ADIT Vs. Ballast Nadam Dredging (ITAT Mumbai)- It was held that retention money withheld by the contractee pending completion of contract work does not accrue to the assessee/ contractor in the year in which the amount is retained. We also observe that similar issue was also considered by ITAT in the case of Spirax Marshall Ltd (supra) wherein it was held that receipt of retention money against furnishing bank guarantee cannot partake character of income since it cannot be apportioned until guarantee period was over. The retention money may be received by the assessee; it cannot be apportioned until expiry of warranty period. We observe that the Hon’ble Allahabad High Court in the case of CIT vs. Yatindra and Co. (supra) held that an amount received by assessee against bank guarantee was not accrued to the assessee during the year as no absolute right to receive the amount at that stage vested.
9. Further we observed that the assessee received a part of retention money against bank guarantee in the preceding assessment years, the details of which are given by Assessing Officer at Page 2 and also mentioned herein above in Para 3 at Page 3 of this order. During the course of hearing the learned Authorized Representative submitted that the assessee is following consistently to offer for taxation the part released of retention money against bank guarantee in the assessment year in which right to receive the said release of retention money accrued to the assessee unconditionally. The learned Departmental Representative also did not dispute the above contention of learned Authorized Representative at the time of hearing.
10. In view of above facts and decisions, and particularly that similar issue has been considered by the Hon’ble Mumbai High Court in the case of Associated Cables Pvt. Ltd. (supra) which has been followed by the learned CIT (A), we do not find any reason to interfere with the order of Ld.CIT (A). Hence, we uphold his order and reject the ground of appeal taken by the department.
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
I.T.A. No. 999/Mum/2008 – (Assessment Year: 2004- 05)
ADIT (IT)-3(2),
Vs.
Ballast Nadam Dredging
Date of pronouncement : 30.12.2011
ORDER.
Per B.R. Mittal, J.M.
Department has filed this appeal for the Assessment Year 2004-05 against the order of learned Commissioner of Income Tax (Appeals)-XXXIII, Dated 29.11.2007 on following ground:
“On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the retention money of Rs. 4,14,62,866/- accrued to the assessee on the ground that the retention money accrues only when the contract is completed to the satisfaction of the contractee as per the terms of contract Agreement. The ld. CIT(A) not appreciated the fact that when the assessee is following the Mercantile System of accounting and the amount of retention money received during the Financial Year 2003-04 relevant to the Assessment Year 2004-05 and reduced to that extent from the Loans and Advances Receivable allowing the addition made of Rs. 3,09,418/- on account of provision for doubtful debts with book profit, only relying on the decision of ITAT in the case of MSEB (77 ITJ 33), wherein the Hon’ble ITAT has stated that provision for bad and doubtful debts represents a restatement of value of assets and not a liability, ignoring the Assessing Officer’s finding.”
2. At the time of hearing the learned Departmental Representative submitted that this ground is not properly drafted and as such the only issue to be considered is as to whether Ld. CIT (A) on the facts and in the circumstances of the case has erred in deleting the retention money of Rs. 4,14,62,866/- accrued to the assessee.
3. The relevant facts giving raise to this appeal are that assessee is a company incorporated in the Netherlands. The assessee was involved in execution of contract for construction of breakwaters and the associated dredging and land reclamation works at Karwar, Karnataka awarded by the Government of India. The Assessing Officer stated that assessee reduced an amount of Rs.4, 11,42,846/- on account of retention money during the year. He stated that on perusal of details filed by the assessee, as per clause 38(i)(1) of the contract, the Employer (Government of India – Navy) withheld retention money @ 5% from works executed during the year and subsequent year. The retention money withheld during the year amounted to Rs. 4,11,42,846/-. The Assessing Officer further stated that on perusal of Schedule 7 to Financial Statement, it is observed that balance of retention money decreased from Rs.4,35,62,352/- to Rs.4,32,42,332/-, while during the year Rs.4, 11,42,846/- was deducted as retention money from the bills raised during the year. He has further stated that during the year the employer i.e., Government of India released Rs. 4,14,62,866/- against bank guarantee. The Assessing Officer has given relevant details of retention money of preceding years and assessment year under consideration in the assessment order at Page-2 in Para 4.3 as under:
