ACIT, Circle - 1(1), KOLKATA, Kolkata V. M/s. Mcnally Sayaji Engineering Limited, Kolkata

ITA 1173/KOL/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8768 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-01-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 29-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM BILASH MEENA
• Assessee Lawyers: APLESH GUPTA ACA
• Keywords: Additional evidence; Set aside
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI P.M.JAGTAP, VICE-PRESIDENT AND SHRI S.S.GODARA, JUDICIAL MEMBER ITA NO.1173/KOL/2018 ASSESSMENT YEAR:2013-14 ACIT, CIRCLE-1(1), P- 7,CHOWRINGHEE SQUARE, R.NO.20, 7THFLOOR, KOLKAT-A7A00 069 / V/S . M/S MCNALLY SAYAJT ENGINEERING LTD., 4, MANGOE LANE, KOLKATA-700 001 [ PAN NO.AACCS 5491 A ] /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI RAM BILASH MEENA, CIT-DR /BY RESPONDENT SHRI APLESH GUPTA, ACA /DATE OF HEARING 07-01-2020 /DATE OF PRONOUNCEMENT 17-01-2020 /O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2013-14 ARISES AGAINST THE COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA DAT ED 13.03.2018, PASSED IN CASE NO.10199/CIT(A)-1/CIRCLE-1(1)/2016-17, INVOLVING PR OCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. THE REVENUES FORMER SUBSTANTIVE GROUND PLEADS T HAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE EMPLOYEES CONTRIBU TION TO PROVIDENT FUND DISALLOWANCE OF 20,38,637/- DESPITE THE FACT THAT THE SAME HAD BEEN DEPOSITED AFTER THE DUE DATE AS PER THE SPECIFIC PROVISION IN THE C ORRESPONDING STATUE. IT FAILS TO DISPUTE THAT THE ASSESSEES IMPUGNED CREDIT HAD BEEN MADE V ERY WELL BEFORE THE DATE OF FILING RETURN AND THEREFORE, THIS DISALLOWANCE MADE U/S. 3 6(1)(VA) R.W.S. 43B OF THE ACT IS NOT SUSTAINABLE AS PER HON'BLE JURISDICTIONAL HIGH COUR TS DECISION IN CIT VS. M/S VIJAY ITA NO.1173/KOL/2018 A.Y. 2013-1 4 ACIT, CIR-1(1), KOL. VS. M/S MCNALLY SAY AJIT ENGINEERING LTD. PAGE 2 SHREE LTD. (2011) 224 TAXMAN 12 (CAL) HAS ALREADY DECIDED THE VERY ISSUE IN ASSESSEES FAVOUR AS RELIED UPON IN THE CIT(A)S FI NDINGS. WE THEREFORE AFFIRM THE CIT(A)S FINDINGS UNDER CHALLENGE DELETING THE IMPU GNED DISALLOWANCE. 3. NEXT COMES THE LATTER ISSUE OF RETENTION MONEY D ISALLOWANCE / ADDITION OF 7,72,10,900/- MADE BY THE ASSESSING OFFICER AND REV ERSED IN THE CIT(A)S DETAILED DISCUSSION READING AS UNDER:- GROUND NO 4: THIS GROUND RELATES TO AO HAS ERRED I N DISALLOWING THE CLAIM OF THE APPELLANT AMOUNTING TO RS.7,72,10,900/- TOWARDS RETENTION MON EY CONTENDING THAT THE SYSTEM FOLLOWED BY THE APPELLANT ( I.E. OFFERING RETENTION MONEY ON CASH BASIS ) IS NOT PERMISSIBLE AS PER THE ACT. THAT THE AO HAS ERRED IN NOT APPRECIATING THE FACT THAT RETENTION MONEY, WHICH IS PAYABLE AFTER A CERTAIN PERIOD OF TIME ON THE SATISFACTORY PERFORMANCE OF THE CONTRACT EXECUTED BY THE PARTIES AS PER THE TERMS OF THE AGREEMENT, COULD NO T BE SAID TO BE ACCRUED TO THE APPELLANT AT THE TIME OF RAISING THE INVOICE AND COULD BE SAID T O BE ACCRUED ONLY AFTER THE CUSTOMER ACCEPTS ITS CLAIM FOR SATISFACTORY COMPLETION OF THE CONTRA CT. THE A.O HAS DEALT WITH THIS ISSUE IN THE ASSESSMENT ORDER AS UNDER:- IN THE COMPUTATION OF TOTAL INCOME ASSESSEE HAS RED UCED A SUM OF RS.10,12,20,489/- BEING RETENTION MONEY OUT OF CURRENT YEAR'S REVENUE SHOWN RETAINED BY THE CUSTOMERS. DURING THE COURSE OF ASSESSMENT, EXPLANATION WAS SO UGHT FROM THE ASSESSEE AS TO WHY THE SAME SHALL BE ALLOWED AS DEDUCTION. IN THIS REGARD, DETAILED REPLY WAS FILED BY THE