Tan Singh Chauhan, JODHPUR V. ACIT, BARMER

ITA 26/JODH/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1542 (ITAT-JODHPUR)
• Duration Of Justice: 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-02-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 11-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL
• Assessee Lawyers: U C JAIN SHRI RAJENDRA JIAN
• Section: 143(3); 147; 148; 263

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NOS. 16 TO 18/JU/2013 (A.YS. 2006-07 & 2008-09) SHRI GWAL DAS MEHTA VS. THE A.C.I.T P/O M/S BRIJ CONSTRUCTION & ENGINEERS CIRCLE, JAISALMER BARMER PAN NO. ADAPM 3145 M ITA NO. 19/JU/2013 (A.Y. 2007-2008) SHRI AMRIT LAL KHATRI VS. THE A.C.I.T PROP. M/S AMRIT LAL KHATRI CIRCLE, BARMER SHIV MARG, JAISALMER PAN NO. ACCPK 0663 M ITA NOS. 20 TO 22/JU/2013 (A.YS. 2006-07 & 2008-09) SHRI BABU LAL BHAGWAN DAS, HUF VS. THE A.C.I.T SUBASH CHOWK, BARMER CIRCLE, BARMER PAN NO. AAEHB 6431 Q ITA NO. 15/JU/2013 (A.Y. 2007-2008) SHRI PRABHU DHAN DETHA VS. THE A.C.I.T 617, INDRA COLONY, JAISALMER CIRCLE, BARMER PAN NO. AAWPD 3807 E ITA NO. 26/JU/2013 (A.Y. 2007-2008) SHRI TAN SINGH VS. THE A.C.I.T PROP. M/S TAN SINGH CHAUHAN CIRCLE, BARMER JAISALMER PAN NO. ABZPC 2737 N 2 ASSESSEE BY : SHRI U.C. JAIN SHRI RAJENDRA JIAN DEPARTMENT BY : SHRI A.K. KHANDELWAL DATE OF HEARING : 20/02/2013 DATE OF PRONOUNCEMENT : /02/2013 PER BENCH : IN ALL THE ABOVE-CAPTIONED APPEALS, IDENTICAL ISSU ES ARE INVOLVED, THEREFORE, FOR THE SAKE OF CONVENIENCE AND BREVITY, WE PROCEED TO DECIDE THEM BY THIS COMMON ORDER. 2. FOR THE SAKE OF UNDERSTANDING THE REAL QUESTION OF CONTROVERSY, WE WILL DISCUSS THE FACTS OBTAINING IN THE CASE OF AMRIT LAL KHATRI IN ITA NO. 19/JU/2013. THE FACTS IN ALL OTHER APPEALS ON T HEIR MERITS ARE EXACTLY IDENTICAL EXCEPT FOR THE AMOUNT(S) OF ALLEG ED SECURITY DEPOSIT/PERFORMANCE SECURITY INVOLVED THEREIN AND T HE DECISION TAKEN IN THIS CASE WILL APPLY TO OTHER CASES, MUTATIS MUTANDIS . IN SOME OF THE APPEALS, A LEGAL ISSUE REGARDING REOPENING OF THE ASSESSMENT U/S 147 R.W.S 148 OF THE ACT HAS ALSO BEEN RAISED. BUT THIS LEGAL ISSUE WAS NOT REALLY PRESSED FOR HEARING AND ADJUDICATION IN THOSE CASES BY THE 3 LD. A.R. SHRI U.C. JAIN. THEREFORE, THE LEGAL ISSU E RAISED IN ANY OF THE APPEALS STANDS DISMISSED AS NOT PRESSED. 