INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH

ITA No: 2140/AHD/2011 (Assessment Year: 2008-09
Amarshiv Construction Pvt. Ltd (Appellant) vs. DCIT (Respondent)
Date of Order: 30-11-2015

ORDER

PER ANIL CHATURVEDI, ACCOUNTANT MEMBER
1. This appeal filed by the Assessee is against the order of CIT(A)-I, Baroda dated 30.06.2011 for A.Y. 2008-09.

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is a company stated to be engaged in the business of construction of Roads, Dam, Canal etc. Manufacturing and selling of Kapchi, Grit Metal etc. Assessee electronically filed its return of income for A.Y. 2008-09 on 22.09.2008 declaring total income of Rs. 65,54,580/-. Subsequently on 25.11.2008, Assessee filed revised return of income showing net taxable income of Rs. 58,84,950/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 13.12.2010 and the total income was determined at Rs. 1,20,80,470/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 30.06.2011 dismissed the appeal of the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us and has raised the following grounds:-

1. The ld. CIT(A) erred in holding that the retention money of Rs. 59,37,248/- had accrued to the appellant company during the previous year relevant to Assessment Year 2008-09.
2. The ld. CIT(A) further erred in confirming the addition of Rs. 59,37,248/- made on account of rejection of the claim of the appellant company for deduction of retention money.
3. The ld. CIT(A) erred in not giving directions to exclude these amounts offered for tax by the appellant company in preceding year.
4. The ld. CIT(A) erred in confirming the disallowance of Rs. 10,000/- being voluntary retirement expenses claimed by the appellant company.
5. The ld. CIT(A) erred in confirming addition of Rs. 2,48,269/- u/s. 40A(2)(b) of the Act.

Ground No. 1, 2 & 3 are connected and therefore considered together.

4. During the course of assessment proceedings and on perusing the computation filed by the Assessee, A.O noticed that Assessee had deducted from the profits, Rs. 59,37,248/- being the retention money/security deposits which were retained by the persons for whom the Assessee had undertaken contract work during the year. The Assessee was asked to show cause as to why the same not be considered as part of income to which Assessee interalia submitted that Assessee was not entitled to receive the retention money till satisfactory completion of work and removal of defects and further it has been following the same method of accounting in the past. The submission of the Assessee was not found acceptable to the A.O I n view of the fact that for A.Y. 92 -93 & A.Y. 93-94, the Hon’ble ITAT had decided the issue in favour of the Department and against which Assessee had preferred appeal before Hon’ble Gujarat High Court and the matter was yet to be decided by Hon’ble Gujarat High Court. He therefore following the view taken by his predecessors in earlier years rejected the claim of deduction and the amount of Rs. 59,37,248/- was added to the total income. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who decided the issue by holding as under:-

2. Ground no. 1 of appeal is that the ld. A.O erred in holding that sum of Rs. 59,37,248/- had accrued to the appellant during the year in making addition of the same to appellant’s income. Facts of the case and appellant’s submissions on this issue are identical to A.Ys. 92-93 & 93-94 in which ITAT, Ahmedabad through order dated 30.08.2003 in ITA NO. 88/Ahd/381 decided the issue against the appellant. Following the same, addition of Rs. 59,37,248/- is confirmed.

5. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us.

6. Before us, at the outset, ld. A.R. submitted that ld. CIT(A) has passed a non speaking order and had relied on the decision of ITAT in A.Y. 92-93 & 93- 94. He further submitted that against the order of Hon’ble ITAT for A.Y. 92- 93, Assessee had carried the matter before Hon’ble Gujarat High Court and the Hon’ble Gujarat High Court has decided the issue in favour of the Assessee and the aforesaid decision of Hon’ble Gujarat High Court has been followed by the Hon’ble ITAT while deciding the appeal of Assessee in A.Y. 2009-10 in Assessee’s favour. He placed on record the copy of the aforesaid order of ITAT for A.Y. 09-10 dated 30.04.2015 and pointed to the relevant findings of Tribunal and the observations of Hon’ble Gujarat High Court which have been relied by ld. ITAT. He therefore submitted that following the aforesaid orders the matter be decided in favour of the Assessee. The ld. D.R. on the other hand supported the order of A.O and ld. CIT(A).

7. We have heard the rival submissions and perused the material on record. The issue in the present case is about non considering the security deposits which are retained by the clients of Assessee, as the income of Assessee. We find that on identical facts in A.Y. 2009-2010, the Co-ordinate Bench of Tribunal while deciding the appeal in ITA No. 258/A/2013 order dated 30.04.2015 by following the decision of Hon’ble Gujarat High Court in Assessee’s own case for A.Y. 92-93, decided the issue in favour of the Assessee by holding as under:-

Assessee's appeal
24. In assessee's appeal .ground nos.1 to 3 are directed against the order of CIT(A) holding that retention money of Rs.27,81,076/- accrued to the assessee company during the previous year to A.Y. 2009-10.

