TaxTMI 
TaxTMI 
2020 (1) TMI 1557
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....ing return and therefore, this disallowance made u/s. 36(1)(va) r.w.s. 43B of the Act is not sustainable as per hon'ble jurisdictional high court's decision in CIT vs. M/s Vijay Shree Ltd. (2011) 224 Taxman 12 (Cal) has already decided the very issue in assessee's favour as relied upon in the CIT(A)'s findings. We therefore affirm the CIT(A)'s findings under challenge deleting the impugned disallowance. 3. Next comes the latter issue of retention money disallowance / addition of Rs.7,72,10,900/- made by the Assessing Officer and reversed in the CIT(A)'s detailed discussion reading as under:- "Ground No 4: This ground relates to AO has erred in disallowing the claim of the Appellant amounting to Rs. 7,72,10,900/- towards retention money contending that the system followed by the Appellant (i.e. offering retention money on cash basis) is not permissible as per the Act. That the AO has erred in not appreciating the fact that retention money, which is payable after a certain period of time on the satisfactory performance of the contract executed by the parties as per the terms of the agreement, could not be said to be accrued to the Appellant at the time of raising the ....
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....ey. As and when this happens, the assessee can claim the same as bad debt. There is no reason why it should not offer the entire sale amount to tax. However, in the same computation of total income the assessee has added a sum of Rs. 2,40,09,589/- being amount actually received during the FY 2012-13 out of retention money retained by customers in earlier FYs. Therefore only the net amount retention money reduced in the computation of total income is disallowed in this order. Disallowance: Rs. 10,12,20,489/- less Rs. 2,40,09,589/- = 7,72,10,900/-. In lights of the above discussion, the amount of retention money is brought to tax." The Appellant's A/R has made written submissions as hereunder: a) That, on facts and in the circumstances of the case, the Ld. AO has erred in disallowing the claim of the Appellant amounting to Rs. 7,72,10,900 towards retention money contending the system followed by the Appellant (i.e. offering retention money on cash basis) is not permissible as per the Act. b) The Ld. AO has erred in not appreciating the fact that retention money, which is payable after certain period of time on the satisfactory performa....
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....formance, the debtor exercises his right and the Appellant loses the right to claim the retained money and the same is recognized as bad debt in the books of the Appellant. In regard to the above, the Appellant would humbly like to submit as under:- Issue decided in favor of Appellant in its own case for AY 2008-09 and AY 2009-10 2.3.4 At the outset, we would like to bring it to your kind attention that the issue has been decided in favor of the Appellant by the Hon'ble ITAT in Appellant's own case for AY 2008- 09 and AY 2009-10 in ITA NO.1575/A/2011 and ITA No.927/Kol/2013 vide order dated 10 March 2017. A copy of the order is enclosed as Annexure 3. The relevant extracts of the decision is quoted as under:- "We have heard the rival submissions and perused the materials available on record. We find that the additional evidences filed by the assessee deserves to be admitted in the facts and circumstances of the case as it contains the necessary details of offer of retention money from various projects in the subsequent assessment years. Admittedly the same were not filed by the assessee before the lower authorities as they were not called....
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....e Ld. Counsel for the assessee submitted that since the retention money in question was not in the nature of income at all it should not be included as part of the book profit ujs.115JB of the Act. 38. We have given a very careful consideration to the rival submissions. As far as the question with regard to excluding the retention money while computing the total income under the normal provisions of the Act is concerned, it is not disputed by the revenue that the sum in question is in the nature of retention money. In such circumstances we are of the view that the retention money cannot be regarded as income of the assessee. The issue is no longer res integra and has been concluded by the Hon'ble Calcutta High Court in case of CIT Vs. Simplex Concrete (Piles) India Pvt. Ltd. [179 ITR 8]. In the aforesaid decision the Hon'ble Calcutta High Court on identical facts held that having regard to the terms and conditions of the contract, it could not be held that either 10 per cent or 5 per cent as the case may be, being retention money, became legally due to the assessee on the completion of the work. Only after the assessee fulfilled the obligations under the contract, ....
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....o be taxed in assessment year relevant to 'previous year' in which it became payable to assessee as per terms of contract i.e. after defect liability was over and after engineer-in-charge certified that no liability was attached to assessee. The Hon'ble Gujarat High Court held as under: "The assessee had no absolute right to receive the amount. SSNNL had no obligation to release the same before completion of warranty period and even thereafter would release the amount only after making permissible adjustments. Mere fact that in the instant case no recoveries were made from the bank guarantee or security deposit is of no consequence. Mere fact that the amount was received by the assessee would not mean that income had accrued. Whether income did accrue or not would depend on the fact whether the right to receive said amount had accrued or not. The fact that tax was deducted at source on said amount also would be of no consequence. Tax was deducted by SSNNL. The assessee had no control over such deduction. Merely whether tax was deductible or not would not decide the taxability of certain receipts. The manner in which the assessee accounted for such rece....
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....by the Appellant that the treatment with respect to retention money has been done based on the settled principles laid down by various Courts in this regard. Reliance was also placed upon the decision of the Hon'ble Calcutta High Court in case of CIT Vs. Simplex Concrete (Piles) India Pvt. Ltd. [179 ITR 8]. In the aforesaid decision the Hon'ble Calcutta High Court on identical facts held that having regard to the terms and conditions of the contract, it could not be held that either 10 per cent or 5 per cent as the case may be, being retention money, became legally due to the assessee on the completion of the work. Only after the assessee fulfilled the obligations under the contract, the retention money would be released and the assessee could acquire the right to receive such retention money. Therefore, on the date when the bills were submitted, having regard to the nature of the contract, no enforceable liability accrued or arose and, accordingly, it could not be said that the assessee had any right to receive the entire amount on the completion of the work or on the submission of bills. The assessee had no right to claim any part of the retention money till the ver....
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....h Court on identical facts held that having regard to the terms and conditions of the contract, it could not be held that either 10 per cent or 5 per cent as the case may be, being retention money, became legally due to the assessee on the completion of the work. Only after the assessee fulfilled the obligations under the contract, the retention money would be released and the assessee could acquire the right to receive such retention money. Therefore, on the date when the bills were submitted, having regard to the nature of the contract, no enforceable liability accrued or arose and, accordingly, it could not be said that the assessee had any right to receive the entire amount on the completion of the work or on the submission of bills. The assessee had no right to claim any part of the retention money till the verification of satisfactory execution of the contract. Therefore, 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 of the assessee for the assessment year in question. In view of the aforesaid decision of the Hon'ble Cal....