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TMI Blog2016 (12) TMI 941X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition of Rs. 43,23,423/-. The Assessing Officer also disallowed the interest on TDS of Rs. 3,804/-. The assessee aggrieved by this order, preferred an appeal before ld. CIT (A), who after considering the submissions and following the decision of the ITAT, partly allowed the appeal. While allowing the appeal, ld. CIT (A) confirmed the addition of Rs. 3,804/- and deleted the disallowance in respect of Provision for Development Expenses of Rs. 43,23,423/-. 3. Aggrieved by this order, the revenue is in appeal before us. 4. The ld. D/R supported the order of the Assessing Officer. 4.1. On the contrary, the ld. Counsel for the assessee supported the order of the ld. CIT (A) and reiterated the submissions as made in the written brief. The ld. Counsel submitted that the issue is squarely covered in favour of the assessee in assessee's own case in ITA No. 291/JP/2014 and also decision of the Coordinate Bench in the case of Shree Salasar Overseas (Pvt.) Ltd. vs. ACIT in ITA No. 910/JP/2013. 4.2. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. We find from the scrutiny report of the department that revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred till 31.03.2015 for Phase-II. From the details submitted, it is observed that the appellant has made total provision of Rs. 9,76,86,715/- for development expenses and incurred a sum of Rs. 5,65,73,315/- on account of development expenses for Phase-II. Therefore, the observation of the AO that actual expenditure incurred on development of the project is meager in comparison to the provisions made for development is misplaced and without proper appreciation of the facts. (iv) As per the norms of JDA, for private township, the developer has to incur several expenses on the development of the project such as 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 the developer cannot charge extra amount from the customers for development of the project as per the norms of JDA. (v) It is noted from JDA order No. D-1694 dated 1.12.2005 that the developer has to carry out internal development of the project and this internal development can either be carried out through JDA or by the developer itself. In case the development work is not carried out by the develope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the AO vide letter dt. 5th Dec., 2008. In this letter, it was mentioned that such expenses are being allowed in earlier years. Hence, this is not a case where there is no enquiry. Action under s. 263 cannot be taken on account of inadequate enquiry. The Apex Court in the case of Bharat Earth Movers v. CIT (2000) 162 CTR (SC) 325/[2000] 245 ITR 428 (SC) has held that if the business liability has arisen in the accounting year then deduction should be allowed although liability may have to be quantified and discharged at a future date. In the instant case, the assessee mentioned that sale proceeds of the plots included the cost plus development expenses as JDA had prescribed the norms that no separate amount should be charged for development. This Tribunal, Jaipur Bench in the case of (ITA No. 117/JP/2010 for the asst. yr. 2006-07, dt. 6th Jan., 2011) had an occasion to consider the allowability of expenses to be incurred in the subsequent years though the liability of incurring such expenditure has accrued during the previous year. It will be useful to reproduce the following paras from the judgment dt. 6th Jan., 2011 : 30. The Apex Court in the case of Calcutta Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere from whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date.' 32. The Apex Court in the case of Madras Industrial Investment Corporation Ltd. V.CIT [1997] 139 CTR (SC) 555/[1997] 225 ITR 802 (SC) held that discount on debentures is to be written off proportionately each year over period of redemption. The head note is as under: ' Sec.37 of the IT Act 1961, enjoins that any expenditure not being expenditure of the nature described in ss. 30 to 36 laid out or expended wholly and exclusively for the purpose of the business or profession should be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. The expression 'profits and gains' has to be understood in its commercial sense; and there could be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipt is deducted there from, whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date. Thus, éxpenditure'is not necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er : Held, that it was clear that the assessee's responsibility to evict the tenants who were occupying almost 200 bighas of the land was an onerous responsibility. As late as 1972, practically none of the tenants had been evicted. The liability to evict the tenants was in the nature of an in-built liability under the lease deed. The estimated amount in regard to the assessee's liability to evict the tenants was allowable. The ITO had given good reasons for restricting the allowance to Rs. 1,60,000/-. This was a fair and equitable conclusion arrived at by the ITO and since it was a only a question of estimate, with which the Tribunal had agreed, it could not be interfered with. The assessee was therefore, entitled to a deduction of Rs. 1,60,000 for the asst. yr. 1962-63.' 38. The Hon'ble Jurisdictional High Court in the case of Rajasthan State Mines & Minerals Ltd. v. CIT (1994) 208 ITR 1010 (Raj.) has observed at p. 1014 : 'A liability which is not accurately estimated could be a contingent liability and is not an expenditure. The Apex court in India Molasses Co. (P) Ltd. v. CIT (supra) referred to above, has held that the 'expenditure' is what is paid out or away and is someth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly for the purpose of the business'. A liability which is dependent on fulfillment of a condition which may result in reduction or in extinction of the liability is a contingent liability. It is only the actual liability which is existing in the relevant assessment year which is allowable to be considered as an expenditure. If the liability is contingent then it would amount to allowing the apprehended losses in future from the profits which is not accepted on any principle of law or accountancy. The question of estimation in a contingent liability also does not arise in order to allow the deduction under s. 37 of the Act. 39. The warranty provision is an allowable provision as it is part of