DCIT, Jaipur v. THE GREEN TRIVENI DEVELOPERS, Jaipur

ITA 304/JPR/2016 | 2012-2013
Pronouncement Date: 27-09-2016 | Result: Dismissed

Appeal Details

RSA Number 30423114 RSA 2016
Assessee PAN AAFFT5998M
Bench Jaipur
Appeal Number ITA 304/JPR/2016
Duration Of Justice 5 month(s) 23 day(s)
Appellant DCIT, Jaipur
Respondent THE GREEN TRIVENI DEVELOPERS, Jaipur
Appeal Type Income Tax Appeal
Pronouncement Date 27-09-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted Not Allotted
Tribunal Order Date 27-09-2016
Assessment Year 2012-2013
Appeal Filed On 04-04-2016
Judgment Text
VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCHE S JAIPUR JH DQY HKKJR] U;KF;D LNL; OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT JM & SHRI VIKRAM SINGH YAD AV AM VK;DJ VIHY LA-@ ITA NO. 304/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13. DEPUTY COMMISSIONER OF INCOME - TAX CIRCLE-2 JAIPUR. CUKE VS. M/S. THE GREEN TRIVENI DEVELOPERS 309-310 CITY PEARL OPP. HOTEL GANGAUR M.I. ROAD JAIUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAFFT 5998 M VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI O.P. BHATEJA (ADDL. CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI VIJAY GOYAL (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 19.09.2016. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 27/09/2016. VKNS'K@ ORDER PER SHRI KUL BHARAT JM. THE APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER OF LD. CIT (APPEALS)-I JAIPUR DATED 19.01.2016 PERTAINING TO ASSESSMENT YE AR 2012-13. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) HAS ERRED IN DELETING THE ADDIT ION MADE BY THE AO ON THE ISSUE OF EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD PROVISION FOR DEVELOPMENT EXPENSES OF R. 43 2 3 423/-. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMEN T UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS TH E ACT) WAS FRAMED VIDE ORDER DATED 10 TH JULY 2014. WHILE FRAMING THE ASSESSMENT THE AO DISALLOWED THE PROVISION FOR DEVELOPMENT EXPENSES AND MADE ADDITIO N OF RS. 43 23 423/-. THE 2 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS ASSESSING OFFICER ALSO DISALLOWED THE INTEREST ON T DS 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 DECIS ION 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 APPEA L BEFORE US. 4. THE LD. D/R SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 4.1. ON THE CONTRARY THE LD. COUNSEL FOR THE ASSES SEE 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 COVERE D IN FAVOUR OF THE ASSESSEE IN ASSESSEES 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 M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. WE FIND FROM THE SCRUTINY REPORT OF THE DEPARTMENT THAT REVENUE PREFERRED THE APPEAL ON THE GROUND THAT THE DECISION OF THE COORDINATE BENCH IN THE CASE OF SHR EE SALASAR OVERSEAS (PVT.) LTD. VS. ACIT IN ITA NO. 910/JP/2013 HAS NOT BEEN ACCEPT ED BY THE REVENUE AND APPEAL HAS BEEN FILED BEFORE HONBLE HIGH COURT. THE LD. CIT (A) DECIDED THE ISSUE AT PARA 3.1.2 BY OBSERVING AS UNDER :- (I) I HAVE CAREFULLY PERUSED THE SUBMISSIONS OF T HE APPELLANT ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. THE APPELLANT IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF REAL ES TATE DEVELOPMENT. IT PURCHASES AGRICULTURE LAND AND THEREAFTER APPLIE S TO JDA FOR 3 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS CONVERSION OF LAND FOR RESIDENTIAL AND COMMERCIAL P URPOSES. AFTER APPROVAL OF TOWNSHIP PLAN AND MAP BY JDA IT MADE D EVELOPMENT WORK IN THE SCHEMES AS PER NORMS OF THE JDA SUCH AS CONS TRUCTION OF INTERNAL ROADS ELECTRIFICATION WATER SUPPLY AND D EVELOPMENT OF PUBLIC PARKS AND FACILITIES ETC. DURING THE YEAR UNDER CON SIDERATION THE APPELLANT WAS DEVELOPING SCHEME SITUATED AT VILLAGE NINDAR ON SIKAR ROAD TEHSIL AMBER JAIPUR NAMING GREEN TRIVENI PH ASE-I AND PHASE- II AND IT MADE PROVISION FOR DEVELOPMENT EXPENSES O F RS. 43 23 423/- TO BE INCURRED IN FUTURE ON THE PLOTS SOLD DURING T HE YEAR WHICH WAS DISALLOWED BY THE AO. THE FINDINGS OF THE AO ARE A T PAGE 8 TO 10 OF THE ASSESSMENT ORDER. THE AO DISALLOWED THE PROVISI ON FOR DEVELOPMENT EXPENSES ON ACCOUNT OF BEING ONLY A PRO VISION NOT ACTUALLY SPENT BY THE APPELLANT AN UNASCERTAINED L IABILITY AND THE EXPENDITURE CAN BE CLAIMED IN THE YEAR IN WHICH IT WOULD BE INCURRED THE ACTUAL EXPENSES IN COMPARISON TO PROVISION ARE QUITE LOW. DURING APPELLATE PROCEEDINGS THE DETAILED SUBMISSIONS WER E MADE BY THE APPELLANT ON EACH OF THE FINDINGS OF THE AO WHICH HAS BEEN MENTIONED EARLIER IN THIS ORDER. (II) IT IS NOTED FROM THE MATERIAL PLACED ON RECORD THAT FOR PHASE-I AND PHASE-II OF GREEN TRIVENI PROJECT THE APPELLAN T HAS MADE TOTAL PROVISION FOR DEVELOPMENT FROM AY 2009-10 TO AY 201 2-13 AT RS. 2 49 01 178/- AND RS. 4 82 69 089/- AND INCURRED AC TUAL EXPENSES OF RS. 3 24 92 579/- AND RS. 2 