DCIT 14(1)(2), MUMBAI V. COMMTEL NETWORKS P.LTD, MUMBAI

ITA 909/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5439 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 09-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESHPANDE
• Keywords: Rule of consistency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI G MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.909/MUM/2017 ASSESSMENT YEAR : 2013-14 THE DY CIT - 14(1)(2), MUMBAI VS. M/S. COMMTEL NETWORKS PVT. LTD., 23, WHITE CASTLE, 34-35, UNION PARK, CHEMBUR, MUMBAI 400 071. PAN AAACC8966G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SAURABH DESHPANDE RESPONDENT BY : SHRI DEVENDRA JAIN DATE OF HEARING : 1 2 .0 7 .201 8 DATE OF PRONOUNCEMENT 25 .0 7 . 201 8 O R D E R PER G MANJUNATHA, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE CIT(A)-22, MUMBAI, DATED 07.11.2016, AND IT PERTAINS TO ASSESS MENT YEAR 2013-14. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DELETING SUM OF RS 3,07,33,668/- BEING THE RETENTION MONEYS OF VARIOUS PROJECTS, WHICH AS PER THE TERMS OF CONTRAC TS, DID NOT ACCRUE DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2013-14 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF DESIGN, ENGINEERING, INTEGRATION , SUPPLY INSTALLATION AND COMMISSIONING OF STATE -OF-ART TELECOMMUNICATION SY STEMS, FILED ITS RETURN OF INCOME FOR A.Y. 2013-14 ON 26.11.2013, DECLARING TOTAL INC OME OF ` 3,05,77,860/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND THE ASSESSM ENT HAS BEEN COMPLETED U/S. 143(3) OF THE ACT ON 16.03.2016 DETERMINING TOTAL I NCOME AT ` 6,13,11,530/-, INTER ITA NO.909/MUM/2017 COMMTEL NETWORKS PVT LTD. 2 ALIA, MAKING ADDITIONS TOWARDS DISALLOWANCE OF CLAI M OF RETENTION MONEY DEDUCTED FROM THE TOTAL INCOME IN THE STATEMENT OF TOTAL INC OME. THE RELEVANT FINDING OF THE ASSESSING OFFICER IS EXTRACTED BELOW: 4.1 ON PERUSAL OF THE ALL SUBMISSIONS MADE BY ASSE SSEE IT WAS FOUND THAT THE ASSESSEE IS FOLLOWING THIS PRACTICE FROM A .Y.2003-04 ONWARDS. GENERALLY 10% OF THE CONTRACT AMOUNT IS RETAINED BY THE CUSTOMERS AGAINST WHICH ASSESSEE RELEASES A PBG OF EQUIVALENT AMOUNT. THE AMOUNT WHICH ASSESSEE RETAINS IS OFFERED IN THE YEA R OF EXPIRY OF RETENTION PERIOD. THE MAIN ARGUMENT OF THE ASSESSE E COMPANY IS THAT THERE IS NO RIGHT TO RECEIVE THE AMOUNT RETAINED BY ITS CUSTOMERS TILL THE EXPIRY OF PERIOD OF SATISFACTORY PERFORMANCE OF THE CONTRACT TERMS, AFTER THE COMPLETION OF THE CONTRACT AND THE DELIVERY OF THE EQUIPMENT. 4.5.2 IT WAS OBSERVED THAT AS AND WHEN CONTRACT CO MPLETES ASSESSEE GETS PAYMENT AS PER CONTRACTUAL TERMS EXCEPT RETENT ION AMOUNT WHICH IS ALSO ACCRUED AND RECEIVED IN MOST OF THE CASES ON T HE FURNISHING OF PBG OF EQUIVALENT AMOUNT. ON VERIFICATION OF THE CONTRA CTS SUBMITTED BY THE ASSESSEE IT WAS OBSERVED THAT THE RETENTION MONEY I S NOTHING BUT TOWARDS THE WARRANTY PROVIDED BY ASSESSEE TO CUSTOM ER FOR THE SATISFACTORY PERFORMANCE OF CONTRACT. IT IS ALSO NO TED THAT NO SERVICES ARE LEFT TO BE PROVIDED BY THE ASSESSEE TO ITS CUSTOMER DURING THE SAID WARRANTY PERIOD. THE AMOUNT RETAINED OR THE PBG SUB MITTED BY THE ASSESSEE COMPANY IS NOT TOWARDS ANY SERVICES LEFT T O BE PROVIDED DURING THE SAID PERFORMANCE PERIOD. IT IS MERELY RETAINED BY THE CUSTOMER TO ENSURE THAT AFTER HANDING OVER OF THE EQUIPMENT, IT CONTINUES TO GET ANY AFTER SERVICE SUPPORT IN CASE THERE ARE ANY ISSUES CONNECTED WITH THE PERFORMANCE OF THE DELIVERED EQUIPMENT. IT IS ESSEN TIAL TO NOTE THAT THE AS PER THE TERMS OF THE CONTRACT, THE CONTRACT IS E NTERED INTO BY THE ASSESSEE COMPANY WITH ITS CUSTOMERS FOR INSTALLATIO N, COMMISSIONING OF TELECOMMUNICATION EQUIPMENT. THIS CAN BE COMPARED W ITH THE