Ascertained development expense provisions are deductible when the liability accrues on plot sale and is reasonably estimated.

A provision for development expenses on sale of plots was treated as an allowable deduction where the developer had an accrued obligation to carry out internal infrastructure work, including roads, water supply, electrification, sewerage and parks. The liability was regarded as ascertained rather than contingent because it arose on sale, was supported by a detailed estimate, and was consistent with the assessee's historical accounting practice. Applying the mercantile system and the matching principle, the expenditure was required to be recognised against revenue already booked. Any excess provision after completion remained adjustable under the law.

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Issues: Whether the provision made for development expenses on sale of plots was an allowable deduction as an ascertained liability.

Analysis: The assessee, a real estate developer, sold plots in a scheme requiring internal development work under the regulatory framework of the development authority. The sale consideration included the development component, and the assessee was under an obligation to carry out roads, water supply, electrification, sewerage, parks and allied infrastructure. The provision was supported by a detailed estimate and was broadly in line with the historical rate adopted by the assessee and accepted in earlier years. The liability arose on sale of the plots and was not contingent. On the mercantile system, the matching principle required corresponding expenditure to be recognised against the revenue already booked. The Court also noted that if any excess provision remained after completion, the Revenue would have recourse under the law.

Conclusion: The provision for development expenses was allowable as an ascertained and accrued liability, and the Revenue's challenge failed.

Ratio Decidendi: A provision for future development expenses is deductible where the obligation has accrued on sale, the liability is ascertainable, and the amount is reasonably estimated under the mercantile system of accounting.

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