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2019 (3) TMI 1556 - HC - Income TaxAgricultural income disallowance - no evidence produced in respect of the yield, sale amount, expenses etc. - amount disallowed as agricultural income was allowed to be adjusted against the accepted cash balance as allowed by the Settlement Commission - HELD 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. If the Settlement Commission declares its own order to be void on grounds of fraud and misrepresentation, necessarily, the amount 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 assessee and then the CIT Appeal's order dis-allowing 90% would have to be sustained. In that context no question of law arises in the year since the issue would be reduced to one of estimation. Accrual of income - after defect liability period or contract completion date - HELD THAT:- 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. The 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. Disallowance regarding work-in-progress and the bills receivable - HELD THAT:- 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 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. 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. Allowance of loss claimed on account of termination of contract when arbitration proceedings are pending and have not become final - HELD THAT:- 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. 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 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 Disallowance of 5% of the expenditure - HELD THAT:- 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. Penalty u/s 271(1)(c) - HELD 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 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.
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