TMI Blog2020 (6) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... contractees. In such a scenario, merely because the assessee had booked the income in this year without actual receipt of it, cannot be chargeable to tax as per the Act. The reasons given by the AO to disallow the claim of the assessee cannot be sustained and was rightly repelled by the Ld. CIT(A) whose view to accept the claim of assessee is based on the accepted judicial precedents laid down by the Hon ble jurisdictional High Court in CIT Vs. Simplex Concrete Piles [ 1988 (12) TMI 52 - CALCUTTA HIGH COURT] ; Hon ble Gujarat High Court in Anup Engineering Ltd. [ 2000 (7) TMI 17 - GUJARAT HIGH COURT] ; Hon ble Bombay High court in CIT Vs. Associated Cables P. Ld. [ 2006 (8) TMI 135 - BOMBAY HIGH COURT] and in CIT Vs. Ignifluid Boilers (I) Ltd. [ 2006 (1) TMI 76 - MADRAS HIGH COURT] . We hold that in the factual circumstances especially as per the terms of contract between the assessee and the contractee, the retention money retained by the contractee is deferred payment and is contingent upon satisfactory completion of contract work. Right to receive the retention money is accrued only after the obligations under the contract are fulfilled and the assessee had no vested right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce from our part and, therefore, we dismiss this ground of appeal of the revenue. 3. Coming to the action of the Ld. CIT(A) in deleting the addition of ₹ 142.53 cr. the retention money which was added by the AO under the normal computation of income, the AO noted that the assessee had filed its original return of income on 29.11.2014 showing total income of ₹ 194,46,16,540/-. Later the assessee s case was selected for scrutiny and notices u/s. 143(2) of the Act dated 31.08.2015 was served upon the assessee. The AO noted that the assessee thereafter assessee had filed revised income tax return on 17.03.2016 revising its income to ₹ 49,98,06,980/-. The AO taking note of this fact asked the assessee to explain as to why it has claimed such a deduction. The assessee explained that when the original return was filed on 29.11.2014 it was on the basis of profit as per the P L Account without considering the deduction made by parties (customers) on account of retention money. However, the assessee on a proper application of the legal and factual position realised that company s real income was much less than the revenue booked in the account and hence, revised return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the aspect of credit of sum in the account of the payee by the payer, the AO distinguished the case of Simplex Concrete Piles (India) and also noted that the Hon ble Calcutta High court has relied on the decision of the Hon ble Supreme Court in the case of Seth PushalalMansinghka P. Ltd. Vs. CIT (1967) 66 ITR 159 wherein the meaning of the word accrue was considered by the Hon ble Apex court and according to AO, the decision rendered in Simplex Concrete Piles (India) (Supra) was the outcome of the interpretation given by the Hon ble Apex court in the case of Seth PushalalMansinghka P. Ltd. (supra) in respect of the word accrue . Thereafter, the AO distinguished the case laws relied on by the assessee of the Hon ble supreme court in the case of ShoorjiVallabhadas Vs. CIT as well as the Hon ble Calcutta High court in Simplex concrete Piles (India) (supra) and held that in the case of the assessee the retention money has been deemed to accrue to the assessee once TDS has been deducted and once the credit of TDS has been claimed by the assessee it may be safely deduced that upon such transaction, income has resulted and is clearly identified and quantified. According to AO, any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. 6. Thereafter the ld. CIT, DR contended that the provisions of section 194C apply at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by Issue of a cheque or draft or by any other mode, whichever is earlier. Moreover it is also clearly mandated that where any sum referred to in sub-section (1) is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Thus deeming provision of Section 194C clearly states that once TDS has been deducted in accordance with provisions of Section 194C, such Income is deemed to accrue to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red a right to receive the income and, therefore, the income can be said to have acquired to have accrued to him though it may be received later on its being actually paid. Thus, according to Ld. CIT, DR, the income (retention money) has accrued to the assessee. Moreover, according to Ld. CIT, DR, the assessee has regularly adopted the mercantile system of accounting and the right of the assessee on the income arose on the date on which tax has been deducted at source by the deductor in accordance with the provision of section 194C of the Act. According to Ld. CIT, DR, the issue in this case has not been considered in the case of Simplex Concrete Piles (India) (Supra) which was relied upon by the assessee was not examined by the Hon ble Calcutta High court in the light of the provisions of section 194C of the Act and the fact that whether accrual of income arises once tax has been deducted at source and also further that if the credit of tax deducted at source has been claimed by the assessee in his return of income, then whether the income has to be correspondingly taken into account by the assessee. Therefore, according to the Ld. CIT, DR, as per the provision of section 194C and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. AR contends that all other contracts with the remaining parties have similar clause and the assessee was, therefore, neither entitled to nor could have claimed the retention money as income accrued till the entire project was commissioned. It was pointed out by the ld AR that the projects were not completed during the year but completed