THE COMMISSIONER OF INCOME TAX(CENTRAL) V. M.S.CHANDRAGIRI CONSTRUCTION CO.LTD,

ITA/243/2012

AI Insights

The case involves multiple appeals by the Commissioner of Income Tax (Central), Cochin, against M/s. Chandragiri Construction Co., concerning various assessment years. The primary issues revolved around the assessment of agricultural income, the treatment of retention amounts under contracts, and the applicability of penalties under Section 271(1)(c) of the Income Tax Act. The Tribunal's earlier decisions and the Settlement Commission's order played a crucial role in determining the outcomes of these appeals. The High Court's decision emphasized the need to adhere to the Settlement Commission's findings unless they are set aside, and clarified the legal interpretations concerning the accrual of income and the timing of tax liabilities.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 736168 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 13-03-2019
• Assessment Year: misc
• Other Referred Cases: Janatha Contract Company v. CIT, East Coast Construction (India) Ltd v. CIT, CIT v. Ignifluid Boilers (I) Ltd, CIT v. P&C Constructions (P) Ltd
• Laws Referred To: Income Tax Act, 1962
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: ANIL NAIR; O A NURIYA; ROSIE JOSEPH; R SREEJITH
• Assessee Lawyers: P K MENON; JOSE JOSEPH
• Keywords: Agricultural income; Assessment Year; Income tax appeal; Penalty Imposition; Settlement commission
• Section: 143(3); 263; 271(1)(c)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 192 of 2012 THE ORDER IN ITA 832/2008 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 29-02-2012 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX (CENTRAL), COCHIN. BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: M/S. CHANDRAGIRI CONSTRUCTION CO. THEKKIL P.O., KASARAGOD.PIN-671545. BY ADVS. SRI.ANIL D. NAIR SMT.O.A.NURIYA SMT.ROSIE ATHULYA JOSEPH SRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.134/12 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -2- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 134 of 2012 THE ORDER IN ITA 857/2008 of I.T.A.TRIBUNAL, COCHIN BENCH, DATED 29-02-2012 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX (CENTRAL) COCHIN BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: M/S. CHANDRAGIRI CONSTRUCTION CO. THEKKIL P.O., KASARAGOD. BY ADVS. SRI.ANIL D. NAIR SMT.O.A.NURIYA SMT.ROSIE ATHULYA JOSEPH SRI.R.SREEJITH OTHER PRESENT: SRI JOSE JOSEPH SC THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -3- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 139 of 2012 THE ORDER IN ITA 681/2008 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 29-02-2012 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX (CENTRAL), COCHIN. BY ADVS. SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: M/S. CHANDRAGIRI CONSTRUCTION CO., THEKKIL P.O., KASARGOD-673001. BY ADVS. SRI.ANIL D. NAIR SMT.O.A.NURIYA SMT.ROSIE ATHULYA JOSEPH SRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -4- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 243 of 2012 THE ORDER IN ITA 861/2008 of I.T.A.TRIBUNAL, COCHIN BENCH DATED 29-02-2012 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX(CENTRAL) COCHIN. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: M.S.CHANDRAGIRI CONSTRUCTION CO.LTD, THEKKIL P.O., KASARAGOD. BY ADVS. SMT.NIVEDITA A.KAMATH SMT.C.S.SULEKHA BEEVI SMT.ROSIE ATHULYA JOSEPH SRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -5- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 202 of 2012 AGAINST THE ORDER IN ITA 643/2010 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 27.4.2012 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX (CENTRAL), COCHIN BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S CHANDRAGIRI CONSTRUCTION CO, THEKKIL P.O., KASARAGOD. M/S CHANDRAGIRI CONSTRUCTION CO, THEKKIL P.O., KASARAGOD.PIN 671545. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -6- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 8 of 2013 THE ORDER IN ITA 660/2010 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 27-04-2012 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX (CENTRAL), COCHIN BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.CHANDRAGIRI CONSTRUCTION CO., THEKKIL P.O., KASARAGOD,PIN-671541. BY ADVS. SRI.ANIL D. NAIR SMT.NIVEDITA A.KAMATH SMT.O.A.NURIYA SMT.ROSIE ATHULYA JOSEPH SRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -7- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 231 of 2013 THE ORDERIN ITA 107/2010 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 12-03-2013 APPELLANT/S: THE COMMISSIONER OF INCOME TAX (CENTRAL) COCHIN. BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.CHANDRAGIRI CONSTRUCTION CO. THEKKIL.P.O., KASARAGODE-671545. BY ADVS. SRI.ANIL D. NAIR SMT.C.S.SULEKHA BEEVI SMT.NIVEDITA A.KAMATH SMT.T.S.VIKEESHA SRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -8- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 132 of 2014 THE ORDER IN ITA 470/2013 of I.T.A.TRIBUNAL, COCHIN BENCH DATED 13-12-2013 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX (CENTRAL) COCHIN. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S. CHANDRAGIRI CONSTRUCTION THEKKIL P.O., KASARAGOD. BY ADVS. SRI.ANIL D. NAIR KUM.SOUMYA PRAKASH SMT.C.S.SULEKHA BEEVI SRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -9- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 88 of 2014 THE ORDER IN ITA 428/2013 of I.T.A. TRIBUNAL, COCHIN BENCH DATED 13-12-2013 APPELLANT/S: THE COMMISSIONER OF INCOME TAX(CENTRAL) COCHIN BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S. CHANDRAGIRI CONSTRUCTION CO, THEKKIL P.O., KASARGODE BY ADVS. SRI.ANIL D. NAIR KUM.SOUMYA PRAKASH SMT.C.S.SULEKHA BEEVI SRI.JOSE JOSEPH (CHEMPLAYIL) SRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -10- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 61 of 2015 THE ORDER IN ITA 260/2012 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 19-09-2014 APPELLANT/APPELLANT: CHANDRAGIRI CONSTRUCTION CO P.O.THEKKIL, KASARAGOD. BY ADVS. SRI.ANIL D. NAIR KUM.SOUMYA PRAKASH SMT.C.S.SULEKHA BEEVI SMT.ROSIE ATHULYA JOSEPH SRI.R.SREEJITH RESPONDENT/RESPONDENT: THE DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE I,CALICUT. BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.P.K.R.MENON, SR.COUNSEL GOI TAXES THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -11- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 62 of 2015 THE ORDER IN ITA 261/2012 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT: CHANDRAGIRI CONSTRUCTION CO. P.O.THEKKIL, KASARAGOD BY ADVS. SRI.ANIL D. NAIR KUM.SOUMYA PRAKASH SMT.C.S.SULEKHA BEEVI SMT.ROSIE ATHULYA JOSEPH SRI.R.SREEJITH RESPONDENT/S: THE DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE I, CALICUT. BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.P.K.R.MENON, SR.COUNSEL GOITAXES THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -12- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 63 of 2015 THE ORDER IN ITA 569/2010 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 19-09-2014 APPELLANT/S: CHANDRAGIRI CONSTRUCTION CO. P.O. THEKKIL, KASARAGOD. BY ADVS. SRI.ANIL D. NAIR KUM.SOUMYA PRAKASH SMT.C.S.SULEKHA BEEVI SMT.ROSIE ATHULYA JOSEPH SRI.R.SREEJITH RESPONDENT/S: THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE I, CALICUT. BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.P.K.R.MENON, SR.COUNSEL GOITAXES THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -13- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 70 of 2015 THE ORDER IN ITA 262/2012 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 19-09-2014 APPELLANT/APPELLANT: CHANDRAGIRI CONSTRUCTION CO. P.O.THEKKIL, KASARAGOD. BY ADVS. SRI.ANIL D. NAIR KUM.SOUMYA PRAKASH SMT.C.S.SULEKHA BEEVI SMT.ROSIE ATHULYA JOSEPH SRI.R.SREEJITH RESPONDENT/RESPONDENT: THE DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE I, CALICUT. BY ADVS. SRI.CHRISTOPHER ABRAHAM INCOME TAX DEPARTMENT SRI.K.M.V.PANDALAI INCOME TAX DEPARTMENT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019, ALONG WITH ITA.192/2012 & CON.CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.192/12 & con.cases -14- ITA Nos.192, 134, 139, 243 & 202/2012, 8 & 231/2013, 132 & 88 /2014, 61, 62, 63 & 70/2015 JUDGMENT K.Vinod Chandran, J. The above appeals are filed by the Revenue and the assessee. The Revenues appeal arise from the assessment orders and the assessees appeal from imposition of penalty. We would first deal with the assessment appeals, some of which arise from a common order of the Tribunal, which deals with different issues, one of which is common in almost all the appeals. We, hence, proceed to dispose of the appeals in the following order. 