SALE OF ANY PRODUCT WHEREIN AFTER THE SALE OF THE PRODUCT, THER E IS OFTEN A WARRANTY CLAUSE WHICH MAKES IT OBLIGATORY ON THE PART OF THE SELLER TO PROVIDE THE SERVICES DURING THE SAID WARRANTY PERIOD. IN ALL SU CH CASES OF AFTER SALES WARRANTY OR PERFORMANCE GUARANTEE, IF THE TERMS OF THE WARRANTY PROVIDE FOR FREE REPAIR OF REPLACEMENT OF ANY PART OR THE E NTIRE PRODUCT, INVARIABLY A WARRANTY PROVISION IS CREATED BY THE COMPANY BASE D ON THE REASONABLE SCIENTIFIC ESTIMATE OF THE PROBABLE OUTFLOW OF THE RESOURCES AND THE SAME IS DEBITED TO THE P & L ACCOUNT AS ALLOWABLE EXPENS E. BUT, IN NO WAY CAN IT BE INTERPRETED TO BE CONSTRUED THAT THE SALE CON SIDERATION OF THE PRODUCT SOLD HAS NOT ACCRUED TO THE ASSESSEE. THE D EFERMENT OF THE PART OF THE CONSIDERATION WHICH IS ESTIMATED TO BE ALLOC ATED FOR THE WARRANTY PROVIDED BY A PERSON AGAINST ANY FUTURE PROBLEM THA T MAY OR MAY NOT ITA NO.909/MUM/2017 COMMTEL NETWORKS PVT LTD. 3 ARISE IN THE PRODUCT CANNOT BE SAID TO HAVE BEEN NO T ACCRUED TO IT BY ANY STRETCH OF IMAGINATION. 4.5.3 IN THIS BACKGROUND, IT BECOMES IMPORTANT TO FIRST EXAMINE THE MATERIALITY OF OCCURRENCE OF THE EVENT OF ACTUAL FO RFEITURE OF THE AMOUNT RETAINED BY THE CUSTOMERS OUT OF VARIOUS CONTRACTS COMPLETED BY IT DURING THE PREVIOUS 3 YEARS AND NEXT 3 YEARS. DURING THE C OURSE OF 'ASSESSMENT PROCEEDINGS, THE AR OF THE ASSESSEE COMPANY WAS ASK ED TO SUBMIT THE DETAILS OF INSTANCES OF THE NON-PERFORMANCE OF COND ITIONS OF CONTRACT AND FORFEITURE OF THE RETENTION MONEY OR INVOCATION OF THE PBG BY ITS CLIENTS IN PREVIOUS 3 YEARS AND NEXT 3 YEARS. 4.5.4 THE REQUIRED DETAILS WERE FILED BY THE ASSESS EE COMPANY. IT IS SEEN FROM THE PERUSAL OF THE DETAILS FILED BY THE A SSESSEE COMPANY THAT IN ABOUT FOUR INSTANCES OF THE PBG GIVEN BY THE ASSESS EE COMPANY FOR THE PERFORMANCE GUARANTEE, IN NOT EVEN A SINGLE CASE TH E PBC PROVIDED BY THE ASSESSEE COMPANY HAS BEEN ACTUALLY INVOKED. IT HAS MERELY BEEN EXTENDED FOR A FURTHER PERIOD BASED ON THE MUTUAL D ISCUSSIONS BETWEEN THE ASSESSEE COMPANY AND ITS CUSTOMERS. FURTHER, IT IS SEEN FROM THE COPIES OF THE CORRESPONDENCES MADE BETWEEN THE ASSE SSEE COMPANY AND ITS CLIENTS THAT THE AMOUNT IS RETAINED ONLY TO GUA RD AGAINST ANY PROBABLE DEFECT/OMISSION IN THE PRODUCT SUPPLIED, WHICH IS O NLY CONTINGENT AND IS DEPENDENT FROM CASE TO CASE. HOWEVER, IT HAS BEEN S EEN IN THE CASE OF THE ASSESSEE COMPANY FROM THE DETAILS FILED BY IT T HAT IT HAS BEEN ABLE TO RESOLVE ANY DISPUTES WITH ITS CLIENTS IN SOME OF TH E CASES CITED BY IT AND THERE HAS BEEN NO ACTUAL FORFEITURE OF THE PBC. HEN CE, EVEN ON THE PROBABILITY OF OCCURRENCE OF THE EVENT OF ACTUAL FO RFEITURE OF THE PBC OR RETENTION MONEY IS VERY RARE IN THE CASE OF THE ASS ESSEE COMPANY ON THE BASIS OF THE PAST AND FUTURE EXPERIENCE AS CAN BE S EEN FROM LAST 3 YEARS AND NEXT 3 YEARS DATA SUBMITTED BY IT. 4.5.5 ANOTHER VERY IMPORTANT ASPECT WHICH REQUIRES MENTION HERE IS THAT THE ASSESSEE COMPANY HAS SHOWN THE ENTIRE CONTRACT VALUE INCLUDING THE RETAINED PART OF THE PBC AS THE SATES IN ITS BOOKS OF ACCOUNT MAINTAINED AS PER THE COMPANIES ACT WHICH HAVE BEEN PREPARED A FTER TAKING INTO CONSIDERATION THE RELEVANT ACCOUNTING STANDARDS. IT HAS ALSO BEEN CLAIMED BY THE ASSESSEE COMPANY IN THE PARA 6 OF THE AUDITO R'S REPORT THAT BALANCE SHEET AND P & L ACCOUNT COMPLY WITH THE ACC OUNTING STANDARDS REFERRED TO IN SECTION 2N(3C) OF THE COMPANIES ACT, 1956. THIS CLEARLY SHOWS THAT THE ASSESSEE COMPANY HAS ALSO COMPLIED W ITH THE ACCOUNTING STANDARD -9 (AS-9) DEALING WITH THE REVENUE RECOGNI TION. AS PER THE AS-G, REVENUE FROM SALES OR SERVICE TRANSACTIONS SHOULD B E RECOGNIZED WHEN THE REQUIREMENTS AS TO PERFORMANCE ARE