2012 (11) TMI 905 - AT - Income Tax

Taxability of retention money - assessee contended that same cannot be treated as Revenue since retention money has not accrued to the assessee and same shall be realized only on satisfactory completion of the contract - Held that - It is undisputed that assessee has not received any money out of the amount retained as retention money by the contractee, Therefore, CIT(A) was justified in holding that monies retained by the principal as per provisions of contracts as retention money can not be included in the total income - Decided against Revenue

Summary

Issues:
Appeal against separate orders of ld. CIT(A), Gandhinagar, Ahmedabad regarding inclusion of retention money in total income of the assessee.

Analysis:
1. The Revenue appealed against the orders of ld. CIT(A) regarding the inclusion of retention money in the total income of the assessee for the assessment year 2002-03. The assessee, involved in a construction contract, claimed retention money as allowable expenditure, leading to a dispute with the Assessing Officer (A.O.). The A.O. contended that since bills were raised and passed, the entire amount had accrued to the assessee, contrary to the assessee's stand that retention money would only be realized upon satisfactory completion of the contract.

2. Before the ld. CIT(A), the assessee cited various case laws to support their position. The ld. CIT(A) allowed the appeal by considering that the retention money, subject to conditions like inspection and satisfactory completion, had not accrued to the assessee and hence should not be included in the income. The CIT(A) differentiated the case from a previous ITAT decision and emphasized that the retention money was not part of the total income.

3. The Revenue challenged the CIT(A)'s decision, arguing that the retention money should be considered accrued income when bills were raised, contrary to the CIT(A)'s interpretation. The assessee, supported by case laws, maintained that the CIT(A)'s decision aligned with legal precedents, including a Mumbai ITAT ruling on a similar issue.

4. Upon review, the Tribunal found the CIT(A)'s decision consistent with the Mumbai ITAT ruling, which held that retention money did not accrue until the contract was completed. The Tribunal highlighted that the retention money was conditional and could not be recognized as income until the guarantee period expired, citing various legal precedents to support the decision.

5. The Tribunal distinguished the present case from the DCIT Vs. Amarshiv Construction (P) Ltd. case, emphasizing that the assessee had not received any money from the retention amount, unlike the situation in the cited case. The Tribunal concluded that the A.O.'s reliance on the DCIT Vs. Amarshiv Construction (P) Ltd. decision was misplaced, upholding the CIT(A)'s order and dismissing the Revenue's appeals.

This detailed analysis outlines the legal dispute over the inclusion of retention money in the assessee's total income and the subsequent decisions by the authorities and the Tribunal based on legal interpretations and precedents.