2. ITA No.192 of 2012 arises from the assessment year ('AY' for brevity) 2003-04 under Section 143(3) of the Income Tax Act, 1962. Later, the Commissioner, under Section 263, suo motu revised the same and issued some directions, which was considered and additions made by the Assessing Officer ('AO' for brevity). ITA No. 134 of 2012 ITA Nos.192/12 & con.cases -15- arises from the order of the Tribunal from the assessment made under Section 143 (3) r/w Section 263. ITA Nos.139 and 243 of 2012 arise from the AYs 2004-05 and 2005-06. ITA No. 192/2012 3. The only issue arising in the appeal from the original AY 2003-04 is the agricultural income disallowed by the AO. The assesseee declared an agricultural income of Rs.24,98,737/-. However, there was no evidence produced in respect of the yield, sale amount, expenses etc. The AO, hence, allowed the agricultural income only to the extent of Rs.5,00,000/-. The balance Rs.19,98,737/- was treated as income from other sources. In First Appeal, the Commissioner of Appeals accepted Rs.10,00,000/- as agricultural income and the balance as income from other sources. There was a remand made by the Tribunal to the First Appellate Authority. The CIT (Appeals) on remand, by Annexure B order relied on the order of the Settlement Commission which considered a ITA Nos.192/12 & con.cases -16- block assessment, the last year of which was AY 2001-02. The Settlement Commission had permitted capitalisation of Rs.89,12,515/-. The amount disallowed as agricultural income coming to Rs.14,98,737/- was allowed to be adjusted against the accepted cash balance as on 31.3.2001; as allowed by the Settlement Commission. The matter went again before the Tribunal and by the common order, a decision was rendered by one of the members (the Accountant Member). The Judicial Member, however, dissented from the same and followed the findings of the Tribunal in an earlier appeal of the Department as against the very same assessee for the AY 2002-03 in I.T.A.No.831/Cochin/2008. The Third Member agreed with the judicial member and found that the order of the Settlement Commission created certain consequences with respect to the subsequent years also, which has to be adhered to in making assessments for the subsequent years. 4. It is submitted by the learned Standing Counsel for ITA Nos.192/12 & con.cases -17- the Government of India (Taxes) that the Revenue has filed an application to declare the order of the Settlement Commission void, before the Commission itself, on grounds of fraud and misrepresentation and the same is still pending. 5. In the above circumstances, it can only be said that the issue would be regulated by the finding of the Settlement Commission. If the Settlement Commission's order is sustained, we find no reason to defer from the order of the Tribunal which confirmed the First Appellate Authority's order. However, if the Settlement Commission declares its own order to be void on grounds of fraud and misrepresentation, necessarily, the amount of Rs.14,98,737/-, which is allowed to be adjusted against the accepted cash balance as on 31.3.2001, would have to be treated as income from other sources, since no evidence is forthcoming as to the agricultural income derived by the asessee and then the CIT Appeal's order dis-allowing 90% would have to be sustained. ITA Nos.192/12 & con.cases -18- In that context no question of law arises in the year since the issue would be reduced to one of estimation. The question raised hence is answered in the said manner and ITA No.192 of 2012 is disposed of. If the Settlement Commission's order is set aside, then, necessarily, the assessee shall satisfy the demand of the AO, as modified by the CIT (A). ITA Nos.134, 139 & 243 of 2012 6. Herein, the issue arising are common in nature. The questions of law refer to the aspect of retention amounts being directed to be treated as amounts accrued on the completion of the contract by the AO; as upheld by the Accountant Member, revising the order of the CIT (Appeals). The Judicial Member and the Third Member, however, followed the order of the Tribunal itself in the case of the assessee in ITA No.831/Cochin/2008. Yet another issue which arose was with respect to the