Settlement scope limits rectification: excess profits tax deduction could be withdrawn under mistake-correction powers.

A settlement under section 34(1B) of the Indian Income-tax Act, 1922 did not bar rectification where the item later withdrawn was not covered by the notice or settlement terms. The conclusive-effect clause in section 34(1D) was confined to matters actually settled and could not extend to an excess profits tax deduction that was not in issue. Once the excess profits tax liability was finally determined as nil, withdrawal of the earlier deduction in the income-tax assessment was a permissible recomputation under section 35(6) and amounted to correction of a mistake apparent from the record. The rectification was therefore valid.

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Issues: Whether a settlement under section 34(1B) of the Indian Income-tax Act, 1922 barred the Income-tax Officer from rectifying the assessment under section 35(6) to withdraw deduction earlier allowed on account of excess profits tax after the excess profits tax liability was finally determined.

Analysis: The settlement under section 34(1B), read with the conclusive-effect clause in section 34(1D), extended only to the matters stated in the settlement and could not be enlarged to cover an item that was neither part of the notice under section 34(1A) nor part of the settlement terms. The deduction originally allowed in the income-tax assessment on account of excess profits tax was not settled. That deduction became untenable only after the excess profits tax appeals were decided and the liability was held to be nil. In those circumstances, recomputation of the income-tax assessment by withdrawing the earlier deduction fell within section 35(6), which treats such recomputation as rectification of a mistake apparent from the record.

Conclusion: The settlement did not bar rectification, and the rectification withdrawing the excess profits tax deduction was valid. The appeals were therefore without merit.

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