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2017 (12) TMI 574

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..... so in terms of quantification thereof. We accordingly confirm the basis and reasonability of such provision towards the development expenditure and a claim towards such an ascertained liability is therefore clearly allowable for tax purposes under the provisions of section 37 of the Act. Further, we note that the assessee has been consistent in its accounting policy whereby it creates provision towards the development expenditure and there is no deviation from the past years. Further, we note that the assessee has been incurring actual expenditure out of such provision account and it is not a case that where the provision has been built over a period of time without any actual expenditure. The AO has allowed the provision for development expenses in A.Y 2007-08, A.Y 2008-09 and A.Y 2009-10 while completing the assessment u/s 143(3) of the Act and we don’t see any justifiable basis to disturb the same for the impunged assessment year. - Decided in favour of assessee. - ITA. No. 642/JP/2017, ITA. No. 232/JP/2017 - - - Dated:- 5-12-2017 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM Revenue by : Shri P. P. Meena Assessee by : Shri Vijay Goyal ORDER .....

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..... that as per the norms 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. The cost of these expenses is included in the sale price of the plot and separate charges against the development expenses to be incurred by the developer is not being charged in addition to the sale price of the plot taken by the developer. The development work has to be carried out as per the specification of the JDA. The sales of the assessee represents to two things, first cost of land and second cost of development expenses. Since the cost of the development expenses is to be incurred in the next years, therefore, the sales to the extent of the cost of development expenses is carried forwarded for next years under the nomenclature Provision against the development expenses. It is relevant to mention here that the development expenses are estimated only in respect of the plots sold during the year, not on whole land and such amount is carried forwarded. Thus, the sale proceed received by the assessee against the plots is subject to th .....

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..... dent. Considering the fact that it is a recurring issue for the assessee and the tax authorities, we deem it appropriate to set aside the impugned order and restore the issue back to the file of the ld. CIT(A) with a direction to pass a speaking order in accordance with law by first marshalling the facts of the instant case and thereafter consider the precedent available on those set of facts. Accordingly, the impugned order is set aside with the aforesaid direction. Needless to say that a reasonable opportunity of being heard shall be afforded to the assessee by the ld. CIT(A). Said order was pronounced in the open court at the time of hearing itself. 5. The ld. AR submitted that pursuant to the direction of the Hon ble ITAT, the matter has since been examined at length by the ld. CIT(A) wherein the relevant facts have been brought on record and properly analyized and taking into consideration the decision of Hon ble Rajasthan High Court in case of CIT vs. Shree Salasar Overseas Pvt. Ltd. in ITA No. 147/2014 dated 29.04.2016 and the decision of various Benches of the Jaipur Tribunal, the ld. CIT(A) has rightly allowed the provision for development expenses amounting to  .....

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..... one colony names as Sachivalaya Enclave which was launched in AY 2007-08. The assessee follows mercantile system of accounting wherein the revenue is booked on accrual basis irrespective to realization and expenses are booked on accrual basis. The assessee started the sales without completing the development work and the development work is to be carried out in different phases in coming years. Therefore, the sales effected by the assessee are subject to liability of development expenses which is to be incurred in future. The basic principle of the accounting is matching i.e. matching of expenses with revenue. Therefore, the assessee makes the provision for development expenses to be incurred in future in respect of the plots sold by it during the year. The assessee makes the provision for development expenses @ ₹ 500/- per sq. yard on the plots sold by it during the year. When the development expenses are incurred, the same is debited in the account Provision for development Expenses . During this year the assessee sold plots of 12534.42 sq yard on which it made provision for development expenses @ 500/- per sq yard, which comes to ₹ 62,67,210/-. During this year, t .....

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..... ngent liability or against ascertained liability. No inquiry was made for the basis of provision or reasonableness of the provision. Further, the AO has also not considered the past history of the assessee and also not taken a note of the case laws relied upon. Therefore, considering all these facts and circumstances of the case, under power vested u/s 250(4) of the Act, assessee has been asked to provide following: (i) furnish the details regarding the nature and basis of provision, (ii) how the assessee is abide by JDA circulars and (iii) past history of the case. The ld AR explained that the assessee s scheme is approved by JDA. The approval process was under progress since 20/07/2006 and scheme was finally approved by JDA on 14.09.12. The copy of correspondence with JDA/and other Government agencies were filed at PB pg 100 to 135. The scheme map was filed. The assessee filed a copy of JDA Circular No. D-1694 dated 01/12/2005, which clearly demonstrates that the developer has to carry out internal development of the scheme and this internal development can either be carried out through JDA or by the developer himself. In case the development work has to be ca .....