after financial year 2015-16. And as stated earlier, according to Ld AR, the assessee credited the amount of gross bills in the books of accounts which included the retention money and reflected as revenue from operations. As a result of the said treatment in the books of accounts, it was explained by ld AR that the revenue from operations went up by the retention amount and consequently the book profit and the normal total income. According to Ld. AR, the assessee realizing the mistake that retention money cannot be treated as income accrued till the project was completed and as such did not accrue during the assessment year in question, claimed the same before the AO by filing the revised return that the said amount of retention money should be excluded from the revenue receipts and accordingly the amount should be excluded from the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts is not decisive in determining the nature of income. According to ld. AR, the issue is no longer resintegra. Reference in this connection was invited to the following judgements: In the case of MCM Services Pvt Ltd., (ITA No. 3485/K/2011 at para 7.3 it was observed by Tribunal (Del) as under.- '' In our view for a receipt to accrue as income an accounting entry cannot be only decisive factor. If the same is not accrued it cannot be held as income only because of such entry. The retention money is contingent upon the completion and post warranty certificate from the engineer in-charge of NTPC. Neither the work was completed nor the defect liability period was over. It is also fact that subsequently dispute arose between the appellant and ITD and matter is pending before arbitrator. Thus, the fate of such retention money is hanging in balance and it did not accrue as income of the appellant. 10. The Ld. AR cited the decision in Godhra Electricity Co. Ltd. v. CIT [1997]225 ITR 7461 wherein the Hon ble Supreme Court reiterated the concept of 'real income', emphasizing that even under the mercantile system, a mere claim by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as accrued income. 7.12. Apropos the denial of claim on the ground that such claim was made in the revised return, we have no difficulty in overruling such objection of CIT(A). Firstly, it is settled law that income is not taxable only on the basis of entry or absence thereof in the books of accounts. What is essential for charging section 5 is that income should have accrued to the appellant. This is made clear by Hon'ble Supreme Court in ShoorjiVallabhdas case (supra). Secondly, the CIT(A) wrongly considered eligibility of filing revised return only in case of 'mistake apparent on record' as envisaged in sec. 154 of the Act. The person is entitled to file revised return when he discovers any omission or any wrong statement therein. Offering income which, which can be validly revised u/ s. 139(5) of the Act. 14. In the case of Kedarnath Jute Mfg Co. Ltd., reported in 82 ITR the Hon'ble Supreme Court held that passing or not passing of the entry in the books of accounts is not determinative of considering the accrual of any income or expenditure. 15. In the light of the aforesaid case laws, the Ld. AR submitted that the first contention of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the total income both under normal provisions as well as while computing the income u/s.115JB. The issue raised before the ITAT was as under.- 5. That on the facts and in the circumstances of the case Ld. ClT(Appeals) has erred in directing to exclude retention money of ₹ 28,87,72,022/ - in computing total income under normal provision as well as in computing Book Profit u/s. 115JB. The ITAT held as under.- Para 38. We have given a very careful consideration to the rival submissions. As far as the question with regard to excluding the retention money while computing the total income under the normal provisions of the Act is concerned, it is not disputed by the revenue that the sum in question is in the nature of retention money. In such circumstances, we are of the view that the retention money cannot be regarded as income of the assessee. The issue is no longer res Integra and has been concluded by the Hon'ble Calcutta High Court in case of CIT Vs. Simplex Concrete (piles) India Pvt Ltd. [179 ITR 8]. In the aforesaid decision the Hon'ble Calcutta High Court on identical facts held that having regard to the terms and conditions of the contract, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile system of accounting, the Tribunal was right in holding that the retention money in respect of the jobs completed by the assessee during the relevant previous year should not be taken into account in computing the profits and gains of the assessee's business for the assessment year 1965-66 ? The Hon'ble High Court held that 12. The payment of retention money is deferred and is contingent on the satisfactory completion of the work and removal of defects and payment of damages, if any. Till then, there is no admission of liability and no right to receive any part of the retention money accrues to the assessee. Accordingly, the Tribunal was right in directing the Income-tax Officer to examine the question of retention money from this angle and make adjustments regarding the same, if necessary. b) Similar view is taken by the Hon'ble Gujrat High Court in Anup engineering Ltd. (247 ITR 457), holding as under: Looking to the facts of the present case and in the light of the law laid down by the Supreme Court in the cases referred to hereinabove, it was very clear that unless and until a debt is created in favour of the assessee, which is due by somebody ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the amount was retained. The Income-tax Appellate Tribunal has referred to a judgment of the Tribunal in Associated Cables P. Ltd. v. Deputy ClT [1994] 206 lTR (AT) 48 (Bom.). Mr.Sathe appearing for the 'respondent has, however, drawn