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TMI Blog2018 (10) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... rming the action of assessing Officer in disallowing bank guarantee expenses of Rs. 3,94,626/- u/s 37(1) of the act by treating the same as capita in nature." 3. The only issue raised by the assessee is that ld CIT(A) erred in confirming the disallowance of Rs. 3,94,626/- u/s 37(1) of the Act by treating the bank guarantee commission expenses as capital in nature. 4. Briefly stated facts are that the assessee in the present case is an AOP and engaged in the business of construction contracts. The assessee during the year incurred an expense of Rs. 3,94,626/- under the head bank guarantee expenses. As per the assessee, the bank guarantee expenses represent the commission paid to the bank for availing the bank guarantee for the execution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As such, the bank guarantee availed by it represents the performance guarantee which was obtained in the course of the business. 5.2 There was no capital asset or right accrued to the assessee out of such bank guarantee commission. However, the ld. CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under: "4.3. I have considered the facts of the case and submission made by the appellant. It is worth here to mention that in appellant's own case in appeal for A.Y. 2010-11, the undersigned vide order in appeal No. CIT(A)- 5/ITO.Wd.5(2)(3)/216/2015-16 dtd. 20.07.2016 has confirmed the disallowance made by the AO in respect of Bank guarantee expenses for the reasons discussed in para -4.3 to 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank for which the bank charged commission. Thus, the expenditure was intimately and directly concerned with carrying on of business year to year until the work was satisfactorily completed. The appellant has relied upon following decisions/judgments as reproduced in the preceding paras of this order. 4.5. The facts of the case and the submissions are considered. Here the question to be decided is that the guarantee commission paid by the assessee to the bank for performance deposit is a revenue expenditure or capital expenditure. The assessee has received contract from Air Port Authority of India for developing and executing infrastructure project of the Air Port. One of the condition of the contract is to provide performance guarantee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: "The only ground of appeal is regarding disallowance of bank guarantee expenses of Rs. 3,94,626/- u/s.37(1) of the Act by treating the same as capital in nature. At the outset, it is submitted that the learned Commissioner (Appeals) have confirmed above mentioned disallowance on the basis of appellate order of A.Y. 2010-11. However, since the appellant has not received said appellate order till date of A.Y. 2010-11, no further action is taken by the appellant in this regard. Hence, these submissions may kindly be considered; With respect to ground of appeal, the contentions of the appellant are as follows: (i) The said expenditure was incurred in order to execute and secure performance of the work awarded to it in the normal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on expense paid to the bank for the particular financial year. (v) In support of the claim as and by way of revenue expenditure, the appellant places reliance upon following decisions: i. Decision of CIT vs Neo Structo Construction Ltd. (2013) 218 Taxman 0025 (Gujarat) wherein it was held that bank guarantee given for performance of contract was allowable as business expenditure u/s.37(1) of the Act. ii. Decision of Mihir Textile Ltd. vs CIT (2001) 251 ITR 0686 (Gujarat) wherein it was held that bank guarantee commission was a revenue expenditure. Hence, in view of above, it is submitted that the disallowance of bank guarantee expenses of Rs. 3,94,626/- treated by ITO as capital in nature may kindly be deleted." 7. On the other han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred in connection with the business of the assessee. After having regard on the aforesaid facts we note that the authorities below erred in not allowing the deduction of the commission expenses either as revenue or in the form of depreciation. The expenditure is treated as capital in nature if there arises some fixed assets out of such expenditure but it is not so in the case before us. 8.1 Once, the assessee has incurred any expense in connection with its business then he has liable for deduction either in the form of revenue expenses, preliminary expenses or depreciation. As we note that no benefit has arisen to the assessee out of such expenses which is enduring in nature. Therefore we are inclined not to treat such expenses as cap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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