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2018 (5) TMI 632 - AT - Income TaxAccrual of expenditure - contingent liability which crystallized during the subsequent year - 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 - Deduction u/s 37(1) - Held that:- It cannot be said that above expenditure is not allowable to the assessee. 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. 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 - 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
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