1. The order of the Commissioner, which is the subject-matter of appeal before us, was communicated to the assessee on 27-12-1980. The appeal should, therefore, have been filed by 25-2-1981. It was actually filed on 3-3-1981. Apparently, therefore, it is out of time by six days.
2. The assessee has filed an application requesting for the condonation of the above delay. It is stated in the application that the principal officer of the company, who was dealing with the taxation matters and who was also in the custody of the relevant files including the order of the Commissioner, had fallen ill and was confined to bed in the month of February 1981. That the principal officer, Shri Madan Mohan Sharma, was ill from 9-2-1981 to 28-2-1981 is also supported by a medical certificate. It was also contended before us by the counsel for the assessee that a challan for paying the appeal fee was obtained from the office of the ITO immediately after the recovery of the principal officer on 2-3-1981, 1-3-1981, being a holiday. The appeal fee was paid on 3-3-1981. The appeal was also filed before the Tribunal on the same day. Considering these facts, we condone the delay and proceed to hear the appeal.
3. The assessee was originally carrying on the business of manufacture and supply of electricity. This business was taken over by the U.P.State Electricity Board with effect from 11/12-8-1975. The assessee held a licence for carrying on the above business for a longer period, but it was revoked prematurely. The assessee filed its return of income for the assessment year under appeal on 18-5-1979 showing loss of Rs. 6,12,050. This loss also included depreciation of Rs. 1,88,109. The above return was accompanied by a letter stating that the depreciation had been claimed as the premature revocation of its licence by the U.P.State Electricity Board had been challenged before the Supreme Court.
4. The ITO prepared a draft assessment order on 29-3-1980. In this draft, he proposed to disallow depreciation to the extent of Rs. 47,712 on service lines. The proposed disallowance of depreciation amounting to Rs. 47,712 was objected to by the assessee before the ITO. The ITO referred the matter to the IAC under Section 144B of the Income-tax Act, 1961 ('the Act'). The IAC agreed with the ITO that the amount of Rs. 47,712 is required to be disallowed. His directions were issued on 8-8-1980. The ITO finally passed the assessment order on 18-8-1980 allowing depreciation to the extent of Rs. 1,40,397 after disallowing the aforesaid amount of Rs. 47,712.
5. The Commissioner subsequently initiated proceedings under Section 263 of the Act as he was of the opinion that the assessment made by the ITO was erroneous insofar as it was prejudicial to the interests of the revenue. He was of the view that after the taking over of the electricity business by the U.P. State Electricity Board with effect from 11/12-8-1975, the assessee had carried on no business in the year under appeal and, therefore, it was not entitled to any depreciation.
After giving the assessee an opportunity of being heard, he passed the following order on 22-12-1980 ; "I have considered these arguments. So far as the depreciation is concerned, the company ceased to be the owner of the plant and machinery with effect from 11/12-8-1975. In the assessment year under consideration no depreciation was, therefore, allowable." He directed the ITO to modify the assessment order, accordingly, and recover the extra tax, if any.
6. The assessee is now in appeal before us. He invited our attention to a Special Bench of the Tribunal's decision in East Coast Marine Products (P.) Ltd. v. ITO  4 ITD 73 (Hyd.). It was held in this case that it was possible that in an assessment there were additions made by the ITO on his own to which the provisions of Section 144B were not applicable and additions made to which the provisions of Section 144B were applicable. If the Commissioner happened to find an error in the conclusions arrived at by the ITO on his own, which had caused prejudice to the interests of the revenue, it might perhaps be open to the Commissioner to interfere, but certainly not with regard to those additions where the procedure under Section 144B was followed and the instructions of the IAC were implemented. The learned counsel for the assessee submitted before us that since the matter of depreciation had been the subject of reference to the IAC under Section 144B, it was not open to the Commissioner to interfere in the order of the ITO in view of the above decision of the Tribunal.
7. On the other hand, the learned departmental representative submitted that the very above decision of the Tribunal also laid down that the principle of merger had no application to a situation under Section 144B and the order of the IAC could not get merged with the order of the ITO or vice versa. According to him, therefore, there was no general principle that if the matter had been referred to the IAC under Section 144B, the Commissioner had no jurisdiction to interfere in that order with reference to any item included in the total income or total loss. He contended that the allowance of depreciation of Rs. 1,40,397 was never the subject of reference to I AC. The ITO had only referred to the I AC under Section 144B, the question of disallowance of depreciation amounting to Rs. 47,712 on service lines. He, thus, contended that the amount of Rs. 1,40,397 being the depreciation on other items, was not the subject of reference to the IAC under Section 144B and, therefore, the jurisdiction of the Commissioner in respect of this amount had not been excluded.
8. After hearing the parties, we are of the opinion that there is force in the contention of the learned departmental representative. The theory of merger of the ITO's order in the order of the IAC or vice versa has not been accepted by the Tribunal in the case of East Coast Marine Products (P.) Ltd. (supra). What this decision has laid down is that if a particular item of addition is the subject of reference to the IAC under Section 144B, the Commissioner will not be able to exercise his jurisdiction with reference to such an item only. There cannot be any dispute that the reference to the IAC under the above section was only with reference to depreciation on service lines amounting to Rs. 47,712. The ITO himself had allowed in the draft assessment order depreciation on other items of plant and machinery amounting to Rs. 1,40,397. That amount was never the subject of reference to the IAC under Section 144B. The Commissioner, therefore, had jurisdiction under Section 263 to interfere in this allowance by the ITO as he has done. His decision, therefore, cannot be challenged on this legal ground. The learned counsel for the assessee, of course, admitted before us that the assessee's assets relating to its manufacture and distribution of electricity had been taken over by the U.P. State Electricity Board in August 1975 and, therefore, the assessee-company otherwise could not claim any depreciation on such assets. That being the position, we confirm the order of the Commissioner.