work-in-progress and the bills receivable, which we find from the assessment order and the appellate orders, are with respect to specific amounts sought ITA Nos.192/12 & con.cases -19- for deduction by the assessee and added on by the AO. The issue is on facts and the same has been remanded by the Accountant Member to the AO. However, the Judicial Member dissented on the question of the bills receivable, since the same has also been decided in ITA No.831/Cochin/2008. The Third Member concurred with the Judicial Member. The remand hence does not survive. The questions of law thus arising in the appeals are re-framed as follows: (i) Whether the retention amounts retained by the awarder under the terms of a contract are to be treated as accrued in the year of completion of the contract and offered for taxation by the assessee, especially, since the assessee had been following the Mercantile System of accounting? (ii) Whether the additions made on the basis of the work-in-progress and the bills receivable should follow the order of the Settlement Commission or not? ITA Nos.192/12 & con.cases -20- 7. On the first issue (i), we notice that the Tribunal members deferred, but, however, the same was not decided on the basis of the decision of the Settlement Commission. The Tribunal, by majority, followed its own order in the case of the assessee for the AY 2002-03 in ITA No.831/Cochin/2008. 8. The Accountant Member who was one of the members deciding the question in the AY 2002-03, however, deferred, which practice, we deprecate, since if at all there was a difference of opinion from the earlier order, it was appropriate that it be referred to a Larger Bench. In any event, the Third Member to whom the issue was referred, concurred with the Judicial Member, who followed the earlier verdict of the Tribunal itself. Earlier order of the Tribunal, though challenged before this Court, was withdrawn on the basis of litigation policy. Hence, the question is left open. 9. We see from the records and also a specimen contract produced before the Tribunal that there is a defect ITA Nos.192/12 & con.cases -21- liability period which is reckoned from the completion date for which period the awarder retains certain amounts for the purpose of ensuring that there arises no defect in the work executed by the awardee. In the earlier order, for the AY 2002-03, the Tribunal had relied on M/s.Janatha Contract Company v. CIT [105 (1) ITR 627] (Ker.), East Coast Construction (India) Ltd v. CIT [283 ITR 297 (Mad.), CIT v. Ignifluid Boilers (I) Ltd [283 ITR 295] (Mad.) and CIT v. P&C Constructions (P) Ltd [318 ITR 113) (Mad.), to find that the assessee on completion of contract would not have any right to receive the money as per the specific terms enabling retention of a percentage of the contract amount with the awarder. The Accountant Member has taken a different opinion on the premise that there is an accrual of the amounts on completion of the contract itself. The Accountant Member further observed that the mere fact that the amounts were kept apart for the purpose of curing any defects that may later ITA Nos.192/12 & con.cases -22- occur in the work, cannot be permitted to be exempted from taxation, especially when the assessee is following the mercantile system. 10. We perfectly agree with the findings of the Accountant Member that 'accrual' and 'receipt' are two independent incidents, and their matching or correspondence in time in a given case, if so occurring, is purely a matter of coincidence, both immaterial and irrelevant for the purpose of determining the fact of accrual, which has to be on its own terms. However, even applying the said principle to the present facts, we do not think that there was any accrual on the completion of contract. The specific terms of the agreement provided that the amounts due to the awardee would be retained after completion for a specific period to ensure that if defects arise in the work executed, the same is rectified with the retained amounts which would also be the responsibility of the awardee to rectify as per the specific terms. Hence, the ITA Nos.192/12 & con.cases -23- amounts are not set apart by the assessee for an apprehended defect. By the specific terms of the contract itself, the awarder is entitled to retain the said amounts so as to rectify any defects arising in the period in which as per the terms of the contract the amount is retained. There can be no accrual found on the completion of contract, since the assessee's right to such amount would depend on there being no defects arising in the subsequent period during which the awarder is enabled retention of such amounts. The accrual if at all happens, occurs only on completion of the retention period. We hence answer the first question of law against the Revenue and in favour of the assessee. 