SATISFIED, P ROVIDED THAT AT THE TIME OF PERFORMANCE IT IS NOT UNREASONABLE TO EXPEC T ULTIMATE COLLECTION. IF AT THE TIME OF RAISING OF ANY CLAIM IT IS UNREAS ONABLE TO EXPECT ULTIMATE ITA NO.909/MUM/2017 COMMTEL NETWORKS PVT LTD. 4 COLLECTION, REVENUE RECOGNITION SHOULD BE POSTPONED . THE ASSESSEE COMPANY BY APPARENTLY FOLLOWING THIS ACCOUNTING STA NDARD HAS RECOGNIZED THE ENTIRE CONTRACT VALUE AS SALES IN ITS BOOKS OF ACCOUNT, THEREBY LEADING TO OBVIOUS INFERENCE THAT AT THE TIME OF PERFORMANC E IT IS NOT UNREASONABLE TO EXPECT ITS ULTIMATE COLLECTION, WHI CH IS ALSO THE CASE WHEN SEEN FROM THE FACTS OF THE CASE NOTED ABOVE. T HOUGH, THE ENTRIES IN THE BOOKS OF ACCOUNT MAY NOT BE ALWAYS DETERMINATIV E OF THE INCOME OF THE ASSESSEE COMPANY, BUT AT THE SAME TIME THE ENTR IES IN THE BOOKS OF ACCOUNT CANNOT BE SIMPLY BRUSHED ASIDE BY THE ASSES SEE COMPANY AT ITS OWN CONVENIENCE. THE STAND OF THE ASSESSEE OF EXCLU DING RETENTION MONEY FROM THE TOTAL INCOME IS BASED ON THE INACCUR ATE APPRECIATION OF THE CLEAR FACTS OF THE CASE, WHICH CLEARLY SUGGESTS THAT THE POSITION ADOPTED BY THE ASSESSEE CONTRARY TO THE ENTRIES IN THE BOOKS OF ACCOUNT IS INCORRECT. THE ASSESSEE COMPANY CANNOT ADOPT EXA CTLY STAND WITH REGARD TO THE SAME ISSUE OF REASONABLENESS OF ULTIM ATE COLLECTABILITY OF THE RETAINED AMOUNT WHILE MAKING BOOK ENTRIES AND W HILE COMPUTING TOTAL INCOME AS PER THE PROVISIONS OF THE INCOME TAX ACT. THIS IS PARTICULARLY NOT ALLOWABLE WHEN IT IS QUITE CLEAR FROM THE FACTS OF THE CASE NOTED IN PRECEDING PARAGRAPHS THAT IN NONE OF THE CASES WHER EIN THE SALE HAS BEEN RECOGNIZED BY THE ASSESSEE COMPANY RETAINED AM OUNT OR PBG HAS NOT BEEN COLLECTED BY IT. THIS CLEARLY SHOWS THAT T HE CONTENTIONS OF THE ASSESSEE THAT AS PER THE INCOME TAX ACT THE AMOUNT RETAINED OR CORRESPONDING TO PBG IS NOT ACCRUED, IS ONLY SELF-S ERVING STATEMENT WHICH IS CONTRARY TO THE FACTS OF THE CASE. 4.5.6 RETENTION IS MERELY A WARRANTY TO ASSURE CLIE NT FOR THE SATISFACTORY PERFORMANCE OF CONTRACT. IT IS JUST LIKE AFTER SALE SERVICE PROVIDED BY THE SUPPLY OF PRODUCT WHICH IS ALTOGETHER DIFFERENT FRO M COMPLETION OF CONTRACT. THERE IS A DIFFERENCE BETWEEN COMPLETION OF CONTRACT AND ASSURANCE FOR SATISFACTORY PERFORMANCE OF CONTRACT. THIS FACT IS EVIDENT FROM THE SUBMISSION OF THE ASSESSEE. 4.5.7 FURTHER THE INSTANCES OF OCCURRENCE OF FORFEI TURE ON NON- PERFORMANCE ARE NONE AND THEREFORE IT SHOULD BE DED UCTED IN THE YEAR OF FORFEITURE OF PBG, IF ANY. FURTHER AT SOME INSTANCE S PCI IOD OF PBG WAS INCREASED BY THE ASSESSEE ON DEMAND OF THE CUSTOMER , IT IS TO BE NOTED THAT ACTUAL FORFEITURE WAS NOT DONE ONLY PERIOD WAS EXTENDED WHICH IN ANY CASE DOES NOT SUPPORT THE ASSESSEE'S CONTENTION OF DEFERMENT OF INCOME TO SUBSEQUENT YEARS ON THE PROBABILITY OF OC CURRENCE OF THE CONTINGENT EVENTS ON THE BASIS OF WHICH THE ASSESSE E COMPANY HAS SOUGHT TO DEFER A SUBSTANTIAL PORTION OF THE REVENU E. 4.5.8 IN VIEW OF ABOVE FACTS OF THE CASE LET US DIS CUSS AS TO WHAT WOULD CONSTITUTE ACCRUAL OF INCOME IN THE INSTANT CASE AN D AS TO WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE IT CAN BE SAID THAT THE RETENTION ITA NO.909/MUM/2017 COMMTEL NETWORKS PVT LTD. 5 MONEY HAS NOT ACCRUED TO THE ASSESSEE COMPANY. IN T HIS REGARD, IT IS FAIR TO ALSO REFER TO DECISIONS OF THE HON'BLE APEX COUR T IN THE CASE OF E.D. SASSOON & CO. LTD. VS. CIT (SUPRA) & CIT VS. GOVIND PRASAD PRABHU NATH (SUPRA) WHEREIN THE HON'BLE APEX COURT LAID DOWN SO ME BASIC TESTS FOR DECIDING THE ACCRUAL OF INCOME AND IT WAS HELD AS U NDER: - 'INCOME MAY ACCRUE TO AN ASSESSEE WITHOUT THE ACTUA L RECEIPT OF THE SAME. IF THE ASSESSEE ACQUIRES A RIGHT TO RECEI VE THE INCOME, THE INCOME CAN