Rectification of deduction computation: actual land cost cannot be replaced by notional value when the record shows it was already accounted for.

The Tribunal considered whether a first appellate direction reworking deduction under section 80-IB(10) by substituting the assessee's actual land cost with the construction cost of 73 flats or the market value of 2.96 acres disclosed a patent error apparent from the record. It noted that the land cost had already been accounted for in work-in-progress and in the profit and loss account, so the earlier substitution proceeded on a mistaken factual premise and lacked statutory support. The Tribunal also held that quantification of the deduction had not been finally adjudicated in the earlier appeals, so the doctrine of merger did not bar rectification under section 154.

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Issues: Whether the direction in the first appellate order to replace the assessee's actual land cost with the cost of construction of 73 flats or the market value of 2.96 acres, while reworking deduction under section 80-IB(10), was a mistake apparent from the record rectifiable under section 154, and whether the doctrine of merger barred such rectification.

Analysis: The assessee was held eligible for deduction under section 80-IB(10), and the dispute was confined to the manner of quantifying the eligible profit. The financial statements showed that the cost of land had already formed part of work-in-progress and had been debited in the profit and loss account. The earlier direction proceeded on a mistaken premise that no land cost had been accounted for, and further substituted an artificial notional basis, namely the construction cost of 73 flats or the market value of land, for actual cost. Such substitution was held to be unsupported by any provision and contrary to the record. The Tribunal also held that the issue of quantification of deduction had not been the subject matter of the earlier appeals, so merger did not preclude rectification.

Conclusion: The impugned direction was held to be a patent error of fact and law apparent from the record and was rectifiable under section 154; the rectification application ought to have been allowed.

Final Conclusion: The assessee was entitled to have the erroneous cost-substitution direction removed and the deduction reworked on the basis of the actual profits reflected in the accounts.

Ratio Decidendi: A patent factual or legal error in quantifying a deduction, when apparent from the record and not the subject matter of prior appellate adjudication, is rectifiable under section 154, and actual cost cannot be replaced by a notional value in the absence of statutory warrant.

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