3. THE FACTS OF THE MAIN ISSUE INVOLVED IN THIS APP EAL ON MERITS ARE THAT THE ASSESSEE, A CIVIL CONTRACTOR, FILED HIS RE TURN OF INCOME FOR A.Y. 2007-08 ON 31.10.2007 DECLARING TOTAL INCOME OF RS. 79,51,850/-. ORIGINAL ASSESSMENT WAS PASSED U/S 143(3) OF THE AC T ON 18.7.2008 AT A TOTAL ASSESSED INCOME OF RS. 80,74,090/-. SUBSEQUE NTLY, ON THE ISSUE OF SECURITY DEPOSIT, THE CASE WAS REOPENED AND THE ASSESSMENT WAS COMPLETED U/S 147 R.W.S 143(3) OF THE ACT ON 22.12. 2010 DETERMINING TOTAL INCOME AT RS. 1,40,39,180/-. DURING THE YEAR , THE ASSESSEE HAS EXECUTED CONTRACT WORK TAKEN FROM VARIOUS GOVERNMEN T DEPARTMENTS. THE ASSESSEE HAS MAINTAINED DAY-TO-DAY BOOKS OF ACC OUNT. THE CONTRACT RECEIPTS ARE FULLY VOUCHED AND SUPPORTED B Y TDS CERTIFICATES. THE ASSESSEE ALSO MAINTAINED VOUCHERS IN RESPECT OF EXPENDITURE INCURRED IN THE EXECUTION OF CONTRACT WORK WHICH WE RE PRODUCED BEFORE THE A.O. DURING ASSESSMENT PROCEEDINGS FROM TIME TO TIME. THE ASSESSEE ALSO FURNISHED AUDIT REPORT OBTAINED U/S 4 4AB OF THE ACT. AS PER THE TERMS AND CONDITIONS OF CONTRACT ENTERED IN TO BETWEEN THE ASSESSEE AND THE PWD AUTHORITY, THE ASSESSEE-CONTRA CTOR AFTER CONSTRUCTING THE ROAD IS REQUIRED TO REPAIR AND MAI NTAIN IT FOR A PERIOD OF FIVE YEARS AND FOR THIS PURPOSE, THE PWD AUTHORI TY [ THE CONTRACTEE] 4 DEDUCTED 5% OF THE TOTAL GROSS CONTRACT PAYMENT WHI CH IS PAYABLE AFTER THE EXPIRY OF THIS PERIOD OF FIVE YEARS IF THE ROAD S ARE REPAIRED AND MAINTAINED DURING THOSE FIVE YEARS. BUT, IN CASE A NY AMOUNT IS SPENT BY THE PWD AUTHORITY DURING THE PERIOD OF FIVE YEAR S TOWARDS REPAIR AND MAINTENANCE ANY AMOUNT SPENT THEREON IS TO BE D EDUCTED OUT OF THE AMOUNT RETAINED. AND IN CASE MORE THAN RETAINED AMOUNT IS SPENT BY THE CONTRACTEE, THE SAME SHALL BE PAYABLE BY THE CONTRACTOR AND IT CAN BE RECOVERED BY THE AUTHORITY. THE AMOUNT DEDU CTED BY THE PWD AUTHORITIES AS PER THE ASSESSEE, HAS NEITHER ACCRUE D NOR RECEIVED BY HIM DURING THE YEAR AND AS SUCH THE SAME CANNOT BE TAKEN AS PART OF THE GROSS RECEIPTS OF THE YEAR. THE A.O. HAS ADDED THE ENTIRE SECURITY DEPOSIT /RETENTION MONEY IN THE HANDS OF THE ASSESS EE BY TREATING IT AS ASSESSEES NET INCOME. AGAINST THIS, THE ASSESSEE RAISED HUE AND CRY BEFORE THE LD. CIT(A) BY FILING FIRST APPEAL. AFTER CONSIDERING THE NUMEROUS WRITTEN SUBMISSIONS WHICH WERE ALSO REMAND ED BY THE LD. CIT(A) TO THE A.O. AND OBTAINED HIS OPINION THEREON WITH A VIEW TO ANALYZE THE ISSUE AS THE DECISION THEREOF IS GOING TO HAVE A CASCADING EFFECT; AND AFTER EXAMINING AND DISCUSSING THE DECI SIONS RELIED ON BY THE ASSESSEES SIDE, INTER-ALIA, HAS OPINED THAT SI NCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, HE IS RE QUIRED TO CREDIT TOTAL AMOUNT OF BILLS RAISED, NO MATTER