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TMI Blog2017 (12) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of development activities which has to be carried out by the assessee and also in terms of quantification thereof. We accordingly confirm the basis and reasonability of such provision towards the development expenditure and a claim towards such an ascertained liability is therefore clearly allowable for tax purposes under the provisions of section 37 of the Act. Further, we note that the assessee has been consistent in its accounting policy whereby it creates provision towards the development expenditure and there is no deviation from the past years. Further, we note that the assessee has been incurring actual expenditure out of such provision account and it is not a case that where the provision has been built over a period of time without any actual expenditure. The AO has allowed the provision for development expenses in A.Y 2007-08, A.Y 2008-09 and A.Y 2009-10 while completing the assessment u/s 143(3) of the Act and we don’t see any justifiable basis to disturb the same for the impunged assessment year. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... the norms of JDA for Private Township, the developer has to incur several expenses on the development of the scheme such as expenses on internal roads, electrification, water supply and development of public parks and facilities etc. The cost of these expenses is included in the sale price of the plot and separate charges against the development expenses to be incurred by the developer is not being charged in addition to the sale price of the plot taken by the developer. The development work has to be carried out as per the specification of the JDA. The sales of the assessee represents to two things, first cost of land and second cost of development expenses. Since the cost of the development expenses is to be incurred in the next years, therefore, the sales to the extent of the cost of development expenses is carried forwarded for next years under the nomenclature "Provision against the development expenses. It is relevant to mention here that the development expenses are estimated only in respect of the plots sold during the year, not on whole land and such amount is carried forwarded. Thus, the sale proceed received by the assessee against the plots is subject to the liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Considering the fact that it is a recurring issue for the assessee and the tax authorities, we deem it appropriate to set aside the impugned order and restore the issue back to the file of the ld. CIT(A) with a direction to pass a speaking order in accordance with law by first marshalling the facts of the instant case and thereafter consider the precedent available on those set of facts. Accordingly, the impugned order is set aside with the aforesaid direction. Needless to say that a reasonable opportunity of being heard shall be afforded to the assessee by the ld. CIT(A). Said order was pronounced in the open court at the time of hearing itself." 5. The ld. AR submitted that pursuant to the direction of the Hon'ble ITAT, the matter has since been examined at length by the ld. CIT(A) wherein the relevant facts have been brought on record and properly analyized and taking into consideration the decision of Hon'ble Rajasthan High Court in case of CIT vs. Shree Salasar Overseas Pvt. Ltd. in ITA No. 147/2014 dated 29.04.2016 and the decision of various Benches of the Jaipur Tribunal, the ld. CIT(A) has rightly allowed the provision for development expenses amounting to ₹ 62,67,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Sachivalaya Enclave" which was launched in AY 2007-08. The assessee follows mercantile system of accounting wherein the revenue is booked on accrual basis irrespective to realization and expenses are booked on accrual basis. The assessee started the sales without completing the development work and the development work is to be carried out in different phases in coming years. Therefore, the sales effected by the assessee are subject to liability of development expenses which is to be incurred in future. The basic principle of the accounting is matching i.e. matching of expenses with revenue. Therefore, the assessee makes the provision for development expenses to be incurred in future in respect of the plots sold by it during the year. The assessee makes the provision for development expenses @ ₹ 500/- per sq. yard on the plots sold by it during the year. When the development expenses are incurred, the same is debited in the account "Provision for development Expenses". During this year the assessee sold plots of 12534.42 sq yard on which it made provision for development expenses @ 500/- per sq yard, which comes to ₹ 62,67,210/-. During this year, the assessee incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's scheme is approved by JDA. The approval process was under progress since 20/07/2006 and scheme was finally approved by JDA on 14.09.12. The copy of correspondence with JDA/and other Government agencies were filed at PB pg 100 to 135. The scheme map was filed. The assessee filed a copy of JDA Circular No. D-1694 dated 01/12/2005, which clearly demonstrates that the developer has to carry out internal development of the scheme and this internal development can either be carried out through JDA or by the developer himself. In case the development work has to be carried out by the developer itself, it has to keep 12.5% of plots with JDA as security