Devendra & Devendra, Patna V. ACIT, Patna

ITA 150/PAT/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9636 (ITAT-PATNA)
• Duration Of Justice: 3 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 13-06-2013
• Court: TRIBUNAL
• Department Lawyers: A K RASTOGI; RAKESH KUMAR ADVOCA
• Assessee Lawyers: T VARKEY JUDIC IA L M EMBER
• Keywords: Depreciation

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH:P ATNA BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 150/PAT/2013 ASSESSMENT YEAR:2007-08 DEVENDRA & DEVENDRA ENGICONS PVT. LTD. M-448, LAXMI NIWAS, KANKARBAGH, PATNA-800020. PAN: AABCD6250F / V/S . ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2, PATNA. /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI A. K. RASTOGI & SHRI RAKESH KUMAR, ADVOCATES /BY RESPONDENT SHRI KAUSIK KR. DAS, DR /DATE OF HEARING 04-04-2017 /DATE OF PRONOUNCEMENT 07-04-2017 /O R D E R PER BENCH: THIS APPEAL FILED BY THE ASSESSEE IS ARISING OUT OF ORDER OF COMMISSIONER OF INCOME- TAX(APPEAL), DHANBAD DATED 04-03-2013 FOR AY 2007- 08. 2. THE SOLE GROUND OF APPEAL PREFERRED BY THE ASSES SEE IS AGAINST THE DISALLOWANCE OF THE DEDUCTION CLAIMED OF RS.74,23,995/- ON ACCOUNT OF RETENTION MONEY WHICH WAS RETAINED BY THE CONTRACTEE AGAINST SATISFACTORY COMPLETION O F WORK BY THE ASSESSEE. 3. BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A COMPANY ENGAGED IN EXECUTION OF CIVIL CONTRACT AND IT FILED ITS RETURN OF INCOME SHOWING TOTAL INCOME OF RS.36,99,190/-. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DUE TO CERTAIN REASONS, THE ASSESSEE COULD NOT PARTICIPATE IN THE ASSESSMENT PROCEEDINGS, THEREFORE, THE AO RE JECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INCOME FROM BUSINESS AT 11% AND COMPL ETED THE ASSESSMENT AT AN INCOME OF 2 ITA NO. 150/PAT/2013 DEVENDRA & DEVENDRA ENGICON P. LTD., AY 2007-08 RS.1,20,85,240/-. DURING THE APPELLATE PROCEEDINGS , THE ASSESSEE SUBMITTED COMPUTATION OF INCOME FOR AY UNDER CONSIDERATION AS UNDER: 3.3 LESS: LESS: ADD: LESS: PROFIT & GAINS FROM BUSINESS NET PROFIT AS PER P&L A/C AMOUNT DEDUCTED FOR SATISFACTORY COMPLETION OF WORK BY CONTRACTOR (CIT V. CHANCHANI BROSS (CONTRACTORS) PVT. LTD. 161 ITR 418 (PAT) AMOUNT CREDITED TO P&L A/C CONSIDERED SEPARATELY INTEREST ON NSC 4,99,687.00 BANK INTEREST 1,06,901.00 BUSINES S PROFIT DEPRECIATION DEBITED TO P&L A/C DEPRECIATION AS PER I.T.RULES, 1962 INCOME FROM OTHER SOURCES INTEREST ON NSC BANK INTEREST TO TAL INCOME 1,09,84,668.37 74,23,995.00 6,06,588.00 29,54,085.37 4,17,559.00 33,71,644.37 2,79,039.87 30,92,604.50 4,99,687.00 1,06,901.00 6,06,588.00 36,99,192 4. IT WAS BROUGHT TO THE KNOWLEDGE OF THE LD. CIT(A ) THAT INCOME SHOWN BY THE ASSESSEE IS AT RS.1,11,23,187/- BEFORE CLAIMING DED UCTION OF RS.74,23,995/- WHICH WAS RETAINED BY THE CONTRACTEE FOR SATISFACTORY COMPLET ION OF WORK. HOWEVER, THE AO HAS ESTIMATED THE INCOME AT RS.1,20,85,240/- BY APPLYIN G NET PROFIT RATE OF 11%. IT WAS ARGUED BEFORE THE LD. CIT(A) THAT BEFORE CLAIMING THE DEDU CTION OF RS.74,23,995/- THE ASSESSEES NET PROFIT IS AT 10.53% WHICH IS NOT LOW AS TO WHIC H WAS ESTIMATED BY THE AO. ACCORDING TO THE ASSESSEE, THE DEDUCTION OF RS.74,23,995/- HA S BEEN CLAIMED BY THE ASSESSEE ON ACCOUNT OF FACT THAT THE CONTRACTEE HAS RETAINED TH E SAID AMOUNT FOR SATISFACTORY COMPLETION OF WORK (RETENTION MONEY) WHICH IS AN ALLOWABLE DED UCTION AND RELIED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF C IT VS. CHANCHANI BROSS (CONTRACTORS) PVT. LTD. 161 ITR 418 (PAT). HOWEVER, THE AO DID N OT ACCEPT THE SAID CONTENTION AND WITHOUT GIVING ANY FURTHER SHOW CAUSE NOTICE TO THE ASSESSEE, REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ESTIMATED THE INCOME AT 11% OF THE GROSS RECEIPT. THE LD. CIT(A) 3 ITA NO. 150/PAT/2013 DEVENDRA & DEVENDRA ENGICON P. LTD., AY 2007-08 CALLED FOR THE REMAND REPORT FROM THE AO. THE