The power of the Appellate Assistant Commissioner to rectify a mistake under Section 35 of the Act is not affected by the fact that there was an appeal to the Tribunal, if the subject-matter of the appeal to the Tribunal did not include the issue of the mistake.

( 1 ) THIS petition under Articles 226 and 227 of the Constitution is directed against an order dated 27 May, 1961 by which the Appellate Assistant Commissioner, indore, rectified under Section 35 of the Indian Income-tax Act, 1922 (hereinafter called the Act), an order of his predecessor-in-office dated 29th May, 1957. By the impugned order, the losses allowed to be carried forward and set off were restricted to those incurred in the taxable territories. In this manner, the losses for the assessment year 194849 carried forward and set off were reduced from Rs. 78,123/-to Rs. 1,075/- and those for the assessment year 1949-50 were similarly reduced from Rs. 3,762/- to Rs. 123/ -.

( 2 ) IN the assessment years 194849 and 1949-50, the petitioner, who was assessed as -a non-resident, incurred losses, for the most part in the native State of Indore, to the extent of Rs. 78,123/- and Rs. 3,762/-respectively in the life insurance business carried on by it. From 1 December 1949, the petitioner started the business of insurance against fire also. In the proceedings for the assessment year 1950-51, the petitioner claimed inter alia Rs. 20,385/- as a revenue deduction, being the amount of reserve provided to meet the fall in the value of securities which were initially held in the life insurance business but which were, as from 1 December, 1949, bifurcated to the fire branch of the business. The petitioner further claimed that the losses sustained by it in the assessment years 1948-49 and 1949-50 be carried forward and set off in the assessment year 195051. By an order dated 7 March 1955, the Income-tax Officer, Indore, disallowed the two claims and determined Rs. 8,840/- to be the total income of the petitioner. In its appeal to the Appellate Assistant Commissioner, the petitioner attached the disallowance of Rs. 20,385/- and of the losses amounting to Rs. 78,123 and Rs. 3,762/ -. By an order dated 29 May 1957, the Appellate Assistant Commissioner did not accept the reserve claimed on account of depreciation of the securities as an allowable revenue deduction, directed that the losses of the previous years be carried forward and set off as claimed and remitted the case to the Income-tax officer to give effect to that direction. While the Department did not appeal against this direction relating to the losses of the two earlier years, the petitioner appealed to the Tribunal against the disallowance of Rs. 20,385/ -. By an order dated 27 May 1958, the Tribunal allowed the deduction of Rs. 20,2387-on account of depreciation of the securities.

( 3 ) THE Income-tax Officer, Indore, who had to give effect to the directions contained in the order dated 29 May 1957, thought that it was ambiguous and, by means of a letter dated 14 April 1961, requested for clarification. Thereupon, the appellate Assistant Commissioner decided to rectify under Section 35 of the Act the direction relating to the carry-forward of the losses of the two previous years, issued notice to the petitioner to show cause against the course proposed to be adopted and, after giving to the petitioner a hearing, passed the impugned order dated 27 May 1961. The main reason which induced the Appellate Assistant commissioner to rectify the mistake was this. In the years 194849 and 1949-50, the petitioner was assessed as a non-resident. It did not appeal against those orders and the determination of its status as a nonresident thus became final. In view of that position, only the losses incurred in the taxable territories, and not the entire losses incurred by it in those years, could be carried forward and set off against future profits. There was thus an error apparent from the record which needed rectification.

( 4 ) THE order dated 27 May 1961 has been challenged mainly on the following grounds: (i) The view that, in the circumstances of the case, the losses incurred at indore and Bombay could not be set off is erroneous and there was, in ,fact, no error needing rect