TMI Blog1985 (6) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... ture incurred from 1-4-1978. 3. The assessee claimed weighted deduction under section 35B on various items of expenditure as below : Himson Textile Engg. Industries PannaKnittingIndustries Rs. Rs. Export freight 1,00,472* 1,13,465* Bank commission 17,894* - Foreign travelling 1,15,308 x 17,241 x Export service charges - 3,000 x Export commission 1,46,662 x 1,12,188 x (possibly Exhibition expenses 1,08,049 x 1,22,188) The ITO accepted the claim of the assessees on items marked ';x'; and rejected the claim on items marked ';';. In respect of the items on which the ITO disallowed the weighted deduction, the assessee went in appeal to the Commissioner (Appeals), who by his orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subject- matter of decision by the appellate authority but actually did not, as in the case now before us, where, if the Commissioner (Appeals) had been made aware of the facts and legal position emerging from section 35B(1A) which came to the notice of the Commissioner, the weighted deduction already allowed by the ITO could perhaps have been withdrawn by the Commissioner (Appeals) himself if the Commissioner (Appeals) could record his satisfaction on merits after hearing the assessee that such weighted deduction is in fact not admissible. Actually in this case, the Commissioner (Appeals) rejected the claim of the assessee in respect of items marked ';x'; in paragraph 2 above, whereas present section 263 action is in respect of items marked ';';. The Commissioner (Appeals) confirmed the action of the ITO on the ground that the provisions of section 35B(1) themselves even without section 35B(1A) being attracted. Thus, the question of further examining the restrictions on allowances under section 35B(1A) did not and could not have arisen before the Commissioner (Appeals). The question of applicability of section 35B(1A) was, therefore, purely academic as far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merger. This case was examined in CIT v. Mandsaur Electric Supply Co. Ltd. (1983) 140 ITR 677 by a Full Bench of the Madhya Pradesh High Court which also examined the ratio of the two other Madhya Pradesh High Court';s judgments, viz., CIT v. Narpat Singh Malkhan Singh (1981) 128 ITR 77 and Jaora Sugar Mills Ltd. v. Union of India (1982) 134 ITR 385. It was held that that Commissioner has no jurisdiction and that the Jaora Sugar Mills Ltd.';s case (supra) does not lay down correct law. This judgment was delivered on 25-2-1982. 7. Later on, another Full Bench was constituted by the same Madhya Pradesh High Court and the entire gamut of merger was re-examined threadbare by the Full Bench in CIT v. R.S. Banwarilal (1983) 140 ITR 3 in the judgment dated 8-3-1982. In this case, it was held in no uncertain terms that the ITO';s 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 ITO';s assessment order survives, keeping open exercise of revisional jurisdiction under section 263 in such matters. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act, 1922 (';the 1922 Act';), which on this issue are in pari materia with those under section 263 of the 1961 Act. It is, thus, specifically clear that according to their Lordships, there is no unconditional total merger on all issues. 11. Now, the question arises as to the concept of point or subject-matter covered by the appellate decision. Does ';a point'; cover all items covered by a particular section of the Act irrespective of sub-sections or other overriding sections, or does it confine itself to a particular item of receipt or expenditure in respect of which the matter has been adjudicated upon by the ITO/AAC ? The word ';point'; would suggest that one cannot consider a provision of law in general and cover in its sweep all independent and disjoined items of expenditure on which the assessee had claimed a particular relief. One has to consider each class of expenditure separately. In this case, as mentioned above, the assessee claimed under section 35B weighted deduction on certain classes of itemwised expenditure and there is no single class or item of expenditure examined both by the Commissioner (Appeals) and the Commissioner. I, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion : Himson Textile Engg. Industries Panna Knitting Industries Assessment order 16-8-1980 6-8-1980 Commissioner (Appeals)';s order 4-6-1982 4-6-1982 Commissioner';s order 10-8-1982 3-8-1982 3. Under section 251(1)(a) of the Act, the Commissioner (Appeals) has not only a power to confirm, reduce or annul the assessment but has also a power to enhance the assessment. The ITO had accepted the assessee';s claim for weighted deduction under section 35B on certain items mentioned in the order of my learned brother. When the ITO had framed the assessments on 6-8-1980 and 16-8-1980, sub-section (1A) of section 35B had already been brought on the statute by the Finance Act, 1978 with effect from 1-4-1978. For the sake of completing the narration of the facts, it may be mentioned that the said sub-section was omitted by the Finance Act, 1979, with effect from 1-4-1980. However, since the year under appeal is 1979-80, the provisions of the said sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not entitled to weighted deduction under section 35B, inasmuch as they were not ';small-scale exporters';, nothing prevented him to enhance the assessment in the cases of both the assessees, as it cannot be disputed that once an appeal comes before the Commissioner (Appeals) the entire assessment comes for his review and the Commissioner (Appeals) is required to pass his appellate order on the basis of the relevant provisions of the Act as they were applicable to the assessment year under consideration. The Commissioner (Appeals), however, gave his decision without considering the provisions of section 35B(1A), which he ought to have considered. Therefore, in my opinion what the Commissioner had done in the instant case is to sit in judgment over the orders of the Commissioner (Appeals). It is in this situation I am of the opinion that the assessment orders of the ITO had merged with the orders of the Commissioner (Appeals). It is for this limited purpose I am of the view that the assessee';s cases are covered by the orders of the Special Bench of the Tribunal referred to in the order of my learned brother. Again, I am of the view that the ratio laid down in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conditions laid down in section 35B(1A). Therefore, the assessments as made by the ITO were prejudicial to the interests of the revenue. The learned Commissioner, therefore, called upon the assessee to show cause as to why an order(s) under section 263 should not be made so as either to set aside the order of the assessment of the ITO or to modify the same, in order to remedy the error committed by the ITO. The learned Commissioner after hearing the assessee';s learned representative was of the opinion that the claim of the assessees for weighted deduction under section 35B was not tenable. He, therefore, for the reasons recorded in his order dated 10-8-1982, directed the ITO to withdraw the relief allowed to both the assessees in course of the original assessment. 3. As against the said orders as made by the learned Commissioner in case of the respective assessees, the assessees came up in appeal before the Tribunal. It was pointed out that the assessees had claimed weighted deduction on various items of expenditure as indicated below : Himson Textile Engg. Industries Panna Knitting Industries E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te under which the two orders are passed. It is well settled that if a point could not at all have become the subject-matter of appeal, there is no merger -Amritlal Bhogilal Co.';s case (supra) and City Palayacot Co.';s case (supra). However, the difficulty arose in cases where a point or item could have become the subject-matter of decision by the appellate authority but in fact and truth it did not become so. In the instant case, had the Commissioner (Appeals) been made aware of the facts and legal position emerging from section 35B(1A), the weighted deduction already allowed by the ITO might perhaps, have been withdrawn by the Commissioner (Appeals). In the instant case, the Commissioner (Appeals) had rejected the claim of the assessee in regard to the items marked ';x'; above whereas action under section 263 in revision was in regard to the items marked ';';. Thus, it was clear that the question of examining the restrictions on allowance under section 35B(1A) did not and could not have arisen before the Commissioner (Appeals). In other words, the Commissioner (Appeals) had no occasion to examine the applicability of the said provisions and that was pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with the assessees'; contention on merits by observing that the assessees did not have enough time to give full details of the figures to establish that it was a small-scale industry and in this view of the matter, he set aside the orders of the learned Commissioner with a direction to pass fresh order after giving a reasonable opportunity to the assessees. 