Principal Commissioner Of Incometax v. M/S. M C Nally Sayaji Engineeringlimited

ITAT/44/2021IA No.GA/2/2021 IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction [Income Tax]ORIGINAL SIDE PRINCIPAL COMMISSIONER OF INCOMETAX -Versus- M/S. M C NALLY SAYAJI ENGINEERINGLIMITED Appearance:Mr. Debasish Chowdhury, Adv.Mr. Soumen Bhattacharjee, Adv....for the appellant. Mr. J.P. Khaitan, Sr. Adv.Mr. A.K. Dey, Adv.Mr. Sanjay Bhowmik, Adv....for the respondents. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA The Court :This appeal filed by the revenue under Section260A of the Income Tax Act, 1961 (the ‘Act’ in brevity) isdirected against the order dated 17[th] January, 2020 passed by theIncome Tax Appellate Tribunal, Kolkata “A” Bench (the ‘Tribunal’in short) in ITA No.1173/Kol/2018 for the assessment year 2013-14. The revenue has raised the following substantial questionsof law for consideration: “A. Whether the Learned Tribunal has committedsubstantial error in law in deleting the addition ofRs.20,38,637/- on account of disallowance for delayedpayment of employees contribution to Provident Fundviolating the provision of Section 36(1)(va) readwith Section 2(24)(x) of the Income Tax Act ?B.Whether the Learned Tribunal has committedsubstantial error in law in giving relief to theassessee on account of disallowance of retentionmoney amounting to Rs.7,72,10,900/- added back duringassessment ?substantial error in law in deleting the addition ofRs.20,38,637/- on account of disallowance for delayedpayment of employees contribution to Provident Fundviolating the provision of Section 36(1)(va) readwith Section 2(24)(x) of the Income Tax Act ?B.Whether the Learned Tribunal has committedsubstantial error in law in giving relief to theassessee on account of disallowance of retentionmoney amounting to Rs.7,72,10,900/- added back duringassessment ? C.Whether the Learned Tribunal has committedsubstantial error in law by not considering theCBDT’s Circular No.22/2015 dated 17.12.2015 which hasspecifically directed assessing officer to allowcredit of employees contribution to provident fund orsuperannuation fund or any other fund for the welfareof employees, by invoking the provisions of Section43B of the Income Tax Act, if the same has been paidafter due date ? D. Whether the Learned Tribunal has committed substantialerror in law by not considering that CBDT’s CircularNo.22/2015 dated 17.12.2015 which clarified that theCircular does not apply to claim of deductionrelating to employees contribution to welfare fundswhich are governed by Section 30(1)(va) of the IncomeTax Act, 1961 ? We have heard Mr. Debasish Chowdhury, learned Counselassisted by Mr. Soumen Bhattacharyya, learned Advocate for theappellant/revenue and Mr. J. P. Khaitan, learned senior Counsel assisted by Mr. A. K. Dey and Mr. Sanjay Bhoumik, learnedAdvocates for the respondent. D. Whether the Learned Tribunal has committed substantialerror in law by not considering that CBDT’s CircularNo.22/2015 dated 17.12.2015 which clarified that theCircular does not apply to claim of deductionrelating to employees contribution to welfare fundswhich are governed by Section 30(1)(va) of the IncomeTax Act, 1961 ? We have heard Mr. Debasish Chowdhury, learned Counselassisted by Mr. Soumen Bhattacharyya, learned Advocate for theappellant/revenue and Mr. J. P. Khaitan, learned senior Counsel assisted by Mr. A. K. Dey and Mr. Sanjay Bhoumik, learnedAdvocates for the respondent. The first issue which falls for consideration is withregard to the correctness of the order passed by the tribunal indeleting the addition of Rs.20,38,637/- on account of disallowancefor delayed payment of employees contribution to the ProvidentFund Authorities in contravention to the provisions of Section36(1)(va) read with Section 2(24)(x)of the Act. The said issue ispending consideration before this Court and two other appeals havebeen admitted. However, in the instant case, there is one moreissue involved with regard to the retention money where thetribunal had granted relief to the assessee by affirming the orderpassed by the Commissioner of Income Tax (Appeals) (CIT(A)deleting the disallowance of retention money amounting toRs.7,72,10,900/-. If the substantial questions framed forconsideration with regard to the retention money are decided infavour of the respondent/assessee, then the other issue pertainingto the disallowance for delayed payment of employees contributionto the provident fund will become academic as the tax effectinvolved on the said issue is around Rs.6 lakhs and the appealcannot be pursued further by the revenue on account of low taxeffect. In such event, we will have to leave the question open asthe said question is now pending consideration before this Courtin other appeals which have been entertained. With this prelude we proceed to consider the second issueregarding the disallowance of retention money. The assessee’s casewas that the retention money is payable after certain period oftime on the satisfactory performance of the contract executed bythe parties as per the terms of the agreement and could not besaid to be accrued to the assessee at the time of raising invoiceand could be said to be accrued only after the customer acceptsits claim for satisfactory completion of the contract. Theassessee