R. L. GULATI J. - This is a petition under article 226 of the Constitution.
The petitioner, which is a private limited company, was assessed to income-tax for the assessment year 1966-67. In computing the total income the assessee was granted development rebate in respect of some machinery which had been installed by it in the calendar year 1964. The assessee had also claimed depreciation on certain assets including land. Later on, the Supreme Court in a case, Commissioner of Income-tax v. Alps Theatre : 65ITR377(SC) held that depreciation was allowable only on the value of buildings and not on the value of land. The Income-tax Officer, accordingly, realised that depreciation on land had wrongly been allowed to the assessee and to that extent a part of the assessees income had escaped assessment. He, accordingly, issued a notice under section 148 of the Income-tax Act on November 15, 1968, and passed a supplementary assessment order on October 16, 1969, withdrawing the depreciation on the value of land.
Thereafter, the Income-tax Officer felt that the development rebate had also wrongly been allowed to the assessee inasmuch as the assessee had not created a reserve for the same during the year the machinery was installed. He issued a notice under section 154 of the Act on April 14, 1971, treating it as a case of rectification of mistake. He finally passed an order under that section on September 10, 1971, withdrawing the development rebate which had been allowed to the assessee in the original assessment order after overruling the assessees contention that the order was time-barred. The present petition is directed against that order.
The original assessment order under which the development rebate was allowed to the assessee was passed on 9th February, 1967. This order could be rectified under section 154 within four years. The rectification order passed on September 10, 1971, was, therefore, clearly barred by time. The standing counsel for the income-tax department says that the limitation should be counted from the order passed under section 148 and not from the original assessment order. His plea is that the original assessment order had merged in the order passed under section 148 by the Income-tax Officer and, therefore, the limitation should be counted from the latter order. We find absolutely no merit in this contention.
An order under section 148 is a separate order dealing with an item of income which had escaped assessment. The original assessment order does not merge into an order passed under section 148. Where reassessment is made under section 148 (corresponding to section 34 of the Indian Income-tax Act, 1922), the Income-tax Officers jurisdiction is confined to the income which had escaped assessment and does not extend to revising, reopening and reconsidering the whole assessment. See Kashi Nath Bagla v. Commissioner of Income-tax : AIR1932All1 and Kevaldas Ranchhodas v. Commissioner of Income-tax : 68ITR842(Bom) . Likewise, in proceedings under section 34, the assessee cannot re-agitate questions which have been decided in the original assessment. So the original assessment cannot be challenged in appeal against an assessment order under section 34 : See Commissioner of Income-tax v. A. D. Shroff : 31ITR284(Bom) . It is thus clear that the question of development rebate had become final when the original assessment order was passed. It was not the subject-matter of dispute in subsequent proceedings under section 148; so the original assessment order cannot be said to have merged in the order under section 148 which was restricted only to depreciation. Moreover, an order can be said to have merged in another order only if the latter is passed by a superior authority. It does not merge into a subsequent order passed by the same authority. We, therefore, cannot accept the contention of the learned counsel that the original assessment order had merged into the order passed under section 148, and, therefore, it could be rectified under section 154 after the expiry of four years from the original assessment order. The impugned order is clearly barred by time and is liable to be quashed.
We, accordingly, allow this petition and quash the order dated September 10, 1971, and the notice of demand issued in pursuance thereof. The petitioner is entitled to the costs.