EVEN IF 5% OF THE SAME HAS BEEN 5 RETAINED BY THE DEPARTMENT AND IS TO BE PAID AFTER THE EXPIRY OF FIVE YEARS. THE ASSESSEE HAS NOT SHOWN THIS AMOUNT AS H IS INCOME AND HAS CLAIMED DEDUCTION ON THE SECURITY DEPOSIT WHICH IS INCLUDED IN THE BILLS RAISED. THE ASSESSEE HAS ALSO CLAIMED TAX CREDIT O F TDS MADE ON THE ENTIRE AMOUNT OF BILL RAISED. THEREFORE, ACCORDING TO THE LD. CIT(A), THE ASSESSEE IS NOT JUSTIFIED IN DEFERRING THE AMOU NT OF SECURITY DEPOSIT BY CLAIMING DEDUCTION AS HAS BEEN DONE IN SUBSEQUEN T YEAR. ACCORDING TO THE LD. CIT(A), CREDIT FOR TDS IS ALLOWED ONLY I N THE ASSESSMENT FOR A.Y. IN WHICH THE ASSESSEE SHOWS THE INCOME ON WHIC H DEDUCTION OF TAX IS MADE. THEREFORE, HE HAS FINALLY UPHELD THE ACTI ON OF THE A.O. IN ASSESSING SECURITY DEPOSIT AS ASSESSEES ACCRUED IN COME AS THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. REGARDING APPLICATION OF GROSS PROFIT RATE ON THIS SECURITY D EPOSIT AMOUNT, AFTER TREATING IT AS PART GROSS RECEIPT OF THE YEAR, THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE IN RESPECT OF CONTRACT WORK DONE DURING THE YEAR HAS DEBITED EXPENSES INCURRED AND THE SAME HAVE BEEN AL LOWED BY THE A.O IN ESTIMATION OF THE INCOME. WITH THIS PREMISE, HE HAS ALSO TREATED THE ENTIRE SECURITY DEPOSIT AS ASSESSEES NET INCOM E. HENCE HE HAS JUSTIFIED THE ENTIRE ADDITION AS ASSESSEES NET INC OME. AGGRIEVED, THE ASSESSEE IS BEFORE US. 6 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. SINCE WE HAVE DISMIS SED THE LEGAL GROUND BY TREATING THEM AS NOT PRESSED, WE COME STR AIGHT TO THE GROUND ON MERITS. 5. IT WAS VEHEMENTLY ARGUED BY THE LD. A.R. SHRI U. C. JAIN, ADVOCATE THAT ALTHOUGH THE ASSESSEE HAS BEEN FOLLOWING THE M ERCANTILE SYSTEM OF ACCOUNTING, BUT IN VIEW OF THE SPECIFIC TERMS AND C ONDITIONS OF CONTRACT IN QUESTION, THIS AMOUNT HAS TO BE ALLOWED AS DEDUCTION, OR IN THE ALTERNATIVE, ONLY NET PROFIT ARRIVED AT BY AP PLYING THE SAME NET PROFIT RATE WHICH HAS BEEN APPLIED AFTER REJECTING THE BOOKS, CAN BE ADDED DURING THIS YEAR. HE HAS PLACED RELIANCE ON VARIOUS DECISIONS TO SUBSTANTIATE THIS SUBMISSION INCLUDING ON THE ORDER OF THE TRIBUNAL [OF THE JODHPUR BENCH] RENDERED IN ASSESSEES OWN CASE FOR A.Y. 2006-07 WHEREIN THE LD. CIT(A) TRIED TO TAX THIS SECURITY D EPOSIT AS INCOME OF THAT YEAR BY WAY OF REVISING THE ASSESSMENT ORDER U /S 263 OF THE ACT AND THE ORDER SO PASSED WAS CHALLENGED BEFORE THE I TAT. WITH REFERENCE TO THE ORDER PASSED IN ITA NO. 233/JU/200 9 FOR A.Y. 2006-07 DATED 19.7.2010 WHEREIN IT HAS BEEN