Retention money taxable as when the right to receive the same accrues

The fact of the case was identical in the two assessment year. The assessee was a civil contractor. In the computation of income the assessee deducted from the net profit the amount of retention money deducted from the bills and filed its return of income.

The assessee was involved in power sector contracts and as per the terms and conditions of such work contract, an amount of 5 to 10% is used to deducted from the bills raised as retention money which would be payable to the assessee after successful completion of the commissioning of the project. The Ld. Counsel of the assessee further submitted that the same claim has been allowed by the tribunal in preceding A.Y. 2007-08 on the ground of appeal duly covered by the decision of Hon’ble Jurisdictional High court in the case of CIT-vs. Simplex Concrete piles (India) Pvt Ltd. Observing that:-

“From the facts, there is no reason to hold that the entire amount became due immediately upon the submission of bills but that 5 or 10 percent of the bills, as the case may be, was withheld as security. The assessee follows the mercantile system of accounting and, therefore, it must credit its accounts as and when the right to receive any sum accrues. There cannot be any dispute in respect of 90% of the amounts of bills. The right to receive payment of 5% accrues on completion of work and only remaining 5% is deferred for a further period. The payment of retention money is deferred and is contingent on satisfactory completion of the work and removal of defects and payment of damages, if any. Till then, there is no admission of liability and right to receive any part of the retention money accrues to the assessee”.

Similar view was also taken in the various cases sighted in the appeal.

Held

The assessee was following mercantile system of accounting and accounted retention money on due basis. Since the facts of present cases are identical, the issue is squarely Techno Electric &Engg. Co. Ltd. AY 2008-09 & 2009-10 covered in favour of assessee and against the revenue by the decision of Coordinate Bench of this Tribunal in immediately preceding year i.e. 2007-08 and consistently taking the same view, appeal filed by the revenue dismissed.