The encashed bank guarantee and the amount paid as penalty on account of assessee's failure to perform its part of the agreement are allowable as a deduction under Section 37(1) - Decision of High Court of Delhi in Principal Commissioner of Income Tax-4 v. Green Delhi BQS Ltd.

Facts of the case:

1. The assessee was engaged in the business of developing, maintaining and operating of Bus-Q-Shelters (BQS), metro stations etc. It entered into an agreement with the Delhi Transport Corporation (DTC) for setting up bus shelters on build, operate and transfer basis.

2. The assessee had also furnished bank guarantee of Rs. 2 crores to DTC as performance security. On DTC invoking bank guarantee, the assessee had approached the High Court and a stay order against encashment was passed. However, later the stay order was vacated and the DTC was permitted and allowed to encash the bank guarantee. As the assessee had obtained stay, they were directed to pay interest at the rate of 9% p.a till the date of payment.

3. The assessee has claimed as expenditure, the amount paid on encashment of bank guarantee and interest on late payment as deduction under section 37(1). The revenue authorities rejected assessee's claim holding that it was capital expenditure.

4. The Tribunal reversed the findings and held that the addition was not justified as it was revenue expenditure.

Judgement : On revenue’s appeal, The Honorable High Court of Delhi has held that no interference was required in the order passed by the Tribunal. ?Page=CASELAWS&id=101010000000184514&isxml=Y&search=&tophead=true&tophead =true