ASS ESSEE WHERE IT WAS STATED THAT RETENTION MONEY REPRESENTS CERTAIN PERCENTAGE OF BI LLED AMOUNTS RETAINED BY THE PARTIES IN RESPECT TO ITS CONTRACT WHICH IS TO BE P AID ONLY AFTER SATISFACTORY COMPLETION OF THE CONTRACT. THE ABOVE SUBMISSION OF THE ASSESSEE HAS BEEN PERUS ED BUT NOT ACCEPTED. THE ASSESSEE HAS RAISED THE BILLS UPON COMPLETION OF CE RTAIN PERCENTAGE OF THE CONTRACT WORK AND THE PROFIT ELEMENT IS EMBEDDED IN THE BILL S ITSELF. THE INCOME HAS ALWAYS ACCRUED AND AROSE IN THE HANDS OF THE ASSESSEE AS A ND WHEN THE BILLS IS RAISED ON DEBTORS AS THE ASSESSEE IS MAINTAINING MERCANTILE S YSTEM OF ACCOUNTS. IT IS LEGALLY AND FACTUALLY INCORRECT TO SAY THAT THE MONEY RETAINED BY THE DEBTOR FROM SUCH BILLS WHICH BECOMES PAYABLE UPON CERTAIN CONTINGENCIES HAS NOT ACCRUED TO AND FORMS PART OF THE INCOME OF THE ASSESSEE. RETENTION MONEY WHICH IS FORMING PART OF SALE IS AL WAYS AN INCOME ACCRUED AND AROSE IN THE HANDS OF THE ASSESSEE. MONEY IS RETAINED BY THE DEBTOR TO ENSURE THAT THE PERFORMANCE GUARANTEED BY THE SELLER IS OBTAINED. IN CASE THE PERFORMANCE IS ACHI EVED, THE RETAINED MONEY IS RELEASED. IN CASE OF NON-PERFORMANCE, THE DEBTOR EXERCISES HI S RIGHT AND THE SELLER LOSES THE RIGHT TO CLAIM THE RETAINED MONEY AND THE SAME IS RECOGNI ZED AS BAD DEBT IN THE BOOKS OF THE SELLER. ONCE SALE HAS HAPPENED, THE SELLER IS BOUND TO RECO GNIZE THE ENTIRE AMOUNT OF SALE IN THE PROFIT AND LOSS ACCOUNT. AS PER ACCOUNTING STAN DARD 9, NON- RECOGNITION OF SALE HAPPENS ONLY WHEN AT THE TIME OF SALE ITSELF, THE S ELLER IS CERTAIN THAT THE MONEY WILL NOT COME TO HIM. THIS IS NOT THE CASE OF THE ASSESS EE AS IT HAS RECOGNIZED THE ENTIRE AMOUNT OF SALE IN ITS PROFIT AND LOSS ACCOUNT. IT I S ONLY IN CASE THE GUARANTEED PERFORMANCE IS NOT ACHIEVED, WILL THE DEBTOR NOT RE LEASE THE RETAINED MONEY. AS AND ITA NO.1173/KOL/2018 A.Y. 2013-1 4 ACIT, CIR-1(1), KOL. VS. M/S MCNALLY SAY AJIT ENGINEERING LTD. PAGE 3 WHEN THIS HAPPENS, THE ASSESSEE CAN CLAIM THE SAME AS BAD DEBT. THERE IS NO REASON WHY IT SHOULD NOT OFFER THE ENTIRE SALE AMOUNT TO T AX. HOWEVER, IN THE SAME COMPUTATION OF TOTAL INCOME TH E ASSESSEE HAS ADDED A SUM OF RS.2,40,09,589/- BEING AMOUNT ACTUALLY RECEIVED DUR ING THE FY 2012-13 OUT OF RETENTION MONEY RETAINED BY CUSTOMERS IN EARLIER FY S. THEREFORE ONLY THE NET AMOUNT RETENTION MONEY REDUCED IN THE COMPUTATION OF TOTAL INCOME IS DISALLOWED IN THIS ORDER. DISALLOWANCE: RS.10,12,20,489/- LESS RS.2,40 ,09,589/- = 7,72,10,900/-. IN LIGHTS OF THE ABOVE DISCUSSION, THE AMOUNT OF RETENTION MONEY IS BROUGHT TO TAX.' THE APPELLANT'S A/R HAS MADE WRITTEN SUBMISSIONS AS HEREUNDER: A) THAT, ON FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. AO HAS ERRED IN DISALLOWING THE CLAIM OF THE APPELLANT AMOUNTING TO RS.7,72,10,900 TOWARDS RETENTION MONEY CONTENDING THE SYSTEM FOLLOWED BY T HE APPELLANT ( I.E. OFFERING RETENTION MONEY ON CASH BASIS ) IS NOT PERMISSIBLE AS PER THE ACT. B) THE LD. AO HAS ERRED IN NOT APPRECIATING THE FAC T THAT RETENTION MONEY, WHICH IS PAYABLE AFTER CERTAIN PERIOD OF TIME ON TH E SATISFACTORY PERFORMANCE OF THE CONTRACT EXECUTED BY PARTIES AS PER THE TERM S OF AGREEMENT, COULD NOT BE SAID TO BE ACCRUED TO APPELLANT AT THE TIME OF R AISING THE INVOICE AND COULD BE SAID TO BE ACCRUED ONLY AFTER THE CUSTOMER ACCEP TS ITS CLAIM FOR SATISFACTORY COMPLETION OF CONTRACT. C) THE LD. AO ERRED IN NOT APPRECIATING THAT APPELL ANT HAS NOT GOT ANY RIGHT TO ENFORCE CLAIM FOR RETENTION MONEY DURING