Mistaken set-off of carried forward business loss against undisclosed-source income is a rectifiable error despite pending appeals.

Carried forward business loss could not be set off against income assessed as income from an undisclosed source, because section 24(2)(ii) permitted set-off only against profits or gains of a business, profession or vocation continued in the relevant year. The mistaken set-off was apparent from the record and could be rectified under section 35 without fresh evidence or reappraisal. Pending appeals did not bar rectification where the point corrected was not actually the subject of the appeal. The rectification power was therefore available within its statutory limits notwithstanding appellate proceedings.

---

---

Issues: (i) Whether the Income-tax Officer could rectify the assessment under section 35 on the ground that the set-off of the carried forward business loss against income assessed as income from undisclosed sources was a mistake apparent from the record; (ii) whether the pendency of appeals against the assessment barred rectification under section 35.

Issue (i): Whether the Income-tax Officer could rectify the assessment under section 35 on the ground that the set-off of the carried forward business loss against income assessed as income from undisclosed sources was a mistake apparent from the record.

Analysis: The income of Rs. 30,000 had been treated throughout the assessment proceedings as income from an undisclosed source and not as business income. Under section 24(2)(ii), carried forward business loss could be set off only against the profits or gains of a business, profession or vocation continued in the relevant year. Since the amount was not business income, the original set-off of the earlier year's loss against that amount was contrary to the statute. The error was plain from the record and did not depend on any fresh debate or reappraisal of evidence.

Conclusion: The rectification under section 35 was valid and was within jurisdiction on this ground.

Issue (ii): Whether the pendency of appeals against the assessment barred rectification under section 35.

Analysis: The question whether the business loss of the earlier year could be set off against income from an undisclosed source was not the subject-matter of the appeal before the Appellate Assistant Commissioner. The existence of appellate proceedings did not take away the power to rectify an error apparent from the record on a point not actually in appeal.

Conclusion: The pending appeals did not bar exercise of power under section 35.

Final Conclusion: The order of rectification was upheld as consistent with the statutory limits on set-off of loss and the power to correct an apparent mistake, and the writ petition failed.

Ratio Decidendi: A mistaken set-off of carried forward business loss against income that has been assessed as income from an undisclosed source is a mistake apparent from the record and may be rectified under section 35, even if appeals are pending, so long as the point rectified was not actually the subject of the appeal.

---