2020 (6) TMI 3 - AT - Income Tax

Addition of retention money - disallow the TDS credit claimed in respect of the retention money - HELD THAT - CIT(A) has taken care of the TDS issue and the assessee has not preferred to challenge the action of Ld. CIT(A) which crystallizes. Therefore, the direction of the Ld. CIT(A) to the AO to disallow the TDS credit claimed in respect of the retention money not shown as income by the assessee in the revised return and to allow it in the year in which the assessee declares retention money as its income takes care of the TDS credit even if erroneously claimed by the assessee in respect of the retention money. The relevant clauses of the contract that the contractees had the right to withhold certain percentage of the consideration till the conclusion of the project and only after certification of concluded projects the retained portion of the amounts are disbursed finally which may be in the succeeding assessment years and is contingent upon the terms and conditions of the contract. AO has not disputed the amount which has been retained by the contractees. In such a scenario, merely because the assessee had booked the income in this year without actual receipt of it, cannot be chargeable to tax as per the Act. The reasons given by the AO to disallow the claim of the assessee cannot be sustained and was rightly repelled by the Ld. CIT(A) whose view to accept the claim of assessee is based on the accepted judicial precedents laid down by the Hon ble jurisdictional High Court in CIT Vs. Simplex Concrete Piles 1988 (12) TMI 52 - CALCUTTA HIGH COURT ; Hon ble Gujarat High Court in Anup Engineering Ltd. 2000 (7) TMI 17 - GUJARAT HIGH COURT ; Hon ble Bombay High court in CIT Vs. Associated Cables P. Ld. 2006 (8) TMI 135 - BOMBAY HIGH COURT and in CIT Vs. Ignifluid Boilers (I) Ltd. 2006 (1) TMI 76 - MADRAS HIGH COURT . We hold that in the factual circumstances especially as per the terms of contract between the assessee and the contractee, the retention money retained by the contractee is deferred payment and is contingent upon satisfactory completion of contract work. Right to receive the retention money is accrued only after the obligations under the contract are fulfilled and the assessee had no vested right to receive the same in this assessment year, therefore, it would not amount to an income of the assessee 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 of the Revenue. Order is being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Coordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Deletion of the addition of retention money under normal computation of income and u/s. 115JB of the Income Tax Act, 1961.
2. Deletion of the disallowance made by AO u/s. 14A read with rule 8D of the Income Tax Rules, 1962.

Issue 1: Deletion of the Addition of Retention Money

The revenue contended that the Ld. CIT(A) erred in deleting the addition of ?142.53 crore as retention money under normal computation of income and u/s. 115JB. The AO noted that the assessee filed its original return on 29.11.2014, showing a total income of ?194.46 crore, which was later revised to ?49.98 crore on 17.03.2016, claiming a deduction for retention money. The AO rejected this claim, arguing that since TDS was deducted on the retention money, it should be considered as income accrued during the assessment year 2014-15.

The assessee argued that the retention money was contingent upon the successful completion of the contract and, therefore, did not accrue as income during the year. The assessee cited the decision of the Hon'ble Calcutta High Court in CIT Vs. Simplex Concrete Piles (India) and other judicial precedents to support their claim that retention money should not be treated as income until the contractual obligations are fulfilled.

The Ld. CIT(A) accepted the assessee's argument, noting that the retention money would only accrue as income after the successful completion of the project and the issuance of a taking-over certificate. The Ld. CIT(A) directed that the TDS claimed by the assessee related to such retention money should be disallowed in the assessment year 2014-15 and allowed in the year in which the assessee declares retention money as its income.

The ITAT upheld the Ld. CIT(A)'s decision, stating that the retention money is contingent upon the completion of the contract and the issuance of a taking-over certificate. The ITAT referred to various judicial precedents, including CIT Vs. Simplex Concrete Piles (India), Anup Engineering Ltd., and Associated Cables P. Ltd., which held that retention money should not be considered as income until the contractual obligations are fulfilled.

Issue 2: Deletion of the Disallowance Made by AO u/s. 14A read with rule 8D

The revenue challenged the deletion of the disallowance of ?51.59 lakhs made by the AO u/s. 14A read with rule 8D. The Ld. CIT(A) noted that the assessee had not earned any exempt income during the year and relied on the Tribunal's decision in REI Agro Ltd. and the Hon'ble Calcutta High Court's confirmation of the same. The Ld. CIT(A) also referred to the Hon'ble Delhi High Court's decision in Cheminvest Ltd. Vs. CIT, which held that no disallowance could be made under section 14A if no exempt income was earned.

The ITAT found no infirmity in the Ld. CIT(A)'s order and dismissed the revenue's appeal on this ground, stating that the disallowance u/s. 14A read with rule 8D was not warranted in the absence of any exempt income.

Conclusion:

The ITAT upheld the Ld. CIT(A)'s decision to delete the addition of retention money under normal computation of income and u/s. 115JB, as well as the deletion of the disallowance made by the AO u/s. 14A read with rule 8D. The ITAT dismissed the revenue's appeal, confirming that retention money should not be considered as income until the contractual obligations are fulfilled and that no disallowance could be made under section 14A in the absence of exempt income.