TaxTMI 
TaxTMI 
2020 (6) TMI 3
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.... has not earned any exempt income, therefore, the Ld. CIT(A) taking note of this fact has relied on the Tribunal's decision in REI Agro Ltd. 144 ITD 141 has given relief to the assessee which order has been confirmed by the Hon'ble Calcutta High Court in GA No. 3022 of 2013. We note that the Hon'ble Delhi High court in Cheminvest Ltd. Vs. CIT (2015) 378 ITR 33 wherein it has been held that where no exempt income was earned by the assessee, no disallowance could be made under section 14A of the Act. Taking note of the Hon'ble jurisdictional High court as well as Hon'ble Delhi High Court decision, we find no infirmity in the order of the ld. CIT(A) which warrants any interference from our part and, therefore, we dismiss this ground of appeal of the revenue. 3. Coming to the action of the Ld. CIT(A) in deleting the addition of Rs. 142.53 cr. the retention money which was added by the AO under the normal computation of income, the AO noted that the assessee had filed its original return of income on 29.11.2014 showing total income of Rs. 194,46,16,540/-. Later the assessee's case was selected for scrutiny and notices u/s. 143(2) of the Act dated 31.08.2015 was served upon the assess....
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....rties to the tune of Rs. 142.53 cr. and thus in the revised return income to the tune of Rs. 49.98 cr. was shown. This explanation of the assessee was not accepted by the AO. 4. In support of its action, the assessee cited the decision of the Hon'ble Calcutta High Court in the case of CIT Vs. Simplex Concrete Piles (India) dated 05.12.1988 for the AY 1965-66 which was not followed by the AO on the reason that in that case the assessment year under consideration was AY 1965-66 and at the time there was no provision of section 194C of the Act for deduction of tax at source and after citing the provisions of sec. 194C of the Act and stressing the aspect of credit of sum in the account of the payee by the payer, the AO distinguished the case of Simplex Concrete Piles (India) and also noted that the Hon'ble Calcutta High court has relied on the decision of the Hon'ble Supreme Court in the case of Seth PushalalMansinghka P. Ltd. Vs. CIT (1967) 66 ITR 159 wherein the meaning of the word 'accrue' was considered by the Hon'ble Apex court and according to AO, the decision rendered in Simplex Concrete Piles (India) (Supra) was the outcome of the interpretation given by the Hon'ble Apex ....
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....ncluding supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family: (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly." 6. Thereafter the ld. CIT, DR contended that the provisions of section 194C apply at the time of credit of such sum to the account of the contractor or at the tim....
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....t source by any person clearly determines that such expenditure has been booked by and the person has clearly identified such expenditure and acknowledged the same by deducting tax at source. According to him, in the case of the assessee, such income on account of retention money has accrued when such tax at source has been deducted by the payee. Though the Ld. CIT, DR acknowledged that such (retention money) payments be actually released later (not in this assessment year), the accrual may be safely said to have taken place when the tax has been deducted at source on account of retention money. Thus, according to ld. DR, the assessee has clearly acquired a right to receive the income and, therefore, the income can be said to have acquired to have accrued to him though it may be received later on its being actually paid. Thus, according to Ld. CIT, DR, the income (retention money) has accrued to the assessee. Moreover, according to Ld. CIT, DR, the assessee has regularly adopted the mercantile system of accounting and the right of the assessee on the income arose on the date on which tax has been deducted at source by the deductor in accordance with the provision of section 194C....
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....eads as under: "D Final Payment: The balance 10%, of the erection price component(excluding price component for survey) shall be paid after successful commissioning of the transmission line and issuance of taking over certificate. )" According to such duly executed contracts entered into between the parties, the contractee's retained specified percentage of the billed amount as retention money. These parties retained a sum of Rs. 142,53,74,710/ - as retention money on the bills raised during the year. According to him, the details of the amount retained by parties were duly filed before the AO and a copy of which is enclosed in the PB. The Ld. AR contends that all other contracts with the remaining parties have similar clause and the assessee was, therefore, neither entitled to nor could have claimed the retention money as income accrued till the entire project was commissioned. It was pointed out by the ld AR that the projects were not completed during the year but completed after financial year 2015-16. And as stated earlier, according to Ld AR, the assessee credited the amount of gross bills in the books of accounts which included the retention money and refle....
