Per Shri George Cheriyan, Accountant Member - This appeal is by the assessee. The appeal relates to the assessment year 1976-77.
2. The assessee in the present appeal contests the decision of the Commissioner of Visakhapatnam where in exercise of his powers under section 263 of the Income-tax Act, 1961 (the Act), he directed the ITO to modify the assessment made for this year by including an amount of Rs. 1,22,293 in the assessees total income which represented the subsidy received from the State Government after disregarding reduction of an amount of Rs. 61,467 which was part of that amount which the assessee deducted from the value of various assets before claiming depreciation.
3. We will set out certain facts leading to the above contentions. In this case, the ITO made the assessment originally on 28-2-1978. Against loss returned of Rs. 4,81,960 the loss determined was Rs. 4,42,720. In making this assessment depreciation was allowed to the extent of Rs. 1,67,164. The balance sheet filed as on 31-3-1976 before the ITO showed on the liability side : Incentive received from the Government of Andhra Pradesh for development of the industry as per last balance sheet Out of receipt during the year, the assessee considering that part of the subsidy went to reduce the cost of assets acquired made adjustment by deducting from various assets Rs. 61,647 arrived at a lesser actual cost and claimed depreciation only on such reduced actual cost. The ITOs order dated 28-2-1978 did not discuss specifically anything about the subsidy and he did not bring the same to tax also.
4. There was an appeal by the assessee to the Commissioner (Appeals) who decided the appeal by his order dated 14-12-1979. Since no part of the subsidy was brought to tax, and the assessees action in reducing the actual cost by a portion of the subsidy was not dispute, the subsidy did not figure either directly or indirectly in the appeal before the Commissioner (Appeals). What was urged before the Commissioner (Appeals) were only a few grounds one of which related to the relief under section 80J of the Act and the other related to the deduction for advertisement charges. The finding of the Commissioner (Appeals) for the assessment year under consideration was as under : "For the assessment year 1976-77, the Income-tax Officer is directed to determine the relief under section 80J, if any, that may be admissible to the appellant for this year after examining the matter. He is also directed to go into the claim for the deduction of the advertisement charges, etc., to the extent of Rs. 8,921 incurred during the accounting year but debited to the provision account brought forward from the earlier year and, consequently, claimed to have been not deducted in computing the income for the year. For considering these two matters the assessment for 1976-77 is set aside. The appeal for this year will be treated as allowed in part for statistical purposes.
The ITO, therefore, passed an order on 29-1-1981 which was described as under : He allowed relief under section 80J and also allowed as deduction the advertisement charges. The total loss was computed at Rs. 4,99,376 for this year. In this order also there was no reference separately on the point of subsidy, 5. The Commissioner sought to revise the order of the ITO dated 29-1-1981 and has now passed the impugned order of 6-1-1983. With reference to the date 29-1-1981 the order of 6-1-1983 is in time but if the date of assessment is taken as 28-2-1978 then the order passed by the Commissioner revising the assessment order would be out of time.
6. The first contention on behalf of the assessee is that since the assessment was completed vide order dated 28-2-1978 the action taken by the Commissioner is barred by limitation. The learned department representative sought to contend that since the Commissioner (Appeals) had set aside the order of 28-2-1978 that assessment order which was subsisting is that dated 29-1-1981 and hence, the order passed by the Commissioner was in time.
7, The contentions raised by the parties are interesting and require careful examination. We have already set out the directions of the Commissioner (Appeals). What the Commissioner (Appeals) has done is to set aside the assessment for considering these two matters. We have already stated what the two matters were. This is, therefore, not a case where the Commissioner (Appeals) set aside the assessment but it is a case where the setting aside was for a limited purpose alone. We have the judgment of the Andhra Pradesh High Court in the case of pulipati Subbarao & Co. v. AAC  35 ITR 673 which sets out the scope and action which the ITO can take when such an order is passed.
There their Lordships posed the question : "Is it open to the Income-tax Officer to treat the earlier assessment as non est and to make a de novo assessment ignoring the previous assessment altogether ?" (p. 675) "... the order of the Appellate Assistant Commissioner did not contain a direction that the Income-tax Officer should proceed to make a fresh assessment such as was envisaged under section 31(3) (b) of the Income-tax Act, the order was specific and all that the Appellate Assistant Commissioner directed the Officer to do was to receive a duplicate copy of the application for registration and dispose of it according to law, and therefore it was not open to the Officer to conduct a fresh enquiry and proceed to make a fresh assessment" (p.
673) 8. The learned department representative referred us to the decision of the Madras High Court in CIT v. Seth Manicklal Fomra  99 ITR 470 and stated once the AAC has set aside the assessment then the whole assessment is open. As far as we are concerned, the ratio of the judgment of the Andhra Pradesh High Court is binding on us and we will decide the present case with reference to such ratio. It is, therefor, clear that the assessment order of 28-2-1978 had not become not est.
However, the Commissioner (Appeals) had directed recomputation with reference to two points and it was such direction which was implemented by the ITO when he passed his order on 29-1-1981. We have now to determine as to what is the date of completion of the assessment for provisions of section 263 state that the Commissioner cannot pass an order after the expiry of two years from the date of the order sought to be revised. We have the decision of the Calcutta High Court in the case of Kooka Sidhwa & Co. v. CIT  54 ITR 54 which sets out the nature of an order passed by an ITO to give effect to an appellate order. It has been held hat it would partake of the nature of an order under section 23 of the India Income-tax Act, 1922, i.e. under the 1961 Act it would partake the nature of an order under section 143 of the Act. One of the argument raised before the Calcutta High Court was that once the ITO made an assessment he had become functus officio and if he wanted to revise and amend the order on a direction of the appellate authority he cannot do it any longer under the provisions of section 23 (analogous to section 143) P. B. Mukharji, J. in his separate judgment in the aforesaid case repelled this argument observing as under : "... This argument is based on a fallacy. The Income-tax Officers duty to assess the total income of the assessee and to determine the sum payable by him on the basis of the return under section 23 of the Act is the whole process of assessment which may end with his order or may be revised by the higher appellate authorities including the Appellate Assistant Commissioner and the Tribunal recognised by the Income-tax Act. If, therefore, such higher appellate authorities such as the Appellate Assistant Commissioner or the Tribunal directs or orders him to do something again with regard to the assessment he has already made and that by way of revision or amendment, the Income-tax Officer must be held to be still under section 23 of the Act on the process of assessing the total income of the assessee and determining the sum payable on the basis of the return already filed by him. No other construction or interpretation of section 23 of the Act seems to me to be sensible or consistent with the scheme of the Act." (p. 65) Therefore, the ITO while giving effect to the order of the Commissioner (Appeals) in the present case must be held to be still acting under section 143 in the process of assessing the total income of the assessee and determining the sum payable on the basis of the return already filed. Hence, this process of determining the total income and demanding the tax based on the return filed came to a close only when the ITO passed his order on 29-1-1981. What the Commissioner has sought to revise is the order of assessment which has culminated only when the ITO passed his order on 29-1-1981. Hence, we have to hold that the action of the Commissioner is within time.
9. We may also point out that as far as the order dated 29-1-1981 is concerned, with reference to the direction of the Commissioner (Appeals) there is no question of the said order by itself having been merged in any appellate order and the Commissioner was, therefore, not precluded from revising the order on such ground. As we have already pointed out the findings in order of 28-2-1978 had not become non est.
That order was the subject-matter of appeal to the Commissioner (Appeals). The aspect of the treatment to be adopted of the subsidy received has to be held to have received the consideration of the ITO by implication. This is because apart from the excessive subsidy received in the balance sheet the assessee had included a portion of the subsidy to determine the actual cost of assets on which depreciation was admissible and depreciation was allowed only on the reduced cost. As a matter of fact in passing the order in revision, the Commissioner has directed that this adjustment should be ignored and depreciation allowed. The decision of the Supreme Court in the case of CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 is an authority for the proposition that the first appellate authority has no jurisdiction to assess a source of income which has not been processed by the ITO but the power of enhancement is restricted to the subject-matter of assessment on the source of income which has been considered expressly or by clear implication by the ITO from the point of view of taxability of the assessee. In the present case by clear implication the ITO has considered the taxability of the subsidy received because of the treatment afforded by the assessee in determining the actual cost of assets on which depreciation is admissible in which treatment the ITO had acquiesced. Therefore, this is a matter on which if so advised the first appellate authority could have enhanced the assessment. This being the position the ratio of the decision of the Special Bench of the Tribunal in the case of Dwarkadas & Co. (P). Ltd. v. ITO (1982) 1 SOT 495 (Bom.) as also the ratio of the later Special Bench decision of the Tribunal in the case of Shree Arbuda Mills Ltd. v. ITO (1983) 3 SOT 311 (Ahd.) apply and there would have been a merger of the order of the ITO to his extent and the Commissioner was, therefore, shut out from exercising his power under section 263 insofar as directing the assessment of the subsidy is concerned and, hence, we hold that the direction of the Commissioner to assess the subsidy as income cannot be upheld because such direction has been given in excess of his jurisdiction. Consequential direction to rework the depreciation would naturally also have to be vacated. The assessee, therefore, succeeds and the appeal has to be treated as allowed and we do so.
10. However, for the sake of completeness, we would bring on record, the submission of the learned counsel of the assessee that were we to decide against the assessee on the aforesaid point, then direction to include the subsidy as taxable income would be in order in view of the latest pronouncement on the point by the Andhra Pradesh High Court.