LD. CIT(A) NOTED THAT THE AO HAD SUBMITTED THE REMAND REPORT VIDE LETTER DATED 08.10 .2012 AND THE AO HAS STATED THAT HE HAS RECONCILED THE DETAILS FURNISHED BEFORE HIM BY THE ASSESSEE IN RESPECT OF DEDUCTION OF RS.74,23,995/- CLAIMED INRESPECT OF RETENTION MONE Y. HOWEVER, THE LD. CIT(A) DID NOT ALLOW THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT REGULARLY FOLLOW THE METHOD OF ACCOUNTING AND ACCORDING TO HIM, THE ASSE SSEE WAS NOT CONSISTENT IN THE METHOD OF ACCOUNTING, SO THE DEDUCTION WAS DENIED. AGGRIE VED BY THE AFORESAID ORDER OF THE LD. CIT(A), THE ASSESSEE IS BEFORE US. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE, WHICH IS A CO MPANY EXECUTES GOVERNMENT CONTRACT WORK FOR VARIOUS GOVERNMENT DEPARTMENTS. THE INCOM E SHOWN BY THE ASSESSEE IS AT RS.1,11,23,187/- BEFORE CLAIMING DEDUCTION OF RS.74 ,23,995/- WHICH WAS RETAINED BY THE CONTRACTEE FOR SATISFACTORY COMPLETION OF THE WORK. THE CASE OF THE ASSESSEE IS THAT AS PER THE CONTRACT EXECUTED IN THE INSTANT ASSESSMENT YEA R, AN AMOUNT OF RS.74,23,995/- HAS BEEN RETAINED BY THE CONTRACTEE AND THE AMOUNTS RETAINED WILL ACCRUE SUBJECT TO SATISFACTORY COMPLETION OF THE WORK AND THE SAID CLAIM IS AN ALL OWABLE DEDUCTION AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHANCHANI BROSS (CONTRACTORS) PVT. LTD. (SUPRA). WE FIND THAT THE ISSUE IS NO LONGER RES INTEGRA . THE AMOUNT WHICH IS RETAINED BY THE CONTRACTEE IS PENDING VERIFICATION OF SATISFACTORY COMPLETION OF WORK AND SHALL BE ALLOWED AS DEDUCTION OUT OF THE TAXABLE INCOME IN THE YEAR IN WHICH THE SAID SUM WAS DEDUCTED AND RETAINED BY THE CONTRACTEE. IN THE INSTANT ASSESSM ENT YEAR, THE ASSESSEE HAD NO VESTED RIGHT TO RECEIVE THE SAID AMOUNT AND, THEREFORE, IT CANNO T BE SAID THAT THE INCOME TO THAT EXTENT HAD ACCRUED TO THE ASSESSEE. THE RETENTION MONEY D ID NOT ARISE OR ACCRUE IN THE INSTANT ASSESSMENT YEAR BUT WOULD ACCRUE TO IT AT A LATER D ATE DEPENDING ON THE SATISFACTION OF THE CONTRACTEE AS TO COMPLETION OF WORK AND AS PER THE TERMS OF THE CONTRACT BETWEEN THE PARTIES. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, AND IT MUST CREDIT ITS ACCOUNT AS AND WHEN THE RIGHT TO RE CEIVE ANY SUM ACCRUES TO IT. THERE IS NO DISPUTE THAT RS.74,23,995/- HAS BEEN RETAINED BY TH E CONTRACTEE AND WOULD ONLY ACCRUE TO 4 ITA NO. 150/PAT/2013 DEVENDRA & DEVENDRA ENGICON P. LTD., AY 2007-08 THE ASSESSEE AFTER CONTRACTEE IS SATISFIED WITH TH E COMPLETION OF WORK AS PER THE TERMS OF THE CONTRACT. IT SHOULD BE NOTED IN THE INSTANT CASE T HAT THE PAYMENT OF RETENTION MONEY IS DEFERRED AND IS CONTINGENT ON THE SATISFACTION OF CONTRACTEE IN RESPECT OF COMPLETION OF THE WORK, TILL THEN THERE IS NEITHER RIGHT TO ASSESSEE TO RECEIVE ANY PART OF THE RETENTION MONEY NOR THAT THE RETENTION MONEY ACCRUES TO THE ASSESSE E. ACCORDINGLY, TAKING INTO CONSIDERATION THE AOS REMAND REPORT WHEREIN HE HAS RECONCILED TH E FIGURES IN RESPECT TO THE RETENTION MONEY AS CLAIMED BY THE ASSESSEE AS DEDUCTION, WE A RE OF THE CONSIDERED OPINION THAT THE DEDUCTION CLAIMED OF RS.74,23,995/- HAS TO BE ALLOW ED AS DEDUCTION AS HELD BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHANCHANI BROSS (CONTRACTORS) PVT. LTD. (SUPRA) AND WE DIRECT THE AO TO ALLOW DEDUCTION OF THE SAID CLA IM. IN ANY CASE WHEN THE RETENTION MONEY IS RELEASED TO THE ASSESSEE IN ANY SUBSEQUENT ASSESSMENT YEAR THAT IS OF COURSE TAXABLE IN THE YEAR IN WHICH IT IS RECEIVED BY THE ASSESSEE, SO THERE WILL BE NO LOSS TO THE REVENUE ON THIS COUNT AS SUCH. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER IS PRONOUNCED IN OPEN COURT ON 07.04.2017 SD/- SD/- (WASEEM AHMED) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 7 TH APRIL, 2017 JD. SR. PS / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. ' / CONCERNED CIT 4. ' - / CIT (A) 5. # && , / DR, ITAT, PATNA 6. ( / GUARD FILE. BY ORD ER/ , ASSISTANT REGI STRAR, ITAT, PATNA,