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TMI Blog2012 (5) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... r building/constructing/laying down roads, bridges, etc. 3.1 The first issue is with regard to the disallowance of the cost incurred in respect of the amount retained, termed 'retention money', from the bills for the work performed as raised by the assessee, toward any defect liability in the work, and which is to be released only later, i.e., on satisfaction of the performance guaranteed. During the course of the assessment proceedings, it was found that the assessee had, in deviation with its past practice, not credited the same to the profit and loss account for the period, and thereby returned its income for the year/s excluding the retention amount. The Assessing Officer (A.O.), accordingly, proceeded to examine the assessee's case for the non-inclusion of the same. The assessee is admittedly following mercantile system of accounting. The bills are raised only on the basis of the certified work at the contracted rates. As such, it's stating of following receipt basis for the retention money was considered unacceptable by him. Section 145 of the Act clearly mandates either cash or mercantile method, i.e., a total and not partial adherence to any one; the assessee had in fact n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit on account of the corresponding tax deducted thereon, which would, in terms of section 199, become exigible only in the year in which the said amount is brought to tax. 3.2 In appeal, the ld. CIT(A) concerned himself with the issue of whether income to the extent of the amount retained for clearance of the defect liability claims, could be said to have accrued. In light of the decisions in the case of Janatha Contract Co. v. CIT [1976] 105 ITR 627 (Ker.) and CIT v. East Coast Construction & Ind. Ltd. [2006] 283 ITR 297/[2007] 160 Taxman 399 (Mad.), he was of the view that the same is to be considered as the income of the year in which the amount/s is actually received by the contractor. Furthermore, the assessee had already included and been assessed for the retained amount on receipt basis for the following years, having been received in large measure thereat, even as about 35% (for AY 2003-04) of the retained amount was yet to be received. He, therefore, held that the retention amount could be brought to tax only in the year of receipt and hence the addition/s made by the AO toward the same was directed to be cancelled. Aggrieved, the Revenue is in appeal. 4.1 Before us, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. We shall begin with by enlisting the respective cases of the opposing sides, as discerned. 5.1 The Revenue's case is that the defect liability, against which the amount is withheld, is only a contingent liability at the relevant time, i.e., which might arise in the eventuality of detection of any defect in the work later, and not a liability in praesanti and, as such, is not admissible as a deduction under the Act where mercantile method of accounting is being followed. Further, even if considered as excludable on the ground of the income having not accrued, the corresponding cost could not be allowed on matching principles; the cost being only in relation to the income which stands not accrued yet, so that the same would have to be carried over in the balance-sheet as a current asset, and not allowed in the computation of income for the relevant year/s. 5.2 The assessee's case, on the other hand, is that income to the extent of the retained money has not accrued, and which accrues only on the release of the funds on satisfaction of the terms of the contract, and toward which it cites case law. Further, the impugned amount stands already brought to tax in the year/s of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., the same, though relevant, is not decisive of the matter. As such, while it was, and is, open to the Revenue to rely on the consistent basis adopted in the past for assessing contractual income, i.e., up to AY 2001-02, it would have to prove its case on facts where the assessee contests, contending non-accrual. In fact, we observe that the Revenue had itself assessed the income for AY 2003-04, the first of the three consecutive years in appeal, as disclosed by the assessee, i.e., by following the receipt basis for RM, and the present assessment only follows the revision of the assessment u/s 263 of the Act. It is equally incumbent on the assessee to show that its consistently followed method of accounting was not consistent with the facts, or that the facts for the relevant years are distinguishable. The primacy of the books of account, it may be appreciated, is only on the basis that they represent the true state of affairs, so that where it is not so, the reliance thereon would to that extent be misplaced [refer: Pullangade Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC)]. That is, the assessee has to make out a. prima facie case as to non-accrual of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lapse of a defined time) and Rs. 4/80 (RM) on no defect liability claim arising. While there is no uncertainty with regard to the former, the same, even if to be received after a specified time period - the credit period - the right to receive the same stands accrued. The RM, however, is subject to receipt only on satisfaction of the relevant terms of the Agreement and, thus, its accrual would have to await the satisfaction of the same. If, and to the extent, the same involves a time period, the right cannot be said to have arisen till after the completion of the said time period. As sought to be emphasized by the ld. AR during hearing, the contractor may be called upon to remove a defect, or in the event of his inability to do so, the contractee may cause the same at his end, recovering the cost from the RM. As such, there is no basis to hold that the amount of RM had accrued to the contractor on the passing of the bill. In our view, the proposition is sync with the judicially well-settled principle of accrual, and is unexceptional. 