Case Law Details
Urmila Rcp Projects Pvt. Ltd. Vs. DCIT (ITAT Ranchi)
The issue under consideration is whether the expenses incurred against the retention money or unrealised income is allowed under mercantile system of accounting?
ITAT states that, the approach adopted by the Revenue while disturbing the income declared by the assessee. The assessee herein seeks to record the income when it comes into existence in the relevant previous year. The real test for taxability of income is that if the amount is to be taxable as income, the basic conception to be kept in view is that the ‘right to receive’ the income must come into existence in the relevant previous year. The income accrues when it becomes legally due to the assessee. The date of actual receipt, of course, is not determinative for taxability of income under mercantile system of accounting. Mere raising of invoice on the contractee would not ipso facto tantamount to accrual of income. The assessee in the instant case, claims that a certain portion of bill has been kept as a lien in the custody of the contractee till the fulfillment of the conditions specified in the contract. Naturally, such retention money would accrue only where the terms of the contract stands fulfilled. In the absence of its accrual, the income cannot be taxed under mercantile system of accounting on a hypothetical basis. ITAT find considerable force in the aforesaid plea of the assessee. It is not the case of the Revenue that the work under the contract has been completely fulfilled. The unrealized portion of the bills raised by the contractor assessee is in the league of contingent income until and unless the terms and conditions of the contract stands fulfilled. ITAT find complete merit in the argument laid on behalf of the assessee on this score. When seen differently, they also find substance in the case made out that the assessee has booked the unrealized portion of the bill in the year of realization as and when happened. Therefore, the action of the assessee does not cause any prejudice to the Revenue and is tax neutral. In such circumstances, when seen in combination, ITAT are inclined to accept the claim of the assessee for non-taxability of unrealized income kept in the custody of the contractee as per the terms of the contract. For the reasons narrated, ITAT set aside the order of the CIT(A) and direct the AO to delete the disallowance of expenditure on this score.
FULL TEXT OF THE ITAT JUDGEMENT
PER PRADIP KUMAR KEDIA – AM:
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