TMI Blog1990 (12) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... m by and under section 263 of the Act, the C.I.T. called for and examined the assessment records of the assessee. On such an examination, he found that the I.T.O. had erroneously allowed depreciation at a higher rate of 15% instead of 10%, thereby causing prejudice to the interests of the Revenue. He, therefore, called upon the assessee to show cause why the two assessment orders should not be revised. 4. The assessee's case before the C.I.T. was that the assessment orders had been the subject-matter of appeal before the C.I.T.(A) and the Income-tax Appellate Tribunal ; that, consequently, the assessment orders got merged with the orders of the appellate authorities ; and that, therefore, recourse to section 263 could not be taken by the C.I.T. 5. None of the aforesaid contentions found favour with the C.I.T., who took the line that the doctrine of merger applies only to that part of the order of the ITO, which has been the subject-matter of appeal. In this regard he referred to and relied upon the Full Bench of the Madhya Pradesh High Court in the case of CIT v. K.L. Rajput [1987] 164 ITR 197 (FB). 6. Turning to the merits of the case, the CIT took the line that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Ashok Leyland Ltd v. State of Tamil Nadu 47 STC 155, a Full Bench of the Madras High Court had an occasion to consider the doctrine of merger and held that the assessment order merges in full with the appellate order. According to Shri Jagadisan, a similar view was taken by the Madras High Court in the case of C. Gnanasundara Nayagar v. CIT [1961] 41 ITR 375 also. 13. The second limb of Shri Jagadisan's argument was that the amendments made by the Finance Act, 1988 and the Finance Act, 1989 to section 263 cannot affect the assessee's rights. According to him, the Explanation introduced by the said amendments would apply only to the orders passed by the CIT after 1-6-1988. In the case before us both the impugned orders of the CIT were passed on 10-3-1987. Therefore, the Explanation cannot avail the department. 14. In this connection, he refe rred to and relied upon the following cases :-- (a) Letape (India) (P.) Ltd. v. Sixth ITO [1989] 31 ITD 222 (Bom.). (b) Ritz Ltd. v. Union of India [1990] 184 ITR 599 (Bom.). 15. In view of the foregoing, contended Shri Jagadisan, the assessee is entitled to succeed. 16. On his part, Shri Natarajan, the learned departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the matter in the light of the provisions of section 33A(2). The High Court found that clause (c) of the proviso to section 33A(2) prohibited the Commissioner from exercising the powers of revision in cases where the order in question had been made the subject-matter of an appeal to !he Appellate Tribunal. In that case, as pointed out earlier, the assessee had filed appeals before the Tribunal, though after filing the applications under section 33A(2). Since the two assessment orders were the subject-matter of appeal to the Tribunal within the meaning of clause (c) of the proviso to section 33A(2), the High Court held, the Commissioner did not have jurisdiction to entertain the applications and grant the relief prayed for. In that connection the High Court held that the fact that the relief claimed in the application under section 33A(2) was not the subject-matter of the appeal to the Tribunal, did not alter the position that the orders of assessment were the subject of appeal. 20. It may be seen from the foregoing that the decision in the case of C. Gnanasundara Nayagar went on the basis of the interpretation of the provisions of section 33A(2). Three points may here be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessment order in the order of the A.A.C. so as to rule out the exercise of jurisdiction under section 263. 23. In this case also, it may be seen, there is nothing to indicate that an assessment order gets totally merged with the appellate order. Secondly, the mere pendency of an appeal before the first appellate authority did not bar the CIT from taking recourse to section 263. This was because the Act did not impose any such bar or ban. Thirdly, and more significantly, the observations of the High Court on the doctrine of merger support the department rather than the assessee. For a fact, there is a close parallel between the said case and the case before us. There the ITO failed to levy interest under section 217. The assessee was naturally not aggrieved by the non-levy of interest and consequently the question of the assessee's agitating this aspect of the matter in appeal before the A.A.C. did not arise. In the case before us, the ITO allowed depreciation etc. at the higher rate of 15%. The assessee was naturally not aggrieved by the acceptance of its claim and it did not, therefore, agitate this aspect of the matter before the first appellate authority. Again, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he particular statutory provisions. In the present case, the Commissioner of Agricultural IT having been vested with wide powers of revision subject only to certain restrictions which do not apply here, we consider that the doctrine of merger has no application over the aspects which had not been touched by the Tribunal in its order. The doctrine of merger would operate here only on matters decided by the Tribunal and, therefore, in a case where the particular matter which was the subject-matter of revision had not been placed before the Tribunal for its decision, the matter would be at large so as to be subject to the exercise of the powers of revision. We, therefore, see no substance in the contention of the learned counsel for the assessee that the order ultimately revised is only the order of the Appellate Tribunal. What was actually revised is only the order of the Assistant Commissioner so far as it gave certain reliefs to the assessee." 29. A couple of points may here be made. The High Court has nowhere stated that the AAC's order got merged in its entirety with the order of the Agricultural Income-tax Appellate Tribunal. Secondly, the High Court examined the Commissioner' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court held first that the sum of Rs. 2,35,000 was not an expenditure on revenue account and consequently was not revenue deductible. Secondly, the doctrine of merger was not applicable to that case. In that connection the High Court observed : " The doctrine of merger in the present state of the authorities, is subject to many ifs and buts. Even otherwise, the merger theory need not detain us in the present reference, for, in this case, the order was passed by the Commissioner before the AAC disposed of the appeal against the very assessment". In this connection, while examining the question whether the Commissioner had validly taken recourse to the provisions of section 263, the High Court observed : "The theory that the whole order of assessment is before the AAC must be read subject to the provisions of the Act. We, therefore, hold that the order passed by the Commissioner in this case was within his jurisdiction u/s 263 of the Act. The conclusion of the Tribunal, to the contrary, is wrong, based as it is on a prior reasoning, without regard for the concerned statutory provisions". [Emphasis supplied] 35. It may thus be seen that in the aforesaid case the Madras High Court d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y analogy between the two languages unless the language is identical in all respects. Therefore, there is no conflict between the two decisions aforesaid. As to the merits of the case, the High Court held that the Board had no jurisdiction to reverse the orders of the AAC, because the AAC's orders had been made the subject-matter of appeal to the Appellate Tribunal. And, section 34(2)(b) of the Tamil Nadu General Salestax Act, 1959 clearly imposed a restriction on the revisionary jurisdiction of the Board in such cases. 39. It will be clear from the foregoing that the matter was decided with reference to the respective statutory provisions and not with reference to the doctrine of merger, total or partial. 40. It will be seen from the foregoing an alysis that the question whether in a given case the revisionary jurisdiction was validly assumed by the authority concerned was examined by the Court from two different angles. The first line of examination was centered on the specific provisions of the Statute. If a particular Statute imposed restriction on the revisionary powers in certain circumstances and if any one of the stated circumstances existed, then the restriction applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise makes it a one way traffic. The CIT cannot act under that section to set right an assessment order which he is convinced is prejudicial to the interests of the tax-payer. (b) Section 263, which confers as well as delimits the revisional power of the CIT, contemplates not merely a power but a duty on the CIT's power to set right an order passed by the ITO "insofar as it is prejudicial to the interests of the revenue". (c) If the assessee feels that he is prejudiced by any part of the ITO's order, he may file an appeal before the first appellate authority. (d) While disposing of the appeal, the first appellate authority has wide powers. He can even enhance the assessment but this is a matter within his discretion and he must first give notice to the assessee of his intention to enhance. (e) This power of the first appellate authority enhance the assessment while disposing of the appeal is in a certain sense akin to the CIT's powers under section 263 to revise the order of the assessing officer if it is prejudicial to the interests of the revenue. (f) In the hierarchy of the authorities under the Income-tax Act, the Income-tax Appellate Tribunal is an Institution ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Income-tax Officer's order and the remaining items, forming part of the Income-tax Officer's assessment order, were not agitated or the Appellate Assistant Commissioner did not consider them suo motu and no decision of the Appellate Assistant Commissioner is, therefore, made in respect of the remaining items, the Income-tax Officer's order merges with the appellate order of the Appellate Assistant Commissioner only to the extent it was considered and decided by the Appellate Assistant Commissioner, but the matters which are not covered by the appellate order of the Appellate Assistant Commissioner, are left untouched and to that extent, the Income-tax Officer's assessment order survives permitting exercise of revisional jurisdiction by the Commissioner under section 263 of the Income-tax Act, 1961." 45. Again in the recent decision in the case of East Coast Marine Products (P.) Ltd [1990] 88 CTR (AP) 156, the Andhra Pradesh High Court followed the aforesaid Full Bench decision of the Madhya Pradesh. 46. The question that then arises for consideration is whether, in the case before us, the issue relating to the rate of depreciation applicable to the plant and machinery i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even the 1988 amendment is really clarificatory in nature in the sense that it manifest the legislative intent. The Court further observed that even without such an explanatory clause, the position is the same. 51. With respect, we prefer to follow the aforesaid decision of the Division Bench of the Andhra Pradesh High Court. What is more, if the 1988 amendment itself was clarificatory in nature and even without such an explanatory clause, the position is the same, then the 1989 amendment must necessarily be held to be still more clarificatory in nature, introduced only with a view to removing any vestiges of doubt that might have remained even after the introduction of the 1988 amendment. 52. In view of the foregoing, therefore, we hold that the impugned orders of the Commissioner of Income-tax are saved by the said amendments also. 53. In this case we are dealing with the jurisdiction of the CIT. When jurisdictional issues are involved, one should prefer that construction which gives jurisdiction rather than the one that takes away the jurisdiction. This is yet another reason why we consider that the impugned orders of the CIT do not invite any interference. 54. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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