Case Law Details
DCIT Vs NTPC Vidyut Vyapar Nigam Limited (ITAT Delhi)
Bank Guarantee Encashment Not Taxable as Income Due to Government Directions, Rules ITAT; ITAT Rejects Revenue Appeal Because Encashed Guarantee Amount Was Treated as Liability; Amount Received from Encashed Bank Guarantees Cannot Be Taxed When Assessee Is Mere Custodian: ITAT.
The Income Tax Appellate Tribunal (ITAT) Delhi dismissed the Revenue’s appeal for assessment year 2016-17 and upheld the deletion of an addition of Rs. 5,68,60,563 relating to retention of amounts received from encashment of bank guarantees. The appeal arose from the order of the CIT(A)/NFAC dated 12.09.2025 passed under Section 143(3) of the Income Tax Act.
The Revenue challenged the CIT(A)’s decision deleting the addition made by the Assessing Officer, who had treated the retained amount from bank guarantee encashment as income in the hands of the assessee.
The Tribunal noted that the same issue had already been decided against the Revenue in the assessee’s own case for assessment years 2013-14 and 2015-16. In those earlier years, the Tribunal had observed that the assessee was carrying out Government of India missions under policies and directions issued by the Government. The contracts were executed under government directions, and the bank guarantees were taken and encashed according to guidelines issued by the concerned Ministry. The encashed amounts were deposited in a separate bank account as directed by the Government of India.
The Tribunal had earlier held that directions issued by the Ministry of New and Renewable Energy clarified that amounts received from encashment of bank guarantees and related interest were not to be treated as income of the assessee. It was held that the assessee acted merely as a custodian of government money and therefore such amounts could not be treated as income at any stage. The Tribunal had also observed that the ministry’s directions were clarificatory and retrospective in nature unless specifically stated otherwise.
Since both lower authorities had found the facts in the present assessment year to be similar to earlier years, the Tribunal followed the principle of judicial consistency and upheld the CIT(A)’s order deleting the addition. Accordingly, the Revenue’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This Revenue’s appeal for assessment year 2016-17, arises against the Commissioner of Income Tax/National Faceless Appeal Centre (in short, the “CIT(A)/NFAC”) Delhi’s dated 12.09.2025 passed in DIN & Order No. ITBA/NFAC/S/250/2025-26/1080658871(1), involving proceedings u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
Heard both the parties. Case file perused.
2. Coming to the Revenue’s sole substantive ground that the CIT(A) herein has erred in law and on its facts in reversing the Assessing Officer’s assessment findings adding the amount in question of Rs. 5,68,60,563/-representing the retention of bank guarantee in the assessee’s hands, we noticed at the outset that this tribunal’s earlier common order in the latter’s case in assessment years 2013-14 and 2015-16, has already decided the very issue against the department; reading as under:
“ 7.1 Grounds raised in the Revenue’s appeal and ground no. 1 and 2 of the appeal of Assessee. There is no dispute to the fact that the assessee is carrying on Government of India mission working on behalf of the Government of India. The contracts have been executed under the policy in directions of Government of India. The bank guarantee was taken and encashed under the guidelines of the concerned ministry. The encashed amounts are deposited in a separate bank account as per the direction of Government of India. The directions of the Government of India through Ministry of New and Renewable Energy to not treat the amount encashed from bank guarantee as income leave no doubt that the assessee was so far making irregular treatment of the amounts of bank encashment and interest thereupon by showing the same as income of the assessee. Thus, the assessee being custodian of the Government money such money into the hands of assessee cannot be termed as income at any stage.
7.2 The Bench is of considered opinion that Ld. CIT(A) was not in error in giving the finding that appellant is merely custodian of the money received from encashment of bank guarantee and that the assessee has rightly treated the amount receive on encashment of bank guarantee during financial year as a liability along with the interest is liability. However, he failed to appreciate that the directions of the ministry being clarificatory in nature and also carrying a mandate of compliance by the assessee cannot be prospective only. The administrative directions in financial matter of Government entities have to be taken to be retrospective to time to which controversy relates unless specifically directed to be prospective. Accordingly, Ld. CIT(A) erred in disallowing the reversal of amount received as bank guarantees and interest for earlier years to the extent of Rs. 1,15,82,16,659/-. Accordingly, the issue in the Revenue’s appeals are decided against the Revenue and the issue no. 1 in the appeal of assessee is decided in favour of the asses see.”
3. There is further no dispute that both the learned lower authorities have already held all the relevant facts in these assessment years as on similar footing only. We thus adopt judicial consistency to uphold the learned CIT(A) detailed discussion deleting the impugned addition of retention of bank guaranteeing encashment made in the assessee’s hand in very terms. The Revenue fails in its instant sole substantive ground therefore.
No further ground or argument has been pressed before us.
4. This Revenue’s appeal is dismissed in above terms.
Order pronounced in the open court on 9th April , 2026.
Author Bio
