The ACIT, Circle-4, Ahmedabad V. Karnavati Infrastructure Pvt. Ltd., Ahmedabad

ITA 846/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0550 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 17-03-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP GARG
• Keywords: TDS
• Section: 133(6); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI H. L. KARWA, JM AND D. C. AGRAWAL, A M) ITA NO.846/AHD/2005 A. Y.: 2001-02 THE A. C. I. T., CIRCLE-4, AHMEDABAD, NAVJIVAN TRUST BUILDING, OFF. ASHRAM ROAD, AHMEDABAD VS KARNAVATI INFRASTRUCTURE PVT. LTD., D-501, STATUS, OPP. TV TOWER, DRIVE-IN-ROAD, AHMEDABAD PA NO. AAACK 4583D (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI SAKAR SHARMA, AR DEPARTMENT BY SHRI SANDEEP GARG, DR O R D E R PER H. L. KARWA: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-VIII, AHMEDABAD DAT ED 06-01-2005 RELATING TO ASSESSMENT YEAR 2001-02. 2. GROUND NO.1 OF THE APPEAL READS AS UNDER: 1. THE LD. CIT(A HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 4,30,370/- BEING RETENTION MONE Y. LD. CIT(A) DID NOT APPRECIATE THE FACT THAT SUCH RETENT ION MONEY IS BASICALLY INCOME ACCRUED BUT NOT OFFERED TO TAX AS IN NORMAL CIRCUMSTANCES ASSESSEE HAS RIGHT TO RECEIVE IT AND IT IS ONLY IN ABNORMAL CIRCUMSTANCES THAT SUCH AMOUNT MAY NOT BE RECEIVED BY ASSESSEE. ASSESSEE COMPANY ITSELF HAS T REATED THE RETENTION MONEY AS ITS INCOME DURING SUBSEQUENT ASSESSMENT YEARS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS CARRYING ON BUSINESS OF CONTRACT FOR CONSTRUCTION OF ROADS, CANAL AND OTHER INFRASTRUCTURE ACTIVITY. DURING THE YEAR UNDER CONS IDERATION, THE ASSESSEE HAD TAKEN SUB CONTRACT FROM UNITECH LTD. AS PER THE AGREEMENT DATED ITA NO.846/AHD/2005 KARNAVATI INFRASTRUCTURE PVT. LTD. 2 15-1-2002 FOR CARRYING OUT THE WORK AWARDED TO THE MAIN CONTRACTOR UNITECH LTD. AS PER THE MEMORANDUM OF UNDERSTANDING CERTAIN CONDITIONS WERE PRESCRIBED FOR PAYMENT RETENTION, A DVANCE BANK CHARGES, BANK GUARANTEE, PAYMENT OF TAXES, DUTIES, TURN OVER CHARGES ETC. DURING THE YEAR THE ASSESSEE HAD CARRIED OUT WORK AND ISSU ED BILLS TOTALING TO RS.92,77,431/- AFTER DEDUCTING CERTAIN AMOUNT FROM THE GROSS BILL OF RS.1,03,64,085/-. THE AO DISALLOWED A SUM OF RS.4,3 0,370/- BEING RETENTION MONEY. 4. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE CA RRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND THE CIT(A) DIRECTED TH E AO TO DELETE THE AMOUNT OF RETENTION MONEY OF RS.4,30,370/- OBSERVIN G AS UNDER: (C) RETENTION MONEY R..4,30,370/- IT IS SUBMITTED THAT M/S. UNITECH LTD. HAS RETAINED RS.4,30,370/- OUR OF RS.1,03,64,085/-. THIS AMOUNT IS RECEIVABLE AT A LA TER DATE ON SATISFACTORY COMPLETION CERTIFICATE. DETAILED STATE MENT IN THIS RESPECT DULY CERTIFIED BY M/S. UNITECH LTD. HAS ALS O BEEN SUBMITTED IN THE PAPER BOOK FURNISHED. THE APPELLAN TS REPRESENTATIVE SHRI SAKAR SHARMA HAS ALSO RELIED UP ON THE DECISION OF THE FOLLOWING CASE LAWS TO SUPPORT THE CLAIM OF RETENTION MONEY NOT BEING TREATED AS INCOME UNTIL T HE SAME IS ACTUALLY RECEIVED. (I) CORROSION CONTROL SERVICES (MUM) P. LTD. VS DCI T 70 ITD 109 (II) ANUP ENGINEERING LTD. VS CIT 247 ITR 457 (GUJ. ) (III) CIT VS SIMPLEX CONCRETE PIPES (INDIA) P. LTD. 170 ITR 3 (IV) ASSOCIATED CABLES P. LTD. VS DCIT 48 ITD 141 ( MUM) IN VIEW OF ABOVE CERTIFICATE/STATEMENT AND THE CAS E LAWS CITED, ADDITION OF RS.4,30,370/- RECEIVED/RECEIVABL E BY THE APPELLANT COMPANY AS PER MUTUAL AGREEMENT CANNOT BE TREATED AS INCOME AND ACCORDINGLY DIRECTED TO BE DE LETED AND THE AMOUNT RETAINED OF RS.4,30,370/- IS DIRECT4ED T O BE TAXED IN THE YEAR OF RECEIPT. ITA NO.846/AHD/2005 KARNAVATI INFRASTRUCTURE PVT. LTD. 3 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. AFTER CONSI DERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE FIN D THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE F OLLOWING DECISIONS: 1. ANUP ENGINEERING LTD. V CIT (2001)247 ITR 457 ( GUJ.) 2. CIT VS IGNIFLUID BOILERS (I) LTD. (2006)283 ITR 295 (MAD.) 3. DCIT VS SPIRAX MARSHAL LTD. 110 ITD 229 (PUNE) 5.1 IN THE CASE OF ANUP ENGINEERING LTD. (SUPRA) TH E HONBLE GUJARAT HIGH COURT HAS HELD AS UNDER: INCOME ACCRUES ONLY WHEN THE ASSESSEE GETS A RIGHT TO RECEIVE THE SAME AND IF THE RIGHT TO RECEIVE IS NOT ESTABLISHED, NO INCOME WOULD ACCRUE OR ARISE TO THE ASSESSEE. UN LESS AND UNTIL A DEBT IS CREATED IN FAVOUR OF THE ASSESSEE, WHICH IS DUE BY SOMEBODY, IT CANNOT BE SAID THAT THE ASSESSEE HA S ACQUIRED A RIGHT TO RECEIVE THE INCOME OR THAT THE INCOME HAS ACCRUED TO HIM. A DEBT MUST HAVE COME INTO EXISTENC E AND THE ASSESSEE MUST HAVE ACQUIRED A RIGHT TO RECEIVE THE PAYMENT. 5.2 IN THE CASE OF IGNIFLUID BOILERS (I) LTD. (SUPR A) THE HONBLE MADRAS HIGH COURT HAS HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT THE FACTS WERE N OT DISPUTED. TEN PER CENT OF THE RETENTION MONEY HAD N OT BEEN RECEIVED IN RESPECT OF THE RELEVANT ASSESSMENT YEAR THOUGH THE WORK HAD BEEN COMPLETED. THE ASSESSEE WAS ENTITLED TO RECEIVE THE AMOUNT ONLY AFTER SUCCESSFUL COMPLETION OF THE WORK. IN SUCH CIRCUMSTANCES, IT COULD NOT BE SAID T HAT 10 PER CENT OF THE AMOUNT RETAINED HAD ACCRUED TO THE ASSE SSEE. IT WAS NOT ASSESSABLE IN THE ASSESSMENT YEAR 1994-95. 