Rectification jurisdiction cannot decide debatable tax issues or impose fresh levy where the error is not apparent from the record.

Rectification power under section 35 of the Income-tax Act was confined to mistakes apparent from the record and could not be used to determine debatable questions requiring fresh factual inquiry or statutory interpretation. On that basis, additional tax sought on the footing of excess dividend was held beyond the scope of rectification because the statutory basis for the levy was not self-evident on the record. The same limit applied to penal interest under section 18A(8), since liability depended on factual questions about anticipated assessable income and advance tax, making rectification jurisdiction unavailable. The rectification proceedings and the revisional orders confirming them were quashed.

---

---

Issues: (i) Whether rectification under section 35 of the Income-tax Act could be used to levy additional tax on the footing of excess dividend in the facts of the case; (ii) Whether penal interest under section 18A(8) could validly be imposed through rectification.

Issue (i): Whether rectification under section 35 of the Income-tax Act could be used to levy additional tax on the footing of excess dividend in the facts of the case.

Analysis: Rectification under section 35 is confined to mistakes apparent from the record. A doubtful or debatable question, or one requiring investigation of facts and interpretation of the Finance Act provisions, cannot be treated as such an error. The applicability of the excess-dividend provision depended on whether the dividend was in truth paid out of the profits liable to tax for the assessment year and whether the statutory foundation for the levy existed at all. That question was not self-evident on the record and could not support a rectification order.

Conclusion: The additional tax levied by rectification on the footing of excess dividend was not justified, and the rectification orders on that basis were without jurisdiction.

Issue (ii): Whether penal interest under section 18A(8) could validly be imposed through rectification.

Analysis: Liability for advance tax and the consequential penal interest depended on whether the assessee could reasonably anticipate assessable income in the relevant period. That was a factual inquiry and not a mistake apparent from the record. Since the foundation for invoking section 35 was absent, the inclusion of penal interest in the rectification proceedings was also beyond jurisdiction.

Conclusion: The levy of penal interest under section 18A(8) through rectification was unsustainable.

Final Conclusion: The rectification proceedings and the revisional orders confirming them were quashed, and the assessee obtained complete relief.

Ratio Decidendi: Rectification power is limited to patent errors apparent on the record and cannot be used to decide debatable questions of law or fact requiring fresh inquiry.

---