The Income Tax Appellate Tribunal (ITAT) Ahmedabad bench held that guarantee fees paid to the government of Gujarat in consideration of guarantee issued by it for the repayment of unsecured loan is revenue expenditure.
Assessee, Gujarat State Electricity Corporation Limited paid guarantee fee of Rs.5,69,35,000/- to the Govt. of Gujarat in consideration of guarantee issued by it for repayment of unsecured loan’
Assessee was asked for details regarding the said loan and assessee submitted that was given by Govt. of Gujarat, and for the guarantee given by the Govt. of Gujarat, the GEB is required to pay guarantee fees as per rules.
After the split of the company, the said loans were still continued, which were guaranteed by the Govt. of Gujarat. Therefore, every year these guarantee fees become payable to Govt. of Gujarat on a recurring basis.
The AO did not accept the above explanation of the assessee on the ground that the assessee did not furnish the details of the purpose for which the loans were taken for which the guarantee fees were claimed.
Further, The AO observed that the cost of raising the finance can also not be considered as revenue expenses for want of details. He, accordingly, disallowed Rs.5,90,96,000/-.
Aggrieved by the order, the assessee filed an appeal before the commissioner of Income Tax Appeal(CIT(A), who allowed the appeal. Thereafter the revenue filed another appeal before the tribunal. The assessee also filed cross appeals.
During the appeal proceedings counsel for assessee submitted that guarantee fee was an annual recurring expenditure incurred by the assessee. Guarantee fee was payable to Govt. of Gujarat every year in respect of loans taken by the assessee and guaranteed by the Govt. of Gujarat.
Guarantee fees were in respect of loans for acquisition of capital assets, which were already put-to-use prior to 1.4.2007. Therefore it should be considered as a revenue expense.
R. Mohan Reddy, Counsel for the revenue, supported the order of the Assessing officer.
The tribunal observed that the issue was now covered in favour of the assessee by the decision of this Tribunal in the case of assessee itself.
After considering the facts submitted by both parties, the two member bench of Waseem Ahmed (Accountant Member) and T.R. Senthil Kumar (Judicial Member) held that guarantee fees paid to the government of Gujarat in consideration of guarantee issued by it for the repayment of unsecured loans are revenue expenditure.
Therefore the bench dismissed the appeal filed by the revenue and partly allowed the appeal filed by the assessee.
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