OBSERVED AND HE LD THAT THE ACTION OF THE A.O. IN NOT DISALLOWING PERFORMANCE GUARANTE E AMOUNT IS NOT AT ALL ERRONEOUS. I WAS ALSO HELD THAT THERE IS NO LA CK OF ENQUIRY ON THE 7 PART OF THE A.O. UNDER IDENTICAL FACTS AND CIRCUMST ANCES. REFERRING TO THE OTHER DECISIONS DETAILED BELOW, THOSE OF HON'BL E MADRAS HIGH COURT AND OF THE HON'BLE MUMBAI HIGH COURT, IT WAS STATED THAT IN THESE DECISIONS, IT HAS BEEN CLEARLY HELD THAT THE SECURI TY DEPOSIT AMOUNT SO DEDUCTED AND RETAINED FROM THE GROSS CONTRACT RECEI PTS CANNOT BE CONSIDERED AS RECEIPT OF THE YEAR UNDER CONSIDERATI ON FOR THE PURPOSE OF COMPUTATION OF INCOME BECAUSE THIS AMOUNT HAS NE ITHER BEEN RECEIVED NOR ACCRUED TO THE ASSESSEE. THESE DECISI ONS ARE AS UNDER: 1. CIT VS. IGNIFLUID BOILERS [I] LTD 283 ITR 295 [ MAD] 2. CIT VS. EAST COAST CONSTRUCTION & IND LTD 283 I TR 297 [MAD] 3. CIT VS. ASSOCIATED CABLES P. LTD 286 ITR 596 [B OM] 4. CIT VS. P & C CONSTRUCTIONS P. LTD 318 ITR 113 [MAD] 5. AMRITLAL KHATRI VS. ACIT, BARMER [ITAT, JODHPUR BENCH] 6. IN THE ALTERNATIVE, THE LD. A.R. HAS SUBMITTED T HAT IN NO CASE THE ENTIRE AMOUNT CAN BE ASSESSED BY TREATING IT AS NET INCOME OF THE YEAR BUT ONLY GROSS PROFIT ON THIS AMOUNT CAN BE ADDED B Y TREATING IT AS PART OF THE TOTAL CONTRACT RECEIPTS. 8 7. PER CONTRA, THE LD. D.R. HAS DISPUTED THE ENTIRE ABOVE SUBMISSIONS AND HAS FURTHER SUBSTANTIATED HIS ARGUM ENTS BY RELYING ON THE ORDERS OF THE AUTHORITIES BELOW. WITH THE HELP OF THE DECISION RENDERED IN THE CASE OF DCIT VS. AMAR SHIV CONSTRUC TION PVT. LTD [2004] 84 TTJ [AHD] 347 = [2004] 88 ITD 381, IN WHICH IT H AS BEEN HELD THAT SECURITY DEPOSIT VIS--VIS BANK GUARANTEE WHEN THE AMOUNT DEDUCTED FROM RUNNING BILLS OF CONSTRUCTION WORK AS ADDITIO NAL SECURITY DEPOSIT FOR SATISFACTORY PERFORMANCE OF THE CONTRACT AND TH E SAME IS REALIZED BY THE ASSESSEE ON FURNISHING OF BANK GUARANTEE, TH E AMOUNT HAS TO BE TREATED AS ACCRUED TO THE ASSESSEE. THE LD. CIT - DR HAS FURTHER SUBMITTED THAT THIS IS NOT ACTUALLY A PERFORMANCE G UARANTEE DEPOSIT BUT IS ONLY A RETENTION MONEY AND IS A NET INCOME OF THE ASSESSEE OF THE YEAR AND HAS TO BE TAXED IN TOTO WITHOUT FURTHE R GIVING ANY CREDIT FOR EXPENSES, ETC. HE HAS ALSO SUBMITTED THAT NO G ROSS PROFIT RATE CAN BE APPLIED ON THIS AMOUNT, WHICH IS TO BE TREATED A S ACCRUED TO THE ASSESSEE. 