Reassessment validity and bank guarantee commission as revenue expenditure were both tested in business taxation.

Reassessment under Section 147(b) was upheld because the record showed escapement of income and sufficient material to justify reopening, so the assessee's challenge failed. Bank guarantee commission was treated as revenue expenditure because the machinery had already passed to the assessee, instalments were facilitated through bank discounting of usance bills, and the commission was incurred for financial accommodation in the ordinary course of business rather than as part of the acquisition cost of the asset. The reassessment was sustained, but the disallowance of bank guarantee commission was deleted, leaving the appeal partly allowed.

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Issues: (i) Whether the reassessment under Section 147(b) of the Income-tax Act, 1961 was valid; and (ii) whether the bank guarantee commission was allowable as revenue expenditure.

Issue (i): Whether the reassessment under Section 147(b) of the Income-tax Act, 1961 was valid.

Analysis: The assessment had been reopened to include an amount earlier allowed towards betterment tax. The record showed escapement of income, and the reopening was based on material justifying action under the reassessment provision.

Conclusion: The reopening was upheld, against the assessee.

Issue (ii): Whether the bank guarantee commission was allowable as revenue expenditure.

Analysis: The machinery had already passed to the assessee and the instalment payments were facilitated through bank discounting of usance bills. The commission was incurred for financial assistance in the ordinary course of the running business and was not part of the cost of acquisition of the machinery.

Conclusion: The bank guarantee commission was allowable as revenue expenditure, in favour of the assessee.

Final Conclusion: The reassessment was sustained, but the disallowance of bank guarantee commission was deleted, resulting in a partly allowed appeal.

Ratio Decidendi: Where a payment is made for banking accommodation or financial facility in the course of a running business and is not intrinsically connected with the acquisition cost of an asset, it is revenue expenditure rather than capital expenditure.

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