Ajit K. Sengupta, J.
1. At the instance of the Commissioner of Income-tax, West Bengal-III, the following two questions of law have been referred to this court under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1969-70 :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal ignored relevant materials and relied on irrelevant materials in holding that the assessee had followed any regular method of accounting in respect of the expenses incurred on account of stowing and fire protection and whether such finding was otherwise unreasonable or perverse ?
(2) If the answer to question No. (1) is in the affirmative, then, whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenses which were not actually incurred during the previous year relevant to the assessment year 1969-70 should be allowed to be deducted in computing the profits and gains of business assessable for the said assessment year ?'
2. The facts leading to this reference are that in proceedings for the assessment to tax for the assessment year 1969-70, the assessee claimed deduction of Rs. 1,35,646 with reference to expenses relating to fire protection amounting to Rs. 67,331 and stowing amounting to Rs. 68,516. The assessee claimed these amounts in the following manner :
A/C Fire Protection
Assessment YearExpensesPayment receivedDateBalance
Rs.Rs. Rs.1967-6851,75623,37524-8-1968 1968-6938,950
3. It was submitted before the Income-tax Officer that the expenses incurred and the amount received against them as reimbursement from Coal Board were shown in the following manner and the balance which had not been reimbursed was written off and debited to the profit and loss account:
Rs.Rs.Opening balance 24-8-19681,58,621.2823,375.00Balance adjusted in profit and loss account
4. The Income-tax Officer mentioned that the expenses were incurred in the assessment years 1964-65 to 1966-67 for stowing and in the assessment year 1967-68 for fire protection, that there was no mention why the Coal Board paid only a portion of the expenses, that when the Coal Board did not allow all the expenses as reasonable and reimbursed only a portion of it, the claim of the assessee for allowing the expenses in the year of account could not be accepted. He further held that the expenses were not referable to business expenditure for which reason he disallowed the entire amount.
5. On appeal, the Appellate Assistant Commissioner held that the expenditure was revenue expenditure and hence allowable. He also held that the entire expenditure could be allowed, because the Income-tax Officer never disputed the actual expenditure.
6. The Revenue felt aggrieved and came up in appeal before the Tribunal. According to the Revenue, the first point which should have been noticed by the Appellate Assistant Commissioner was that the expenses which he allowed did not pertain to the previous year relevant to the assessment year 1969-70 and, therefore, the expenses were not allowable. The assessee, on the other hand, contended that the disallowance by the Income-tax Officer was not on the ground that the expenses did not relate to the previous year but the disallowance was on the other ground that there was no cent per cent. reimbursement by the Coal Board and, therefore, this was not allowable as business expenditure.
7. The Tribunal referred to the Coal Mines (Conservation and Safety) Rules, 1954, and considering the rules, it held that the Appellate Assistant Commissioner should not have allowed the entire claim and that the Revenue should succeed to the extent of 15% of the total expenses in two years, i.e., Rs. 90,705, which would work out to Rs. 13,605. The Tribunal also considered Appendix-VIII of the above Rules and held 'the company could have rightfully debited to the Coal Board in the assessment years 1964-65, 1965-66 and 1966-67, the expenses in respect of stowing according to this ceiling. The company, however, debited the entire expenditure.' In such circumstances, the Tribunal restored the matter to the file of the Income-tax Officer in this regard and directed that the Income-tax Officer should work out the maximum amount reimbursable according to the ceiling laid down by the Coal Board in the assessment years 1964-65, 1965-66 and 1966-67. The Tribunal allowed partial relief in this respect inasmuch as it held : 'to that extent only, the company will be justified in debiting those amounts to the Coal Board in the three years and after deducting the payment received of Rs. 33,765, only the balance shall be allowable as written off in this year.'
8. At the hearing, the contentions raised before the Tribunal have been reiterated by learned counsel for the Revenue. The contention is that the expenditure in question did not pertain to the previous year relevant to the assessment year 1969-70. Therefore, the expenditure could not have been allowed. On the other hand, the contention of the assessee is that there was no dispute about the actual expenditure. The Income-tax Officer did not disallow the expenditure on the ground that such expenditure did not relate to the previous year but on the ground that it was not laid out or expended wholly and exclusively for the purpose of the business.
9. We have considered the rival contentions. The Income-tax Officer mentioned the years in which the expenses were incurred. It is no doubt true that before any expenditure is allowed, the assessee must satisfy that such expenditure pertains to the relevant previous year but the Tribunal found that the assessee's practice had been to incur the expenditure in different years and debit the amount to the Coal Board account. When reimbursement is received, that amount is credited to that account and the balance which has not been reimbursed is written off. This fact has not been disputed. It is no doubt true that the assessee maintained its books of account on the mercantile system but that does not prevent the assessee from following the method consistently in respect of the treatment of expenditure incurred by the assessee in a particular year. As indicated earlier, the assessee is entitled to reimbursement of the expenditure. The assessee accordingly debited the Coal Board with the expenditure incurred in that particular year and credited the same when the reimbursement is received. Since the assessee was not entitled to reimbursement of the entire expenditure and the scale of reimbursement has been provided in Rule 42 of the Coal Mines (Conservation and Safety) Rules, 1954, the Tribunal determined the quantum of such expenditure. The reimbursement may not be according to the scale. It may be reduced under certain circumstances. But that does not affect the claim of the assessee because the actual expenses incurred by the assessee had not been doubted. In our view, the Tribunal had considered all relevant materials. We do not find that in arriving at the finding, the Tribunal relied on any irrelevant material. No such material has been brought to our attention which the Tribunal did not consider in arriving at its conclusion. If the assessee maintains the accounts on the basis of reimbursement made from year to year by the Coal Board in respect of the expenditure to be incurred and if this particular course has been followed systematically and consistently year after year for the purpose of claiming deduction on the basis of the relevant rules and on the basis of the reimbursement made, we do not find any reason why the assessee should not be allowed to follow such method in claiming the expenditure in that year in which the reimbursement and adjustment had been made. The assessing authority has to look to the substance of the situation and decide the matter in such a manner that, neither the Revenue is put to unreasonable loss nor is the assessee subjected to unreasonable hardship. It is not a case of deviation from the regular method of accounting adopted by the assessee. The practice which has been followed by the assessee year after year in treating the expenditure and the reimbursement from Coal Board in its account has in fact become the regular method of keeping its accounts. There has been no deviation from such method.
10. We, therefore, answer the first question in the negative. In view of the answer to the first question in the negative, the second question does not call for any answer. Even otherwise, we are of the view that on the facts and circumstances of this case, the Tribunal was justified in holding that the expenses should be allowed to be deducted to the extent indicated by the Tribunal in computing the profits and gains of business for the assessment year in question,
11. There will be no order as to costs.
K.M. Yusuf, J.
12. I agree.