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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 ..... e enforced after 7 days, it cannot be said that the liability has not been crystallized during the year - the liability has been crystallized during the year only in view of the decision of the Hon’ble Delhi High Court, which was rendered during the year. Even otherwise if during the arbitration proceedings an award comes and assessee is also entitled to the benefit on account of allowability of this claim, same would be chargeable to tax under section 41 (1) - Merely because of these reasons, it cannot be stated that the claim of the assessee has not crystallized during the year. We allow the claim of the assessee of ₹ 208 Laces on account of encashment of the bank guarantee by the Delhi transport Corporation for non fulfilment of the work awarded to the assessee which is allowable to it as a business expenditure/loss. - Decided in favour of assessee - ITA No. 2939/Del/2014 - - - Dated:- 7-5-2018 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri Rohit Jain, Adv Shri Deepesh Jain, CA For The Revenue : Shri Amit Jain, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of encashment of bank guarantee furnished to Delhi transport Corporation as security for efficient and punctual discharge of obligations under the concession agreement. The brief facts pertaining to the issue shows that assessee entered into an agreement with the Delhi transport Corporation for setting up 400 bus queue shelters under the build operate and transfer basis. The appellant was to construct the above shelters and operate them for 10 years and thereafter they were to be transferred to the Delhi transport Corporation. The appellant was required to pay Delhi transport Corporation monthly revenue of ₹ 4.09 crores in respect of fees 400 bus shelters and it was free to earn revenue through advertisement etc to be displayed on those bus shelters. The assessee entered into an agreement with Delhi Transport Corporation on 26/7/2007 titled as concession agreement . According to clause, No. 3.1 of the agreement the assessee was to give a performance security to Delhi transport Corporation. The assessee submitted a total bank guarantee of ₹ 2.5 crores, as an amount of ₹ 1 crore was towards performance security for construction, which was to be returned after 60 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Subsequently on 26/03/2009, the Hon ble Delhi High Court released the order to make the encashment of bank guarantee along with the interest at the rate of 9% p.a. for the delay in making encashment of bank guarantee to Delhi transport Corporation. Pursuant to that order of the Hon ble Delhi High Court, the assessee debited a sum of ₹ 208,92, 603/ in the profit and loss account and claimed it as revenue expenditure . The assessee submitted before the assessing officer that this liquidation of bank guarantee is revenue expenditure and therefore it should be allowed. However, the Ld. assessing officer rejected the contention of the assessee and stated that the above claim is of the capital nature and not r revenue in nature. The main reason given by Ld. assessing officer is at the same is not of recurring nature and it does not have any direct nexus. 5. The assessee contested the above claim before the Ld. CIT (A) who confirmed the findings of the Ld. assessing officer and further held that in the absence of any activity undertaken for construction of the shelters the performance guarantee for construction is also for operation is capital in nature and therefore the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is allowable as deduction even a final adjudication is pending in arbitration. He therefore submitted that above expenditure is allowable as revenue expenditure even though there is no commencement of the setting up of bus shelters as agreed upon. He stated that same cannot be considered as capital expenditure. He further submitted that even the arbitration is pending it cannot be said to be contingent in nature but crystallized. He submitted that the date of the Hon ble high court s order is within the year and its effective implementation after 7 days does not have any impact on the allowability of the claim of the assessee in this year. He therefore submitted that the claim of the assessee is allowable during the year only as it is revenue in nature, crystallized during the year and the loss has been incurred by the assessee during the year. Therefore, according to him it fulfils all the conditions prescribed under section 28 of the income tax act. 7. The Ld. departmental representative vehemently supported the orders of the lower authorities and submitted that as the assessee did not start the work the above amount of expenditure cannot be considered as revenue in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 37 (1) of the act. Therefore, it cannot be said that above expenditure is not allowable to the assessee. Furthermore it is not the case of the revenue that assessee is not engaged in the business of constructing bus shelters. That is the only business of the assessee. The above loss because of an event of the bank guarantee is also incurred by the assessee during the course of the business of the assessee. Therefore, it cannot be said to be capital expenditure even if the assessee failed to create requisite bus shelters. In fact, for that reason only the assessee was to provide the bank guarantee and same was encashed. Therefore, it cannot be said that the above expenditure is capital expenditure in nature. Furthermore, the order of the Hon ble high court is rendered during the assessment year. Merely because it was to be enforced after 7 days, it cannot be said that the liability has not been crystallized during the year or even for the reason that the assessee also approached the arbitration proceedings, same is unascertained liability. According to us, the liability has been crystallized during the year only in view of the decision of the Hon ble Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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