AY 2013 -14 AND HENCE THE SAME COULD NOT BE SAID TO BE ACCRUED DURING AY 2013-14. D) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN COMPLETELY DISREGARDING THE SUBMISSIONS MADE BY THE APPELLANT THAT THE TREATMENT WITH RESPECT TO RETENTION MONEY HAS BEEN DONE BASED ON THE SETTLED PRINCIPLES LAID DOWN BY VARIOUS COURTS IN THIS REGA RD. 2.3.1 THE APPELLANT IS MAINLY ENGAGED IN MANUFACTUR ING AND SUPPLY OF HEAVY EQUIPMENT & TOOLS UNDER CONTRACT. IN RESPECT OF CONTRACT BUSINE SS OF THE APPELLANT, CERTAIN PERCENTAGE OF THE INVOICE AMOUNT RAISED BY THE APPELLANT IS RETAINED BY THE CUSTOMERS/PARTIES AS RETENTION MONEY TO BE PAID AFTER THE SUCCESSFUL COMPLETION OF THE CONTRACT OR ON FULFILLMENT OF CERTAIN PREDETERMINED CONDITIONS MENTIONED IN PURCHASE ORDE R ITSELF. SAMPLE COPIES OF THE CONTRACTS ENTERED WITH THE CUSTOMERS ARE ENCLOSED AS ANNEXURE 2A. 2.3.2 THE APPELLANT DURING THE YEAR UNDER CONSIDERA TION CLAIMED AN AMOUNT OF RS.10,12,20,489 AS DEDUCTION ON ACCOUNT OF RETENTIO N MONEY SINCE THE INCOME HAS NOT ACCRUED TO THE APPELLANT AND THE SAME IS NOT REAL INCOME FO R THE YEAR UNDER CONSIDERATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT SUB MITTED EXPLANATIONS IN THIS REGARD BEFORE THE LD. AO VIDE SUBMISSIONS DATED 4 FEBRUARY 2016 A LONG WITH THE PARTY-WISE DETAILS OF THE RETENTION MONEY ( COPY ENCLOSED AS ANNEXURE 2 ) 2.3.3 THE LD. AO IN THE ORDER UNDER SECTION 143(3) OF THE ACT DATED 30 MARCH 2016 DISALLOWED THE CLAIM OF APPELLANT CONTENDING THAT - A. RETENTION MONEY WHICH IS FORMING A PART OF THE S ALE IS ALWAYS TREATED AS INCOME ACCRUED AND ARISEN IN THE HANDS OF THE APPELLANT. ITA NO.1173/KOL/2018 A.Y. 2013-1 4 ACIT, CIR-1(1), KOL. VS. M/S MCNALLY SAY AJIT ENGINEERING LTD. PAGE 4 B. FURTHER, ONCE THE SALE HAS HAPPENED, THE SELLER IS BOUND TO RECOGNIZE THE ENTIRE AMOUNT OF SALE IN THE PROFIT AND LOSS ACCOUNT. AS P ER ACCOUNTING STANDARD 9, NON- RECOGNITION OF SALE HAPPENS ONLY WHEN AT THE TIME O F SALE ITSELF THE SELLER IS CERTAIN THAT THE MONEY WILL NOT COME TO HIM. C. IN CASE OF NON-PERFORMANCE, THE DEBTOR EXERCISES HIS RIGHT AND THE APPELLANT LOSES THE RIGHT TO CLAIM THE RETAINED MONEY AND THE SAME IS RECOGNIZED AS BAD DEBT IN THE BOOKS OF THE APPELLANT. IN REGARD TO THE ABOVE, THE APPELLANT WOULD HUMBLY LIKE TO SUBMIT AS UNDER:- ISSUE DECIDED IN FAVOR OF APPELLANT IN ITS OWN CASE FOR AY 2008-09 AND AY 2009-10 2.3.4 AT THE OUTSET, WE WOULD LIKE TO BRING IT TO Y OUR KIND ATTENTION THAT THE ISSUE HAS BEEN DECIDED IN FAVOR OF THE APPELLANT BY THE HON'BLE IT AT IN APPELLANT'S OWN CASE FOR AY 2008- 09 AND AY 2009-10 IN ITA NO.1575/A/2011 AND ITA NO.927/KOI/2013 VIDE ORDER DATED 10 MARCH 2017. A COPY OF THE ORDER IS ENCLOSED AS ANNEXURE 3 . THE RELEVANT EXTRACTS OF THE DECISION IS QUOTED AS UNDER:- 'WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE DESERVES TO BE ADMITTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS IT CONTA INS THE NECESSARY DETAILS OF OFFER OF RETENTION MONEY FROM VARIOUS PROJECTS IN THE SUBSEQ UENT ASSESSMENT YEARS. ADMITTEDLY THE SAME WERE NOT FILED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES AS THEY WERE NOT CALLED FOR BY THE LOWER AUTHORITIES. ONCE IT IS PROVED THAT THE SAID NATURE COMPRISES OF RETENTION MONEY AND THE SAME IS OFFERE D TO TAX BY THE ASSESSEE IN THE SUBSEQUENT YEARS THEN THE ENTIRE FINDINGS OF THE LD . CIT(A) FOR THE ASSESSMENT YEAR 2009-10 GETS ANSWERED. IN THE VIEW OF THESE FACTS A ND CIRCUMSTANCES, WE DEEM IT FIT AND APPROPRIATE, IN