and these plots can be released only after the completion of the work. The development work is to be carried out under the supervision and control of JDA and it should be in accordance with the standards prescribed by JDA. The assessee filed copy of JDA Circular to support its contentions. I have also perused the approved MAP of the scheme wherein clear cut marking is made in para 5 of Notes that 12.5% plots total area of 37181.61 are pledged with JDA which will be released after completion of development work. The private co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has also justified the reasonableness of estimation of development expenses by submitting the copy of note sheet taken from the file of JDA in respect of JDA's own scheme at Village Prithvisinghpura wherein the JDA estimated the cost of development expenses about ₹ 1700/- per sq. Mts. as on 14.02.2014. Hon'ble ITAT Jaipur Bench in the case of DCIT vs. M/s Shree Ram Kripa Buildcon Pvt Ltd ITA No 1076/JP/2011 order dated 13-01-2012 has made the finding on excessive provision if any made as under:- "2.15 Following that order, we hold that the Id CIT(A) was justified in deleting the addition. It is useful to note that the assessee has used the percentage completion method. When the assessee follows the percentage completion method then at the completion of the project, the assessee has to make up the account. At that relevant time, the assessee can offer surpluses from the provisions or may claim the deficit in case the actual expenditure is more than the provision. Hence the revenue is not without any remedy in case the provision is excessive." In the case of the assessee, the estimation is supported by expert's opinion also. Even otherwise also if excess prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. From a regulatory standpoint, as per the approved scheme by JDA, the assessee will therefore be required to carry out the internal development work in terms of roads, electricity, water supply, plantation, street lights, sewerage facility, parks development, parking facility, drainage and water harvesting systems. Further, we find that the assessee has also given an undertaking to JDA as part of its "change in land use" application (90-B(3)) dated 24.08.09 that internal development work will be carried out as per norms of JDA and in future, JDA and other govt. agencies will not be requested for any funds and no demand shall be made for carrying out the internal development in terms of road, water, electricity, sewerage, facility, etc. The above facts thus clearly demonstrate that from a regulatory standpoint, the assessee is required to carry out the internal development work in respect of scheme being developed under the name and style "Sachivalaya Enclave". 8. Now, let's examine the matter from a contractual standpoint vis- à-vis the persons to whom the plots of land have been sold by the assessee company during the year under consideration. The ld AR has cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been contended before us that the provision of ₹ 62,67,210 towards the development expenditure is in relation to said sale of plots which have been actually executed during the year, duly reflected in the financial statements and offered to tax in the return of income. It was contended that under the well accepted accounting principle of matching concept, where the sales have been duly offered to tax, corresponding expenses have to be claimed in order to reflect the true profit/loss situation. It was further contended that the assessee follows the mercantile system of accounting wherein all known and ascertained liability, even if the same have to be incurred in future, have to be duly accounted for. We donot see any infirmity in the said contentions raised by the ld AR and we have no hesitation but to accept the same. 10. Now, coming to the contention of the Revenue that what has been claimed by the assessee is a mere provision towards development expenditure and not an actual expenditure which has been incurred by the assessee during the year and the same is thus not allowable under the provisions of the Act. In the instant case, the assessee has executed sale of plots ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account and it is not a case that where the provision has been built over a period of time without any actual expenditure. The AO has allowed the provision for development expenses in A.Y 2007-08, A.Y 2008-09 and A.Y 2009-10 while completing the assessment u/s 143(3) of the Act and we don't see any justifiable basis to disturb the same for the impunged assessment year. 12. Our view is also fortified by the decision of the Hon'ble Rajasthan High Court in case of Salasar Overseas Pvt ltd (Supra) wherein it was held as under: "8. Admittedly, the assessee is following the mercantile system of accounting and it is recognising the same on accrual basis as and when the possession of the plot is passed/ given. The sale of plot is subject to liability of development work to be carried out in the colony in future. This liability accrues as soon as sale of a plot is made. The assessee admittedly made a provision for development of land for the plots sold during the years under reference and actual expenses on development work incurred in the colony accounted for by reversing the provision made in respect of the plots sold by it. 9. The appellate Authorities in the instant case have ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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