The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench while deleting the addition ruled that the encashment of bank guarantee is incurred in the normal course of business.
The assessee, Ogene Systems India Limited has debited an amount of Rs.1,10,61,051/- towards Security deposit non performance. It was found that the assessee paid bank guarantee for executing the turnkey project with High Explosive Factory, Pune. But, the assessee failed to execute the project. The encashment of bank guarantee is in the nature of penalty levied for the default in executing the project. Further, the assessee has not realized any amount out of this project. As the expenditure claimed by the assessee is penal in nature and as there was no income out of this project, the expenditure of Rs.1,10,61,051/- claimed by the appellant was disallowed and added to the income.
The assessee challenged the order of the lower authorities having erred in law and on facts in disallowing its security deposit encashment claim of Rs.1,10,61,051/- treated as penal in nature.
The Revenue contended that both the lower authorities have rightly disallowed the impugned encashment of bank guarantee being penal in nature on account of non- performance of contract at assessee’s behest.
The assessee on the other hand contended that the impugned encashment of bank guarantee is the outcome of failure to perform its contractual obligation only without involving any offence or penal component under section 37(1) of the Act.
The coram of Lakshmi Prasad Sahu and S.S.Godara held that such an encashment of bank guarantee is incurred in the normal course of business than involving any penalty element at all.
The ITAT directed the Assessing Officer to delete the impugned disallowance or addition in issue.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. We welcome your comments at info@taxscan.in
