BIR Ruling No. 087-62

July 27, 1962 BIR RULING NO. 087-62 The Regional Director Regional District No. 3 M a n i l a S i r : This is in connection with our 3rd Indorsement dated May 11, 1962 relative to the proposed deficiency income tax sought to be assessed against the Paradise Farms, Ins. for the fiscal year 1957, involving the amount of P9,605.00. The proposed deficiency assessment was arrived at the result of the following disallowances: cdi 1. Balance per Exh. III of financial Statement P43,805.11 2. Amount credited to Trustee's account 80,842.80 3. Amount transferred to a liability Account 144,191.23 TOTAL P268,839.14 The only question to be resolved in this case is whether or not the above amounts which represents provisions set aside for future development of subdivided lots sold on the installment basis should be allowed as deduction in computing income subject to income tax. Section 30(a)(1) specifically provides that only ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business shall be allowed as deductions. The amounts set up as reserve for future development of the subdivision lots which have not actually been spent for such improvement are not expenses paid or incurred during the taxable year. Hence, they should not be allowed as a deduction. Neither should they form part of the cost of the lots sold. In view thereof, this Office is of the opinion that the proposed assessment is in order and should be given due course. cdtech This ruling revokes BIR Ruling No. 62-0076 dated May 21, 1962. Very truly yours, JOSE B. LINGAD Acting Commissioner of Internal Revenue