5.3 IN THE CASE OF SPIRAX MARSHAL LTD. (SUPRA), THE PUNE BENCH OF THE TRIBUNAL HAS HELD AS UNDER: 5.6 THE FIRST PLANK OF THE ARGUMENT OF THE LEARNED COUNSEL WAS THAT RETENTION MONEY DOES NOT ACCRUE AS INCOME TO THE ASSESSEE. THIS ARGUMENT IS SUPPORTED BY THE DECISIO NS IN SIMPLEX CONCRETE PILES (INDIA) (P.) LTD.S CASE (SU PRA) AND ANOOP ENGG. LTD.S CASE (SUPRA). THEREFORE, WE ARE OF THE VIEW ITA NO.846/AHD/2005 KARNAVATI INFRASTRUCTURE PVT. LTD. 4 THAT SINCE THE PAYMENT OF THE RETENTION MONEY IS HI NGED UPON THE CONDITION OF SATISFACTORY PERFORMANCE OF THE EQ UIPMENT DURING THE WARRANTY PERIOD, NO DEBT ACCRUED IN FAVO UR OF THE ASSESSEE. THEREFORE, THE IMPUGNED AMOUNT DOES NOT A CCRUE AS INCOME TO THE ASSESSEE IN THIS YEAR. 6. IN THE ABOVE DECISIONS, IT HAS BEEN HELD THAT RE TENTION MONEY CANNOT BE TREATED AS INCOME UNTIL THE SAME IS ACTUA LLY RECEIVED. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE HOLD THAT THE CIT(A) HAS CORRECTLY DIRECTED THE AO TO DELETE THE AMOUNT OF R ETENTION MONEY. WE ARE ALSO IN AGREEMENT WITH THE OBSERVATION OF THE C IT(A) THAT THE AMOUNT IN QUESTION CAN BE TAXED IN THE YEAR OF RECEIPT. IN VIEW OF THE ABOVE, WE DISMISS GROUND NO.1 OF THE APPEAL. 7. GROUND NO.2 OF THE APPEAL READS AS UNDER: 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.4,31,892/- BY CITING THAT THE AMOUNT REPRESENTS THE COMMISSION RETAINED BY UNHITE CH LIMITED. 8. THE ISSUE RELATES TO ADDITION OF RS. 4,31,892/- BEING COMMISSION RETAINED BY UNITECH LTD. @ 4.2% ON THE GROSS AMOUNT OF RS.1,02,83,150/-. THE AO DISALLOWED THE AMOUNT OF R S.4,31,892/-. 9. ON APPEAL, THE CIT(A) DELETED THE ADDITION STATI NG THAT THE AMOUNT IN QUESTION WAS NOT RECEIVED BY THE ASSESSEE COMPAN Y. THE CIT(A) AFTER EXAMINING THE COPY OF ACCOUNTS IN THE BOOKS OF M/S . UNITECH LTD. FOUND THAT ACTUAL AMOUNT FINALLY RECEIVABLE BY THE ASSESS EE COMPANY WAS RS.91,51,258/- AND NOT PROVISIONALLY TAKEN AT RS.1, 02,83,150/-. ACCORDING TO THE CIT(A), THIS DIFFERENCE WAS ON ACC OUNT OF COMMISSION RETAINED BY M/S. UNITECH LTD. FOR THE CONTRACT AS P ER THE MUTUAL AGREEMENT OVER WHICH THE ASSESSEE HAS NO RIGHT TO R ECEIVE. CONSIDERING THE ABOVE FACTS, THE CIT(A) HELD THAT THE AMOUNT IN QUESTION CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE AND THE AMOUNT A DDED BACK ON THIS ITA NO.846/AHD/2005 KARNAVATI INFRASTRUCTURE PVT. LTD. 5 ACCOUNT THEREFORE, CANNOT BE SUSTAINED. HE ACCORDIN GLY, DELETED THE ADDITION. 