Per Shri B. C. Mitra, Accountant Member - The assessee-firm derives income from contract business. In respect of the assessment year 1976-77, the firms assessment was completed on a total income of Rs. 1,05,310 as against income shown of Rs. 1,02,114. The Commissioner on scrutiny of the records found that there was discrepancy of Rs. 22,000 in the value of the closing stock of materials as shown in the trading account and the balance sheet drawn up for the year ending 5-2-1976. He accordingly, initiated proceedings under section 263 of the Income-tax Act, 1961 (the Act). During the course of hearing before the Commissioner, the assessees learned counsel, Shri A. K. Moitra, admitted that he was not able to reconcile the discrepancy as pointed out in the Commissioners show-cause notice under section 263. The Commissioner was, accordingly of the opinion that the ITOs order of assessment in respect of the assessment year 1976-77 was erroneous insofar as it was prejudicial to the interests of the revenue. The Commissioner held in his order under section 263 that the assessee has taken credit of Rs. 87,000 on account of opening stock as shown in the trading account at Rs. 65,000, therefore, appears to be patently incorrect. He, accordingly, set aside the assessment and directed the ITO to reframe the same after ascertaining as to how did the assessee manage to tally the balance sheet. Against the said order of the Commissioner dated 11-8-1980, the assessee has filed the present appeal.
2. The learned counsels objection is mainly two-fold, viz., (i) the assessment having been merged with the Commissioner (Appeals) the Commissioner had no jurisdiction to exercise his powers in terms of Section 263, and (ii) that even though, according to the Commissioner, the ITOs order was erroneous, there was nothing to show that the same was prejudicial to the interest of the revenue. According to the learned counsel, the assessee being a firm of contractors, its income as computed in the assessment at Rs. 1,05,089 came to about 9.73 per cent on gross contract receipts of Rs. 10,79,909, which should have been considered by the Commissioner as reasonable considering the profit margin disclosed by similar other contractors. Another objection raised by the learned counsel was that the Commissioner had powers under section 263 to enhance the assessment and since he was satisfied that there was a mistake in the accounts furnished by the assessee, he could direct the ITO to reframe the assessment by taking into account the mistake as pointed out by the Commissioner. The Commissioner, according to the learned counsel, was not at all justified in setting aside the entire assessment which resulted in great miscarriage of justice, inasmuch as in the reassessment completed on the basis of the Commissioners direction the ITO made a thumping Commissioner under section 144 of the Act on a total income of Rs. 3,02,850. The learned counsel, in this connection, filed before us a paper book containing 18 pages. He also submitted that on the question of merger itself, the assessee was entitled to the relief claimed in view of the Full Bench decision of the Madhya Pradesh High Court in the case of CIT v. Mandsaur Electric Supply Co. Ltd. : 140ITR677(MP) . In regard to the action of the Commissioner in setting aside the whole of the assessment order, the learned counsel relied on a Delhi High Court decision in the case of Addl. CIT v. J. K. DCosta : 133ITR7(Delhi) .
3. In reply, the departmental representative pointed out that the assessee disclosed a net profit of Rs. 90,419 in its profit and loss account for the year ending 5-2-1976. The mistake noticed in the value of closing stock shown in the profit and loss account and balance sheet came to Rs. 22,000. The actual profit thus worked out to Rs. 1,12,419 (Rs. 90,419 + Rs. 22,000) which obviously was in excess of the income assessed at a sum of Rs. 1,05,310. It was thus evident, according to the departmental representative, that the ITOs order was prejudicial to the interests of the revenue. It has been stated that since the assessees learned counsel admitted the mistake before the Commissioner, the Commissioners jurisdiction in terms of section 263 could not be questioned. The departmental representtive also referred to paragraph 4 of the Commissioners order, wherein the Commissioner observed that as desired by Shri Moitra the assessment was set aside. It could not be said, therefore, that the assessee was aggrieved by the Commissioners order and, consequently, the appeal before the Tribunal was incompetent. For this proposition, he relied on two High Courts decision in Ramanlal Kamdar v. CIT : 108ITR73(Mad) and CIT v. Ram Kumar Agarwalla & Bros. : 108ITR457(Cal) On the point of merger, the departmental representative referred to a Full Bench decision of the Madhya Pradesh High Court in CIT v. R. S. Banwarilal : 140ITR3(MP) and another Madhya Pradesh High Court decision in Alok Paper Industries v. CIT : 139ITR1064(MP) . The departmental representative also referred to a Gujarat High Court decision in Karsandas Bhagwandas Patel v. G. V. Shah, ITO : 98ITR255(Guj) and to a Supreme Court decision in State of Madras v. Madurai Mills Co. Ltd.,  19 STC 144. He particularly drew our attention to their Lordships observation wherein has been observed as under :
'... 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 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 stature. 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 appellant or revisional jurisdiction...' (p. 149)
4. We have considered the submissions of the parties concerned. It is not in dispute that a mistake cropped up in the figures furnished in respect of closing stock of materials in the assessees trading account and in the balance sheet for the year ending 5-2-1976. According to the assessee the mistake was not that serious which could justify the Commissioners exercise of powers in terms of section 263. We are, however, not impressed with the learned counsels contention in this regards as, in our opinion, the discrepancy pointed out by the Commissioner clearly implies that the balance sheet drawn up as at the end of the accounting year relevant for the assessment year 1976-77 did not reflect the true state of affairs as on 5-2-1976. We are, accordingly, satisfied that the Commissioners exercise of jurisdiction in terms of section 263 was not improper.
5. In regard to the point raised that in view of the merger of the ITOs order with that of the Commissioner (Appeals), the Commissioner could not exercise his revisional powers under section 263, we may point out that the Full Bench Madhya Pradesh High Court decision relied on by the departmental representative R. S. Banwarilals case (supra) is a later decision that the one relied on by the assessees learned counsel Mandsaur Electric Supply Co. Ltd.,s case (supra). The High Court in that case held that under section 263 of the Income-tax Act, 1961, the Commissioner has no jurisdiction to set aside on order of assessment passed by the ITO when that order is the subject-matter in an appeal preferred by the assessee before the AAC (p. 677). In the latter Full Bench decision which has been relied on by the departmental representative, their Lordships observed that '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 section 263 of the Income-tax Act, 1961'. (p. 3)
In regard to the point raised by the Commissioner justifying his action under section 263, the assessee could not have any grievance for which it could file an appeal before the Commissioner (Appeals) and, consequently, the doctrine of merger in respect of the mistake pointed out by the Commissioner was not at all applicable in the instant case. The learned counsels further objection that the Commissioner ought to have enhanced the assessment and could not, in the circumstances, restore the assessment on the ITOs file for making a de novo assessment, in our opinion, is also not tenable as the Commissioner observed in his order that as desired by the Shri Moitra he was setting aside the assessment with a direction to the ITO to reframe the assessment in accordance with law. The aforesaid direction of the Commissioner, in any way, cannot be considered as illegal. The issue now raised that the ITO did not carry out the Commissioners order in reframing the set aside assessment, in our opinion, cannot make the Commissioners order invalid. The assessee admittedly can avail of the remedial measures as provided under the Act in regard to the subsequent assessment completed by the ITO under section 144. We would, accordingly, uphold the Commissioners order and dismiss the appeal of the assessee.