contended that the retention money represents certainpercentage of delayed amounts retained by the parties in respectof contracts entered by them which will be paid only aftersatisfactory completion of the contract. The assessee is engagedin the manufacture and supply of heavy equipments and tools undercontract. In terms of the contract which have been entered into bythe assessee with the third parties a certain percentage of theinvoice amount raised by the assessee is retained by thecustomer/parties as retention money to be paid after thesuccessful completion of the contract or on fulfilment of certainpre-determined conditions mentioned in the purchase order. Theassessee produced sample contracts entered into with thecustomers. These contracts were perused by the CIT(A). Further,the assessee contended that in the assessee’s own case for theassessment years 2008-09 and 2009-10 the tribunal had decided theissue in their favour. The assessee also placed reliance on thedecision of this Court in Commissioner of Income Tax Vs. Simplex Concrete Piles (India) Pvt. Ltd., reported in [1989] 179 ITR 8(Cal.) The contentions advanced by the assessee were considered bythe CIT(A) and the sample contract which was produced by theassessee was examined. The law as laid down in Simplex ConcretePiles (India) Pvt. Ltd. was noted and the CIT(A) granted relief tothe assessee. While doing so, the CIT(A) took into considerationof the order passed by the tribunal in the assessee’s holdingcompany, M/s. Mc Nally Bharat Engineering Co. Ltd. Kolkata in ITANo.100/Kol/2011 wherein the tribunal dismissed the department’sappeal on the said issue and held that the retention money shouldnot be included in computing book profits under Section 115JB aswell as normal provisions. We are informed that the revenue haspreferred appeal only with regard to the finding concerningcomputation of books of account under Section 115JB and not underthe normal provisions and the finding to the said effect hasattained finality.Mr. Debasish Chowdhury, learned counsel for the revenuesubmitted that the decision in Simplex Concrete Piles (India) Pvt.Ltd. was rendered in the year 1989 and the law as of now needs tobe looked into. We find that the legal principle has not undergoneany change. In fact, as recently as on 30[th] July, 2020, in thecase of Commissioner of Income Tax vs. Voltech Projects Pvt. Ltd.reported in [2020] 428 ITR 270 (Mad.) the same issue wasconsidered and the revenue’s appeal was dismissed. The tribunal while considering the correctness of theorder passed by the CIT(A) once again re-examined the facts andtook note of the conditions of the contract entered into betweenthe assessee and the third parties and affirmed the order passedby the CIT(A). In Simplex Concrete Piles (India) Pvt. Ltd. it washeld that the conditions of the contract provide for retaining 10per cent or 5 per cent of the amount payable to the assessee onlyupon satisfactory completion of the work as certified by thecontracting party. The Court noted that only after the assesseefulfilled their obligations under the contract, the retentionmoney would be released and the assessee would secure the right toreceive such retention money. Thus, it was held that when thebills were submitted having regard to the nature of the contract,no enforceable liability accrued or arose and, accordingly, itcould not be said that the assessee had any right to receive theentire amount on the completion of the work or on the submissionof the bills. Further, it was held that the assessee had no rightto claim any part of the retention money till the verification ofsatisfactory execution of the contract. The above decision wouldapply with full force to the case on hand. That apart the CIT(A)as well as the tribunal have examined the sample contract producedby the assessee which they have entered into with the third partycustomers/parties and found on facts that the assessee would beentitled to the amount retained only upon satisfactory completionof the work which would be certified by the contracting parties. Thus, we find that the tribunal rightly rejected the appeal filedby the revenue on the said aspect. Hence, the present appeal onthe said issue needs to be rejected. Accordingly, substantialquestion of law no.B is answered against the appellant/revenue.As prefaced earlier, if substantial question of law no.Bis decided against the revenue, then the other questions of lawnamely, A, C and D all relate to disallowance for delayed paymentof employees contribution to the provident fund authorities. Thedeletion is to the tune of Rs.20,36,637/- and the approximateamount of tax that would become payable on the said amount wouldbe about Rs.6 lakhs. If that is so, the said issue cannot bepursued by the revenue on account of low tax effect. We areconscious of the fact that other appeals have been entertained bythis Court to decide this issue which are pending. Therefore, weleave substantial questions of law nos.A, C and D open and theyare not decided in this appeal as we are dismissing this appeal bydeciding substantial question of law no.B in favour of theassessee and the other three questions are left open.With the dismissal of the appeal, the connectedapplication for stay stands closed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)