10. AFTER HEARING THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A ) ON THIS ISSUE. WE FIND THAT THE DEDUCTION IS ON ACCOUNT OF AGREEMENT ENTER ED INTO BY THE ASSESSEE WITH THE PRINCIPAL. WE ALSO FIND THAT THE CIT(A) AFTER EXAMINING THE COPY OF ACCOUNTS IN THE BOOKS OF M/S. UNITECH L TD. FOUND THAT ACTUAL AMOUNT FINALLY RECEIVABLE BY THE ASSESSEE COMPANY W AS RS.91,51,258/- AND NOT PROVISIONALLY TAKEN AT RS.1,02,83,150/-. TH IS DIFFERENCE WAS ON ACCOUNT OF COMMISSION RETAINED BY M/S. UNITECH LTD. FOR THE CONTRACT AS PER MUTUAL AGREEMENT OVER WHICH THE ASSESSEE COMPAN Y HAS NO RIGHT TO RECEIVE. THUS, CONSIDERING THE ENTIRE FACTS AND CIR CUMSTANCES OF THE PRESENT CASE, WE DO NOT FIND ANY INFIRMITY IN THE F INDINGS OF THE CIT(A) IN DELETING THE ADDITION OF RS. 4,31,892/- BY CITING T HAT THE AMOUNT REPRESENTS THE COMMISSION RETAINED BY UNITECH LTD. THIS GROUND OF APPEAL FAILS AND IS HEREBY DISMISSED. 11. GROUND NO.3 OF THE APPEAL READS AS UNDER: 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF T4HE CASE IN DIRECTING TO DELETE THE ADDITION OF RS.2,02 ,958/-, BEING THE SALARY PAID BY ASSESSEE COMPANY TO THE EMPLOYEE S OF UNITECH LTD. AT THE SITE. LD. CIT(A) IN THIS REGARD RELIED UPON THE SUBMISSION OF PROJECT MANAGER OF M/S. UNITECH L TD. WHICH WAS NOT PRODUCED BEFORE THE A.O.. 12. THE FACTS NOTED BY THE AO RELATING TO THIS ISSU E ALSO REPRODUCED HEREIN BELOW: 4. SALARY EXPENSES IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESS EE WAS ASKED TO FILE THE CONTRACT ACCOUNT FROM UHITECH LIMITED. ON VERIFICATION, IT IS SEEN THAT AMOUNT OF RS.2,03, 958/- WAS SHOWN AS SALARY BY WAY OF JV ENTRY MADE IN FAVOUR O F UNHITECH LIMITED ON 31.03.2002. IN THE INFORMATION SOUGHT ITA NO.846/AHD/2005 KARNAVATI INFRASTRUCTURE PVT. LTD. 6 U/S. 133(6) OF THE I. T. ACT. NO SUCH ENTRY IS REFL ECTED IN UNITECH ACCOUNT. IN VIEW OF THE ABOVE THE CLAIM OF SALARY PAYMENT OF RS.2,03,958/- IN THE ASSESSEES ACCOUNT BY WAY OF PASSING J. V. ENTRY AND CREDITING IN UNITECH LI MITED ACCOUNT IS FOUND TO BE NON GENUINE AND ADDED BACK T O TOTAL INCOME OF THE ASSESSEE. IN RESPONSE TO CLARIFICATIO N, ASSESSEES REPLY IS NOT ACCEPTABLE IN VIEW OF THE F OLLOWING REASONS:- (I) THOUGH THERE MAY BE AGREEMENT ON PAYMENT OF SALARY OF EMPLOYEES OF UNITECH AT THE SITE SINCE NO CONFIRMATION IS GIVEN BY THE UNITECH REGARDING SUCH INCIDENCE OF PAYMENT FOR THE YEAR UNDER CONSIDERATION THE SAME CANNOT BE TREATED AS EXPENDITURE ON THE PART OF THE ASSESSEE COMPANY. (II) THE CONTENTION OF THE ASSESSEE AS TO UNITECH H AS ACCOUNTED FOR THE SAME FOR THE LATER PERIOD I.E. PERIOD FROM 1.4.2001 TO 31.02.2003 CANNOT BE ACCEPTED IN TOTO. (III) EVEN IF THE ASSESSEE IS BOUND TO PAY SUCH SAL ARY ON BEHALF OF UNITECH LTD., SINCE THE EMPLOYEES IN QUESTION ARE NOT AT ALL THE EMPLOYEES OF THE ASSESSEE COMPANY, HENCE SUCH PAYMENT CANNOT BE TERMED AS SALARY PAYMENT AND IT SHOULD BE TREATED AS CONTRACTUAL PAYMENT, HENCE, ASSESSEE IS BOUND