THE INTEREST OF JUSTICE AND FAI R PLAY, TO SET ASIDE THIS ISSUE OF ADDITION TOWARDS RETENTION MONEY FOR THE ASST. YEAR S 2008-09, 2009-10, TO THE FILE OF THE AO, TO VERIFY THE CORRECTNESS OF THE OFFER OF R ETENTION MONIES IN SUBSEQUENT YEARS AND ACCORDINGLY DECIDE THE ISSUE IN ACCORDANCE WITH LAW .... ' 2.3.5 ACCORDINGLY, BASED ON THE ABOVE SUBMISSION TH E CLAIM OF RETENTION MONEY SHOULD BE ALLOWED AS DEDUCTION IN THE YEAR UNDER CONSIDERATIO N. THE APPELLANT FURTHER SUBMITS THAT THE APPEALS FILED BEFORE THE LD. CIT(A) FOR AY 2010-11, 2011-12 AND 2012-13 INVOLVE SIMILAR GROUNDS. THE HEARINGS FOR AY 2010-11 AND AY 2011-12 HAVE BEEN CONCLUDED. HOWEVER, THE ORDER FOR THE SAME IS AWAITED. FURTHER, THE NOTICE OF HEARING FOR AY 2012-13 IS NOT YET RECEIVED. 2.3.6 THE ABOVE ISSUE HAS BEEN RECENTLY CONCLUDED I N FAVOUR OF THE APPELLANT'S IMMEDIATE PARENT COMPANY I.E. MCNALLY BHARAT ENGINEERING CO. LTD., KOLKATA BY THE HON'BLE ITAT, KOLKATA IN ITA NO.100/KOI/2011 , WHERE THE HON'BLE TRIBUNAL DISMISSED THE DEPARTME NT'S APPEAL ON THE ISSUE AND HELD THAT RETENTION MONEY S HOULD NOT BE INCLUDED IN COMPUTING BOOK PROFIT UJS.115JB AS WELL AS NORMAL PROVISIONS ( COPY ENCLOSED AS ANNEXURE 4 ). THE RELEVANT EXTRACTS HAVE BEEN REPRODUCED BELOW FOR YOUR REFERE NCE: 37. THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERAT ING THE PLEA OF THE ASSESSEE AS PUT FORTH BEFORE CIT(A) FURTHER PLACED RELIANCE ON THE DECIS IONS OF THE HON'BLE ITAT, KOLKATA BENCH IN THE CASE OF DCIT VS BINANI INDUSTRIES LTD. IN ITA NO. 144/KOL/2012 FOR A.Y. 2009-10 ORDER DATED 02.03.2016 WHEREIN THE ENTIRE CASE LAWS ON THE ISSUE HAS BEEN DISCUSSED. THE TRIBUNAL FINALLY CONCLUDED IN THE AFORESAID DECISIO N THAT IF THE RECEIPT IS NOT IN THE NATURE OF INCOME THEN IT CANNOT BE CONSIDERED AS INCOME FOR T HE PURPOSE OF BOOK PROFIT UJS.115JB OF THE ACT. ON THE OTHER HAND IF A RECEIPT IS CONSIDERED A S INCOME BUT IS EXEMPT BY VIRTUE OF ANY SPECIFIC PROVISION OF THE ACT, THEN THE SAME WOULD BE TREATED A PART OF THE BOOK PROFIT ITA NO.1173/KOL/2018 A.Y. 2013-1 4 ACIT, CIR-1(1), KOL. VS. M/S MCNALLY SAY AJIT ENGINEERING LTD. PAGE 5 UJS.115JB OF THE ACT. THUS THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE RETENTION MONEY IN QUESTION WAS NOT IN THE NATURE OF INCOME A T ALL IT SHOULD NOT BE INCLUDED AS PART OF THE BOOK PROFIT UJS.115JB OF THE ACT. 38. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. AS FAR AS THE QUESTION WITH REGARD TO EXCLUDING THE RETENTION MONEY WHILE COMPUTING THE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT IS CONCERNED, IT IS NO T DISPUTED BY THE REVENUE THAT THE SUM IN QUESTION IS IN THE NATURE OF RETENTION MONEY. IN SU CH CIRCUMSTANCES WE ARE OF THE VIEW THAT THE RETENTION MONEY CANNOT BE REGARDED AS INCOME OF THE ASSESSEE. THE ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN CONCLUDED BY THE HON'BLE CALCU TTA HIGH COURT IN CASE OF CIT VS. SIMPLEX CONCRETE (PILES) INDIA PVT. LTD. [179 ITR 8 ]. IN THE AFORESAID DECISION THE HON'BLE CALCUTTA HIGH COURT ON IDENTICAL FACTS HELD THAT HA VING REGARD TO THE TERMS AND CONDITIONS OF THE CONTRACT, IT COULD NOT BE HELD THAT EITHER 10 P ER CENT OR 5 PER CENT AS THE CASE MAY BE, BEING RETENTION MONEY, BECAME LEGALLY DUE TO THE ASSESSEE ON THE COMPLETION OF THE WORK. ONLY AFTER THE ASSESSEE FULFILLED THE OBLIGATIONS UNDER THE CO NTRACT, THE RETENTION MONEY WOULD BE RELEASED AND THE ASSESSEE COULD ACQUIRE THE RIGHT T O RECEIVE SUCH RETENTION MONEY. THEREFORE, ON THE