1. In this reference under Section 256(1) of the I.T. Act, 1961 ('the Act'), the following question has been referred to this court:
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the expenses of Rs. 23,206 during this year though the assessee incurred the same in the earlier year ?'
The fact that expenses incurred in removing overburden in the course of mining can be allowed as revenue expenditure is concluded by the decision of this court in the case of CIT v. Amalgamated Jambad Syndicate Pvt. Ltd. : 117ITR698(Cal) as well as a decision in the case of CIT v. Katras Jharia Coal Co. Ltd. : 118ITR6(Cal) . The question, however, in this case is, whether the Tribunal was justified in allowing the expenses of Rs. 23,206 during the year though the assessee had incurred the same in the earlier year.
2. The assessment year is 1966-67 and the relevant accounting period ended on December 31, 1965. The assessee-company derived income from mining operations. The ITO noticed that the assessee had written off Rs. 23,206 as development expenses. He found that these expenses were of capital nature. He also found that the company did transact some business in the next year and as such it was not justified to write off the expenses in this year. Therefore, he disallowed the amount.
3. The assessee preferred an appeal before the AAC. It was contended that the expenses were incurred to find out mica veins and as such these expenses were business expenses. The AAC held that these expenses were development expenses. He also held that these expenses were for prospecting the mine and did not yield any result and there was no business in the next year. He upheld the disallowance.
4. The assessee preferred an appeal before the Tribunal. It was, inter alia, contended by the Revenue that the expenditure was incurred in the earlier year and so the assessee was not entitled to write off the amount during the year. The assessee submitted that the expenses were incurred in respect of a continuous work and so the development expenses incurred in the last year had been written off in this year. It was submitted that the assessed profit in the last year was Rs. 1,814 and if the assessee had claimed the expenses in the last year, the assessee would have been entitled to carry forward the loss in this year. The Tribunal held that the expenses were for removing the overburden for extracting ore and so the expenditure was incurred in the process -of mining operations and was revenue expenditure. The Tribunal further held that there was continuous operation and the assessee had written off the amount during the year and, therefore, the Tribunal allowed the expenses.
5. On behalf of the Revenue, our attention was drawn to several decisions including the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT : 82ITR363(SC) . The principles that should normally be followed are well settled, viz., in order to be entitled to deduction, the expenses must be incurred or the liability for the expenses must have occurred in the year in question depending upon the system ofaccounting followed by the assessee, mercantile or cash. But in this case two points trouble us, one, it was contended on behalf of the assessee that the last year's profit was Rs. 1,814 and if the amount was carried forward to the profit and loss account or the balance-sheet, the result perhaps would not have been different and this would have been allowed in this year. If this was so, the controversy in this case would become an academic controversy and on this point the court would be disinclined to entertain such an academic question. But it is necessary in order to arrive at the conclusion, whether it is academic or not, what was the last year's profit and what was the profit in this year. If the last year's profit would have been negligible and if it would have been carried forward, what would have been the actual position in this year. The Tribunal has not given any categorical finding on this aspect of the matter. We are, therefore, remanding this question to the Tribunal for a categorical finding on this aspect of the matter. The second aspect is that the Tribunal has mentioned that this was a continuous operation and the expense was incurred in the course of continuous operation. Normally, accounts are closed in each year. In respect of this continuous work, the Tribunal, though it has referred to the continuous and running account of the assessee, has not given any definite finding as to what was the nature of the account maintained by the assessee for this transaction. We are, therefore, remanding the question to the Tribunal for coming to a definite finding as to the nature of the account maintained by the assessee after giving the parties opportunity to adduce evidence, if any, and thereafter the Tribunal would dispose of the matter in accordance with law. Therefore, we are sending the matter back to the Tribunal with these observations for disposal.
6. In the facts and the circumstances of the case, there will be no order as to costs.
7. I agree.