2019 (3) TMI 1645 - AT - Income Tax

Tribunal rules retention money not income until received. Case law cited.

M/s. Stewarts & Lloyds of India Ltd. Versus Deputy Commissioner of Income-tax, Circle-1, Kolkata

M/s. Stewarts & Lloyds of India Ltd. Versus Deputy Commissioner of Income-tax, Circle-1, Kolkata - TMI Issues:1. Rejection of claim that retention money is not income of the assessee as it has not accrued or arisen during the year.2. Interpretation of judicial decisions regarding the treatment of retention money as income.3. Application of matching principles in accounting for retention money in profit calculations.Issue 1:The primary issue in the appeals filed by the assessee was the rejection by the revenue of the claim that retention money should not be considered as income of the assessee for the year in question due to it not accruing or arising during that period. The Tribunal analyzed the arguments presented by both parties and referred to the decision of the Hon'ble Jurisdictional High Court in a similar case involving Simplex Concrete Piles (India) Pvt. Ltd. The Tribunal concluded that the retention money should not be included in the sales and can be taxed in the year when received by the assessee.Issue 2:The Tribunal discussed the relevance of the decision in the case of Emerson Network Power India (P.) Ltd. v. Assistant Commissioner of Income-tax, emphasizing that it was not applicable to the current scenario as it dealt with performance bank guarantee, not retention money. Additionally, the Tribunal highlighted the importance of following the judgment of the Hon'ble Jurisdictional High Court in the Simplex Concrete Piles case, which supported the assessee's position regarding the treatment of retention money.Issue 3:Regarding the application of matching principles in accounting for retention money, the Tribunal examined the arguments presented by the revenue and the assessee. The Tribunal upheld the contention of the assessee and directed the Assessing Officer to exclude the retention money from the profit figure, emphasizing that the retention money could be taxed in the year of receipt. The Tribunal also referenced the judgment in the case of E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax to distinguish the scenario where the assessee had the right to receive income from the current case where such right did not exist.In conclusion, the Tribunal dismissed the appeal of the assessee for the Assessment Year 2007-08, noting that the contention regarding the treatment of retention money as income had been accepted by the ld. CIT(A). The Tribunal also mentioned that the assessee did not press other grounds raised in the appeal, leading to their dismissal. The judgment was delivered on the 15th day of March, 2019, by the Appellate Tribunal ITAT Kolkata.