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Issues:
Challenge to the order of the AO for not allowing rectification under s. 154 as prayed for by the applicant. Analysis: The appeal was filed against the order of the CIT(A) for asst. yr. 1994-95. The primary issue raised in the appeal was the denial of rectification under s. 154 by the AO and confirmed by the CIT(A). The AO had computed the total income of the assessee without allowing deductions for salary and interest paid to partners. The assessee contended that a mistake apparent from the record existed due to the retrospective amendment in provisions of s. 44AD. However, the CIT(A) dismissed the application citing the issue as debatable and referred to the decision in the case of T.S. Balaram, ITO vs. Volkart Brothers (1971) 82 ITR 50 (SC), stating that rectification proceedings cannot review the true scope of the law. Upon reviewing the evidence, it was found that the AO and CIT(A) did not apply the provisions of s. 44AD while passing the order. The question arose whether the failure to apply settled principles of law amounted to a mistake apparent on record. The provisions of s. 154 were examined, indicating that the CIT(A) had the authority to amend the order under this section. The retrospective amendment in s. 44AD from 1st April, 1994, was applicable to the case under consideration. The decision of the Hon'ble jurisdictional High Court in similar cases favored the assessee, emphasizing the binding force of such decisions on all authorities. The failure to apply the retrospective amendment was deemed a mistake apparent on the record, entitling the assessee to further deductions on salary and interest paid to partners as per s. 44AD. In conclusion, the appeal of the assessee was allowed based on the existence of a mistake apparent on the record due to the non-application of the amended provisions of law. The decision was supported by precedents and the binding nature of judgments from the Hon'ble jurisdictional High Court.
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