9911796707
TMI Blog1982 (2) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... ich were maintained on the mercantile system of accounting, the assessee had provided for payment of salary and commission to two persons, namely, Mustafa Ali and Mohd. Aslam, to the extent of Rs. 5,965.44 and Rs. 6,720.44, respectively. These amounts were claimed by the assessee as a deduction for the assessment year 1971-72 and were also allowed by the ITO while passing the order of assessment dated21-8-1971. 4. At the time of the assessment for the assessment year 1972-73, the ITO found that the amounts due to the above two persons, and provided for in the accounts for the assessment year 1971-72, were paid by the assessee on 27-5-1971. Such payments exceeded Rs.2,500 ineach case. The assessee had disbursed those payments in cash, contrary to the provisions of section 40A(3). In the order of assessment for 1972-73, the ITO observed that, under the provisions of the first proviso to section 40A(3), the said amounts had to be disallowed by rectifying the order of assessment dated21-8-1971, for the assessment year 1971-72. 5. Pursuant to the above observations contained in the assessment order for 1972-73, the ITO issued a notice under section 154 for the assessment year 1971-7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the AAC, by his order dated17-7-1979, accepted the plea of the assessee that the ITO was wrong in passing the impugned order dated8-2-1978, without considering the objections raised by the assessee. Accordingly, he set aside that order and directed the ITO to dispose of the assessee's application dated20-7-1978, afresh, in accordance with law. 8. Inthe meantime, the assessee had also filed an appeal before the AAC against the order dated8-2-1978, whereby the ITO had carried out the rectification. In that appeal, the assessee had contended that the impugned order has been passed by the ITO beyond the period of limitation specified in the first proviso to section 40A(3). According to the assessee, the order, purported to be under the first proviso to section 40A(3) could have been passed only before31-3-1977whereas the impugned order was passed on8-2-1978. The stand taken by the ITO was that the combined order under section 154 and section 147, which was passed by him on 28-2-1977, clearly contained an error apparent from the record, inasmuch as, though he had expressed his intention of adding back the amount of Rs. 12,685 to the total income of the assessee, he had omitted to do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Accordingly, he held that the order dated8-2-1978, by which the ITO purportedly rectified the mistake was beyond the prescribed period of limitation. 11. Consequent on the above difference of opinion between the two Members, the case has been referred to me under section 255(4). 12. The learned counsel for the assessee, after taking me through the relevant facts, as stated above, as also the opinions expressed by the dissenting Members of the Bench, submitted that section 154 identified the order in which the apparent mistake is contained and also the period of four years within which such mistake could be rectified. Under the provisions of section 154(7), it is provided that except in those cases covered by section 155 or section 186(4), no amendment under that section shall be made after the expiry of four years from the date of the order sought to be amended. In the present case, he pointed out that the mistake was a "deemed mistake" and not a real one. Normally, any expenditure incurred by the assessee, for the purpose of his business, was an allowable expenditure and, when such expenditure is allowed, there could be said to be no mistake which called for rectification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-1977, which was apparent from the record inasmuch as, he clearly proposed to add the amount of Rs. 12,685 but failed to do so by oversight. According to the learned departmental representative, this mistake clearly lead itself to rectification under section 154. 14. I have carefully considered the two view-points expressed by the two learned Members of the Bench and also the arguments advanced from both sides supporting each of these views. Section 154(7) lays down a period of limitation for rectification of mistakes, apparent from the record. As far as the ITO is concerned, the orders which could be so rectified are any order of assessment or refund or any order passed by him. Thus, the provisions of section 154(7) are general provisions relating to limitation which would govern rectification of orders passed by the ITO. The period, limited therein, is four years from the date of the order sought to be amended. The limitation contained in section 154(7) is in the following terms : "(7), Save as otherwise provided in section 155 or sub-section (4) of section 186, no amendment under this section shall be made after the expiry of four years from the date of the order sought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in respect of such liability, the assessee makes the payment otherwise than by crossed cheque or by crossed bank draft, of sums exceeding Rs. 2,500, the deduction which was allowed in the relevant assessment year in respect of such claim, should be treated as mistake apparent from the record and the deduction should be withdrawn by recourse to the provisions of the first proviso. For this purpose, a period of limitation, which is distinct and separate from the period of limitation prescribed in section 154(7), has been provided. While, under section 154(7) the period of limitation is four years from the date of the order sought to be rectified, under the first proviso to section 40A(3), the period is four years from the end of the assessment year next following the accounting year in which the assessee makes actual payment in cash. 16. The above discussion would go to show that the provisions relating to period of limitation contained in the first proviso to section 40A(3) is a special provision which governs the rectification of the "deemed mistake" arising from the payment, in cash, of amounts exceeding Rs. 2,500. Thus, in any case where it is sought to rectify such a deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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