Rajasthan High Court - Jodhpur

Gwal Das Mehta vs C.I.T, Ii, Jodhpur ... on 29 January, 2025

Author: Pushpendra Singh Bhati

Bench: Pushpendra Singh Bhati

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      HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
                          JODHPUR
             D.B. Civ.cros.obj.IT App No. 3/2015

Shri Gwal Das Mehta, Prop. Brij Construction & Engineers,
Jaisalmer, District- Jaisalmer.
                                                     ----Appellant
                                Versus
Commissioner of Income Tax-II, Jodhpur.
                                                  ----Respondent
                           Connected With
               D.B. Civ.cros.obj.IT App No. 5/2015
Shri Gwal Das Mehta, Prop. Brij Construction & Engineers,
Jaisalmer, District- Jaisalmer.
                                                     ----Appellant
                                Versus
Commissioner of Income Tax-II, Jodhpur.
                                                  ----Respondent

For Petitioner(s)           :     Mr. Kaushik Dave for
                                  Mr. Vineet Dave
For Respondent(s)           :     Mr. Sunil Bhandari

      HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI

HON'BLE MR. JUSTICE CHANDRA SHEKHAR SHARMA Order

Reportable 29/01/2025

1. The instant cross objections have been preferred under

Order 41 Rule 22 of C.P.C. claiming the following reliefs:-

"It is therefore, most respectfully prayed that the cross- objections may kindly be allowed and the findings recorded by the learned Tribunal in judgment/order dated 25.02.2013 to the extent of including the amount of Performance Security as a part of the total receipts of the respondent/assessee and to direct the Assessing Officer to treat the same as the entire contract receipts of the year may be set aside."

2. The substantial questions of law in common, as formulated

by this Hon'ble Court vide orders dated 26.05.2015 and

04.07.2015, read as follows:-

(1) Whether in the facts and circumstances of the case, the amount retained by the Government Department towards the Performance Security under clause 43.3 of the contract,

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can be said to have been accrued to the respondent/assessee, so as to be considered to be a part of the income of the respondent/assessee?

(2) Whether in the facts and circumstances of the case, learned Income Tax Appellate Tribunal was right in ordering to include the amount of performance security for the purpose of application of rate of profit? (3) Whether in the facts and circumstances of the case, learned Income Tax Appellate Tribunal was correct in not considering and following its own judgment passed in the case of Amrit Lal Khatri Vs. ACIT, Barmer, cited on behalf of the respondent/assessee?"

3. At the outset, Mr. Sunil Bhandari, learned counsel appearing

for the Income Tax Department submits that the core question

involved herein is whether on the facts and in the circumstances

of the case, the Tribunal was right in holding that while estimating

the income of assessee, any kind of relaxation pertaining to the

security deposits deducted from the running bills of the assessee,

could be permitted. He has further taken this Court to paragraph-

10 of the order dated 25.02.2013 passed by the Income Tax

Appellate Tribunal (ITAT), Jodhpur Bench, which reads as follows:-

"10. To understand this tangle, let us take a hypothetical example. Suppose, the contractor-assessee, as contractor, has raised bills of Rs.100/-, in a given year. Out of this Rs.100/-, the department-contractee had retained Rs.5/- as performance guarantee or security deposit. The assessee wants to pay tax on Rs. 95% after applying gross profit rate to arrive at its actual income. The revenue wants to tax 95% by applying gross profit rate but wants to addition Rs. 5/- as it is in assessee's total income of the year. The action of the revenue is totally uncalled for and cannot be approved under the provisions of the Act being unjustifiable. The assessee wants to forget about this amount of Rs. 5% retained by department and has paid tax by applying gross profit rate on the remaining 95%. In

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this way, both the revenue as well as the assessee have not done a correct thing in our considered opinion as the law does not permit them to do so. In case Rs. 5/- is treated a accrued to the assessee during the year because the assessee has raised bills for the entire Rs. 100/- and the Government contractee has deducted TDS on the entire amount including Rs. 5/- also and the TDS credit can be given in the year in which TDS is deducted. It would be safer and correct as per law to tax Rs. 100/- by treating it as entire receipt of the year although Rs. 5/ are subject to fulfillment of certain conditions which he may not receive at all or may receive the entire amount or part thereof in terms of the contract subsequently. Since the assessee has not been maintaining any record in this regard and the contractee also could not help the revenue in this regard, therefore, In our considered opinion, it would be a just and correct action, as per the provisions of law, to tax the entire Rs. 100/- by treating it as total gross receipt of the year and if books are rejected and the A.O. applies a particular figure of gross profit rate and the same is not disputed by the assessee, the actual income on the contract receipt of Rs. 100/- can be arrived at by applying that from the figure of gross profit rate to the entire amount of Rs. 100/-. Now the question arises as to what will happen in case that Rs. 5/- is entangled in terms of the contract and is received subsequently or is received at all in the subsequent years or that some part of it is received after the satisfaction of the department in view of the terms of the agreement. We may further mention that as per this agreement, Rs. 5/- retained by it, they may claim from the assessee and recover the same as per law. In that eventuality, again some amount of the receipt out of the contract receipts may have to be reduced if more than Rs. 5/ is taken away by the department. Thus, in this way, it becomes an anomalous situation. Therefore, the best course is to treat the entire Rs. 100/- as contract receipt, particularly, when the assessee has been following 'Mercantile System of Accounting and applied gross profit rate to arrive at taxable income. With the foregoing

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discussion, we set aside the findings of the ld. CIT(A) and order that the A.O. shall treat the entire contract receipts of the year and apply gross profit rate of the year disclosed or agreed to arrive at taxable income. The A.O. cannot tax retention money by adding it in toto by treating it as net income. This is a wrong procedure and cannot be approved of as it is unknown to any legal procedure under the Act. Accordingly, the appeal of the assessee stands partly allowed."

3.1. Learned counsel for the Income Tax Department further

submits that the learned Income Tax Appellate Tribunal has

arrived at a conclusion that the Assessing Officer shall treat the

entire contract receipts of the year and apply gross profit rates of

the year disclosed or agreed to arrive at a taxable income and any

money which is retained out of the same, has to be included in the

same. He has further drawn attention of this Court towards the

judgment passed in Girdharilal and Co. vs. Commissioner Of

Income-Tax 1998 230 ITR 510 Raj, relevant portion of which, is

the question No.2 and answer to the same is paragraph-12, which

are reproduced hereunder:

"2. Whether, on the facts and in the circumstances of the case, the tribunal was right in holding that estimating the income of the assessee no allowance need to given for security deposits deducted from the running bills of the assessee?

12. So far as question No.2 is concerned, the Tribunal was right in holding that in estimating the income of the assessee no allowance need be given for security deposits deducted from the running bills of the assessee. Accordingly, question No.2 is answered in favour of the Revenue and against the assessee. No order as to costs."

4. Learned counsel for the assessee though maintained the

stand that the security deposits deducted from the running bills of

the assessee ought not to be taxed, but at the same time, is

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unable to refute the application of the precedent law cited above

on the present case.

5. This Court, after considering the submissions made on behalf

of the parties, finds that it is lawful that the income of the

assessee, which was retained/deducted from the running bills of

the assessee has to be considered for the purpose of taxation, at

that time. Thus, the reasoning given by the learned Income Tax

Appellate Tribunal while passing the impugned judgment, is