52 67 205/- FOR PHASE-I AND PHASE-II RESPECTIVELY. THUS IT IS EVIDENT THAT FOR PHASE-I THE ACTUAL EXPENDITURE ON DEVELOPMENT OF THE PROJECT ARE MUCH MORE THAN TH E PROVISION MADE FOR THE DEVELOPMENT EXPENSES. (III) DURING APPELLATE PROCEEDINGS THE AR WAS REQU IRED TO SUBMIT THE DETAILS OF TO6TAL PROVISION MADE AND ACTUAL EXP ENDITURE INCURRED TILL 31.03.2015 FOR PHASE-II. FROM THE DETAILS SUBMITTE D 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. THERE FORE THE OBSERVATION OF THE AO THAT ACTUAL EXPENDITURE INCUR RED ON DEVELOPMENT OF THE PROJECT IS MEAGER IN COMPARISON TO THE PROVISIONS MADE FOR DEVELOPMENT IS MISPLACED AND WITHOUT PROPE R 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 AN D 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 PR OJECT AS PER THE NORMS OF JDA. 4 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS (V) IT IS NOTED FROM JDA ORDER NO. D-1694 DATED 1.1 2.2005 THAT THE DEVELOPER HAS TO CARRY OUT INTERNAL DEVELOPMENT OF THE PROJECT AND THIS INTERNAL DEVELOPMENT CAN EITHER BE CARRIED OUT THRO UGH JDA OR BY THE DEVELOPER ITSELF. IN CASE THE DEVELOPMENT WORK IS N OT CARRIED OUT BY THE DEVELOPER IT HAS TO KEEP 12.5% THE PLOTS WITH JDA HAS AS SECURITY AND THESE PLOTS WILL BE RELEASED ONLY AFTER THE COM PLETION WORK. FURTHER IT THE REVENUE IS BOOKED ON AC CRUEL BASIS AND THE EXPENSES ARE BOOKED ON ACTUAL BASIS IT WOULD BE AG AINST THE PRINCIPLE OF MATCHING AS UNDER THIS PRINCIPLE IF REVENUE IS R ECOGNIZED THE COST INCURRED TO EARN THAT REVENUE MUST BE TAKEN INTO AC COUNT AGAINST THE REVENUE. (VI) DURING APPELLATE PROCEEDINGS IT WAS SUBMITTED BY THE AR THAT THE ISSUE IS COVERED BY THE DECISIONS OF HONBLE IT AT JAIPUR BENCH IN ITS OWN CASE (WITH REFERENCE TO ORDER U/S 263 PASSE D BY CIT ) AND IN THE CASES OF SHREE SALASAR OVERSEAS (PVT.)LTD. VS. ACIT CIRCLE-2 JAIPUR (WITH REFERENCE TO ORDER U/S 263 ON SAME ISSUE) AND DCIT VS. RAM CHANDRA AGARWAL AND IN THAT CASE THE HONBLE ITAT H AS FOLLOWED ITS DECISION IN THE CASE OF ASSESSEE AND THERE IS NO MA TERIAL CHANGE IN THE FACTS AND CIRCUMSTANCES IN THE YEAR UNDER CONSIDERA TION THEREFORE THE BINDING DECISION OF HONBLE ITAT IS TO BE FOLLOWED. (VII) IT MAY BE MENTIONED THAT IN THE CASE OF SHREE SALASAR OVERSEAS (P) LTD. VS. DCIT [2014] 52 TAXMANN.COM 105 THE HO NBLE ITAT JAIPUR CONSIDERED THE ISSUE OF PROVISION FOR DEVELO PMENT EXPENSES AND HELD AS UNDER :- 4.6. IN ASSESSEES CASE ITSELF ON THE BASIC OF AU DIT OBJECTION RAISED BY THE AG AUDIT TEAM THE REVISION PROCEEDING UNDER S. 263 OF IT ACT WAS INITIATED FOR ASST. YR. 2006-07. THE ORDER PASSED U NDER S. 263 OF IT ACT WAS CHALLENGED BY ASSESSEE IN THIS TRIBUNAL. THE TR IBUNAL CANCELLED THE ORDER PASSED UNDER S. 263 OF IT ACT ON THE BASIS OF FOLLOWING FINDINGS MADE IN ITA NO. 433/JP/2011 DT. 22 ND NOV. 2011 (SUPRA) : WE HAVE HEARD BOTH THE PARTIES. THE LEARNED CIT I SSUED THE SHOW-CAUSE NOTICE UNDER S. 263 OF THE ACT ON 13 TH SEPT. 2010. IN THE SHOW-CAUSE NOTICE THE LEARNED CIT MENTIONED THAT THE PROVISIONS FOR DEVELOPMENT EXPENSES TO BE INCURRED IN SUBSEQUENT YEARS ARE NOT ALLOWABLE. ONLY THE EXPENS ES DURING THE PREVIOUS YEAR ARE ALLOWABLE FOR DEDUCTION FROM INCOME. THE ORDER UNDER S. 263 CAN BE PASSED AFTER GIVING THE O PPORTUNITY TO THE ASSESSEE. IF THE ISSUE RAISED IN SHOW-CAUSE NOT ICE IS DIFFERENT FROM THE ISSUE ON WHICH THE LEARNED CIT H AS PASSED 5 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS THE ORDER UNDER S. 263 OF THE ACT THEN IT CANNOT BE SAID THE ASSESSEE HAS BEEN GIVEN AN OPPORTUNITY. WE ACCEPT T HE CONTENTION OF THE LEARNED AUTHORIZED REPRESENTATIVE THAT DETAILS WERE FILED BEFORE THE AO VIDE LETTER DT. 5 TH DEC. 2008. IN THIS LETTER IT WAS MENTIONED THAT SUCH EXPENSES ARE BEI NG ALLOWED IN EARLIER YEARS. HENCE THIS IS NOT A CASE WHERE THER E IS NO ENQUIRY. ACTION UNDER S. 263 CANNOT BE TAKEN ON ACC OUNT OF INADEQUATE ENQUIRY. THE APEX COURT IN THE CASE OF B HARAT EARTH MOVERS V. CIT (2000) 162 CTR (SC) 325/[2000] 245 IT R 428 (SC) HAS HELD THAT IF THE BUSINESS LIABILITY HAS AR ISEN IN THE ACCOUNTING YEAR THEN DEDUCTION SHOULD BE ALLOWED AL THOUGH 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 DEVELO PMENT EXPENSES AS JDA HAD PRESCRIBED THE NORMS THAT NO SE PARATE AMOUNT SHOULD BE CHARGED FOR DEVELOPMENT. THIS TRIB UNAL JAIPUR BENCH IN THE CASE OF (ITA NO. 117/JP/2010 FO R THE ASST. YR. 2006-07 DT. 6 TH JAN. 2011) HAD AN OCCASION TO CONSIDER THE ALLOWABILITY OF EXPENSES TO BE INCURRED IN THE SUBS EQUENT YEARS THOUGH THE LIABILITY OF INCURRING SUCH EXPENDITURE HAS ACCRUED DURING THE PREVIOUS YEAR. IT WILL BE USEFUL TO REPR ODUCE THE FOLLOWING PARAS FROM THE JUDGMENT DT. 6 TH JAN. 2011 : 30. THE APEX COURT IN THE CASE OF CALCUTTA CO. LTD. V. CIT (1959) 37 ITR 1(SC) HAD AN OCCASION TO CONSIDER THE ALLOW ABILITY OF EXPENDITURE WHICH WAS TO BE INCURRED FOR DEVELOPMENT OF PLOT. THE