Income Tax Appellate Tribunal - Ahmedabad
Ballast Nedam International B.V.India ... vs Department Of Income Tax on 5 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD
"C" BENCH
Before: Shri D.K. Tyagi, Judicial Member and
Shri T.R. Meena, Accountant Member
I.T.A. No.209/Ahd/2010
A. Y. 2002-03
With
I.T.A. No.363/Ahd/2010
A. Y. 2003-04
Vs. Ballast Ned am International
C/o CC Chokshi & Co.
The ADIT (Intl. Chartered Accountants,
Taxn.), Nutan Bharat Society,
Ahmedabad Alkap uri, Barod a
PAN-AAACB5966C
Appellant Respondent
Department by : Shri S.K. Gupta, CIT- D.R.
Assessee by : Shri Sanjay R. Shah, A.R.
Date of hearing : 05.07.2012
Date of p ronouncement 20.07.2012
आदे श/ORDER
PER : D.K. TYAGI, JUDICIAL MEMBER
These are Revenues' appeal against separate orders of ld. CIT(A), Gandhinagar, Ahmedabad dated 15.10.2009 and 03.11.2009. Since both the appeals belong to the same assessee and Revenue has taken common grounds in both the appeals and both the appeals were heard together, for the sake of I.T.A. No.209/Ahd/2010 A. Y. 2002-03 With 2 I.T.A. No.363/Ahd/2010 A. Y. 2003-04 convenience these are being disposed of by passing a consolidated order by taking the facts for assessment year 2002-03.
2. The common grounds taken by the Revenue reads as under:-
"The ld. CIT(A)-Gandhinagar has erred in law and facts by holding that retention money cannot be included in total income of the assessee.
"The ld. CIT(A) has erred in law and facts by deciding that retention money does not accrue or arise to the assessee when the bills are raised, but, only on final receipt of retention money on satisfactory completion of work."
3. The brief facts of the case are that the assessee is involved in the contract for construction of Jetty and breakwater facility at Dahej, Gujarat for Petronet LNG Ltd (PLL). The assessee had claimed retention money related to contractee amounting to Rs.6,24,54,307/- as allowable expenditure. It also earned the retention money related to sub-contractor of Rs.1,18,24,129/- as disallowable, therefore, as a result, a net figure of Rs.5,06,30,188/- was claimed as deduction. This was in contrast to the fact that in its books of account the assessee had shown the respective amounts as a contract revenue and the contract cost respectively, although the matter had been clarified via notes 1, 2 & 5 to the computation of income. During the assessment proceedings the A.O. asked the assessee as to why these amounts should not be treated as revenue and the cost in computing the income. The assessee's stand was that the retention money with M/s PLL has not accrued to the assessee as the same shall be realized only on satisfactory completion of the contract. Similar treatment on the reverse has to be given to the monies retained by the assessee for sub-contractor. However, the A.O. did not agree with the stand of the assessee company. He was of the view that since bills I.T.A. No.209/Ahd/2010 A. Y. 2002-03 With 3 I.T.A. No.363/Ahd/2010 A. Y. 2003-04 were raised and the bills have been passed, the entire amount had accrued to the assessee. The A.O. specifically stressed the point that the fact that the revenue has been recognized in assessee's books of account and the tax has been deducted on the full amount without deduction of the retention money would show that the full amount has accrued to the assessee. He also referred to the fact that assessee furnished bank guarantee as a measure and as obligation for its due performance. The assessee relied on various case laws before the A.O. However, the A.O., placing reliance on the decision of Hon'ble ITAT, Ahmedabad in the case of DCIT Vs. Amarshiv Construction (P) Ltd. 88 ITD 381 disallowed a sum of Rs.5,06,30,188/- in respect of retention money. Before ld. CIT(A) the assessee filed written submissions which have been reproduced by ld. CIT(A) at para 2.2 and 2.2.1 of his order. After taking into consideration these submissions of the assessee ld. CIT(A) allowed the appeal of the assessee by observing as under:-
"The issue has been given due consideration. The judicial decisions relied upon by the appellant are very clear on the issue. To the extent the amounts retained (10% of or 15% as the case be) are subject to fulfillment of some conditions e.g. subject to inspection of satisfactory completion, the same shall not have accrued to the assessee and hence is not includable in the appellant's income. The various clauses of the contract through which the Authorised Representative has led do point out to the fact that the monthly bills being submitted by the appellant are for all practical purposes provisional bills and therefore what has not been billed in the invoices cannot be stated to be appellant's claim. As per the sample copies of invoices submitted, the invoice amount is net of retention. On the other hand, the Assessing Officer's reliance on the decision of ITAT, Ahmedabad in the case of DCIT Vs. Amarshiv Construction (P) Ltd. (supra) does not negate appellant's claim. The reading of the said decision of the ITAT shows that it has considered the issue in the light of the ratio laid down by the Calcutta High Court in the case of Simplex Concrete Piles Pvt., Ltd. (supra) but came to the conclusion that the facts of the case are different, namely it involved security deposit on the part of the appellant and the retention monies. In I.T.A. No.209/Ahd/2010 A. Y. 2002-03 With 4 I.T.A. No.363/Ahd/2010 A. Y. 2003-04 this case as well as in some of the other case, the concept of retention money and security deposit has been clearly distinguished.
Hence, considering the legal position and facts of the case, it is held that the monies retained by the principal as per provisions of contracts as "retention money" can not be included in the total income."
Aggrieved by this order of ld. CIT(A) now the Revenue is in appeal before us.
4. At the time of hearing, ld. D.R. relied on the order of the A.O. and further submitted that ld. CIT(A) was not justified by holding that retention money did not accrue or arise to the assessee when the bills were raised but only on final receipt of retention money on satisfactory completion of the work. It was also submitted that ld. CIT(A) was not justified in not following the decision of Hon'ble ITAT of Ahmedabad Bench in the case of DCIT Vs. Amarshiv Construction (P) Ltd. (supra). Concluding his argument ld. D.R., therefore, submitted that the order passed by ld. CIT(A) may kindly be set aside and that of the A.O. be restored.
5. Ld. counsel of the assessee, on the other hand, reiterating the submissions made before the lower authorities further submitted that the order passed by ld. CIT(A) is in conformity with the various case laws on the issue of taxability of retention money. Reliance was also placed on the decision of Hon'ble ITAT, Mumbai Bench in the case of ADIT Vs. Ballast Nadam Dredging wherein on identical facts it was held that retention money withheld by the contractee pending completion of contract did not accrue to the assessee in the year in which the amount was retained. He, therefore, prayed that the order passed by ld. CIT(A) be upheld.
I.T.A. No.209/Ahd/2010 A. Y. 2002-03 With 5I.T.A. No.363/Ahd/2010 A. Y. 2003-04
6. Heard both the parties and perused the various case laws cited by the assessee and the Revenue and find that the order passed by ld. CIT(A) is in conformity with the decision of Hon'ble ITAT, Mumbai Bench in the case of ADIT Vs. Ballast Nadam Dredging wherein on identical facts the Hon'ble ITAT, while deciding the issue in favour of the assessee has observed as under:-
"We have carefully considered the orders of the authorities below and submissions of the learned representatives of both the parties. We have gone through the cases (supra) cited by learned representatives of both parties. We observe that the similar issue has been considered by ITAT (TM) in the case of Associated Cables Pvt. Ltd. (supra) as under:
"90 percent of value of assessee's goods were billed on dispatch, and 10 percent was payable upon completion of warranty period. This amount retained was conditional on fulfillment of certain representations made by assessee to customers. As per the agreement entered into with the customers, amount retained was released against furnishing bank guarantee by a scheduled bank."
The third member held of the tribunal had held as follows:
".......... As the performance guarantee remains and is enforceable without notice to the assessee, the income from the retention money cannot be recognized. Consequently, I have to agree with the learned Accountant Member that the retention money of 10% has to be excluded in computing the total income until the period of guarantee is over."
We observe that the Hon'ble Jurisdictional High Court in the subsequent assessment year of same assessee considered the above decision of ITAT and affirmed the said decision. It was held that retention money withheld by the contractee pending completion of contract work does not accrue to the assessee/contractor in the year in which the amount is retained. We also observe that similar issue was also considered by ITAT in the case of Spirax arshall Ltd. (supra) wherein it was held that receipt of retention money against furnishing bank guarantee cannot partake character of income since it cannot be apportioned until guarantee period was over. The retention money may be received by the assessee; it cannot be apportioned until expiry of warranty period. We observe that the Hon'ble Allabahad High Court in the case of CIT vs. Yatindra and Co. (supra) held that an amount received by assessee against bank guarantee was not I.T.A. No.209/Ahd/2010 A. Y. 2002-03 With 6 I.T.A. No.363/Ahd/2010 A. Y. 2003-04 accrued to the assessee during the year as no absolute right to receive the amount at that stage vested.
Further we observed that the assessee received a part of retention money against bank guarantee in the preceding assessment years, the details of which are given by Assessing Officer at Page 2 and also mentioned herein above in Para 3 at Page 3 of this order. During the course of hearing the learned Authorized Representative submitted that the assessee is following consistently to offer for taxation the part released of retention money against bank guarantee in the assessment year in which right to receive the said release of retention money accrued to the assessee unconditionally. The learned Departmental Representative also did not dispute the above contention of learned Authorized Representative at the time of hearing.
In view of above facts and decisions, and particularly that similar issue has been considered by the Hon'ble Mumbai High Court in the case of Associated Cables Pvt. Ltd. (supra) which has been followed by the learned CIT(A), we do not find any reason to interfere with the order of Ld. CIT(A). Hence, we uphold his order and reject the ground of appeal taken by the department."
7. We further find that that the facts of the case relied by the Revenue in the case of DCIT Vs. Amarshiv Construction (P) Ltd. (supra) are different than that of the present case. The issue in the case of DCIT Vs. Amarshiv Construction (P) Ltd. (supra) decision was regarding the year in which the income has accrued whereas the issue in the case of the assessee is the accrual of the income. This would be clear from reading of para 21 of DCIT Vs. Amarshiv Construction (P) Ltd. (supra) decision which reads as under:-
"In all these three cases, the Supreme Court held that there was no real income and, therefore, not exigible to income-tax; whereas in the present case, it is nobody's case that no income has resulted at all. The question is only as to in which year it accrued to the assessee. According to the Revenue, it was in the year when the bills were presented and passed for payment and the assessee received the money by furnishing bank guarantee and as I.T.A. No.209/Ahd/2010 A. Y. 2002-03 With 7 I.T.A. No.363/Ahd/2010 A. Y. 2003-04 per the assessee it was the year after the performance liability clause was over and the bank guarantee were released and ceased to be operative."
8. We further find that DCIT Vs. Amarshiv Construction (P) Ltd. (supra) decision dealt with the issue whether the assessee had in fact received the amount of security deposit by furnishing bank guarantee which is clear from para 15 of that decision which reads as under:-
"............ In our opinion, it accrued to the assessee and thereafter retained by way of additional security and in fact received by the assessee by furnishing a bank guarantee...."
9. In the instant case there is no dispute about the fact that assessee has not received any money out of the amount retained as retention money by the contractee. These are some of the distinguishing features between the case of assessee and DCIT Vs. Amarshiv Construction (P) Ltd. (supra) case. Therefore, we have no hesitation in holding that reliance placed by the A.O. on the decision in the case of DCIT Vs. Amarshiv Construction (P) Ltd. (supra) was misplaced.
10. In view of the above discussions, we feel no need to interfere with the order passed by ld. CIT(A) and the same is hereby upheld.
11. In the result, both the appeals, filed by the Revenue are dismissed.
Order pronounced in open Court on 20.07.2012
Sd/- Sd/-
(T.R. Meena) (D.K. Tyagi)
Accountant Member Judicial Member
I.T.A. No.209/Ahd/2010 A. Y. 2002-03 With 8
I.T.A. No.363/Ahd/2010 A. Y. 2003-04
N.K. Chaudhary, Sr. P.S.
Copy of the Order forwarded to:
1. The applicant
2. The Respondent
3. The CIT Concerned
4. The Ld. CIT (Appeals)
5. The DR, Ahmedabad
6. The Guard File
By order
AR,ITAT,Ahmedabad