8. WE HAVE CIRCUMSPECTED THE RECORD AVAILABLE BEFOR E US. WE HAVE ALSO GONE THROUGH THE ENTIRE PRECEDENTS RELIED BEFO RE US AND WE HAVE GONE THROUGH THE RELEVANT PROVISIONS OF THE ACT. I N SO FAR AS THE FACTS OF THE CASE ARE CONCERNED, THERE IS NOT MUCH DISPUT E BETWEEN THE 9 PARTIES. THE ASSESSEE IS A CIVIL CONTRACTOR WHO OB TAINED CONTRACT FROM THE GOVERNMENT DEPARTMENT. CONTRACTS ENTERED INTO BETWEEN THE CIVIL CONTRACTOR AND GOVERNMENT DEPARTMENTS ARE STANDARD AGREEMENTS. A COPY OF ONE OF THE AGREEMENTS IS FOUND ENCLOSED IN THE RECORDS. THE RELEVANT TERMS OF THE CONTRACT WITH REFERENCE TO PE RFORMANCE GUARANTEE IS CONTAINED IN CLAUSE 43.4, WHICH READS AS UNDER: 43.4 THE PERFORMANCE SECURITY EQUAL TO THE FIVE P ERCENT OF THE CONTRACT PRICE AND ADDITIONAL PERFORMANCE SE CURITY FOR ROUTINE MAINTENANCE AS DETAILED IN CLAUSE 51 OF TH CONDITIONS OF CONTRACT IS REPAID TO THE CONTRACTOR WHEN THE PERIO D OF FIVE YEARS FIXED FOR ROUTINE MAINTENANCE IS OVER AND THE ENGINEER HAS CERTIFIED THAT THE CONTRACTOR HAS SATISFACTORILY CA RRIED OUT THE ROUTING MAINTENANCE OF THE WORKS. IF THE ROUTINE MAINTENANCE PART OF THE CONTRACT IS NOT CARRIED OUT BY THE CONTRACTOR AS PER THIS CONTRACT, THE EMP LOYER WILL BE FREE TO CARRY OUT ROUTINE MAINTENANCE WORK AND THE AMOUNT REQUIRED FOR THIS WORK WILL BE RECOVERED FROM THE A MOUNT OF PERFORMANCE SECURITY AVAILABLE WITH THE EMPLOYER AN D/OR FROM ANY AMOUNTS OF THE CONTRACTOR WHATEVER IS DUE. 9. THERE IS NO DISPUTE BETWEEN THE PARTIES REGARDIN G THIS FACT AS WELL. ACCORDING TO THE DEPARTMENT, THIS IS A RETEN TION MONEY AND NOT PERFORMANCE SECURITY AS HAS BEEN PLEADED. BUT AS PER THIS 10 AGREEMENT, IT IS EVIDENT THAT THIS IS A PERFORMANC E SECURITY. IT IS IMMATERIAL AS TO WHAT NOMENCLATURES IS GIVEN TO THI S AMOUNT SO DEDUCTED WHICH IS TO BE PAID TO THE ASSESSEE CONTIN GENT ON CERTAIN CONDITIONS AND IS TO BE CONSIDERED WITH REFERENCE TO THE TERMS OF AGREEMENT BETWEEN THE PARTIES. THE NATURE OF THIS AMOUNT WILL NOT CHANGE WHETHER WE CALL IT A RETENTION-MONEY OR P ERFORMANCE SECURITY OR WITH ANY OTHER NAME. THIS IS A PERFOR MANCE SECURITY AS PER THE AGREEMENT. IT MAY BE CALLED AS A SECURITY DEPOSIT ALSO. BUT ADMITTEDLY, THIS AMOUNT IS A PART OF TOTAL GROSS RE CEIPTS FROM THE CONTRACTEE. THE HON'BLE MADRAS HIGH COURT IN SIMIL AR CIRCUMSTANCES, IN THE ABOVE MENTIONED DECISIONS HAVE HELD THAT SINCE THIS RECEIPT CANNOT BE SAID TO HAVE BEEN EITHER ACCRUED OR ARISEN TO TH E ASSESSEE, THIS CANNOT BE CONSIDERED AS RECEIPT OF THAT PARTICULAR YEAR TO THE EXTENT THE AMOUNT RETAINED ARE SUBJECT TO FULFILLMENT OF S OME CONDITIONS LIKE A CERTIFICATE FOR INSPECTION OF SATISFACTORY COMPLE TION ETC. AND TILL SUCH TIME THIS AMOUNT HAS NOT ACCRUED TO