JUDGMENT
G. SIVARAJAN, J. :
The Tribunal, Cochin Bench has referred for decision of this Court the following question:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no accrual of liability for the assessee in a sum of Rs. 3,48,405 for the asst. yr. 1980-81 being the provision made in the account towards refund of price collected in excess of the price fixed by the Government ?”
2. The assessment year concerned is 1980-81. The relevant accounting period ended by 30th June, 1979. The assessee is a registered co-operative society formed in 1966 with the object of primarily to co-ordinate and facilitate the working of affiliated societies and to assist in the promotion and development of consumer co-operation. It is sponsored by the Government of Kerala. The main activities of the assessee are purchase of consumable goods from production centres and distribute the same for sales through district and primary co-operative societies and through retail outlets.
3. During the accounting period relevant to the assessment year in question, as per the orders of the Government of Kerala, the assessee manufactured and distributed exercise books for students. This is pursuant to an order passed by the Government on 22nd Dec., 1978 by which the assessee was required to sell the books in accordance with the directions given by the Director of Public Instructions at the price fixed by the Government from time to time. The Government had fixed a price of Rs. 1.12 per note book containing 192 pages. The assessee on 5th April, 1979 made a representation to the State Government for enhancing the price to Rs. 1.20. The Government by its order dt. 6th June, 1979 rejected the said request and directed the assessee to distribute the books at the concessional rates provided in the Government order dt. 22nd Dec., 1978. The assessee on 12th June, 1979 made a further request for increasing the rate. The Government by order dt. 17th Aug., 1979 (Annex. E to the paper book) rejected the said claim and directed the assessee that the enhanced price collected by the assessee in anticipation of the increase should be remitted to the Government immediately.
4. The assessee is maintaining the accounts following the mercantile system of accounting. For the assessment year in question, the assessee made a provision in the books of account for the excess amount of Rs. 3,48,405 payable to the Government. Admittedly, this provision had been made after the end of the accounting year, presumably as a follow up action to the Government order dt. 17th Aug., 1979. In the assessment proceedings evidenced by Annex. A, the assessee claimed deduction of the said amount on the basis of the provision so made stating that there is a liability to the State Government in regard to the excess amount collected. The assessing authority rejected the said claim on the ground that the liability, if any, had arisen only after the close of the accounting period and that too only by virtue of Government order dt. 17th Aug., 1979. The detailed reasons are contained in Annex. A under item 7. On appeal by the assessee, both the AAC and the Tribunal confirmed the order of the ITO and dismissed the appeals.
5. The short question arising for consideration is as to whether in the instant case the liability to pay a sum of Rs. 3,48,405 has arisen during the accounting period relevant to the assessment year in question. The admitted facts are : the assessee as per Government order dt. 22nd Dec., 1978 manufactured and sold note books to the students, that the Government order provided for the sale of note books, each containing 192 pages at Rs. 1.12, that the assessee, contrary to the said directions and based on the representations dt. 5th April, 1979 filed before the Government sold the note books at the rate of Rs. 1.20, that the Government rejected the said claim of the assessee by order dt. 6th June, 1979, that further representation made by the assessee for increase in the rate was also rejected by the Government by order dt. 17th Aug., 1979 and that the Government in the said order dt. 17th Aug., 1979 specifically directed the assessee to immediately remit to the State Government the excess price collected by it. It is relevant to note at this juncture that neither the Government order dt. 22nd Dec., 1978 nor the Government order dt. 6th June, 1979 provided for remittance of any excess amount collected by the assessee contrary to the stipulations contained in the said orders and that the liability for the first time has arisen only by virtue of Government order dt. 17th Aug., 1979. These facts are not disputed by the assessee.
6. The assessee, who is maintaining the accounts following the mercantile system of accounting is entitled to make a provision for any liability that may be legally incurred during the accounting period notwithstanding the fact that the assessee had not effected payment of the same during the accounting period itself. Here, as we have already found the liability for payment of the excess collection had arisen only by virtue of the Government order dt. 17th Aug., 1979, which admittedly falls outside the accounting period ended by 30th June, 1979. Therefore, it is clear that the provision made in the accounts after the close of the accounting period pursuant to the Government order dt. 17th Aug., 1979 based on which the assessee has put forward a case is not a permissible deduction. We accordingly hold that the authorities under the Act are perfectly justified in disallowing the claim for deduction of a sum of Rs. 3,48,405.
7. In view of what has been stated above, we answer the question referred for our decision in the affirmative, that is, against the assessee and in favour of the Revenue.