25. The brief facts of the case are that the A.O. observed that the. assessee company while computing its income from business deducted an amount of Rs. 27,81,076/- from the net profit arrived at as per Profit &. Loss Account. This amount represented retention money/security deposits returned by persons for whom the assessee had undertaken contract work during the year. In reply to the show cause notice, the assessee submitted that it was engaged in the business of construction of civil works, dams, roads etc. The company had undertaken work for various government agencies who had retained security deposits with them. The amount of Rs.27,81,076/- was withheld by government agencies pending verification of satisfactory completion of work. The assessee has claimed deduction of these amounts as right to receive the said amount had not accrued to the assessee company till satisfactory completion of work and removal of defects. The assessee placed reliance on the decision of Hon'ble Calcutta High Court in the case of Commissioner of Income-Tax vs. Simplex Concrete Piles (India) P. Ltd., (1986) 179 ITR 8 The A.O did not accept the explanation of the assessee on the ground that this was a recurring issue and in A.Ys. 1992-93 and 1993-94 the Tribunal had decided the issue in favour of the Revenue and assessee's appeal before the Hon'ble High Court of Gujarat was pending adjudication.

26. On appeal, the CIT(A) confirmed the action of the A.O.

27. Before us the Authorized Representative of the assessee submitted that the Hon'ble Gujarat High Court has decided the issue in favour of the assessee in its own case for A.Y. 1992-93 which is reported at [2014] 45 taxmann.com 429 (Guj.) It was, therefore, his submission that following the same, the ground of appeal of the assessee should be allowed.

28. On the other hand, Departmental Representative fairly concede that the issue is now covered in favour of the assessee by the decision of Hon'ble Gujarat High Court in assessee's own case in the A.Y. 1992-93.

29. After considering the rival submissions and perusing material available on record, we find that it is not in dispute that the assessee had not included retention money of Rs.27,81,076/- in its income on the ground that the money will be received after satisfactory completion of work and removal of defects. Till that time the right to receive the amount did not accrue to the assessee. We find that the Hon'ble High Court of Gujarat in the case of the assessee itself in A.Y. 1992-93 held as under:-

"Where assessee was awarded a construction contract and in terms of contract certain amount was withheld by employer of contract towards retention money for satisfactory execution of contract by assessee, retention money was to be taxed in assessment year relevant to 'previous year' in which it became payable to assessee as per terms of contract i.e., after defect liability was over and after engineer-in-charge certified that no liability was attached to assessee".

30. Respectfully following the decision of Hon'ble Gujarat High Court (supra), we delete the addition of Rs.27,81,076/- and allow these grounds of appeal.

8. Before us, Revenue has not controverted the submissions made by ld. A.R. nor has pointed any contrary binding decision in its support. We therefore, respectfully following the decision of the Co-ordinate Bench of the Tribunal and the ratio of decision of Hon’ble Gujarat High Court in Assessee’s own case, hold that the A.O was not justified in considering the retention money withheld by Assessee’s clients as income of Assessee in the year under consideration and therefore direct the deletion of addition made by A.O. Thus this ground of Assessee is allowed.

9. Ground no. 4 is with respect to disallowance of Rs. 10,000/- being voluntary retirement expenses.

10. Before us, ld. A.R. submitted that it did not wish to press the aforesaid ground. Considering the aforesaid submissions of the ld. A.R., this ground is dismissed as not pressed.

11. Ground no. 5 is with respect to addition of Rs. 2,48,269/- u/s. 40A(2)(b) of the Act.

12. During the course of assessment proceedings, A.O noticed that Assessee has paid commission of Rs. 2,48,269/- to Samrat Trading Corporation, proprietor Ashok M. Patel (HUF). The Assessee was asked to substantiate the services provided by the HUF for which the commission that was paid by Assessee, A.O noted that Assessee failed to furnish any plausible reply. A.O also noted that that similar addition was made in assessee’s own case for A.Y. 2004-05 and which was also upheld by ld. CIT(A). He therefore following the decision of ld. CIT(A) in A.Y. 2004-05, disallowed the commission payment of Rs. 2,48,269/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who upheld the addition made by A.O by holding as under:-

4. Ground no. 3 of appeal is regarding disallowance of Rs. 2,48,269/- u/s. 40A(2)(b). This issue is also covered by decision of CIT(A) for A.Y. 04-05 in appellant’s case in appeal No. CAB/185/08-09 through order dated 17.03.2010. The relevant portion of CIT(A)’s decision is reproduced in the assessment order. I am in agreement with the same. Facts being same, disallowance of Rs. 2,48,269/- is upheld.

13. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us.

14. Before us, ld. A.R. did not seriously press the issue nor could controvert the observations of ld. CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) and thus the ground of Assessee is dismissed.

15. In the result, the appeal of Assessee is partly allowed.

Order pronounced in Open Court on 30 - 11 - 2015.
(KUL BHARAT)                        (ANIL CHATURVEDI)

JUDICIAL MEMBER    ACCOUNTANT MEMBER