TaxTMI 
TaxTMI 
2017 (10) TMI 591
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....05/-. Thus, the CIT(A) has thereby confirmed the action of A.O of denial of retention money to the extent of Rs. 2,12,22,495/-. The said claim of retention money of Rs. 2,12,22,495/- may please be allowed. 3. The Ld. CIT(A) has erred in confirming the action of A.O of disallowing interest to the tune of Rs. 16,86,094/- u/s 40(a)(ia). 4. The Ld. CIT(A) has erred in restricting the claim of the appellant of TDS on VAT only to the extent of Rs. 28,66,922/-. Thus, the CIT(A) has thereby confirmed the action of A.O of denial of claim of TDS on VAT to the extent of Rs. 39,87,561/-. The said claim of Rs. 39,87,561/- may please be allowed." 3. Facts of the case in brief are that the assessee is engaged in the business of civil contractorship and has filed return of income on 30.9.2011 declaring total income of Rs. 5,02,78,345/- which was processed under section 143(1) of the Act. The case was selected for scrutiny and the statutory notices were issued u/s 143(2) and 142(1) of the Act. The AO during the course of assessment proceedings called for various informations/details from the assessee and the assessee filed the written submissions finally culminating into the as....
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....pted to inflate U1e purchases artificially by obtaining the accommodation bills from the hawala parties. Therefore, I agree with the view taken by the AO that the appellant cannot be allowed a deduction of the purchases amounting to Rs. 39,88,535/-. Section 69C for making the additions by treating them as unexplained expenditure. The provisions of section 69C can be made applicable only if there is an expenditure which has been incurred by the assessee the source of which is doubtful. Here, the incurrence of the expenditure in the form of purchases itself is doubtful and therefore provisions of section 69C are not applicable. Hence, I direct the AO to disallow the purchases from the said three parties amounting o Rs. 39,88,535/- as bogus u/s 37(1) of the Act." 5. After hearing both the parties, and on perusal of materials placed before us, we observe that the assessee is undoubtedly beneficiary of bogus purchase bills issued by these three parties as mentioned hereinabove to the tune of Rs. 39,88,535/-. In respect of first two parties viz. (a) EMCO Industries and (b) Mercury Enterprises, the payments were withheld due to defective materials which were duly entered into by the as....
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.... income" nevertheless the same was shown as revenue in the profit and loss account The details of the said retention money is incorporated in the assessment order at page 4. The assessee was asked by the AO to justify the claim of deduction of retention money which was replied by the assessee as under : "We are into business of Power Transmission, requiring laying down cables In remote areas Since we ore into business wherein execution of contract is the main activity deduction of Retention Money IS unavoidable. The deduction becomes applicable even in cases where goods are supplied, as the quality of these goods has to be of required grade for satisfactory completion of the contract. The Sales are recorded at the Invoice value which is the requirement of Accounting Standard 9 and or Accounting Standard 7 as applicable. It is also necessary that these bills ore submitted In agreed format to be approved from the customers. Therefore all the sales are recorded at Gross Value i.e. Including Retention Money. When the agreed amount of Retention Money is deducted, it is known to both the parties that the sum so deducted will be repaid on satisfactory completion of the c....
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..../- is completely wrong and against the facts on records. The assessee is engaged into the business of execution of contracts on Turnkey/EPC basis related to power stations. It has entered into various contracts with several parties mainly government agencies. Retention of certain percentage of interim contract bill till the time of satisfactory completion of the contract or as subsequent performance guarantee for agreed period is a routine feature in case of such contracts with government agencies which as the per terms of the contracts. Retention Money which is withheld by the customers has been reduced from the taxable income in the statement of income while filing the return of income though booked as revenue/income in the P&L A/c. The ld. AR submitted that the amount of retention money cannot be said to have accrued to the assessee in the AY 2011-12 for the reasons that the assessee has not obtained unconditional right to receive the money and there is no certainty as to its realization. The said retention money is not receivable unless the contractee is satisfied with the work of the assessee and the contract is successfully completed or operated satisfactorily for agreed peri....
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....igeria and question of completion of the relevant project does not arise at all. Similar is the case with respect to other contracts where some portion of the contract has been retained by the customers on account of similar terms contained in agreements with them. With respect to the portion of retention money which is held to be not deductible by the CIT (A) it is submitted that the fact that right to receive that amount has not accrued to the assessee has not been disputed. The only reason for not allowing deduction is that the corresponding bills were booked in the earlier years and not during the years under consideration. It is humbly submitted that in many cases, the appellant comes to know about retention money being deducted at the time when the payment is released by the customers. Majority of the customers of the appellant are government agencies. They do not share even accurate details about retention money well in time. Further, in many cases, certain portion of the agreed consideration is retained over and above agreed proportion of retention as per the agreement. The assessee does not have control over it. Therefore, the appellant was forced to book amounts withheld ....