ASSESSEE RECEIVED RS.29 392 TOWARDS SA LE PRICE OF LANDS BUT CREDITED THE ENTIRE FULL PRICE OF LAND IN ACCOUNT ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING. A SUM OF RS.24 809/- WAS DEBITED AS ESTIMATED EXPENDITURE FOR DEVELOPMEN T THOUGH NO SUCH SUM WAS SPENT. THE HEAD NOTES OF THIS DECIS ION ARE REPRODUCED HELD (I) THAT THE UNDERTAKING TO CARRY OUT THE DEV ELOPMENTS WITHIN SIX MONTHS FROM THE DATES OF THE DEEDS OF SA LE (WHICH IN VIEW OF THE FACT THAT TIME WAS NOT OF THE ESSENCE O F THE CONTRACT MEANT A REASONABLE TIME) WAS UNCONDITIONAL THE APP ELLANT BINDING ITSELF ABSOLUTELY TO CARRY OUT THE SAME. TH AT UNDERTAKING IMPORTED A LIABILITY ON THE APPELLANT WHICH ACCRUED ON THE DATES OF THE DEEDS OF SALE THOUGH THAT LIABILITY WAS TO BE DISCHARGED AT A FUTURE DATE. IT WAS THUS AN ACCRUED LIABILITY AND THE ESTIMATED EXPENDITURE WHICH WOULD BE INCURRED IN DISCHARGING THE SAME COULD BE DEDUCTED FROM THE PROFITS AND GAINS OF THE BUSINESS AND THE AMOUNT TO BE EXPENDED COULD BE DEBITED IN A CCOUNTS MAINTAINED IN THE MERCANTILE SYSTEM OF ACCOUNTING B EFORE IT WAS ACTUALLY DISBURSED. THE DIFFICULTY IN THE ESTIMATIO N THEREOF DID NOT CONVERT THE ACCRUED LIABILITY INTO A CONDITIONAL ON E BECAUSE IT 6 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS WAS ALWAYS OPEN TO THE IT AUTHORITIES CONCERNED TO ARRIVE AT A PROPER ESTIMATE THEREOF HAVING REGARD TO ALL THE CI RCUMSTANCES OF THE CASE (II) THAT THE SUM OF RS.24 809 REPRESENTE D THE ESTIMATED AMOUNT WHICH WOULD HAVE TO BE EXPENDED BY THE ASSESSEE AND THE COURSE OF CARRYING ON ITS BUSINESS AND WAS INCIDENTAL TO THE BUSINESS AND THE COURSE OF CARRYI NG ON ITS BUSINESS AND WAS INCIDENTAL TO THE BUSINESS AND HAV ING REGARD TO THE ACCEPTED COMMERCIAL PRACTICE AND TRADING PRI NCIPLES WAS A DEDUCTION WHICH IF THERE WAS NO SPECIFIC PROVISI ON FOR IT UNDER S.10(2) OF THE IT ACT WAS CERTAINLY AN ALLOWABLE D EDUCTION IN ARRIVING AT THE PROFITS AND GAINS OF THE BUSINESS O F THE APPELLANT UNDER S.10(1) OF THE ACT THERE BEING NO PROHIBITIO N AGAINST IT EXPRESS OR IMPLIED IN THE ACT. THE EXPRESSION PROFITS AND GAINS IN S.10(1) OF TH E IT ACT HAS TO BE UNDERSTOOD IN ITS COMMERCIAL SENSE AND THERE CAN BE NO COMPUTATION OF SUCH PROFITS AND GAINS UNTIL THE EXP ENDITURE WHICH IS NECESSARY FOR THE PURPOSE OF EARNING THE R ECEIPTS IS DEDUCTED THERE FROM WHETHER THE EXPENDITURE IS ACTU ALLY INCURRED OR THE LIABILITY IN RESPECT THEREOF HAS ACCRUED EVE N 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 D EBENTURES 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 EXPEND ITURE OF THE NATURE DESCRIBED IN SS. 30 TO 36 LAID OUT OR EXPEND ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROF ESSION 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 COM MERCIAL SENSE; AND THERE COULD BE NO COMPUTATION OF SUCH PROFITS A ND GAINS UNTIL THE EXPENDITURE WHICH IS NECESSARY FOR THE PU RPOSE OF EARNING THE RECEIPT IS DEDUCTED THERE FROM WHETHER THE EXPENDITURE IS ACTUALLY INCURRED OR THE LIABILITY I N RESPECT THEREOF HAS ACCRUED EVEN THOUGH IT MAY HAVE TO BE DISCHARGE D AT SOME FUTURE DATE. THUS XPENDITUREIS NOT NECESSARILY C ONFINED TO THE MONEY WHICH HAS BEEN ACTUALLY PAID OUT. IT COVERS A LIABILITY WHICH HAS ACCRUED OR WHICH HAS BEEN INCURRED ALTHOU GH IT MAY HAVE TO BE DISCHARGED AT A FUTURE DATE. HOWEVER A CONTINGENT LIABILITY WHICH MAY HAVE TO BE DISCHARGED IN FUTURE CANNOT BE CONSIDERED AS EXPENDITURE. 33. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF W ELDING RODS MFG. CO. V. CIT (1997) 137 CTR(GUJ.) 569/(1997 ) 225 ITR 525 (GUJ.) HAD AN OCCASION TO CONSIDER THE ALLOWABI LITY OF 7 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS PROVISION MADE THOUGH AMOUNT NOT ACTUALLY SPENT. TH E ASSESSEE BORROWED WELDING RODS AND WERE TO BE RETURNED ON DE MAND. THE ASSESSEE MADE A PROVISION OF LIABILITY ON ACCOUNT O F THE RISE IN PRICES. THE HONBLE HIGH COURT OBSERVED THAT IN ME RCANTILE SYSTEM OF ACCOUNTING THE BUSINESSMAN HAS TO TAKE I NTO CONSIDERATION HIS LIABILITIES WHICH MIGHT BE EVEN C ONTINGENT IN ORDER TO ARRIVE AT WHAT IS REAL BUSINESS PROFIT IN THAT YEAR. THE ASSESSEE HAS TO TAKE INTO CONSIDERATION HIS LEGAL L IABILITIES. 34. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF UDAIPUR MINERAL DEVELOPMENT SYNDICATE (P) LTD. V. DY. CIT ( 2003) 181 CTR (RAJ.) 251/(2003) 261 ITR 706 (RAJ.) HAD AN OCC ASION TO CONSIDER THE ACCRUAL OF LIABILITY. IN THIS CASE THE ASSESSEE AS PER AGREEMENT WAS REQUIRED TO RESTORE THE SURFACE LAND IN THE ORIGINAL CONDITION AND HENCE THE LIABILITY TO REFIL L PITS ACCRUED AS SOON AS PITS WERE DUG. IN THE INSTANT CASE THE ASS ESSEE AS PER AGREEMENT WAS TO PROVIDE INSURANCE POLICY TO MEMBER S HAVING ATTAINED S-1 CATEGORY AND HENCE LIABILITY ACCRUED A S AND WHEN SUCH MEMBERS GOT CATEGORY OF S-1. 35. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CI T V. TUBE INVESTMENTS OF (INDIA) LTD (2003) 261 ITR 753 (MAD. ) ALLOWED PRO RATA ANNUAL ALLOCATION OF PREMIUM PAYBLE AT FUT URE DATE. HENCE THE EXPENDITURE ALLOWABLE UNDER MERCANTILE S YSTEM OF ACCOUNTING DOES NOT MEAN THAT IT SHOULD BE SPENT IN THAT YEAR. 36. THE HONBLE ALLAHABAD HIGH COURT IN CIT V. DEV ELOPMENT TRUST (P) LTD. (1991) 99 CTR (ALL) 247/1991) 189 IT R 504 (ALL.) HELD THAT EXPENSES IN RESPECT OF DEVELOPMENT TO BE CARRIED BY ASSESSEE ARE AN ALLOWABLE DEDUCTION UNDER MERCANTIL E SYSTEM OF ACCOUNTING. 37. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. NAV BHARAT NIRMAN (P) LTD. (1983) 141 ITR 723 (DELHI) H AD AN OCCASION TO CONSIDER THE LIABILITY FOR EVICTING TEN ANTS AS THE AGREEMENT PROVIDED FOR EVICTION OF TENANTS BY LESSO R. THE HEADNOTE IS AS UNDER : HELD THAT IT WAS CLEAR THAT THE ASSESSEES RESPONSIBILITY TO EVICT THE TENANTS WHO WERE OCCUPY ING ALMOST 200 BIGHAS OF THE LAND WAS AN ONEROUS RESPONSIBILIT Y. AS LATE AS 1972 PRACTICALLY NONE OF THE TENANTS HAD BEEN EVIC TED. THE LIABILITY TO EVICT THE TENANTS WAS IN THE NATURE OF AN IN-BUILT LIABILITY UNDER THE LEASE DEED. THE ESTIMATED AMOUN T IN REGARD TO THE ASSESSEES LIABILITY TO EVICT THE TENANTS WA S ALLOWABLE. THE ITO HAD GIVEN GOOD REASONS FOR RESTRICTING THE ALLO WANCE TO RS 1 60 000/-. THIS WAS A FAIR AND EQUITABLE CONCLUSIO N ARRIVED AT BY THE ITO AND SINCE IT WAS A ONLY A QUESTION OF ES TIMATE WITH 8 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS WHICH THE TRIBUNAL HAD AGREED IT COULD NOT BE INTE RFERED WITH. THE ASSESSEE WAS THEREFORE ENTITLED TO A DEDUCTION OF RS. 1 60 000 FOR THE ASST. YR. 1962-63. 38. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE 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 LIABILIT Y AND IS NOT AN EXPENDITURE. THE APEX COURT IN INDIA MOLASSES CO. ( P) LTD. V. CIT (SUPRA) REFERRED TO ABOVE HAS HELD THAT THE E XPENDITURE IS WHAT IS PAID OUT OR AWAY AND IS SOMETHING WHICH HAS GONE IRRETRIEVABLY. EXPENDITURE WHICH IS DEDUCTIBLE FOR INCOME-TAX PURPOSES IS ONE WHICH IS TOWARDS A LIABILITY ACTUA LLY EXISTING AT THE TIME BUT THE PUTTING ASIDE OR MONEY WHICH MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT IS NOT EXP ENDITURE. THE INCOME-TAX LAW MAKES A DISTINCTION BETWEEN AN A CTUAL LIABILITY IN PRESENT AND A LIABILITY DE FUTURE WHIC H FOR THE TIME BEING IS ONLY CONTINGENT. THE FORMER IS DEDUCTIBLE BUT NOT THE LATTER. IN CALCUTTA CO. LTD. V. CIT (1959) 37 ITR 1 (SC) IT WAS HELD BY THE APEX COURT THAT IF A LIABILITY HAS DEFI NITELY BEEN INCURRED IN THE ACCOUNTING YEAR E.G. ON UNCONDITI ONAL ACCRUED LIABILITY IT CANNOT BE REGARDED AS A CONTINGENT LI ABILITY MERELY BECAUSE IT IS TO BE DISCHARGED AT A FUTURE DATE AND THE COST OF DISCHARGING IT IS NOT DEFINITE BUT HAS TO BE ESTIMA TED. SIMILARLY IN BRITISH SOUTH AFRICA CO. V. CIT [1946 ] 14 ITR (SUPRA) 17 (PC) IT HAS BEEN HELD BY THE PRIVY COUN CIL THAT WHERE A LIABILITY CLEARLY EXISTS THEN QUANTIFICATIO N OF THE SUM SHOULD NOT COME IN THE WAY OF THE ASSESSEE IN DEBIT ING THE SUM AND CLAIMING THE DEDUCTION THEREOF. IN ORDER TO EST IMATE THE TRUE PROFITS A LIABILITY HAS TO BE DETERMINED. IT W AS OBSERVED BY THE SUPREME COURT IN THE CASE OF CIT V. GEMINI CASH EW SALES CORPORATION (1967) 65 ITR 643 (SC) (HEADNOTE): BRO ADLY STATED THE PRESENT VALUE ON COMMERCIAL VALUATION OF MONEY TO BECOME DUE IN FUTURE UNDER A DEFINITE OBLIGATION WILL BE A PERMISSIBLE OUTGOING OR DEDUCTION IN COMPUTING THE TAXABLE PROF ITS OF A TRADER EVEN IF IN CERTAIN CONDITIONS THE OBLIGATIO N MAY CEASE TO EXIST BECAUSE OF FORFEITURE OF THE RIGHT. WHERE HO WEVER THE OBLIGATION OF THE TRADER IS PURELY CONTINGENT NO Q UESTION OF ESTIMATING ITS PRESENT VALUE MAY ARISE FOR TO BE A PERMISSIBLE OUTGOING OR ALLOWANCE THERE MUST IN THE YEAR OF AC COUNT BE A PRESENT OBLIGATION CAPABLE OF COMMERCIAL VALUATION. IT WAS FURTHER OBSERVED THAT WHERE ACCOUNTS ARE MAINTAINED ON THE MERCANTILE SYSTEM IF LIABILITY TO MAKE THE PAYMENT HAS ARISEN DURING THE TIME THE BUSINESS IS CARRIED ON IT MAY APPROPRIATELY BE REGARDED AS EXPENDITURE. BUT WHERE THE LIABILITY IS DURING THE 9 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS WHOLE OF THE PERIOD THAT THE BUSINESS IS CARRIED ON WHOLLY CONTINGENT AND DOES NOT RAISE ANY DEFINITE OBLIGATI ON DURING THE TIME THAT THE BUSINESS IS CARRIED ON IT CANNOT FAL L 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 T HE LIABILITY IS A CONTINGENT LIABILITY. IT IS ONLY THE ACTUAL LIABIL ITY WHICH IS EXISTING IN THE RELEVANT ASSESSMENT YEAR WHICH IS ALLOWABLE TO BE CONSIDERED AS AN EXPENDITURE. IF THE LIABILITY IS C ONTINGENT THEN IT WOULD AMOUNT TO ALLOWING THE APPREHENDED LOSSES IN FUTURE FROM THE PROFITS WHICH IS NOT ACCEPTED ON ANY PRINC IPLE OF LAW OR ACCOUNTANCY. THE QUESTION OF ESTIMATION IN A CONTI NGENT LIABILITY ALSO DOES NOT ARISE IN ORDER TO ALLOW THE DEDUCTION UNDER S. 37 OF