IN INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE S/SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER I.T.A. No.6866/Mum/2014 ( Assessment Year: 2010-11) Asst. Commissioner of Shri Himanshu K. Modi Income Tax 25(2) Vs. Prop.M/s.Vitrag st Room No.108, 1 Floor, Construction, C-4/406, Bldg. No.C-11, Yogi Nagar, Borivali (W) Pratyakshakar Bhavan, Mumbai - 400091 Bandra Kurla Complex, Bandra (East), Mumbai - 400051 ./PAN/GIR No. : AACPM8724B (Appellant) ( Respondent) Assessee by: Shri Vimal Punmiya Department by: Shri S.K.Mishra Date of Hearing: 22.06.2016 Date of Pronouncement: 22.09.2016 O R D E R PER AMARJIT SINGH, JM: revenue has filed present appeal against order dated 23.08.2014 passed by Commissioner of Income Tax (Appeals)-35, Mumbai [hereinafter referred to as CIT(A) ] relevant to A.Y.2010-11. 2. revenue has raised following grounds:- ITA No.6866/Mum/2014 Assessment Year: 2010-11 1. On facts and in circumstances of case and in law, Ld.CIT(A) erred in deleting addition on account of retention money of Rs.1,33,10,162/- as part of turnover, without considering fact that TDS was deducted on gross amount and same has been credited by assessee in relevant assessment year. 2. On facts and in circumstances of case and in law, Ld. CIT(A) erred in appreciating fact that assessee follows mercantile system of accounting and as such retention money in consideration had accrued during period under consideration. 3. On facts and in circumstances of case and in law, Ld. CIT(A) erred in deleting addition made u/s.69C of Act as unexplained expenditure to tune of Rs.3,07,40,640/- without considering fact that assessee had failed to established during assessment proceedings that transactions were wholly and exclusively for purpose of business. 4. On facts and in circumstances of case and in law, Ld. CIT(A) erred in relying upon judgment in case of CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. without appreciating that facts involved in appellant s case are different from facts of above case law. 5. On facts and in circumstances of case and in law, Ld. CIT(A) erred in deleting addition made u/s.40(a)(ia) of Rs.5,59,349/- without appreciating fact that assessee failed to submit from 15G before due date of filing return. 6. appellant prays that order of ld.CIT(A) on above ground be set aside and that of Assessing Officer be restored. 3. brief facts of case are that assessee filed his return of income on 12.10.2010 declaring total income to tune of Rs.2,69,21,600/-. return was processed u/s.143(1) of Income Tax Act, 1961( in short Act ). Subsequently case 2 ITA No.6866/Mum/2014 Assessment Year: 2010-11 was selected for scrutiny and notice u/s.143(2) of Act was issued on 29.09.2011 which was duly served upon assessee. Thereafter notice u/s.142(1) of Act was also issued. assessee was Civil Engineer and registered with MCGM & PWD. assessee was proprietor of M/s.Vitrag Construction Co. which was engaged in road construction both concrete and Asphalt. It undertakes other civil works like Nalah etc. Assessing Officer was of view that retention money to tune of Rs.1,33,10,162/- was liable to be taxed and also was of view that purchases aggregating to Rs.3,07,40,640/- was unexplained and was liable to be taxed and assessee paid interest to tune of Rs.3,98,354/- to G. E. Capital TFS Ltd. but no tax deduction at source, therefore interest claimed to tune of Rs.3,98,354/- was disallowed u/s.40(a)(ia) of Act and assessed income of assessee to tune of Rs.7,19,31,100/-. Feeling aggrieved assessee filed appeal before CIT(A) and CIT(A) allowed above said disallowance, therefore revenue has filed present appeal before us. ISSUE NO.1&2:- 4. Issue no.1 and 2 are interconnected, therefore are being taken up together for adjudication. Under these issues contention of revenue is that retention money to tune of Rs.1,33,10,162/- is liable to be taxed in accordance with law. Before going further it is necessary to advert finding of CIT(A)on record:- 3 ITA No.6866/Mum/2014 Assessment Year: 2010-11 I have gone through facts of case, contention of AO and submissions of appellant in this regard. It is undisputed fact that amount of Rs.1,33,10,162/- is only receivable from Municipal Corporation of Greater Mumbai. It is also fact and part of contract that retention money @ 5% of bill amount shall be deducted from each Running Account Bill on which no interest shall be paid. It is also fact that appellant has subsequently been receiving retention money on different dates and has paid tax thereupon in subsequent years. Similarly, in this year, on retention money received pertaining to earlier year, taxes have been paid in this year. contract deposit / retention money shall be paid to contractor only on finalisation of final bill or settlement of accounts of work by contractor in all respects or after completion of defect liability period, whichever is