Development fund earmarking for future public utility expenditure cannot be disallowed solely for non-spending in the year.

A statutory urban development authority's transfer of development charges to a sinking fund or development fund for future formation and development expenditure could not be disallowed merely because the amount was not spent in the relevant year. Applying the accrual system and following its own earlier years' treatment on identical facts, the Tribunal noted that receipts earmarked under Government directions for future public utility development need not be confined to actual payment within the same assessment year. The disallowance was therefore upheld as deleted, and the assessee succeeded on the issue.

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Issues: Whether 85% of the development charges credited to the sinking fund/development fund as provision for future development expenditure could be disallowed merely because the amount was not actually spent during the relevant assessment year.

Analysis: The assessee was a non-profit statutory authority engaged in urban development under the Master Plan and was required to apply the development charges in accordance with Government directions. The Tribunal noted that the amount was set apart to meet future formation and development expenditure and that, under the accrual system, future liabilities or earmarked expenditure need not be confined to amounts actually paid in the same year. The issue had already been decided in the assessee's own case for earlier assessment years on identical facts, where the same treatment was held to be permissible because the expenditure was to be incurred in future years for public utility purposes. Following that view, the deletion of the disallowance was upheld.

Conclusion: The disallowance of the amount transferred to the development fund was not justified, and the assessee succeeded on this issue.

Ratio Decidendi: Where a statutory development authority is obliged to earmark receipts for future development expenditure under the accrual system and the amount is intended for public utility purposes, the mere absence of actual spending in the relevant year does not justify disallowance.

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