TaxTMI 
TaxTMI 
1993 (10) TMI 60
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....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 September 24, 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 with effect from January, 1974, and Rs. 96 with effect from 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 o....
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....ent matter, no money has been expended/disbursed and even on the basis of accounting principles no fixed amount could be arrived at to find out the liability. The liability may be in praesenti or future but it should be the actual liability. The liability which is in praesenti is allowable as deduction while future liability will be considered as a contingent liability and would be allowable only at the time when the expenditure is actually incurred or ascertained. The claim which has been set up before the authorities below was that the overburden has to be removed in the ratio of 1 : 5. Even in fixing this ratio one cannot be definite in respect of a particular area or particular period or for a particular field the extent of the quantity of overburden which is to be removed which depends on a number of facts as to how the overburden is to be removed. The exact liability in respect of this very year has not been calculated on any factual basis. It was only on the basis of the formula which has not been considered by the Income-tax Appellate Tribunal as a foolproof formula, the deduction was claimed. Even the Expert Committee was of the view that no exact formula could be arrived ....
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....bligation of the trader is purely contingent, no question of estimating its present value may arise, for to be a permissible outgoing or allowance, there must in the year of account be a present obligation capable of commercial valuation". It was further observed that " where accounts are maintained on the mercantile system, if liability to make the payment has arisen during the time the business is carried on, it may appropriately be regarded as expenditure. But where the liability is, during the whole of the period that the business is carried on, wholly contingent and does not raise any definite obligation during the time that the business is carried on, it cannot fall within the expression 'expenditure laid out or expended wholly and exclusively' for the purpose of the business". A liability which is dependent on fulfilment of a condition which may result in reduction or in extinction of the liability is a contingent liability. It is only the actual liability which is existing in the relevant assessment year which is allowable to be considered as an expenditure. If the liability is contingent then it would amount to allowing the apprehended losses in future from the profits ....
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....1966] 62 ITR 638 are relevant wherein it has been held that : "In its normal meaning, the expression 'expenditure' denotes 'spending' or 'paying out or away', i.e., something that goes out of the coffers of the assessee. A mere liability to satisfy the obligation by an assessee is undoubtedly not 'expenditure' : it is only when he satisfies the obligation by delivery of cash or property or by the settlement of accounts that there is expenditure. But expenditure does not necessarily involve actual delivery of or parting with money or property. If there are cross-claims-one by the assessee against a stranger and the other by the stranger against the assessee-and as a result of the accounting the balance due only is paid, the amount which is debited against the assessee in the settlement of the accounts may appropriately be termed as expenditure." Even the actual liability which is in praesenti is also an expenditure. The only thing which is required is that it must be the actual liability and not contingent or unascertained. The finding which has been recorded by the Tribunal elaborately discussing the matter is that the formula could not be considered as a definite one because ev....