2011 (6) TMI 1019 - AT - Income Tax

ITAT partially allows assessee's appeal, remands retention money issue. Departmental appeal dismissed.

The ITAT partly allowed the assessee's appeal, remanding the issue of retention money back to the AO for reconsideration. The departmental appeal was ... - Issues Involved:1. Addition of retention money to taxable income.2. Disallowance of printing and stationery expenses.3. Deletion of addition on account of bad debt.4. Deletion of addition on account of labor charges.Issue-wise Detailed Analysis:1. Addition of Retention Money to Taxable Income:The primary issue in the assessee's appeal was the addition of Rs. 78,68,282/- on account of retention money. The Assessing Officer (AO) had added Rs. 7,00,000/- as retention money, arguing that the assessee had changed its method of accounting to defer tax payments. The AO contended that the retention money should be included in the sales turnover as it formed part of the sales invoice and was subject to indirect taxes. The AO relied on several judicial precedents to support the view that the right to receive the retention money accrued at the time of sales.The assessee argued that the retention money did not accrue as income until the satisfactory performance of the plant was confirmed, following a consistent method of accounting since the assessment year 1997-98. The assessee cited various judicial decisions, including those from the Calcutta High Court and Gujarat High Court, supporting the view that retention money should be recognized as income only when it becomes due after the guarantee period.The CIT(A) not only confirmed the AO's addition but also enhanced it to Rs. 78,68,282/-, citing the ITAT's decision in the assessee's own case for the assessment year 1997-98. However, the ITAT, considering the decisions of the Hon'ble Supreme Court and Punjab & Haryana High Court, remanded the matter back to the AO for reconsideration. The ITAT directed the AO to verify the details and expenses related to the retention money and pass a reasoned order in accordance with the law.2. Disallowance of Printing and Stationery Expenses:The AO disallowed Rs. 59,275/- out of printing and stationery expenses, citing unverifiable vouchers. The CIT(A) reduced the disallowance to Rs. 10,000/-, noting that the assessee had produced all vouchers and details for verification. The ITAT found no justification for sustaining even part of the addition, as the CIT(A) had already found the assessee's explanation satisfactory. The ITAT confirmed the deletion of the entire disallowance, allowing the assessee's appeal on this ground and dismissing the departmental appeal.3. Deletion of Addition on Account of Bad Debt:The AO disallowed Rs. 37,44,298/- on account of bad debt, arguing that the assessee had not provided evidence of the debts becoming irrecoverable. The CIT(A) deleted the addition, noting that the assessee had written off the debts as irrecoverable in the books of accounts, complying with the amended provisions of section 36(1)(vii) of the IT Act. The ITAT upheld the CIT(A)'s decision, referencing the Hon'ble Supreme Court's judgment in T.R.F. Ltd. vs. CIT, which clarified that writing off bad debt in the books of accounts is sufficient for compliance.4. Deletion of Addition on Account of Labor Charges:The AO made an addition of Rs. 1,39,238/- on account of labor charges, citing unverifiable vouchers. The CIT(A) deleted the addition, finding that the assessee had maintained all records and made most payments through account payee cheques. The ITAT found no justification to interfere with the CIT(A)'s decision, noting that the addition appeared to be ad hoc and was rightly deleted based on the facts and material on record.Conclusion:The ITAT partly allowed the assessee's appeal, remanding the issue of retention money back to the AO for reconsideration, and dismissed the departmental appeal, confirming the deletion of disallowances related to printing and stationery expenses, bad debt, and labor charges.