later. From submissions and facts, it can be noticed that appellant is following recognized method of accounting as per AS9 of ICAI which lays down that when uncertainties exist regarding determination of amount or its collectability, revenue shall not be treated as accrued and hence, shall not be recognized until collection. recognition of revenue on accrual basis pre-supposes satisfaction of two conditions (a) that revenue is measurable and (b) that revenue is collectible with certainty. In this case, while first is applicable, however, second is not. Reference is 4 ITA No.6866/Mum/2014 Assessment Year: 2010-11 made to decision in case of DIT(International Taxation) Vs Ballast Nedam International 2013 34 Taxmann.com 270 Gujarat High Court wherein it has been held that where assessee was awarded contract by company and in terms of contract, certain amount was withheld by said company towards retention money for satisfactory execution of contract, retention money did represent assessee s accrued income. clause is very clear and specific in defining modalities of how and when payment shall be released. In light of this, I am in agreement with submissions of appellant and also guided by decision of Hon ble Madras High Court in case of Madras High Court in case of East Coast Construction and Ind. Ltd. 283 ITR 293 referred supra that in this present case, when assessee has no right to receive has actually generated real income. On similar issue, my predecessor has decided in favour of appellant for earlier year i.e.2009-10 in order No.CIT(A)-35/JCIT- 25(2)/ITA.385/11-12 dt. 21.05.2012. In result, addition of Rs.1,33,10,162/-. 5. learned Departmental Representative did not produced any distinguishable facts of above said finding. Nothing came into notice that order passed by CIT(A) is wrong against law and facts. CIT(A) has decided matter of controversy on basis of decision in case of DIT(International Taxation) 5 ITA No.6866/Mum/2014 Assessment Year: 2010-11 Vs. Ballast Nedam International 2013 34 Taxman.com 270 Gujarat High Court and also placed reliance on decision of Hon ble Madras High Court in case of East Coast Construction and Ind. Ltd. 283 ITR 293. Moreover, revenue has already allowed retention money as non-taxable in assessee s own case for assessment year of 2009-10 decided by CIT(A) on 21.05.2012. In view of said circumstances we are in agreement that CIT(A) has passed order judiciously and correctly which does not require to be interfere with at this appellate stage. ISSUE NO.3 &4:- 6. Under these issues Revenue has challenged deletion of disallowance of unexplained expenditure to tune of Rs.3,07,40,640/- u/s.69C of Act. Assessing Officer received information from sales tax department regarding purchase from some of parties who were bogus therefore Assessing officer suspected bogus suppliers. parties are being listed below:- Sr. Name of party No. 1 Divine Enterprises 2 Kumar Enterprise 3 Niddhish Impex Pvt. Ltd. 4 Rohit Enterprise 5 Shreyas Marketing Agencies 6 Samarth Enterprises 7 Shree Ganesh Trading Co. 8 Tulsiani Trading Pvt. Ltd. 9 Vruksha Enterprise 6 ITA No.6866/Mum/2014 Assessment Year: 2010-11 Assessing Officer issued notice u/s.133(6) of Act to above said 9 parties and notices received back unserved. Assessing Officer asked assessee to produce said parties but assessee was unable to do so. Therefore, Assessing Officer was of view that purchase to tune of Rs.3,07,40,640/- is unexplained expenditure u/s.69C of Act, therefore unexplained expenditure was treated as income of assessee. However, assessee filed appeal before CIT(A) and CIT(A) allowed said unexplained expenditure, therefore, revenue has been filed present appeal before us. 7. We have heard parties, and perused material on record. Assessing Officer has invoked section 69C of Act. same reads as under:- Where in any financial year assessee has incurred any expenditure and he offers no explanation about source of such expenditure or part thereof, or explanation about source of such expenditure or part thereof, or explanation, if any, offered by him is not, in opinion of Assessing Officer, satisfactory, amount covered by such expenditure or part thereof, as case may be, may be deemed to be income of assessee for such financial year. Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be income of assessee shall not be allowed as deduction under any head of income. section, thus, gets attracted when assessee is unable to explain, or satisfactorily explain, i.e., in opinion of 7 ITA No.6866/Mum/2014 Assessment Year: 2010-11 Assessing Officer, any expenditure or part thereof, incurred by Assessee. incurring of expenditure by assessee works contractor, is therefore admitted. same is even otherwise borne out by fact of assessee having executed work, which stands further certified (by competent authority), with bills in its respect having been passed by contractee. only issue therefore is with regard to source of expenditure. source of same is reflected in assessee s accounts in-as-much as all payments in its respect have been made from assessee s bank account/s, which stands reflected in his regular books of accounts. Sure, bank account/s reflects payments to ostensible suppliers, who were admittedly not produced nor have been shown as genuine suppliers. But, where, then, is question of any payments being made to them, so that monies paid to them, being only ostensible suppliers, can only be considered as flowing back to assessee. It is this sum (reflected in assessee s accounts) that then explains source of payments made toward expenditure incurred in undertaking work executed. It is infact on only perusal of assessee s accounts accompanying his return that Revenue proceeded to require him to, in verification thereof, produce parties from whom goods/services are stated to be acquired. quantum of expenditure is, again, not in doubt. Not so doing would imply admitted expenditure on one hand, and admitted undisclosed cash (funds), in same amount, with assessee on other - clearly contradiction. We, therefore, find no basis in 8 ITA No.6866/Mum/2014 Assessment Year: 2010-11 Revenue s stands and, accordingly, uphold order of ld CIT(A). We decide accordingly. ISSUE NO.5:- 8. Under this issue revenue has challenged deletion of addition to tune of Rs.5,59,349/- u/s.40(a)(ia). Before going further it is necessary to advert finding of CIT(A) on record:- next ground of addition relates to non-deduction of tax at source while paying interest to some of parties. These are as under:- Sr. Name PAN Amount No. 1. K.G.Shah AWPPS3553D 60,000 2. Amita K. Shah AWRPS8413Q 60,000 3. Prafula P. Mody ACPPM1166Q 30,000 4. Pragna R. Vohra ADWPV7478G 24,000 5. Shushilaben V. Barvalia Not Available 60,000 6. Beena Shah ALVPS5393R 1,15,000 7. Bhavesh K. Shah (HUF) ACHB2997P 1,32,000 8. Rupa Dharmendra Mehta AJIPM4562C 41,967 9. Umedlal V. Gandhi (HUF) AABHG0526Q 35,290 10. Divya D. Shah (Below limit) AALPS0975N 888 Total 5,59,345 It was submission of appellant before AO that these parties had filled up Form 15G. However, said forms were not submitted to CIT(TDS) before due date 9 ITA No.6866/Mum/2014 Assessment Year: 2010-11 of filing of return. Instead appellant mentioned fact of submission of Form 15H in his e-TDS return. As per provisions of Act, appellant was to submit said forms to office of CIT(TDS) before due date of return of income which he failed to do and therefore, AO has made disallowance u/s.40A(ia). During appeal, appellant has once again reiterated argument that considering Section 194A r.w.s. 197A of I.T.Act, there is no tax to be deducted at source from interest payable or paid when Form 15G or 15H is received from parties and therefore, appellant has not deducted TDS at time of crediting interest or paying interest to payee. It is also contention of appellant that Section 40(a)(ia) is applicable only in respect of TDS default if amount is payable and not if it is actually paid and tax is not deducted. appellant has relied on following decisions: i. Teja Constructions V. CIT [2010] 39 SOT 13 (Hyd.) ii. Merilyn Shipping & Transports V. CIT [2012] 20 Taxmann.com 244 (Vishakhapatnam) iii. S.S.Warad V. CIT [2012] 19 ITR (Trib) 35 (Bang.) iv. T.T.Kuruvilla V. CIT [2012] 149 TTJ (Coch.) 533 v. Emdee Apparels V. CIT [2012] 54 SOT 600 (Bang.) 10 ITA No.6866/Mum/2014 Assessment Year: 2010-11 vi. Bartronics India Ltd. V. CIT [2012] 32 SOT 188 (Hyd.) To substantiate his point, it is submission of appellant that there is only procedural error in submitting Form 15H before CIT(TDS). So, provisions of Section 40(a)(ia) cannot be invoked. 9. Undoubtedly, assessee did not deduct TDS on payments made to above said ten parties. parties had fill up form no.15G which has not been submitted before CIT(TDS) before due date of return. It is not in dispute that assessee was not liable to be deduct TDS on payment of interest if parties submitted form No.15G. form 15G submitted late. CIT(A) was of view that it was procedural error and there was no effect on revenue, therefore, deleted addition u/s.40(a)(ia) and was also view that section 40(a)(ia) of Act was not applicable to effective of case. On appraisal of entire facts and circumstances mentioned above, we found no illegality and irregularity in finding of CIT(A) on this issue, therefore we affirm finding of CIT(A) and decide this issue against revenue in favour of assessee. 10. In result, appeal of revenue is hereby Dismissed. 11 ITA No.6866/Mum/2014 Assessment Year: 2010-11 Order pronounced in open court on 22nd September, 2016 Sd/- Sd/- (SANJAY ARORA) (AMARJIT SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated : 22nd September, 2016 MP Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai 12 Asst. Commissioner of Income Tax 25(2), Mumbai v. Himanshu K. Modi