bank Ltd. The A.O. further noted that for giving corporate guarantee, assessee was not in this business, consequently, interest on capital borrowed for this purpose was disallowed u/s. 36(1)(iii) of the ....
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....TR 321 the authorities cannot ever over from a previous decision at their 'sweet will'. Further, the ratio of the judgment by the Hon'ble Supreme Court was followed by the Hon'ble High Court of Calcutta in Sri Hanuman Sugar & Industries Ltd. v. CIT (2004) 136 Taxmann 617. The Court held in Para 27 that "the principle of res judicata does not apply in income-tax matters, but for coming to separate conclusion in two different years, there must be separate facts leading to such different conclusions. On identical facts, separate conclusions by the revenue authorities are not desirable." In the absence of material circumstances or reasons for such departure I am of the opinion that the claim of the appellant for treating the payment made to the Financial Institution, as a result of invoking Corporate Guarantee, is a legitimate business expenditure necessitated out of normal business expediency. Accordingly, this ground of the appellant succeeds." Aggrieved, against the order of CIT(A), revenue is in appeal before us. 5. We have heard rival contentions and gone through facts and circumstances of the case. First of all we have to see the facts of the case that wha....
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....s 35 and 36 of the assessee's paper book. The Ld. Counsel for the assessee further argued that in immediate preceding year i.e. Assessment Year 2004-05, the CIT(A) has allowed exactly identical claim of the assessee in respect of corporate guarantee money paid to ICICI of Rs.60 lakh, the CIT(A) in assessment year 2004-05 in Appeal No. 465/CIT(A)-1/Cir-3/07-08 dated 28.5.2009 in assessee's case has allowed the claim of the assessee vide para 2.3 as under: "2.3 I have gone through the submissions of the assessee and the observations of the Assessing Officer. Undisputed facts ore that when the Corporate Guarantee was made, the company was a subsidiary of the appellant and only later the said company became public. The appellant did inform the bank of the changed situation but IClCI bank did not discharge the appellant. It went ahead with the winding up petition to recover the dues of the onetime subsidiary from the appellant. The appellant paid an amount of Rs. 60 lacs to the bank as a full and final payment to its discharge. Since the payments were mode because of Corporate Guarantee given in respect of a one time subsidiary, the amounts were shown in the books as given to t....
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.... lower authorities. Ld. CIT DR argued that the case law of Hon'ble Apex Court in the case of Amalgamation Pvt. Ltd. (Supra) is in favour of the revenue and not the assessee. As far as the issue of revised return of income, the Ld. CIT DR has not argued anything in respect to this. 8. We find that this is a fact that none of the authorities have doubted the genuineness of payment of Rs. 1.6 cr. to ICICI and IDBI, rather the lower authorities have accepted that this is a genuine payment. As regards to the fact that, assessee entered into corporate guarantee with these two financial institutions for the loan granted by them to KPM is also a fact. This guarantee is also a continuing guarantee and could not be revoked without the consent of the party in whose favour the guarantee is given as per terms and conditions of the guarantee. The assessee during the pendency of guarantee, as a precautionary measure had intimated to the financial institutions that the corporate guarantee given by it is no more effective since KPM is ceased to be a subsidiary of assessee and it had no control over the management and affairs of that company, but financial institutions initiated legal proceedings....
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....the course of carrying on its own business and the loss was clearly admissible as a deduction but since the assessee-company had received the last of the payments from the liquidator in the previous year relevant to the assessment year 1962-63 it was held that the balance of Rs. 4,23,256 remaining unrecoverable represented the real business loss allowable for the assessment year 1962-63. This was upheld by the High Court. Hon'ble Apex Court held that the assessee-company had incurred the loss in carrying on its own business which included furnishing guarantees to debts borrowed by its subsidiary companies and assessee-company could have ascertained whether there was loss in the transaction of guarantee only at the stage of final payment by the liquidators, which was received in the relevant previous year for the assessment year 1962-63 and it was allowable in that year. In the present case also the facts are exactly identical, wherein the company has been authorised to stand guarantee by special resolution for KPM as stated by Ld. Counsel for the assessee, while making statement at Bar. It is also a fact that the assessee has made this payment to avoid closure or reduction of limit....
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....sfied in the subsequent years. Hon'ble Court answered that this decision of this court in Satellite Engineering Ltd.'s case [1978] 113 ITR 208 (Guj) can be of any assistance to the cause of the revenue, because the question with which this court was concerned in that case was altogether a different one in the context in which the Division Bench was speaking. Hon'ble Court finally held that it should be understood that this is subject to the right of the ITO to adjust the relief by fixing the quantum having regard to the respective capital employed in the new undertaking in the year with which he is concerned. 10. Similarly, Hon'ble Madhya Pradesh High Court in the case of CIT Vs. Bhilai Engineering Corporation Pvt. Ltd. (1982) 133 ITR 687 (MP) has held that no fresh material was brought in in the assessment proceedings for the years 1974-75 and 1975-76 to show that the finding reached by the ITO in the assessment for the year 1973-74 that the assessee had installed new plant and machinery and had constructed a new building was in any way erroneous. Further, the relief under s. 80J could be obtained when new plant and machinery were erected for producing the same commodity wh....
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....f the section. On these facts and circumstances, it was not open to the ITO, in dealing with the assessment for the years 1974-75 and 1975-76, to refuse to grant the relief under s. 80J to the assessee. We are informed that the relief under that section has already been granted to the assessee for the years 1976-77 and 1977-78. For the reason given above, we answer the question as follows: " On the facts and in the circumstances of the case, the Income tax Officer was not competent to disallow the relief under section 80J for the assessment years 1974-75 and 1975-76. " 11. In respect to the issue of revised return, the Ld. CIT DR has made no arguments, but we are of the view that the primary requirement of sec. 139(5) of the Act i.e. 'discovery of omission' has to be met with in case the assessee want to revise his return of income apart from other conditions. In the present case, the assessee was not sure rather it was doubtful whether this deduction will be allowed to the assessee or not. As we have already reproduced the relevant context of the letter of the assessee dated 28.9.2007 and also not attached to the computation of income, while filing revised ret....
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....n absence of any satisfactory explanation / evidence filed by the assessee company both before the Ld. CIT(Appeals) and the AO to establish that the said Prior Period Expenses had actually crystallized during the year under consideration." 16. We have heard rival contentions and gone through facts and circumstances of the case. We find from assessment order that the AO has disallowed these prior period expenses by noting that clause 13 of notification no. 9949 dated 25.1.1996 states that the prior period expenses reserved only for errors and omissions and this cannot be claimed as regular adjustments as done by the assessee. The AO noted from proviso B 13(e) of the notification, which states that, 'charge or credit arising on the outcome of a contingency, which at the time of occurrence could not be estimated accurately shall not constitute the correction of an error but a change in estimate and such an item shall not be treated as a prior period item'. Accordingly, he noted that no allowance was made for discount rebate or compensation as claimed by the assessee. The CIT(A) allowed the claim of the assessee by relying on the order of CIT(A) in earlier years by stating that ' th....