TaxTMI 
TaxTMI 
2018 (10) TMI 1106
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....s 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 of the project undertaken by it. Accordingly, the assessee claimed that such expenditure was incurred exclusively for the purpose of the business. 4.1 The assessee also claimed that it has no fixed assets. Therefore there is no question of treating the bank guarantee commission as capital in nature. 4.2 The assessee also claimed that there was no fixed asset which was coming into existences out of such bank guarantee commission expenses. However, the AO during the assessment proceedings observed that the bank guarantee was to be given by the assessee before the commencement of the project. Therefore the bank guarantee commission was incurred prior to the commencement of the relevant project. Accordingly, the AO was of the view that the bank guarantee commission expenses needs to be treated as capital in nature. Hence, t....
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....ng up of the business. It is further contended that the business of developing and executing infrastructure project of the Air Port was set up and commenced in preceding year and during the year further expenditure was incurred which was for the purpose of continuing the guarantee which shows that it was not an expenditure for setting up of business. The appellant has also contended that it was one of the conditions of the agreement that security deposit in performance guarantee work required and the guarantee was given by obtaining the same from a 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 in....
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.... normal course of such work and as per tender terms it is not in the nature of expenditure incurred prior to operations of the business or prior to setting up of the business. (ii) The business of developing and executing infrastructure project of the Airport was set up and commenced in the year 2008-09. During the year, further expenditure was incurred which was for the purpose of continuing the guarantee, which shows that it was not an expenditure for setting up a business. (iii) Evidence in support of the justification of the said expenditure was submitted during both assessment and appellate proceedings. It was one of the conditions of the agreement that security deposit in performance guarantee were required (extract of tender document is enclosed herewith - Page 1). The guarantee was given by obtaining the same from a bank, for which the bank charged commission, which is the impugned expenditure. By furnishing the guarantee instead of depositing 5% of tender cost, the appellant was required under the terms of the agreement to secure due performance of its obligations for developing the Airport. Thus, the expenditure was intimately and directly conce....
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....d either as preliminary expenses or depreciation on account of such expenses. iv. None of the authority below has doubted the genuineness of the expenses. v. There is no allegation from the authority below that the expenditure was not incurred 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 capital in nature. 8.2 We also note that the bank guarantee was furnished by the assessee for satisfactory performance of the work assigned to it. Therefore, in our considered view, it is d....