Retention money taxable in year of contract condition fulfillment

DCIT Vs EMC Limited (ITAT Kolkata)

The issue under consideration is whether the CIT(A) is correct in deleting the addition of retention money under normal computation of Income & u/s 115JB as well.

In the present case, the assessee had filed its original return of income showing total income of Rs.194,46,16,540/-. Thereafter the assessee’s case was selected for scrutiny and notices u/s. 143(2) of the Act was served upon the assessee. The AO noted that the assessee thereafter had filed revised income tax return revising its income to Rs.49,98,06,980/-. The assessee explained that when the original return was filed on the basis of profit as per the P&L Account without considering the deduction made by parties (customers) on account of retention money. However, the assessee on proper application of the legal and factual position realised that company’s real income is much less than the revenue booked in the account and hence, revised return was filed on 17.03.2016 claiming deduction of the retention money debited by the parties during the year amounting to Rs.142,53,74,710/-.

ITAT states that 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. ITAT 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. hence, the 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, ITAT do not find any infirmity in the order of the Ld. CIT(A) and so, they confirm it and dismiss the appeal of the Revenue.

FULL TEXT OF THE ITAT JUDGEMENT

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