TO MAKE TDS AS PER THE PROVISIONS OF THE I. T. ACT AND NO SUCH DEDUCTION THEREON. IN VIEW OF THE ABOVE REASONS, THE SALARY PAYMENT CLAIMED BY THE ASSESSEE IS NOT FOUND ELIGIBLE AND A CCORDINGLY, SAME IS DISALLOWED AND ADDED BACK TO THE TOTAL INCO ME. 13. ON APPEAL, THE CIT(A) DELETED THE ADDITION STAT ING THAT THESE EXPENSES WERE PAID BY THE ASSESSEE COMPANY AT ONGOI NG PROJECT AND ACCORDINGLY THIS AMOUNT HAD BEEN CLAIMED BY THE ASS ESSEE COMPANY IN ITS COMPUTATION OF INCOME. HE FURTHER OBSERVED THAT TO SUPPORT THE CLAIM THE ASSESSEE HAS PRODUCED THE SUBMISSIONS DULY SIGN ED BY THE PROJECT MANAGER OF UNITECH LTD. WHICH WAS PAYABLE BY THE AS SESSEE COMPANY IN THE YEAR 2000-01 AT RS.2,03,958/-. THE CIT(A) FURTH ER OBSERVED THAT SINCE THE PERIOD OF EXPENSES HAD BEEN CONFIRMED BY M/S. UNITECH LTD. ITA NO.846/AHD/2005 KARNAVATI INFRASTRUCTURE PVT. LTD. 7 AS THAT OF FINANCIAL YEAR 2000-01 AND THE ASSESSEE COMPANY WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE SAID EXPENSES WERE ADMISSIBLE FOR ALLOWING IN AY 2001-02. HE, THEREFOR E, HELD THAT THE ADDITION CANNOT BE SUSTAINED ON THIS COUNT AND DIRE CTED THE AO TO DELETE THE SAME. 14. AFTER HEARING THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, WE DO NOT SEE ANY VALID GROUND IN INTERFERING WITH THE OR DER OF THE CIT(A) ON THIS ISSUE THAT THE AMOUNT IN QUESTION REPRESENTED THE EXPENSES RELATING TO FINANCIAL YEAR 2000-01 RELEVANT TO ASSESSMENT YE AR 2001-02. WE FIND THAT THE AMOUNT IN QUESTION WAS PAID BY THE ASSESSE E COMPANY AT ON GOING PROJECT AND ACCORDINGLY THIS AMOUNT HAS BEEN CLAIMED BY THE ASSESSEE COMPANY IN ITS COMPUTATION OF INCOME. WE A LSO FIND THAT THE CIT(A) HAS CORRECTLY CONSIDERED THE SUBMISSIONS DUL Y SIGNED BY THE PROJECT MANAGER OF UNITECH LTD. ACCORDING TO THESE SUBMISSIONS, THE AMOUNT IN QUESTION WAS PAYABLE BY THE ASSESSEE COMP ANY FOR THE YEAR 2000-01. IN FACT, UNITECH LTD. HAS CONFIRMED THAT T HE ASSESSEE COMPANY HAS PAID THE EXPENSES IN FINANCIAL YEAR 2000-01. IN OUR VIEW, THE CIT(A) HAS CORRECTLY OBSERVED THAT SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE SAID EXPENSES WERE ADMISS IBLE FOR ALLOWING IN AY 2001-02. THUS, CONSIDERING THE FACTS AND CIRCUMS TANCES OF THE PRESENT CASE, WE DECLINE TO INTERFERE WITH THE ORDE R OF THE CIT(A) ON THIS ISSUE. CONSEQUENTLY, WE DISMISS GROUND NO.3 OF THE APPEAL. 15. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 0 5-11-2009 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (H. L. KARWA) JUDICIAL MEMBER DATE : 05-11-2009 LAKSHMIKANT/- ITA NO.846/AHD/2005 KARNAVATI INFRASTRUCTURE PVT. LTD. 8 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD