INCOME TAX ACT, 1961

--Rectification--Mistake apparentExpenditure incurred to earn dividend--The assessee derives income from purchase and sale of and investment in shares, interest income, dividend income and rental income. For the assessment year 1995-96, the assessee filed a return disclosing a total income of Rs. 35,09,420. The said return was processed under section 143(1)(a). Subsequently, notices under sections 143(2) and 142(1) were issued. In support of the said return, the assessee submitted numerous details in the course of the assessment proceedings which were duly verified and examined by the AO. On 21-5-1997, the AO passed an order under section 143(3) determining the total income at Rs. 35,79,410. In the said assessment, the AO allowed deduction under section 80M in respect of the dividend of Rs. 60,88,864 received by the assessee. The AO took note of the fact that the assessee had paid dividend of Rs. 61,10,000 but the deduction under section 80M was limited to the amount of dividend received. On 25-11-1999, the AO issued a notice under section 154 proposing to rectify the said order of assessment. In the details of mistake appearing in the notice it was alleged that an error had been made in making allowance under section 80M and the refund which was an apparent mistake. By a letter dated 25-1-2000, the assessee submitted its reply that deduction under section 80M was correctly allowed and there was no mistake to be rectified. The AO, however, by an order dated 30-6-2000, rectified the assessment order dated 21-5-1997. In the said order, the AO held that allowance of deduction under section 80M on dividend without deducting proportionate management expenses was a mistake apparent from the record. Such proportionate management expenses were notionally worked out in the annexure to the order as Rs. 8,71,725. Accordingly, the deduction granted under section 80M in the order dated 21-5-1997, was reduced by the said sum of Rs. 8,71,725. Being dissatisfied, the assessee preferred an appeal before the CIT(A). The said appellate authority, allowed the appeal by accepting the appellant's contention that the action taken by the AO was not permissible under section 154. Held: The actual expenditure made should be deducted and not a notional one based on average calculation. In a given situation, the expenditure may be less in some cases, it may be more and even in some cases, there may not be any expenditure, thus, there was no mistake apparent from record.