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Commissioner of Income-tax, M.P. -ii Vs. R. S. Banwarilal. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case Number Miscellaneous Civil Case No. 162 of 1979
Reported in(1983)28CTR(MP)59; [1983]140ITR3(MP)
AppellantCommissioner of Income-tax, M.P. -ii
RespondentR. S. Banwarilal.
Cases ReferredSheodan Singh v. Daryao Kunwar
Excerpt:
- madhya pradesh nagar tatha gram nivesh adhiniyam (23 of 1973)section 50(4) proviso (as inserted by act of 2004): [dipak misra, krishna kumar lahoti & rajendra menon, jj] preparation of town development scheme proviso prescribing time limit held, object of amendment is to remove hardship caused to citizens and to provide time limit to consider objections and suggestion and to provide a deeming clause so that the authority would act in quite promptitude. proviso unequivocal, categorical and unambiguous and does not permit any other kind of construction but a singular one. section 50 (4) proviso (as inserted by act of 2004): [dipak misra, krishn kumar lahoti & rajendra menon, jj] preparation of town development scheme held, proviso is not retrospective. scheme already finalised will.....j. s. verma j. - this is a reference made under s. 256(1) of the i.t. act, 1961, by the income-tax appellate tribunal to answer the following questions of law, namely:'whether, on the facts and circumstances of the above case, the appellate tribunal was correct in law in holding that the income-tax officer, orders had merged in the orders of the appellate assistant commissioner and, therefore, the commissioner of income-tax was not competent to revise those orders under section 263 of the income-tax act ?'this common question of law arises out of the order passed by the tribunal in two appeals relating to two different assessees. the question of law arising in each case being the case, a common reference had been made. the matter has come up before a full bench because it was suggested at.....
Judgment:

J. S. VERMA J. - This is a reference made under s. 256(1) of the I.T. Act, 1961, by the Income-tax Appellate Tribunal to answer the following questions of law, namely:

'Whether, on the facts and circumstances of the above case, the Appellate Tribunal was correct in law in holding that the Income-tax Officer, orders had merged in the orders of the Appellate Assistant Commissioner and, therefore, the Commissioner of Income-tax was not competent to revise those orders under section 263 of the Income-tax Act ?'

This common question of law arises out of the order passed by the Tribunal in two appeals relating to two different assessees. The question of law arising in each case being the case, a common reference had been made. The matter has come up before a Full Bench because it was suggested at the hearing of this reference before a Division Bench that the two Division Bench decision of this court in CIT v. Narpat Singh Malkhan Singh : [1981]128ITR77(MP) and Alok Paper Industries v. CIT : [1983]139ITR1064(MP) [M.C.C.No. 142 of 1978, decided on 14-1-1981] appear to have taken contrary views on the question of decision in this reference.

The material facts are these:

I.T.A.No. 33 (Jab.)/77-78: The assessee, R. S.Banwarilal of Bilaspur, in the status of an HUF, submitted his return for the relevant assessment years 1972-73, declaring an income of Rs. 39,846 from business in bidi leaves and house property. The ITO by order dated March 13, 1975 (annex. A), added Rs. 5,000 in the income from bidi business by raising the rate of gross profits shown by the assessee; some additions to the income from house property was also made, and some deduction claimed by the assessee were disallowed. The total income of the assessee was assessed at Rs. 50,039 under s. 143(3) of the I.T. Act and notice was issued for levying penalty in addition to charging interest. The assessee preferred an appeal to the AAC challenging the additions in the trading account and disallowance of deductions claimed as expenditure. The AAC, by order (annex. B), dated August 13, 1975, upheld the disallowances of the deductions by the ITO but set aside the addition of Rs. 5,000 in the trading account.

