JAGDISH SAHAI, J. - (1.) THIS is a reference made by the Income-tax Appellate Tribunal (Delhi Bench) - hereinafter referred to as the Tribunal - to this court under the provisions of section 66(2) of the Income-tax Act (hereinafter referred to as the Act).
(2.) THE reference has been made at the instance of the assessee, Bharat Stores Ltd. Agra (hereinafter referred to as the assessee). This case relates to the assessment made in the year 1947-48, the relevant previous year being the one ending on June 30, 1946. The statement of the case shows that the assessee, which is a registered company incorporated under the Indian Companies Act, carries on the business of purchase and sale of buildings and machinery and keeps its accounts in the mercantile system. The assessee had purchased a vast area of land for a sum of Rs. 1,30,000. It sub-divided the land into a large number of small plots for the purpose of construction of residential houses. The assessee published advertisement in local newspapers for the sale of the plots. In the advertisements it was mentioned that the assessee had undertaken to lay out metalled roads in the area. The statement of the case is clear on the point that the assessee had not incurred any expenditure on the construction of the road during the relevant year. All that the assessee had done was that it debited a sum of Rs. 50,000 in the trading account of land and building department under the head Reserve for roads. The assessee sold plots to the tune of Rs. 3,04,827 during the previous year. In the subsequent year it sold four more plots, the total of the sale price received being Rs. 8,28,027(?). Deducting the sum of Rs. 50,000 reserved for roads the assessee showed a profit of Rs. 1,55,845 in the lands and building department.
(3.) THE Income-tax Officer added back the amount of Rs. 50,000 to the profit of the assessee. THE assessee appealed to the Appellate Assistant C commissioner who dismissed the appealed to the Appellate Assistant second appeal before the Tribunal. THE tribunal dismissed the appeal after observing as follows : The expenditure was never incurred by the assessee in the year of account nor even in the subsequent year. What the assessee did was merely to make an estimate of the expenditure that he might incur on the construction of roads and the lay out of the plots. The assessee has shown this as a reserve in his account. This item of Rs. 50,000 is really an unascertained contingent liability which has not been fulfilled in the year of account or even in the subsequent year. The income-tax authorities were justified in rejecting the claim of the assessee in this year.;