BE SAID TO HAVE ACCRUED TO HIM THOUG H IT MAY BE RECEIVED LATER ON ITS BEING ASCERTAINED. THE BASIC CONCEPTION IS THAT HE MUST HAVE ACQUIRED A RIGHT TO RECEIVE THE I NCOME. THERE MUST BE A DEBT OWED TO HIM BY SOMEBODY. THERE MUST BE AS IS OTHERWISE EXPRESSED DEBITUM IN PRAESENTI, SOLVENDUM IN FUTURO. UNLESS AND UNTIL THERE IS CREATED IN FAVOUR OF THE ASSESSEE A DEBT DUE BY SOMEBODY IT CANNOT BE SAID THAT HE HAS ACQUI RED A RIGHT TO RECEIVE THE INCOME OR THAT INCOME HAS ACCRUED TO HIM. 4.5.9 IN THE INSTANT CASE, THE RIGHT TO RECEIVE TH E TOTAL VALUE OF THE CONTRACT GETS VESTED IN THE ASSESSEE COMPANY AT THE TIME OF COMPLETION OF THE CONTRACT AND THE HANDING OVER OF THE EQUIPME NT AFTER ITS INSTALLATION AND COMMISSIONING. AS IT HAS BEEN DISC USSED IN THE PRECEDING PARAGRAPHS, THE PART OF AMOUNT RETAINED BY WAY OF P BG IS ONLY TOWARDS ENSURING THE SAFETY OF THE ASSESSEE'S CUSTOMERS AGA INST ANY FUTURE CONTINGENCIES AND WHICH MAY OR MAY NOT OCCUR. BUT I T CANNOT BE SAID IN ANY CASE THAT THERE IS THERE IS NO RIGHT VESTED IN THE ASSESSEE COMPANY TO RECEIVE SUCH AMOUNT, WHAT HAS ACTUALLY HAPPENED IS THAT THE PART OF AMOUNT IS RETAINED AS PBG WHICH ONLY DEFERS THE REC EIPT OF THE ASSESSEE COMPANY AT THE BEST AND DOES NOT AFFECT ITS RIGHT T O RECEIVE. IN ANY CASE, SUCH FEW INSTANCES OF ACTUAL FORFEITURE OF THE PBG ALSO, IF ANY, WOULD NOT DEFER THE ACCRUAL OF THE RECEIPT IN ALL THE CASES. THE ASSESSEE COMPANY IS FREE TO CLAIM ANY SUCH LOSS ON ACCOUNT OF SUCH FORF EITURE AS EXPENSE IN ITS BOOKS OF ACCOUNT IN THE YEAR WHEN IT IS ACTUALLY IN CURRED RATHER THAN ARTIFICIALLY POSTPONING THE ACCRUAL OF ENTIRE RECEI PT. IT HAS ALSO BEEN DISCUSSED ABOVE THAT THE SITUATION IS AKIN TO WARRA NTY PROVIDED BY THE ASSESSEE COMPANY FOR SATISFACTORY PERFORMANCE POST THE COMPLETION OF THE CONTRACT BUT IT DIFFERS FROM THE COMPLETION OF THE CONTRACT UPON WHICH A DEFINITE DEBT OWED TO THE ASSESSEE COMPANY BY ITS CUSTOMERS IS CREATED. HOWEVER, TO HAVE GREATER FLEXIBILITY IN IT S DEALING WITH THE ASSESSEE COMPANY, A PORTION OF SUCH ACCRUED SUM IS RETAINED BY WAY OF PBG BY ITS CUSTOMERS. 4.5.10 FURTHER, THE PLEA OF THE ASSESSEE THAT THE YEAR OF TAXABILITY IS NOT MATERIAL AS THE COMPANY IS TAXABLE AT FLAT RATE, DO NOT HOLD ANY SUBSTANCE AS THE DETERMINATION OF TOTAL INCOME UNDER THE INCO ME TAX ACT IS FOR A PARTICULAR ASSESSMENT YEAR. THE PLEA THAT THE ASSES SEE COMPANY HAS NOT ITA NO.909/MUM/2017 COMMTEL NETWORKS PVT LTD. 6 INCURRED ANY LOSSES TILL DATE IS ALSO IRRELEVANT AS THE AO IS DUTY BOUND TO DETERMINE THE CORRECT TOTAL INCOME OF A PARTICULAR YEAR. 4.5.11 THE RELIANCE PLACED BY THE ASSESSEE COMPANY ON THE VARIOUS CASE LAWS CITED IN PARA 5.2 OF THE ORDER ABOVE ON T HE ISSUE OF RETENTION MONEY IS ALSO MISPLACED AS THE FACTS OF THE CASE RE LIED UPON ARE DISTINGUISHABLE FROM THE FACTS OF THE INSTANT CASE. IT HAS ALREADY BEEN DISCUSSED ABOVE THAT ON THE FACTS OF THE CASE HAVIN G REGARD TO PAST AND FUTURE EXPERIENCES; IT IS NOT UNREASONABLE TO EXPEC T ULTIMATE COLLECTION OF THE AMOUNT RETAINED. RATHER, IN THIS CASE, THE ASSE SSEE COMPANY HAS ALREADY RECEIVED THE FULL AMOUNT AND THERE IS ONLY BANK GUARANTEE FOR PERFORMANCE PROVIDED FOR THE ASSURANCE OF THE CUSTO MER. THE ASSESSEE HAS ALSO ACCEPTED THIS FACT WHILE RECOGNIZING THE R EVENUE IN ITS BOOKS OF ACCOUNT AS PER THE ACCOUNTING STANDARDS. 4.5.12 FURTHER, SIMILAR ISSUE AROSE IN THE A.Y.2012 -13, WHEREIN IN THE ASSESSMENT ORDER U/S. 143(3) OF THE ACT, THE ASSESS EE'S CLAIM FOR DEDUCTION OF RETENTION MONEY WAS REJECTED AFTER ELA BORATE DISCUSSION. SINCE THE FACTS AND CIRCUMSTANCES FOR A.Y. 2012-13 BEING SAME, THE CLAIM MADE BY THE ASSESSEE IS NOT FOUND TO BE ACCEPTABLE. AGGRIEVED BY THE ASSESSMENT ORDER ASSESSEE PREFERRE D APPEAL BEFORE THE CIT(A). 