5.6 At the same time, it would be equally incorrect to say, as the assessee does, that the RM, or more appropriately, the property in the amount repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the defects notified by him during DLP have been certified. It was submitted by the Id. AR that it is the latter time period which leads to the uncertainty, inasmuch as no definite time period is specified for obtaining the said certificate. How it could be, when no time period is, as it appears, specified for the removal of the notified defect/s? Also, the same would extend only to 50% of RM, while the assessee has accounted for the whole of RM as income only on its receipt. Secondly, true, the recognition as income of the balance 50% could in practical situations extend indefinitely, but then it would have to be shown that the defects stand notified during the DLP in its respect. This is as the same would otherwise automatically accrue on the expiry of the DLP. We are, nevertheless, not issuing any final findings in the matter as, firstly, the specimen contract cannot be strictly considered as a part of the record and, secondly, the question of accrual is essentially a matter of factual determination, the onus to exhibit which, though - in each case; its method of accounting being admittedly mercantile, with relevant materials, is on the assessee. The same, nevertheless, wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the parties. In this regard, firstly, the matter in issue, i.e., the accrual of the income represented by retention money toward defect liability claims is a matter of fact, to be decided on the basis of all the relevant materials. The decision by the hon'ble jurisdictional high court in the case of Janatha Construction Co. (supra), even as pointed out by the Id. DR, is a clear authority in this regard, and that the nature of the retention money is paramount. As such, there could be no standard prescription in this regard, and the case laws by the high courts cited being on the questions of law posed before them, are largely irrelevant. The tribunal in the case of Emerson Network Power India (P.) Ltd. v. Asstt. CIT [2009] 27 SOT 593 (Mum.) on an examination of facts of the case found that the retention money could not be excluded from the purview of the income assessable for the year. All the case law relied upon by the assessee in the instant case stood also relied upon by the assessee-appellant in that case, which were found distinguishable. Our examination in the instant case leads to the finding of validity of the provision against defect liability claims qua the total amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly precluded the first appellate authority from exercising his appellate power in relation to the said issue for the said year, having the subject matter of revision by a coordinate authority. His order for the year in relation to the said issue is, therefore, without jurisdiction; the revision order being not annulled or reversed by a higher appellate authority, so that it held good. Thirdly, we may also deal with the assessee's claim of the RM as having been brought to assessment for the subsequent years of receipt, so that including the same for the current year/s would amount to double taxation. That there can be no double taxation is unexceptional. However, the pertinent question is: In which year the same is to be taxed? It is only the year to which it relates in terms of its regular method of accounting that the assessee's business income is to be subject to the charge of tax. This statement of law is equally unexceptional, apart from being borne out by the reading of the relevant sections (sections 4 & 5 r/w sections 28 and 145). Reference in this context may also be made to the decision by the apex court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44/54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B-2 (to the assessment order) and the figures per the return and the accompanying documents. The Revenue contends that no such claim was raised before the Assessing Officer and, in any case, there is contravention of rule 46A(3), with the assessee adverting to pgs. 71, 73 & 84 of its PB. 7.3 The third adjustment (vide Ground # 2.2.3 at Rs. 2,87,8345/-) is toward retention money on two projects stated to be included in Annexure B-1 (Bills Receivable). With reference to pgs. 81, 82 and 85 of its PB, it was claimed that the same could only be assessed on receipt basis, on which basis it was allowed relief by the ld. CIT(A). The Revenue's grievance qua this adjustment is the same as with respect to the retention money (refer its Gd. 2.1). 