1. The ITO assessed the taxpayer, a private limited company. The assessee had claimed before him that it was entitled to certain deductions under Chap. VI-A of the I.T. Act, 1961. The ITO partly allowed rebates/deductions under Sections 80I and 80J but disallowed deduction under Section 80G of ' the Act ' in its entirety. The assessee appealed against the order of disallowance of the deductions under Section 80G and the method of computation adopted in granting deductions under Section 80J. No other point was taken. However, at the hearing, the latter ground was not pressed. The Appellate Assistant Commissioner, hereinafter referred as ' the AAC' rejected the line of reasoning of the ITO and and concluded: '......the
claim for deduction under Section 80G(1) cannot be completely disallowed.'
2. Though the assessee did not complain against deductions under Section 80I and 80J of the Act, the AAC made the following observations thereto and fashioned the final orders thus :
'The capital employed for the purpose of deduction under Section 80J has not been properly computed by the ITO. It appears that the ITO computed the capital assuming that the entire income was derived by the appellant from a newly established undertaking. The appellant-company also executed contract works. This part of the business will not come within the purview of a newly established undertaking.
The ITO has not given any basis for computing the quantum of deductions under Section 80I of the Income-tax Act.
From the foregoing it will appear that the assessment has not proceeded on correct lines. The order of the ITO, is accordingly, set aside with a direction to make fresh assessment in accordance with law.'
3. It is thus seen that the AAC held, (1) that the claim for deduction, under Section 80G(1) could not be completely disallowed ; (2) that the capital employed for deduction under Section 80J had not been properly computed ; (2a) that the contract works executed by the assessee could not come within the purview of ' newly established undertakings ' as contemplated under Section 80J of the Act; (3) that the ITO had not given any basis for computing deduction under Section 80I; (4) that ' the assessment had not proceeded on correct lines', and accordingly the assessment was set aside with a direction to make fresh assessment in accordance with law. Thereafter, the ITO made a fresh assessment, allowed certain deductions under Section 80G(1) as directed (on a donation of Rs. 5,600) but, in the process of the fresh assessment or computation, by a reasoned order, wholly disallowed the deductions claimed by the assessee under Sections 80I and 80J. The assessee appealed before the AAC, who held that the ITO had followed the direction in allowing deduction under Section 80G but did not follow the directions of the previous AAC in respect of the deductions under Sections 80J and 80I, as in the previous appeal there was no dispute raised about the deduction or as to whether the assessee was a priority industry or not. He held that the ITO had gone wrong in entering into those questions afresh while making the fresh assessment. The AAC held that the fresh assessment was not according to the direction given by the appellate authority', (underscored* by us). The AAC set aside the assessment and directed the ITO to make a fresh assessment by his order dated January 4, 1973. The date of the order is relevant, as this order has been upheld by the learned Tribunal. The revenue preferred an appeal which was turned down by the learned Tribunal. The reasons for upholding the order were summed tip in para. 13 of the order of the Tribunal which is quoted:
' Now from the order of the Appellate Assistant Commissioner dated 18-2-72, it is evident that he held the claim for deduction under Section 80G(1) cannot be completely disallowed. He also held that the Income-tax Officer had not calculated the capital properly under section 80J for computing the quantum of deduction under Section 80I of the Income-tax Act, 1961, and it was with these observations that the Appellate Assistant Commissioner directed the Income-tax Officer to make a fresh assessment. The Income-tax Officer has definitely disregarded those directions when he has held that the assessee is not entitled to any relief under Sections 80I and 80J when in the original assessment order, the Income-tax Officer had allowed the reliefs under Section 80I as well as Section 80J. The Income-tax Officer was not justified in not following the directions of the Appellate Assistant Commissioner. We therefore hold that the Appellate Assistant Commissioner by his order dated 4-1-73 was justified in setting aside the assessment. We, therefore, uphold the order of the Appellate Assistant Commissioner. ' (Underscored by us).
4. The Tribunal upheld the order dated January 4, 1973, passed by the AAC commandeering the ITO to follow the directions of the previous appellate authority and forbearing him not to enter into any question other than the specific direction made by the previous AAC. 'At the instance of the revenue, the Tribunal has referred the following question under Section 256(1) of the I.T. Act, 3961 :
hether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Appellate Assistant Commissioner was justified in setting aside the assessment by his order dated January 4, 1973, relating to the assessment year 1969-70 '
5. We have alluded the cognate and intrinsic facts necessary to decide the precise questions of law involved in the reference.