3. BEFORE THE CIT(A) THE ASSESSEE HAS SUBMITTED THA T THE ASSESSING OFFICER ERRED IN MAKING ADDITIONS TOWARDS RETENTION MONEY W ITHOUT APPRECIATING THE FACT THAT SAID RECEIPT DID NOT ACCRUE TO THE ASSESSEE DU RING THE PREVIOUS YEAR RELEVANT TO A.Y. 2013-14. THE ASSESSEE ALSO RELIED UPON THE DE CISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASSOCIATED CABLES (P) LTD. (286 ITR 596). IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS MA DE SIMILAR ADDITIONS IN ASSESSMENT YEARS 2010-11, 2011-12 AND 2012-13 AND T HE LEARNED CIT(A) HAS DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF AS SOCIATED CABLES (P) LTD. (SUPRA). THE CIT(A) AFTER CONSIDERING THE RELEVANT SUBMISSIO NS OF THE ASSESSEE AND ALSO FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF ASSOCIATED CABLES (P) LTD. DELETED THE ADDITION MADE BY THE AS SESSING OFFICER TOWARDS ADDITION ON ACCOUNT OF RETENTION MONEY OF ` 3,07,33,668/- 4. AT THE TIME OF HEARING THE LEARNED AR FOR THE AS SESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI ITA NO.909/MUM/2017 COMMTEL NETWORKS PVT LTD. 7 BENCH C, IN ASESSEES OWN CASE FOR A.YS 2010-11 T O 2012-13 IN ITA NOS. 4872, 4340 & 4873/MUM/2015, WHEREIN ON SIMILAR SET OF FAC TS, THE ITAT HAS DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS RET ENTION MONEY. THE LEARNED DR FOR THE REVENUE ALSO ACCEPTED THAT THE ITAT HAS DEL ETED THE ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS RETENTION MONEY FOR EARLI ER YEARS IN THE CASES REFERRED TO BY THE LEARNED AR. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL AVAILABLE ON RECORD. THE ISSUE OF ADDITIONS TOWARDS RETENTION MONEY DEDUCTED FROM TOTAL INCOME IS NO MORE RES INTEGRA. THE CO-ORDINATE BENCH OF THE ITAT IN ASSESSEES OWN CASE FOR A.YS 2010-11 TO 2012-13 IN ITA NOS. 4872, 4340 & 4873/MU M/2015 HAS CONSIDERED THE ISSUE IN THE LIGHT OF THE DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS. ASSOCIATED CABLES (P) LTD. (SUPRA), AND HELD TH AT RETENTION MONEY DEDUCTED BY THE CONTRACTEE IN THE WORK BILLS CANNOT BE TAXED ME RELY ON THE BASIS OF ENTRIES IN THE BOOKS OF ACCOUNT WHEN IN LAW THE SAME CANNOT BE SAI D TO HAVE ACCRUED FOR THAT FINANCIAL YEAR. THE RELEVANT PORTION OF THE ORDER OF ITAT IS EXTRACTED BELOW: 15. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFU LLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAD ALSO DE LIBERATED ON THE VARIOUS JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER A UTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY LEARNED AR AN D DR DURING THE COURSE OF HEARING BEFORE US IN THE CONTEXT OF FACTU AL MATRIX OF THE CASE. ONLY THE ISSUE FOR OUR CONSIDERATION IS AS TO YEAR IN WHICH RETENTION MONEY TO BE TAXED (RETENTION MONEY OF 10% OF CONTRA CT VALUE) TO BE TAXED IN THE YEAR OF COMPLETION OF CONTRACT OR WHEN THE PERFORMANCE GUARANTEE PERIOD IS OVER AND THE CONTRACTEE RELEASE S THE PAYMENT. 16. WE HAD CAREFULLY GONE THROUGH THE TERMS OF CONT RACTS EXECUTED BY THE ASSESSEE WITH CONTRACTEE I.E., ONGC THE CONT RACTS SHOW THAT THE RIGHT TO RECEIVE THE RETENTION MONEY OF THE RESPECT IVE PROJECTS, DID NOT ACCRUE TO, OR VEST IN, THE ASSESSEE DURING THE PREV IOUS YEAR ENDED 31.3.2012, BECAUSE THE SAME IN TERMS OF TIME FELL B EYOND THAT YEAR. THEREFORE, THE RETENTION MONEYS DID NOT ACCRUE TO T HE ASSESSEE DURING THAT YEAR, NOTWITHSTANDING THE ACCOUNTING AS REVENU E IN THE BOOKS OF ACCOUNT ON COMPLETION OF WORK OF THE RESPECTIVE PRO JECTS. ACCORDINGLY, CONSIDERING THE TERMS OF THE CONTRACT, UNLESS ASSES SEE SATISFIES THE CUSTOMERS AS TO THE PERFORMANCE OF THE WORK, DURING THE PRE-FIXED PERIOD AFTER COMPLETION OF THE