11. As to the work-in-progress and the bills receivable, the Accountant Member had remanded most of the issues for consideration before the AO. The Judicial Member and the Third Member, however, deferred since there were certain consequences arising from the order of the Settlement ITA Nos.192/12 & con.cases -24- Commission. Even de hors the Settlement Commission's order, we find that the order of the Accountant Member was only on the various adjustments made. There arises no question of law and the issues revolve around facts. The consequence arising from the order of the Settlement Commission as recognised by the Judicial Member and the Third Member, necessarily has to be accepted by the Department in making assessments for the subsequent years, subject, however, to the Settlement Commission's order being sustained. As of now, we would not express anything on that, since the issue is pending before the Settlement Commission itself and is not agitated before us. We, however, answer the question of law framed by us in favour of the assessee and against the Revenue. If at all the order of the Settlement Commission is set aside, then on this question, the Revenue could file an application before the Tribunal for restoring the appeal to consider questions afresh. Be that as it may, the Settlement Commission's order in existence for the time being has to be ITA Nos.192/12 & con.cases -25- reckoned by the department in making the assessments for the subsequent years. We, hence, reject the appeals of the Revenue, answering the questions of law in favour of the assessee and against the Revenue, subject to the reservation of the right of the Revenue to approach the Tribunal to consider the matter afresh if the Settlement Commissions order is set at naught. I.T.A.Nos. 202 of 2012, 8 of 2013, 231 of 2013 & 132 of 2014 12. The questions arising in all the above appeals are as in the cases dealt with together. The first question on retention amounts has already been answered in favour of the assessee and against the Revenue. We follow the same in the present appeals also. The second question, on the Tribunal following the Settlement Commissions order, has also been accepted by us and hence that question will also be answered in favour of the assessee and against the Revenue. We also ITA Nos.192/12 & con.cases -26- made a reservation in so far as the Revenue being permitted to move the Tribunal, if at all the Settlement Commission’s order is declared void, which we reiterate here. 13. In ITA No.8 of 2013 for the AY 2007-2008 from an order in a cross appeal, one other issue arises as to whether on the facts of the case, the Tribunal was correct in allowing loss claimed on account of termination of contract when arbitration proceedings are pending and have not become final. The assessee entered into a contract and also furnished a bank guarantee for satisfactory execution of the contract. The contract was cancelled by the awarder and the bank guarantee was encashed. An arbitration proceeding is pending between the awarder and the awardee. The Revenue claims that till the arbitration proceedings is concluded the assessee cannot claim the amount as business loss. As of now, the assessee does not have the amounts with it and the bank guarantee has been encashed and it is a loss occurred in the subject year. If at all in conclusion of the arbitration ITA Nos.192/12 & con.cases -27- proceedings, the assessee receives any amount it could be adjusted in the loss of that year. Hence, we answer the said question of law in favour of the assessee and against the Revenue and uphold the allowance of loss made by the Tribunal. We reject the above appeals also with the reservation as above. I.T.A.No.88 of 2014 14. For the AY 2008-2009 there is one other issue raised, of modification