Case Law Details
Gujarat State Electricity Corporation Limited Vs DCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that payment of guarantee fee to the Govt. of Gujarat in consideration of guarantee issued by it for repayment of unsecured loan is revenue expenditure.
Facts- Revenue has preferred this present appeal contesting that CIT(A) has erred in deleting the addition made on account of disallowance of claim of guarantee fees paid to Government of Gujarat.
Notably, AO observed that the assessee paid guarantee fee to the Govt. of Gujarat in consideration of guarantee issued by it for repayment of unsecured loan. 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/-. However, CIT(A) allowed the appeal.
Conclusion- Rajasthan High Court in CIT v. Metalising Equipment Co. Pvt. Ltd., 8 DTR 12, that the payment of commission for guaranteeing repayment of loan was allowable as revenue expense. In the instant case, the loan has been guaranteed by the Government of Gujarat. Hence, quite apart from the other sound reasons for treating the expenditure as revenue, it would be unrealistic to say that the appellant company could derive any undue advantage or collateral benefit by making such payment to the GOG.
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