G.S.SINGHVI, J. - (1.) THIS is a petition under S. 256(2) of the IT Act, 1961 (for short, "the Act"), for directing the Tribunal, Chandigarh Bench, Chandigarh (for short, "the Tribunal"), to draw up the statement of the case and refer the following question of law for the opinion of this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 51,72,000 retained by the authorities from the contract payment receivable by the assessee on accrual basis this year could not be treated as the assessee's income for the year inspite of the fact that income was being assessed on accrual basis?"
(2.) THE facts of the case are that the respondent assessee is engaged in the construction of tunnels, dams, etc. For the asst. year 1988 89, it filed a return of 28th July, 1988, declaring a loss of Rs. 47,48,047. By an order dt. 14th March, 1988, the AO finalised the assessment under S. 143(3) disallowing the assessee's claim for deduction of Rs. 51,72,000 which was debited in its P&L a/c in the security for successful execution of the contracts. The appeal filed by the assessee against the order of assessment was allowed by the CIT(A), Chandigarh, vide his order dt. 16th Feb., 1989. He held that the amount of Rs. 51,72,000 is deductible from the gross payments for tax purposes, but the same shall be charged to tax in the year of receipt. The Revenue as well as the assessee challenged that order by filing appeals before the Tribunal which were partly allowed by a common order dt. 14th Nov., 1995. The Tribunal upheld the view taken by the CIT(A) that the amount of Rs. 51,72,000 would be taxable only when the whole or part of it actually becomes receivable by the assessee. The application filed by the Revenue under S. 256(1) of the Act for reference of the question of law was rejected by the Tribunal on 17th June, 1996. Shri R.P. Sawhney, senior advocate, argued that the view taken by the CIT(A) and the Tribunal on the issue of taxability of Rs. 51,72,000 is per se erroneous and legally unsustainable because neither of them has considered the matter in the light of the fact that the assessee had been following the mercantile system of accounting and in that system, the money retained by the authorities from the contract payments made to the assessee constitutes income accrued to it and is taxable in the relevant year irrespective of the fact that the actual money may not have been received in that year. He submitted that the question sought by the Revenue is a pure question of law and as there is no direct decision of this Court on the issue the Tribunal may be directed to make reference thereof to this Court.
(3.) THE M.L. Sarin, senior advocate, appearing for the respondent assessee, argued that the question sought by the Revenue has already been answered in favour of the assessee by different Courts and, therefore, this petition should be dismissed. He submitted that the amount of Rs. 51,72,000 retained by the authorities by way of security for successful completion of the contract cannot be treated as an income of the assessee for the asst. year 1986 87 and, therefore, the CIT (A) and the Tribunal have rightly deleted the same from the assessment order.;