K.N. Seth, J.
1. The assessee is a limited company engaged in the manufacture and sale of sugar machinery. The original assessment for the assessment year 1964-65 was completed on March 29, 1965. The assessment for the assessment year 1965-66 was made on February 24, 1966. For the assessment year 1964-65, reassessment proceeding wasinitiated under Section 147 of the I.T. Act and completed on December 3, 1968. For the assessment year 1965-66 the Commissioner of Income-tax by his order dated August 23, 1968, passed under Section 264 of the Act allowed a deduction of Rs. 4,800, being income-tax fees paid to M/s. P. L. Tandon & Co. Thereafter, these two assessments were rectified on April 30, 1970, and 17th October, 1968. On 30th December, 1970, the assessee made an application to the ITO under Section 154 claiming relief under Section 80-I on the ground that the assessee manufactured sugar machinery which comes under the head ' Priority industry ''. The ITO rejected the claim on the ground that the applications .were barred by limitation provided under Sub-section (7) of Section 154. The AAC rejected the appeals of the assessee on the reasoning that the mistake was committed in the original assessment order dated March 29, 1965, and 24th February, 1966, for the assessment years 1964-65 and 1965-66 respectively and the applications under Section 154 moved on December 30, 1970, were clearly time-barred. The Income-tax Appellate Tribunal took the view that the time limit prescribed under Section 154(7) for the assessment year 1964-65 would start from December 3, 1968, when the order of reassessment was passed and the application made by the assessee on December 30, 1970, was in time. As regards the assessment year 1965-66 the Tribunal took the view that the revisional order of the Commissioner dated August 23, 1968, by which he allowed a deduction of Rs. 4,800, amended the order of the ITO only to the extent of the deduction allowed and to that limited extent the order of the ITO merged with the order of the Commissioner and the rest of the order of the ITO stood as it was on February 24, 1966, when the assessment order was passed by the ITO. Since the entire order of the ITO did not merge with the order of the Commissioner passed on August 23, 1968, limitation for the application under Section 154 should be computed from the date of the original assessment order and not. from the date of the order of the Commissioner and consequently the claim for the assessment year 1965-66 was barred by time. On the applications of the assessee and the Department under Section 256(1) of the Act, the Tribunal has referred the following question for the opinion of this court:
'Whether, on the facts and in the circumstances of the case, the assessee's applications under Section 154 of the Act for the assessment year 1964-65 and 1965-66 were in time ?'
2. As noted earlier, the original assessment for the assessment year 1964-65 was made on March 29, 1965. Thereafter, proceeding for reassessment was initiated and the order of reassessment was passed on December 3, 1968. The assessment was rectified on April 30, 1970. The application for seeking the relief under Section 80-I was made on December 30, 1970. Even if the order dated. April 30, 1970, is ignored, the effect. of the orderof reassessment was that the earlier assessment was wiped out. The effect of reassessment proceedings came up for consideration before the Supreme Court in V. Jaganmohan Rao v. CIT : 75ITR373(SC) . The Supreme Court observed (p. 380):
' ......once proceedings under Section 34 are taken to be validly initiated with regard to two-thirds share of the income, the jurisdiction of the Income-tax Officer cannot be confined only to that portion of the income. Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under Section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under Section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year.'
3. The language of Section 148 of the 1961 Act also requires that before making the assessment, reassessment or recomputation under Section 147 the ITO shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. It is thus obvious that once the reassessment proceedings are started the earlier order ceases to exist and the ITO starts the assessment proceedings afresh. For the Revenue, reliance was placed on the decision of this court in Sir Shadi Lal and Sons v. CIT : 92ITR453(All) . In that case it was held that on reassessment the entire assessment is not opened. A claim for expenditure which has been disallowed during the original assessment cannot be re-agitated on the assessment being re-opened for bringing to tax income which has escaped assessment. The controversy on reassessment is confined to matters which are relevant in respect of the income which had not been brought to tax during the course of the original assessment. The controversy was confined to the question of the scope of inquiry in reassessment proceedings. It was not concerned with the question raised in the present case. In our opinion, the time-limit prescribed under Section 154(7) would start, for the assessment year 1964-65, from December 3, 1968, and the application made by the assessee on December 30, 1970, for that assessment year must be held to be in time.
4. As regards the assessment year 1965-66, the original assessment was made on February 24, 1966. The Commissioner by his order datedAugust 23, 1968, passed under Section 264 of the Act merely allowed a deduction of Rs. 4,800 and to that extent only the order of the ITO was amended. Learned counsel for the assessee contended that the entire order of the ITO merged in the order of the Commissioner and consequently limitation for the application under s, 154 should be computed from the date of the order of the Commissioner. In support of the proposition that the order of the ITO merged in the revisional order of the Commissioner, reliance was placed on Shankar Ramchandra Abhyankar v. Krishnaji Dattatraya Bapat : 1SCR322 . In that case the Supreme Court held that where, on its revisional jurisdiction being invoked against the order of the appellate court, the High Court dismisses the revision, after hearing both the parties, the order of the appellate court becomes merged with the order made in revision and, thereafter, the appellate order cannot be challenged or attacked by another set of proceedings in the High Court under Articles 226 and 227 of the Constitution. The principle of merger of orders of inferior courts would not become affected or inapplicable by making any distinction between a petition for revision and an appeal. It was further observed that the revisional jurisdiction is a part of the general appellate jurisdiction of the High Court as a superior court. It is only one of the modes of exercising power conferred by the statute ; basically and fundamentally it is the appellate jurisdiction of the High Court which is being invoked and exercised in a wider, and larger sense. These observations were made while dealing with the nature of the revisional power of the High Court under Section 115, CPC, and the question of maintainability of a petition under Articles 226 and 227 of the Constitution challenging the legality of the appellate order.
5. Reliance was also placed on the decision of this court in J. K. Synthetics Ltd. v. Addl. CIT : 105ITR344(All) . In that case, analysing the scope of Section 251 of the I.T. Act, it was observed that once an assessment comes before the AAC, the appellate authority can look into and adjudicate upon findings recorded by the ITO not only against the assessee which may expressly be the subject-matter of the appeal but also those which may have gone in favour of the assessee and which may not have been challenged by the assessee. In view of the scope and nature of the appellate orders, the entire subject-matter of the assessment order was within the jurisdiction of the AAC. That being the position, the entire assessment order merged in the appellate order and consequently the Addl. Commissioner under Section 263(1) had no jurisdiction to revise the order of the ITO. The principle of merger was held applicable in view of the wide scope of the appellate power under Section 251 of the Act. That principle, in our opinion, would not be applicable in the case of an order passed by the Commissioner under Section 264 of the Act.
6. The doctrine of merger came up for consideration before the Supreme Court in State of Madras v. Madurai Mills Co. Ltd. : 1SCR732 , arising out of proceedings under the Madras General Sales Tax Act. The Supreme Court laid down the principle thus (p. 683 of AIR 1967 SC):
'But the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by the inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction. '
7. In the present case the order of the Commissioner dated August 23, 1968, was confined to allowing a deduction of Rs. 4,800, being income-tax fees paid to M/s. R.P.L. Tandori & Co. The revisional power under Section 264 is of a limited nature and is not as wide as that conferred on the appellate authority under Section 251 of the Act. From the nature and scope of the revisional power and the subject-matter of the revisional order, it is not possible to infer that the order of assessment passed by the ITO merged in the order of the Commissioner. The assessee, therefore, could not claim limitation from the date of the order of the Commissioner. The application under Section 154 in respect of assessment year 1965-66 was clearly beyond four years from the order of the ITO which was sought to be amended.
8. Our answer to the question referred is in the affirmative, in favour of the assessee and against the Revenue for the assessment year 1964-65 and in the negative for the assessment year 1965-66, in favour of the Revenue and against the assessee. The parties shall bear their own costs.