1997 (10) TMI 92 - AT - Income Tax

Summary

Issues:
- Whether the commission paid to the bank is a revenue expenditure in connection with the business of the assessee.
- Whether the bank guarantee commission paid by the assessee to release seized goods can be considered as expenditure for the purpose of business.

Analysis:
1. The appeal by the Revenue challenged the CIT(A)'s decision that the commission paid to the bank was revenue expenditure. The assessee, engaged in the business of silk fabrics, paid a sum to a bank to release seized stock for sale and profit. The AO disallowed the claim, stating it was not business expenditure. The assessee contended the payment was for business purposes, emphasizing the stock's value and potential profit. The CIT(A) accepted these arguments and deleted the addition.

2. The Revenue argued that the bank guarantee commission cannot be considered a business expenditure. The Departmental Representative contended that the CIT(A) erred in deleting the addition and that the AO's decision should be upheld. The assessee's counsel supported the CIT(A)'s decision, stating the bank guarantee was essential to release seized stock for sale and income generation.

3. The Tribunal analyzed the case laws cited by both parties. It noted that the bank guarantee facilitated the release, sale, and profit from the stock, justifying the expenditure as business-related. The Tribunal referenced the decision in Gogte Minerals, where a similar guarantee agreement was considered revenue expenditure. It also cited the Madras Industrial Investment case, emphasizing that expenses incurred for business purposes qualify as deductions. The Tribunal upheld the CIT(A)'s decision, stating the expenditure was linked to the business and should be allowed.

4. The Tribunal concluded that the bank guarantee commission was directly connected to the business activities of the assessee, as it enabled the release and sale of seized goods, resulting in profit. Citing relevant case laws and the specific circumstances of the case, the Tribunal upheld the CIT(A)'s decision to delete the addition. Consequently, the appeal by the Revenue was dismissed.