CONTRACT, THE ASSESSEE HAS NO RIGHT TO RECEIVE RETENTION MONEY. HOWEVER, AO HAS FAILED TO APPRECIA TE THE LEGAL POSITION ITA NO.909/MUM/2017 COMMTEL NETWORKS PVT LTD. 8 AND ERRONEOUSLY COMPARING THIS LEGAL OBLIGATION IN A MANNER TO POST SALE WARRANTY OBLIGATIONS. IN THE POST SALE WARRANTY OBL IGATIONS THE SUPPLIERS RIGHT TO RECEIVE THE SALE CONSIDERATION IS NEVER AT STAKE BECAUSE HE FULLY COLLECTS THE SAME AT THE TIME OF COMPLETION OF SALE ; NOR DOES HE GIVE ANY PERFORMANCE BANK GUARANTEE TO THE CUSTOMER. HIS ONL Y OBLIGATION IS TO PROVIDE AFTER-SALES SERVICE, AND IN CASE HE FALLS T HEREIN, THE ONLY RECOURSE TO THE CUSTOMER IS TO SUE HIM FOR THE DAMAGES; THER E IS ABSOLUTELY NO IMPACT WHATSOEVER ON THE ACCRUAL OF SALE CONSIDERAT ION. BUT IN THE ASSESSEE'S CASE THE CLIENT EITHER PHYSICALLY RETAIN S THE RETENTION MONEY OR GETS PBG IN LIEU THEREOF, WHICH HE CAN UNILATERALLY INVOKE EVEN WITHOUT RECOURSE TO THE ASSESSEE AND RECOVER THE RETENTION MONEY DIRECTLY FROM THE BANK. THE CONDITIONS OF THE PBG WOULD CLEARLY S HOW THE ASSESSEE'S PRECARIOUS POSITION VIS-A-VIS THE CUSTOMER IN THIS MATTER. THE ASSESSEE HAD SUBMITTED RELEVANT TERMS & CONDITIONS OF PBG IS SUED BY CITI BANK TO ONGC. ACCORDINGLY, EVEN THOUGH RETENTION MONEY IS P HYSICALLY RELEASED AGAINST THE PEG, THE RISK DOES NOT ABATE UNTIL THE PEG EXPIRES OR IS CANCELLED BY THE CUSTOMER. THEREFORE, DURING THIS P ERIOD THE ASSESSEE DOES NOT HAVE RIGHT TO RECEIVE THE RETENTION MONEY AS CONTEMPLATED IN THE JUDGEMENT IN E. D. SASSOON LTD. (SUPRA) THEREFO RE, THERE WAS NO ACCRUAL QUA THE RETENTION MONEY IN THE PREVIOUS YEA R RELEVANT TO THE A. Y.2012-13. 17. AS PER OUR CONSIDERED VIEW, THE ACCOUNTING TREA TMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT CANNOT DECIDE THE ACCRUAL OF INCOME IN LAW. IT IS NOW WELL SETTLED THAT ACCOUNTING ENTR IES ARE NOT DETERMINATIVE OF TAXABILITY OF INCOME OR DEDUCTIBILITY OF ANY EXP ENDITURE. A MERE BOOK KEEPING ENTRY CANNOT BE INCOME UNLESS INCOME HAS AC TUALLY RESULTED. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TA X, EVEN THOUGH IN BOOK KEEPING AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOM E. VARIOUS JUDICIAL PRONOUNCEMENTS CITED BY LEARNED AR AS QUOTED ABOVE SUPPORT THIS CONTENTION. FURTHERMORE, INCOME IS TO BE COMPUTED A S PER THE PROVISIONS OF LAW, AND IT IS NOT NECESSARY THAT LAW SHOULD FOL LOW THE FOOTSTEPS OF ACCOUNTANCY. INCOME-TAX LAW DOES NOT MARCH STEP BY STEP IN THE DIVERGENT FOOTPRINT OF THE ACCOUNTANCY PROFESSION - TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (1997) 227 ITR 172 (SC). 18. IN VIEW OF THE ABOVE, MERELY BECAUSE RETENTION MONEY WAS ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS THAT SAME C ANNOT BE BROUGHT IN THE TAX NET WITHOUT INCOME HAVING BEEN ACCRUED TO T HE ASSESSEE. FURTHERMORE, THE ASSESSEE IS CONSISTENTLY FOLLOWING THE ABOVE PRACTICE FOR THE RETENTION MONEYS YEAR AFTER YEAR SINCE THE A. Y .2003-04 AND ONWARDS. IN THE A. Y.2004 05, THE THEN AO AFTER EX AMINING THE CLAIM IN DETAIL AND ON CONSIDERATION OF DETAILED SUBMISSIONS , ACCEPTED THE SAME. FOR THE FIRST TIME IN A.Y.2010-11 THIS CLAIM WAS REJECTED. IT IS TRUE THAT THE PRINCIPLES OF RES JUDICATA DO NOT APPLY TO TAX ASSESSMENTS, YET THERE OUGHT TO BE UNIFORMITY OF TREATMENT AND CONSISTE NCY WHEN FACTS AND ITA NO.909/MUM/2017 COMMTEL NETWORKS PVT LTD. 9 CIRCUMSTANCES ARE IDENTICAL. IN THIS CONTEXT RELI ANCE IS PLACED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS . GOPAL PUROHIT (2011) 336ITR 287 (BOM). 