7.4 The fourth adjustment (Rs. 7,27,3,166/-) is for the difference in the profit which the Assessing Officer has deducted in computing the cost of WIP & BR, i.e., at 4%. The assessee claimed that it is the gross profit, and not the net profit, which is to be allowed, claiming the former to be at 15% (with reference to pgs. 92 & 102 of its PB), and which found acceptance by the ld. CIT(A). The Revenue contends that the depreciation and interest expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him, particularly in view of the fact that the reconciliation statement has not been prepared and vetted by the authorities below. Further, it would also have to be seen if the recoveries pertain to, in whole or in part, to the preceding years, in which case the credit would be eligible only for that year(s). Reference to the Assessing Officer and the need for the preparation of the reconciliation statement, linking, year-wise, the book and the assessed figures, cannot be over-emphasized. 8.3 The third difference is in respect of retention money. The matter would, in view of our decision in its respect, have to travel back to the AO, who shall also verify the figures, being not apparent from the Annexure B1. Reference in this regard, is drawn to para 5 of this order, particularly sub-paras 5.3 to 5.7. Further on, as the entire retention money for the year stands apparently brought to tax separately, it would need to be seen as to how this amount stood excluded, i.e., the matter requires validation on facts. Also, the assessee has not spelled out the year/s in which the same stands received, as it would be entitled to, in terms of our decision, deduction on its account for that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etion of the projects under progress (WIP). This would enable arriving at the most proximate value of profit, as also, consequently, its rate, which may then be applied to the WIP, to yield the same rate of gross profit. With these observations we remit this matter back to the file of the AO for the necessary verification and application along the lines explained. 8.5 The AO while computing the addition in respect of the understatement qua WIP & BR for the year as per Annexures B1 & B2 allowed deduction for the same to the extent it stands already brought to tax for the immediately preceding year, i.e. a.y. 2002-03, at Rs. 330.56 lakhs. The ld. CIT(A) has revised the same to Rs. 271.25 lacs, i.e., the amount as finally assessed on appeal by the first appellate authority, and for which the assessee adverts to his order dated 12-4-2008 (PB pgs. 93 - 100). The Revenue objects thereto, citing violation of r. 46A(3). We are unable to understand the said objection; the ld. CIT(A) only incorporating the revised figure for that year. Even if the same is disputed, the same would stand to be revised consequentially. We, therefore, find no merit in the Revenue's objection, even as we direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstances of the case, i.e., besides required to meet the principles of natural justice and the statutory mandate of law. We direct likewise, acceding to the Revenue's objection. 11.3 So however, before parting with the matter, we have two observations on the merits of the case, and thus, deemed relevant to state, for consideration and application in determination of the assessee's case. Firstly, the need for consistency is paramount. The assessee is, except in respect of retention money, admittedly following mercantile method of accounting. As such, the same would, irrespective of the time of receipt (of business debts), bring to credit only the incomes/debts/assets arising during the year for which the accounts are being made. All that the Hon'ble Settlement Commission ('HSC' for short) has allowed the assessee is to capitalize its unaccounted assets as on 31.3.2001 (refer para 17 of its order dated 4.3.2008/PB pgs. 1-50). Without doubt, the same, on being realized, would not lead to any taxing event, unless of course there has been an escapement of income for an earlier year, and which would require a finding to that effect. In other words, following the directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs stood credited to the P&L account. A sum of credit Rs. 127.12 lakhs stands assessed as retention money in respect of this project for the block period as per the order of the Hon'ble Settlement Commission. The amount realized therefrom during the year is at Rs. 116.66 lakhs, and which stands credited to the P&L account. In other words, the same represents realization of retention money already subject to tax for the block period and, thus, could not be subject to tax again. The ld. CIT(A) allowed the assessee relief on that basis. 13. Before us, like contentions stood raised, with the Revenue charging non-adherence to Rule 46A. The assessee, in appeal, states of no such violation as the relevant claim stood made before the AO. 14. We have heard the parties, and perused the material on record. We are inclined to be in agreement with the Revenue. The order of the HSC came to be passed only subsequently (4.3.2008), and there is no reference thereto in the assessment order. As such, the assessee's contention that the claim stood raised before the AO cannot be accepted. Further, our observations as well as the decision in respect of Ground No. 2.3 would be equally applicable for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at basis. We shall detail the adjustments directed by him, as follows: (a) The first adjustment upheld by the ld. CIT(A) is for Rs. 18,70,449/-. The assessee claimed the same on the basis of being retention money, of which Rs. 1,99,543/- stands received in the following year (A.Y. 2005-06), while the balance remains to be received. (b) The second adjustment is for Rs. 1,06,84,398/- on the basis that the assessment as made is inclusive of the value of the work-in-progress and bills receivable to this extent, duly credited to the profit and loss account, so that it is a case of double addition. (c) The third adjustment is for Rs. 65,15,396/-. The assessee accepts that these amounts remained to be disclosed by it. So however, the same were in existence as on 31.3.2003 as well, so that the same should be included also in the opening balance of WIP/BR, in which case, the net result would be nil. Further, the same stands received and offered to tax as income for AY 2005-06 for which reference is made to pages 66B & 66C of its PB. The ld. CIT(A) allowed relief, accepting the assessee's contentions. (d) The fourth adjustment is for Rs. 23,37,985/-. The same is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12/4/2008) having been passed subsequent to the assessment orders for both AYs 2003-04 and 2004-05, this aspect of the matter would arise only later, so reference to the AO for validation and confirmation was otherwise incumbent, particularly where the ld. CIT(A) has himself not undertaken any such exercise. In fact, the Revenue's specific ground # 2.3 (for AY 2003-04) only seeks to highlight this aspect of the matter. This is also, in effect, the essence of rule 46A. 18.2 Coming to the merits of the various deductions, our findings and decision qua similar issues arising in Gds. 2.2, 2.3 & 2.4 for AY 2003-04 per paras 8, 11 and 14 of this order would be equally applicable for this ground as well; the facts and circumstances; the respective cases of the parties and the arguments advanced before us, being identical. So however, we find that the Revenue does not contest the second and the fourth adjustment listed hereinabove, so that no interference qua the same at our end is called for. We are aware that the Revenue's ground # 3 as raised covers the entire relief allowed on account of the various adjustments, but then the same is only a non-specific, general ground, not projecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly. 19. Ground # 4 relates to the assessment of agriculture income, returned by the assessee for the year at Rs. 40.53 lakhs. While the AO has assessed the same at nil, the ld. CIT(A) has estimated the same at Rs. 15 lakhs on the basis of like estimate for the immediately preceding year. The AO had in fact assessed the same for the said year at Rs. 5 lakhs, and which stands confirmed by the ld. CIT(A) at Rs. 10 lakhs, revising his earlier estimate at Rs. 15 lakhs, and in line with the assessment for the assessment years 2001-02 and 2002-03. The assessee has, as in the past, accepted the estimate by the first appellate authority, and pleads the same for the current year in its defence, while the Revenue is in appeal. 20.1 The basis for the AO to deviate from the past history of accepted agriculture income by the assessee is the complete absence of any substantiation of its case in its respect for the current year. The assessee-firm owns no agriculture land. It could not produce any lease agreement/s in respect of agricultural land/s or the land/s at the dam site at which the agricultural activities were stated to be carried out. In fact, no evidence in respect of any agricult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been no rebuttal by the assessee at any stage. In fact, as it turns out, there has been no evidence of any agricultural activity after the initial years, being 1993 to 1995-96, and the assessee's claim for agricultural income stood accepted year after year only on that basis; there being no independent examination of the assessee's claim thereafter. An actual conduct of any activity would yield a variety of evidences, while here we find none, and for years together. Under the circumstances, relying only on past estimate/s would be both factually and legally untenable, and amount to committing a folly. Before us also, as aforestated, the assessee, apart from reiterating its case of like estimations in the past, furnished no materials in support of its case, which is thus de hors any evidence and based on bald assertions. Under the circumstances, we have no hesitation in confirming the Revenue's stand, setting aside the impugned order on the said ground. We decide accordingly. 21. In the result, the Revenue's appeal for AY 2004-05 (in ITA 681/Coch/2008) is partly allowed and partly allowed for statistical purposes. AY 2005-06 22. The first effective ground for this year is Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or his report, would have enabled, which we understand the issue at hand essentially as. The ld. CIT(A) has neither conducted the said verification nor consequently issued any findings qua the contrary claims, which continue to obtain. The matter is, therefore, restored back to the file of the AO for examining the assessee's claims in the matter, issuing appropriate findings on the points of differences, clearly stating how the amounts were accounted for and when released, if at all, including on the status of the corresponding TDS credit. He shall also examine the second limb of the Revenue's argument that the assessee would avail credit through enhanced value of bills receivable for the next year on merits, issuing corrective directions if found meritorious, and which would arise only as a result of absence of proper accounting. We decide accordingly. 24. The second ground ( # 2.2) is regarding retention money, which stands already decided by us vide para 5 of this order on merits. Further, the assessee before the ld. CIT(A) claimed that the same includes current year retention (Rs. 2,00,22,962/-), which forms part of the income statement for the year. Secondly, it also claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,509,735/-, the same represents the amount of addition of Rs. 2,79,135,96 for A.Y. 2004-05 that survived the first appeal, vide para 2 (pg. 12) of the appellate order dated 14.12.2008, which is the subject matter of the present appeal for that year (per Ground No. 3). The premise of the deduction, i.e., ignoring the quantification aspect, is only that there is double deduction to that extent, i.e., as being included in the assessment for both the years. The AO, while computing the addition vide para 11 (pg. 6) of his order, has given no such relief, as he does in respect of retention money (vide para 9, pg. 5) thereof. Neither is there any discussion by him in the matter, so that this issue was not raised by the assessee before him, i.e., of the same leading to a double assessment for both the current year and the immediately preceding year. Now, it is one thing that the deduction is confirmed in principle, and the first appellate authority allows the assessee relief qua the substituted figure, and quite another that there is no such deduction in the first place. The first question, therefore, that would need to be decided is with regard to its eligibility, i.e., if there is actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard the parties, and perused the material on record. We are again at a loss to understand as to why did not, if that be so, the assessee move a rectification petition u/s. 154 before the AO, time for which we observe is still available, even as it may have, exercising abundant caution, impugned the same by way of an appeal as well. This is particularly so as the 'addition' is ascribed by the assessee to its own mistake, again bearing out the absence of, and the consequent need for, a reconciliation statement. It is not a question of tallying the figures alone, but giving an opportunity for verification, which may require examination of the books of account and other accompanying documents and statements. Further, on merits, the statement of its case only implies that there has been no matching with the TDS certificates by the assessee, or even by the Revenue, which, if so, would have at once highlighted the mistake. Also relevant in the matter would be the adjustment entry passed by the assessee in its accounts on detection of the mistake, to which we find no reference by it, and the need for which, given its case, is undeniable. In fact, we find non-raising of any ground in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs available with it as on 31/3/2001. This is as if so, the capitalization in its respect stands already availed by it, and no further adjustment is permissible. Secondly, he shall also confirm if after the adjustments already allowed, some 'balance' is available, which could be allowed to be set off. Toward this we find that the assessee has already moved a rectification application before the AO (at PB pg. 83/AY 2004-05), exhibiting the availability of cash. We decide accordingly. 34. In the result, the Revenue's appeal for A.Y. 2005-06 (in ITA 861/Coch/2008) is partly allowed and partly allowed for statistical purposes. ITA 832/Coch/2008 (for AY 2003-04) 35. The only issue arising per the instant appeal relates to the estimation of the Assessee's agricultural income, which stood estimated by the Assessing Officer (AO) at Rs. 5 lakhs, as against the returned amount of Rs. 24,98,737/- by the assessee vide its return of income for the year filed on 1.3.2004. This is the second round before the Tribunal. In the first round, it (vide its order dated 9.8.2007 / copy on record) found force in the case of the Revenue that the first appellate authority had allowed relief to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the year under consideration, the entire income being sought to be adjusted against the pre-existing cash balance, admittedly arose only during the current year, i.e., after 21.6.2001. As such, the said order is not applicable on merits in the facts of the case. 37. We have heard the parties, and perused the material on record. 37.1 As would be apparent, the issue arising before us has two limbs. The first pertains to the estimation of the assessee's agricultural income and, consequently, the assessment of the balance as income from other sources, and secondly, of the adjustment of this balance against the available cash balance as at the end of the block period on the basis of the undisclosed income for the said period. Adverting to the first issue, we find force in the Revenue's case. There is no reference in the impugned order to either the terms of the remand report received from the AO or the findings thereby. In fact, it is not even clear as to what evidence/s stood considered by the AO, and what was the basis of his findings. The AO, as it appears, confirmed his earlier estimation of agricultural income at Rs. 5 lakhs. It is only where the said findings and their basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order dated 4/3/2008 by the Hon'ble Settlement Commission. Though not relevant, i.e., in view of the limited scope of the remand by the tribunal, it is not even clear if the said plea stood advanced before the AO in the remand proceedings. In fact, the assessee being not in appeal before the tribunal, which proceedings led to the remand, it could not even otherwise assume the same before it in the first instance, and therefore, in the second round, which are derived proceedings. That is, neither the scope of the original appellate proceedings nor of remand, admit of such a plea by the assessee. The same (plea), it may be noted, impacts the assessment substantively inasmuch as the non-agricultural (taxable) income for the year, assessed as from other sources, gets neutralised to that extent. The afore-referred order by the Settlement Commission for the block period ending 21/6/2001 does not contain any direction qua and, thus, does not have a direct bearing on, the disclosed incomes for the subsequent years. In this view/s of the matter, we are in agreement with the Revenue that the first appellate authority could not have admitted the assessee's said plea and adjudicated thereon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Tribunal:- (1) Whether any retention money accrued to the assessee in the relevant years under appeal? (2) Whether the bills receivables which was already decided in ITA No.831/Coch/2008 for the assessment year 2002-03 vide Tribunal's order dated 31-5-2011 will have a binding effect? (3) Whether the Tribunal has power to decide the issue in respect of the assessment years which were not before the Tribunal? Reference under section 255(4) of the Income-tax Act 1961 In Re: Chandragiri Construction Co., Kasaragod (in ITA Nos. 832, 857, 681 & 861/Coch/2008 for Asstt. Yrs. 2003-04 to 2005-06) I have carefully perused the separate order by my ld. brother in the afore-referred appeals, as also the questions on the points of difference as framed by him for reference to the hon'ble President. However, in my humble view, the said questions do not truly represent the controversy or the difference attending the separate orders by the members constituting the Bench, which I may delineate as under: (A) The order proposed by me does not determine whether the retention money under reference accrued to the assessee during the relevant year or not. It, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings by the Tribunal in the assessee's own case for AY 2002-03 per ITA No. 831/Coch/2008 dated 31/5/2011. 2 (a) Whether the issue qua the adjustment of the values of the work-in-progress and bills receivable for the several projects, as agitated by the Revenue, and particularly in view of its case before the Tribunal and the grounds raised by it, can be said to be squarely covered by the order by the Tribunal in the assessee's case for AY 2002-03 in ITA No. 831/Coch/2008? (b) Whether, in any case, the said order, particularly considering that it came into existence much after the hearing of the instant appeals, would, prior to it being so applied, be required to be put to notice, and the parties heard in the matter? 3(a) Whether the Tribunal can issue consequential direction/s for the subsequent year/s to prevent the taxation of the same income twice/again? (b) Whether, in view of its premises being only to avoid double taxation, would it matter if the subsequent years may also include years which are not under appeal before the tribunal? 4(a) Whether the grounds/issues not referred to or dealt with by the dissenting order would amount to a tacit agreement with the order ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year/s to prevent the taxation of the same income twice/again? (b) Whether in view of its premises being only to avoid double taxation, would it matter if the subsequent years may also include years which are not under appeal before the Tribunal? 4(a) Whether the grounds/issues not referred to or dealt with by the dissenting order would amount to a tacit agreement with the order thereon per the proposed order? (b) Whether, therefore, the result of the appeal/s as declared by the dissent order would be required to be modified in consistency with the decisions rendered thereby, including in respect to such grounds/issues? " 4. Since the Hon'ble President has authorized the Third Member to frame a proper point of difference to bring out the real controversy, after going through the questions framed by both the ld. Members, I am reframing the following questions: "(1) Whether the retention money is accrued in the year of retention or in the year of actual receipt of the retention amount from the contractee departments after the clearance of defect liability claims. (2) Whether the bills receivable and work in progress as decided in ITA 831/Coch/2008 for the A Y 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ambikulam Division - Pollachi Rs.l,36,10,364/-is included in the Contract receipt as per the profit and Loss Account (Paper Book Page No. 104). In respect of this work Rs. 1,27,11,627/-(Rs. 4,57,312+1,22,54,315) (Paper Book Page No.53 Item No.2 & 3) is assessed as retention amount by the Hon'ble Settlement Commission. Out of this Rs. 1,16,65,583/- is released during this assessment year. The amount released and credited to profit and loss account should be reduced from the total income since the corresponding retention amount is treated as income in the Block Assessment. The provisions of Rule 46A is not applicable since all the evidences are at the disposal of the Assessing Officer relating to the reduction given by the CIT(A). The Assessing Officer has not conceded to the assessee's request in para. 13 page 7 & 8 of the assessment order. The assessee has not produced any new evidence before the CIT(A) for which Rule 46A is applicable. The order of the Hon'ble Settlement Commission is a document which is available with the Assessing Officer who is a party to the proceedings before the Hon 'ble Income Tax Settlement Commission. (Para-4 of the order of Judicial Member dated 27.07. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss Account Rs.2,48,38,802 (ii) Retention Amount of NH Mangalore, which Is included as income in the profit and loss account in the amount of Rs.6,23,819/- - Madras-Kolar-Bangalore, NH Bangalore Rs. 2,00,000/- (iii) Retention Amount of Periyathali Sea Wall, which is included as Income In the profit and loss account Rs. 18,02,962/- (iv) Retention amount carried forward in the Balance Sheet which is not received during the year Rs. 1,56,83,174/- Total Rs.4,25,24,938/- (i) Rs.2,48,38,802/- is the current year retention amount released and taken in the Profit and Loss Account (Paper Book Page No. 58-60B) (ii) Rs. 2,00,000/- is the current year retention amount released and taken In the Profit and Loss account and included in Rs.2,48,38,802/-of above, relating the work namely "Madras-Kolar-Bangalore, under NH Division Bangalore, Karnataka, (Paper Book Page No. 60) (iii) Rs. 18,02,962/- is the current year retention amount released and taken in the Profit and Loss Account and included in Rs. 2,48,38,802/- of above, relating to the work namely "Periyathali Sea Wall", under KAB Division, Thoothukudy, Tamilnadu ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Retention Amount .... Rs.28.778,345 Rs. 36,89,057 Rs. 4,84,55,172 Less: Gross profit @ 15.01 % Rs. 72,73,166 Rs. 4,11,82,306 Less: BR&WIP added in AY 2002-03 Rs. 2,71,25,551 Balance Rs. 1,40,56,755 The difference amount of Rs. .29,45,696/- is in appeal before the Hon'ble Bench. The reasons for the differences are as under; a. In respect of the work PWD Roads, Kalpetta, Wayanad Rs. 1,08,550/- for the work namely "Mananthavady Kundothvayal" is included in the return filed by the assessee (Paper Book Page No. 78) as against this as per annexure 1 of the assessment order the Assessing Officer give reduction of Rs 1,0,850/- only (Paper Book Page No. 74) and an amount of Rs. 97,700/- (Rs.1,08,550-10,850) is again included. The double assessment is in respect of Rs.97,700/- since for Rs. 10,850/- deduction is given by the Assessing Officer. The reduction allowed by the CIT(A) should be only Rs.97,700/- as against Rs. 1,08,550/- allowed. The assessable income is to be enhanced by Rs. 10,850/- which is not considered by the CIT(A). b. Recoveries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit and Loss Account filed along with the return of income (Paper Book Page : 101-102) should not be added again which will cause a double assessment. The CIT(A) in para. 8 Page 8 the details of the addition to the Work-in-Progress and Bills Receivable as per the Block Assessment Rs. 8,04,83,460 is given. Out of this Rs. 2,61,93,756 is received credited in profit and loss account for the Asst. Year 2002-03, the balance carried forward for the AY 2003-04 is Rs. 5,42,89,704/-. During the current assessment year Rs. 1,34,33,923/- is received out of the above and included in the Bills Received. This amount received during the year should be reduced from the Total Income since the corresponding Work-in-Progress and Bills Receivable are treated as income in the Block Assessment (Unaccounted Balance Sheet as on 31.03.2001 forming part of the order of the Hon'ble Income Tax Settlement Commission (Paper book Page: 51). ITA-681/Coch/08 (Assessment year: 2004-05): Omission on account of Bills Receivable & Work in Progress Rs. 2,79,13,596 : This issue is covered in page 8 para. 3 of the assessment order. The CIT(A) order page 12 para. 19(2)(j) the omission on account of Bills Receivable & W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 but when the amount is received the amount is offered as income for the A Y :2005-06 and hence the assessment for the A Y.2004-05 is not correct. The details of Bills received for the A Y:2005-06 are given in page 66B & 66C of the paper Book. d. Rs. 23,37,985/- In respect of Karapuzha Irrigation Project, Kalpetta is already included in the Bills Received as Rs. 23,95,553/- ( Paper Book Page 66) and included as Bills received for the A Y: 2004-05. The CIT(A) allowed as per Page 10 para 19(2)( d) of the appellate order against which the revenue has not come in appeal before the Hon'ble Bench. e. Gross Profit (Grounds of appeal 3.3): This issue covers as per the Assessment Order page 8 para. 3 and CIT(A) Order Page 11 Para-19(l)(g). The Assessing Officer estimated the Gross Profit at 4 % which is on the basis of net profit after depreciation, interest and other administrative expenses. The Profit and Loss Account (paper Book Page No. 73) clearly shows the Gross Profit is 15.11 %. In respect of the A Y: 1995-96 the Gross Profit is determined at 13.79%. The assessment order AY: 1995-96 (Paper Book Page No.67-72) In page 69 of the Paper Book and page 3 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of the Contract Gross Profit @ 24.05% (Grounds of Appeal 2.3.1) This item is covered in Grounds of Appeal No.2.3 above. Grounds of Appeal 2.4 - Rs.2.50.60.960/- This issue covers in page 9 Para 6 of the order of the CIT(A). The above amount is consisting of two amounts of work-in-progress and bills receivable - (a) Rs. 1,01,59,920 and (b) Rs. 1,49,01,040 a. Rs. 1,01,59,920/-; The details of work-in-progress and bills receivable are in Paper Book Page No.68. This amount of work-in-progress is received during this year and credited to profit and loss account during this assessment year (Paper Book Page No.68). Since these amounts are already included in the work-in-progress and bills receivable as on 31.03.2001 for the purpose of Block Assessment this receipt is to be excluded from the income. b. Rs. 1,49,01,040/-: This bills receivable is included in the Annexure B of the assessment order (Paper Book Page No.69). The above bills receivable work-in-progress is already included in the work-in-progress and bills receivable as on 31.03.2001 for the Block Assessment (Paper Book Page No. 72). Hence the addition of this amount is not correct. ITA No.832/C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bench can admit additional grounds on application but additional evidence cannot be entertained without affidavit. The decision of the Hon'ble Tribunal on questions of facts is having any effect on the assessment of either earlier years or subsequent years the Assessing Officer or the appellant can take up the matters by way of rectification for any relief out of cascading effect. So it is my humble submission that decision of the Hon'ble bench should not travel beyond the contents in the ground of appeal for the concerned year of appeal. Prayer 1. The issues in the matter of retention amount are identical for the Asst. Years - 2002-03 to 2005-06. Hence the decision of the Asst. Year- 2002-03 of the co-ordinated bench in ITA-831/Coch/2008 dated- 31.05.2011 is binding. As a result the retention amount is assessable only in the year of release by the contractee departments after the clearance of defect liability claims as held by various court decisions and in ITA -831lCoch/2008 dated31.05.2011 by the co-ordinate bench. 2. The bills receivable and work-in-progress at the end of each year is to be ascertained at cost. This amount is computed after reducing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on the Hon'ble bench for the A Y's-2003-04t 2004-05 and 2005-06. 5. ITA 832/Coch /2008 - A.Y -2003-04 : The Hon'ble Settlement Commission in Its order in the block assessments has permitted capitalization of cash balance on 31.03.2001 of Rs. 89,12,515/-. This capitalization is permitted for the A Y -2002-03 and subsequent years up to the permitted amount For the AY 2002-03 Rs. 41f35J80/- is capitalized. The CIT(A) ordered in favour of capitalization as per the order of Hon'ble Settlement Commission dated 04.03.2008. The Hon'ble bench in ITA 805/Coch/2008 dated 29.01.2010 upheld the order of CIT(A). In this case it is decided that the question of violation of Rule 46A (3) is not arising since the assessing officer is a party to the proceeding and order of the Hon'ble Settlement Commission. The cash balance permitted for capitalization as on 31.03.2001 has suffered taxation at 60% u/s.113 of the Act under block assessment. Hence It is only just and proper that the appellant Is claiming capitalization in subsequent assessment years up to the level of the permitted amount. The Assessing Officer is not having any complaint that the capitalization is applied by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or assessment year 2002-03 in assessee's own case is having any binding effect on the current assessment year and whether the learned Accountant Member's order is inconsistent with the said order for assessment year 2002-03. The relevant questions are "1" and '2' above. I have gone through the order of the Division Bench for the assessment year 2002-03 in ITA No.831/Coch/2008 dated 31-5-2011. It is seen from the Tribunal's order that originally the CIT passed order u/s 263 directing the AO to re-compute income from contract business and accordingly the AO made order u/s 143(3) r.w.s.263 on 30-11-2007. Against this giving effect order, the assessee preferred appeal before the CIT(A) who allowed the assessee's appeal partly against which the department was in appeal before the Tribunal and this appeal was the subject-matter of order in ITA No.831/Coch/2008. In that appeal, the Tribunal had dealt with the issue of time of accrual of retention money as income of the assessee and bills receivable and work-in-progress. In the said order, noticeably the same constitution of the Bench (same Judicial Member and same Accountant Member), after considering the submissions of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly course left was to refer the matter to the larger bench with the concurrence of the learned Judicial Member which, in this case had not happened. Hence, I am of the view that the learned Accountant Member should have restrained from dissenting or he should have persuaded the learned Judicial Member for referring the matter to the larger Bench. For the sake of uniformity, at least, the very same Bench should have followed its own order. The Bench should not come to a conclusion contrary to the conclusion reached in the earlier order of the Tribunal. In this case, the Bench being the same, definitely contrary view should not have been taken. In this view of the matter, I totally concur with the view of the Learned Judicial Member in respect of two issues viz., accrual of retention money and bills receivable & work-in-progress. Thus, I decide the legal issue that the Bench should follow its earlier order, concurring with the learned Judicial Member. The question Nos. 1 and 2 are only academic and hence needs no decision from me since on legal issue itself I have concurred with the learned Judicial Member. 9. The only left over question 'D' is dealt with by me in the following pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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