Loading judgment…
Facts
The assessee's appeal was dismissed ex-parte by the Ld. CIT(A) due to notices being sent to an incorrect email address, leading to a delay in filing the present appeal. The substantial ground relates to the addition of retention money of Rs. 37,60,671/- as income.
Held
The Tribunal condoned the delay in filing the appeal, finding that the assessee was not properly served with notices. On merits, the Tribunal held that retention money, which is received only upon completion of contractual obligations and has not yet been received by the assessee, cannot be taxed in the current year.
Key Issues
Whether delay in filing appeal should be condoned due to non-service of notice and whether retention money not yet received can be taxed as income.
Sections Cited
254(1), 271(1)(c)
AI-generated summary — verify with the full judgment below
PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the order of National Faceless Appeal Centre (NFAC) / Ld. CIT(A), Mumbai dated 30.08.2024 for assessment year (AY) 2015-16. Though, the assessee has raised multiple grounds of appeal, however, the substantial ground relates to upholding the addition on account of retention money of Rs. 37,60,671/- as income of assessee. The assessee has raised following grounds of appeal:
“1. The Ld CIT (A) erred in dismissing the appeal filed by the appellant as ex- parte although none of his hearing notices were ever served on the correct e-mail id stated by the appellant in the Form no. 35 and the email id being available on the income tax portal.
2. The Ld. CIT(A) erred in not considering the correspondence email id provided in Form no. 35 for issuance of the hearing notices.
3. The Ld. CIT(A) has violated the principles of natural justice by not providing opportunities of being heard and by upholding the addition made by the Assessing Officer towards retention money of Rs. 37,60,671/- as income of the appellant as per order passed by the Ld. Assessing Officer.
Rival submissions of both the parties have been heard and record perused.
The learned Authorised Representative (ld. AR) of the assessee submits that there is delay of 155 days in filing appeal before Tribunal. The assessee has already filed affidavit of director of assessee-company. Though, there is no delay from the date of communication of the order, yet for explaining the fact in a correct perspective, the assessee has filed affidavit of one of its director.
The ld. AR of the assessee submits that at the time of filing appeal before ld CIT(A), the assessee has given email address as of ashmitassociates@gmail.com. However, order passed by ld. CIT(A) was not received on such email. The order came to know about passing of impugned order only on 19.02.2025 when notice under section 271(1)(c) was served upon the assessee. The assessee immediately logging at ITBA portal and find that appeal of the assessee has already dismissed, and on perusal it was noted that the notices by ld. CIT(A) was issued on different email id. Copy of notice under section 271(1)(c) dated 19.02.2025 is filed. The ld. AR of the assessee submits that delay in filing is neither intentional nor deliberate. The assessee has good case on merits and is likely to succeed if his case is heard considered and decided on merit.
On the other hand, the learned Senior Departmental Representative (ld. Sr.
DR) for the revenue on the plea of condonation of delay would submit that assessee has taken a general stand that impugned order was not served upon the assessee. After faceless appeal system, the order is served through email available on the ITBA portal. The email on which impugned order was sent was also provided by assessee.
In the rejoinder submission, the ld. AR of the assessee submits that as per guidelines of CBDT, the assessee while filing first appeal specifically provided the email address for the purpose of service of notice, order and other communication.
On merit, the ld. AR of the assessee submits that ground of appeal raised by assessee is covered in favour of assessee. The assessing officer made addition on account of retention money. The retention money as per term of civil contract has to be paid/ released by the employer, to the assessee only on satisfactory completion of contract. The retention money has not been received thereby such income is not accrued and cannot be considered to be income of assessee. The ld. AR of the assessee submits that the retention money has not been received till today. This fact can be verified by assessing officer. To support his submission, the ld. AR of the assessee relied on the decision of Bombay High Court in CIT Vs Associated Cables Ltd. (2006) 286 ITR 596 (Bombay) and in Punjab & Haryana High Court in CIT vs SAB Industries Limited in ITA No. No. 720 of 2008 dated 06.05.2013.
On the other hand, the ld. Sr. DR for the revenue submits that assessee is following mercantile system of accounting. The assessee is a sub-contractor.
Municipal Corporation of Greater Mumbai (MCGM) who awarded contract to NEEV for laying water lines in different wards in Zone II. The assessee is not a party to contract with MCGM. The impugned amount of retention money was deducted from running bills of NEEV by Municipal Corporation Greater Mumbai (MCGM).
I have considered the rival submissions of both the parties and have gone through the lower authorities carefully. Firstly, I shall consider the plea of condonation of delay in filing appeal. The ld. AR of the assessee vehemently argued that at the time of filing appeal before ld. CIT(A), the assessee has given email address of ashmitassociates@gmail.com and that notice of hearing of appeal or final order was not served on the assessee and the assessee came to know about dismissal of appeal only when penalty proceeding was initiated and penalty notice under section 271(1)(c) was served upon the assessee. In support of his contention, the ld. AR of assessee filed certain screen shot of ITBA portal, from which it is evident that the ld. CIT(A) issued various notices at the email mumbai@pradeepsinghi.com. Thus, I find merit in the submission of ld. AR of the assessee about non-serving of impugned order soon after 30.08.2024.
Thus, keeping in view aforesaid observation, the delay in filing appeal is condoned. Now, adverting to merits of the case.
I find that during assessment, the assessing officer noted that assessee has shown revenue from civil contractual work. The assessee has shown retention money which is retained by employer (who has awarded contract).
The assessee explained that they are working as a sub-contract. The contract was awarded by MCGM to NEEV who has sublet such contract to assessee.
MCGM retained such money from various running bills and has not been paid to NEEV which is ultimately not paid to assessee. Such money is likely to receive only on completion of certain conditions of contract. I find that all such facts are recorded by assessing officer in various sub-para of para 4 in assessment order. The assessing officer was of the view that retention money is not related with the completion of work contract and it is on releasing fund by MCGM to NEEV. Thus, the assessing officer added such amount of retention of money of Rs. 37,60,671/-. The ld. CIT(A) confirmed the action of assessing officer in para 8.2 of his order by holding that assessing officer has rightly made the addition of retention money.
Before me, the ld. AR of the assessee vehemently relied upon the decision of Bombay High Court in CIT Vs Associated Cables Ltd.(supra) and in Punjab & Haryana High Court in CIT Vs SAB Industries Ltd (supra). In my view, a very simple and straight fact is that retention money is deducted from various running bills by employer in accordance with term of contract for the want of satisfactory completion of work. Right to receive such retention money is accrued only after obligation under contract is completed. The right to tax such money will be arising only when such money is paid to assessee. I find that assessing officer at page no. 5 of his order has accepted the fact that payment of retention money is depending on certain obligation and releasing fund by MCGM (employer). Though, the assessing officer disputed that such retention money is to be released by MCGM in favour of NEEV. I find that assessing officer has not disputed the status of assessee as sub-contractor.
Further, there is no material on record to show that retention money is received by the assessee. Thus, the receipt which is yet to be received cannot be taxed in this year, if it not actually received. Thus, I find merit in the submission of ld. AR of the assessee that retention money if not received in the year under consideration cannot be taxed. In the result, substantial ground of appeal raised by the assessee is allowed.
In the result, the appeal of the assessee is allowed.