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.... duly claimed before the AO that retention money included in the gross receipts did not accrue during the year, could not be included as receipts for the year but accrues only in accordance with the contract when the appellant shall be entitled to claim the same as accrued. The assessee also filed revised return for the same as stated above. The assessee also explained the issue vide letter dated 28.12.2016. According to ld AR, though it is not an undisputed fact that the assessee was following mercantile system of accounting, only the income which is accrued during the year can be taxable. The Ld AR submitted that the making of the entry in the books of accounts is not decisive in determining the nature of income. According to ld. AR, the issue is no longer resintegra. Reference in this connection was invited to the following judgements: In the case of MCM Services Pvt Ltd., (ITA No. 3485/K/2011 at para 7.3 it was observed by Tribunal (Del) as under.- '' In our view for a receipt to accrue as income an accounting entry cannot be only decisive factor. If the same is not accrued it cannot be held as income only because of such entry. The retention ....
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....re unilateral act of the assessee debiting the books of account, the liability for payment whereof was not accepted or agreed to by the debtor, did not amount to income accrued to the assessee. 13. In the case of MCM Services Pvt. Ltd., (ITA No. 3485/K/2011 at para 7.8 and 7.12 it was observed by the Delhi Tribunal as under:- "7.8. Reading all the decisions cited above and in view of facts and circumstances of the case, the amount of retention money cannot be held to be accrued and brought to tax as income of the assessee. It is trite law that an accounting entry cannot create taxability of a receipt which depends on contingencies and cannot be treated as accrued income." "7.12. Apropos the denial of claim on the ground that such claim was made in the revised return, we have no difficulty in overruling such objection of CIT(A). Firstly, it is settled law that income is not taxable only on the basis of entry or absence thereof in the books of accounts. What is essential for charging section 5 is that income should have accrued to the appellant. This is made clear by Hon'ble Supreme Court in ShoorjiVallabhdas case (supra). Secondly, the CIT(A) wrongl....
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....pointed out by the Ld. AR that this circular has been followed in a number of cases, one such case is Chokshi Metal Refinery vs Commissioner of Income- Tax, reported in 107 ITR 63 Guj. 17. According to Ld. AR, the issue with regard to the taxability of the retention money on similar facts came up for consideration before the ITAT Kolkata Bench in the case of Mcnally Bharat Limited in ITA No. 100/Kol/2011 vide order dated 1.3.2017 for Assessment Year: 2006-07, 2007-08 and 2008-09 which order was in favour of the assessee wherein it was held even if the assessee has included the retention money in its receipt in the books of accounts still the same has to be excluded while computing the total income both under normal provisions as well as while computing the income u/s.115JB. The issue raised before the ITAT was as under.- "5. That on the facts and in the circumstances of the case Ld. ClT(Appeals) has erred in directing to exclude retention money of Rs. 28,87,72,022/ - in computing total income under normal provision as well as in computing Book Profit u/s. 115JB." The ITAT held as under.- Para "38. We have given a very careful consideration to the rival su....
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....erefore, the retention money cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s.1l5JB of the Act. We hold accordingly and confirm the order of the ClT(A) in this regard." 18. Apart from the above, the following judgments were cited by the Ld. AR: a) Hon'ble Calcutta High Court in the case of Commissioner Of Income-Tax vs Simplex Concrete Piles (India) (179 ITR 8 Cal) :- The question of law has been referred to the court was: "Whether, on the facts and in the circumstances of the case and in view of the fact that the assessee follows the mercantile system of accounting, the Tribunal was right in holding that the retention money in respect of the jobs completed by the assessee during the relevant previous year should not be taken into account in computing the profits and gains of the assessee's business for the assessment year 1965-66 ?" The Hon'ble High Court held that "12. The payment of retention money is deferred and is contingent on the satisfactory completion of the work and remova....