After the appellate order made by the AAC in the assessees appeal, the Commissioner issued a notice dated February 28, 1977, to the assessee under s. 263(1) of the I.T. Act, 1961, to show cause why a remedial order should not be passed as the assessment order of the ITO was prejudicial to the interests of the Revenue. The CIT thereafter, by his order (annex. C) dated March 10, 1977, made under s. 263 of the I.T.Act, set aside the entire assessment order of the ITO dated March 13, 1975, on the ground that it was passed without making proper enquires and investigation into the various aspects of the cased and directed the ITO to make a fresh under s. 263 of the I.T. Act, the assessee preferred and appeal to the Income-tax Appellate Tribunal, which has been allowed by order (annex. D) dated August 29, 1978. It has bean held that the assessment order of the ITO merged in the appellate order made by the AAC so that the CIT had no jurisdiction thereafter to invoke the powers under s. 263 of the I.T. Act, and direct the ITO to make a fresh assessment after setting aside the assessment order made by the ITO. It was held that the power under s. 263 is available only in respect of a matter which is not appealable or could not be raised by t the REvenue in the appeal filed before the ACC by the assessee. In other words, the Tribunal held that the merger of the ITOs order with that of the AAC is complete and not only to the extent the ITOs order was Considered and decided by the AAC.

I.T.A.No. 57 (Jab.)/77-78: The assessee, M/s. Darolian Enterprises of Bilaspur, is a registered partnership firm. This assessee derived income from business in bidi leaves during the relevant assessment year 1973-74. The assessee-firm had valued the closing stock of bidi leaves at Rs. 11,26,055 in the trading account and the ITO in the assessment order (annex A-1) dated May 9, 1975 accepted the valuation made by the assessee. The Commissioner issued a notice under s. 263(1) of the I.T. Act, and there after, by order (annex B-1) dated April 23, 1977, set aside the ITOs assessment order dated May 9, 1975, as prejudicial to the interest of the REvenue and directed the ITO to make a fresh assessment according to law. The assessee preferred an appeal to the Tribunal challenging the jurisdiction of the CIT to invoke the power under s. 263 of the Act on the ground that the assessment order of the ITO had merged in the appellant order made by the AAC in the appeal filed by the assessee. The Tribunal by its order (annex. C-1) dated September 18, 1978, allowed that appeal and held that the Commissioner order, so far as it related to the computation of the total income, was incompetent and without jurisdiction, as the entire order of the ITO had merged in the appellate order of the AAC dated November 26, 1976, prior to the making of the order under s. 263 by the CIT. The Tribunal followed its view in the earlier case and held that the entire order of the ITO merged in the order of the AAC irrespective of the matters considered and decided by the AAC in appeal. Neither the grounds of appeal not there order dated November 26, 1976, of the AAC have been annexed to the statement of case which too makes no mentioned of the matters considered and decided by the AAC. It is, therefore, not known as to what matters were consider and decided by the AAC in appeal.

Both the assessees applied to the Tribunal for making a reference under s. 256(1) of the I.T. Act to this court for deciding the common question of law arising in these case relating to the jurisdiction of the CIT under s. 263 of the Act after the assessees appeal again the assessment order of the ITO had been decided by the AAC. The Tribunal has accordingly referred to the above-quoted common question of law, which arises out of the Tribunals orders passed on the aforesaid two cases, for decision of this court.

