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TMI Blog2011 (12) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee on the ground that the retention money accrues only when the contract is completed to the satisfaction of the contractee as per the terms of contract Agreement. The ld. CIT(A) not appreciated the fact that when the assessee is following the Mercantile System of accounting and the amount of retention money received during the Financial Year 2003-04 relevant to the Assessment Year 2004-05 and reduced to that extent from the Loans and Advances Receivable allowing the addition made of ₹ 3,09,418/- on account of provision for doubtful debts with book profit, only relying on the decision of ITAT in the case of MSEB (77 ITJ 33), wherein the Hon'ble ITAT has stated that provision for bad and doubtful debts represents a restatement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that during the year the employer i.e., Government of India released ₹ 4,14,62,866/- against bank guarantee. The Assessing Officer has given relevant details of retention money of preceding years and assessment year under consideration in the assessment order at Page-2 in Para 4.3 as under: Particulars AY 2001-02 AY 2002-03 AY 2003-04 AY 2004-05 Opening Balance - 4,80,72,345 6,76,22,698 4,35,62,352 Add: Amount of Retention Money deducted by employer from bills 4,80,72,345 4,02,81,786 1,74,02,520 4,11,42,846 Less: Release of retention money against the Bank Guarantee - 2,07,31,433 4,14,62,866 4,14,62,866 Closing Balance 4,80,72,345 6,76,22,698 4,35,62,352 4,32,42,332 It is relevant to state t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year under consideration. Hence, this appeal by the department. 6. The learned Departmental Representative in her submission referred clauses of the agreement, which are stated by the Assessing Officer in the assessment order at Pages-2 & 3 and submitted that Government of India released 1% of the contract price out of the retention money withheld by it by furnishing bank guarantee. Since, the assessee received the amount in the assessment year under consideration, it is to be assessed in the year in which the amount has been received by the assessee as the income has accrued to it. Learned Departmental Representative submitted that the assessee has already claimed expenditure incurred in respect of contract executed and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above decision of Mumbai High Court in the Associated Cables Pvt. Ltd. (supra) was also considered by ITAT Chandigarh Bench in the Punjab Communications Ltd. vs. DCIT 87 TTJ (Chd) 440. The learned Departmental Representative submitted that in the said case the assessee received 100% of purchase price but the assessee was to give performance security to the purchaser for an amount of 5% of contract value which was in the form of bank guarantee. The assessee reduced 5% of the sale price on the ground that if there was any defect or the assessee fails to perform its obligation liability to meet out warranty obligation the purchaser was entitled to receive the money out of this bank guarantee. However, the Tribunal held that the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee could not fulfill obligations expressed in the contract, the contractee has right to recover the retention money from the bank on the basis of the bank guarantee given by assessee. The bank has also undertaken unconditionally and irrecoverably to pay the contractee on demand by invoking bank guarantee. The learned Authorized Representative further submitted that the income has accrued to the assessee in which the right to receive particular income accrued unconditionally. He submitted that this particular contract was completed in assessment year 2006-07 and assessee recognized the retention money as income in assessment year 2006-07 and submitted that the said facts have also been considered by learned CIT(A) in Para 3.3 (ii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows: "……As the performance guarantee remains and is enforceable without notice to the assessee, the income from the retention money cannot be recognized. Consequently, I have to agree with the learned Accountant Member that the retention money of 10% has to be excluded in computing the total income until the period of guarantee is over." We observe that the Hon'ble Jurisdictional High Court in the subsequent assessment year of same assessee considered the above decision of ITAT and affirmed the said decision. It was held that retention money withheld by the contractee pending completion of contract work does not accrue to the assessee/contractor in the year in which the amount is retained. We also observe that simil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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