M/s Mackintosh Burn Ltd., Kolkata V. DCIT, CIR-4, KOLKATA, Kolkata

ITA 1489/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1681 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 25-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 03-07-2014
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH, KOLKATA (BENCH C) BEFORE SHRI ABY. T. VARKEY, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A. NO.1489/KOL/2014 ASSESSMENT YEAR 2010-11 ORDER PER M. BALAGANESH , AM THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-IV, KOLKATA VIDE APPEAL NO.100/CIT(A)-IV/2013-14 DATED 26.03.2014 AGAINST THE ORDER OF THE ASSESSMENT FRAMED BY DCIT, CIRCLE -4, KOLKATA UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2010-11 VIDE HIS ORDER DATED 25.03.2013. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL OF THE ASSESSEE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE ADDITION MADE ON ACCOUNT OF RETENTION MONEY M/S. MACKINTOSH BURN LTD. [PAN : AACCM2160J] -VS- D.C.I.T, CIR-4, KOLKATA (APPELLANT) (RESPONDENT) FOR THE APPELLANT SHRI ARUP SINHA, AR FOR THE RESPONDENT SHRI SAURABH JUMAR, ACIT, SR. DR DATE OF HEARING 25.05.2017 DATE OF PRONOUNCEMENT 07.06.2017 2 I.T.A. NO.1489/KOL/2014 ASSESSMENT YEAR 2010-11 M/S. MACKINTOSH BURN LTD. OF RS 3,25,03,665/- AND WHETHER THE SAME WOULD CONSTITUTE DOUBLE ADDITION, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE IS A GOVERNMENT OF WEST BENGAL ENTERPRISE, INTER ALIA , ENGAGED IN CONSTRUCTION AND DEVELOPMENT OF INFRASTRUCTURE FACILITIES LIKE ROADS, BRIDGES, FLYOVERS, PUMPING STATIONS, DRAINAGE LIFTING STATIONS ETC. SUCH DEVELOPMENT OF INFRASTRUCTURE FACILITIES ARE EXECUTED ON BEHALF OF THE STATE GOVERNMENTS OR OTHER GOVERNMENT BODIES ON THE BASIS OF AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH THEM. ON SUCCESSFUL COMPLETION OF THE PROJECT, THE INFRASTRUCTURE FACILITIES ARE TO BE TRANSFERRED TO THE STATE GOVERNMENTS OR OTHER GOVERNMENT BODIES, AS THE CASE MAY BE. IN THIS CONTRACT BUSINESS OF THE ASSESSEE, IT IS THE NORMAL PRACTICE THAT THE PARTIES ON WHOSE BEHALF THE ASSESSEE IS UNDERTAKING THE CONSTRUCTION ACTIVITY MAY RETAIN CERTAIN SUM OF MONEY AS SECURITY DEPOSIT WHICH IS RELEASED ON SATISFACTORY COMPLETION OF THE PROJECT AND / OR FULFILLMENT OF CERTAIN PREFIXED TERMS AND CONDITIONS, AS MUTUALLY AGREED UPON BY THE PARTIES. THE ASSESSEE SUBMITTED THAT BY FOLLOWING THE MANDATORY ACCOUNTING STANDARD 7 [ IN SHORT AS-7] ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA [ IN SHORT ICAI] , THE ASSESSEE HAD BOOKED THE GROSS VALUE OF PROGRESSIVE RUNNING ACCOUNT BILLS (HEREINAFTER REFERRED TO AS RA BILLS) AS INCOME IN THE YEAR IN WHICH THE BILLS WERE RAISED ON CUSTOMERS IRRESPECTIVE OF WHETHER PAYMENTS WERE RECEIVED FROM THEM OR NOT. IT WAS EXPLAINED THAT THE SAID GROSS VALUE OF RA BILLS IS INCLUSIVE OF THE AMOUNT RETAINED BY CUSTOMERS AS SECURITY DEPOSIT / RETENTION MONEY ON SUCH BILLS. ACCORDINGLY, THE RETENTION