Law:

Section:

Section 154 of the Income-tax Act, 1961 [Corresponding to section 35 of the Indian Income-tax Act, 1922] - Rectification of mistakes - Apparent from records - Assessment years 1957-58 to 1959-60 - On basis of decision of Supreme Court holding that collections made by assessee by way of reimbursements of expenditure incurred by it on behalf of its customers in laying mains and providing service connections etc., was capital expenditure, ITO passed rectification order making additions to income of assessee without deciding whether establishment expenditure wholly related to capital expenditure or only to a part of it - There were no materials with reference to which one could check up appropriateness of additions made by ITO - Whether order passed by ITO was very cryptic and as such liable to be quashed - Held, yes FACTS For the assessment years in question, the assessments of the petitioner-assessee were completed. The assessee had earlier succeeded in the Supreme Court on the basis of Hoshairpur Electric Supply Co. v. CIT [1961] 41 ITR 608 (SC), which held that collections made by the assessee by way of reimbursements of capital expenditure incurred by it on behalf of different consumers in laying mains and providing service connections, etc. were essentially of a capital character and that even the excess of the collections over the actual capital expenditure would partake of that character. In view of the decisions, therefore, the ITO had to revise the order. But, in doing so, he thought that the establishment expenditure which had been allowed as a deduction originally should be disallowed as capital expenditure, referable to laying of mains, providing service connections, etc. The ITO called upon the petitioner by a notice to show cause why the earlier assessment orders should not be rectified under section 35 of the 1922 Act. On writ: HELD In the particular circumstances of this case, the ITO rightly invoked section 35. of the 1922 Act He had to do so because of the decision of the Supreme Court in order to give effect to it. In giving effect to it, necessarily he had to see whether the establishment expenses, which had been given deduction of, included…

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