In the matter of Principal Commissioner of Income Tax-4 v. Green Delhi BQS Ltd. [(2018) 99 taxmann.com 38 (Delhi) decided on 05.10.2018], the Hon’ble Delhi High Court (“Court”) held that where Assessee could not perform its part of concessionaire agreement entered with Delhi Transport Corporation (“DTC”) and DTC encashed the bank guarantee furnished by it, the amount so paid in this regard shall be allowed as a deduction under Section 37(1) of the Income-tax Act, 1961 (“Act”). The facts of the case were that the Assessee had entered into a Concessionaire Agreement (“Agreement”) with DTC for setting up 400 bus shelters on build, operate and transfer basis. As per the Agreement, two bank guarantees of Rs. 1 crore and Rs. 1.5 crores were required to be furnished by the Assessee to the DTC as performance security for construction; and for operation and maintenance of the bus shelters and payment of concessionaire fee, respectively. The Assessee had actually furnished bank guarantee of Rs. 2 crores to the DTC as performance security. On account of Assessee’s failure to perform as per the Agreement, DTC invoked the bank guarantee. The said action of encashment was challenged by the Assessee before the Hon’ble Court. However, by order dated 26th March, 2009, DTC was permitted and allowed to encash the bank guarantee. On account of the said encashment, the Assessee claimed an expenditure of Rs. 2,08,92,603/- as capital loss suffered by the it for failure to perform its part of the Agreement with the DTC which was disallowed by the Assessing Officer. The disallowance was upheld by the CIT (Appeals). However, the Tribunal by the impugned order has reversed the findings and held that the addition was not justified as the loss suffered was revenue expenditure. On departmental appeal to the Court, the Hon’ble Court observed that whether expenditure is capital or revenue in nature has to be looked at from a commercial point of view. In the instant case, there was failure on the part of assessee to perform its part of the Agreement including operation and maintenance of bus shelters, thus, any expenditure or payment of the said nature would necessarily be revenue in character. Hence, the Court after examining the case from all angles, upheld the findings of the Tribunal and held that the amount paid by the Assessee to DTC on account of encashment of bank guarantee was a revenue expenditure allowable as a deduction under section 37(1) of the Act.