The Commissioner of Income Tax-IV vs. M/s. Labham Finance Limited

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR TUESDAY ,THE 19TH DAY OF FEBRUARY 2019 / 30TH MAGHA, 1940 ITA.No. 204 of 2010 AGAINST THE ORDER IN ITA 21/COCH/2005 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 18-08-2009 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADVS. SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT RESPONDENT/RESPONDENT: M/S. APPOLLO TYRES LTD. 6TH FLOOR, CHERUPUSHPAM BUILDINGS, SHANMUGHAM ROAD, KOCHI-31. BY ADVS. SRI.JOSEPH MARKOS (SR.) SRI.BINU MATHEW SRI.B.J.JOHN PRAKASH SRI.JOSEPH KODIANTHARA (SR.) SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS (KAKKUZHIYIL) SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19.02.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA.204/10 2 JUDGMENT P.R. Ramachandra Menon, J. This appeal is at the instance of the Revenue. Challenge is against Annexure C order passed by the Income Tax Appellate Tribunal, Cochin Bench. The assessment is in respect of the assessment year 1996-97. 2. The respondent Assessee Company is engaged in the manufacture and sale of automotive tyres, tubes, etc. Return was filed by the Company on 28.11.1996, which was followed by a revised return. Finally, the assessment was completed in terms of Section 143(3) of the Income Tax Act by the Assessing Officer as per Annexure A order dated 10.01.2002, assessing a total income of Rs.5,79,77,070/- and fixing the tax liability accordingly. This was sought to be challenged by the Assessee by filing appeal before the Commissioner of Income Tax. After considering the plus and minus points, the appeal was finalised as

ITA.204/10 3 per Annexure B order, whereby some points were answered in favour of the Assessee, while some additions were made in favour of the Revenue. This was challenged both by the Assessee and the Revenue before the Income Tax Appellate Tribunal. After hearing the matter in detail, along with some other cases, a common verdict was passed as per Annexure- C order dated 18.08.2009, whereby the grievance projected by the Assessee was redressed under some of the relevant heads, which are stated as detrimental to the interest of the Revenue and hence the challenge in the appeal filed by the Revenue.

ITA.204/10 4 are in the following terms: (a) Whether, on the facts and in the circumstances of the case and also in view of the fact that the amount of Rs.90,00,000/- had not been advanced for carrying on the business of the assessee, the assessee is entitled to claim deduction of the same? (b) Whether, on the facts and in the circumstances, of the case, 1. did the assessee discharge the burden of proof; 2. did the assessee establish the claim of saving of reputation; 3. the assesssee is entitled to the deduction? 5. The dispute is with regard to the course pursued by the Assessee debiting in its account, under the head 'General Expenses', a sum of Rs.90 lakhs towards the corporate guarantee given in favour of 'M/s Universal Steel and Alloys Limited', a sister concern. The Bank had enforced the Bank Guarantee, by virtue of which, the Assessee had to pay the said amount to the Bank. This was not recoverable from the sister concern and hence it

ITA.204/10 5 was written off. It was disallowed by the Assessing Officer, as it was never in the course of business of the Assessee and hence liability was mulcted upon the shoulders of the Assessee. As no substantial relief was given by the Commissioner of Income Tax, the matter was taken up before the Tribunal. After considering the various factual aspects involved and also applying the law declared by the Apex Court in S.A. Builders Limited v. Commissioner of Income Tax (Appeals), Chandigarh and Others [288 ITR 1 (SC)], the claim of the Assessee was allowed, holding that there was nothing wrong on the part of the Assessee in having it written off, M/s Universal Steel and Alloys Limited being a sister concern/subsidiary of the company. 6. In response to the submission made by the learned Standing Counsel for the Revenue and also with reference to the grounds raised in the appeal, Mr.Joseph Markose, the learned Sr. Counsel for the

ITA.204/10 6 Assessee Company submits that there is a direct decision as well on the point, as reported in Commissioner of Income Tax v. Amalgamations Pvt. Ltd. [1997 (226) ITR 188 (SC)]. The Assessee Company had purchased all the shares of a company by name 'Sembiam Saw Mills (Private) Limited', which originally was a subsidiary company of Addison and Company (Private) Limited and thus the former company (SSM) became the direct subsidiary of the Assessee Company. The subsidiary company had borrowed amounts from the National Bank of India Limited, to which the Assessee Company had offered bank guarantee, particularly by virtue of the enabling clause in the Memorandum of Association in this regard to offer guarantee for the affairs of the subsidiary companies. The loss sustained by the Assessee and written off accordingly was disallowed by the Assessing Officer stating that the transaction was not a part of the business of the Assessee Company, which contention

ITA.204/10 7 was repelled by the Tribunal granting relief to the Assessee Company accepting the claim of the Assessee Company. This came to be affirmed by the Apex Court in Commissioner of Income Tax v. Amalgamations Pvt. Ltd. [1997 (226) ITR 188 (SC)]. The appeal preferred came to be dismissed by the Apex Court as per the said judgment. 7. The learned Senior counsel submits that the facts and circumstances are almost similar to the course of business herein and the ratio of the decision is quite applicable to the instant case as well. 8. We find force in the said submissions. In so far as 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

ITA.204/10 8 covered by the dictum laid down by the Apex Court, as cited above. This being the position, this is not a fit case, where interference could be made by this Court in terms of Section 260A of the I.T. Act. The appeal fails. It is dismissed accordingly. Sd/- P.R.RAMACHANDRA MENON JUDGE Sd/- N.ANIL KUMAR okb JUDGE //True copy// P.S. to Judge