DATE WHEN THE BILLS WERE SUBMITTED, HAVING R EGARD TO THE NATURE OF THE CONTRACT, NO ENFORCEABLE LIABILITY ACCRUED OR AROSE AND, ACCORDI NGLY, IT COULD NOT BE S AID THAT THE ASSESSEE HAD ANY RIGHT TO RECEIVE THE ENTIRE AMOUNT ON THE C OMPLETION OF THE WORK OR ON THE SUBMISSION OF BILLS. THE ASSESSEE HAD NO RIGHT TO CLAIM ANY PA RT OF THE RETENTION MONEY TILL THE VERIFICATION OF SATISFACTORY EXECUTION OF THE CONTRACT. THEREFOR E, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE RETENTION MONEY IN RESPECT OF THE JOBS COMPLETED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR SHOULD NOT BE TAKEN INTO ACCOUNT IN COMPUTING THE PROFITS OF THE ASSESSEE FOR THE ASSESSMENT YEAR IN QUESTION. IN VIEW OF THE AFORESA ID DECISION OF THE HON'BLE CALCUTTA HIGH COURT RENDERED ON IDENTICAL FACTS AS THAT OF THE AS SESSEE'S CASE, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN ONE PART OF GR. NO.S RAISED BY THE REVE NUE VIZ., THAT RETENTION MONEY HAS TO BE CONSIDERED AS INCOME FOR COMPUTING TOTAL INCOME UND ER THE NORMAL PROVISIONS OF THE ACT AND ACCORDINGLY THE SAME IS DISMISSED . SIMILAR ISSUE HAS BEEN DECIDED IN FAVOR OF ASSESSEE BY THE HIGH COURTS INCLUDING JURISDICTION HIGH COURT 2.3.7 THE APPELLANT ALSO PLACES RELIANCE ON DECISIO N OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT -VS- SIMPLEX CONCRETE PILES (INDIA) P. LTD.[1989] 179 ITR 8 [CAL] WHEREIN IT HAS BEEN HELD THAT THE RETENTION MONEY IN RESPECT OF JO BS NOT COMPLETED DURING THE RELEVANT ASSESSMENT YEAR SHOULD NOT BE TAKEN INTO ACCOUNT IN COMPUTING THE PROFITS FOR THE ASSESSMENT YEAR IN QUESTION SINCE THE ASSESSEE HAS NO RIGHT TO CLAIM ANY PART OF THE RETENTION MONEY TILL THE VERIFICATION OF THE SATISFACTORY EXECUTION OF T HE CONTRACT. IT WAS ALSO HELD THAT ONLY AFTER THE ASSESSEE FULFILLED THE OBLIGATIONS UNDER THE CONTRA CT, THE RETENTION MONEY WOULD BE RELEASED AND THE ASSESSEE WOULD ACQUIRE THE RIGHT TO RECEIVE SUCH RETENTION MONEY. 2.3.8 THE ABOVE RULING HAS BEEN UPHELD BY GUJARAT H IGH COURT IN CASE OF AMARSHIV CONSTRUCTION (P) LTD. [2014] WHERE THE ASSESSEE WAS AWARDED A CONSTRUCTION CONTRACT AND IN TERMS OF CONTRACT CERTAIN AMOUNT WAS WITHHELD BY EM PLOYER OF CONTRACT TOWARDS RETENTION MONEY FOR SATISFACTORY EXECUTION OF CONTRACT BY ASS ESSEE, RETENTION MONEY WAS TO BE TAXED IN ASSESSMENT YEAR RELEVANT TO ' PREVIOUS YEAR ' IN WHICH IT BECAME PAYABLE TO ASSESSEE AS PER TERMS OF CONTRACT I.E. AFTER DEFECT LIABILITY WAS O VER AND AFTER ENGINEER-IN-CHARGE CERTIFIED THAT NO LIABILITY WAS ATTACHED TO ASSESSEE. THE HON'BLE GUJARAT HIGH COURT HELD AS UNDER: 'THE ASSESSEE HAD NO ABSOLUTE RIGHT TO RECEIVE THE AMOUNT. SSNNL HAD NO OBLIGATION TO RELEASE THE SAME BEFORE COMPLETION OF WARRANTY PERI OD AND EVEN THEREAFTER WOULD RELEASE THE AMOUNT ONLY AFTER MAKING PERMISSIBLE ADJUSTMENTS. M ERE FACT THAT IN THE INSTANT CASE NO RECOVERIES WERE MADE FROM THE BANK GUARANTEE OR SEC URITY DEPOSIT IS OF NO CONSEQUENCE. MERE FACT THAT THE AMOUNT WAS RECEIVED BY THE ASSES SEE WOULD NOT MEAN THAT INCOME HAD ACCRUED. WHETHER INCOME DID ACCRUE OR NOT WOULD DEP END ON THE FACT WHETHER THE RIGHT TO RECEIVE SAID AMOUNT HAD ACCRUED OR NOT. THE FACT TH AT TAX WAS DEDUCTED AT SOURCE ON SAID ITA NO.1173/KOL/2018 A.Y. 2013-1 4 ACIT, CIR-1(1), KOL. VS. M/S MCNALLY SAY AJIT ENGINEERING LTD. PAGE 6 AMOUNT ALSO WOULD BE OF NO CONSEQUENCE. TAX WAS DED UCTED BY SSNNL. THE ASSESSEE HAD NO CONTROL OVER SUCH DEDUCTION. MERELY WHETHER TAX WAS DEDUCTIBLE OR NOT WOULD NOT