Rectification cannot withdraw a debatable exemption claim where entitlement depends on facts beyond the record and requires enquiry.

Section 154 rectification cannot be used to withdraw exemption on interest from non-resident external account deposits where entitlement depends on residential status under the Foreign Exchange Regulation Act, 1973 and compliance with RBI guidelines, because that issue is not a patent mistake apparent from the record. Where determining the exemption requires enquiry beyond the return and accompanying papers, the proper course is reassessment rather than rectification. The appellate authority may also admit fresh material evidence going to the root of the exemption claim when it is necessary to decide the correct tax liability. On that basis, the rectification orders were held without jurisdiction and the addition made by rectification was quashed.

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Issues: Whether the Assessing Officer could invoke rectification under section 154 to withdraw exemption claimed on interest from non-resident external account deposits and whether the appellate authority was justified in refusing to admit bank certificate evidence bearing on the exemption claim.

Analysis: The exemption under section 10(4) depended on the residential status under the Foreign Exchange Regulation Act, 1973 and on whether the deposits were maintained in accordance with Reserve Bank of India guidelines. These matters could not be conclusively determined merely from the return and the accompanying papers, and the question whether the assessee was entitled to exemption was not an obvious or patent mistake. A rectification power under section 154 is confined to clear, glaring mistakes apparent from the record and cannot be used to make adjustments requiring investigation or to substitute for reassessment procedures. The appellate authority also had co-terminous powers and could admit material evidence going to the root of the dispute, especially where the evidence was relevant to the legality of the exemption claim.

Conclusion: The rectification orders were without jurisdiction and the refusal to consider the fresh evidence was unjustified; the assessee succeeded.

Final Conclusion: The addition of interest income made by rectification was quashed and the appeals were allowed.

Ratio Decidendi: A rectification power cannot be used to withdraw a claim on a debatable issue requiring enquiry beyond the record, and appellate authorities may admit material evidence necessary for deciding the correct tax liability.

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