M/s. Moktali Engineering Co., Baroda V. The ACIT., Circle-2, Baroda

ITA 1517/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0271 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-09-2009
• Assessment Year: 1992-1993
• Appeal Filed On: 31-05-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J P SHAH
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 30/09/2009 DRAFTED ON: 13/1 0/2009 ITA NO.1517/AHD/2005 ASSESSMENT YEAR : 1992-93 M/S.MOKTALI ENGINEERING CO. 94A, CHHANI ROAD OPP. OCTROI NAKA BARODA-390 002 VS. THE ACIT CIRCLE-2 BARODA PAN/GIR NO. : - (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI J.P. SHAH RESPONDENT BY: SHRI SMITI SAMANT, SR.DR O R D E R PER D.C.AGRAWAL , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED CIT(APPEALS)-II, BARODA DATED 16/03/2005 F OR ASSESSMENT YEAR 1992-93, BY RAISING THE EFFECTIVE FOLLOWING GROUND :- 1. THE LEARNED CIT(APPEALS) ERRED IN UPHOLDING THE ADDITION OF RETENTION MONEY OF RS.18,53,227/- AS THE BUSINESS I NCOME OF THE ASSESSEE. IN THE ALTERNATIVE, THE LEARNED CIT(APPE ALS) OUGHT TO HAVE ALLOWED IT AS BUSINESS LOSS OR BAD DEBTS AS TH E ASSESSEE HAS UP-TILL-NOW NOT RECEIVED ANY AMOUNT THEREFROM. 2. THE LEARNED CIT(APPEALS) OUGHT TO HAVE ALLOWED THE APPEAL IN TOTO. ITA NO.1517/A HD/2005 M/S.MOKTALI ENGINEERING CO. VS. ACIT ASST.YEAR 1992-93 - 2 - 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MACHINERY AND EQUIPMEN TS FOR VARIOUS PARTIES. DURING THE CURRENT YEAR, THE MAIN BUSINE SS OF THE ASSESSEE WAS SUPPLY OF SPONGE IRON PLANT TO M/S.KUMAR METALLURGI CAL CORPORATION LIMITED AT SECUNDERABAD. DURING THE ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTICED THAT CERTIFICATES OF TAX DEDUCTION AT SOURCE REVEALED TOTAL RECEIPTS AT RS.3,03,60,417/- FROM M/ S.KUMAR METALLURGICAL CORPORATION, WHEREAS THE ASSESSEE HAS SHOWN ONLY A RECEIPT OF RS.2,89,66,940/-. IT WAS EXPLAINED TO THE ASSESSIN G OFFICER THAT ASSESSEE HAS NOT INCLUDED A SUM OF RS.18,53,227/- BEING THE MONEY RETAINED BY THE OTHER PARTY. THE ASSESSING OFFICER WAS NOT SATISFI ED FOR THE REASONS FOR NOT INCLUDING THE WHOLE RECEIPTS IN THE TRADING ACC OUNT AND HE, ACCORDINGLY, ADDED THE SUM OF RS.18,53,227/- IN THE TOTAL INCOME. THE LEARNED CIT(APPEALS) VIDE HIS ORDER DATED 29/03/199 6, DELETED THE ADDITION ON THE GROUND THAT RETENTION MONEY DID NOT ACCRUE TO THE ASSESSEE. HE, HOWEVER, DIRECTED THE ASSESSING OFF ICER TO INCLUDE THE SAID RETENTION MONEY IN THE ASSESSMENT YEAR IN WHIC H IT BECAME PAYABLE TO THE ASSESSEE AS PER THE TERMS OF THE CONTRACT . THE ITAT AHMEDABAD BENCH C VIDE ORDER DATED 11/02/2003 FOR ASSESSMEN T YEAR 1992-93 IN ITA NO.1517/A HD/2005 M/S.MOKTALI ENGINEERING CO. VS. ACIT ASST.YEAR 1992-93 - 3 - ITA NO.3289/AHD/1996 (IN ASSESSEES OWN CASE) DIRE CTED THE ASSESSING OFFICER TO RE-CONSIDER THE MATTER BY MAKING FOLLOWI NG OBSERVATION:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND PERUSED