THE ACT. 39. THE WARRANTY PROVISION IS AN ALLOWABLE PROVISIO N AS IT IS PART OF THE AGREEMENT OF SALE. THE APEX COURT IN TH E CASE OF ROTORK CONTROLS INDIA (P) LTD. VS. CIT [2009] 23 DT R (SC) 79 HELD THAT SUCH PROVISION IS ALLOWABLE AS IT RELATES TO PRESENT OBLIGATION AND INVOLVES FLOW OF RESOURCES. IN THE C ASE 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 FEEL THAT THE L EARNED CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ORDER UNDER S. 263 O F THE ACT. THE ORDER OF THE LEARNED CIT IS CANCELLED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 3. IN THE RESULT THE APPEAL OF THE ASSESSEE IS A LLOWED. THE SIMILAR ADDITION WAS ALSO MADE IN THE CASE OF S HREE RAM KRIPA BUILDCON (P) LTD. ITA NO. 1076/JP/2011 AND IN THE C ASE OF SHRI RAM CHANDRA AGARWAL ITA NO. 1078/JP/2011. IN THESE CASE S PROVISIONS FOR DEVELOPMENT EXPENSES WERE ADDED BACK BY THE AO IN A SSESSMENT PROCEEDINGS. THE LEARNED CIT (A) DELETED THE ADDITI ON. THE REVENUE FILED APPEALS BEFORE THE TRIBUNAL IN THESE CASES. T HE TRIBUNAL UPHELD THE FINDINGS OF LEARNED CIT (A) FOLLOWING THE RATIO LAID DOWN IN THE CASE OF PRESENT ASSESSEE IN ITA NO. 433/JP/2011 ORDER D T. 22 ND NOV. 2011 FOR ASST. YR. 2006-07. 4.7. FURTHER WE NOTICED THAT FROM THE JDA CIRCULAR DT. 1 ST DEC 2005 (PAPER BOOK PP. 147-151 APB ASST. YR. 2005-06) THAT THE ASSESSEE IS BOUND TO CARRY OUT INTERNAL DEVELOPMENT OF THE COLO NY AT ITS COST. THE 10 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS JDA KEEPS 12.5 PER CENT OF THE ASSESSEES PLOTS AS SECURITY AGAINST THE DEVELOPMENT WORK TO BE CARRIED OUT IN FUTURE BY THE ASSESSEE. THESE PLOTS ARE RELEASED TO THE ASSESSEE ONLY AFTER COMPL ETION OF ENTIRE DEVELOPMENT WORK UP TO THE NORMS STANDARDS AND QUA LITY CONTROL OF JDA (PAPER BOOK PP. 150-151 APB ASST. YR. 2005-06). FURTHER THE JDA HAS SPECIFIED THE WORK TO BE DONE BY THE PRIVATE CO LONIZER IN ITS CIRCULAR COPY OF WHICH PLACED AT (APB PB PP. 162 TO 168 ASST . YR. 2005-06). THE DEVELOPMENT OF PRIVATE TOWNSHIP IN JAIPUR BY THE CO LONIZER IS SUBJECT TO APPROVAL AND NORMS OF THE JDA. THE PRIVATE COLONIZE R HAS TO ABIDE BY THE CIRCULARS DIRECTIONS AND ORDERS OF THE JDA IF IT WANTS TO DEVELOP PRIVATE TOWNSHIP IN JAIPUR AND IT CANNOT WRIGGLE OU T FROM ITS OBLIGATIONS FIXED BY JDA. THEREFORE THE LIABILITY OF THE ASSES SEE TO CARRY OUT THE INTERNAL DEVELOPMENT WORK IN THE COLONY IS NOT A CO NTINGENT LIABILITY BUT ASCERTAINED LIABILITY WHICH ACCRUED ON THE DATE OF SALE OF THE PLOT. 4.8. FURTHER THE AO MENTIONED THAT THE ASSESSEE HA S INCURRED VERY MEAGER AMOUNT IN DEVELOPMENT WORK. THE LERNED AUTHO RIZED REPRESENTATIVE EXPLAINED THAT LIABILITY TOWARDS DEV ELOPMENT EXPENSES TO BE INCURRED IN FUTURE ON THE PLOTS SOLD DID NOT EXTINGUISH MERELY BECAUSE THE ASSESSEE HAS NOT INCURRED EXPENSES IN N EXT YEAR OR FOR NEXT FEW YEARS. THIS LIABILITY EXTINGUISHES ONLY WH EN THE ASSESSEE IS ABSOLVED FROM THE LIABILITY TO CONSTRUCT THE ROAD O R LAYING DOWN ELECTRIC POLE/WATER LINE ETC. AND THE ASSESSEE CANNOT BE ABS OLVED FROM THIS LIABILITY BECAUSE OF THE REGULATIONS OF JDA AND THE PLOTS SOLD BY THE ASSESSEE ARE SUBJECT TO THIS LIABILITY OF THE ASSES SEE. FURTHERMORE 12.5 PER CENT OF ASSESSEES PLOTS ARE WITH JDA AS SECURI TY AGAINST DEVELOPMENT WORK. IN CASE THE DEVELOPMENT WORK IS N OT CARRIED OUT BY THE ASSESSEE THE JDA WOULD SELL OUT THESE PLOTS AN D 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 CIT Y AND PLOT-HOLDERS HAVE NOT STARTED TO RESIDE THERE. THE PLOTS ARE OPE N AND NO CONSTRUCTION ACTIVITIES HAVE BEEN STARTED BY THE PL OT HOLDERS. IN MOST OF THE COLONIES THE JDA HAS NOT DEVELOPED APPROACH RO ADS/SECTOR ROADS. THERE WERE SEVERAL REASONS FOR NOT CARRYING DEVELOP MENT WORK AT FULL SWING SUCH AS PROBLEM IN POSSESSION OF LAND DUE TO DISPUTES WITH KHATEDARS PROBLEM OF WAY (RASTA) BY ADJOINING FARM ERS NON- CONSTRUCTION OF SECTOR ROADS BY JDA TAKASHNA PROBL EM IN CASE OF JOINT OWNERSHIP OF LAND ETC. THE MAIN PROBLEM WHICH THE ASSESSEE IS FACING THAT MOST OF THE LANDS WERE IN JOINT NAMES. SOME OF THE ORIGINAL KHATEDAR SOLD THE LAND TO THE ASSESSEE BUT SOME OF THEM HAVE NOT SOLD TO THE ASSESSEE. SINCE THE KHASARAS ARE IN JOINT NA MES THEREFORE WITHOUT TAKASHNA IT WAS NOT POSSIBLE TO CARRY OUT D EVELOPMENT WORK ON THE LAND WHICH THE ASSESSEE SOLD. THIS IS ALSO A REASON THAT THE ASSESSEE INVESTED HUGE AMOUNT IN GOLD BULLION TO KE EP THE MONEY IN RESERVE SEPARATELY FOR THE PURPOSE OF DEVELOPMENT W ORK. HOWEVER LIABILITY TOWARDS DEVELOPMENT EXPENSES TO BE INCURR ED IN FUTURE ON THE 11 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS PLOTS SOLD DID NOT EXTINGUISH MERELY BECAUSE THE AS SESSEE HAS INCURRED SMALL PART OF EXPENSES IN NEXT FEW YEARS. THE AO HE LD THAT THE FUNDS OF PROVISION MADE FOR DEVELOPMENT OF LAND ARE BEING US ED FOR EXPANSION OF THE BUSINESS. THE ASSESSEE USED THE FUNDS FOR EX PANSION