V.K.SINGHAL, J. - (1.) THE Tribunal has referred the following question of law arising out of its order dt. 31st March, 1980, in respect of the asst. year 1975 -76 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no actual or legal liability was incurred by the assessee to remove overburden of 10 lakh metric tonnes and hence the liability of Rs. 82 lakhs as claimed by the assessee was not allowable -
(2.) THE brief facts of the case are that the assessee -company derives its income from mining and selling gypsum selenite at Bikaner and mining rock phosphate in Udaipur District on behalf of the Government of Rajasthan as a working contractor. This concern was originally owned by the Government of Rajasthan and other private parties were also having their shares in it. A provision of Rs. 82 lakhs was made for removal of overburden and the same was charged in the profit and loss account for non -removal of overburden. The assessee entered into an agreement on 24th Sept., 1969, with the Government for excavation of rock phosphate from certain blocks in Udaipur District. The work included mining, crushing, transportation, loading and unloading of the ore at various stages including loading of the ore into the wagons at Udaipur City/Udaipur Railway Station. In the agreement, it was provided that the assessee had to pay Rs. 46 per tonne of ore despatched which includes mining, crushing, transportation, loading and unloading. The assessee was also liable for removal of the waste and its dumping at a suitable dumping site to be selected jointly. The amount of Rs. 46 was later on increased to Rs. 70 w.e.f. January, 1974, and Rs. 96 w.e.f. April, 1974, and this increase was due to depth of the mines and increase in the ratio of overburden. According to the assessee, the amount of Rs. 82 lakhs was not of the nature of a provision but it was liability for the removal of overburden, the cost of which had been calculated on the basis of the schedule submitted to the Government and, therefore, the said amount was claimed as liable for deduction. Much stress was laid on the clause in the agreement which provides "working contractors shall make arrangements for the removal of waste and its dumping at a suitable dumping site to be selected jointly". According to the assessee, since the overburden has not been removed this amount should have been allowed as deduction as the assessee - company is maintaining the books of account according to the mercantile system. It was observed that the expenditure to be incurred for the removal of overburden may increase or decrease in future depending upon various factors and circumstances and such expenditure actually incurred in future will be considered for allowance in the relevant year.
(3.) THE appeal preferred before the CIT (A), Jaipur, was rejected and the matter was challenged before the Tribunal where the Tribunal observed that the expenditure, to be incurred subsequent to the relevant accounting year cannot be allowed as deduction though the necessity for the expenditure may have arisen in the accounting year. The submission of learned counsel for the assessee is that in the mercantile system the net profit or loss has to be calculated after taking into account the income and expenditure relating to the said period irrespective of the fact as to whether the income has been received or not and the expenditure has been incurred or not. Since the legal liability has accrued to the assessee in the year of account the said amount should be allowed as deduction.;