THE ASSESSEE AN D HENCE IS NOT INCLUDIBLE IN ASSESSEES INCOME. VARIOUS CLAUSES O F THE CONTRACT TOWARDS WHICH THE LD. A.R. HAS INVITED OUR ATTENTIO N TO SUBSTANTIATE HIS SUBMISSION THAT THE MONEY RETAINED BY THE CONTRACTE E AS PER TERMS OF THE AGREEMENT BE IT CALLED A RETENTION MONEY OR PER FORMANCE SECURITY IT CANNOT BE INCLUDED IN THE TOTAL INCOME OF THIS Y EAR. IN THOSE CASES 11 THE ASSESSEE HAD RAISED THE ENTIRE BILLS WHICH HAVE BEEN PASSED AND THE ENTIRE AMOUNT HAD ACCRUED TO THE ASSESSEE. AFT ER CAREFULLY TREADING THROUGH DECISIONS WE HAVE FOUND THAT ALL T HESE DECISIONS ON WHICH THE LD. A.R. HAS RELIED ARE DISTINGUISHABLE O N FACTS. IN THOSE CASES, THE REVENUE HAD BEEN RECOGNIZED IN ASSESSEE S BOOKS OF ACCOUNT AND TAX HAD BEEN DEDUCTED ON THE FULL AMOUNT WITHOU T DEDUCTION OF RETENTION MONEY. IN THOSE CASES, THE ASSESSEE HAD FURNISHED BANK GUARANTEE AS A MEASURE OF PERFORMANCE. LIKEWISE, T HE CASE ON WHICH THE LD. D.R. HAS RELIED I.E. THE CASE OF AMAR SHIV CONSTRUCTIONS [SUPRA] THE ENTIRE CONTRACT RECEIPT HAD BEEN REALIZED BY TH E ASSESSEE ON FURNISHING OF BANK GUARANTEE. IN THAT FACTUAL MATR IX, IT HAS BEEN HELD THAT IT CANNOT BE NOW SAID THAT THE AMOUNT HAS NOT ACCRUED TO THE ASSESSEE IN THE RELEVANT A.YS IN WHICH BILLS WERE R AISED. THUS, THIS DECISION IS ALSO NOT APPLICABLE TO THE FACTS. LIKEW ISE, AS WE HAVE ALREADY DISCUSSED THE DECISIONS ON WHICH THE LD. A. R. HAS RELIED ALSO SEEM TO BE DISTINGUISHABLE ON FACTS IN AS MUCH AS I N THOSE CASES, THE ASSESSEES HAD COMPLETE RECORDS OF THIS RETENTION MO NEY FOR THE PERFORMANCE SECURITY AND IN SOME OF THE CASES THE A SSESSEE HAD EVEN GOT THE ENTIRE AMOUNT AGAINST BANK GUARANTEE. IN T HE GIVEN CASES, THE ASSESSEE COULD NOT SATISFY THE DEPARTMENT AS TO WHA T HAPPENED OF THE PERFORMANCE SECURITY IN WHICH ALREADY FIVE YEARS HA VE EXPIRED. IN A.Y. 12 2009-10 THE ASSESSEE HAS DISCLOSED THE ENTIRE RECE IPTS AS ITS CONTRACTUAL-RECEIPTS EVEN WHEN FIVE PERCENT WAS RET AINED AND PAID TAX BY APPLYING PER GROSS PROFIT RATE APPLICABLE IN THA T YEAR. THE DECISION OF TRIBUNAL FOR A.Y. 2005-06 PERTAINING TO APPEAL A RISING U/S 263 OF THE ACT CANNOT BE TREATED AS A PRECEDENT ON THE ISSUE. THE PARAMETERS TO UPHOLD OR SET ASIDE PROCEEDINGS TAKEN U/S 263 ARE E NTIRELY DIFFERENT. THEREFORE, IN THE TOTALITY OF THE FACTS AND CIRCUMS TANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE AMOUNT RE TAINED BY THE GOVERNMENT DEPARTMENT WHICH IS SUBJECT TO SATISFAC TORY PERFORMANCE AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT CA N BE INCLUDED IN THE TOTAL GROSS RECEIPTS AND HAVE TO BE TREATED AS ACCRUED TO THE ASSESSEE DURING THE YEAR. HOWEVER, SINCE BOOKS HAV E BEEN REJECTED, THE ASSESSEE HAS NOT OBJECTED TO THE SAME, GROSS PR OFIT HAS TO BE ARRIVED AT ON THIS AMOUNT BY APPLYING SAME FIGURE G ROSS PROFIT RATE WHICH HAS BEEN DISCLOSED BY THE ASSESSEE AND HAS BE EN ACCEPTED BY THE DEPARTMENT. IN CASE THIS AMOUNT IS RETAINED IN ANY SUBSEQUENT YEAR TO THAT EXTENT, THE ASSESSEE CAN CLAIM DEDUCTI ON AS PER THE LAW. 10. TO UNDERSTAND THIS TANGLE, LET US TAKE A HYPOT HETICAL EXAMPLE. SUPPOSE, THE CONTRACTOR-ASSESSEE, AS CONTRACTOR, HA S RAISED BILLS OF RS. 100/-, IN A GIVEN YEAR. OUT OF THIS RS. 100/-, THE DEPARTMENT- 13 CONTRACTEE HAD RETAINED RS. 5/- AS PERFORMANCE GUAR ANTEE OR SECURITY DEPOSIT. THE ASSESSEE WANTS TO PAY TAX ON RS. 95% AFTER APPLYING GROSS PROFIT RATE TO ARRIVE AT ITS ACTUAL INCOME. THE RE VENUE WANTS TO TAX 95% BY APPLYING GROSS PROFIT RATE BUT WANTS TO ADDI TION RS. 5/- AS IT IS IN ASSESSEES TOTAL INCOME OF THE YEAR. THE ACTION OF THE REVENUE IS TOTALLY UNCALLED FOR AND CANNOT BE APPROVED UNDER T HE PROVISIONS OF THE ACT BEING UNJUSTIFIABLE. THE ASSESSEE WANTS TO FOR GET ABOUT THIS AMOUNT OF RS. 5% RETAINED BY DEPARTMENT AND HAS PAI D TAX BY APPLYING GROSS PROFIT RATE ON THE REMAINING 95%. IN THIS WA Y, BOTH THE REVENUE AS WELL AS THE ASSESSEE HAVE NOT DONE A CORRECT THI NG IN OUR CONSIDERED OPINION AS THE LAW DOES NOT PERMIT THEM TO DO SO. IN CASE RS. 5/- IS TREATED A ACCRUED TO THE ASSESSEE DURING THE YEAR B ECAUSE THE ASSESSEE HAS RAISED BILLS FOR THE ENTIRE RS. 100/- AND THE G OVERNMENT CONTRACTEE HAS DEDUCTED TDS ON THE ENTIRE AMOUNT INCLUDING RS. 5/- ALSO AND THE TDS CREDIT CAN BE GIVEN IN THE YEAR IN WHICH TDS IS DEDUCTED. IT WOULD BE SAFER AND CORRECT AS PER LAW TO TAX RS. 100/- BY TREATING IT AS ENTIRE RECEIPT OF THE YEAR ALTHOUGH RS. 5/- ARE SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS WHICH HE MAY NOT RECEIVE AT ALL OR MAY RECEIVE THE ENTIRE AMOUNT OR PART THEREOF IN TERMS OF THE CONTR ACT SUBSEQUENTLY. SINCE THE ASSESSEE HAS NOT BEEN MAINTAINING ANY REC ORD IN THIS REGARD AND THE CONTRACTEE ALSO COULD NOT HELP THE REVENUE IN THIS REGARD, 14 THEREFORE, IN OUR CONSIDERED OPINION, IT WOULD BE A JUST AND CORRECT ACTION, AS PER THE PROVISIONS OF LAW, TO TAX THE EN TIRE RS. 100/- BY TREATING IT AS TOTAL GROSS RECEIPT OF THE YEAR AND IF BOOKS ARE REJECTED AND THE A.O. APPLIES A PARTICULAR FIGURE OF GROSS P ROFIT RATE AND THE SAME IS NOT DISPUTED BY THE