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..... urther submitted that as per the circular of JDA in respect of the guidance for development work and estimate amount of expenses on each activity of development wherein the expenses on the each activity were estimated by JDA @ ₹ 250/- per sq mtr. This estimation is for the year 2005. The assessee has also submitted that there is substantial price escalation from 2005. Further, the assessee has committed for more infrastructural facilities like club house, hospitals, schools etc. proposed to be provided by the assessee. The assessee submitted the copy of broacher of the scheme. In support of its contention, assessee has also justified the reasonableness of estimation of development expenses by submitting the copy of note sheet taken from the file of JDA in respect of JDA s own scheme at Village Prithvisinghpura wherein the JDA estimated the cost of development expenses about ₹ 1700/- per sq. Mts. as on 14.02.2014. Hon ble ITAT Jaipur Bench in the case of DCIT vs. M/s Shree Ram Kripa Buildcon Pvt Ltd ITA No 1076/JP/2011 order dated 13-01-2012 has made the finding on excessive provision if any made as under:- 2.15 Following that order, we hold that the Id CIT(A) .....

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..... 34.42 sq. yard amounting to ₹ 3,09,04,182 in a scheme being developed under the name and style of Sachivalaya Enclave . The said scheme has been approved by JDA on 14.9.2012 and the approved scheme map has been placed on record which has been verified by the ld CIT(A). The ld CIT(A) has returned a finding that as per JDA Circular no D-1694 dated 1/12/2005, internal development work has to be undertaken by the assessee and in pursuance of the same, in the instant case, 12.5% plot area of measuring an area of 37181.61 sq. yard is pledged with JDA as security which will be released after completion of development work by the assessee. From a regulatory standpoint, as per the approved scheme by JDA, the assessee will therefore be required to carry out the internal development work in terms of roads, electricity, water supply, plantation, street lights, sewerage facility, parks development, parking facility, drainage and water harvesting systems. Further, we find that the assessee has also given an undertaking to JDA as part of its change in land use application (90-B(3)) dated 24.08.09 that internal development work will be carried out as per norms of JDA and in future, J .....

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..... re the ld CIT(A) and the ld CIT(A) has returned a finding accepting the above-said contentions regarding assessee s contractual obligation to incur the development expenditure and no separate charge being recovered from the end-customers towards such development expenditure and the said findings remain uncontroverted before us. We accordingly see no reason to interfere with the said findings of the ld CIT(A). 9. Now, let s examine the matter from an accounting standpoint. As we have noted above, during the year under consideration, the assessee has reported sale of plots measuring 12534.42 sq. yard amounting to ₹ 3,09,04,182. It has been contended before us that the provision of ₹ 62,67,210 towards the development expenditure is in relation to said sale of plots which have been actually executed during the year, duly reflected in the financial statements and offered to tax in the return of income. It was contended that under the well accepted accounting principle of matching concept, where the sales have been duly offered to tax, corresponding expenses have to be claimed in order to reflect the true profit/loss situation. It was further contended that the assesse .....

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..... specification of development activities which has to be carried out by the assessee and also in terms of quantification thereof. We accordingly confirm the basis and reasonability of such provision towards the development expenditure and a claim towards such an ascertained liability is therefore clearly allowable for tax purposes under the provisions of section 37 of the Act. 11. Further, we note that the assessee has been consistent in its accounting policy whereby it creates provision towards the development expenditure and there is no deviation from the past years. Further, we note that the assessee has been incurring actual expenditure out of such provision account and it is not a case that where the provision has been built over a period of time without any actual expenditure. The AO has allowed the provision for development expenses in A.Y 2007-08, A.Y 2008-09 and A.Y 2009-10 while completing the assessment u/s 143(3) of the Act and we don t see any justifiable basis to disturb the same for the impunged assessment year. 12. Our view is also fortified by the decision of the Hon ble Rajasthan High Court in case of Salasar Overseas Pvt ltd (Supra) wherein it was held .....

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