DECIDE THE TAXABILITY OF CERTAIN RECEIPTS. THE MANNER IN WHICH THE ASSESSEE ACCOUNTED FOR SUCH RECEIPT IN ITS BOOKS OF ACCOUNT CAN ALSO NOT DETERMINE ITS TAX LIABILITY.' I HAVE CONSIDERED THE A.OS FINDING, WRITTEN SUBMISS IONS AND CITED DECISIONS. THE A.O HAS DISALLOWED THE APPELLANT'S CLAIM FOR DEDUCTION OF T HE NET AMOUNT OF RETENTION MONEY OF RS.7,72,10,900/- I.E. THE DIFFERENCE BETWEEN RETENT ION MONEY REDUCED IN THE COMPUTATION OF TOTAL INCOME. DISALLOWANCE: RS.10,12,20,489/- LESS RS.2,40,09,589/- DISCLOSED AS CASH RECEIPTS DURING THE RELEVANT ASSESSMENT YEAR. THE A.O HELD T HAT FIRSTLY, RETENTION MONEY WHICH IS FORMING A PART OF THE SALE IS ALWAYS TREATED AS INC OME ACCRUED AND ARISEN IN THE HANDS OF THE APPELLANT. SECONDLY, THAT ONCE THE SALE HAS HAPPENE D, THE SELLER IS BOUND TO RECOGNIZE THE ENTIRE AMOUNT OF SALE IN THE PROFIT AND LOSS ACCOUN T. AS PER ACCOUNTING STANDARD 9, NON- RECOGNITION OF SALE HAPPENS ONLY WHEN AT THE TIME O F SALE ITSELF THE SELLER IS CERTAIN THAT THE MONEY WILL NOT COME TO HIM. THIRDLY, THAT IN CASE O F NON-PERFORMANCE, THE DEBTOR EXERCISES HIS RIGHT AND THE APPELLANT LOSES THE RIGHT TO CLAI M THE RETAINED MONEY AND THE SAME IS RECOGNIZED AS BAD DEBT IN THE BOOKS OF THE APPELLAN T. THE APPELLANT CLAIMED DEDUCTION OF RS.10,12,20,489/ - TOWARDS MONEY RETAINED BY THE CUSTOMERS AS PER THE AGREEMENT BETWEEN THE APPELLAN T AND THE CUSTOMERS ON THE GROUND THAT THE SAME SHALL BE TAXABLE IN THE YEAR OF RECEIPT AN D ALSO OFFERED RETENTION MONEY OF RS.2,40,09,589/- TO TAX REPRESENTING THE AMOUNT WHI CH WAS CLAIMED AS DEDUCTION IN EARLIER YEARS AND RECEIVED DURING AY 2013-14. THE APPELLANT SUBMITTED THAT NO RIGHT TO CLAIM ANY PART OF THE RETENTION MONEY GETS VESTED TILL THE VE RIFICATION OF SATISFACTORY EXECUTION OF THE CONTRACT IS CONCLUDED AND ACCORDINGLY, THE SAID RET ENTION MONEY CANNOT BE SAID TO BE ACCRUED UNTIL THE CLAIM IS ACCEPTED BY CUSTOMERS SATISFACTO RY PERFORMANCE OF THE CONTRACT. HENCE, THE SAID RETENTION MONEY SHALL BE TAXABLE ONLY IN THE Y EAR OF RECEIPT ( AFTER THE SATISFACTORY PERFORMANCE OF THE CONTRACT ). THE APPELLANT'S AIR HAS SUBMITTED THAT RETENTION MO NEY COULD NOT BE REGARDED AS INCOME OF THE ASSESSEE. IT WAS ALSO CONTENDED THAT THE APPELL ANT HAS NOT GOT ANY RIGHT TO ENFORCE THE CLAIM ON ACCOUNT OF RETENTION MONEY IN AY 2013-14 A ND HENCE THE SAME COULD NOT BE SAID TO BE ACCRUED IN FY 2012-13 (RELEVANT TO AY 2013-14), AND THAT THE. AO HAS ERRED IN COMPLETELY DISREGARDING THE SUBMISSIONS MADE BY THE APPELLANT THAT THE TREATMENT WITH RESPECT TO RETENTION MONEY HAS BEEN DONE BASED ON THE SETTLED PRINCIPLES LAID DOWN BY VARIOUS COURTS IN THIS REGARD. RELIANCE WAS ALSO PLACED UPON THE DECI SION OF THE THE HON'BLE CALCUTTA HIGH COURT IN CASE OF CIT VS. SIMPLEX CONCRETE (PILES) I NDIA PVT. LTD. [179 ITR 8]. IN THE AFORESAID DECISION THE HON'BLE CALCUTTA HIGH COURT ON IDENTICAL FACTS HELD THAT HAVING REGARD TO THE TERMS AND CONDITIONS OF THE CONTRACT, IT COU LD NOT BE HELD THAT EITHER 10 PER CENT OR 5 PER CENT AS THE CASE MAY BE, BEING RETENTION MONEY, BEC AME LEGALLY DUE TO THE ASSESSEE ON THE COMPLETION OF THE WORK. ONLY AFTER THE ASSESSEE FUL FILLED THE OBLIGATIONS UNDER THE CONTRACT, THE RETENTION MONEY WOULD BE RELEASED AND THE ASSES SEE COULD ACQUIRE THE RIGHT TO RECEIVE SUCH RETENTION MONEY. THEREFORE, ON THE DATE WHEN THE BI LLS WERE SUBMITTED, HAVING REGARD TO THE NATURE OF THE CONTRACT, NO ENFORCEABLE LIABILITY AC CRUED OR AROSE AND, ACCORDINGLY, IT COULD