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....fore the bench that the order of AO should be restored as the revenue has challenged the appeal against the relief allowed by the CIT(A) to the tune of Rs. 4,76,62,505/-. 11. We have carefully considered the rival submissions and perused the material including the impugned orders and case law relied upon by both the parties. We note that the assessee is a contractor executing the contractual work relating to power station on turnkey basis. After perusal of the various agreements with the contractor, we observe that the said agreement provided for retention/deduction of 5 to 10% of money of the amount of the contract bill towards satisfactory completion of contract as performance guarantee which would be received after certain number of years when the project is successfully operated. Thus, money retained by the customers is in fact the amount withheld for certain number of years depending upon the successful completion of contract or successfully running of the work executed for certain number of years. According to the ld.AR, the assessee has no right to receive the money till the time the contract is satisfactory completed and executed depending upon the terms of the contract.....
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....accepted by the department. The Commissioner (Appeals) further examined as to whether the assessee had made any deviation from the usual practice followed by it in the earlier years with an intention to evade tax and found that there was no such change during the year under appeal and whatever retention money had not been shown in that year and realized in the subsequent year had been shown as sale proceeds in that year and offered for tax. It is in these circumstances that the Commissioner (Appeals) was of the view that there was no need to disturb the method of accounting followed by the assessee - company and also found no discrepancy in terms and conditions of purchase orders. The Tribunal has concurred with the findings recorded by the Commissioner (Appeals). * In the case of Amarshiv Construction (P.) Ltd. V/s DCIT, the Hon'ble Gujarat High Court held as under : "29. Reliance placed by the Tribunal to the Accounting Standards for percentage completion method was misplaced. The assessee did not follow the percentage completion method and the accounting treatment to be accorded in such case therefore was not at issue. The assessee claiming entire expenditure a....
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....ispute had arisen with respect to the execution of the contract. In such background, the Court considered whether such amount represented assessee's accrued income. In this context, it was held and observed as under: "For the purpose of ascertaining whether income had, in fact, accrued, one has to also see whether there is a real income. It has been also observed by the Hon'ble Supreme Court in CIT v. Bokaro Steel Ltd. 236 ITR 315, that no matter by adopting what method the assessee maintains his accounts, it may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements, or it may be the mercantile system where entries are made on accrual basis, that is to say, accrual of the right to receive payment and the accrual of the liability to disburse or pay. However, in both cases, unless there is real income, there cannot be any income tax. In the instant case also, there is no real income so far as Rs. 3 lacs are concerned because no debt has been created in favour of the assessee by virtue of clause No. 14 of the contract and as the assessee did not get any right to receive the said amount during the previou....
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....Pvt. Ltd. 179 ITR 8 (Cal.). Having regard to the facts and circumstances of the case, it was held in that case that, when there is a clause with regard to retention money, the assessee gets no right to claim any part of the retention money till the verification of satisfactory execution of the contract is concluded and, therefore, if there is no immediate right to receive the retention money, the said amount cannot be said to have accrued to the assessee. Even in the instant case, so far as retention money is concerned, the assessee had not to receive the same and therefore it cannot be said that the amount of Rs. 3 lacs had accrued to the assessee." 8. In the result, this Tax Appeal is dismissed." 12. We note that the assessee has claimed the retention money of Rs. 3,99,35,186/- from power company of Nigeria being 10% of the total invoice amount during the year under consideration which was taken as retained as per clause 6.3.3 and 6.3.4 of the contract and during the year the assessee has merely transported the required goods to Nigeria and therefore there cannot be any question of completion of project at all during the year. We also find merit in the contention of t....
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.... same as per facts and law after giving reasonable hearing to the assessee. This ground is allowed for statistical purposes. 15. Ground of appeal no.4 is against the part confirmation of on account TDS on VAT to the extent of Rs. 39,87,561/- by CIT(A) as against Rs. 68,54,483/- added by the AO. 16. The facts in brief are that the assessee suo motto added back TDS on VAT to the income to the tune of Rs. 68,54,483/-. The assessee raised the issue before the AO during the assessment proceedings but AO rejected the same on the ground that the claim is not made by way of revised return of income. In the appellate proceedings the ld. CIT(A), after verifying the claim of the assessee in the computation of income, found it to be correct. However, the ld. CIT(A) after calling for the details of these expenditures from the assessee observed that out of Rs. 68,54,483/-, a sum of Rs. 39,87,561/- pertained to earlier years and therefore the deduction to that extent should not be allowed in the current year and thus allowed Rs. 28,66,922/- relating to the current year only. Now the assessee is in appeal before us against the rejection of claim of the assessee to the tune of Rs. 39,87,561/-....