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....pite of the fact that quality of the plant was admittedly not up to the mark? Did the assessee get a vested right to get the said amount? The answer to these questions would be in negative and, therefore, it could not be said that income had accrued to the assessee," The Hon'bleGujrat High Court Followed the Judgement in the case of CIT v. Simplex Concrete Piles (India) (P.) Ltd. [1989] 179 ITR 8 (Cal.)." c) Hon'ble Bombay High Court judgment in the case of ClT v. Associated Cables P. Ltd. (286 ITR 596) which has inter alia held that; "The question of law sought to be raised in this appeal is as to whether the retention money could be considered to be the income of the assessee in the year in which the amount was retained. The Income-tax Appellate Tribunal has referred to a judgment of the Tribunal in Associated Cables P. Ltd. v. Deputy ClT [1994] 206 lTR (AT) 48 (Bom.). Mr.Sathe appearing for the 'respondent has, however, drawn our attention to two judgments, viz., of the Calcutta High Court and the Madras High Court. The Calcutta High Court judgment is reported in CIT v. Simplex Concrete Piles (India) P. Ltd. 1989 179 ITR 8. A Division Bench of the C....
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....sary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub- section (2) and also the assessment year for which such credit may be given." 20. Therefore, according to ld. AR, credit has to be allowed to the person from whose income tax has been deducted. The Ld. AR, however, acknowledged that there is also no dispute that credit can be allowed only in the year in which the income is made taxable. Therefore the AO was wrong that since the assessee has claimed TDS, income was taxable during the year. According to ld. AR, the issue is just opposite. According to him, since the income did not accrue during the year, the income shall be taxable in the year in which it will accrue and credit shall be allowed in the year in which such income is accrued and taxed. Therefore, according to him it is clear from the above provision that credit should be allowed in the year in which the income relating to the TDS shall be taken into account. Therefore, the AO could have disallowed the credit for the TDS relatable to retention money during the year and such TDS was allowable in assessment years when such retention money....
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....he appellant. The aforesaid judgements also negate the contention of the AO with regard to the entry in the books of accounts. In all the judgments it has been held that in mercantile system of accounting the entry in the books of accounts is not decisive but it is the accrual of income which is decisive. It may be submitted that even the CBDT was conscious of the issue and has introduced Income Computation and Disclosure Standards ('ICDS') with an intention to bridge the gap between the accounting treatment and taxation treatment as also to provide much needed clarity and consistency in computing taxable income. CBDT has issued few clarifications on ICDS in form of FAQs vide its Circular dated 23 March 2017. The clarification comes into effect from assessment year 2017-18 wherein they have made Clarification on recognition of retention money. It has been provided that as per the generally accepted accounting practices, retention money is not required to be recorded in the books of account unless the same accrues i.e. the stipulated conditions of the contract are so accomplished. The Board took note of the various judicial precedents while deciding on the ....
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....revenue from the operations in the P&L Account. It was brought to the notice of the AO that due to the said practice profit before tax as per P& L Account for the year ended on 31.03.2014 is Rs. 204,38,30,030/- and the said profit was arrived after taking into account entire bills raised on parties for contract work including the retention money. It was explained further that thereafter, sales was credited and the party was debited with the entire bill amount and on that basis assessee had filed the original return on 29.11.2014 without considering the actual deduction made by the parties on account of the retention money and had shown total income of Rs. 194,46,16,540/-. And when the assessee realised that its real income was much less than the revenue booked in the account it filed a revised return on 17.03.2016 claiming deduction of the retention money which was deducted by the parties to the tune of Rs. 142.53 cr. and thus in the revised return income to the tune of Rs. 49.98 cr. was shown. This explanation of the assessee was not accepted by the AO and he disallowed the deduction claimed by the assessee in respect of retention money to the tune of Rs. 142,53,74,710/- and was a....
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....on money and in this assessment year these parties have retained a sum of Rs. 142,53,74,710/- as retention money on the bills raised during the year. In the light of the said fact, according to assessee, it was neither entitled nor it could have claimed the retention money as income accrued till the entire project was commissioned. And since the projects were not completed during the year under consideration, the retention money has not accrued as income of the assessee and, therefore, assessee claimed deduction of the same. It was also brought to our notice that retention money would be included in the respective years when the project will be completed and it was also brought to our notice that a part of the said retention money retained by the parties were disbursed to the assessee in the succeeding assessment years, and which were duly offered asincome in the assessment years 2015-16 to 2017-18 when particular projects got completed and have duly been included in the return of income during the respective assessment years from AYs 2015-16 to 2017-18 and consequently there is no revenue loss at all. However, we note that the AO has rejected the claim of the assessee on the groun....