The meaning and scope of the doctrine of merger and its applicability to the facts of the above two cases that to be determined. Reference may first be made to the decision of this court in Alok Paper Industries v. CIT : [1983]139ITR1064(MP) [Misc Civil Case No. 142 of 1978-14-1-1981 1978-14-1-1981 ] and the view taken therein. In that case, the ITO allowed deduction of a sum of Rs. 1,24,217 paid by the assessee as interest, while the other deductions claimed by the assessee were disallowed. An appeal was preferred to the AAC and thereafter, to the Tribunal, resulting in partial relief being granted to the assessee. The Commissioner, thereafter noticed that one of the partners of the assessee-firm had overdrawn sums from out of the borrowed funds on which interest had been paid and that a part of the borrowed fund shad thus been utilised for purposes other than that of business. The Commissioner, therefore, took the view that in allowing deduction of the entire amount of Rs. 1,24,217 claimed by the assessee as payment by way of interest, the assessment order passed by the ITO was prejudicial to the interest of the Revenue. Accordingly, notice under s. 263(1) of the Act was issued to the assessee. It was contended the power under s. 263 of the Act could not be invoked by the CIT as the ITOs order had merged in the appellate order of the AAC and the Tribunal. The CIT rejected the assessees contention on the ground that the question of deduction allowable to the assessee by way of interest was not the subject-matter of appeal before the AAC or there Tribunal. The Commissioner accordingly set aside the assessment order passed by the ITO to the extent indicated. The assessee then preferred an appeal to the Tribunal which upheld the CITs order, taking the view that the ITOs order in respect of allowance of interest on the overdrawn amount by a partner of the assessee-firm did not merge in the appellate order of the AAC and the Tribunal, since that was never the subject-matter of the appeals before the AAC and three Tribunal. This gave rise to a reference at the instance of the assessee for deciding the question whether on these facts the Tribunal was justified in holding that the order of the ITO in respect of allowance of interest to the assessee did not merge in the orders of the AAC and the Tribunal, passed in appeals preferred by the assessee. The Divisions Bench answered the questions in the affirmative an again the assessee holding that the ITOs assessment order in respect of this item allowing the entire interest claimed by the assessee did not merge in the appellate orders made by the AAC and the Tribunal since that item was not the subject-matter of the appeal before the AAC and the Tribunal, preferred by the assessee.

In taking the above view, the Division Bench followed the Supreme court decision in State of Madras v. Madurai Mills. Co. Ltd. : [1967]1SCR732 , and concurred with the view taken by the Gujarat High Court in Karsandas Bhagwandas Patel v. G. V. Shah, ITO : [1975]98ITR255(Guj) . The Division Bench indicated the test for determining the applicability of the doctrine of merger as follows (p. 1071 of 139 ITR):

'For the purpose of the determining the applicability of the principle of merger, the test which has to be applied is whether the decision of the Income-tax Officer on particular point was the subject-matter of appeal before the Appellate Assistant Commissioner. It mights not have been the subject-matter of appeal either because the Appellate Assistant Commissar had not jurisdiction to consider that matter or because the Appellate Assistant Commissioner had no jurisdiction to examine that subject-matter did not do so, but in either case there being no decision of the Appellate Assistant Commissioner on the point, the decision of the Income-tax Officer remains untouched.'

The Division Bench took this view after examining the question at some length and also pointed out that substantially the same view has been taken earlier in Jaora Sugar Mills Ltd. v. Union of India : [1982]134ITR385(MP) [M.P.No. 55 of 1978, decided on 12th October, 1979].

With respect, we are of the opinion that the view taken and the test indicated by the Division bench in Alok Paper Industries [1983] 139 ITR 1064, is not only the consistent view of this court but also the correct view which emerges from the Supreme Court decisions on the point. We may also observe that there is no conflict between that decision and the decision in CIT v. Narpat Singh Malkhan Singh : [1981]128ITR77(MP) , as we shall presently show.

In CIT v. Narpat Singh Malkhan Singh, the ITO made the assessment order under s. 143(3) of the Act against which the assessee filed an appeal to the AAC, confining his objection toe the disallowance of certain expenses by the ITO. The AAC allowed the appeal partly resulting in reduction in the total income of the assessee. The Commissioner there after served a notice under s. 263 of the Act on the assessee to show cause why the assessment order by not set aside as it was prejudicial to the Revenue. The Commissioner overruled the assessees objection on the ground of merger and held that the order of the ITO under s. 143(3) was erroneous and prejudicial to the revenue as it was passed without charging interest under s. 217(1A) and initiating penalty proceedings under s. 273(c) of the Act. The assessee appealed successfully to the Tribunal. The Commissioner did not find any defect in any particular item decided by the ITO, which was not the subject-matter of appeal before the Ac but only in the omission to charge interest under s. 217(1A) and failure to intimate penalty proceedings under s. 273(c), while making the assessment order under s. 143(3) of the Act. The question, therefore, was whether the Commissioner, exercising the power under s. 263 of the Act, could set aside ITOs assessment order after the appellate order was made by the AAC. The Division Bench took the view that on these facts the Commissioner could not invokethepower under s. 263 of the Act as the ITOs order had merged in the appellate order made by the AAC. One ofthereasons given was that the ITOs jurisdiction to impose penalty under s. 273(c) of the Act arises, if he, 'in the course of any proceeding sin connection with the regular assessment' is satisfied that the assessee has, without reasonable cause, failed to furnish an estimate of the advance tax payable by him and the Supreme Court had laid down that the ITO has no such jurisdiction if he omits to record satisfaction before completing the assessment. In respect of the item of interest under s. 217(1A), it was held that in case the order for charging interest formed a part of the assessment order, it required the required the requisite finding to be reached at the item of making the assessment in the assessment order itself, but, if it was distinct from the order of assessment passed under s. 143(3) and the order was to be made soon after the passing of the assessment order, it need not be set aside. Accordingly, on either view, the Commissioner in exercise of his power under s. 263 could not direct charging of interest under s. 217(1A) after the assessment order made by the ITO had merged in the appellate order of the AAC. This decision does not hold that the COT has no power under untouched in appeal by the AAC. For this reasons, no further discussion of this case is necessary, which is distinguishable on facts.

It would, therefore, be seen that there is no difference in these two Division Bench decision on the meaning and scope of the doctrine of merger. In the two cases, the conclusion was based obviously on the facts of each case. In the earlier the case of Alok Paper Industries : [1983]139ITR1064(MP) , the Commissioner had exercisethepower under s. 263 in respect of an item expressly decided by the ITO which was not the subject-matter of appeal and, therefore, the doctrine of merger was held inapplicable. In the latter case, the Commissioner exercised the power under s. 263 not in respect of an item expressly decided by the ITO and thereafter left untouched in appeal. It does appear that before the Division Bench, deciding the latter case, the Supreme Court decisions, relating to the doctrine of merger were not cited and, therefore, they were not referred. However, we are unable to read the latter decision in Narpat Singh Malkhan Sighs case : [1981]128ITR77(MP) , as taking a contrary view on the meaning and scope of the doctrine of merger inconsistent with that taken in the earlier Division Bench decision in Alok paper Industries : [1983]139ITR1064(MP) .

We may now refer to the Supreme Court decision which throw light on the question. In CIT v. Amritlal Bhogilal & Co. : [1958]34ITR130(SC) , a composite order was made by the ITO granting registration to the firm and making an assessment on the basis of that registration. The assessee preferred an appeal to the AAC obviously against the assessment order alone, there being no grievance against grant of registration by the ITO. The question arose whether the Commissioner, in exercise of his revisional powers under s. 33B of the Indian I.T. Act, 1922, corresponding to s. 263 of the I.T. Act, 1961, could interfere with the ITOs order granting registration to the firm and direct fresh assessment treating the firm as unregistration. The assessee relief on the education of merger to assail the Commissioners power to makes such an order. The assessees contention was rejected. It is pointed out that the order granting registration to the assessee-firm is an independent and a separate order granting registration, even though there is provision for appeal by the assessee against the order refusing to grant registration or canceling registration. Accordingly it was held that there can be no doubt that the order of the ITO granting registration to the firm could not become the subject-matter of an appeal before the AAC and it made no difference that the order granting registration was made part of the composite order passed by the ITO. this decision of the Supreme Court clearly indicate the test to be applied for determining whenthedoctrine of merger is attracted and it shows that where the ITOs order, which is set aside by the Commissioner in exercise of revision power could not have been the subject-matter of appeal before the AAC, the doctrine of merger has no application to exclude the revisional power to the Commissioner under s. 263 of the Act.

Another decision of the Supreme Court on the point is State of Madras v. Madurai Mills Co. Ltd. : [1967]1SCR732 . That was a case under the Madras General Sales Tax Act, 1939, in which the relevant provision were similar to that in the I.T. Act. The assessee filed a revision against his assessment by the Dy.CTO to the Dy.CCT. Thereafter, the Board of revenue issued a notice to the assessee to revise the assessment made by the Dy CTO, as it excluded certain taxable amount. The question was whether the Board of Revenue was empowered to do so after the decision of the Dy.CCT, against the order made by the Dy.CTO. The assessee placed reliance on the doctrine of merger but contention was repelled by the Supreme Court. It was held that there was no merger of the order of assessment made by the Dy.CTO with the order of the Dy.CCT because the question which interference was made by the Board of REvenue was not the subject-matter of revision before the Dy.CCT. The Supreme Court referred to its earlier decision in Amritlal Bhogilal & Co.s case : [1958]34ITR130(SC) and State of U.P. v. Mohammad Nooh AIR 1958 SC 86. Referring to and explaining the decision in Amritlal Bhogilals case, the general principle was indicated as under (p. 683 of AIR):

'But the doctrine of merger is not a doctrine of rights and universal application and it cannot be said that whenever 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 two order irrespective of the subject-matter of the appellate 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 provision conferring the appellate or revisional jurisdiction. For example, in Amritlal Bhogilal & Co.s case : [1958]34ITR130(SC) , it was observed by this court that the order of registration made by the Income-tax Officer did not merger in the appellate order of the Appellate Commissioner, because the order of registration was not the subject-matter of appeal before the appellate authority. It should be noticed that the order of assessment made by the Income-tax Officer in that case was a composite order, viz., an order granting registration to the firm and making an assessment on the basis of the registration. The appeal was taken by the assessee to the Appellate Commissioner against the composite order of the Income-tax Officer. It was held by the High Court that the order of the Income-tax Officer granting registration to the respondent must be deemed to be merged in the appellate order and that the revisional power of the Commissioner of Income-tax cannot, therefore, be exercise in respect of it. The view taken by the High Court was overruled by this court for the reason that the order of the Income-tax Officer granting registration cannot be deemed to have merged in the order of the Appellate Commissioner in an appeal taken against the composite order of the assessment.'

It will, therefore, be seen that the decision in Alok Paper Industry : [1983]139ITR1064(MP) has laid down the same test, placing reliance not the aforesaid decision of the Supreme Court and the ultimate conclusion reached therein on applying his test to the facts of that case, with respect, was correct.

Reference may now be made to some other decision of the different High Court, which cited at the Bar. In CIT v.Tejaji Farasram Kharawala : [1953]23ITR412(Bom) , it was held that the Commissioner had no power under s. 33B of the Indian I.T. Act, 1922 (corresponding to s. 263 of the Income-tax Act, 1961), to revise and enhance the assessment in respect of a matter on which the ITOs order was confirmed in appeal by the AAC. The decision proceeded further to say that it was difficult to understand why the Commissioner would not be precluded from making an order under s. 33B once an order has been passed by the AAC, 'even though the AAC does not deal with matter with which the Commissioner has dealt'. These further observation in the decision ar obiter and were not necessary for deciding that case. The Bombay High Court followed this decision in CIT v. AmritlalBhogilala and Co. 0043/1954 : [1953]23ITR420(Bom) , which was later reversed by the Supreme Court in CIT v. Amritlal Bhogilal & Co. : [1958]34ITR130(SC) . In view of this Supreme Court decision, it is obvious that the Bombay view expressed as obiter in CIT v. Tejaji Farasram : [1953]23ITR412(Bom) and followed in CIT v. Amritlal Bhogilal & Co. : [1958]34ITR130(SC) , is not longer good law. These Bombay cases are, therefore, of and assistance to the Revenue which has placed reliance on them. We may also add that a subsequent decision of the Bombay High Court in CIT v.Sakseria Cotton Mills Ltd. : [1980]124ITR570(Bom) , has itself departed from the earlier view and following the Supreme court decision in State of Madras v. Madurai Mills Co. Ltd. : [1967]1SCR732 and the view of the Gujarat High Court in Karsandas Bhagwandas Patel v. G. V. Shah, ITO : [1975]98ITR255(Guj) , has held that the ITOs order in respect of an item not considered and decided by the AAC does not merge in the order of the AAC. Even though this decision of the Bombay High Court deals which the ITOs power of rectification yet the principle involved is the same, namely, application of the doctrine of merger. It was expressly stated therein by the Bombay High Court that only that part of the order often ITO merges or stands superseded by the order of the AAC in respect of which the AAC has exercised his appellate jurisdiction; and the remaining part oft the order of assessment made by the ITO continues to be unaffected by the decision of the AAC and it continues to have its independent existence, to which the doctrine of merger has no application. Accordingly, the Bombay view on this point is in line with the view taken by this court in Alok Paper Industries : [1983]139ITR1064(MP) .

We shall now refer to some decisions this court on the point which also taken the same view. In Central Indian Insurance Co. Ltd. v. ITO : [1963]47ITR895(MP) , it was held that where an appeal was taken to the Appellate Tribunal against an order of the AAC in respect of only some matters decided by the AAC, the jurisdiction of the AAC to rectify an item in his order, which was not the subject-matter of appeal before the Tribunal and, therefore, not considered and decided by the Tribunal, survived as there was no merger of the AACs older with that of the Tribunal to that extent. This view was taken following the Supreme Court decision in CIT v. Amritlal Bhogilal & Co. : [1958]34ITR130(SC) . This decision was followed by this court later in Kalooram Tirasilal v. ITO : [1966]59ITR308(MP) on the point of merger. No doubt, both these cases related to the power of rectification after an appeal had been taken to a higher authorities, but the same point relating to the meaning and scope of the doctrine of merger was involved therein, prior to statutory effect given to this principle in cases of rectification by inserting sub-s. (1A) in s. 154 of the I.T. Act, 1961, in 1964. The view taken by this court in Alok Paper Industries : [1983]139ITR1064(MP) has, therefore, been the consistent view of the court and we have already shown that the decision in CIT v. Narpat Singh Malkhan Singh : [1981]128ITR77(MP) is distinguishable on facts, and does not take a contrary view.

The Gujarat view in Karsandas Bhagwandas Patel v. G. V. Shah, ITO : [1975]98ITR255(Guj) , may now be referred. It has been held by the Gujarat High Court in this decision that the principle of merger does undoubtedly apply to income-tax cases but that is only where a decision reached by an inferior authority has been reversed, modified or even confirmed by the appellate authority; but this principle has no application where a decision of an inferior authority does not come in for consideration by the appellate authority and there is no decision of the appellate authority either by way of affirmance or by way of reversal or modification on the point decided by the inferior authority. Consequently, it was held that the order of assessment made by the ITO merges in the order of AAC. It was pointed out that it hardly matters that the REvenue could itself agitate pint which were not the subject-matter of the assessees appeal, while contesting that appeal or that the AAC could consider and decided the particular item suo motu. The real test it whether any such point was actually considered and decided by the AAC and not that the same could have been agitated before the AAC and decided by him. The ultimate conclusion reached by the Gujarat High Court in thus decision is as follows (p. 267):

'It would thus be seen that for the purpose of determining the applicability of the principle of merger in a case like the present, the test which has to be applied is whether the decision of the Income-tax Officer on a particular point is the subject-matter of appeal before the Appellate Assistant Commissioner. It may not be the subject-matter of appeal for two reasons, either because the Appellate Assistant Commissioner has no jurisdiction to consider that subject-matter, does not do so. In either case, there being no decision of the Appellate Assistant Commissioner on the point, the decision of the Income-tax Officer remains untouched and it is open to the Commissioner, in exercises of power under section 33B, to revise it, out to the Income-tax Officer, in exercise of power under section 35, sub-section (1), to rectify it, if there is a mistake apparent from the record of the assessment.'

The above conclusion was reached by the Gujarat High Court placing reliance on the decision of the Supreme Court in CIT v. Amritlal Bhogilal & Co. : [1958]34ITR130(SC) and State of Madras v. Madurai Mills Co. Ltd. : [1967]1SCR732 . In our opinion, this Gujarat decision points out correctly the meaning and scope of the doctrine of merger. The Gujarat High Court has thereafter reiterated this view in Poonjabhai Vanmalidas v. WTO : [1978]114ITR38(Guj) , following this decision in respect of similar provision under the W.T. Act. As earlier indicated, the Bombay High Court also in CIT v. Sakseria Cotton Mills Ltd. : [1980]124ITR570(Bom) followed the Gujarat view.

The only decision taking a contrary view cited at the Bar is by the Allahabad High Court in J. K. Synthetics Ltd. v. Addl. CIT : [1976]105ITR344(All) . The Allahabad High Court has referred to the Gujarat view in Karsandas Bhagwandas Patel v. G. V. Shah, ITO : [1975]98ITR255(Guj) and the view of the this court in Central Indian Insurance Co.s case : [1963]47ITR895(MP) and Kalooram Tirasilal v. ITO : [1966]59ITR308(MP) and dissented from the same. Even though the aforesaid two Supreme Court decisions are referred by the Allahabad High Court, yet in their application the conclusions reached is different. A reference has been made in the Allahabad case also to the Supreme Court decision in Sheodan Singh v. Daryao Kunwar : [1966]3SCR300 , which is on the point of res judicata by virtue of s. 11,CPC, on account of which Sheodan Singhs case is clearly inapplicable. We may add that the Bombay High court in CIT v. Sakseria Cotton Mills : [1980]124ITR570(Bom) , has expressly preferred the aforesaid Gujarat view, while dissenting from this Allahabad decision. The Allahabad decision also does not contain any detailed reasons for dissenting from the view taken by the Gujarat High Court and this court. The view taken by the Allahabad High Court is that the entire assessment order made by the ITO merged in the applicate order of the AAC irrespective of the points urged by the parties or decided by the appellate authority. With respect, we are unable to agree with this view of the Allahabad High Court, which stands in isolation again the contrary view shared by the other High Courts following the Supreme Court decision s mentioned above.

Certain other decisions were cited at the Bar which are not directly on the point and, therefore, need not be considered by us. Our conclusion is that the view expressed by the Division Bench of this court in Alok Paper Industries v. CIT : [1983]139ITR1064(MP) , is the correct view and for the reasons already given by us, there is no conflict between that view and the view expressed by another Division bench in CIT v. Narpat Singh : [1981]128ITR77(MP) , the latter case being distinguishable on facts, and there being nothing herein to indicate any conflict in the two decisions.

The result, therefore, is that the doctrine of merger applies to income-tax proceedings but the extent of its application depends on the scope and subject-matter of the appeal and the decision rendered by the appellate authority. Where an appeal has been preferred by the assessee to the AAC from an order of assessment made by the ITO in respect of only some of the items covered by the ITOs order and the remaining items, forming part of the ITOs assessment order, were not agitated by either party, though it was open also to the Revenue to agitate them or the AAC to consider them suo motu and no decision of the AAC is, therefore, made in respect of the remaining items, the ITOs order merges with the appellate order of the AAC only to the extent it was considered and decided by the AAC but the matters which are not covered by the appellate order of the AAC are left untouched and to that extent the ITOs assessment order survives, permitting exercise of revisional jurisdiction by the Commissioner under s. 263 of the I.T. Act, 1961. It necessarily follows that the items considered and decided by the AAC in his appellate order are beyond the scope of the revisional power of the CIT under s. 263 inasmuch as the ITOs order merges to that extent with that of the AAC and the Commissioner has no revisional power over the AAC. The question whether the ITOs order has merged with that of the AAC has to be answered on this basis.

Accordingly, in the present case, in respect of both the assessees the Commissioners revisional jurisdiction under s. 263 was available only over matters not considered and decided by the AAC and it did not extend to those items which were covered by the AACs appellate decision.

As a result of the above discussion, our answer to the question referred is as follows:

Answer:

The Appellate Tribunal was not correct in law in holding that the entire assessment order of the ITO had merged in the order of the AAC irrespective of the point urged by the parties or decided by the AAC and therefore, the Commissioner was not competent to revise those order under s. 263 of the I.T. Act, 1961, even in respect of the points not considered and decided by the AAC.

The reference is answered accordingly. Parties shall bear their own costs.


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