the agreement of sale. The Apex court in the case of Rotork Controls India (P) Ltd. vs. CIT [2009] 23 DTR (SC) 79 held that such provision is allowable as it relates to present obligation and involves flow of resources. In the case of Bharat Earth Movers v. CIT [2000] 162 CTR (SC) 325/[2000] 245 ITR 428 (SC), the Apex Court held that the liability is allowable if it has arisen in the year though it may be quantified and discharged at a future date. 2.9. Looking to the above facts, we f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is absolved from the liability to construct the road or laying down electric pole/water line etc. and the assessee cannot be absolved from this liability because of the regulations of JDA and the plots sold by the assessee are subject to this liability of the assessee. Furthermore, 12.5 per cent of assessee's plots are with JDA as security against development work. In case the development work is not carried out by the assessee, the JDA would sell out these plots and will carry out the development work out of the sale proceeds of these plots. The land under the colonies are at far distant from the city and plot-holders have not started to reside there. The plots are open and no construction activities have been started by the plot holders. In most of the colonies, the JDA has not developed approach roads/sector roads. There were several reasons for not carrying development work at full swing such as problem in possession of land due to disputes with Khatedars, problem of way (Rasta) by adjoining farmers, nonconstruction of sector roads by JDA, Takashna problem in case of joint ownership of land, etc. the main problem which the assessee is facing that most of the lands we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Shree Salasar Overseas (Pvt.) Ltd. vs. ACIT in ITA No. 910/JP/2013, the Tribunal examined allowability of the Development Expenses and decided the issue in favour of the assessee. Further, the Coordinate Bench in ITA No. 1076/JP/2011 and 1078/JP/2011 decided the issue of allowability of Provision for Development Expenses by observing as under :- "2.14 We have heard both the parties. The issue before us has been decided by the Tribunal vide order dated 22-11-2011 in the case of Shree Salasar Oveseas (P) Ltd. (supra) . It will be useful to reproduce following para from the above order : '........The Hon'ble Apex Court in the case of Bharat Earth Movers Vs. CIT 245 ITR 428 has held that if the business liability has arisen in the accounting year then deduction should be allowed although liability may have to be quantified and discharged at a future date. In the instant case, the assessee mentioned that sale proceeds of the plots included the cost plus development expenses as JDA had prescribed the norms that no separate amount should be charged for development. This ITAT Jaipur Bench in the case of M/s Swapan Sakar Insurance Consultant & Marketing Services (P) Ltd. ( ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 10(I) of the Act, there being no prohibition against it, express or implied, in the Act. The expression " profits or gains" in section 10 (I) of the Income-tax Act has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted there from- whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date." 32. The Hon'ble Apex Court in the case of Madras Industrial Investment Corporation Ltd. V/s CIT 225 ITR 802 held that discount on debentures is to be written if proportionally each year even period of exemption. The Headnote is as under: "Section 37 of the Income-tax Act, 1961, enjoins that any expenditure note being expenditure of the nature described in sections 30 to 36 laid out or expended wholly and exclusively for the purpose of the business or profession should be allowed in computing the income chargeable under the head "Profits and gains of business or profession". The expression "Profit or gains" has to be understood in its commercial sense: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of CIT V/s Nav Bharat Nirman (P) Ltd. 141 ITR 723 had on occasion to consider the liability for evicting tenants as the agreement provided for eviction of tenants by lessor. The headnote is as under:- "Held, that it was clear that the assessee's responsibility to evict the tenants who were occupying almost 200 bighas of the land was an onerous responsibility. As late as 1972, practically none of the tenants had been evicted. The liability to evict the tenants was in the nature of an inbuilt liability under the lease deed. The estimated amount in regard to the assessee's liability to evict the tenants was allowable. The ITO had given good reasons for restricting the allowance to Rs. 1,60,000/-. This was a fair and equitable conclusion arrived at by the ITO and since it was a only a question of estimate, with which the Tribunal had agree, it could not be interfered with. The assessee was therefore, entitled to a deduction of Rs. 1,60,000/- for the assessment year 1962-63". 38. The Hon'ble jurisdictional High Court in the case of Rajasthan State mines & minerals V/s CIT 208 ITR 1010 has observed at page 1014. A liability which is not accurately estimated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the business is carried on, wholly contingent and does not raise any de3finite obligation during the time that the business is carried on, it cannot fall within the expression 'expenditure laid out or expended wholly and exclusively' for the purpose of the business". A liability which is dependent on fulfillment of a condition which may result in reduction or in extinction of the liability is a contingent liability. It is only the actual liability which is existing in the relevant assessment year which is allowable to be considered as an expenditure. If the liability is contingent then it would amount to allowing the apprehended losses in future from the profits which is not accepted on any principle of law or accountancy. The question of estimation in a contingent liability also does not arise in order to allow the deduction under section 37 of the Act. 39. The warranty provision is an allowable provision as it as part of the agreement of sale. The Hon'ble Apex Court in the case of Rotork Control India (P) Ltd. V/s CIT 23 DTR 79 held that such provision is allowable as it relates to present obligation and involves flow of resources. In the case of Bharat Earth Movers V/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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