2017 (5) TMI 252 - AT - Income Tax

Disallowance of land development expenses - expenses originally shown payable but subsequently claimed to have been credited to work-in-progress - CIT-A deleted the addition - Held that - No specific error in the order of the CIT(A) could be pointed out by ld D.R. in the findings of the CIT(A) that the development expenses debited to profit and loss account was wrongly credited to payable account instead of crediting it to the work-in-progress account, which was rectified by the assessee in the subsequent accounting year and that it had no effect on the profitability reflected in the profit and loss account. CIT(A) has also given a finding that the assessee during the year has recognized revenue in respect of area of 25,892.22 sq.ft in the year under consideration and the development expenses of ₹ 41,57,264/- claimed in the profit and loss account also pertains to the area sold during the year. This finding of the CIT(A) has also remained uncontroverted by ld D.R. Further, the CIT(A) has relied on the decision in the case of Calcutta Co. Ltd (1959 (5) TMI 3 - SUPREME Court ), wherein, it was held that the assessee claimed estimated expenditure towards development of the plots sold during the year, even though no part of that amount represented any expenditure actually made during the year. It was held that there was a certain and accrued liability and the estimated expenditure required to discharge the liability will have to be deducted. - Decided against revenue

Summary

Issues:
Disallowance of land development expenses under section 37 of the Act.

Analysis:
The appeal was filed by the revenue against the order of CIT(A)- Raipur regarding the disallowance of land development expenses. The Assessing Officer disallowed expenses of &8377; 41,57,264/- as they were initially shown as payable but later claimed to have been credited to work-in-progress. The Assessing Officer rejected the explanation provided by the assessee, stating that the expenses should have either been paid or shown as payable by the end of the financial year. The CIT(A), however, found that the entire cost of development had been debited to work-in-progress account, and the rectification made by the assessee did not affect the profitability reflected in the accounts. The CIT(A) also noted that the expenses claimed were related to the area sold during the year and were based on estimates supported by technical expert reports. The CIT(A) referred to the decision of the Hon'ble Supreme Court in a similar case and Accounting Standard-7 of ICAI to support the allowance of estimated costs. Consequently, the CIT(A) deleted the disallowance made by the Assessing Officer.

During the appeal, the revenue relied on the Assessing Officer's order, while the assessee relied on the CIT(A)'s order. The Tribunal found no specific error in the CIT(A)'s order. It was noted that the expenses claimed were related to the area sold during the year, and the rectification made by the assessee did not impact the profitability. The Tribunal also upheld the CIT(A)'s reliance on the Hon'ble Supreme Court's decision and Accounting Standard-7 of ICAI. As no contrary decision was presented, the Tribunal confirmed the CIT(A)'s order and dismissed the revenue's appeal.