2012 (2) TMI 581 - AT - Income Tax

Summary

Issues involved: Interpretation of retention money u/s mercantile system of accounting for AYs 2002-03 & 2005-06.

Issue 1: Retention money accrual

The revenue contended that the retention money of Rs. 3,05,52,566 accrued to the assessee when the contract was completed as per the terms, thus should be recognized as income. However, the Tribunal referred to a similar case and held that retention money cannot be recognized until the guarantee period is over. The Hon'ble Jurisdictional High Court affirmed this decision, stating that retention money withheld pending completion of work does not accrue to the contractor in the year retained. The Tribunal also cited another case where it was held that retention money received against a bank guarantee cannot be considered income until the guarantee period expires. The Tribunal noted that the assessee consistently offered for taxation the part released of retention money against a bank guarantee in the assessment year when the right to receive it accrued unconditionally. The Tribunal upheld the CIT(A)'s decision based on previous judgments and the rule of consistency.

Decision:
The Tribunal dismissed the revenue's appeals based on the interpretation of retention money under the mercantile system of accounting, following previous decisions and maintaining consistency with the assessee's approach.