THE RECORDS. AFTER CONSIDERING THE FACTS O F THE CASE WE FIND THAT UNDER THE IDENTICAL FACTS AND CIRCUMSTANC ES THERE ARE NUMBER OF JUDGEMENTS OF VARIOUS HIGH COURTS WHERE I T WAS HELD THAT SUCH RETENTION MONEY COULD NOT BE TREATED AS D UE TO THE ASSESSEE TILL SUCH STIPULATED TIME IS REACHED. WE THEREFORE DO NOT SEE ANY JUSTIFICATION IN INTERFERING WITH THE ORDER OF THE CIT(A) WHERE HE HAS CORRECTLY DELETED THE IMPUGNED ADDITIO N WITH THE DIRECTION THAT THIS AMOUNT WILL BE TAXED WHEN IT W ILL BE PAYABLE TO THE ASSESSEE AS PER THE TERMS OF THE CONTRACT. WE THEREFORE CONFIRM THE ORDER OF THE CIT(A) WITH THE DIRECTION TO THE A O THAT HE SHOULD VERIFY WHETHER THIS AMOUNT OF RS.18,53,227/- HAS BE EN TAXED WHEN IT BECAME DUE TO THE ASSESSEE AS PER THE TERMS OF T HE CONTRACT IN THE SUBSEQUENT YEARS. WE FURTHER DIRECT HIM THAT IF TH IS AMOUNT IS NOT TAXED IN THE SUBSEQUENT YEAR WHEN IT BECAME DUE AS PER THE TERMS OF CONTRACT, THE SAID AMOUNT WILL BE SUSTAINED AS A DDITION FOR THE YEAR UNDER CONSIDERATION A.Y. 92-93. 3. THE ASSESSING OFFICER IN PURSUANCE TO THE DIRECT ION, REQUIRED THE ASSESSEE TO FURNISH FOLLOWING DETAILS:- 1. DESCRIBE THE NATURE OF THE RETENTION MONEY AND T HE PURPOSE FOR WHICH IT WAS RETAINED. 2. WHEN WAS THE RETENTION MONEY RECEIVED BY THE ASSESS EE. 3. DISCUSS IN DETAIL YEAR WISE PROVISIONING OF THE RET ENTION MONEY. 4. DISCUSS ACCOUNTING DETAILS OF THE RETENTION MONEY. 5. WHEN WAS THE CONTACT SATISFACTORILY COMPLETED. IN THIS REGARD FURNISH ANY CORRESPONDENCE WITH M/S.KUMARS METALLURGICAL CORPORATION LTD., SECUNDRABAD. ITA NO.1517/A HD/2005 M/S.MOKTALI ENGINEERING CO. VS. ACIT ASST.YEAR 1992-93 - 4 - 6. SUBMIT A COPY OF THE TERMS OF THE CONTRACT. 7. ALSO MENTION A.Y. IN WHICH THE RETENTION MONEY OF RS.18,53,227/- HAS BEEN BROUGHT TO TAX. 4. IT WAS, EXPLAINED TO THE ASSESSING OFFICER THAT AS PER CLAUSE-4 OF ANNEXURE-II OF THE PURCHASE ORDER, 6.5% OF THE VAL UE IS TO BE RETAINED BY KMCL TOWARDS PERFORMANCE PARAMETER TO BE RELEASED A FTER 12 MONTHS FROM THE COMMISSIONING OF THE PLANT. HOWEVER, THE CORRESPONDENCE MADE WITH KMCL REVEALED THAT PLANT DID NOT PERFORM WELL AND, THEREFORE, KMCL DID NOT RELEASE RETENTION MONEY. FURTHER, ABO VE AMOUNT IS INCLUDED IN THE SALE AS ON 01/04/1996. THEREFORE, THE AMOUNT WAS CONSIDERED AS NOT RECOVERED AND WAS WRITTEN OFF AS BAD DEBT IMMEDIATELY AFTER THE APPELLATE ORDER. THE ASSESSING OFFICER, HOWEVER, FOCUSED ON THE FINAL DIRECTION OF THE TRIBUNAL AS UNDER:- WE FURTHER DIRECT HIM (AO) THAT IF THIS AMOUNT IS NOT TAXED IN THE SUBSEQUENT YEAR WHEN IT BECAME DUE AS PER THE TERMS OF CONTRACT, THE SAID AMOUNT WILL BE SUSTAINED AS ADDITION FOR T HE YEAR UNDER CONSIDERATION A.Y. 1992-93. 4.1. THE ASSESSING OFFICER, ACCORDINGLY, TAXED A SU M OF RS.18,53,277/-. ITA NO.1517/A HD/2005 M/S.MOKTALI ENGINEERING CO. VS. ACIT ASST.YEAR 1992-93 - 5 - 5. IN APPEAL, THE LEARNED CIT(APPEALS) CONFIRMED TH E ORDER OF THE ASSESSING OFFICER ON THE BASIS OF SAME REASONING. 6. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT RECEIVED A SING LE PENNY SO FAR FROM KMCL, AND, THEREFORE, THE QUESTION OF TAXING IT IN ASSESSMENT YEAR 1992-93 SHOULD NOT ARISE. FURTHER, THE MONEY WAS R ETAINED BY KMCL AS PER AGREEMENT. AMOUNT WAS ORIGINALLY DECLARED AS I NCOME IN THE SALES, BUT LATER WRITTEN OFF. 7. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THE ASSESSING OF FICER HAS NOT VERIFIED WHETHER THIS RETENTION MONEY WAS OFFERED FOR TAXATI ON IN SAME YEAR AND LATER CLAIMED AS BAD DEBT. ONCE IT IS SO, THE QUES TION OF TAXING IT DOES NOT ARISE. IN THIS REGARD, WE REFER TO FOLLOWING SUBMI SSIONS OF THE ASSESSEE REPRODUCED BY THE ASSESSING OFFICER AT PAGE NO.3 OF HIS ORDER. FOR THE SAKE OF CONVENIENCE WE, REPRODUCE THE SAME AS UNDER :- ITA NO.1517/A HD/2005 M/S.MOKTALI ENGINEERING CO. VS. ACIT ASST.YEAR 1992-93 - 6 - 'THE GROUND RAISED BY THE REVENUE IN THIS APPEAL IS ABOUT THE DELETION OF ADDITION OF RS. 18,53,277 /- ON ACCOUNT OF RETENTION MONEY. THE ASSESSEE DID NOT INCLUDE THE RETENTION M ONEY AMOUNTING TO RS.18,53,227/- IN THEIR SALES. THE A.O . MADE THIS ADDITION WITH THE OBSERVATION THAT SINCE THE ASSESS EE FOLLOWED MERCANTILE METHOD OF ACCOUNTING AND WHEN THE BILLS WERE RAISED FOR THE WORK DONE THE ASSESSEE INCLUDED THIS RETENT ION MONEY AND IN VIEW OF THAT THIS MONEY HAS ALREADY BEEN ACCRUED O THE ASSESSEE. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORDS. AFTER CONSIDERING THE FACTS OF THE CASE, WE FIND THAT UNDER THE IDENTICAL FACTS AND CIRCUMSTANC ES THERE ARE NUMBER OF JUDGEMENTS OF VARIOUS HIGH COURTS WHERE I T WAS HELD THAT SUCH STIPULATED TIME IS REACHED. WE THEREFORE DO NOT SEE ANY JUSTIFICATION IN INTERFERING WITH THE ORDER OF THE CIT(A) WITH THE DIRECTION TO THE AO THAT HE SHOULD VERIFY WHETHER T HIS AMOUNT OF RS.18,53,227/- HAS BEEN TAXED WHEN IT BECAME DUE TO THE ASSESSEE AS PER THE TERMS OF THE CONTRACT IN THE SUBSEQUENT YEARS. WE FURTHER DIRECT HIM THAT IF THIS AMOUNT IS NOT TAXED IN THE SUBSEQUENT YEAR WHEN IT BECAME DUE AS PER THE TERMS OF CONTRACT, TH E SAID AMOUNT WILL BE SUSTAINED AS ADDITION FOR THE YEAR UNDER CO NSIDERATION A.Y. 1992-93.' 5. ASSESSEES SUBMISSION : THE ASSESSEES AR SHRI NARESH PARIKH, CA, HAS SUBMI TTED AS FOLLOWS: ITA NO.1517/A HD/2005 M/S.MOKTALI ENGINEERING CO. VS. ACIT ASST.YEAR 1992-93 - 7 - KUMARS RS.17.47 LACS: WE ENCLOSE HEREWITH COPY O F ORDER OF KMCL TOGETHER WITH CORRESPONDENCE RELATING TO COMMI SSIONING WORK. AS PER CLAUSE - 4 OF ANNEXURE II OF THE PURCHASE O RDER 6.5% OF THE VALUE IS TO BE RETAINED TOWARDS PERFORMANCE PARAMET ER TO BE RELEASED AFTER 12 MONTHS FROM COMMISSIONING PLANT. NOW FROM THE CORRESPONDENCE YOU WILL FIND THAT KMCL HAD BEEN FINDING TECHNICAL DEFECT AND COMMISSIONING COULD NO T BE SUCCESSFULLY COMPLETED UPTO 31.03.1995. POSITION OF RETENTION MONEY A/C. OF KMCL IS AS UND ER: THE