our attention to two judgments, viz., of the Calcutta High Court and the Madras High Court. The Calcutta High Court judgment is reported in CIT v. Simplex Concrete Piles (India) P. Ltd. 1989 179 ITR 8. A Division Bench of the Calcutta High Court in that matter has held that the payment of retention money in the case of contract is deferred and is contingent on satisfactory completion of contract work. The right to receive the retention money is accrued only after the obligations under the contract are fulfilled and, therefore, it would not amount to an income of the assessee in the year in which the amount is retained. The other judgment relied upon is in the case of CIT v. Ignifluid Boilers-(I). Ltd. reported in [2006] 283 ITR 295 (Mad.). In that judgment also, a Division Bench of the Madras High Court has held that the amount retained does not accrue to the assessee and, therefore, the assessee would not be liable. In view of what i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill accrue and credit shall be allowed in the year in which such income is accrued and taxed. Therefore, according to him it is clear from the above provision that credit should be allowed in the year in which the income relating to the TDS shall be taken into account. Therefore, the AO could have disallowed the credit for the TDS relatable to retention money during the year and such TDS was allowable in assessment years when such retention money is accrued and taxed. 21. According to ld. AR, similar issue came up for consideration before Income Tax Appellate Tribunal Delhi wherein in the case of MCM Services Pvt. Ltd., New Delhi the assessee recognised the entire gross bills in the books of accounts but claimed that retention money did not accrue to the assessee as income and claimed the same to be reduced from the income. The AO allowed the claim but the CIT(A) enhanced the income by making addition of Retention Money claimed as not accrued by assessee. The assessee filed appeal before the ITAT and the Ld. DR took the same argument that since TDS was deducted on the retention money therefore the retention money accrued during the year itself. The Tribunal dealt with the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o effect from assessment year 2017-18 wherein they have made Clarification on recognition of retention money. It has been provided that as per the generally accepted accounting practices, retention money is not required to be recorded in the books of account unless the same accrues i.e. the stipulated conditions of the contract are so accomplished. The Board took note of the various judicial precedents while deciding on the taxability of the retention money. The CBDT has now clarified that retention money, being part of contract revenue, shall be recognized as revenue subject to reasonable certainty of its ultimate collection as contained in Para 9 of ICDS III. This accounting standard is applicable from assessment year 2017-18. 22. In the light of the aforesaid case laws and submissions made, the Ld. AR prayed that the order of Ld. CIT(A) to reduce the retention money while computing the total income under normal provisions as well as u/s. 115JB of the Act while computing the books profits may be confirmed. 23. Having heard both the parties and after perusal of records, we note that the assessee had filed its original return of income on 29.11.2014 showing total income of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue booked in the account it filed a revised return on 17.03.2016 claiming deduction of the retention money which was deducted by the parties to the tune of ₹ 142.53 cr. and thus in the revised return income to the tune of ₹ 49.98 cr. was shown. This explanation of the assessee was not accepted by the AO and he disallowed the deduction claimed by the assessee in respect of retention money to the tune of ₹ 142,53,74,710/- and was added back to the income of the assessee. On appeal, the Ld. CIT(A) was pleased to allow the claim of the assessee and directed the AO to exclude the retention money from the total income. However, the Ld. CIT(A) also directed that TDS claimed by the assessee relatable to such retention money should be disallowed in this assessment year and added that it may be allowed in the year in which the assessee declares the retention money as its income. Aggrieved by the aforesaid action of the Ld. CIT(A) the revenue has preferred the appeal. We note that the assessee is in the business of supplying erection and commissioning of electricity transmission towers, line powers, sub-station etc. the assessee continued the construction job for M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money retained by the parties were disbursed to the assessee in the succeeding assessment years, and which were duly offered asincome in the assessment years 2015-16 to 2017-18 when particular projects got completed and have duly been included in the return of income during the respective assessment years from AYs 2015-16 to 2017-18 and consequently there is no revenue loss at all. However, we note that the AO has rejected the claim of the assessee on the ground that the assessee had credited the amount of gross bill in its books of account which included the retention money in the accounts as also in the P L Account and reflected the same in the original return of income filed by the assessee. The AO also noted that the assessee claimed TDS which was deducted on the gross bill and the assessee had claimed credit for TDS including the TDS of retention money during the year. Therefore, according to AO, the retention money has to be included as income accrued in this assessment year. We note that the Ld. CIT(A) has taken care of the TDS issue and the assessee has not preferred to challenge the action of Ld. CIT(A) which crystallizes. Therefore, the direction of the Ld. CIT(A) to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