ASSESSEE, THE ACTUAL IN COME ON THE CONTRACT RECEIPT OF RS. 100/- CAN BE ARRIVED AT BY APPLYING THAT FROM THE FIGURE OF GROSS PROFIT RATE TO THE ENTIRE AMOUN T OF RS. 100/-. NOW THE QUESTION ARISES AS TO WHAT WILL HAPPEN IN CASE THAT RS. 5/- IS ENTANGLED IN TERMS OF THE CONTRACT AND IS RECEIVED SUBSEQUENTLY OR IS RECEIVED AT ALL IN THE SUBSEQUENT YEARS OR THAT SOM E PART OF IT IS RECEIVED AFTER THE SATISFACTION OF THE DEPARTMENT I N VIEW OF THE TERMS OF THE AGREEMENT. WE MAY FURTHER MENTION THAT AS PE R THIS AGREEMENT, IF THE GOVERNMENT CONTRACTEE HAS TO INCUR SUMS MORE THAN THE SUM OF RS. 5/- RETAINED BY IT, THEY MAY CLAIM FROM THE ASS ESSEE AND RECOVER THE SAME AS PER LAW. IN THAT EVENTUALITY, AGAIN SO ME AMOUNT OF THE RECEIPT OUT OF THE CONTRACT RECEIPTS MAY HAVE TO BE REDUCED IF MORE THAN RS. 5/- IS TAKEN AWAY BY THE DEPARTMENT. THUS , IN THIS WAY, IT BECOMES AN ANOMALOUS SITUATION. THEREFORE, THE BES T COURSE IS TO TREAT THE ENTIRE RS. 100/- AS CONTRACT RECEIPT, PAR TICULARLY, WHEN THE ASSESSEE HAS BEEN FOLLOWING 'MERCANTILE SYSTEM OF A CCOUNTING AND APPLIED GROSS PROFIT RATE TO ARRIVE AT TAXABLE INCO ME. WITH THE 15 FOREGOING DISCUSSION, WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND ORDER THAT THE A.O. SHALL TREAT THE ENTIRE CONTRACT RECEIPTS OF THE YEAR AND APPLY GROSS PROFIT RATE OF THE YEAR DISCLOSED O R AGREED TO ARRIVE AT TAXABLE INCOME. THE A.O. CANNOT TAX RETENTION MONE Y BY ADDING IT IN TOTO BY TREATING IT AS NET INCOME. THIS IS A WRONG PROCEDURE AND CANNOT BE APPROVED OF AS IT IS UNKNOWN TO ANY LEGAL PROCEDURE UNDER THE ACT. ACCORDINGLY, THE APPEAL OF THE ASSESSEE S TANDS PARTLY ALLOWED. 11. THE ISSUE REGARDING CHARGING OF INTEREST IS DI SPOSED OF BY HOLDING THAT CHARGING OF INTEREST IS MANDATORY BUT THE ASSE SSEE IS ENTITLED TO CONSEQUENTIAL RELIEF. 12. IN ALL OTHER APPEALS, THE LEGAL AS WELL AS FACT UAL POSITION IS EXACTLY IDENTICAL, EXCEPT FOR THE AMOUNTS INVOLVED IN CONTRACT RECEIPTS OR THE GROSS PROFIT RATE OF A PARTICULAR CASE, THER E IS NO DIFFERENCE IN FACTS. THE REOPENING IN SOME OF THE CASES IS DONE ON EXACTLY IDENTICAL REASONS AND THE LEGAL ISSUES WERE NOT PRESSED IN TH OSE CASES AS WELL. THEREFORE, WITH SIMILAR REASONING, WE PARTLY ALLOW ALL THE APPEALS. 16 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH FEBRUARY, 2013. SD/- SD/- [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 25 TH FEBRUARY, 2013 VL/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) BY ORDER 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR