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TMI Blog2018 (5) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciating that performance guarantee was inextricably linked to business of the appellant and was therefore, an allowable deduction under section 28/37 of the Act. 1.2 That the ld CIT (A) erred in alleging that the aforesaid/ loss expenditure did not accrue during the previous year 2008-09, since the order of High Court became effective seven days after the date of such order. 1.3 That the ld CIT(A) erred in alleging that the payment of performance guarantee alongwith applicable interest thereon was contingent liability as the issue was pending adjudication under arbitration proceedings." 3. Briefly stated, facts of the case show that assessee is engaged in the business of operating and running of bus shelter and the advertisement. The assessee filed its return of income declaring a loss of Rs. (-) 8,11,91,180/- on 29/9/2009. For the year under consideration, the assessment under section 143 (3) of the income tax act, 1961 was made by the Ld. Assistant Commissioner Of Income Tax, Circle 12 (1), New Delhi on 29/12/2011 wherein an addition of Rs. 208,92,603/- was made and total income of the assessee was assessed at Rs.(-) 60059486/-.The assessee, aggrieved with the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration to keep bank guarantee sum encashed with interest rate of 9% per annum thereon. Assessee has debited a sum of Rs. 20892603/- on account of liability towards cancellation of contracts. Out of the above amount, a sum of Rs. 2 crores is because of bank guarantee liquidated and remaining is the interest for late payment thereof. The assessee explained before the Ld. assessing officer that assessee furnished a performance bank guarantee of Rs. 2 crores on 02/06/2008 to the Delhi transport Corporation towards security for review and punctual performance discharge of its obligation under the concession agreement during the implementation period. As per the agreement yes bank shall without demur pay to the Delhi transport corporations sum not exceeding in aggregate of Rs. 2 crores within 5 days of receipt of the written demand thereof by the Delhi transport Corporation stating that the company had failed to meet its performance obligation under concession agreement during the implementation period. The assessee company submitted that it made default in performing the obligation and therefore Delhi transport Corporation requested for invocation of the bank guarantee of Rs. 2 cross. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. authorized representative has submitted a detailed paper book wherein the copy of the concession agreement entered into by the assessee with the Delhi transport Corporation in June 2008 at page No. 46 - 216, security for due and punctual performance of its contractual obligation was submitted at page No. 217- 219 of the paper book. The Ld. authorized representative also submitted the copy of the order dated 26/3/2009 by the Hon'ble Delhi High Court allowing encashment of the aforesaid bank guarantee by Delhi transport Corporation and also the letter dated 25/5/2009 by Delhi transport Corporation addressed to the - yes bank requesting to give effect to the aforesaid order of the Hon'ble high court. He also referred to the copy of the bank letter remitting the amount by the bank at page No. 229 of the paper book. He further submitted the copy of the Ledger account of the Delhi transport Corporation in the books of the appellant wherein the amount of bank guarantee along with the bank interest is credited to that account on 31/5/2009. He further reiterated the submission made before the Ld. CIT (A), which is also placed at page No. 232-234 of the paper book. He also submitted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an allowable expenditure or not or is allowable to the assessee under section 28 of the income tax act or not. The identical issue has been considered by the Hon'ble Gujarat High Court in case of neo Constructo construction Ltd 218 taxman 24/37 Taxmann.com 57 wherein the fact that the assessee company was engaged in the business of construction and development of plants. It entered into a contract with the contractee . At the time of entering into the contract entered, bank guarantee was furnished as performance guarantee. Subsequently the assessee having noticed that it would not be possible for it to perform the contract took a decision to not to proceed further with the contract and informed the contractee. Accordingly, Due to the nonperformance of the contract the principal encashed the bank guarantee and recovered the amount. Assessee claimed the above sum as deduction as business expenditure. The Hon'ble high court held that such encashment of the bank guarantee which was furnished by the assessee as a performance guarantee due to non-fulfillment of the contract by the assessee can be said to be compensatory in nature and therefore allowable as business expenditure under se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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