NOT BE S AID THAT THE ASSESSEE HAD ANY RIGHT TO RECEIVE THE ENTIRE AMOUNT ON THE COMPLETION OF THE WORK OR ON THE SUBMISSION OF BILLS. THE ASSESSEE HA D NO RIGHT TO CLAIM ANY PART OF THE RETENTION MONEY TILL THE VERIFICATION OF SATISFACTORY EXECUTI ON OF THE CONTRACT. THEREFORE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE RETENTION MONEY IN RE SPECT OF THE JOBS COMPLETED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR SHOULD NOT BE TAK EN INTO ACCOUNT IN COMPUTING THE PROFITS OF THE ASSESSEE FOR THE ASSESSMENT YEAR IN QUESTION. R ELIANCE WAS ALSO PLACED ON THE DECISION OF THE KOLKATA ITAT IN THE CASE OF THE APPELLANT'S HOL DING COMPANY, VIZ. IN. MCNALLY BHARAT ENGINEERING CO. LTD., KOLKATA BY THE HON'BLE ITAT, KOLKATA IN ITA NO.100/KOI/2011 , WHERE THE HON'BLE TRIBUNAL DISMISSED THE DEPARTMENT 'S APPEAL ON THE ISSUE AND HELD THAT RETENTION MONEY SHOULD NOT BE INCLUDED IN COMPUTING BOOK PROFIT .:, U/S.115JB AS WELL AS NORMAL PROVISIONS AND HELD AS UNDER: ITA NO.1173/KOL/2018 A.Y. 2013-1 4 ACIT, CIR-1(1), KOL. VS. M/S MCNALLY SAY AJIT ENGINEERING LTD. PAGE 7 '37. THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERA TING THE PLEA OF THE ASSESSEE AS PUT FORTH BEFORE CIT(A) FURTHER PLACED RELIANCE ON THE DECISIONS OF THE HON'BLE ITAT, KOLKATA BENCH IN THE CASE OF DCIT VS BINANI INDUSTR IES LTD. IN ITA NO. 144/KO1/2012 FOR A.V. 2009-10 ORDER DATED 02.03.201 6 WHEREIN THE ENTIRE CASE LAWS ON THE ISSUE HAS BEEN DISCUSSED. THE TRIBUNAL FINAL LY CONCLUDED IN THE AFORESAID DECISION THAT IF THE RECEIPT IS NOT IN THE NATURE O F INCOME THEN IT CANNOT BE CONSIDERED AS INCOME FOR THE PURPOSE OF BOOK PROFIT U/S.115JB OF THE ACT. ON THE OTHER HAND IF A RECEIPT IS CONSIDERED AS INCOME BUT IS EXEMPT BY VI RTUE OF ANY SPECIFIC PROVISION OF THE ACT, THEN THE SAME WOULD BE TREATED A PART OF T HE BOOK PROFIT U/S.115B OF THE ACT. THUS THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T SINCE THE RETENTION MONEY IN QUESTION WAS NOT IN THE NATURE OF INCOME AT ALL IT SHOULD NOT BE INCLUDED AS PART OF THE BOOK PROFIT U/S.115JB OF THE ACT. 38. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. AS FAR AS THE QUESTION WITH REGARD TO EXCLUDING THE RETENTION MON EY WHILE COMPUTING THE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT IS CO NCERNED, IT IS NOT DISPUTED BY THE REVENUE THAT THE SUM IN QUESTION IS IN THE NATURE O F RETENTION MONEY. IN SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT THE RETENTION MONEY CANNOT BE REGARDED AS INCOME OF THE ASSESSEE. THE ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN CONCLUDED BY THE HON'BLE CALCUTTA HIGH COURT IN CASE OF CIT VS. SIMPLEX CONCRETE (PILES) INDIA PVT. LTD. [ 179 ITR 8 ]. IN THE AFORESAID DECISION THE HON'BLE CALCUTTA H IGH COURT ON IDENTICAL FACTS HELD THAT HAVING REGARD TO THE TERM S AND CONDITIONS OF THE CONTRACT, IT COULD NOT BE HELD THAT EITHER 10 PER CENT OR 5 PER CENT AS THE CASE MAY BE, BEING RETENTION MONEY, BECAME LEGALLY DUE TO THE ASSESSEE ON THE COMPLETION OF THE WORK. ONLY AFTER THE ASSESSEE FULFILLED THE OBLIGATIONS U NDER THE CONTRACT, THE RETENTION MONEY WOULD BE RELEASED AND THE ASSESSEE COULD ACQU IRE THE RIGHT TO RECEIVE SUCH RETENTION MONEY. THEREFORE, ON THE DATE WHEN THE BI LLS WERE SUBMITTED, HAVING REGARD TO THE NATURE OF THE CONTRACT, NO ENFORCEABLE LIABI LITY ACCRUED OR AROSE AND, ACCORDINGLY, IT COULD NOT BE S AID THAT THE ASSESSE E HAD ANY RIGHT TO RECEIVE THE ENTIRE AMOUNT ON THE COMPLETION OF THE WORK OR ON