Commissioner of Income Tax vs P and C Constructions (P) Ltd.

B. Rajendran, J.—The Revenue filed these appeals against the order of the Income Tax Appellate Tribunal, Chennai Bench ""D"", made in

I.T.A. Nos. 2557 and 2558/Mds/05, dated October 31, 2007.

The Assessing Officer, while completing the proceedings u/s 143(3) read with Section 147, brought to tax the retention money and additional

security deposit in the account of the assessee. The Assessing Officer found that the assessee omitted to admit the entire contract receipts that had

been shown in the TDS certificate and in the profit and loss account. Aggrieved against the said assessment order, the assessee filed an appeal to

the Commissioner of Income Tax (Appeals), who deleted the addition made by the Assessing Officer in relation to the retention money as well as

the additional security deposit. Aggrieved against the said order of the Commissioner of Income Tax (Appeals), the Revenue filed an appeal to the

Tribunal. The Tribunal, after considering the decisions rendered by this Court in CIT v. Ignifluid Boilers (I) Ltd. [2006] 283 ITR 295 and The

Commissioner of Income Tax Vs. East Coast Constructions and Ind. Ltd., , concluded that these two amounts cannot be included in the

assessee''s income and thus rejected the appeal preferred by the Revenue and confirmed the order passed by the Commissioner of Income Tax

(Appeals). Aggrieved against the said decision, the Revenue has come forward with the present appeals.

The only question of law which was sought to be presented before this Court by the Revenue is whether, in the facts and circumstances of the

case, the Tribunal was right in holding that the retention money and the additional security deposit had not accrued to the assessee and was not

taxable during the assessment year under appeal?

On a careful reading of the facts and circumstances of the case, it is very clear that the assessee could not receive the retention money in the

case of a contract which was retained by the contractee for the purpose of the successful completion of the contract. We are guided by the two

earlier rulings of the Division Bench of this Court reported in CIT v. Ignifluid Boilers (I) Ltd. [2006] 283 ITR 295, wherein in identical

circumstances, this Court has held that the retention money had not been received in respect of the relevant assessment year, though the work had

been completed and that the assessee was only entitled to receive the amount after the successful completion of the work. In such circumstances, it

could not be said that 10 per cent, of the amount retained had accrued to the assessee and hence, it was not assessable in the assessment year

wherein it was sought to be done by the Department. Similarly, in the decision reported in The Commissioner of Income Tax Vs. East Coast

Constructions and Ind. Ltd., , in identical circumstances, while dismissing the appeal filed by the Revenue, the court has come to the conclusion

that the assessee was entitled to receive the retention money after completion of the contract. On the date of the bill, no enforceable liability had

accrued or arisen. When the assessee had no right to receive the money by virtue of the contract between the parties and the assessee also had no

right to enforce payment, it could not be said that the right to receive payment of the remaining 10 per cent, of the value of job had accrued.

Following the abovesaid two decisions, we also come to the conclusion that as regards the additional security deposit amount, it admittedly

could be lying with the department or contractee till the successful completion of the contract to the satisfaction of the contractee. This amount of

additional security deposit, if at all it is to be repaid by the department concerned, it would be only after the total completion of the contract.

Therefore, even though the contract was over, the assessee would not be able to lay his hands till the contract is successfully concluded and

accepted by the contractee. Therefore, what applies to the retention money in the abovesaid two decisions would equally apply to the additional

security deposit amount also. Accordingly, we concur with the above referred to decisions in respect of additional security deposit also and we

hold that the Department cannot include the said amount for the assessment year when actually this amount has not been paid to the assessee.

For the foregoing reasons, we conclude that the finding given by the Tribunal was well reasonable and in accordance with law. Hence, we find

no reason to interfere with the order of the Tribunal inasmuch as the question of law sought to be pleaded by the Revenue has already been

answered by this Court in the abovesaid two decisions. The appeals do not merit acceptance and they stand dismissed. Consequently, M.P. No. 1

of 2009 is closed. No costs.