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INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA

ITA Nos. 346 & 347/Kol/2013 Assessment Years: 2008-09 & 2009-10
Deputy Commissioner of Income-tax (Appellant) vs. M/s. Techno Electric & Engineering Co. Ltd. (Respondent)
Date of Order: 17-06-2015

ORDER

Per Shri Mahavir Singh, JM:
Both these appeals by revenue are arising out of separate orders of CIT(A). Central-III, Kolkata vide Appeal Nos. 162/CC-XX/CIT(A)C-III/10-11/Kol and 114/CCXX/CIT(A)C-III/11-12/Kol both 29.11.2012. Assessments were framed by DCIT, CCXX and JCIT(OSD).,CC-XX, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Years 2008-09 and 2009-10 vide their separate orders dated 31.12.2010 and 30.12.2011 respectively.

2. The only common issue in these two appeals of revenue is against the order of CIT(A) deleting the disallowance of retention money of Rs.25,36,88,085/- and Rs.18,67,64,214/- for AYs 2008-09 and 2009-10 respectively.

3. Briefly stated facts are that the assessee is a civil contractor and the AO during the course of assessment proceedings for these two assessment years noticed from the computation of income that the assessee has deducted retention money of Rs.25,36,88,085/- and Rs.18,67,64,214/- from the net profit. The assessee explained that it is a power sector contractor and executing power sector contracts and as per terms and conditions of such work contract the contractee deducted 5 to 10% of the bills as raised by the assessee as retention money. The retention money was payable to the assessee after successful completion of the commissioning of the project. In all the years the retention money as received from the contractee has been claimed as deduction. On these facts, Ld. Counsel for the assessee stated that the Tribunal in immediately preceding year i.e. AY 2007-08 in ITA No.409/K/2011 vide order dated 13.04.2014 has allowed the claim of assessee by observing as under:

“3. We have heard the rival submissions and carefully considered the same along With the order of the tax authorities below. We noted that the issue involved in this ground of appeal is duly covered by the decision of the Hon'ble Jurisdictional High Court in the case of CIT -vs. Simplex Concrete piles (India) Pvt. Ltd. reported in 179 ITR 8, in which the Hon'ble Calcutta High Court has held as under:-

"From the facts, there is no reason to hold that the entire amount became due immediately upon the submission of bills but that 5 or 10 percent of the bills, as the case may be, was withheld as security. The assessee follows the mercantile system of accounting and, therefore, it must credit its accounts as and when the right to receive any sum accrues. There cannot be any dispute in respect of 90% of the amounts of bills. The right to receive payment of 5% accrues on completion of work and only remaining 5% is deferred for a further period. The payment of retention money is deferred and is contingent on satisfactory completion of the work and removal of defects and payment of damages, if any. Till then, there is no admission of liability and right to receive any part of the retention money accrues to the assessee".

4. Similar view has been taken by the following Hon'ble High Courts in the following cases.-

(i) Anup Engineering limited -vs.- CIT (247 ITR 457 (Gujrat)
(ii) CIT -vs.- NHK Japan Broadcasting Corporation [284 ITR 357 Delhi)]
(iii) CIT -vs.- Ignified Boilers India Limited 283 ITR 295 (Madras);
(iv) CIT -Vs.- East Coast Construction & Industries 283 ITR 297 (Madras)];
(v) CIT -vs. Associated Cables Pvt. Limited [286 ITR 596 (Mumbai);
(vi) CIT -vs.- P&C Construction Pvt. Ltd. [318 ITR 113](Madras);
(vii) CIT -vs.- Krishna Gopal Kapoor & Sons [325 ITR 214 (Allahabad)];
(viii) DIT -vs.- Ballast Nedam International (2013) 355 ITR 300 (Gujrat):
(ix) Amarshiv Construction (Pvt.) Limited [102 DTR (Guj.) 33]

5. Ld. D.R. even though before us vehemently relied on the order of the Assessing Officer but could not adduce any decision contrary to the one as has been taken by the Hon’ble Jurisdictional High Court. In view of the aforesaid decision, we confirm the order of the Id. CIT(Appeals) and dismiss the Ground No. 1 taken by the Revenue.”

As the facts are exactly identical in this year also, Ld. DR could not distinguish on facts. We find that the assessee has credited the retention money as part of the revenue receipt but while computing the taxable income excluded the same from the income. The assessee was following mercantile system of accounting and accounted retention money on due basis. In such circumstances, we are of the view that the issue is squarely covered in favour of assessee and against the revenue by the decision of Coordinate Bench of this Tribunal in immediately preceding year i.e. 2007-08 and consistently taking the same view, we dismiss these two appeals of revenue.

4. In the result, both the appeals of revenue are dismissed.

5. Order is pronounced in the open court.

(B. P. Jain)                   (Mahavir Singh)
Accountant Member     Judicial Member

Related Updates:
In Construction contract, retention money taxable only when become payable Click Here >>
Retention Money under in Mercantile Accounting Taxable on accrual only Click Here >>

Retention Money Taxable in the year when right to receive accrues to contractor only after successful project completion and removal of defects-ITAT | 25-12-2015 |