6. The sum and substance of the orders rendered by the AAC as well as the Tribunal is that the fresh assessment has not been made according to the direction given by the appellate authority or, in other words, the ITO has disregarded the directions of the previous AAC. There is no wrangle that the ITO has followed the direction in making a fresh assessment, in allowing partial deduction under Section 80G(1) and in not allowing the business of the contract works towards deduction under Section 80J. The bone of contention is that the previous AAC had impliedly accepted that the assessee was entitled to the deductions under Sections 80I and 80J but merely found fault with the methods of calculation. A bare glance at the order of the previous AAC, extracted above, clearly shows that there were positive directions in respect of two items. Firstly, that the assessee was entitled to some deduction under Section 80G(I), secondly, the business of contract works would not attract the provision of Section 80J. However, there is no such positive direction that the assessee was entitled to deduction under Sections 80I and 80J. There is an affirmative finding that there was no basis for computing the quantum of deduction under Section 80I and there was no proper computation in respect of deduction under Section 80J. Can these observations be termed even as indirect 'directions' which the ITO was bound to follow ?
7. To answer the question, it is necessary to decide as to when an observation of an appellate authority amounts to a binding direction on a subordinate authority. It is also necessary to decide, when an order of the ITO merges in the appellate order.
8. Section 250(6) of the Act prescribes the manner of disposal of an appeal. An order must be in writing containing the points for determination and decision, and, of course, the reasons for the decision. The object is too obvious. It enables a party to know the precise points decided in his favour or against him. Absence of the formulation of the. points for decision or want of clarity in a decision, undoubtedly puts a party in a quandry. A decision against a party enables him to go up in appeal. A decision, by its very nature, must be firm and should not be vague and unclear. If there is a direction by the appellate authority to the ITO, the latter is bound to carry out the direction. Refusal to carry out a direction is a denial of justice and destructive of one of the basic principles in the administration of justice based on the hierarchy of the authorities, as
has been held by the Supreme Court in Bhopal Sugar Industries Ltd. v. ITO : 40ITR618(SC) .
9. The ratio of the decision was sought to be applied in Tobacco . v. Commr. of Sales Tax  12 STC 87 (SC). However, their Lordships held that the principles enunciated could not be applied to the case with reasons, which resulted in a solid rule, which runs (p. 94):
' To attract the principles thus enunciated, it is necessary that there should be an order of a superior tribunal clear, certain and definite in its terms and without any ambiguity, to which the subordinate authority or officer to whom it is addressed could give effect. We are clearly of the opinion that the decision referred to cannot apply to the situation in the present case.'
10. Therefore, when a subordinate authority is directed to carry out certain directions by a superior authority, the tenor and colour of the order of the superior authority must be firm, clear, certain, definite and without any ambiguity. Upon reading the entire order of the appellate authority in its entirety and in its proper context, we do not find that there is any firm order of the nature and character set forth above amounting to a direction commandeering the ITO to allow any deduction, partially or otherwise, under Sections 80I and 80J. There were two directions which were faithfully followed by the ITO. We notice that there is a positive direction regarding the grant of deduction under Section 80G(1) of the Act whereas we do not discern any such direction of the AAC to allow even a fragmentary deduction under Section 80I or Section 80J in favour of the assessee.
11. In our opinion, therefore, we do not find that the ITO disregarded any ' direction ' or failed to follow the direction, as noticed by the AAC and the learned Tribunal.
12. If looked at from another angle, we arrive at the same conclusion. There was a firm order made by the AAC that the assessment had not proceeded on correct lines and accordingly the assessment made by the ITO. was set aside with a positive direction to make a ' fresh assessment in accordance with law '. It follows that the AAC was not satisfied with the method of assessment in respect of the deductions claimed under Sections 80I and 80J, and, so, the assessment, in respect of the deductions, was set aside and the ITO was directed to make a ' fresh assessment '. The findings and conclusions are clear enough that ' the assessment' in respect of the deductions under Sections 80-I and 80J had not proceeded on correct lines and hence it was set aside for making a ' fresh assessment '. Ergo, the AAC concluded thus, after he had found that there was no basis for granting deduction under Section 80I and no proper computation of deduction under Section 80J in the assessment order. It is true that the AAC has used the expression 'compute' while considering the questions of deductions under Sections 80I and 80J. Computation is an integral part of assessment. The term ' computation ' is denned in Black's Law Dictionary (revised 4th Edn.) as ' the act of computing, numbering, reckoning or estimating '. When the AAC held that there was no basis for computing the quantum of deduction under Section 80I and no proper computation in respect of the deduction under Section 80J, the ITO has jurisdiction according to law and can arrive at the conclusion that the assessee was not entitled to any deduction at all. After the order of the AAC to make a ' fresh assessment ', upon setting aside the assessment in respect of the deductions, there was no change in the subject-matter of the claims for deduction ; the change, if at all, was merely the basis to be taken into account for making the deductions claimed. While considering the basis for allowing the deductions, the ITO had the undoubted power to disallow the deductions holding that the items of deduction were not allowable deductions, for which reason as well, we hold that the ITO did not contravene any direction of the AAC.
13. When the AAC confirms, reduces, enhances or annuls the assessment, his order becomes final, subject to appeal and the order of the ITO merges in the appellate order. However, this may not be considered as our final opinion, as we are not called upon to answer it. In the instant case, the precise question is the consequence of an appellate order, when the appellate authority sets aside an assessment in respect of some deductions and refers the case back to the ITO for making a fresh assessment in accordance with law. When the order of assessment is set aside, the original order, at least in so far as the matters considered, decided and set aside by the AAC no longer remain in force, as it renders the matters decided in the original order non est. What remain alive and active are the directions and matters considered and decided by the appellate authority. The juristic justification of the doctrine of fusion or merger is based on the principle that there cannot be, at one and the same time, more than one operative order governing the matter. The order of a subordinate authority, if subjected to consideration and decision by a superior authority, vanishes in the eye of law and stands superseded. The identity of the order of the lower authority merges with the order of the superior one. Where an order of the ITO is carried in appeal and the appellate authority disposes of the appeal after a contested hearing, the order finally disposing of the matter is the final order, in so far as it concerns the matters considered and decided in the appellate order. In the instant case, the assessment proceedings in respect of the deductions were set aside by the AAC. The original order of assessment by the ITO merged in the appellate order. In the absence of any decision of the appellate authority that
the assessee was entitled to deductions, or at least entitled to some deductions under Sections 80I and 80J, the ITO, on remand, had jurisdiction to consider the matters as to the entitlements, during the course of a ' fresh assessment ', as there are clear observations and findings that the process of assessment in respect of the deduction was erroneous and the appellate authority, in so many wards, set aside the assessment in respect of those matters. The order of assessment, in respect of the matters, was not confirmed ; it was set aside and remitted to the ITO for fresh assessment. In our opinion, the question of entitlement of deductions by the assessee under Sections 80I and 80J was not determined or decided by the AAC. It does not follow that the AAC held that the assessee was entitled to the deduction merely on the basis of his finding that he was unhappy with the method of computation in respect of the deductions. The original assessment of the ITO that the assessee was entitled to some deductions under Sections 80I and 80J was obliterated by the AAC, who having held that the assessment was on incorrect lines set aside the same with a positive direction to make a fresh assessment. The original order of the ITO allowing deduction merged in the appellate order. Under such circumstances, while making the fresh assessment, the ITO was entitled to conclude that the assessee was not entitled to any deduction at all.
14. In our opinion, the question of entitlement of deductions under Sections 80I and 80J was left open for final determination by the ITO while making fresh assessment in accordance with law--this is the true purport and meaning of the appellate order. The question of entitlement of the deductions was never decided by the AAC. Such a decision must have the backing of due consideration of the matter coupled with reasons therefor : vide Section 250(6) of the Act; these are conspicuously absent in the appellate orders.
15. On appeal, an item of assessment may come up for consideration or may not come up for consideration. If a matter comes up for consideration and is decided by the appellate authority, it is the final order and supersedes the order of the ITO in respect of the matter. The ITO cannot rectify the same even under Section 154(1 A) of the Act because he can rectify only his own order and not that of a higher authority. The emphasis in Section 154(1A) is on ' consideration and decision '. When a matter is merely taken into consideration but no final decision is rendered by the appellate authority, the ITO is competent to rectify any mistake under Section 154(1A), as there exists no final decision of the appellate authority which prohibits rectification by the ITO. It follows, therefore, that in the absence of a final decision by the appellate authority, even mistakes can be rectified by the ITO. In the instant case, the matters in respect of the deductions under Sections 80I and 80J
were considered but never decided finally by the appellate authority. Instead, it set aside and remitted the matters to the ITO for such assessment without any positive decision. Thus, the ITO could enter into the matter while making a fresh assessment as directed by the appellate authority. Such action is not a rectification of a mistake. A rectification is permissible when there is a ' final order '. In this view of the matter as well, we are constrained to hold that the ITO had jurisdiction to consider and decide the question as to the entitlement of the deduction when the matter was sent to him for making a fresh assessment. In the result, we hold that, in the instant case, the fresh assessment made by the ITO was in accordance with law and not violative of any supposed direction given by the AAC.
16. The assessee relied on Pulipati Subbarao and Co. v. AAC : 35ITR673(AP) , CIT v. Indo-Aden Salt Works : 36ITR429(Bom) and Katihar Jute Mills (P.) Ltd v. CIT : 120ITR861(Cal) . Suffice it to say that the facts are completely different as also the principles propounded in the decisions. In all the aforesaid decisions, their Lordships construed the appellate order and held that the ITO did not act according to the directions or disregarded the direction or did not follow the direction of the appellate authorities. In all the decisions there were positive, clear, certain and definite directions without any ambiguity, and, accordingly, the orders of the ITO were set aside for not following such positive and firm directions. The principles enunciated in the decisions are not applicable to the instant case.
17. For the reasons set out above, we answer the question in the negative, i. e., in favour of the revenue. Let a copy of the judgment be sent under the seal of the court and the signature of the Registrar to the learned Tribunal, which shall pass such orders as are necessary to dispose of the case conformably to the judgment. We make no order as to costs.
D. Pathak, C. J. (Actg.)
18. I agree.