GWAL DAS MEHTA vs. C.I.T, II, JODHPUR

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.”

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, (Uploaded on 20/02/2025 at 02:57:04 PM) (Downloaded on 27/10/2026 at 11:16:24 PM)

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 (Uploaded on 20/02/2025 at 02:57:04 PM) (Downloaded on 27/10/2026 at 11:16:24 PM)

Learned counsel for the Income Tax Department further 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:

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 (Uploaded on 20/02/2025 at 02:57:04 PM) (Downloaded on 27/10/2026 at 11:16:24 PM)

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 justified and also in consonance with the precedent law laid down in Girdharilal & Co. (supra).

Thus, the questions of law are answered against the assessee and in favour of the revenue in the manner that whenever the security deposits are deducted from the running bills of the assessee, it shall be treated as a part of the income of the assessee for the taxation purpose.

Consequently, no cause of interference in the judgment dated 25.02.2013 passed by the learned Income Tax Appellate Tribunal, Jodhpur Bench, is made out, and accordingly, the instant cross objections are dismissed. (CHANDRA SHEKHAR SHARMA),J (DR.PUSHPENDRA SINGH BHATI),J 52-53-nirmala/devraj Powered by TCPDF (www.tcpdf.org) (Uploaded on 20/02/2025 at 02:57:04 PM) (Downloaded on 27/10/2026 at 11:16:24 PM)