OF BUSINESS AS THE DEVELOPMENT WORK COULD NOT CARRIED OUT AT FU LL SWING DUE TO CERTAIN REASONS. THE SURPLUS FUNDS WERE NOT USED OT HERWISE THAN FOR BUSINESS PURPOSE. THE ABOVE EXPLANATION CANNOT BE R EJECTED MERELY ON SURMISES AND CONJECTURES RATHER IT APPEARS TO BE BO NA FIDE. 4.9. IN VIEW OF THE AFORESAID DISCUSSIONS AND IN TO TALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND NO INFIRMITY IN THE ORDER OF LEARNED CIT (A). THE LEARNED AO WAS NOT JUSTIFIED I N MAKING THE ADDITIONS OF RS. 1 07 47 296/- RS. 11 21 74 877/- AND OF RS. 16 35 62 072/- IN ASST. YR. 2005-06 ASST. YR. 2007 -08 AND ASST. YR. 2008-09 RESPECTIVELY BY DISALLOWING THE PROVISION F OR DEVELOPMENT EXPENSES CLAIMED BY THE ASSESSEE AS FUTURE LIABILIT Y OF DEVELOPMENT EXPENSES AGAINST THE SALES OF THE PLOT BOOKED BY IT IN THESE YEARS. THUS THE ORDERS OF LEARNED CIT (A) FOR ASST. YR. 2 005-06 ASST. YR. 2007-08 AND ASST. YR. 2008-09 ARE UPHELD IN THIS RE GARD. (VIII) AS THE FACTS AND CIRCUMSTANCES OF THE ISSUE UNDER CONSIDERATION ARE IDENTICAL WITH THE FACTS OF THE CASE OF SHREE S ALASAR OVERSEAS P LTD. (SUPRA) THEREFORE IN VIEW OF THE DISCUSSION MADE I N THIS ORDER AND RESPECTFULLY FOLLOWING THE BINDING DECISION OF JURI SDICTIONAL HONBLE ITAT JAIPUR IT IS HELD THAT THE PROVISION MADE FOR DEVELOPMENT EXPENSES IS AN ASCERTAINED LIABILITY AND THUS IS TO BE ALLOWED AND HENCE THE AO WAS NOT JUSTIFIED IN DISALLOWING PROVISION F OR DEVELOPMENT MADE BY THE APPELLANT AT RS. 43 23 423/- FOR THE YEAR UN DER CONSIDERATION. THEREFORE THE DISALLOWANCE OF RS. 43 23 423/- MADE BY THE AO IS HEREBY DELETED. THE COORDINATE BENCH IN CASE OF SHREE SALASAR OVERS EAS (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. F URTHER THE COORDINATE BENCH IN ITA NO. 1076/JP/2011 AND 1078/JP/2011 DECIDED THE I SSUE OF ALLOWABILITY OF PROVISION FOR DEVELOPMENT EXPENSES BY OBSERVING AS UNDER :- 2.14 WE HAVE HEARD BOTH THE PARTIES. THE ISSUE BEFO RE US HAS BEEN DECIDED BY THE TRIBUNAL VIDE ORDER DATED 22-11-2011 IN THE CASE OF SHREE SALASAR 12 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS OVESEAS (P) LTD. (SUPRA) . IT WILL BE USEFUL TO REP RODUCE FOLLOWING PARA FROM THE ABOVE ORDER : ..THE HON'BLE APEX COURT IN THE CASE OF BHARAT EA RTH MOVERS VS. CIT 245 ITR 428 HAS HELD THAT IF THE B USINESS LIABILITY HAS ARISEN IN THE ACCOUNTING YEAR THEN DEDUCTION SHOULD BE ALLOWED ALTHOUGH LIABILITY MAY HAVE TO BE QUANTIFIED AND DI SCHARGED AT A FUTURE DATE. IN THE INSTANT CASE THE ASSESSEE MENTIONED THAT SALE PROCEEDS OF THE PLOTS INCLUDED THE COST PLUS DEVELOPMENT EXP ENSES 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 NO.117/ JP/2010 FOR THE ASSESSMENT YEAR 2006-07 DATED 06-01 -2011) HAD AN OCCASION TO CONSIDER THE ALLOWABILITY OF EXPENSES T O BE INCURRED IN THE SUBSEQUENT YEARS THOUGH THE LIABILITY OF INCURRING SUCH EXPENDITURE HAS ACCRUED DURING THE PREVIOUS YEAR. IT WILL BE US EFUL TO REPRODUCE THE FOLLOWING PARAS FROM THE JUDGEMENT DATED 06-01- 2011 : 30. THE HONBLE APEX COURT IN THE CASE OF CALCUT TA CO. LTD. V/S. CIT 37 ITR 1 HAD AN OCCASION TO CONSI DER THE ALLOWABILITY OF EXPENDITURE WHICH WAS TO BE INCURRE D FOR DEVELOPMENT OF PLOT. THE ASSESSEE RECEIVED RS. 29 3 92 TOWARDS SALE PRICE OF LANDS BUT CREDITED THE ENTIRE FULL PRICE OF LAND IN ACCOUNTS ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING. A SUM OF RS. 24 809/- WAS DEBITED AS ES TIMATED EXPENDITURE FOR DEVELOPMENT THOUGH NO SUCH SUM WAS SPENT. THE HEAD NOTES OF THIS DECISION ARE REPRODUCED. HELD (I) THAT THE UNDERTAKING TO CARRY OUT THE DEVELOPMENTS WITHIN SIX MONTHS FROM THE DATES OF TH E DEEDS OF SALE (WHICH IN VIEW OF THE FACT THAT TIME WAS NOTE OF THE ESSENCE OF THE CONTRACT MEANT A REASONABLE TIME) W AS UNCONDITIONAL THE APPELLANT BINDING ITSELF ABSOLUT ELY TO CARRY OUT THE SAME. THAT UNDERTAKING IMPORTED A LIABILITY ON THE APPELLANT WHICH ACCRUED ON THE DATES OF THE DEEDS O F SALE THOUGH THAT LIABILITY WAS TO BE DISCHARGED AT A FUT URE DATE. IT WAS THUS AN ACCRUED LIABILITY AND THE ESTIMATED EXP ENDITURE WHICH WOULD BE INCURRED IN DISCHARGING THE SAME COU LD BE DEDUCTED FROM THE PROFITS AND GAINS OF THE BUSINESS AND THE AMOUNT TO BE EXPENDED COULD BE DEBITED IN ACCOUNTS MAINTAINED IN THE MERCANTILE SYSTEM OF ACCOUNTING B EFORE IT WAS ACTUALLY DISBURSED. THE DIFFICULTY IN THE ESTIM ATION THEREOF DID NOT CONVERT THE ACCRUED LIABILITY INTO A CONDIT IONAL ONE BECAUSE IT WAS ALWAYS OPEN TO THE INCOME-TAX AUTHOR ITIES CONCERNED TO ARRIVE AT A PROPER ESTIMATE THEREOF HA VING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. 