made on the disallowance of expenditure. The AO disallowed 5% of the expenditure. While the CIT (Appeals), following the order of the Tribunal for the earlier assessment year in the case of the assessee itself, confined the disallowance to 1%. The Tribunal confirmed the same. We do not find any reason to interfere with that since it gives rise to no question of law. I.T.A.Nos.61, 62, 63 & 70 of 2015 15. These are all appeals filed by the assessee against the order of the Tribunal, affirming the penalty imposed ITA Nos.192/12 & con.cases -28- under Section 271(1)(c) of the Act. The imposition of penalty relates to AY's 2002-03 to 2005-06. We notice that penalty has been imposed under Section 271(1)(c) on the additions made by the AO; both on retention of amounts as also work in progress and bills receivables. The appeals before the Tribunal had been concluded, rejecting the claim of the Revenue and accepting that of the assessee as to the consequential effect of the order of the Settlement Commission. We have upheld the orders of the Tribunal with a reservation as to the consequence of the Settlement Commission's order being declared void. We were of the opinion that if the Settlement Commission's order is sustained, then the consequence flowing from that order for the subsequent years has to be accepted by the Department. In such circumstance, no penalty can be imposed on the assessee for reason of there being no addition possible. Hence, the orders of penalty are to be set aside. We set aside the orders issued by the lower authorities, answering the ITA Nos.192/12 & con.cases -29- question of law in favour of the assessee and against the Revenue. However, we make a reservation, different from that made in the quantum appeals, that if at all the Settlement Commission's order is declared void, then necessarily the penalty imposed under Section 271(1)(c) have to be reconsidered by the AO, on the basis of the additions sustained. However, the issue of retention amount being taxed in the year of completion of contract has been held in favour of the assessee by us, independent of the order of the Settlement Commission, which portion would have to be, even then reduced. With the above observations, the appeals are allowed. Sd/- K.VINOD CHANDRAN JUDGE Sd/- V.G.ARUN JUDGE scl/cms/vku ITA Nos.192/12 & con.cases -30- APPENDIX OF ITA 192/2012 PETITIONER'S/S EXHIBITS: ANNEXURE-A TRUE COPY OF THE ORDER U/S 143(3) OF THE ASSESSING OFFICER DATED 23/3/2006 ANNEXURE-B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) DATED 18/4/2008 ANNEXURE-C COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 29/2/2012 APPENDIX OF ITA 134/2012 PETITIONER'S/S EXHIBITS: ANNEXURE A COPY OF ORDER U/S. 143(3) OF THE ASSESSING OFFICER DATED 23/03/2006. ANNEXURE B TRUE COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 10/07/2006. ANNEXURE C TRUE COPY OF THE ORDER OF ITAT DATED 09/08/2007. ANNEXURE D TRUE COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 18/04/2008. ANNEXURE E TRUE COPY OF ORDER OF THE SETTLEMENT COMMISSION DATED 12/03/2008. ANNEXURE E1 APPLICATION FILED BY THE REVENUE BEFORE THE SETTLEMENT COMMISSION DATED 19/05/2009. ANNEXURE E2 SETTLEMENT COMMISSION'S SHOW CAUSE NOTICE DATED 08/02/2010 ADDRESSED TO ITA Nos.192/12 & con.cases -31- THE ASSESSEE. ANNEXURE F TRUE COPY OF ORDER OF THE HON'BLE MADRAS HIGH COURT DATED 16/03/2011. ANNEXURE F1 TRUE COPY OF THE HON'BLE HIGH COURT OF JUDICATURE AT MADRAS DATED 14/06/2011. ANNEXURE G TRUE COPY OF ORDER U/S. 263 OF THE COMMISSIONER OF INCOME TAX (GENERAL) DATED 05/03/2007. ANNEXURE H TRUE COPY OF ORDER U/S. 143(3) RWS 263 OF THE ASSESSING OFFICER DATED 30/11/2007. ANNEXURE I TRUE COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AGAINST THE ORDER U/S. 143(3) RWS 263 DATED 21/05/2008. ANNEXURE J1 TRUE COPY OF ORDER OF THE ACCOUNTANT MEMBER OF THE ITAT DATED 16/05/2011. ANNEXURE J2 TRUE COPY OF ORDER OF THE JUDICIAL MEMBER OF THE ITAT DATED 27/07/2011. ANNEXURE K1 TRUE COPY OF REFERENCE ORDER OF THE ACCOUNTANT MEMBER OF THE ITAT DATED 08/08/2011. ANNEXURE K2 TRUE COPY OF ORDER OF THE JUDICIAL MEMBER OF THE ITAT DATED 27/07/2011. ANNEXURE L TRUE COPY OF ORDER OF THIRD MEMBER OF THE ITAT DATED FEBRUARY 2012. ANNEXURE M TRUE COPY OF ORDER OF THE ITAT GIVING EFFECT TO THE ORDER OF THIRD MEMBER DATED 29/02/2012. ITA Nos.192/12 & con.cases -32- APPENDIX OF ITA 139/2012 PETITIONER'S/S EXHIBITS: ANNEXURE A COPY OF ORDER U/S. 143(3) OF THE ASSESSING OFFICER DATED 29/12/2006. ANNEXURE B TRUE COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 14/02/2008. ANNEXURE C TRUE COPY OF ORDER OF ITAT DATED 29/02/2012. APPENDIX OF ITA 243/2012 PETITIONER'S/S EXHIBITS: ANNEXURE-A TRUE COPY OF THE ORDER U/S 143(3) OF THE ASSESSING OFFICER DATED 19/12/2007 ANNEXURE-B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) DATED 22/5/2008 ANNEXURE-C TRUE COPY OF THE ORDER OF ITAT DATED 29/2/2012. APPENDIX OF ITA 202/2012 PETITIONER'S/S EXHIBITS: ANNEXURE -A TRUE COPY OF THE ORDER I/S 143(3) OF THE ASSESSING OFFICER DATED 31/12/2009. ANNEXURE-B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) DATED 27/9/2010 ANNEXURE-C COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN ITA NO. 643/COCH/2010 DATED 27/4/2012 . ITA Nos.192/12 & con.cases -33- APPENDIX OF ITA 8/2013 PETITIONER'S/S EXHIBITS: ANNEXURE A COPY OF ORDER i/S. 143(3) OF THE ASSESSING OFFICER DATED 31/12/2009. ANNEXURE B TRUE COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 27/09/2010. ANNEXURE C COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.660/COCH/2010 DATED 27/04/2012. APPENDIX OF ITA 231/2013 PETITIONER'S/S EXHIBITS: ANNEXURE A COPY OF ORDER U/S. 143(3) DATED 29/12/2008. ANNEXURE B TRUE COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, KOCHI, DATED 30/11/2009. ANNEXURE C TRUE COPY OF ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 12/03/2013. APPENDIX OF ITA 132/2014 ITA Nos.192/12 & con.cases -34- PETITIONER'S/S EXHIBITS: ANNEXURE-A TRUE COPY OF ORDER U/S.143(3) OF THE ASSESSING OFFICER DATED 21.12.2011. ANNEXURE-B TRUE COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 27.3.2013. ANNEXURE-C TRUE COPY OF ORDER OF THE APPELLATE TRIBUNAL DATED 13.12.2013. ANNEXURE-D COPY OF RELEVANT EXTRACT OF AS-7 APPENDIX OF ITA 88/2014 PETITIONER'S/S EXHIBITS: ANNEXURE A COPY OF ORDER U/S. 143(3) OF THE ASSESSING OFFICER DATED 21/12/2011. ANNEXURE B TRUE COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 27/03/2013. ANNEXURE C TRUE COPY OF ORDER OF THE APPELLATE TRIBUNAL DATED 13/12/2013. ANNEXURE D COPY OF RELEVANT EXTRACT OF AS 7. APPENDIX OF ITA 61/2015 PETITIONER'S/S EXHIBITS: ITA Nos.192/12 & con.cases -35- ANNEXURE-A TRUE COPY OF THE PENALTY ORDER DATED 31/3/2010 FOR THE A.Y.2002-03 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX. ANNEXURE-B TRUE COPY OF THE ORDER DATED 27/7/2012 PASSED BY COMMISSIONER OF INCOME TAX (APPEALS-I). ANNEXURE-C TRUE COPY OF THE ORDER ITA NO. 260/COCH/2012, DATED 19/9/2014 PASSED BY THE ITAT, COCHIN. ANNEXURE-D TRUE COPY OF THE ARGUMENT NOTE DATED 3/6/2013 FILED BY THE APPELLANTS COUNSEL FILED BEFORE THE ITAT, COCHIN. APPENDIX OF ITA 62/2015 PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE PENALTY ORDER DATED 31/03/2010 FOR THE A.Y. 2003-04 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX. ANNEXURE B TRUE COPY OF THE ORDER DATED 31/07/2012 PASSED BY COMMISSIONER OF INCOME TAX (APPEALS-I). ANNEXURE C TRUE COPY OF THE ORDER ITA NO.261/COCH/2012 DATED 19/09/2014 PASSED BY THE ITAT, COCHIN. ANNEXURE D TRUE COPY OF THE ARGUMENT NOTE DATED 03/06/2013 FILED BY THE APPELLANT'S COUNSEL FILED BEFORE THE ITAT, COCHIN. APPENDIX OF ITA 63/2015 PETITIONER'S/S EXHIBITS: ITA Nos.192/12 & con.cases -36- ANNEXURE A TRUE COPY OF THE PENALTY ORDER DATED 31/03/2009 FOR THE A.Y.2004-05 ISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX. ANNEXURE B TRUE COPY OF THE ORDER DATED 16/08/2010 PASSED BY COMMISSIONER OF INCOME TAX (APPEALS-I). ANNEXURE C TRUE COPY OF THE ORDER ITA NO.569/COCH/2010 DATED 19/09/2014 PASSED BY THE ITAT, COCHIN. ANNEXURE D TRUE COPY OF THE ARGUMENT NOTE DATED 03/06/2013 FILED BY THE APPELLANT'S COUNSEL FILED BEFORE THE ITAT, COCHIN. APPENDIX OF ITA 70/2015 PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE PENALTY ORDER DATED 31/03/2010 FOR THE A.Y. 2005-06 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX. ANNEXURE B TRUE COPY OF THE ORDER DATED 31/07/2012 PASSED BY COMMISSIONER OF INCOME TAX (APPEALS-I). ANNEXURE C TRUE COPY OF THE ORDER ITA NO.262/COCH/2012 DATED 19/09/2014 PASSED BY THE ITAT, COCHIN. ANNEXURE D TRUE COPY OF THE ARGUMENT NOTE DATED 03/06/2013 FILED BY THE APPELLANT'S COUNSEL FILED BEFORE THE ITAT, COCHIN. "