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2017 (12) TMI 574
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....rovisions of section 37(1) of the I.T Act, 1961." 2. At the outset, ld. AR submitted that matter pertaining to AY 2011- 12 may be taken as lead case since the issues involved is common and the matter in this case has been examined at length by the ld. CIT(A) pursuant to the direction of the Hon'ble Tribunal in the first round of appellate proceedings. With the consent of the both parties, the matter pertaining to AY 2011-12 has been taken as lead case for the purposes of present discussions. 3. Briefly stated facts of the case are that the assessee is a private limited company engaged in the business of real estate. The subject matter of dispute in the present proceedings is that the assessee debited to its P&L account under the head "development expenses" a sum of Rs. 62,67,210/-. The Assessing Officer required the assessee to explain the same. The record shows that the assessee as per reply dated 11/12/2013, which has been extracted by the Assessing Officer in his order, had offered the following justification: "The development expenses of Rs. 6267210/- debited in P&L account consist the provision for development made on are sold during the year @ Rs. 5....
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.... provision, he added the same to the income of the assessee. 4. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the CIT(A) who has allowed the same in favour of the assessee. On appeal by the Revenue, the Coordinate Bench vide its order dated 24.03.2017 has set aside the matter to the file of the ld CIT(A) with the following directions which are reproduced as under:- "7. We have heard the rival submissions and perused the material available on the record. On a consideration of the peculiar facts and circumstances of the case, we find that, though, prima facie, the assessee appears to have an arguable case as canvassed before us. However, arguments have to be supported on facts and this is an area, which is required to be considered. Since the evidence and supporting facts have not been taken into consideration by the ld. CIT(A), we deem it appropriate to set aside the impugned order. We are of the view that since facts were brought to the notice of the ld. CIT(A) it was incumbent upon him to first address the facts and then proceed to consider the law applicable thereon. It is seen that the decision making process of the ld....
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....ment Authority. The assessee divides the land in plots of various sizes and carries development activities like construction of road, lying of water supply lines, electricity facility wiring, sewerage, construction of overhead tanks etc. As per the norms and regulations 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. External development works like sector roads, etc are carried out by JDA. Further, the developer has also option to carry out internal development of the colony through the JDA by paying extra cost to JDA or the developer itself may carried out the development work in his colony. However, the JDA has prescribed minimum standards of work and quality and the developer has to carry out the work as per the minimum standards laid down by the JDA. In order to secure the carry out of the development work as per the standards and specification laid down by it, JDA keeps 12.5% plots as pledged security and these plots can be released only after completion of development work. In case the developer does no....
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....nd AO allowed it in Scrutiny Assessment u/s 143(3) 96-97 2009-10 8440.71 42,20,355 36,06,375 AO allowed it in Scrutiny Assessment u/s 143(3) 98-99 2010-11 54026.74 2,70,13,370 84,84,375 No security The scrutiny assessments for AY 2007-08 to AY 2009-10 were completed u/s 143(3) of the Act and the AO in these years has allowed the provisions for development expenses. Although all the facts and circumstances of the current year were similar to previous years but the AO took a divergent view and disallowed the provision for development expenses of Rs. 62,67,210/-. Further, the actual expenses incurred by the assessee amounting to Rs. 19,60,751/- which was debited to "Provision for development expenses", were also not allowed by AO. However, AO straightway disallowed the provision for development expenses by holding that provision are not allowable u/s 37 r.w.s 28 of the Act and held that such expenses which have been incurred are only allowable u/s 37 & 28 of the Act. It is also a fact that the AO has also not made any inquiry with regard to nature of provi....
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....ances of the case and most respectfully following the decision of Hon'ble Rajasthan High Court in the case of M/s Shree Salasar Overseas Private Ltd. I am of considerate view that the liability of assessee to carry out the internal development work in the colony is not a contingent liability but ascertained liability which accrued on the date of sale of the plot. Now the question arises on the issue of reasonableness and basis of the provision. The AO has examined the books of account. He has not made any finding that the assessee has made provision for excessive amount. It is also seen that the assessee made the provision for development expenses @ Rs. 500/- per Sq Yard on the area sold by it during the year. The provision for the development expenses were made at the same rate which was applied by the assessee in previous year and accepted by AO. Further the assessee has also submitted the estimation of development cost as made by architect. The total estimation of development cost as made by Architect is of Rs. 15,55,73,066/- and total saleable area is 310052.60 Sq yard. This gives the development cost of Rs. 501.76 per SQ yard against which the assessee made the provis....
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....to draw strength from the findings of Hon'ble Apex Court in the case of Rotork Controls India (P) Ltd Vs CIT (2009) 314 ITR 62 (SC) wherein it has laid down the principle that any provision made for the obligation of expenses to be incurred in future against the current year's sale is allowable expenses. In view of the above facts and circumstances of the case and respectfully following the decision of Hon'ble Supreme Court in the case of Rotark Controls India (P) Ltd Vs CIT (supra) and decision of Hon'ble Rajasthan High Court in the case of CIT Vs. Shree Salasar Overseas Pvt Ltd. (supra), I am of the considerate view that the AO has not justified in disallowing the provision for development expenses. Accordingly, AO is directed to delete the addition of Rs. 62,67,210/-. Assessee's appeal stands allowed in Gr No. 1 & 2." 7. We have heard the rival contentions and purused the material available on record. The issue under dispute relates to deductibility of provision for development expenses amounting to Rs. 62,67,210 debited by the assessee in its profit/loss account and claimed as an allowable expense in its return of income. During the year under consideration, t....
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....contention, it was further submitted that the sales of the assessee consists the sales of plots in Private Khatedar Scheme for which no sales agreement is executed. In the Private Khatedar scheme, the buyer of plot apply for purchase of plot in scheme by way of application form wherein it is specified that the assessee company shall develop roads lay electricity poles, water pipe lines etc. and upon allotment of plot to such buyer, the assessee issues the allotment letter specifying the plot number, area and site plan to the buyers and gives the provisional possession of the plot. Thereafter, on issue of Patta by JDA coupled with possession of the plot's land, the ownership of the plot is transferred to the buyer. It was submitted that the private Khatedar scheme is governed as per rules and regulations of Rajasthan Land Revenue Act and the JDA, and as per JDA circular, the development expenses cannot be charged from customers in addition to the cost of the plot. It was submitted that after taking into consideration the assessee's submissions that the consideration towards the sale of plots of land includes the cost of development expenditure has been ....
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....s thus an ascertained liability. Where amount is not actually expended during the year under consideration towards such an ascertained liability, the only question that arises is regarding the basis of quantification and the reasonability of such provision and where the same can be demonstrated with appropriate documentation, a claim towards such an ascertained liability will therefore be allowable for tax purposes. It is noted that the assessee has prepared an estimate of development expenses from an architect and detailed working has been submitted as part of the paperbook pages 137-154. It is noted that the development work has to be carried out by the assessee as per the specifications of the JDA and the same have been considered while working out the above estimation which has been worked out at Rs. 15,55,73,066/- and given the total saleable area of 310052.60 Sq. yards, it gives the development cost of Rs. 501.76 per Sq. yard against which the assessee has made a provision of Rs. 500/- per Sq Yard. It was also contended that the said estimate of development expenditure is also comparable to development expenditure estimated by JDA's own scheme at....