ACIT Vs Patil Construction and Infrastructure Limited (ITAT Pune)
Security Deposits from Contractors Not Cash Credits: ITAT Upholds Deletion of ₹22.61 Cr Addition
The Income Tax Appellate Tribunal, Pune Bench, in ACIT vs Patil Construction and Infrastructure Ltd., upheld deletion of ₹22.61 crore added under Section 68, holding that security deposits/retention money from contractors are genuine trade liabilities and not unexplained cash credits.
The Assessing Officer treated deposits from contractors as non-genuine and taxed ₹22.61 crore as unexplained income, alleging lack of identity, creditworthiness, and genuineness. However, the assessee demonstrated that these amounts were retention money deducted from running bills of subcontractors, a standard industry practice in construction contracts.
The CIT(A) examined detailed ledgers, movement of deposits, and supporting records, and found that these were not fresh inflows but appropriations from contractual payments, consistently reflected in earlier years. As seen from financial data (page 14), balances of such deposits existed across multiple years, reinforcing their nature as ongoing business liabilities rather than unexplained credits.
The Tribunal agreed, noting that: transactions were routed through regular books; parties were identifiable subcontractors; there was continuous debit/credit movement including release of deposits; and no interest or loan relationship existed. It reiterated that Section 68 cannot be invoked for genuine trade liabilities arising from business transactions.
Further, the Tribunal rejected the Revenue’s argument of Rule 46A violation, holding that no fresh evidence was admitted—only existing records were examined. Applying consistency and settled law, the ITAT dismissed the Revenue’s appeal and upheld the CIT(A)’s order deleting the addition.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the Revenue is directed against the order dated 05.08.2025 of the Ld. CIT(A), Pune-12 relating to assessment year 2022-23.
