- (1.) THE assessee is a firm consisting of as many as nine partners. It was originally assessed for the assessment year 1969-70 as per the ITO's order dated 11th May, 1970, on a total income of Rs. 58,090. The assessee's system of accounting was mercantile. The financial year is the accounting year. During the financial year 1968-69, the assessee-firm got some quantity of rice husked by another firm, namely, M/s. Ashoka Rice Mills, at Re. 1 per quintal and the assessee thus became liable to pay to the said firm Rs. 37,952 out of which an amount of Rs. 17,728 only was paid during the said financial year. The balance liability of the assessee for the payment of Rs. 20,224. 80 to M/s. Ashoka Rice Mills remained undischarged until after 31st March, 1969. While completing the assessment for the assessment year 1969-70, the ITO, in view of the assessee's mercantile system of accounting, allowed to the assessee the full expenditure of Rs. 37,952 in connection with the rice husking service obtained from M/s. Ashoka Rice Mills.
(2.) LATER on, the ITO, discovered that the payment of Rs. 20,224. 80 had been made by the assessee otherwise than by crossed cheque or crossed draft drawn on bank as contemplated in Section 40a (3) of the I. T. Act (hereinafter referred to as " the Act" ). He, therefore, applying the first proviso to Section 40a (3) read with Section 154 of the Act passed an order on 19th January, 1972, rectifying his earlier order by which the expenditure of Rs. 20,000 odd was allowed as a deduction.
(3.) ON appeal, the AAC confirmed the said rectification order. The asses-see's appeal was accepted by the Income-tax Appellate Tribunal, Chandigarh Bench (hereinafter referred to as "the Tribunal" ). The Tribunal held as follows : " The expression ' so far as may be ' occurring in Section 40a (3), first proviso, and qualifying the applicability of the provisions of Section 154 does not, in our opinion, keep out the principle laid down by the Bombay High Court in the case of Volkart Brothers [1967] 65 ITR 179 and later confirmed by the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50. The appeal is allowed. The rectification is set aside. ";