FACT THAT IT WAS INCLUDED IN SALES ON 01.04.96 SATISFIES THE CONDITION THAT IT SHOULD HAVE BEEN TAKEN AS INCOME. F.Y.91- 92 31.03.92 AMOUNT OF RETENTION MONEY FROM KMCL DEBTORS A/C. SALES A/C.DR. DR. 17,47,181.93 CR. 17,47,181.93 BALANCE F.Y. 92- 93 01.04.92 SALES A/C.CR. RETENTION MONEY AS PER BILLS 17,47,181.93 5,75,895.03 31.03.93 SALES A/C.DR. 23,22,076.96 F.Y.93- 94 01.04.93 SALES A/C.CR. 23,22,076.96 31.03.94 SALES A/C.DR. 23,22,076.96 F.Y.94- 95 01.04.94 SALES A/C.CR. 23,22,076.96 31.03.95 SALES A/C.DR. 23,22,076.96 F.Y.95- 96 ITA NO.1517/A HD/2005 M/S.MOKTALI ENGINEERING CO. VS. ACIT ASST.YEAR 1992-93 - 8 - 01.04.95 31.03.96 SALES A/C.CR. SALES A/C.DR. 23,22,076.96 23,22,076.96 F.Y.96- 97 01.04.96 31.03.97 SALES A/C.CR. SALES A/C.DR. (AMT W/O AS NOT RECOVERABLE) 23,22,076.96 23,22,076.96 THE FACT THAT IT WAS INCLUDED IN SALES ON 01.04.96 SATISFIES THE CONDITION THAT IT SHOULD HAVE BEEN TAKEN AS INCOME. AND SINCE THE AMOUNT WAS NOT RECOVERABLE IT HAD TO BE WRITTEN OFF AS BAD DEBTS BY REDUCING THE SALES: THIS IS NOT A CASE OF REALIZING RETENTION MONEY AND NOT DECLARING AS INCOME IN FACT : RETENTION MONEY NEVER BECAME RECEIVABLE AS THERE WAS NO SATISFACTORY COMMISSIONING OF THE PLANT SUPPLIED BY ASSESSEE AND CUSTOMER DID NOT AGREE TO PAY. THIS FACT HAS BEEN SPECIFICALLY STATED IN TAX AUDIT REPORT FOR A.Y.97 -98 AND ASST WAS COMPLETED U/S.143(3). TRIBUNAL HAS ASKED TO VERIFY THAT AMOUNT IS TAXED W HEN IT IS DUE AS PER TERMS OF CONTACT. HOWEVER, THE AMOUNT NEVER BECAME DUE ON ACCOUNT OF TECHNICAL PROBLEMS AND THEREFORE IT HAS BEEN RIGHTLY REDUCED. 9. FROM ABOVE, IT IS CLEAR THAT AMOUNT OF RETENTION MONEY WAS CREDITED IN THE PROFIT & LOSS ACCOUNT AND THUS OFF ERED FOR TAXATION BUT LATER CLAIMED AS BAD DEBT IN ASSESSMENT YEAR 1992-9 3 ITSELF. EVEN OTHERWISE, AS PER CONTRACTUAL AGREEMENT WITH M/S.K MCL, THE ASSESSEE IS ENTITLED NOT TO DECLARE THIS SUM IN THE INCOME AS D ID NOT ACCRUE TO THE ITA NO.1517/A HD/2005 M/S.MOKTALI ENGINEERING CO. VS. ACIT ASST.YEAR 1992-93 - 9 - ASSESSEE. MONEY IS RETAINED OUT OF PURCHASE AMOUNT TO BE PAID TO THE ASSESSEE AND WAS AGREED TO BE RELEASED ON SUCCESSFU L COMMISSIONING OF THE PLANT SUPPLIED BY THE ASSESSEE. ALTERNATIVELY, EVEN IF IT IS PRESUMED THAT IT ACCRUED TO THE ASSESSEE, THEN IT BECOME BA D AS THE PLANT SUPPLIED BY THE ASSESSEE DID NOT PERFORM SATISFACTORILY AND , THUS, ASSESSEE DID NOT RECEIVE ANY MONEY AGAINST SUCH RETENTION AMOUNT. A CCORDINGLY, CLAIM OF THE ASSESSEE IS JUSTIFIED AND APPEAL OF THE ASSESSE E IS ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 16/10/2009. SD/- SD/- ( T.K.SHARMA ) ( D.C.AGRAWAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 16/10/2009 T.C. NAIR COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT.2. THE RESPONDENT 3. THE CIT CONCERNED.4. THE LD. CIT(APPEALS)-II, BA RODA 5. THE DR, AHMEDABAD BENCH.6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD