DCIT, CC-1(3), Kolkata, Kolkata V. M/s. EMC Limited, Kolkata

ITA 2149/KOL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1262 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 06-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S M SURANA
• Keywords: Earning of tax free income; Question of law; Revised return; TDS; Rule 8D
• Section: 14A; 115JB; 194C; 143(2); 192; 48; 13; 54; 154

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA ( . . , . . , $% ) [BEFORE SHRI A. T. VARKEY, JM & DR. A.L. SAINI, AM] I.T.A. NO. 2149/KOL/2017 ASSESSMENT YEAR: 2014-15 DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1(3), KOLKATA VS. M/S. EMC LIMITED APPELLANT RESPONDENT FOR THE APPELLANT SHRI VIJAY SHANKAR, CIT, DR FOR THE RESPONDENT SHRI S. M. SURANA, ADVOCATE DATE OF HEARING 17.02.2020 DATE OF PRONOUNCEMENT 27.05.2020 ORDER PER SHRIA.T.VARKEY, JM : THIS IS AN APPEAL PREFERRED BY THE REVENUE IS AGAI NST THE ORDER OF LD. CIT(A)-20, KOLKATA DATED 25.07.2017 FOR AY 2014-15. 2. THE REVENUE HAS RAISED AS MANY AS TWELVE GROUNDS OF APPEAL BUT THE ONLY THREE EFFECTIVE GROUNDS ARE (I) AND (II) WHICH ARE AGAINS T THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION OF THE RETENTION MONEY OF RS.142.53 CR., U NDER NORMAL COMPUTATION OF INCOME AND U/S. 115JB OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) AND (III) IS AGAINST THE ACTION OF LD. CIT(A) IN DELETING THE D ISALLOWANCE MADE BY AO U/S. 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (HEREINA FTER REFERRED TO AS THE RULES) OF RS.51.59 LACS. REGARDING THIS GROUND, IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, THEREFORE, THE LD . CIT(A) TAKING NOTE OF THIS FACT HAS RELIED ON THE TRIBUNALS DECISION IN REI AGRO LTD. 144 ITD 141 HAS GIVEN RELIEF TO THE ASSESSEE WHICH ORDER HAS BEEN CONFIRMED BY THE HON BLE CALCUTTA HIGH COURT IN GA NO. 3022 OF 2013. WE NOTE THAT THE HONBLE DELHI HIGH COURT IN CHEMINVEST LTD. VS. CIT (2015) 378 ITR 33 WHEREIN IT HAS BEEN HELD THAT WHE RE NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE, NO DISALLOWANCE COULD BE MADE UNDER S ECTION 14A OF THE ACT. TAKING NOTE OF THE HONBLE JURISDICTIONAL HIGH COURT AS WELL AS HO NBLE DELHI HIGH COURT DECISION, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WH ICH WARRANTS ANY INTERFERENCE FROM OUR PART AND, THEREFORE, WE DISMISS THIS GROUND OF APPE AL OF THE REVENUE. 2 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 3. COMING TO THE ACTION OF THE LD. CIT(A) IN DELETI NG THE ADDITION OF RS.142.53 CR. THE RETENTION MONEY WHICH WAS ADDED BY THE AO UNDER THE NORMAL COMPUTATION OF INCOME, THE AO NOTED THAT THE ASSESSEE HAD FILED ITS ORIGINAL RETURN OF INCOME ON 29.11.2014 SHOWING TOTAL INCOME OF RS.194,46,16,540/-. LATER THE ASSE SSEES CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S. 143(2) OF THE ACT DATED 31.08.2015 WAS SERVED UPON THE ASSESSEE. THE AO NOTED THAT THE ASSESSEE THEREAFTER ASSESSEE HAD FIL ED REVISED INCOME TAX RETURN ON 17.03.2016 REVISING ITS INCOME TO RS.49,98,06,980/- . THE AO TAKING NOTE OF THIS FACT ASKED THE ASSESSEE TO EXPLAIN AS TO WHY IT HAS CLAIMED SU CH A DEDUCTION. THE ASSESSEE EXPLAINED THAT WHEN THE ORIGINAL RETURN WAS FILED ON 29.11.20 14 IT WAS ON THE BASIS OF PROFIT AS PER THE P&L ACCOUNT WITHOUT CONSIDERING THE DEDUCTION MADE BY PARTIES (CUSTOMERS) ON ACCOUNT OF RETENTION MONEY. HOWEVER, THE ASSESSEE ON A PRO PER APPLICATION OF THE LEGAL AND FACTUAL POSITION REALISED THAT COMPANYS REAL INCOME WAS MU CH LESS THAN THE REVENUE BOOKED IN THE ACCOUNT AND HENCE, REVISED RETURN WAS FILED ON 17.0 3.2016 CLAIMING DEDUCTION OF THE RETENTION MONEY DEBITED BY THE PARTIES DURING THE Y EAR AMOUNTING TO RS.142,53,74,710/-. IT WAS ALSO BROUGHT TO THE NOTICE OF THE AO THAT AS PE R THE CONTRACT BETWEEN THE PARTIES, CERTAIN PERCENTAGE OF THE BILLS RAISED COULD BE RET AINED BY THE CONTRACTEE PARTY AS RETENTION MONEY WHICH WOULD BE PAYABLE ONLY AFTER SUCCESSFUL COMPLETION OF THE ENTIRE CONTRACT AND AFTER IT BEING CERTIFIED BY THE PARTY AND AFTER FUL FILMENT OF CERTAIN PRE-DETERMINED CONDITIONS MENTIONED IN THE CONTRACT. HOWEVER, AS PER THE ACC OUNTING PRACTISE FOLLOWED BY THE ASSESSEE THOUGH A PART OF THE BILL AMOUNT WAS RETAI NED BY THE CONTRACTEE PARTY AND WOULD BE PAID AFTERWARDS ON FULFILMENT OF CERTAIN CONDITIONS , THE ENTIRE REVENUE WAS BOOKED IN THE BOOKS OF ACCOUNT AS AND WHEN BILLS WERE RAISED AND HENCE, THE ENTIRE AMOUNT WAS REFLECTED IN THE REVENUE FROM THE OPERATIONS IN THE P&L ACCOU NT. IT WAS BROUGHT TO THE NOTICE OF THE AO THAT PROFIT BEFORE TAX AS PER P& L ACCOUNT FOR THE YEAR ENDED ON 31.03.2014 IS RS.204,38,30,030/- AND THE SAID PROFIT WAS ARRIVED AFTER TAKING INTO ACCOUNT ENTIRE BILLS RAISED ON PARTIES FOR CONTRACT WORK INCLUDING THE RETENTION MONEY. IT WAS EXPLAINED FURTHER THAT THEREAFTER, SALES WAS CREDITED AND PARTY WAS D EBITED WITH THE ENTIRE BILL AMOUNT AND ON THAT BASIS ASSESSEE HAD FILED THE ORIGINAL RETURN O N 29.11.2014 WITHOUT CONSIDERING THE DEDUCTION MADE BY THE PARTIES ON ACCOUNT OF THE RET ENTION MONEY AND HAD SHOWN TOTAL INCOME OF RS.194,46,16,540/-.AND WHEN THE ASSESSEE REALISED THAT ITS REAL INCOME WAS MUCH LESS THAN THE REVENUE BOOKED IN THE ACCOUNT IT FILED A REVISED RETURN ON 17.03.2016 CLAIMING DEDUCTION OF THE RETENTION MONEY WHICH WAS DEDUCTED BY THE PARTIES TO THE TUNE OF 3 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 RS.142.53 CR. AND THUS IN THE REVISED RETURN INCOME TO THE TUNE OF RS.49.98 CR. WAS SHOWN. THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED B Y THE AO. 4. IN SUPPORT OF ITS ACTION, THE ASSESSEE CITED THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. SIMPLEX CONCRETE PILES (INDIA) DATED 05.12.1988 FOR THE AY 1965-66 WHICH WAS NOT FOLLOWED BY THE AO ON THE REA SON THAT IN THAT CASE THE ASSESSMENT YEAR UNDER CONSIDERATION WAS AY 1965-66 AND AT THE TIME THERE WAS NO PROVISION OF SECTION 194C OF THE ACT FOR DEDUCTION OF TAX AT SOURCE AND AFTER CITING THE PROVISIONS OF SEC. 194C OF THE ACT AND STRESSING THE ASPECT OF CREDIT OF SU M IN THE ACCOUNT OF THE PAYEE BY THE PAYER, THE AO DISTINGUISHED THE CASE OF SIMPLEX CON CRETE PILES (INDIA) AND ALSO NOTED THAT THE HONBLE CALCUTTA HIGH COURT HAS RELIED ON THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SETH PUSHALALMANSINGHKA P. LTD. VS. CIT (1967) 66 ITR 159 WHEREIN THE MEANING OF THE WORD ACCRUE WAS CONSIDERED BY THE HONBLE APEX COURT AND ACCORDING TO AO, THE DECISION RENDERED IN SIMPLEX CONCRETE PILES (INDIA) (SUPRA) WAS THE OUTCOME OF THE INTERPRETATION GIVEN BY THE HONBLE APEX COURT IN THE CASE OF SETH PUSHALALMANSINGHKA P. LTD. (SUPRA) IN RESPECT OF THE WORD ACCRUE. T HEREAFTER, THE AO DISTINGUISHED THE CASE LAWS RELIED ON BY THE ASSESSEE OF THE HONBLE SUPRE ME COURT IN THE CASE OF SHOORJIVALLABHADAS VS. CIT AS WELL AS THE HONBLE C ALCUTTA HIGH COURT IN SIMPLEX CONCRETE PILES (INDIA) (SUPRA) AND HELD THAT IN THE CASE OF THE ASSESSEE THE RETENTION MONEY HAS BEEN DEEMED TO ACCRUE TO THE ASSESSEE ONCE TDS HAS BEEN DEDUCTED AND ONCE THE CREDIT OF TDS HAS BEEN CLAIMED BY THE ASSESSEE IT MAY BE S AFELY DEDUCED THAT UPON SUCH TRANSACTION, INCOME HAS RESULTED AND IS CLEARLY IDE NTIFIED AND QUANTIFIED.ACCORDING TO AO, ANY DEDUCTIONS FOR DEMURRAGE AND DAMAGES THAT HAS N OT YET BEEN DETERMINED OR ACCRUED MAY BE DEDUCTED TO THE PROFIT AND LOSS ACCOUNT AS A ND WHEN SUCH ITEMS MAY BE QUANTIFIED AND DETERMINED. THEREFORE, IN VIEW OF THE PROVISIO N OF SECTION 194C OF THE ACT, THE AO TREATED THE INCOME ON ACCOUNT OF RETENTION MONEY AS DEEMED TO BE THE INCOME OF THE ASSESSEE FOR THE AY 2014-15 AND HENCE, THE DEDUCTIO N AMOUNTING TO RS.142,53,74,710/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF DEDUCTION FOR RETENTION MONEY WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. AGGRIEVE D, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO WAS PLEASED TO GRANT RELI EF TO THE ASSESSEE. HOWEVER, DIRECTED THAT THE TDS CLAIMED BY THE ASSESSEE RELATABLE TO S UCH RETENTION MONEY NEEDS TO BE DISALLOWED IN THE ASSESSMENT YEAR 2014-15 AND IT MA Y BE ALLOWED IN THE YEAR IN WHICH THE 4 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 ASSESSEE DECLARES RETENTION MONEY AS ITS INCOME. W ITH THIS OBSERVATION, THE LD. CIT(A) GAVE RELIEF TO THE ASSESSEE. AGAINST THE ACTION OF THE LD. CIT(A), THE REVENUE IS BEFORE US. 5. ASSAILING THE DECISION OF THE LD. CIT(A), THE LD . CIT, DR DREW OUR ATTENTION TO THE FACT THAT THE LD. CIT(A) HAS HEAVILY RELIED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF SIMPLEX CONCRETE PILES (INDIA) (SUPRA), WHICH ACCORDING TO HIM IS DISTINGUISHABLE SINCE THAT WAS THE CASE WHICH WAS D ECIDED FOR AY 1965-66 AND THE PROVISIONS OF SECTION 194C REGARDING TAX TO BE DEDU CTED AT SOURCE WAS NOT PRESENT IN THE STATUTE. THE LD. CIT, DR DREW OUR ATTENTION TO THE PROVISIONS OF SECTION 194C OF THE ACT WHICH READS AS UNDER: '194C. (I) ANY PERSON RESPONSIBLE FOR PAYING ANY S UM TO ANY RESIDENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE CONTRACTOR) FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRA CT BETWEEN THE CONTRACTOR AND A SPECIFIED PERSON SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO- (I) ONE PER CENT WHERE THE PAYMENT IS BEING MADE OR CREDIT IS BEING GIVEN TO AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY: (II) TWO PER CENT WHERE THE PAYMENT IS BEING MADE O R CREDIT IS BEING GIVEN TO A PERSON OTHER THAN AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THERE IN. (2) WHERE ANY SUM REFERRED TO IN SUB-SECTION (1) IS CREDITED TO ANY ACCOUNT, WHETHER CALLED 'SUSPENSE ACCOUNT' OR BY ANY OTHER NAME, IN THE BOO KS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE C REDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL APPL Y ACCORDINGLY. 6. THEREAFTER THE LD. CIT, DR CONTENDED THAT THE PR OVISIONS OF SECTION 194C APPLY AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF TH E CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER. MOREOVER IT IS ALSO CLEARLY MANDATED THAT WHERE ANY SUM REFERRED TO IN SUB-SECTION (1) IS CREDITED TO ANY ACCOUNT, WHETHER CALLED 'SUSPENSE A CCOUNT' OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH I NCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYE E AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. THUS DEEMING PROVISION OF SECTIO N 194C CLEARLY STATES THAT ONCE TDS HAS BEEN DEDUCTED IN ACCORDANCE WITH PROVISIONS OF SECTION 194C, SUCH INCOME IS DEEMED TO ACCRUE TO THE PAYEE. (EMPHASIS GIVEN BY LD. CIT, DR). ACCORDING TO HIM, SINCE TAX HAS ALREADY BEEN DEDUCTED FOR THE RETENTION MONEY DURIN G THE PERIOD UNDER CONSIDERATION, THE 5 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 CORRESPONDING INCOME ON ACCOUNT OF RETENTION MONEY IS DEEMED TO BE THE INCOME OF THE ASSESSEE FOR THE SAME PERIOD. MOREOVER, LD. DR POIN TED OUT THAT THE ASSESSEE HAS CLAIMED THE CREDIT OF SUCH TAX DEDUCTED AT SOURCE FOR RETEN TION MONEY IN HIS RETURN OF INCOME FOR THE AY 2014-15, AND IN VIEW OF THE ABOVE, THE ASSES SEE HAS TO COMPULSORILY INCLUDE INCOME ON ACCOUNT OF RETENTION MONEY FOR WHICH TAX CREDIT HAS ALREADY BEEN CLAIMED BY THE ASSESSEE. ACCORDING TO LD. CIT, DR, THE HONBLE CAL CUTTA HIGH COURTS DECISION WAS BASED ON THE DECISION OF THE HONBLE APEX COURT IN THE CA SE OF SETH PUSHALALMANSINGHKA P. LTD. (SUPRA) WHEREIN THE HONBLE SUPREME COURT OBSERVED THAT THE WORD ACCRUE AND ARISE DO NOT MEAN ACTUAL RECEIPT OF THE PROFITS OR GAINS. B OTH THESE WORDS ARE USED IN CONTRA- DISTINCTION TO THE WORD RECEIVE AND INDICATE A RI GHT TO RECEIVE. IF THE ASSESSEE ACQUIRES A RIGHT TO RECEIVE THE INCOME, THE INCOME CAN BE SAID TO ACCRUE TO HIM, THOUGH IT MAY BE RECEIVED LATER, ON ITS BEING ASCERTAINED. THEREFOR E, THE LD. CIT, DR CONTENDED THAT THE HONBLE HIGH COURT PLACED RELIANCE ON THE WORD ACC RUEAND NOT ON THE WORD CREDIT. ACCORDING TO LD. CIT, DR, WHEN EXPENDITURE HAS BEEN DETERMINED BY THE PAYEE THE LIABILITY TO DEDUCT TAX AT SOURCE ARISES. ACCORDIN G TO HIM, IN ACCORDANCE WITH THE PROVISIONS OF SECTION 194C, ONCE TDS HAS BEEN DEDUCTED, THE CO RRESPONDING SUM OF RETENTION MONEY FOR WHICH SUCH TDS HAS BEEN DEDUCTED IS DEEMED TO B E THE INCOME OF THE ASSESSEE AND HENCE, INCOME HAS ACCRUED TO THE ASSESSEE. ACCORDI NG TO THE LD. DR, DEDUCTION OF TAX AT SOURCE BY ANY PERSON CLEARLY DETERMINES THAT SUCH E XPENDITURE HAS BEEN BOOKED BY AND THE PERSON HAS CLEARLY IDENTIFIED SUCH EXPENDITURE AND ACKNOWLEDGED THE SAME BY DEDUCTING TAX AT SOURCE. ACCORDING TO HIM, IN THE CASE OF TH E ASSESSEE, SUCH INCOME ON ACCOUNT OF RETENTION MONEY HAS ACCRUED WHEN SUCH TAX AT SOURCE HAS BEEN DEDUCTED BY THE PAYEE. THOUGH THE LD. CIT, DR ACKNOWLEDGED THAT SUCH (RETE NTION MONEY) PAYMENTS BE ACTUALLY RELEASED LATER (NOT IN THIS ASSESSMENT YEAR), THE A CCRUAL MAY BE SAFELY SAID TO HAVE TAKEN PLACE WHEN THE TAX HAS BEEN DEDUCTED AT SOURCE ON A CCOUNT OF RETENTION MONEY. THUS, ACCORDING TO LD. DR, THE ASSESSEE HAS CLEARLY ACQUI RED A RIGHT TO RECEIVE THE INCOME AND, THEREFORE, THE INCOME CAN BE SAID TO HAVE ACQUIRED TO HAVE ACCRUED TO HIM THOUGH IT MAY BE RECEIVED LATER ON ITS BEING ACTUALLY PAID. THUS, A CCORDING TO LD. CIT, DR, THE INCOME (RETENTION MONEY) HAS ACCRUED TO THE ASSESSEE. MORE OVER, ACCORDING TO LD. CIT, DR, THE ASSESSEE HAS REGULARLY ADOPTED THE MERCANTILE SYSTE M OF ACCOUNTING AND THE RIGHT OF THE ASSESSEE ON THE INCOME AROSE ON THE DATE ON WHICH T AX HAS BEEN DEDUCTED AT SOURCE BY THE DEDUCTOR IN ACCORDANCE WITH THE PROVISION OF SECTIO N 194C OF THE ACT. ACCORDING TO LD. CIT, DR, THE ISSUE IN THIS CASE HAS NOT BEEN CONSID ERED IN THE CASE OF SIMPLEX CONCRETE 6 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 PILES (INDIA) (SUPRA) WHICH WAS RELIED UPON BY THE ASSESSEE WAS NOT EXAMINED BY THE HONBLE CALCUTTA HIGH COURT IN THE LIGHT OF THE PRO VISIONS OF SECTION 194C OF THE ACT AND THE FACT THAT WHETHER ACCRUAL OF INCOME ARISES ONCE TAX HAS BEEN DEDUCTED AT SOURCE AND ALSO FURTHER THAT IF THE CREDIT OF TAX DEDUCTED AT SOURCE HAS BEEN CLAIMED BY THE ASSESSEE IN HIS RETURN OF INCOME, THEN WHETHER THE INCOME HAS T O BE CORRESPONDINGLY TAKEN INTO ACCOUNT BY THE ASSESSEE. THEREFORE, ACCORDING TO THE LD. C IT, DR, AS PER THE PROVISION OF SECTION 194C AND SECTION 198 OF THE ACT, THE AO HAS RIGHTLY MADE THE DISALLOWANCE OF RS.142,53,74,710/- AS INCOME OF THE ASSESSEE WHICH HAS BEEN ERRONEOUSLY DELETED BY THE AO WHICH SHOULD BE REVERSED AND THE AOS ORDER SHOU LD BE UPHELD. 7. PER CONTRA, THE LD. AR FOR THE ASSESSEE CONTENDE D THAT ASSESSEE IS IN THE BUSINESS OF SUPPLY, ERECTION AND COMMISSIONING OF ELECTRICITY T RANSMISSION TOWERS, LINES, POWER SUB- STATIONS ETC. SUCH WORKS ARE DONE UNDER A DULY EXE CUTED CONTRACT WITH THE PRINCIPALS. DURING THE ASSESSMENT YEAR IN QUESTION, THE ASSESSE E CONTINUED THE CONSTRUCTION JOB FOR POWER GRID CORPORATION OF INDIA LIMITED, TRANSMISSI ON CORPORATION OF ANDHRA PRADESH LTD, WEST BENGAL STATE ELECTRICITY DISTRIBUTION COR PORATION LTD AND MAHARASHTRA STATE ELECTRICITY TRANSMISSION CO. LTD. THE ASSESSEE RAIS ED BILLS ON THE PARTIES ON PROGRESSIVE COMPLETION OF PARTICULAR PROJECT AND CREDITED THE G ROSS BILLED AMOUNT IN ITS BOOKS OF ACCOUNTS WHICH WAS REFLECTED IN THE AUDITED BALANCE SHEET UNDER THE HEAD REVENUE FROM OPERATIONS. THE ASSESSEE MAINTAINED BOOKS OF ACCOUN TS ON MERCANTILE BASIS AND THE REVENUE WAS RECOGNIZED ON THE BASIS OF PROGRESSIVE PARTIAL COMPLETION OF PARTICULAR PROJECT AND THE BILLS WERE RAISED ACCORDINGLY AND WERE ALSO ACCOUNT ED FOR IN THE SAME MANNER. THE CONTRACTS, IN SUCH ERECTION AND COMMISSIONING OF PO WER PLANTS INCLUDED THE CLAUSES THAT THE CONTRACTEE'S SHALL RETAIN SPECIFIED PERCENTAGE (%) OF THE BILLED AMOUNT TILL SUCCESSFUL COMPLETION OF THE ENTIRE PROJECT. THE LD. AR DREW O UR ATTENTION TO THE COPY OF CONTRACTS WHICH WAS FILED BEFORE THE AO AND LD. CIT(A). A PE RUSAL OF THE COPY OF ONE SUCH CONTRACT WITH POWER GRID CORPORATION OF INDIA LTD. AND THE R ELEVANT CLAUSE WAS BROUGHT TO OUR NOTICE WHICH READS AS UNDER: 'D FINAL PAYMENT: THE BALANCE 10%, OF THE ERECTION PRICE COMPONENT(EXCLUDING PRICE COMPONENT FOR SURVEY) SHALL BE PAID AFTER SUCCESSFU L COMMISSIONING OF THE TRANSMISSION LINE AND ISSUANCE OF TAKING OVER CERTIFICATE. )' ACCORDING TO SUCH DULY EXECUTED CONTRACTS ENTERED I NTO BETWEEN THE PARTIES, THE CONTRACTEE'S RETAINED SPECIFIED PERCENTAGE OF THE B ILLED AMOUNT AS RETENTION MONEY. THESE 7 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 PARTIES RETAINED A SUM OF RS. 142,53,74,710/ - AS R ETENTION MONEY ON THE BILLS RAISED DURING THE YEAR. ACCORDING TO HIM, THE DETAILS OF THE AMOU NT RETAINED BY PARTIES WERE DULY FILED BEFORE THE AO AND A COPY OF WHICH IS ENCLOSED IN TH E PB. THE LD. AR CONTENDS THAT ALL OTHER CONTRACTS WITH THE REMAINING PARTIES HAVE SIM ILAR CLAUSE AND THE ASSESSEE WAS, THEREFORE, NEITHER ENTITLED TO NOR COULD HAVE CLAIM ED THE RETENTION MONEY AS INCOME ACCRUED TILL THE ENTIRE PROJECT WAS COMMISSIONED. I T WAS POINTED OUT BY THE LD AR THAT THE PROJECTS WERE NOT COMPLETED DURING THE YEAR BUT COM PLETED AFTER FINANCIAL YEAR 2015-16. AND AS STATED EARLIER, ACCORDING TO LD AR, THE ASSE SSEE CREDITED THE AMOUNT OF GROSS BILLS IN THE BOOKS OF ACCOUNTS WHICH INCLUDED THE RETENTION MONEY AND REFLECTED AS REVENUE FROM OPERATIONS. AS A RESULT OF THE SAID TREATMENT IN TH E BOOKS OF ACCOUNTS, IT WAS EXPLAINED BY LD AR THAT THE REVENUE FROM OPERATIONS WENT UP BY THE RETENTION AMOUNT AND CONSEQUENTLY THE BOOK PROFIT AND THE NORMAL TOTAL INCOME. ACCORDING TO LD. AR, THE ASSESSEE REALIZING THE MISTAKE THAT RETENTION MONEY CANNOT BE TREATED AS I NCOME ACCRUED TILL THE PROJECT WAS COMPLETED AND AS SUCH DID NOT ACCRUE DURING THE ASS ESSMENT YEAR IN QUESTION, CLAIMED THE SAME BEFORE THE AO BY FILING THE REVISED RETURN THA T THE SAID AMOUNT OF RETENTION MONEY SHOULD BE EXCLUDED FROM THE REVENUE RECEIPTS AND AC CORDINGLY THE AMOUNT SHOULD BE EXCLUDED FROM THE BOOK PROFITS AND THE TOTAL INCOME . ACCORDING TO LD. AR, THE DETAILS OF THE RETENTION MONEY WERE FILED AND ARE NOT DISPUTED BY THE AO. IT WAS ALSO CLARIFIED TO THE AO THAT RETENTION MONEY WAS TO BE INCLUDED IN THE R ESPECTIVE YEARS WHEN THE PROJECT WILL BE COMPLETED. IT WAS ALSO POINTED OUT THAT A PART O F THE SAID RETENTION MONEY WAS TAKEN AS INCOME IN ASSESSMENT YEAR 2015-16 TO 2017-18 WHEN A PARTICULAR PROJECT WAS COMPLETED AND HAVE DULY BEEN INCLUDED IN THE RETURN OF INCOME DURING ASSESSMENT YEAR 2015-16 TO 2017-18. THE REMAINING AMOUNT OF RETENTION MONEY SH ALL ALSO BE INCLUDED IN THE INCOME FOR THE YEAR WHEN THE PARTICULAR PROJECTS SHALL BE COMPLETED. 8. ACCORDING TO LD. AR, THE FACTS STATED ABOVE ARE NOT DISPUTED BY THE AO. ACCORDING TO HIM, THE AO DULY EXAMINED THE SUBMISSIONS MADE B Y THE ASSESSEE HOWEVER REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESS EE DULY CREDITED THE AMOUNT OF GROSS BILLS IN ITS BOOKS OF ACCOUNTS, THEREBY INCLUDED THE RETE NTION MONEY IN THE ACCOUNTS AS ALSO IN THE PROFIT AND LOSS ACCOUNT AND IN THE ORIGINAL RETURN OF INCOME FILED BY THE APPELLANT. THE AO ALSO FOUND THAT THE ASSESSEE CLAIMED TDS WHICH WAS DEDUCTED ON THE GROSS BILLS. AS PER THE AO WHEN THE ASSESSEE HAS CLAIMED THE TDS INCLUDING THE TDS ON RETENTION MONEY DURING 8 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 THE YEAR, THE RETENTION MONEY HAS TO BE INCLUDED AS INCOME ACCRUED DURING THE ASSESSMENT YEAR IN QUESTION WHICH ACTION, ACCORDING TO LD. AR, IS ERRONEOUS. 9. THE LD. AR FURTHER SUBMITTED THAT THOUGH THE ASS ESSEE ENTERED AMOUNT OF GROSS BILLS OF THE JOB DONE INCLUDING RETENTION MONEY IN THE BO OKS OF ACCOUNT AND CONSEQUENTLY IN THE REVENUE FROM OPERATIONS BUT THE SAME WAS NOT IN ACC ORDANCE WITH LAW. IN THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS DULY CLAIMED BEFORE T HE AO THAT RETENTION MONEY INCLUDED IN THE GROSS RECEIPTS DID NOT ACCRUE DURING THE YEA R, COULD NOT BE INCLUDED AS RECEIPTS FOR THE YEAR BUT ACCRUES ONLY IN ACCORDANCE WITH THE CO NTRACT WHEN THE APPELLANT SHALL BE ENTITLED TO CLAIM THE SAME AS ACCRUED. THE ASSESSEE ALSO FILED REVISED RETURN FOR THE SAME AS STATED ABOVE. THE ASSESSEE ALSO EXPLAINED THE ISSUE VIDE LETTER DATED 28.12.2016. ACCORDING TO LD AR, THOUGH IT IS NOT AN UNDISPUTED FACT THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, ONLY THE INCOME WHICH IS ACCR UED DURING THE YEAR CAN BE TAXABLE. THE LD AR SUBMITTED THAT THE MAKING OF THE ENTRY I N THE BOOKS OF ACCOUNTS IS NOT DECISIVE IN DETERMINING THE NATURE OF INCOME. ACCORDING TO L D. AR, THE ISSUE IS NO LONGER RES- INTEGRA. REFERENCE IN THIS CONNECTION WAS INVITED T O THE FOLLOWING JUDGEMENTS: IN THE CASE OF MCM SERVICES PVT LTD., (ITA NO. 3485 /K/2011 AT PARA 7.3 IT WAS OBSERVED BY TRIBUNAL (DEL) AS UNDER.- '' IN OUR VIEW FOR A RECEIPT TO ACCRUE AS INCOME AN ACCOUNTING ENTRY CANNOT BE ONLY DECISIVE FACTOR. IF THE SAME IS NOT ACCRUED IT CANNOT BE HELD AS INC OME ONLY BECAUSE OF SUCH ENTRY. THE RETENTION MONEY IS CONTINGENT UPON THE COMPLETION AND POST WA RRANTY CERTIFICATE FROM THE ENGINEER IN-CHARGE OF NTPC. NEITHER THE WORK WAS COMPLETED NOR THE DEF ECT LIABILITY PERIOD WAS OVER. IT IS ALSO FACT THAT SUBSEQUENTLY DISPUTE AROSE BETWEEN THE APPELLA NT AND ITD AND MATTER IS PENDING BEFORE ARBITRATOR. THUS, THE FATE OF SUCH RETENTION MONEY IS HANGING IN BALANCE AND IT DID NOT ACCRUE AS INCOME OF THE APPELLANT. 10. THE LD. AR CITED THE DECISION IN GODHRA ELECTRI CITY CO. LTD. V. CIT [1997]225 ITR 7461 WHEREIN THE HONBLE SUPREME COURT REITERATED T HE CONCEPT OF 'REAL INCOME', EMPHASIZING THAT EVEN UNDER THE MERCANTILE SYSTEM, A MERE CLAIM BY THE ASSESSEE IS NOT SUFFICIENT TO MAKE INCOME ACCRUE ON THE BASIS OF 'H YPOTHETICAL INCOME' - THE INCOME MUST ACTUALLY BECOME DUE. IN THE SAID CASE THE HONBLE S UPREME COURT INTER ALIA EXAMINED THE CASH SYSTEM AND MERCANTILE SYSTEM OF ACCOUNTING IN THE CONTEXT OF 'HYPOTHETICAL INCOME'. CONSIDERING THE FACTS BEFORE IT, THE COURT SAID THA T ALTHOUGH THE ASSESSEE COMPANY WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND H AD MADE ENTRIES IN THE BOOKS REGARDING ENHANCED CHARGES FOR THE SUPPLY OF ELECTRICITY MADE TO ITS CONSUMERS, NO REAL INCOME HAD ACCRUED TO THE ASSESSEE-COMPANY IN RESPECT OF THOSE ENHANCED CHARGES IN VIEW OF THE 9 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 REPRESENTATIVE SUITS FILED BY THE CONSUMERS WHICH W ERE DECREED BY THE COURT AND ULTIMATELY, AFTER VARIOUS PROCEEDINGS WHICH TOOK PLACE, THE ASS ESSEE- COMPANY HAD NOT BEEN ABLE TO REALIZE THE ENHANCED CHARGES. SINCE NO REAL INCOME HAVING ACCRUED, IT WAS HELD THAT THE AMOUNT DUE ON ENHANCEMENT WAS NOT ASSESSABLE TO INC OME TAX. 11. IN A SUBSEQUENT DECISION RENDERED IN CIT V. BOK ARO STEEL LTD. [1999] 236 ITR 315, THE HONBLE SUPREME COURT, FOLLOWING ITS EARLIER DE CISION IN GODHRA ELECTRICITY CO. LTD.'S CASE (SUPRA) AFFIRMED THE DECISION OF THE PATNA HIG H COURT WHEREIN IT WAS HELD THAT THE ENTRY IN THE BOOKS OF ACCOUNT SHOWN AS INCOME FROM HINDUSTAN STEEL LTD. FOR THE 8 LOCOMOTIVES SUPPLIED BY THE ASSESSEE-COMPANY TO THE M COULD NOT BE BROUGHT TO TAX AS INCOME SINCE THIS ENTRY REFLECTED 'HYPOTHETICAL INC OME' AND ONLY THE REAL INCOME COULD BE BROUGHT TO TAX. 12. IN CIT V. MODI RUBBER LTD. [1998] 230 ITR 817, FOLLOWING THE DECISIONS OF THE SUPREME COURT IN GODHRA ELECTRICITY CO. LTD'S. CASE (SUPRA) AND SHOORJI VALLABHDAS &CO'S. CASE (SUPRA), HELD THAT A MERE UNILATERAL ACT OF TH E ASSESSEE DEBITING THE BOOKS OF ACCOUNT, THE LIABILITY FOR PAYMENT WHEREOF WAS NOT ACCEPTED OR AGREED TO BY THE DEBTOR, DID NOT AMOUNT TO INCOME ACCRUED TO THE ASSESSEE. 13. IN THE CASE OF MCM SERVICES PVT. LTD., (ITA NO. 3485/K/2011 AT PARA 7.8 AND 7.12 IT WAS OBSERVED BY THE DELHI TRIBUNAL AS UNDER:- '7.8. READING ALL THE DECISIONS CITED ABOVE AND IN VIEW OF FACTS AND CIRCUMSTANCES OF THE CASE, THE AMOUNT OF RETENTION MONEY CANNOT BE HELD TO BE ACCRUED AND BROUGHT TO TAX AS INCOME OF THE ASSESSEE. IT IS TRITE LAW THAT AN ACCOUNTING EN TRY CANNOT CREATE TAXABILITY OF A RECEIPT WHICH DEPENDS ON CONTINGENCIES AND CANNOT BE TREATE D AS ACCRUED INCOME.' 7.12. APROPOS THE DENIAL OF CLAIM ON THE GROUND TH AT SUCH CLAIM WAS MADE IN THE REVISED RETURN, WE HAVE NO DIFFICULTY IN OVERRULING SUCH OB JECTION OF CIT(A). FIRSTLY, IT IS SETTLED LAW THAT INCOME IS NOT TAXABLE ONLY ON THE BASIS OF ENT RY OR ABSENCE THEREOF IN THE BOOKS OF ACCOUNTS. WHAT IS ESSENTIAL FOR CHARGING SECTION 5 IS THAT INCOME SHOULD HAVE ACCRUED TO THE APPELLANT. THIS IS MADE CLEAR BY HON'BLE SUPREME CO URT IN SHOORJIVALLABHDAS CASE (SUPRA). SECONDLY, THE CIT(A) WRONGLY CONSIDERED ELIGIBILITY OF FILING REVISED RETURN ONLY IN CASE OF 'MISTAKE APPARENT ON RECORD' AS ENVISAGED IN SEC. 1 54 OF THE ACT. THE PERSON IS ENTITLED TO FILE REVISED RETURN WHEN HE DISCOVERS ANY OMISSION OR AN Y WRONG STATEMENT THEREIN. OFFERING INCOME WHICH, WHICH CAN BE VALIDLY REVISED U/ S. 13 9(5) OF THE ACT.' 14. IN THE CASE OF KEDARNATH JUTE MFG CO. LTD., REP ORTED IN 82 ITR THE HON'BLE SUPREME COURT HELD THAT PASSING OR NOT PASSING OF THE ENTRY IN THE BOOKS OF ACCOUNTS IS NOT DETERMINATIVE OF CONSIDERING THE ACCRUAL OF ANY INC OME OR EXPENDITURE. 10 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 15. IN THE LIGHT OF THE AFORESAID CASE LAWS, THE LD . AR SUBMITTED THAT THE FIRST CONTENTION OF THE AO THAT THE ASSESSEE WAS MAINTAINING MERCANT ILE SYSTEM OF ACCOUNTING AND THE INCOME WAS DULY INCLUDED IN THE BOOKS OF ACCOUNTS C ANNOT STAND IN THE WAY OF THE ASSESSEE IN ALLOWING ITS CLAIM. FURTHER, ACCORDING TO LD. AR , EVEN IF THE ASSESSEE HAS INCLUDED THE INCOME IN THE RETURN, ASSESSMENT HAS TO BE MADE ON THE INCOME TAXABLE AS PER LAW. REFERENCE IN THIS CONNECTION WAS INVITED TO THE CBD T'S CIRCULAR NO ISSUED IN JUNE, 1955. [THE CIRCULAR IS REPRODUCED AT PAGE 532 OF VOLUME I OF CHATURVEDI AND PITHISARIA'S INCOME- TAX LAW, SECOND EDITION], AND THE CIRCULAR IS AS FO LLOW: 'OFFICERS OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS. IT IS ONE OF THEIR DUTIES TO ASSIST A TAXPA YER IN EVERY REASONABLE WAY, PARTICULARLY IN THE MATTER OF CLAIMING AND SECURING RELIEFS AND IN THIS REGARD THE OFFICERS SHOULD TAKE THE INITIATIVE IN GUIDING A TAXPAYER WHERE PROCEEDINGS OR OTHER PARTICULARS BEFORE THEM INDICATE THAT SOME REFUND OR RELIEF IS DUE TO HIM. THIS ATTI TUDE WOULD, IN THE LONG RUN, BENEFIT THE DEPARTMENT, FOR IT WOULD INSPIRE CONFIDENCE IN HIM. THAT HE MAY BE SURE OF GETTING A SQUARE DEAL FROM THE DEPARTMENT. ALTHOUGH, THEREFORE, THE RESPONSIBILITY FOR CLAIMING REFUNDS AND RELIEFS RESTS WITH THE ASSESSEES ON WHOM IT IS IMPO SED BY LAW, OFFICERS SHOULD - (A) DRAW THEIR ATTENTION TO ANY REFUNDS OR RELIEFS TO WHICH THEY APPEAR TO BE CLEARLY ENTITLED BUT WHICH THEY HAVE OMITTED TO CLAIM FOR SOME REASO N OR OTHER; (B) FREELY ADVISE THEM WHEN APPROACHED BY THEM AS T O THEIR RIGHTS AND LIABILITIES AND AS TO THE PROCEDURE TO BE ADOPTED FOR CLAIMING REFUNDS AN D RELIEFS. '(CIRCULAR NO. 14 (XL-35) OF 1955 DATED 11-4-1955). 16. IT WAS POINTED OUT BY THE LD. AR THAT THIS CIRC ULAR HAS BEEN FOLLOWED IN A NUMBER OF CASES, ONE SUCH CASE IS CHOKSHI METAL REFINERY VS C OMMISSIONER OF INCOME- TAX, REPORTED IN 107 ITR 63 GUJ. 17. ACCORDING TO LD. AR, THE ISSUE WITH REGARD TO T HE TAXABILITY OF THE RETENTION MONEY ON SIMILAR FACTS CAME UP FOR CONSIDERATION BEFORE T HE ITAT KOLKATA BENCH IN THE CASE OF MCNALLY BHARAT LIMITED IN ITA NO. 100/KOL/2011 VIDE ORDER DATED 1.3.2017 FOR ASSESSMENT YEAR: 2006-07, 2007-08 AND 2008-09 WHICH ORDER WAS IN FAVOUR OF THE ASSESSEE WHEREIN IT WAS HELD EVEN IF THE ASSESSEE H AS INCLUDED THE RETENTION MONEY IN ITS RECEIPT IN THE BOOKS OF ACCOUNTS STILL THE SAME HAS TO BE EXCLUDED WHILE COMPUTING THE TOTAL INCOME BOTH UNDER NORMAL PROVISIONS AS WELL AS WHIL E COMPUTING THE INCOME U/S.115JB. THE ISSUE RAISED BEFORE THE ITAT WAS AS UNDER.- '5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CLT(APPEALS) HAS ERRED IN DIRECTING TO EXCLUDE RETENTION MONEY OF RS. 28,87,7 2,022/ - IN COMPUTING TOTAL INCOME UNDER NORMAL PROVISION AS WELL AS IN COMPUTING BOOK PROFI T U/S. 115JB. THE ITAT HELD AS UNDER.- 11 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 PARA '38. WE HAVE GIVEN A VERY CAREFUL CONSIDERATIO N TO THE 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 CONCERNED , IT IS NOT DISPUTED BY THE REVENUE THAT THE SUM IN QUESTION IS IN THE NATURE OF RETENTION MONEY . IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE RETENTION MONEY CANNOT BE REGARDED AS INCO ME OF THE ASSESSEE. THE ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN CONCLUDED BY THE HON'BLE C ALCUTTA 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 AS SESSEE 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 WOULD ACQUIRE THE RIGH T TO RECEIVE SUCH RETENTION MONEY. THEREFORE, ON THE DATE WHEN THE BILLS WERE SUBMITTE D, HAVING REGARD TO THE NATURE OF THE CONTRACT, NO ENFORCEABLE LIABILITY ACCRUED OR AROSE AND, ACCORDINGLY, IT COULD NOT BE SAID THAT THE ASSESSEE HAD ANY RIGHT TO RECEIVE THE ENTIRE AM OUNT ON THE COMPLETION OF THE WORK OR ON THE SUBMISSION OF BILLS. THE ASSESSEE HAD NO RIGHT TO CLAIM ANY PART OF THE RETENTION MONEY TILL THE VERIFICATION OF SATISFACTORY EXECUTION OF THE C ONTRACT. 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 ACC OUNT IN COMPUTING 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 FACTS AS THAT OF THE ASSESSEE'S CASE, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN ONE PART 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 ACCORDINGLY THE SAME IS D ISMISSED. PARA '43. THE ADMITTED FACTUAL AND LEGAL POSITION I N THE PRESENT CASE IS THAT RETENTION MONEY IS NOT IN THE NATURE OF INCOME TILL SUCH TIME THE CONTRACTUAL OBLIGATIONS ARE FULLY PERFORMED TO THE SATISFACTION OF THE CUSTOMER BY THE ASSESSEE. THEREFORE, THE RETENTION MONEY CANNOT BE REGARDED AS INCOME EVEN F OR THE PURPOSE OF BOOK PROFITS U/S.115JB OF THE ACT THOUGH CREDITED IN THE PROFIT AND LOSS ACCOUNT AND HAVE TO BE EXCLUDED FOR ARRIVING AT THE BOOK PROFITS U/S.1L5JB OF THE ACT. WE HOLD ACCORDINGLY AND CONFIRM THE ORDER OF THE CLT(A) IN THIS REGARD. ' 18. APART FROM THE ABOVE, THE FOLLOWING JUDGMENTS W ERE CITED BY THE LD. AR: A) HONBLE CALCUTTA HIGH COURT IN THE CASE OF COMMI SSIONER OF INCOME-TAX VS SIMPLEX CONCRETE PILES (INDIA) (179 ITR 8 CAL) :- THE QUESTION OF LAW HAS BEEN REFERRED TO THE COURT WAS: ' WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN VIEW OF THE FACT THAT THE ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTIN G, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE RETENTION MONEY IN RESPECT OF THE JOBS COM PLETED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR SHOULD NOT BE TAKEN INTO ACC OUNT IN COMPUTING THE PROFITS AND GAINS OF THE ASSESSEE'S BUSINESS FOR THE ASSESSMENT YEAR 1965-66 ?' THE HON'BLE HIGH COURT HELD THAT 12. THE PAYMENT OF RETENTION MONEY IS DEFERRED AND IS CONTINGENT ON THE SATISFACTORY COMPLETION OF THE WORK AND REMOVAL OF DEFECTS AND PAYMENT OF DAMAGES, IF ANY. TILL THEN, THERE IS NO ADMISSION O F LIABILITY AND NO RIGHT TO RECEIVE ANY PART OF THE RETENTION MONEY ACCRUES TO THE ASSE SSEE. ACCORDINGLY, THE TRIBUNAL WAS RIGHT IN DIRECTING THE INCOME-TAX OFFICER TO EX AMINE THE QUESTION OF RETENTION MONEY FROM THIS ANGLE AND MAKE ADJUSTMENTS REGARDIN G THE SAME, IF NECESSARY. 12 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 B) SIMILAR VIEW IS TAKEN BY THE HON'BLE GUJRAT HIGH COURT IN ANUP ENGINEERING LTD. (247 ITR 457), HOLDING AS UNDER: 'LOOKING TO THE FACTS OF THE PRESENT CASE AND IN TH E LIGHT OF THE LAW LAID DOWN BY THE SUPREME COURT IN THE CASES REFERRED TO HEREINABOVE, IT WAS VERY CLEAR THAT UNLESS AND UNTIL A DEBT IS CREATED IN FAVOUR OF THE ASSESSEE, WHICH IS DUE BY SOMEBODY, IT CANNOT BE SAID THAT THE ASSESSEE HAS ACQUIRED A RIGHT TO R ECEIVE THE INCOME OR THAT THE INCOME HAS ACCRUED TO HIM. A DEBT MUST HAVE COME IN TO EXISTENCE AND THE ASSESSEE MUST HAVE ACQUIRED A RIGHT TO RECEIVE THE PAYMENT. IN THE INSTANT CASE, THE ASSESSEE DID NOT GET ANY RIGHT TO RECEIVE THE SUM OF RS. 4 L AKHS WHICH COULD HAVE BEEN RETAINED BY 'G' IN PURSUANCE OF CLAUSE NO. 14 OF THE CONTRAC T. ONE HAS TO LOOK AT THE CONTRACT AND NOT AT THE ENTRIES MADE IN THE BOOKS OF ACCOUNT . IF, UPON CONSTRUCTION OF THE CONTRACT, ONE CAME TO A CONCLUSION THAT THE ASSESSE E COULD NOT HAVE RECEIVED RS, 4LAKHS FROM 'G', BY NO STRETCH OF IMAGINATION IT CO ULD BE SAID THAT THE SAID AMOUNT HAD ACCRUED BY WAY OF INCOME TO THE ASSESSEE IN THE PREVIOUS YEAR IN QUESTION. AS THE PLANT WAS NOT UP TO THE SATISFACTION OF 'G', 'G' HA D A RIGHT TO RETAIN RS. 4LAKHS. IT WAS NOT IN DISPUTE THAT DURING THE PREVIOUS YEAR IN QUE STION, THE DISPUTE AS TO QUALITY OF THE PLANT HAD ARISEN AND THE ASSESSEE HAD ALSO FELT THAT THE QUALITY OF THE PLANT WAS NOT UP TO THE MARK AND, THEREFORE, BELIEVING THAT ' G' MIGHT ULTIMATELY RETAIN RS. 3 LAKHS OR UNDER THE WARRANTY CLAUSE THE ASSESSEE MIG HT HAVE TO PAY RS. 3 LAKHS, THE ASSESSEE MADE A PROVISION FOR RS. 3 LAKHS BY DEDUCT ING THE SAID AMOUNT FROM THE SALES ACCOUNT. IN FACT, IN THE PREVIOUS YEAR IN QUE STION, THE ASSESSEE HAD NO VESTED RIGHT TO RECEIVE RS. 4 LAKHS AND, THEREFORE, IT COU LD NOT BE SAID THAT INCOME TO THAT EXTENT HAD ACCRUED TO THE ASSESSEE. THE ABOVE CONCL USION WOULD BE TESTED IN A DIFFERENT MANNER TOO. WHETHER 'G' WAS LIABLE TO PAY RS. 4 LAKHS TO THE ASSESSEE IN SPITE OF THE FACT THAT QUALITY OF THE PLANT WAS ADM ITTEDLY NOT UP TO THE MARK? DID THE ASSESSEE GET A VESTED RIGHT TO GET THE SAID AMOUNT? THE ANSWER TO THESE QUESTIONS WOULD BE IN NEGATIVE AND, THEREFORE, IT COULD NOT B E SAID THAT INCOME HAD ACCRUED TO THE ASSESSEE,' THE HON'BLEGUJRAT HIGH COURT FOLLOWE D THE JUDGEMENT IN THE CASE OF CIT V. SIMPLEX CONCRETE PILES (INDIA) (P.) LTD. [19 89] 179 ITR 8 (CAL.). C) HON'BLE BOMBAY HIGH COURT JUDGMENT IN THE CASE O F CLT V. ASSOCIATED CABLES P. LTD. (286 ITR 596) WHICH HAS INTER ALIA HELD THAT; 'THE QUESTION OF LAW SOUGHT TO BE RAISED IN THIS AP PEAL IS AS TO WHETHER THE RETENTION MONEY COULD BE CONSIDERED TO BE THE INCOME OF THE A SSESSEE IN THE YEAR IN WHICH THE AMOUNT WAS RETAINED. THE INCOME-TAX APPELLATE TRIBU NAL HAS REFERRED TO A JUDGMENT OF THE TRIBUNAL IN ASSOCIATED CABLES P. LTD. V. DEP UTY CLT [1994] 206 LTR (AT) 48 (BOM.). MR.SATHE APPEARING FOR THE 'RESPONDENT HAS, HOWEVER, DRAWN OUR ATTENTION TO TWO JUDGMENTS, VIZ., OF THE CALCUTTA HIGH COURT AND THE MADRAS HIGH COURT. THE CALCUTTA HIGH COURT JUDGMENT IS REPORTED IN CIT V. SIMPLEX CONCRETE PILES (INDIA) P. LTD. 1989 179 ITR 8. A DIVISION BENCH OF THE CALCUT TA HIGH COURT IN THAT MATTER HAS HELD THAT THE PAYMENT OF RETENTION MONEY IN THE CAS E OF CONTRACT IS DEFERRED AND IS CONTINGENT ON SATISFACTORY COMPLETION OF CONTRACT W ORK. THE RIGHT TO RECEIVE THE RETENTION MONEY IS ACCRUED ONLY AFTER THE OBLIGATIO NS UNDER THE CONTRACT ARE FULFILLED AND, THEREFORE, IT WOULD NOT AMOUNT TO AN INCOME OF THE ASSESSEE IN THE YEAR IN WHICH THE AMOUNT IS RETAINED. THE OTHER JUDGMENT RELIED U PON IS IN THE CASE OF CIT V. IGNIFLUID BOILERS-(I). LTD. REPORTED IN [2006] 283 ITR 295 (MAD.). IN THAT JUDGMENT ALSO, A DIVISION BENCH OF THE MADRAS HIGH COURT HAS HELD THAT THE AMOUNT RETAINED DOES NOT ACCRUE TO THE ASSESSEE AND, THEREFORE, THE ASSESSEE WOULD NOT BE LIABLE. IN VIEW OF WHAT IS STATED ABOVE, THERE IS NO REASON TO ENTERTAIN THE APPEAL. THE APPEAL IS DISMISSED'. 13 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 19. ACCORDING TO LD. AR, THE OTHER CONTENTION TAKEN BY THE AO WHILE REJECTING THE CLAIM WAS THAT THE ASSESSEE HIMSELF HAS CLAIMED THE DEDUC TION OF THE TDS ON THE RETENTION MONEY DURING THE YEAR AND THEREFORE RETENTION MONEY WAS T O BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE L D. AR SUBMITTED THAT THE AO WAS NOT CORRECT IN NOT REDUCING THE RETENTION MONEY WHILE C OMPUTING THE TOTAL INCOME IN THE AFORESAID GROUND ALSO. ACCORDING TO HIM, THERE IS N O DISPUTE IN VIEW OF WHAT HAVE BEEN STATED ABOVE THAT RETENTION MONEY DID NOT ACCRUE AS INCOME DURING THE YEAR AND SIMPLY BECAUSE THE TDS WAS CLAIMED BY THE ASSESSEE CANNOT BE THE BASIS TO TREAT THE SAME AS INCOME. THE LD. AR DREW OUR ATTENTION TO SEC. 199 W HICH IS AS UNDER: CREDIT FOR TAX DEDUCTED. 199. (L) ANY DEDUCTION MADE IN ACCORDANCE WITH THE FOREGOING PROVISIONS OF THIS CHAPTER AND PAID TO THE CENTRAL GOVERNMENT SHALL BE TREATED AS A PAYMENT OF TAX ON BEHALF OF THE PERSON FROM WHOSE INCOME THE DEDUCTIO N WAS MADE, OR OF THE OWNER OF THESECURITY, OR OF THE DEPOSITOR OR OF THE OWNER OF PROPERTY OR OF THE UNIT-HOLDER, OR OF THE SHAREHOLDER, AS THE CASE MAY BE. (2) ANY SUM REFERRED TO IN SUB-SECTION (LA) OF SECT ION 192 AND PAID TO THE CENTRAL GOVERNMENT SHALL BE TREATED AS THE TAX PAID ON BEHA LF OF THE PERSON IN RESPECT OF WHOSE INCOME SUCH PAYMENT OF TAX HAS BEEN MADE. (3) THE BOARD MAY, FOR THE PURPOSES OF GIVING CREDI T IN RESPECT OF TAX DEDUCTED OR TAX PAID IN TERMS OF THE PROVISIONS OF THIS CHAPTER, MA KE SUCH RULESAS MAY BE NECESSARY, INCLUDING THE RULES FOR THE PURPOSES OF GIVING CRED IT TO A PERSON OTHER THAN THOSE REFERRED TO IN SUB-SECTION (1) AND SUB- SECTION (2) AND ALSO THE ASSESSMENT YEAR FOR WHICH SUCH CREDIT MAY BE GIVEN. 20. THEREFORE, ACCORDING TO LD. AR, CREDIT HAS TO B E ALLOWED TO THE PERSON FROM WHOSE INCOME TAX HAS BEEN DEDUCTED. THE LD. AR, HOWEVER, ACKNOWLEDGED THAT THERE IS ALSO NO DISPUTE THAT CREDIT CAN BE ALLOWED ONLY IN THE YEAR IN WHICH THE INCOME IS MADE TAXABLE. THEREFORE THE AO WAS WRONG THAT SINCE THE ASSESSEE HAS CLAIMED TDS, INCOME WAS TAXABLE DURING THE YEAR. ACCORDING TO LD. AR, THE ISSUE IS JUST OPPOSITE. ACCORDING TO HIM, SINCE THE INCOME DID NOT ACCRUE DURING THE YEAR, THE INCOME S HALL BE TAXABLE IN THE YEAR IN WHICH IT WILL ACCRUE AND CREDIT SHALL BE ALLOWED IN THE YEAR IN WHICH SUCH INCOME IS ACCRUED AND TAXED. THEREFORE, ACCORDING TO HIM IT IS CLEAR FROM THE ABOVE PROVISION THAT CREDIT SHOULD BE ALLOWED IN THE YEAR IN WHICH THE INCOME RELATING TO THE TDS SHALL BE TAKEN INTO ACCOUNT. THEREFORE, THE AO COULD HAVE DISALLOWED THE CREDIT FOR THE TDS RELATABLE TO RETENTION MONEY DURING THE YEAR AND SUCH TDS WAS ALLOWABLE IN ASSESSMENT YEARS WHEN SUCH RETENTION MONEY IS ACCRUED AND TAXED. 14 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 21. ACCORDING TO LD. AR, SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE INCOME TAX APPELLATE TRIBUNAL DELHI WHEREIN IN THE CASE OF M CM SERVICES PVT. LTD., NEW DELHI THE ASSESSEE RECOGNISED THE ENTIRE GROSS BILLS IN THE B OOKS OF ACCOUNTS BUT CLAIMED THAT RETENTION MONEY DID NOT ACCRUE TO THE ASSESSEE AS I NCOME AND CLAIMED THE SAME TO BE REDUCED FROM THE INCOME. THE AO ALLOWED THE CLAIM B UT THE CIT(A) ENHANCED THE INCOME BY MAKING ADDITION OF RETENTION MONEY CLAIMED AS NO T ACCRUED BY ASSESSEE. THE ASSESSEE FILED APPEAL BEFORE THE ITAT AND THE LD. DR TOOK TH E SAME ARGUMENT THAT SINCE TDS WAS DEDUCTED ON THE RETENTION MONEY THEREFORE THE RETEN TION MONEY ACCRUED DURING THE YEAR ITSELF. THE TRIBUNAL DEALT WITH THE SAID ARGUMENT AS UNDER: - 6.4. LD. CIT(DR) VEHEMENTLY ARGUES THAT THERE IS NO CONTINGENCY INVOLVED IN THE ACCRUAL OF RETENTION MONEY. ACCRUAL AND RECEIPT ARE TWO DEFERE NT TERMS. MERELY BECAUSE THERE ARE CERTAIN CONDITIONS FOR RECEIPT OF MONEY ACCRUAL OF INCOME CANNOT BE POSTPONED. IT DEPENDS ON ASSESSEE'S RIGHT TO RECEIVE THE SAME. IN THIS CASE ASSESSEE ENTERED INTO A REGULAR TYPE OF CONSTRUCTION CONTRACT; TERMS OF AGREEMENT ARE SIMIL AR TO ROUTINE CONTRACT AGREEMENTS WHERE SECURITY DEPOSIT IS RETAINED BY THE CONTRACTOR FOR SOME TIME AFTER COMPLETION OF THE CONTRACT. TDS HAS ALSO BEEN DEDUCTED ON THE ENTIRE AMOUNT WHI CH INDICATES THAT RETENTION MONEY ACCRUED AS INCOME TO THE ASSESSEE. THE RELEVANT PARA OF THE ORDER OF ITAT ARE REPRODUC ED HEREUNDER: 7.2. UNDER THE SCHEME OF THE ACT, WHAT IS TAXABLE I S THE INCOME THAT HAS ACCRUED IN FAVOR OF THE ASSESSEE, I.E. REAL INCOME AND NOT NOTIONAL. TH IS VIEW IS AMPLIFIED IN THE DECISION OF HONBLE SUPREME COURT IN CASE OF GODHRA ELECTRICITY CO. LTD. 225 ITR 746. 7.3. IN OUR VIEW FOR A RECEIPT TO ACCRUE AS INCOME AN ACCOUNTING ENTRY CANNOT BE ONLY DECISIVE FACTOR. IF THE SAME IS NOT ACCRUED IT CANN OT BE HELD AS INCOME ONLY BECAUSE OF SUCH ENTRY. THE RETENTION MONEY IS CONTINGENT UPON THE C OMPLETION AND POST WARRANTY CERTIFICATE FROM THE ENGINEER IN-CHARGE OF NTPC. NEITHER THE WO RK WAS COMPLETED NOR THE DEFECT LIABILITY PERIOD WAS OVER. IT IS ALSO FACT THAT SUB SEQUENTLY DISPUTE AROSE BETWEEN THE APPELLANT AND ITD AND MATTER IS PENDING BEFORE ARBI TRATOR. THUS THE FATE OF SUCH RETENTION MONEY IS HANGING IN BALANCE AND IT DID NOT ACCRUE A S INCOME OF THE APPELLANT. THE AFORESAID JUDGEMENTS ALSO NEGATE THE CONTENTION OF THE AO WITH REGARD TO THE ENTRY IN THE BOOKS OF ACCOUNTS. IN ALL THE JUDGMENTS IT HAS BEEN HELD THAT IN MERCANTILE SYSTEM OF ACCOUNTING THE ENTRY IN THE BOOKS OF ACCOUNTS IS NO T DECISIVE BUT IT IS THE ACCRUAL OF INCOME WHICH IS DECISIVE. IT MAY BE SUBMITTED THAT EVEN THE CBDT WAS CONSCIOU S OF THE ISSUE AND HAS INTRODUCED INCOME COMPUTATION AND DISCLOSURE STANDARDS ('ICDS' ) WITH AN INTENTION TO BRIDGE THE GAP BETWEEN THE ACCOUNTING TREATMENT AND TAXATION TREAT MENT AS ALSO TO PROVIDE MUCH NEEDED CLARITY AND CONSISTENCY IN COMPUTING TAXABLE INCOME . CBDT HAS ISSUED FEW CLARIFICATIONS ON ICDS IN FORM OF FAQS VIDE ITS CIRCULAR DATED 23 MAR CH 2017. THE CLARIFICATION COMES INTO EFFECT FROM ASSESSMENT YEAR 2017-18 WHEREIN THEY HA VE MADE CLARIFICATION ON RECOGNITION OF RETENTION MONEY. IT HAS BEEN PROVIDED THAT AS PE R THE GENERALLY ACCEPTED ACCOUNTING PRACTICES, RETENTION MONEY IS NOT REQUIRED TO BE RE CORDED IN THE BOOKS OF ACCOUNT UNLESS THE SAME ACCRUES I.E. THE STIPULATED CONDITIONS OF THE CONTRACT ARE SO ACCOMPLISHED. THE BOARD TOOK NOTE OF THE VARIOUS JUDICIAL PRECEDENTS WHILE DECIDING ON THE TAXABILITY OF THE RETENTION MONEY. THE CBDT HAS NOW CLARIFIED THAT RETENTION MO NEY, BEING PART OF CONTRACT REVENUE, SHALL BE RECOGNIZED AS REVENUE SUBJECT TO REASONABL E CERTAINTY OF ITS ULTIMATE COLLECTION AS 15 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 CONTAINED IN PARA 9 OF ICDS III. THIS ACCOUNTING ST ANDARD IS APPLICABLE FROM ASSESSMENT YEAR 2017-18. 22. IN THE LIGHT OF THE AFORESAID CASE LAWS AND SUB MISSIONS MADE, THE LD. AR PRAYED THAT THE ORDER OF LD. CIT(A) TO REDUCE THE RETENTION MON EY WHILE COMPUTING THE TOTAL INCOME UNDER NORMAL PROVISIONS AS WELL AS U/S. 115JB OF TH E ACT WHILE COMPUTING THE BOOKS PROFITS MAY BE CONFIRMED. 23. HAVING HEARD BOTH THE PARTIES AND AFTER PERUSAL OF RECORDS, WE NOTE THAT THE ASSESSEE HAD FILED ITS ORIGINAL RETURN OF INCOME ON 29.11.2 014 SHOWING TOTAL INCOME OF RS.194,46,16,540/-. THEREAFTER THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S. 143(2) OF THE ACT DATED 31.08.2015 WAS SERVED UPON THE ASSESSEE. THE AO NOTED THAT THE ASSESSEE THEREAFTER HAD FILED REVISED INCOME TA X RETURN ON 17.03.2016 REVISING ITS INCOME TO RS.49,98,06,980/-. THE ASSESSEE EXPLAINE D THAT WHEN THE ORIGINAL RETURN WAS FILED ON 29.11.2014 IT WAS ON THE BASIS OF PROFIT A S PER THE P&L ACCOUNT WITHOUT CONSIDERING THE DEDUCTION MADE BY PARTIES (CUSTOMER S) ON ACCOUNT OF RETENTION MONEY. HOWEVER, THE ASSESSEE ON PROPER APPLICATION OF THE LEGAL AND FACTUAL POSITION REALISED THAT COMPANYS REAL INCOME IS MUCH LESS THAN THE REVENUE BOOKED IN THE ACCOUNT AND HENCE, REVISED RETURN WAS FILED ON 17.03.2016 CLAIMING DED UCTION OF THE RETENTION MONEY DEBITED BY THE PARTIES DURING THE YEAR AMOUNTING TO RS.142, 53,74,710/-. IT WAS ALSO BROUGHT TO THE NOTICE OF THE AO THAT AS PER THE CONTRACT BETWEEN T HE PARTIES CERTAIN PERCENTAGE OF THE BILLS RAISED AS PER AGREEMENT CAN BE RETAINED BY THE CONT RACTEE PARTY AS RETENTION MONEY WHICH WOULD BE PAYABLE ONLY AFTER SUCCESSFUL COMPLETION O F THE ENTIRE CONTRACT AFTER IT BEING CERTIFIED BY THE PARTY AND AFTER FULFILMENT OF CERT AIN PRE-DETERMINED CONDITIONS MENTIONED IN THE CONTRACT. THUS, IT WAS EXPLAINED TO THE AO THAT AS PER THE ACCOUNTING PRACTISE FOLLOWED BY THE PARTY THOUGH A PART OF THE BILL AMO UNT WAS RETAINED BY THE CONTRACTEE PARTY AND WOULD BE PAID AFTERWARDS ON AGREED CONDITIONS, THE ASSESSEE IN ITS BOOKS OF ACCOUNT HAS BOOKED THE ENTIRE REVENUE AS AND WHEN THE BILLS WERE ACTUALLY RAISED AND HENCE, THE ENTIRE AMOUNT WAS REFLECTED IN THE REVENUE FROM THE OPERATIONS IN THE P&L ACCOUNT. IT WAS BROUGHT TO THE NOTICE OF THE AO THAT DUE TO THE SAI D PRACTICE PROFIT BEFORE TAX AS PER P& L ACCOUNT FOR THE YEAR ENDED ON 31.03.2014 IS RS.204, 38,30,030/- AND THE SAID PROFIT WAS ARRIVED AFTER TAKING INTO ACCOUNT ENTIRE BILLS RAIS ED ON PARTIES FOR CONTRACT WORK INCLUDING THE RETENTION MONEY. IT WAS EXPLAINED FURTHER THAT THEREAFTER, SALES WAS CREDITED AND THE PARTY WAS DEBITED WITH THE ENTIRE BILL AMOUNT AND O N THAT BASIS ASSESSEE HAD FILED THE 16 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 ORIGINAL RETURN ON 29.11.2014 WITHOUT CONSIDERING T HE ACTUAL DEDUCTION MADE BY THE PARTIES ON ACCOUNT OF THE RETENTION MONEY AND HAD SHOWN TOT AL INCOME OF RS.194,46,16,540/-. AND WHEN THE ASSESSEE REALISED THAT ITS REAL INCOME WAS MUCH LESS THAN THE REVENUE BOOKED IN THE ACCOUNT IT FILED A REVISED RETURN ON 17.03.2016 CLAIMING DEDUCTION OF THE RETENTION MONEY WHICH WAS DEDUCTED BY THE PARTIES TO THE TUNE OF RS.142.53 CR. AND THUS IN THE REVISED RETURN INCOME TO THE TUNE OF RS.49.98 CR. W AS SHOWN. THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO AND HE DISALLOW ED THE DEDUCTION CLAIMED BY THE ASSESSEE IN RESPECT OF RETENTION MONEY TO THE TUNE OF RS.142,53,74,710/- AND WAS ADDED BACK TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) WAS PLEASED TO ALLOW THE CLAIM OF THE ASSESSEE AND DIRECTED THE AO TO EXCLU DE THE RETENTION MONEY FROM THE TOTAL INCOME. HOWEVER, THE LD. CIT(A) ALSO DIRECTED THAT TDS CLAIMED BY THE ASSESSEE RELATABLE TO SUCH RETENTION MONEY SHOULD BE DISALLO WED IN THIS ASSESSMENT YEAR AND ADDED THAT IT MAY BE ALLOWED IN THE YEAR IN WHICH THE ASS ESSEE DECLARES THE RETENTION MONEY AS ITS INCOME. AGGRIEVED BY THE AFORESAID ACTION OF THE L D. CIT(A) THE REVENUE HAS PREFERRED THE APPEAL. WE NOTE THAT THE ASSESSEE IS IN THE BUSINE SS OF SUPPLYING ERECTION AND COMMISSIONING OF ELECTRICITY TRANSMISSION TOWERS, L INE POWERS, SUB-STATION ETC. THE ASSESSEE CONTINUED THE CONSTRUCTION JOB FOR M/S. POWER GRID CORPORATION OF INDIA LTD., M/S. TRANSMISSION CORPORATION OF ANDHRA PRADESH LTD., M/ S. WEST BENGAL STATE ELECTRICITY DISTRIBUTION CORPORATION LTD., M/S MAHARASTRA ELECT RICITY TRANSMISSION CO. LTD. THE ASSESSEE HAD RAISED BILLS ON THE PARTIES ON PROGRES SIVE COMPLETION OF PARTICULAR PROJECT AND CREDITED THE GROSS BILL AMOUNT IN ITS BOOKS OF ACCO UNT WHICH WAS REFLECTED IN THE AUDITED BALANCE SHEET UNDER THE HEAD REVENUE FROM OPERATIO NS. THE ASSESSEE MAINTAINED BOOKS OF ACCOUNT ON MERCANTILE BASIS AND THE REVENUE WAS RECOGNIZED ON THE BASIS OF PROGRESSIVE PARTIAL COMPLETION