13 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS (II) THAT THE SUM OF RS. 24 809/- REPRESENTED THE ESTIMATED AMOUNT 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 TH E ACCEPTED COMMERCIAL PRACTICE AND TRADING PRINCIPLES WAS A D EDUCTION WHICH IF THERE WAS NO SPECIFIC PROVISION FOR IT UN DER SECTION 10(2) OF THE INCOME-TAX ACT WAS CERTAINLY AN ALLOW ABLE DEDUCTION IN ARRIVING AT THE PROFITS AND GAINS OF T HE BUSINESS OF THE APPELLANT UNDER SECTION 10(I) OF THE ACT THER E 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 COMMERCI AL SENSE AND THERE CAN BE NO COMPUTATION OF SUCH PROFITS AND GAINS UNTIL THE EXPENDITURE WHICH IS NECESSARY FOR THE PU RPOSE OF EARNING THE RECEIPTS IS DEDUCTED THERE FROM- WHETHE R THE EXPENDITURE IS ACTUALLY INCURRED OR THE LIABILITY I N RESPECT THEREOF HAS ACCRUED EVEN THOUGH IT MAY HAVE TO BE D ISCHARGED AT SOME FUTURE DATE. 32. THE HONBLE 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 PROPORTI ONALLY EACH YEAR EVEN PERIOD OF EXEMPTION. THE HEADNOTE IS AS UNDER: SECTION 37 OF THE INCOME-TAX ACT 1961 ENJOINS T HAT ANY EXPENDITURE NOTE BEING EXPENDITURE OF THE NATUR E DESCRIBED IN SECTIONS 30 TO 36 LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROF ESSION 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 I N ITS COMMERCIAL SENSE: AND THERE COULD BE NO COMPUTATION OF SUCH PROFITS AND GAINS UNTIL THE EXPENDITURE WHICH IS NE CESSARY FOR THE PURPOSE OF EARNING THE RECEIPT IS DEDUCTED THE REFROM WHETHER THE EXPENDITURE IS ACTUALLY INCURRED OR TH E LIABILITY IN RESPECT THEREOF HAS ACCRUED EVEN THOUGH IT MAY HAVE TO BE DISCHARGED AT SOME FUTURE DATE. THUS EXPENDITURE IS NOT NECESSARILY CONFINED TO THE MONEY WHICH HAS BEEN AC TUALLY PAID OUT. IT COVERS A LIABILITY WHICH HAS ACCRUED O R WHICH HAS BEEN INCURRED ALTHOUGH IT MAY HAVE TO BE DISCHARGED AT A FUTURE DATE. HOWEVER A CONTINGENT LIABILITY WHICH MAY HAVE TO BE DISCHARGED IN FUTURE CANNOT BE CONSIDERED AS EXP ENDITURE. 33. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF WELDING RODS MANUFACTURING CO. V/S CIT 225 ITR 525 HAD ON O CCASION TO 14 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS CONSIDER THE ALLOWABILITY OF PROVISION MADE THOUGH AMOUNT NOT ACTUALLY SPENT. THE ASSESSEE BORROWED WELDING RODS AND WERE TO BE RETURNED ON DEMAND. THE ASSESSEE MADE A PROVISION O F LIABILITY ON ACCOUNT OF THE RISE IN PRICES. THE HONBLE HIGH COU RT OBSERVED THAT IN MERCANTILE SYSTEM OF ACCOUNTING THE BUSINESSMAN HA S TO TAKE INTO CONSIDERATION HIS LIABILITIES WHICH MIGHT BE EVEN C ONTINGENT IN ORDER TO ARRIVE AT WHAT IS REAL BUSINESS PROFIT IN THAT YEAR . THE ASSESSEE HAS TO TAKE INTO CONSIDERATION HIS LEGAL LIABILITIES. 34. THE HONBLE RAJ. HIGH COURT IN THE CASE OF UDA IPUR MINERAL DEVELOPMENT SYNDICATE PVT. LTD. V/S DCIT 26 1 ITR 706 HAD ON OCCASION TO CONSIDER THE ACCRUAL OF LIABILITY. IN T HIS CASE THE ASSESSEE AS PER AGREEMENT WAS REQUIRED TO RESTORE THE SURFAC E LAND IN THE ORIGINAL CONDITION AND HENCE THE LIABILITY TO REFIL L PITS ACCRUED AS SOON AS PITS WERE DUG. IN THE INSTANT CASE THE ASSESSEE AS PER AGREEMENT WAS TO PROVIDE INSURANCE POLICY TO MEMBERS HAVING A TTAINED S-I CATEGORY AND HENCE LIABILITY ACCRUALS AS AND WHEN S UCH MEMBERS GOT CATEGORY OF S-I. 35. THE HONBLE MADRAS HIGH COURT IN THE CASE OF C IT V/S TUBE INVESTMENTS OF (INDIA) LTD. 261 ITR 753 ALLOW ED PRO-RATA ANNUAL ALLOCATION OF PREMIUM PAYABLE AT FUTURE DATE. HENCE THE EXPENDITURE ALLOWABLE UNDER MERCANTILE SYSTEM OF ACCOUNTING DOE S NOT MEAN THAT IT SHOULD BE SPENT IN THAT YEAR. 36. THE HONBLE ALLAHABAD HIGH COURT IN CIT V/S DEVELOPMENT TRUST (P) LTD. 189 ITR 504 HELD THAT EX PENSES IN RESPECT OF DEVELOPMENT TO BE CARRIED BY ASSESSEE IS AN ALLO WABLE DEDUCTION UNDER MERCANTILE SYSTEM OF ACCOUNTING. 37. THE HONBLE DELHI HIGH COURT IN THE CASE OF C IT V/S NAV BHARAT NIRMAN (P) LTD. 141 ITR 723 HAD ON OCCASION TO CONSIDER THE LIABILITY FOR EVICTING TENANTS AS THE AGREEMENT PRO VIDED FOR EVICTION OF TENANTS BY LESSOR. THE HEADNOTE IS AS UNDER:- HELD THAT IT WAS CLEAR THAT THE ASSESSEES RESPONSIBILITY TO EVICT THE TENANTS WHO WERE OCCUPY ING ALMOST 200 BIGHAS OF THE LAND WAS AN ONEROUS RESPONSIBILIT Y. AS LATE AS 1972 PRACTICALLY NONE OF THE TENANTS HAD BEEN EVIC TED. THE LIABILITY TO EVICT THE TENANTS WAS IN THE NATURE OF AN INBUILT LIABILITY UNDER THE LEASE DEED. THE ESTIMATED AMOUN T IN REGARD TO THE ASSESSEES LIABILITY TO EVICT THE TENANTS WA S ALLOWABLE. THE ITO HAD GIVEN GOOD REASONS FOR RESTRICTING THE ALLOWANCE TO RS. 1 60 000/-. THIS WAS A FAIR AND EQUITABLE CO NCLUSION ARRIVED AT BY THE ITO AND SINCE IT WAS A ONLY A QUE STION OF ESTIMATE WITH WHICH THE TRIBUNAL HAD AGREE IT COU LD NOT BE 15 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS INTERFERED WITH. THE ASSESSEE WAS THEREFORE ENTITL ED TO A DEDUCTION OF RS. 1 60 000/- FOR THE ASSESSMENT YEAR 1962-63 . 38. THE HONBLE JURISDICTIONAL HIGH COURT IN THE C ASE OF RAJASTHAN STATE MINES & MINERALS V/S CIT 208 ITR 10 10 HAS OBSERVED AT PAGE 1014. A LIABILITY WHICH IS NOT ACCURATELY ESTIMATED COULD BE A CONTINGENT LIABILITY AND IS NOT AN EXPENDITURE. THE APEX COURT IN INDIAN MOLASSES CO. (PRIVATE) LTD. V/S CIT (1959) 3 7 ITR 66 REFERRED TO ABOVE HAS HELD THAT THE EXPENDITURE IS WHAT IS PAID OUT OR AWAY AND IS SOMETHING WHICH HAS GONE IRRETRIEVABLY. EXPENDITURE WHICH IS DEDUCTIBLE FOR INCOME-TAX PURPOSE IS ONE WHICH IS TOWARDS A LIABILITY ACTUAL LY EXISTING AT THE TIME BUT THE PUTTING ASIDE OF MONEY WHICH MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT IS NOT EXP ENDITURE. THE INCOME-TAX LAW MAKES A DISTINCTION BETWEEN AN A CTUAL LIABILITY IN PRESENT AND A LIABILITY DE FUTURE WHIC H FOR THE TIME BEING IS ONLY CONTINGENT. THE FORMER IS DEDUCTIBLE BUT NOT THE LATTER. IN CALCUTTA CO. LTD. V/S CIT (1959) 37 ITR I IT W AS HELD BY THE APEX COURT THAT IF A LIABILITY HAS DEFINITEL Y BEEN INCURRED IN THE ACCOUNTING YEAR EG. ON UNCONDITIONAL ACCRU ED LIABILITY IT CANNOT BE REGARDED AS A CONTINGENT LIABILITY MER ELY BECAUSE IT IS TO BE DISCHARGED AT A FUTURE DATE AND THE COS T OF DISCHARGING IT IS NOT DEFINITE BUT HAS TO BE ESTIMA TED. SIMILARLY IN BRITISH SOUTH AFRICA CO. V/S CIT (194 6) 14 ITR 17 (SUPPL)(PC) IT HAS BEEN HELD BY THE PRIVY C OUNCIL THAT WHERE A LIABILITY CLEARLY EXISTS THEN QUANTIFICATIO N OF THE SUM SHOULD NOT COME IN THE WAY OF THE ASSESSEE IN DEBIT ING THE SUM AND CLAIMING THE DEDUCTION THEREOF. IN ORDER TO EST IMATE THE TRUE PROFITS A LIABILITY HAS TO BE DETERMINED. IT WAS OBSERVED BY THE SUPREME COURT IN THE CASE OF CIT V/S GEMINI CASHEW SALES CORPORATION (1967) 65 ITR 6 43 (HEADNOTE) : BROADLY STATED THE PRESENT VALUE ON COMMERCIAL VALUATION OF MONEY TO BECOME DUE IN FUTURE UNDER A DEFINITE OBLIGATION WILL BE A PERMISSIBLE OUTGOING OR DEDUC TION IN COMPUTING THE TAXABLE PROFITS OF A TRADER EVEN IF IN CERTAIN CONDITIONS THE OBLIGATION MAY CEASE TO EXIST BECAUS E OF FORFEITURE OF THE RIGHT . WHERE HOWEVER THE OBLIG ATION OF THE TRADER IS PURELY CONTINGENT NO QUESTION OF ESTIMAT ING ITS PRESENT VALUE MAY ARISE FOR TO BE A PERMISSIBLE OU TGOING OR ALLOWANCE THERE MUST IN THE YEAR OF ACCOUNT BE A P RESENT OBLIGATION CAPABLE OF COMMERCIAL VALUATION. IT WAS FURTHER 16 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS OBSERVED THAT WHERE ACCOUNTS ARE MAINTAINED ON THE MERCANTILE SYSTEM IF LIABILITY TO MAKE THE PAYMENT HAS ARISEN DURING THE TIME THE BUSINESS IS CARRIED ON IT MAY APPROPRIATELY BE REGARDED AS EXPENDITURE. BUT WHERE THE LIABILITY IS DURING THE WHOLE OF THE PERIOD THAT THE BUSINESS IS CARRIE D ON WHOLLY CONTINGENT AND DOES NOT RAISE ANY DE3FINITE OBLIGAT ION 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 EXTIN CTION OF THE LIABILITY IS A CONTINGENT LIABILITY. IT IS ONLY THE ACTUAL LIABILITY WHICH IS EXISTING IN THE RELEVANT ASSESSMENT YEAR W HICH IS ALLOWABLE TO BE CONSIDERED AS AN EXPENDITURE. IF TH E LIABILITY IS CONTINGENT THEN IT WOULD AMOUNT TO ALLOWING THE APP REHENDED LOSSES IN FUTURE FROM THE PROFITS WHICH IS NOT ACCE PTED ON ANY PRINCIPLE OF LAW OR ACCOUNTANCY. THE QUESTION OF ES TIMATION IN A CONTINGENT LIABILITY ALSO DOES NOT ARISE IN ORDER T O ALLOW THE DEDUCTION UNDER SECTION 37 OF THE ACT. 39. THE WARRANTY PROVISION IS AN ALLOWABLE PROVISIO N AS IT AS PART OF THE AGREEMENT OF SALE. THE HONBLE APEX COU RT IN THE CASE OF ROTORK CONTROL INDIA (P) LTD. V/S CIT 23 DTR 79 HEL D THAT SUCH PROVISION IS ALLOWABLE AS IT RELATES TO PRESENT OBL IGATION AND INVOLVES FLOW OF RESOURCES. IN THE CASE OF BHARAT EARTH MOVE RS V/S CIT 245 ITR 428 THE HONBLE APEX COURT HELD THAT THE LIABILITY IS ALLOWABLE IF IT HAS ARISEN IN THE GEES THOUGH IT MAY BE QUALIFIED AND D ISCHARGED AT A FUTURE DATE. 2.15 FOLLOWING THAT ORDER WE HOLD THAT THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION. IT IS USEFUL TO NOTE THAT TH E ASSESSEE HAS USED THE PERCENTAGE COMPLETION METHOD. WHEN AN ASSESSEE FOLL OWS THE PERCENTAGE COMPLETION METHOD THEN AT THE COMPLETION OF THE PRO JECT THE ASSESSEE HAS TO MAKE UP THE ACCOUNTS. AT THAT RELEVANT TIME THE ASSESSEE CAN OFFER SURPLUSES FROM THE PROVISIONS OR MAY CLAIM THE DEFI CIT IN CASE THE ACTUAL EXPENDITURE IS MORE THAN THE PROVISIONS. HENCE THE REVENUE IS NOT WITHOUT ANY REMEDY IN CASE THE PROVISION IS EXCESSIVE. 17 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS RESPECTFULLY FOLLOWING THE ORDERS OF THE COORDINATE BENCH SUPRA WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT (A) TH E SAME IS HERE BY UPHELD. 5. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 27/09/2 016. SD/- SD/- FOE FLAG ;KNO ( DQY HKKJR ) (VIKRAM SINGH YADAV) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 27/09/2016. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE DCIT CIRCLE-2 JAIPUR. 2. THE RESPONDENT- THE GREEN TRIVENI DEVELOPERS JA IPUR. 3. THE CIT 4. THE CIT (A) 5. THE DR ITAT JAIPUR 6. GUARD FILE (ITA NO. 304/JP/2016) VKNS'KKUQLKJ@ BY ORDER LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 18 ITA NO. 304/JP/2016 M/S. THE GREEN TRIVENI DEVELOPERS