Decided on February 27,1982



E.M. Narayanan Unni, Vice-President - (1.) CONSEQUENT on a difference of opinion between the two Members of the Delhi Bench 'A' of the Tribunal, who heard this appeal, the following question has been referred to me, as third Member, under Section 255(4) of the Income-tax Act, 1961 ("the Act") : Whether, on the facts and in the circumstances of the case, the order under Section 154 dated 8-2-1978 for including the sum of Rs. 12,685 on account of disallowance under Section 40A(3) can be upheld legally?
(2.) The question, which has been referred, raises an interesting issue as to the period of limitation provided for in the first proviso to Section 40A(3) of the Act. The facts which are relevant for this reference can be briefly summarised as follows. The assessment year involved is 1971-72, for which the accounting year of the assessee ended on 31-3-1971. The assessment for that year was completed by the ITO on 21-8-1971. In the accounts of that year, which 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 dated 21-8-1971.
(3.) 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 in each 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 [TO obesrved 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 dated 21-8-1971, for the assessment year 1971-72.;

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