THE SUBM ISSION OF BILLS. THE ASSESSEE HAD NO RIGHT TO CLAIM ANY PART OF THE RETENTION MONEY T ILL THE VERIFICATION OF SATISFACTORY EXECUTION OF THE CONTRACT. THEREFORE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE RETENTION MONEY IN RESPECT OF THE JOBS COMPLETED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR SHOULD NOT BE TAKEN INTO ACCOUNT IN C OMPUTING THE PROFITS OF THE ASSESSEE FOR THE ASSESSMENT YEAR IN QUESTION. IN VI EW OF THE AFORESAID DECISION OF THE HON'BLE CALCUTTA HIGH COURT RENDERED ON IDENTICAL F ACTS AS THAT OF THE ASSESSEE'S CASE, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN ONE PA RT OF GR. NO.5 RAISED BY THE REVENUE VIZ., THAT RETENTION MONEY HAS TO BE CONSIDERED AS INCOME FOR COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AND ACCORDIN GLY THE SAME IS DISMISSED .' IN VIEW OF THE ABOVE DISCUSSION AND THE RATIO OF TH E CITED DECISIONS ON THE ISSUE IN DISPUTE, I.E. AS TO WHETHER RETENTION MONEY CAN BE BOUGHT TO TAX AS INCOME UNDER THE NORMAL PROVISIONS OF THE ACT, IT IS FOUND THAT THE ISSUE IS SQUARELY COV ERED BY THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF THE APPELLANT'S HOLDING COMPANY , M/S MCNALLY BHARAT ENGINEERING CO. LTD., KOLKATA BY THE HON'BLE ITAT, KOLKATA IN ITA NO.100/KOI/2011 , WHEREIN THE HON'BLE TRIBUNAL DISMISSED THE DEPARTMENT'S APPEAL ON THE I SSUE AND HELD THAT RETENTION MONEY SHOULD NOT BE INCLUDED IN COMPUTING BOOK PROFIT U/S.115JB AS WELL AS NORMAL PROVISIONS. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL KOLKATA TRIBUNAL IN THE CASE OF M/S MCNALLY BHARAT ENGINEERING CO. LTD. (SUPRA) AND THE JURISDICTIONAL HIGH CURT IN THE CASE OF CIT VS. SIMPLEX CONCRETE (PILES) INDIA PVT. LTD. (S UPRA) ON IDENTICAL ISSUE, I AM OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN ADDITION OF THE IM PUGNED AMOUNT OF NET RETENTION MONEY OF RS.7,72,10,900/-,WHICH IS NOT SUSTAINABLE. ACCORDIN GLY, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.7,72,10,900/-.THIS GROUND IS ALLOWED . ITA NO.1173/KOL/2018 A.Y. 2013-1 4 ACIT, CIR-1(1), KOL. VS. M/S MCNALLY SAY AJIT ENGINEERING LTD. PAGE 8 4. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO R IVAL PLEADINGS. LEARNED DEPARTMENTAL REPRESENTATIVES SOLE ARGUMENT IS THAT THE ASSESSING OFFICER HAD RIGHTLY ADDED THE IMPUGNED RETENTION MONEY AS ASSESSEES IN COME GOING BY ITS ACCOUNTING METHOD REGULARLY FOLLOWD. WE FIND NO MERIT IN REVEN UES INSTANT GRIEVANCE. IT HAS COME ON RECORD THAT THIS LATTER ISSUE; ALTHOUGH A R ECURRING ONE, IS NO MORE RES INTEGRA BETWEEN THE PARTIES SINCE THE TRIBUNALS ORDER(S) I N ASSESSMENT YEARS 2008-09 AND 2009-10 (SUPRA) HAVE ALREADY DECIDED THE SAME IN AS SESSEES FAVOUR. WE WISH TO REITERATE WITH THE REVENUES PLEADINGS HAVE NOWHERE SOUGHT TO DRAW ANY EXCEPTION ON FACTS OR LAW INIT H IMPUGNED ASSESSMENT YEAR. WE TH EREFORE AFFIRM THE CIT(A)S FINDINGS UNDER CHALLENGE BY ADOPTING JUDICIAL CONSI STENCY. THE REVENUE FAILS IN ITS INSTANT LATTER SUBSTANTIVE GRIEVANCE AS WELL. 5. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 17/01/2020 SD/- SD/ - ( !) (#$ ') (P.M.JAGTAP) (S.S.GODARA) VICE PRESIDENT JUDICIAL MEMBER *DKP-SR.PS ( - 17/01/2020 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ACIT, CIRCLE-1(1), P-7, CHOWRINGHEE SQUA RE, R.NO.20 7 TH FLOOR, KOLKAT-69 2. /RESPONDENT-N/S MCNALLY SAYAJIT ENGINEERING LTD. 4, MANGOE LANE, KOL-001 3. + . / CONCERNED CIT 4. . - / CIT (A) 5. / $$+ , + / DR, ITAT, KOLKATA 6. 3 / GUARD FILE. BY ORD ER/ , /TRUE COPY/ +,