TMI Blog2017 (5) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and in the circumstances of the case the CIT(A) was right in deleting the addition of ₹ 13,61,02,357/- made by A.O. on account of disallowance of provision for development for development expenses claimed by the assessee firm. Grounds of ITA No. 874/JP/2016 1. Whether on the facts and in the circumstances of the case the CIT(A) was right in deleting the addition of ₹ 11,07,83,044/- made by A.O. on account of disallowance of provision for development for development expenses claimed by the assessee firm. 2. The brief facts of the case are that a search and seizure operation U/s 132(1) of the Income Tax Act, 1961 (in short the Act) was carried on 29/03/2010 at the various premises of Mayura Group. Mayura Infrastructure Development Company (MIDC) is a partnership firm which is developing a integrated township named as Mayura City at Madanganj, Kishangarh. The Assessing Officer made addition for not allowing the provision for development expenses of ₹ 13,61,02,357/- in the assessment year 2011-12 and ₹ 11,07,83,044/- in the assessment year 2013-14. 3. In both the years, the additions were deleted by the ld. CIT(A). The relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled explanation to the each working. As per the details given in above table, the total project cost as per the estimate made by the registered valuer was arrived at ₹ 43,35,00,000/, therefore, the cost of development per squares yard comes to ₹ 956/-.The development expenses up to 31.03.2011 were made up of ₹ 5,81,63,781/- which works out at cost of development expenditure already incurred at ₹ 128/- per sq yards on sale made. Therefore, provision of remaining development expenses to be incurred of ₹ 828/= per sq yards (956-128=828} amounting to ₹ 13,61,02,357/- was made on the area sold above. In support of its claim, assessee has relied upon the decisions of Hon'ble Apex Court in cases of Bharat Earth Movers . Calcutta Co Ltd (supra) and Hon'ble Rajasthan High Courts in case of Om Metals and Minerals P Ltd (supra). It is pertinent to mention here that the Hon'ble Apex Court, in Om Metal and Mineral Pvt. Ltd (Supra) after considering the judgment rendered in the case of Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 (SC) culled out following principles for a claim like this (430 245 ITR): For an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been sold out on the realization of sale proceeds. Assessee is following mercantile method of accounting. In this view of the matter, the assessee s liability has accrued but the same is to be discharged at later date. The working of the provision for accrued liability has been made as under:- Total Project Cost taken on the basis of estimate of consulting engineer/approved valuer (in Rs.) A 43,35,00,000 Total Land Area available with MIDC(in Sq Yards) B 4,53,530.92 Cost of development expenses(A/B)(per Sq Yards) C 956 Actual development expenses upto 31.03.2011 (in Rs.) D 5,81,63,781 Cost of development exp. per sq yards of actual expenses(D/B) E 128 Provision to be made for more expenses(In Rs)(C-E) F 828 Sales made during F.Y 2010-ll(sq yards) G 1,64,456.89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e staff (other than officers) were entitled to vacation leave calculated at the rate of 1.5 days per month, i.e., 18 days in a year. The earned leave could be accumulated up to a maximum of 240 days while the vacation leave could be accumulated up to a maximum of 126 days. The earned leave/vacation leave could be encashed subject to the ceiling on accumulation. The officers could at their option avail of the accumulated leave or in lieu of availing of the leave apply for encashment whereupon they would be paid salary for the period of leave earned but not availed of. So did the scheme extend the facility of encashment to the staff in respect of vacation leave. The assessee-company had created a fund by making a provision for meeting its liability arising on account of the accumulated earned/vacation leave. In the assessment year 1978-79 , an amount of ₹ 62,25,483 was set apart in a separate account as provision for encashment of accrued leave. It was claimed as a deduction. In the opinion of the Tribunal, the assessee was entitled to such deduction. The High Court had formed a different opinion and held that the provision for accrued leave salary was a contingent liability an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which would have to be expended by the assessee in the course of carrying on its business and was incidental to the business and, having regard to the accepted commercial practice and trading principles, was a deduction which, if there was no specific provision for it under section 10(2) of the Income-tax Act, was certainly an allowable deduction, in arriving at the profits and gains of the business of the appellant, under section 10(1) of the Act, there being no prohibition against it, express or implied, in the Act. The expression profits or gains in section 10(1) 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 therefrom-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. In view of the ratio laid down by the Hon'ble Supreme Court in the above judgments, we do not see any infirmity in the order of the ld. CIT(A), therefore, revenue s appeal being ITA No. 873/JP/2016 stands dismissed. 6. Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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