B.S. Dhillon, J.
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 thepayment 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 : 65ITR179(Bom) and later confirmed by the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers : 82ITR50(SC) .
The appeal is allowed. The rectification is set aside. '
4. It may be pointed out that the Tribunal negatived the argument raised on behalf of the assessee that though the amount of Rs. 37,952 had been in the original assessment allowed as a business expenditure, yet actually the said amount represented the additional cost or price of rice which was the stock-in-trade of the assessee. The Tribunal further repelled the contention that the assessee was covered by the second proviso to Section 40A(3) of the Act. The Tribunal also negatived the contention that though the liability for the balance consideration of Rs. 20,000 (for rice husking service) was discharged by the assessee on 2nd May, 1969, such discharge did not involve a payment within the meaning of Section 40A(3) read with Section 43(2) of the Act. The following question of law has been referred for the opinion of this court at the instance of the revenue :
' Whether, on the facts and circumstances of the case, the Appellate Tribunal was right, in law, in holding that the non-application of the provisions of Section 40A(3) of the Income-tax Act by the Income-tax Officer to the expenditure incurred to get the rice husked did not constitute a mistake apparent from the record within the meaning of Section 154(1), Income-tax Act '
5. After hearing the learned counsel for the parties and going through the records of the case, we are of the opinion that the question of law referred to us has to be answered in the negative, i.e., in favour of the revenue and against the assessee. The Tribunal set aside the rectification order on the sole ground that in its opinion keeping in view the principles laid down by their Lordships of the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers : 82ITR50(SC) , the provisions of Section 154 of the Act are not attracted to the facts of the present case. The payment of the expenditure in question was made on 2nd May, 1969, i.e., after 31st March, 1969. Admittedly, the payment exceeding Rs. 2,500 was made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft. In view of the proviso referred to above, the allowance originally made for the expenditure incurred and paid, shall be deemed to have been wrongly made and the ITO is in law authorised to recompute the total income of the assessee for the previous year in which such liability was incurred and the ITO is thus entitled to make the necessary amendment in the original assessment order. The proviso specifically makes the provisions of Section 154 of the Act, so far as they may apply thereto, applicable in such cases. Their Lordships of the Supreme Court in Volkart Brothers' case : 82ITR50(SC) held as follows :
'From what has been said above, it is clear that the question whether Section 17(1) of the Indian Income-tax Act, 1922, was applicable to the case of the first respondent is not free from doubt. Therefore, the Income-tax Officer was not justified in thinking that on that question there can be no two opinions. It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under Section 154 of the Income-tax Act, 1961. A mistake apparent on the record must be an obvious and patent mistake and not something which- can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. '
6. The above-mentioned observations go to show that in that case, the application of the provisions of Section 17(1) of the Indian I.T. Act, 1922, keeping in view the facts and circumstances of the case, was not free from doubt and it was in that context that their Lordships made the observations referred to above. In the present case, the learned counsel for the assessee could not even point out that the proviso to Section 40A(3) was capable of any other interpretation than the one which has been given to it by us. That being so, the decision of their Lordships in Volkart Brothers' case : 82ITR50(SC) in fact goes to support the case of the revenue. As observed, the proviso to Section 40A(3) is capable of only one interpretation and the proviso itself re-enacted the provisions of Section 154 of the Act in it, thusentitling the ITO to pass a rectification order where the ingredients of the proviso stand satisfied.
7. For the reasons recorded above, the question of law referred to us is answered in the negative, i.e., in favour of the revenue and against the assessee, with costs.
G.C. Mittal, J.
8. I agree.