Gujarat Narmada Valley Fertilizers And Chemicals Limited Vs DCIT (Gujarat High Court)
Summary: The Gujarat High Court allowed the assessee’s appeal concerning deduction of a Rs.3.50 crore liability arising from a corporate guarantee given on behalf of its wholly owned subsidiary, Gujarat Narmada Auto Limited (GNAL), to Gujarat Mineral Development Corporation (GMDC). During Financial Year 1997-98, the assessee had debited a provision of Rs.3.50 crores payable to GMDC in its Profit & Loss Account. The Assessing Officer disallowed the deduction for Assessment Year 1998-99. The CIT(A) subsequently allowed the claim, holding that the loss had become ascertainable during the relevant year. The Tribunal reversed the CIT(A)’s decision, holding that the liability had not been shown to have crystallized during AY 1998-99 and restoring the Assessing Officer’s order.
Before the High Court, the assessee submitted that an amicable settlement had been reached at a meeting held on 03.03.1997, followed by a Board Resolution dated 21.03.1997 and subsequent correspondence concerning payment of Rs.3.50 crores to GMDC in full and final settlement of the guarantee liability. The assessee contended that the provision made in the accounts for the year ending 31.03.1998 was therefore allowable in AY 1998-99. The Revenue submitted that the Consent Terms were filed before the City Civil Court, Ahmedabad, only on 12.05.1999 and argued that the deduction could, at best, be considered for the year of payment.
