Bombay High Court on section 28(1) of the Income-tax Act, 19

Last updated: 17 October 2008

Court :
High Court

Brief :
Section 28(i) of the Income-tax Act, 1961 - Business loss/deductions - Allowable as - Assessment year 1986-87 - ‘A’ Ltd., which carried on business of a financier, was amalgamated with assessee-company - Prior to its amalgamation, ‘A’ Ltd. had issued a guarantee to ‘SCCIL’ in respect of a loan advanced by ‘SCCIL’ to ‘M’ Ltd., taking view that with help of said loan ‘M’ Ltd. would overcome its financial difficulties and would be able to start earning profits and to gradually pay off its creditors including ‘A’ Ltd. which had to recover Rs. 15 lakhs from ‘M’ Ltd. - ‘M’ Ltd. failed to repay aforesaid loan and interest thereon to ‘SCCIL’ and in view of amalgamation of ‘A’ Ltd. with it, assessee had to make payment of loan with interest in terms of guarantee executed by ‘A’ Ltd. - Assessee claimed said amount as business loss - Assessing Officer declined to allow loss on ground that ‘SCCIL’, ‘M’ Ltd., ‘A’ Ltd. and assessee had common directors and were under same management and entire exercise was collusive and only to book losses - On appeal, Commissioner (Appeals) recorded finding of fact that act of ‘A’ Ltd. of giving guarantee to ‘SCCIL’ was genuine and, hence, assessee’s claim was allowable - Tribunal upheld order of Commissioner (Appeals) - Whether on facts, Tribunal was right in allowing assessee’s claim - Held, yes

Citation :
Yet to Report . Commissioner of Income-tax, Mumbai v. Mehta (P.) Ltd. [IT APPEAL NO. 195 OF 2001