4. The learned Judicial Member, however, disagreed with the above view of the learned Accountant Member. He first recorded the following particulars Himson Textile Engg. Industries Panna Knitting Industries Assessment order 16-8-1980 6-8-1980 Commissioner (Appeals)';s order 4-6-1982 4-6-1982 Commissioner';s order 10-8-1982 3-8-1982 and then observed that section 251(1)(a) empowers the Commissioner (Appeals) not only to confirm, reduce or annul the assessment but has also power to enhance the assessment. Now in the instant case, the ITO had accepted the assessees'; claim for weighted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see relying on the order of the learned Judicial Member submitted before me that the question for con-sideration is in regard to the merger of the order of the ITO with that of the Commissioner (Appeals). In this connection, it was pointed out that the Full Bench decision in the case of R.S. Banwarilal (supra) in which it is stated that the doctrine of merger applies to income-tax pro-ceedings but the extent of its application depends on the scope and sub- ject-matter of appeal and the decision rendered by the appellate authority. If any item covered by the ITO';s order is 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 ITO';s order merges with the appel-late order of the AAC only to the extent it was considered and decided by the AAC. Thus, the items which are left over untouched by the AAC the ITO';s order would survive which would permit the Commissioner to exercise revisional jurisdiction under section 263. This decision of course deals with the partial merger of the order of the ITO to the extent the matter i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, the claim of relief under section 35B as a whole was impliedly covered by the decision of the Commissioner (Appeals). In this connection, reliance was placed on the decision in the case of Oil India Ltd. v. CIT (1982) 138 ITR 836 (Cal.). He next pointed out that even if the provisions of section 35B(1A) were to be applied, the same were not applicable on the facts of the case as the assessee was a ';small-scale industry'; as per the certificate obtained by the Director of Industries of Gujarat State and, therefore, application of fiction was not called for in regard to the definition of the small-scale industry. 6. The learned departmental representative pointed out that so far as the question of determination of the assessee';s claim regarding small- scale industry, the matter has not been finally adjudicated upon by the Commissioner in revision and the matter, therefore, is not subject-matter of final decision. The real controversy is whether the provisions of sec- tion 263 were rightly invoked emphasising observations in the case of Karsandas Bhagwandas Patel (supra). The learned departmental representative pointed out that the said decision bearing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner under section 263. 7. I have considered the rival submissions. The point of difference referred to me for decision has two aspects. The broader aspect is whether the jurisdiction of the learned Commissioner under section 263 was barred in the instant case and the narrower aspect is whether on the facts of the case, the learned Commissioner could have exercised juris-diction under section 263. Now so far as the broader aspect is con- cerned, the issue in my opinion, is fairly covered by the decision of the Special Bench in the case of Shree Arbuda Mills Ltd. (supra). In that case, the Tribunal had considered in detail the decision in Tejaji Farasram Kharawala';s case (supra) and Karsandas Bhagwandas Patel';s case (supra) and had come to the conclusion that the decision in Tejaji Farasram Kharawala';s case (supra) was binding in view of the decision of the Gujarat High Court in the case of Anand Municipality v. Union of India AIR 1960 Guj. 40. It was also decided that the decisions in Karsandas Bhagwandas Patel';s case (supra) as also in the case of Poonjabhai Vanmalidas (supra) were distinguishable inasmuch as the said decisions dealt with rectificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. This aspect of the matter has been dealt with at length in Shree Arbuda Mills Ltd.';s case (supra) and I do not wish to burden this order with the reasons set out in the said decision. 8. Even if I were wrong in the above view and assuming for the sake of argument that the relevant observations in Karsandas Bhagwandas Patel';s case (supra) as stated aforesaid constituted a part of ratio decidendi are of general application, in my opinion, since there are two decisions of binding nature rendered by the Bombay High Court and the Gujarat High Court constituted by the Benches of equal strength [namely, Tejaji Farasram Kharawala';s case (supra) and Karsandas Bhagwandas Patel';s case (supra)] conflict with one another and the later decision does not allude to and/or dissent from the earlier, it is open to me to choose which ratio decidendi to follow and in doing so the opinion which is more convincing can be adopted. The above proposition is found in the decision of their Lordships of the Gujarat High Court in the case of CIT v. Madhukant M. Mehta (1981) 132 ITR 159 at p. 180. The decision in Shree Arbuda Mills Ltd.';s case (supra) which has preferred the view ..... 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