OF PARTICULAR PROJECT AND THE BI LLS WERE RAISED ACCORDINGLY. AS PER THE CONTRACT BETWEEN THE PARTIES THERE WERE CLAUSES IN THE CONTRACT THAT THE CONTRACTEE SHALL RETAIN SPECIFIED PERCENTAGE OF THE BILLED AMOUNT TI LL SUCCESSFUL COMPLETION OF THE ENTIRE PROJECT. THE LD. AR DREW OUR ATTENTION TO THE CONT RACT WITH M/S. POWER GRID CORPORATION OF INDIA LTD. WHEREIN IT IS STIPULATED THAT THE BAL ANCE 10% OF THE ERECTION PROCESS COMPONENT (EXCLUDING PROCESSED COMPONENT) FOR SURVE Y SHALL BE PAID AFTER SUCCESSFUL COMMISSIONING OF THE TRANSMISSION LINE AND ISSUANCE OF TAKING OVER CERTIFICATE. SO, THE FINAL PAYMENT WOULD BE GIVEN AS PER THE CONTRACT AF TER THE SUCCESSFUL COMMISSIONING OF THE TRANSMISSION LINE AND ISSUANCE OF TAKING OVER CERTI FICATE BY THE POWER GRID MEANING THE RETENTION MONEY WOULD BE GIVEN ONLY AFTER SUCCESSFU L COMMISSIONING AND AFTER ISSUANCE OF 17 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 THE TAKING OVER CERTIFICATE. ACCORDING TO THE ASSE SSEE, AS PER SUCH DULY EXECUTED CONTRACT ENTERED INTO BETWEEN THE PARTIES, THE CONTRACTEE HA D RETAINED SPECIFIED PERCENTAGE OF THE BILLS AMOUNT AS RETENTION MONEY AND IN THIS ASSESSM ENT YEAR THESE PARTIES HAVE RETAINED A SUM OF RS.142,53,74,710/- AS RETENTION MONEY ON THE BILLS RAISED DURING THE YEAR. IN THE LIGHT OF THE SAID FACT, ACCORDING TO ASSESSEE, IT W AS NEITHER ENTITLED NOR IT COULD HAVE CLAIMED THE RETENTION MONEY AS INCOME ACCRUED TILL THE ENTI RE PROJECT WAS COMMISSIONED. AND SINCE THE PROJECTS WERE NOT COMPLETED DURING THE YEAR UN DER CONSIDERATION, THE RETENTION MONEY HAS NOT ACCRUED AS INCOME OF THE ASSESSEE AND, THER EFORE, ASSESSEE CLAIMED DEDUCTION OF THE SAME. IT WAS ALSO BROUGHT TO OUR NOTICE THAT R ETENTION MONEY WOULD BE INCLUDED IN THE RESPECTIVE YEARS WHEN THE PROJECT WILL BE COMPLETED AND IT WAS ALSO BROUGHT TO OUR NOTICE THAT A PART OF THE SAID RETENTION MONEY RETAINED BY THE PARTIES WERE DISBURSED TO THE ASSESSEE IN THE SUCCEEDING ASSESSMENT YEARS, AND WH ICH WERE DULY OFFERED ASINCOME IN THE ASSESSMENT YEARS 2015-16 TO 2017-18 WHEN PARTICULAR PROJECTS GOT COMPLETED AND HAVE DULY BEEN INCLUDED IN THE RETURN OF INCOME DURING T HE RESPECTIVE ASSESSMENT YEARS FROM AYS 2015-16 TO 2017-18 AND CONSEQUENTLY THERE IS N O REVENUE LOSS AT ALL. HOWEVER, WE NOTE THAT THE AO HAS REJECTED THE CLAIM OF THE ASSE SSEE ON THE GROUND THAT THE ASSESSEE HAD CREDITED THE AMOUNT OF GROSS BILL IN ITS BOOKS OF A CCOUNT WHICH INCLUDED THE RETENTION MONEY IN THE ACCOUNTS AS ALSO IN THE P&L ACCOUNT AN D REFLECTED THE SAME IN THE ORIGINAL RETURN OF INCOME FILED BY THE ASSESSEE. THE AO ALS O NOTED THAT THE ASSESSEE CLAIMED TDS WHICH WAS DEDUCTED ON THE GROSS BILL AND THE ASSESS EE HAD CLAIMED CREDIT FOR TDS INCLUDING THE TDS OF RETENTION MONEY DURING THE YEA R. THEREFORE, ACCORDING TO AO, THE RETENTION MONEY HAS TO BE INCLUDED AS INCOME ACCRUE D IN THIS ASSESSMENT YEAR. WE NOTE THAT THE LD. CIT(A) HAS TAKEN CARE OF THE TDS ISSUE AND THE ASSESSEE HAS NOT PREFERRED TO CHALLENGE THE ACTION OF LD. CIT(A) WHICH CRYSTALLIZ ES. THEREFORE, THE DIRECTION OF THE LD. CIT(A) TO THE AO TO DISALLOW THE TDS CREDIT CLAIMED IN RESPECT OF THE RETENTION MONEY NOT SHOWN AS INCOME BY THE ASSESSEE IN THE REVISED RETU RN AND TO ALLOW IT IN THE YEAR IN WHICH THE ASSESSEE DECLARES RETENTION MONEY AS ITS INCOME TAKES CARE OF THE TDS CREDIT EVEN IF ERRONEOUSLY CLAIMED BY THE ASSESSEE IN RESPECT OF T HE RETENTION MONEY. WE NOTE FROM THE RELEVANT CLAUSES OF THE CONTRACT THAT THE CONTRACTE ES HAD THE RIGHT TO WITHHOLD CERTAIN PERCENTAGE OF THE CONSIDERATION TILL THE CONCLUSION OF THE PROJECT AND ONLY AFTER CERTIFICATION OF CONCLUDED PROJECTS THE RETAINED PO RTION OF THE AMOUNTS ARE DISBURSED FINALLY WHICH MAY BE IN THE SUCCEEDING ASSESSMENT YEARS AN D IS CONTINGENT UPON THE TERMS AND CONDITIONS OF THE CONTRACT. WE ALSO NOTE THAT THE A O HAS NOT DISPUTED THE AMOUNT WHICH HAS 18 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 BEEN RETAINED BY THE CONTRACTEES. IN SUCH A SCENAR IO, MERELY BECAUSE THE ASSESSEE HAD BOOKED THE INCOME IN THIS YEAR WITHOUT ACTUAL RECEI PT OF IT, CANNOT BE CHARGEABLE TO TAX AS PER THE ACT. THE REASONS GIVEN BY THE AO TO DISALL OW THE CLAIM OF THE ASSESSEE CANNOT BE SUSTAINED AND WAS RIGHTLY REPELLED BY THE LD. CIT(A ) WHOSE VIEW TO ACCEPT THE CLAIM OF ASSESSEE IS BASED ON THE ACCEPTED JUDICIAL PRECEDEN TS LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. SIMPLEX CONCRE TE PILES (SUPRA); HONBLE GUJARAT HIGH COURT IN ANUP ENGINEERING LTD. (SUPRA); HONBLE BOM BAY HIGH COURT IN CIT VS. ASSOCIATED CABLES P. LD. (SUPRA) AND HONBLE MADRAS HIGH COURT IN CIT VS. IGNIFLUID BOILERS (I) LTD. (2006) 283 ITR 295 (MAD). WE HOL D THAT IN THE FACTUAL CIRCUMSTANCES ESPECIALLY AS PER THE TERMS OF CONTRACT BETWEEN THE ASSESSEE AND THE CONTRACTEE, THE RETENTION MONEY RETAINED BY THE CONTRACTEE IS DEFER RED PAYMENT AND IS CONTINGENT UPON SATISFACTORY COMPLETION OF CONTRACT WORK. WE HOLD THAT THE RIGHT TO RECEIVE THE RETENTION MONEY IS ACCRUED ONLY AFTER THE OBLIGATIONS UNDER T HE CONTRACT ARE FULFILLED AND THE ASSESSEE HAD NO VESTED RIGHT TO RECEIVE THE SAME IN THIS ASS ESSMENT YEAR, THEREFORE, IT WOULD NOT AMOUNT TO AN INCOME OF THE ASSESSEE IN THE YEAR IN WHICH IT IS RETAINED. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT( A) AND SO, WE CONFIRM IT AND DISMISS THE APPEAL OF THE REVENUE. 24. BEFORE PARTING, IT IS NOTED THAT THE ORDER IS B EING PRONOUNCED AFTER THE NINETY (90) DAYS OF HEARING. HOWEVER, TAKING NOTE OF THE EXTRAO RDINARY SITUATION IN THE LIGHT OF THE COVID-19 PANDEMIC AND LOCKDOWN, THE PERIOD OF LOCKD OWN DAYS NEED TO BE EXCLUDED. FOR COMING TO SUCH A CONCLUSION, WE RELY UPON THE DECIS ION OF THE CO-ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF DCIT VS. JSW LIMITED IN ITA NO. 6264/MUM/2018 & 6103/MUM/2018, ASSESSMENT YEAR 2013-14, ORDER DT. 1 4 TH MAY, 2020. IN THE LIGHT OF THE ABOVE DISCUSSION, THE APPEAL OF REVENUE IS DISMISSE D. 25. IN THE RESULT, BOTH THE APPEAL OF REVENUE IS DI SMISSED ORDER IS PRONOUNCED IN THE OPEN COURT ON 27TH MAY, 2020. SD/- SD/- (A. L. SAINI) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27TH MAY, 2020 JD. SR. PS 19 I.T.A. NO. 498/KOL/2018 & 2149/KOL/2017 M/S. EMC. LTD., ASSESSMENT YEAR: 2014-15 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT DCIT, CENTRAL CIRCLE-1(3), KOLKATA. 2. RESPONDENT M/S. EMC LIMITED, 8 TH FLOOR, WING B, CONSTANTIA OFFICE COMPLEX, 11, DR. U. N. BRAHMACHARI STREET, KOLKATA-700 017, 3. CIT(A)-20, KOLKATA. (SENT THROUGH E-MAIL) 4. CIT, KOLKATA. 5. DR, KOLKATA BENCHES, KOLKATA. (SENT THROUGH E-MAIL) TRUE COPY, BY ORDER, ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES