Principal Commissioner Of Incometax, Central-1, Kolkata v. M/S. Emc Limited

ITAT/26/2022IA No.GA/2/2022 IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE PRINCIPAL COMMISSIONER OF INCOMETAX, CENTRAL-1, KOLKATA -Versus- M/S. EMC LIMITED Appearance:Mr. Smarajit Roychowdhury, Adv....for the appellant.Mr. S. M. Surana, Adv.Mr. Bhaskar Sengupta, Adv....for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE BIVAS PATTANAYAK The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ for brevity)is directed against the order dated 27[th] May, 2020 passed by theIncome Tax Appellate Tribunal, “C” Bench, Kolkata (in short the‘Tribunal’) in ITA No.2149/Kol/2017 for the assessment year 2014-15. The revenue has raised the following substantial questions of law for consideration: i) Whether on the facts and in the circumstances ofthe case and in law, the Income Tax AppellateTribunal erred in holding that the retention moneyof Rs.142.53 crores did not arise in the relevantassessment year 2014-15 when the entire amount ofRs.142.53 crores was credited by the PrincipalContractors and TDS was deducted and paid by thoseparties and also claimed by the assessee ? ii)Whether on the facts and circumstances of the caseand in law, the learned Tribunal has failed toadjudicate the question raised by the Revenue inAppeal that by such crediting of income bycontractors and TDS Deduction thereupon, the factsof the case was clearly distinguishable from thedecision passed in Simplex Concrete Piles (I) Ltd.since there was no such TDS provision at the timeof said decision relied upon and there was noconcept of accrual of income under clause (2) ofSection 194C of the Act ? iii) Whether on the facts and circumstances of the caseand in law, the learned Tribunal has failed toappreciate the fact that assessee has changed itsmethod of computation of Income in AY 2014-15 forreducing the retention money from the taxableincome ? We have heard Mr. Smarajit Roychowdhury, learned standingcounsel for the appellant/revenue and Mr. S.M. Surana, learnedcounsel assisted by Mr. Bhaskar Sengupta, learned Advocateappearing for the respondent/assessee. The short question which falls for consideration iswhether the assessing officer was right in holding that the incomeon account of retention money is deemed to be the income of theassessee for the assessment year under consideration A.Y. 2014-15.On appeal before the Commissioner of Income Tax (Appeals)-20,Kolkata, (CIT(A), the appellant contended that the retention moneywas withheld by the principal in accordance with the terms ofcontract did not accrue to the assessee as income in theassessment year under consideration and only because the principaldeducted tax under Section 194C of the Act, the assessing officerought not to have held that the retention money was includible inthe gross receipts as income. It was further contended that thefinding of the assessing officer that the assessee was followingmercantile system of accounting, yet the retention money for thecontract completed during the year was to be included in the totalincome as per the provision of Section 194C of the Act when thesaid provision has nothing to do with the accrual of income in thehands of the recipients when the assessee under the law was notentitled to claim payment until fulfilment of the terms ofcontract and expiry of the period for which the retention moneywas withheld and, as such, under the mercantile system ofaccounting, the said amount did not accrue to the assessee.Before the CIT(A), a sample contract entered into between theassessee and the Power Grid Corporation was produced wherein there was a specific condition that 10% of the amount shall be retainedand paid after successful commissioning of the transmission lineand issuance of taking over certificate. The assessee placedreliance on the decision of this Court in the case of CIT vs.Simplex Concrete (Piles) India Pvt. Ltd. reported in 179 ITR 8(Cal). On facts, the assessee pointed out that part of the saidretention money was taken as income for the assessment year 2015-16 to 2017-18 when a particular project was completed and havebeen duly included in the return of income for the said assessmentyears 2015-16 to 2017-18. Further, the assessee stated that theremaining amount of retention money shall also be included in theincome for the year when particular projects were completed.There are several other decisions which the assessee has referredto before the CIT(A).After considering the facts of the case, specially thedocuments which were produced namely, the sample contract andother materials, the CIT(A) concluded as follows: “I think the AO has discussed/raised an important pointthat the assessee has also claimed TDS deducted onretention money in its return of income. In my view, oncethe assessee claims that retention money is not itsincome in the assessment year in question (on the basisof judgement cited above including in the case of McnallyBharat Ltd (supra), the assessee should not have claimedTDS on retention money during assessment year inquestion. As the order delivered by the Jurisdictional bench of ITAT Kolkata in the case of Mcnally Bharat Ltd(supra) and the Hon’ble Calcutta High Court in the caseof Simplex Concrete (Piles) India Pvt. Ltd. (supra) arevery much applicable in this case, therefore,respectfully following the ratio decided in the abovementioned cases, retention money has to be excluded fromthe income. The assessee’s appeal on grounds no. 2, 3 and4 are to be allowed. However, the TDS claimed by theassessee relatable to such retention money is to bedisallowed in the assessment year in question. It may beallowed in the year in which the assessee declaresretention money as its income. Accordingly, assessee’sappeal on grounds no.2, 3 and 4 are partly allowed. Aggrieved by the above finding of the CIT(A), the revenuehad preferred appeal before the learned Tribunal. The learnedtribunal took note of the submissions on either side as well asthe law on the subject and examined the factual position andrecorded the following findings: “We note from the relevant clauses of the contract thatthe contractees had the right to withhold certainpercentage of the consideration till the conclusion ofthe project and only after certification of concludedprojects the retained portion of the amounts aredisbursed finally which may be in the succeedingassessment years and is contingent upon the terms andconditions of the contract. We also note that the AO hasnot disputed the amount which has been retained by thecontractees. In such a scenario, merely because the Aggrieved by the above finding of the CIT(A), the revenuehad preferred appeal before the learned Tribunal. The learnedtribunal took note of the submissions on either side as well asthe law on the subject and examined the factual position andrecorded the following findings: “We note from the relevant clauses of the contract thatthe contractees had the right to withhold certainpercentage of the consideration till the conclusion ofthe project and only after certification of concludedprojects the retained portion of the amounts aredisbursed finally which may be in the succeedingassessment years and is contingent upon the terms andconditions of the contract. We also note that the AO hasnot disputed the amount which has been retained by thecontractees. In such a scenario, merely because the assessee had booked the income in this year withoutactual receipt of it, cannot be chargeable to tax as perthe Act. The reasons given by the AO to disallow theclaim of the assessee cannot be sustained and was rightlyrepelled by the Ld. CIT(A) whose view to accept the claimof assessee is based on the accepted judicial precedentslaid down by the Hon’ble jurisdictional High Court in CITVs. Simplex Concrete Piles (supra); Hon’ble Gujarat HighCourt in Anup Engineering Ltd. (supra) and Hon’ble BombayHigh Court in CIT Vs. Associated Cables P. Ltd. (supra)and Hon’ble Gujarat High Court in CIT Vs. IgnifluidBoilers (I) Ltd. (2006) 283 ITR 295 (Mad.) We hold thatin the factual circumstances especially as per the termsof contract between the assessee and the contractee, theretention money retained by the contractee is deferredpayment and is contingent upon satisfactory completion ofcontract work. We hold that the right to receive theretention money is accrued only after the obligationsunder the contract are fulfilled and the assessee had novested right to receive the same in this assessment year,therefore, it would not amount to an income of theassessee in the year in which it is retained. Therefore,we do not find any infirmity in the order of the Ld.CIT(A) and so, we confirm it and dismiss the appeal ofthe Revenue”. From the above finding, we have no hesitation to holdthat the CIT(A) as well as the tribunal firstly took intoconsideration the undisputed facts. Thereafter applied the correctlegal position and granted relief to the assessee. Thus, we find the revenue has not made out any ground to interfere with theorder passed by the learned tribunal.Accordingly, the appeal is filed by the revenue (ITAT/26/2022) is dismissed and the substantial questions of laware answered against the revenue. Consequently, the connected application for stay (GA/2/2022) also stands closed. (T.S. SIVAGNANAM, J.) (BIVAS PATTANAYAK, J.) S.Das/A.SadhukhanAR(CR)