MONEY, THOUGH RETAINED BY CUSTOMERS, WERE CREDITED BY THE ASSESSEE TO ITS PROFIT AND LOSS ACCOUNT AS INCOME IN THE YEAR IN WHICH THE BILLS WERE RAISED. HENCE AS AND WHEN THE SECURITY DEPOSIT / RETENTION MONEY WAS REFUNDED BY THE CUSTOMER TO THE ASSESSEE, THE SAME WAS NOT 3 I.T.A. NO.1489/KOL/2014 ASSESSMENT YEAR 2010-11 M/S. MACKINTOSH BURN LTD. CONSIDERED AS INCOME BY THE ASSESSEE. THE ASSESSEE EXPLAINED THE ACCOUNTING METHODS FOLLOWED BY IT IN ITS BOOKS OF ACCOUNTS AS UNDER :- THE ASSESSEE IS DEBITING SECURITY DEDUCTION BY CLIENTS ACCOUNT WITH THE AMOUNT OF SECURITY DEPOSIT RETAINED BY CUSTOMER WHEN THE PAYMENT IS RECEIVED AGAINST RA BILLS FROM THEM AND CREDITING THE SAME TO GROSS BILLS RECEIVED RA ACCOUNT. THE ABOVE SECURITY DEDUCTION IS CONSIDERED AS LOANS & ADVANCES AND IS REFLECTED AS CURRENT ASSETS IN THE BALANCE SHEET. FURTHER, THE GROSS BILLS RECEIVED RA ACCOUNT IS CREDITED TO PROFIT AND LOSS ACCOUNT UNDER THE HEAD VALUE OF WORK DONE IN SCHEDULE XII TO THE AUDITED ACCOUNTS FOR THE RELEVANT FINANCIAL YEAR. SUBSEQUENTLY, WHEN THE ABOVE SECURITY DEPOSIT IS REFUNDED / RELEASED BY A CUSTOMER, THE ASSESSEE IS DEBITING BANK ACCOUNT AND CREDITING SECURITY DEDUCTION BY CLIENTS ACCOUNT. THUS, TILL THE TIME SECURITY DEPOSITS ARE NOT RELEASED / REFUNDED BY CUSTOMERS, THE SAME IS REFLECTED AS LOANS & ADVANCES ON THE ASSET SIDE OF THE BALANCE SHEET OF THE ASSESSEE. 4. THE LD AO ADDED BACK THE SECURITY DEPOSIT LYING AS ADVANCE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IN RESPECT OF JOBS COMPLETED DURING THE RELEVANT YEAR AMOUNTING TO RS 3,25,03,665/- ON THE GROUND THAT THE ASSESSEE HAD NOT BOOKED THE RETENTION AMOUNT / SECURITY DEPOSIT IN SALES DURING THE FINANCIAL YEAR AS THE SAME WAS KEPT IN ADVANCE AND AS SUCH, SALES WERE UNDER-REPORTED AND THE ASSESSEE HAD CLAIMED EXPENDITURE IN RESPECT OF SUCH JOBS, WHICH WAS ALSO CONFIRMED BY THE LD CITA. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1(A) THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV [HEREINAFTER REFERRED TO AS LD. CIT(A)] ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) IN ADDING BACK AN AMOUNT OF INR 3,25,03,665/- ON THE ALLEGED GROUND THAT THE RETENTION MONEY IN THE FORM OF SECURITY DEPOSIT WAS NOT TAKEN INTO CONSIDERATION WHILE COMPUTING THE TOTAL INCOME IN THE YEAR OF RAISING THE BILLS TO THE CUSTOMERS. 1(B) THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ADDING THE AFORESAID AMOUNT TO THE TOTAL INCOME OF THE APPELLANT WITHOUT APPRECIATING THE FACT THAT AS PER THE CONSISTENT ACCOUNTING 4 I.T.A. NO.1489/KOL/2014 ASSESSMENT YEAR 2010-11 M/S. MACKINTOSH BURN LTD. METHOD FOLLOWED, THE APPELLANT HAD TAKEN INTO CONSIDERATION THE WHOLE AMOUNT OF BILL INCLUDING THE AMOUNT OF RETENTION MONEY AS SOON AS THE BILL WAS RAISED ON THE CUSTOMERS AND AS SUCH, IF THE AMOUNT OF RETENTION MONEY, WHICH HAD ALREADY BEEN BOOKED AS INCOME AND OFFERED TO TAX ON ACCRUAL BASIS, IS AGAIN BOOKED ON RECEIPT BASIS, THEN THE SAME WOULD LEAD TO DOUBLE TAXATION OF THE SAME AMOUNT ONCE WHEN THE BILL WAS RAISED AND SECOND TIME ON THE BASIS OF RECEIPT OF THE SAID SECURITY DEPOSIT FROM THE CUSTOMERS. 2. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/ OR AMEND, ALTER, MODIFY OR RESCIND THE GROUNDS HEREINABOVE BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD AR APART FROM REITERATING THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES EXPLAINED THE TRANSACTIONS BY WAY OF THE FOLLOWING ACCOUNTING ENTRIES WHICH WERE RECORDED IN THE BOOKS OF ACCOUNTS AND NO DIFFERENTIAL TREATMENT WAS GIVEN IN THE RETURN OF INCOME :- NET AMOUNT RECEIVED FROM CLIENTS ( I.E BANK ACCOUNT) DR SECURITY DEDUCTION BY CLIENTS (I.E RETENTION MONEY ACCOUNT) DR SALES TAX RECOVERABLE ACCOUNT DR TDS BY CLIENTS RECOVERABLE ACCOUNT DR OTHER DEDUCTIONS, IF ANY ACCOUNT DR TO GROSS BILL RECEIVED RA ACCOUNT CR (ENTRY PASSED AT THE TIME OF COLLECTION FROM CUSTOMERS) 5.1. IT WAS SUBMITTED THAT THE SECURITY DEDUCTION BY CLIENTS ACCOUNT IS CLUBBED UNDER LOANS & ADVANCES AND THE SAME IS DISCLOSED IN THE ASSET SIDE OF THE BALANCE SHEET. SUBSEQUENTLY, WHEN SECURITY DEPOSIT IS REFUNDED BY THE CUSTOMERS, THE FOLLOWING ENTRY IS PASSED IN THE BOOKS:- BANK ACCOUNT DR 5 I.T.A. NO.1489/KOL/2014 ASSESSMENT YEAR 2010-11 M/S. MACKINTOSH BURN LTD. TO SECURITY DEDUCTION BY CLIENTS ACCOUTN CR (ENTRY PASSED AT THE TIME OF REFUND OF SECURITY DEPOSIT BY CUSTOMERS) 6. WE FIND FROM THE AFORESAID ENTRIES PASSED, THERE IS ABSOLUTELY NO CASE MADE OUT BY THE REVENUE FOR MAKING AN ADDITION TOWARDS THE RETENTION MONEY IN THE SUM OF RS 3,25,03,665/- ON THE GROUND OF UNDER-REPORTING OF SALES. WE FIND THAT THE SALES ARE ALWAYS REFLECTED ONLY AT THE GROSS VALUE AND A PORTION OF IT (WHICH IS RETAINED AS RETENTION MONEY) IS REFLECTED IN LOANS & ADVANCES AND THE SAME IS KNOCKED OFF AS AND WHEN THE SAME IS RECEIVED FROM CUSTOMER. HENCE IT DOES NOT IN ANY WAY AFFECT THE SALES ACCOUNT WARRANTING ANY ADDITION. INFACT THE GROSS SALES WERE DULY OFFERED TO TAX IN EARLIER YEARS WHICH INCLUDED THE RETENTION MONEY COMPONENT ALSO. THE LD AR ALSO STATED THAT NO SUCH ADDITION WAS MADE BY THE LD AO EITHER IN THE EARLIER YEARS OR IN THE SUBSEQUENT YEARS HENCE WE HAVE NO HESITATION IN HOLDING THAT THE REVENUE HAD GROSSLY ERRED IN MAKING THIS ADDITION TOWARDS RETENTION MONEY IN THE SUM OF RS 3,25,03,665/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 07.06.2017. SD/- SD/- [ABY. T. VARKEY] [M. BALAGANESH] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 07.06.2017 {RS SPS} 6 I.T.A. NO.1489/KOL/2014 ASSESSMENT YEAR 2010-11 M/S. MACKINTOSH BURN LTD. COPY OF THE ORDER FORWARDED TO: 1. APPELLANT/ASSESSEE M/S MACKINTOSH BURN LTD., D-1/1, GILLANDER HOUSE, KOL 1. 2. REVENUE/RESPONDENT- D.C.I.T, CIR-4, KOLKATA. 3. CIT(A)- KOLKATA 4. CIT , KOLKATA 5. CIT(DR), KOLKATA BENCHES, KOLKATA TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE, DDO, KOLKATA BENCHES, KOLKATA.