19. AFTER COMPARING THE EARLY RETURN INCOME OF THE ASSESSEE VIS--VIS RATE OF TAX, EVEN AFTER EXCLUSION OF RETENTION MONE Y DOES NOT CONFER ON THE ASSESSEE ANY PERMANENT' TAX BENEFIT, BUT IT IS ONLY A DEFERMENT OF TAX LIABILITY. THERE IS NO ISSUE THAT IT IS TAXABLE / INCOME; THE ONLY CRUCIAL QUESTION IS WHETHER IT IS TAXABLE IN THE YEAR IN WH ICH ( THE RELEVANT WORK IS COMPLETED, OR IN THE YEAR IN WHICH IT ACCRUES TO THE ASSESSEE AS PER THE LAW WHEN THE RIGHT TO RECEIVE VEST IN IT. IN OTHER WORDS, THIS ISSUE IS WHETHER THE SUM IS TAXABLE IN ONE OR THE OTHER YEAR . SUCH AN ISSUE, REALLY SPEAKING, IS NOT MATERIAL IN CASE OF A COMPA NY, WHERE THE INCOME IS ALWAYS TAXED AT A FLAT RATE. 20. WHILE DECIDING THE ISSUE, THE CIT(A) HAS RELIED ON THE DECISION OF BOMBAY HIGH COURT IN CASE OF ASSOCIATED CABLES PVT. LTD., WHEREIN ALSO ASSESSEE WAS ENGAGED IN THE VERY SIMILAR ACTIVITY A ND RETENTION MONEY WAS HELD TO BE TAXABLE ONLY IN THE YEAR OF RECEIPT AND NOT IN THE YEAR WHEN THE PROJECT IS COMPLETED. IN THIS CASE, HONBL E BOMBAY HIGH COURT HELD THAT RIGHT TO RECEIVE RETENTION MONEY ACCRUED ONLY AFTER THE CONDITIONS UNDER THE CONTRACT ARE FULFILLED, IT WIL L NOT ACCRUE TILL THAT CONDITIONS ARE FULFILLED. THIS INCOME WILL BE ASSES SED AS ASSESSEE'S INCOME ONLY WHEN CONTRACTEE FULFILLS ALL THE CONDITIONS OF THE CONTRACT AND PAYS THE AMOUNT. 21. WE ARE ALSO IN AGREEMENT WITH THE CONTENTION OF LEARNED AR THAT PRINCIPLE OF CONSISTENCY IS REQUIRED TO BE FOLLOWED UNLESS FACTS ARE DIFFERENT IN SUBSEQUENT YEARS. IN THE INSTANT CASE BEFORE US, WE FOUND THAT FROM THE ASSESSMENT YEAR 2003-04 TO THE ASSESS MENT YEAR 2009-10, ASSESSEES METHOD WAS ACCEPTED BY THE DEPARTMENT, M OREOVER IN THE A.Y. 2004-05, THERE WAS SCRUTINY ASSESSMENT WHEREIN AFTER HAVING A DETAILED DISCUSSION, THE CIT(A) ACCEPTED ASSESSEES CONTENTION REGARDING RETENTION MONEY. EVEN FOR EACH ASSESSMENT YEAR BEIN G SEPARATE UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FO LLOWING YEAR, BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE D IFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT AT ALL BE APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR'. PARASHURAM POTTERY W ORKS LTD. (1977) 106ITR 1 (SC). EXCEL INDUSTRIES LTD (2013) 38 TAXMA N.COM (SC) AND GOPAL PUROHIT (2011) 336 ITR 287 (BOM). 22. FURTHERMORE, IN ADDITION TO THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CABLES LTD., (SUPRA), GUJARAT HI GH COURT IN CASE OF AMARSHIV CONSTRUCTION (P) LTD., 45 TAXMANN.COM 429 AND MADRAS HIGH COURT IN CASE OF IGNIFLUID BOILERS (I) LTD., 283 IT R 295 AND ALSO IN THE ITA NO.909/MUM/2017 COMMTEL NETWORKS PVT LTD. 10 CASE OF EAST COAST CONSTRUCTIONS IND. LTD., 160 TAX MANN 399 HELD THAT RETENTION MONEY ACCRUES ONLY WHEN THE PERFORMANCE P ERIOD HAS BEEN SUCCESSFULLY COMPLETED AND THE BANK GUARANTEES HAVE BEEN RELEASED. WE CATEGORICALLY OBSERVE THAT THE FACTS OF THE ASSESSE ES CASE IS IDENTICAL TO THAT OF THE CASE OF THE ASSOCIATED CABLES LTD. ASSO CIATED CABLES WERE ALSO DOING MANUFACTURING CABLES AS PER SPECIFICATIO NS OF THE CONTRACTEE. ASSESSEE IS INVOLVED IN DESIGN, ENGINEERING, INTEGR ATION, TESTING, SUPPLY, INSTALLATION AND COMMISSIONING STATE OF THE ART TEL ECOMMUNICATION SYSTEM AS PER CUSTOMERS' SPECIFIC REQUIREMENTS. EVERY FACT IS IDENTICAL TO THE FACTS OF THE CASE OF ASSOCIATED CABLES LTD IS IDENT ICAL TO THE FACTS IN RESPECT OF ASSESSEE'S CASE. 23. FURTHERMORE, WE OBSERVE THAT ASSESSEE IS IN THE 30% BRACKET IN ALL THE YEARS UNDER CONSIDERATION. EARLIER YEARS RE TENTION MONEY IS TAXED IN THIS YEAR AND THIS YEARS RETENTION IS TAXED IN THE SUBSEQUENT YEARS. HENCE THERE IS NO LOSS OF REVENUE. THEREFORE, THE T REATMENT ADOPTED BY THE ASSESSEE SHOULD NOT BE DECLINED. OUR VIEW IS SU PPORTED BY THE DECISION OF HONBLE SUPREME COURT IN CASE OF EXCEL INDUSTRIES LTD., 358 ITR 295 AND BY THE JURISDICTIONAL HIGH COURT IN CAS E OF NAGRI MILLS CO. LTD., 33 IT 681. FURTHERMORE, WE ALSO OBSERVE THAT THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACC OUNT CANNOT DECIDE THE ACCRUAL OF INCOME IN LAW. IT IS NOW WELL SETTLE D THAT ACCOUNTING ENTRIES ARE NOT DETERMINATIVE OF TAXABILITY OF INCOME OR DE DUCTIBILITY OF ANY EXPENDITURE. A MERE BOOK KEEPING ENTRY CANNOT BE IN COME UNLESS INCOME HAS ACTUALLY RESULTED. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK KEEPING AN ENTRY IS MADE A BOUT A HYPOTHETICAL INCOME. 24. THE DECISION OF HONBLE SUPREME COURT IN CASE O F SHOORJI VALLABHDAS & CO., 46 ITR 144, KEDARNATH JUTE MFG. C O. LTD., (1971) 82 ITR 363, BIRLA GWALIOR PVT. LTD., (1973) 89 ITR 266 , 273(SC) AND SUTLEJ COTTON MILLS LTD., (1979) 116 1,5 SUPPORTS OUR CONT ENTION. FURTHER RECENT DECISION OF HONBLE SUPREME COURT IN CASE OF TAPARI A TOOLS LTD., DATED 23/03/2015 REITERATED THE ABOVE PRINCIPLE. IN VIEW OF THE ABOVE, MERELY BECAUSE RETENTION MONEY IS ACCOUNTED FOR IN THE BOO KS OF ACCOUNT, THAT BY ITSELF DOES NOT MAKE IT TAXABLE IN A.Y. 2010-11 WHEN IN LAW THE SAME CANNOT BE SAID TO HAVE ACCRUED IN THAT YEAR AS DISC USSED ABOVE. 25. WE FURTHER OBSERVE THAT THE FACTS OF THE ASSESS EES CASE AND THAT OF ASSOCIATED CABLES (SUPRA) IS IDENTICAL AS NARRAT ED BELOW. ASSOCIATED CABLES LTD. ASSESSEE THE ASSESSEE WAS A C OMPANY ENGAGED IN THE MANUFACTURE OF INSTRUMENTATION CABLES AS PER THE SPECIFICATIONS OF THE ASSESSEE IS INVOLVED IN DESIGN, ENGINEERING, INTEGRATION, TESTING, SUPPLY, INSTALLATION AND COMMISSIONING STATE OF THE ART ITA NO.909/MUM/2017 COMMTEL NETWORKS PVT LTD. 11 CUSTOMERS. TELECOMMU NICATION SYSTEM AS PER CUSTOMERS' SPECIFIC REQUIREMENTS THE CONTRACT PROVIDED THAT 10% OF THE PRICE SHALL BE PAID ON ACCEPTANCE OF THE CONTRACT AND 80% OF THE PRICE ON PRESENTATION OF THE DESPATCH OF GOODS AND THE BALANCE 10% ON RECEIPT AND ACCEPTANCE OF GOODS SUBJECT TO A PERFORMANCE AND WORKMANSHIP BANK GUARANTEE FOR THAT 10% TERMS OF CONTRACT VARIES FROM PROJECT TO PROJECT, PAYMENTS ARE MADE ON MILESTONE BASIS, BUT TYPICALLY, IN SUCH PROJECTS 10 % OF THE TOTAL CONTRACT VALUE IS EITHER ACTUALLY RETAINED UNTIL THE EXPIRY OF THE DEFECT LIABILITY PERIOD; OR ALTERNATIVELY, RELEASED ON FURNISHING IRREVOCABLE PERFORMANCE BANK GUARANTEE OF EQUIVALENT AMOUNT THAT WOULD EXPIRE AFTER DEFECT LIABILITY PERIOD. 26. WE HAD ALSO CAREFULLY GONE THROUGH THE COMPARAT IVE FEATURES BROUGHT ON RECORD BY LEARNED AR THAT IN RESPECT TO THE FACTS OF THE INSTANCE CASE VIS--VIS THE FACTS OF EMERSON NETWOR K POWER INDIA PVT. LTD., (SUPRA) AS RELIED ON BY LEARNED DR, WE ARE IN AGREEMENT THAT THE FACTS OF EMERSON NETWORK POWER INDIA PVT. LTD., (SU PRA) IS DISTINGUISHABLE. IN VIEW OF THE ABOVE DISCUSSION, W E DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DIRECTING THE AO TO TAX THE RETENTION MONEY IN THE YEAR OF ACTUAL RECEIPT AND NOT IN THE YEAR OF COMPLETION OF CONTRACT. 26. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. 6. IN VIEW OF THE MATTER AND CONSISTENT WITH THE VI EW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW THAT THE ASSES SING OFFICER ERRED IN MAKING ADDITIONS TOWARDS RETENTION MONEY DEDUCTED FROM THE TOTAL INCOME. THE LEARNED CIT(A) AFTER CONSIDERING THE RELEVANT FACTS HAS RIG HTLY DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER. WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE CIT(A) AND ARE INCLINED TO UPHOLD THE SAME AND DISMISS THE APP EAL FILED BY THE REVENUE. ITA NO.909/MUM/2017 COMMTEL NETWORKS PVT LTD. 12 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 25 TH JULY 2018. SD/- SD/- (RAVISH SOOD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED :25 TH JULY, 2018. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI