TMI Blog1988 (3) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... 794 incurred by the petitioner-company for repayment of the foreign loan. It was stated by the petitioner-company that it was not possible for them to segregate this particular rate difference under the heads "Capital Equipment, Raw Material, Stores, Spare Parts". It is the case of the respondents that the additional amount of liability incurred by the petitioner in repayment of the foreign loan was not admissible as revenue expenditure to the extent the loan related to purchase of capital assets. It has been stated on affidavit on behalf of the respondents that "It is not a case where the petitioner purchased raw materials from the foreign party on credit and the petitioner had to pay more towards the cost of such purchase due to exchange fluctuations in respect of the outstanding balance of purchase price payable to the foreign party in foreign currency. It is a case of the petitioner obtaining a loan from the foreign party which was utilised for purchasing various items. As far as the cost of those items are concerned, the payments were made in the year of purchase itself out of the borrowing and the cost of such acquisition became fixed once for all. Excess liabilities arisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Appellate Assistant Commissioner or the Tribunal taken by the assessee related to disallowance of development rebate by the Income-tax Officer and also to the claim for depreciation disallowed by the Income-tax Officer. Other grounds of appeal related to disallowance of payment of consultation fee and gratuity. The question of admissibility or otherwise of any loss relating to any exchange fluctuation was neither raised before nor considered by the Appellate Assistant Commissioner or the Tribunal. It has been contended by the assessee that the entire order of the Income-tax Officer has merged in the appellate order. It has been argued that this proposition is well-settled and reliance has been placed on number of judgments, particularly on the judgment delivered by the Bombay High Court in the case of CIT v. P. Muncherji and Co. [1987] 167 ITR 671, 680 and also on a judgment of this court in the case of General Beopar Co. (Pvt.) Ltd. v. CIT [1987] 167 ITR 86. On behalf of the respondents, my attention was drawn to the judgment in the case of Jagadhri Electric Supply and Industries Co. v. CIT [1987] 166 ITR 143 (P H), and also to the Full Bench judgment of the Madhya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o object to the order passed by the Income-tax Officer refusing to register it under section 23(4) or section 26A. It can likewise object to the cancellation by the Income-tax Officer of its registration under section 23(4). It is significant that, whereas an appeal is provided against orders passed by the Income-tax Officer under section 23(4) or section 26A either refusing to register the firm or cancelling registration of the firm, no appeal can be filed by the Department against the order granting registration. Indeed, it is patent that the scheme of the Act in respect of appeals to the Appellate Assistant Commissioner is that it is only the assessee who is given a right to make an appeal and not the Department. Thus, there can be no doubt that the Income-tax Officer's order granting registration to a firm cannot become the subject-matter of an appeal before the Appellate Assistant Commissioner." In the case of Amritlal Bhogilal [1958] 34 ITR 130, the Supreme Court dealt with a case where the Income-tax Officer had passed a composite order of assessment. One part of the order related to registration of the firm, which was the assessee in that case. The other part related to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 4, 1958, the Board of Revenue issued a notice to the dealer stating that it proposed to revise the assessment made by the Deputy Commercial Tax Officer, Madurai, by including in the net turnover a sum of Rs. 7,74,62,706-1-6 as the amount had been wrongly excluded by the assessing authority. The dealer objected to the proposed revision on the ground that the proceeding was barred by limitation. Moreover, there was no wrong exclusion by the Deputy Commercial Tax Officer as alleged. The Board of Revenue, however, overruled both the objections and revised the taxable turnover by including the said amount of Rs. 7,74,62,706-1-6. Thereafter, the case went to the Madras High Court which held that the revision proceedings were barred by limitation. The, State of Madras thereafter appealed to the Supreme Court. The question of law that fell for determination in that case was : Whether the order of the Board of Revenue dated August 25, 1958, was illegal because there was a contravention of the rule of limitation laid down by section 12(3)(i) of the Madras General Sales Tax Act inasmuch as the order of the Board of Revenue was made after a period of 4 years from the date on which the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration cannot be deemed to have merged in the order of the Appellate Commissioner in an appeal taken against the composite order of assessment... In the circumstances of the present case, it cannot be said that there was a merger of the order of assessment made by the Deputy Commercial Tax Officer dated November 28, 1952, with the order of the Deputy Commissioner of Commercial Taxes dated the 24th August, 1954, because the question of exemption of the value of yarn purchased from outside the State of Madras was not the subject-matter of revision before the Deputy Commissioner of Commercial Taxes. The only point that was urged before the Deputy Cornmissioner was that the sum of Rs. 6,57,971-4-9 collected by the respondent by way of tax should not be included in the taxable turnover. This was the only point raised before the Deputy Commissioner and was rejected by him in the revision proceedings. On the contrary, the question before the Board of Revenue was whether the Deputy Commercial Tax Officer, Madurai, was right in excluding from the net taxable turnover of the respondent the sum of Rs. 7,74,62,706-1-0 which was the value of cotton purchased by the respondent from outside the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of higher authorities or Tribunals. Whether an order of a subordinate authority had merged partially or wholly with the orders of the superior appellate authority or revisional authority will have to be decided with reference to the provisions dealing with the appellate jurisdiction or revisional jurisdiction of the superior authority under the relevant enactment. It was further held by the Bombay High Court that if the Appellate Assistant Commissioner had not been called upon or had not actually dealt with any part of the assessment order made by the Income-tax Officer, there was no question of that part of the order merging or being superseded by the Appellate Assistant Commissioner. The effect of section 31(3) of the Indian Income-tax Act, 1922, was that only that part of the order of the Income-tax Officer merged or stood superseded by the order of the Appellate Assistant Commissioner in respect of which the Appellate Assistant Commissioner had exercised his appellate jurisdiction. The remaining part of the order of assessment continued to be unaffected by the decision of the Appellate Assistant Commissioner and had independent existence unaffected by the appellate order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the interests of the Revenue inasmuch as business losses of the earlier years had been set off against income from other sources in the said assessments. The jurisdiction of the Commissioner of Income-tax to revise the assessments under section 263 was challenged by the assessee in appeal against the revisional orders before the Tribunal. Tile contention of the assessee before the Tribunal, as recorded in the judgment, was (at p. 90) : "it was contended before the Tribunal on behalf of the assessee that during the pendency of the reassessment proceedings under section 148 of the Act, the Commissioner had no jurisdiction to revise the assessment under section 263. The Tribunal dismissed the appeal preferred by the assessee. The question referred to the High Court was (at p. 91 ) : "Whether, on the facts and in the circumstances of the case, the order of the Commissioner under section 263 of the Income-tax Act, 1961, is valid in law ?" After referring to a large number of cases, it was held "In view of the observations of the Supreme Court on the effect of initiation of reassessment proceedings, we are unable to agree with the view taken by the Delhi and Gujarat High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atel v. G. V. Shah, ITO [1975] 98 ITR 255 (Guj) ; Jaora Sugar Mills Ltd. v. Union of India [1982] 134 ITR 385 (MP) ; Alok Paper Industries v. CIT [1983] 139 ITR 1064 (MP) and CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570 (Bom). The principles enunciated by the Supreme Court in the case of State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144 leave no room for doubt that what merges in the order of the appellate or revisional authority is not the entire appealable order of the lower authority but only that part of the order of the lower authority which was under consideration of the higher authority in revision or in appeal. It is also to be noted from the judgment of the Supreme Court that for the purpose of application of the doctrine of merger, no distinction can be made between an order passed in revision and an order passed in appeal. In the case of Shankar Ramchandra Abhyankar v. Krishnaji Dattatraya Bapat, AIR 1970 SC 1, the Supreme Court pointed out that the principle of merger of orders of inferior courts would not become affected or inapplicable by making any distinction between a petition for revision and an appeal. Therefore, the judgment of the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, it cannot be said that the issues decided in the assessment order which were left untouched by the appellate authority have merged in the order of the appellate authority irrespective of the grounds of appeal and the points canvassed before the appellate authority. The question of merger was examined in extenso by the Supreme Court in the case of Gojer Bros. (P.) Ltd. v. Shri Ratan Lal Singh, AIR 1974 SC 1380. In that case, the Supreme Court, after referring to its earlier decision in the case of State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144, observed (at pp. 1388, 1389) : "These observations cannot justify the view that in the instant case there can be no merger of the decree passed by the trial court in the decree of the High Court. The court, in fact, relied on Amritlal Bhogilal's case [1958] 34 ITR 130 ; [1959] SCR 713 ; AIR 1958 SC 868, while pointing out that if the subject-matter of the two proceedings is not identical, there can be no merger. Just as in Amritlal Bhogilal's case [1958] 34 ITR 130 (SC), the question of registration of the assessee-firm was not before the appellate authority and, therefore, there could be no merger of the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the matter, I am unable to accept the first contention urged in support of this application. The Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961, held that levy of interest was part of the process of assessment. Although sections 143 and 144 did not specifically provide for the levy of interest and the levy was, in fact, attributable to section 139(8) or section 215, it was nevertheless a part of the process of assessing the tax liability of the assessee. Inasmuch as the levy of interest was a part of the process of assessment, it was open to an assessee to dispute the levy in appeal provided he limited himself to the ground that he was not liable to the levy at all. The judgment of this court in the case of Premchand Sitanath Roy v. Addl. CIT [1977] 109 ITR 751 was specifically approved. Lastly, I was referred to a judgment of the Bombay High Court in the case of CIT v. P. Muncherji and Company [1987] 167 ITR 671 in which view contrary to the view earlier taken by that court in the case of CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570 was adopted. It was observed, after referring to the case of State of Madras v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot appear that the power of revision of the Deputy Commissioner under the Madras General Sales Tax Act, 1939, is in any way less extensive than the power of the Appellate Assistant Commissioner under the Income-tax Act. I do not find any conflict between the principles laid down in Amritlal Bhogilal and Co.'s case [1958] 34 ITR 130 (SC) and in the case of Madurai Mills Co. Ltd. [1967] 19 STC 144. All these cases were considered by the Supreme Court in the case of Gojer Bros. (P.) Ltd. v. Shri Ratan Lal Singh, AIR 1974 SC 1380, where it was emphasised that only if the subject-matter of the two proceedings was identical, the merger of the order in the order of higher appellate authority could take place. It was observed in Gojer Bros. (P.) Ltd.'s case, AIR 1974 SC 1380, that in Amritlal Bhogilal and Co.'s case [1958] 34 ITR 130 (SC), the question of registration of the assessee-firm was not before the appellate authority and, therefore, there could be no merger of the entire order of the Income-tax Officer in the appellate order. In Madurai Mills Co. Ltd [1967] 19 STC 144, there could be no merger of the entire assessment order in the revisional order as the question regarding excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the items which were considered and decided by the Appellate Assistant Commissioner. It was not material that the Appellate Assistant Commissioner could suo motu consider all the points involved in the assessment order or the Revenue could agitate all the points before the Appellate Assistant Commissioner. The real test was whether any such point was actually considered and decided by the Appellate Assistant Commissioner. I respectfully agree with the test propounded in that case. If the Appellate Assistant Commissioner does not take into consideration any aspect of the assessment order because that particular aspect of the order was not appealable or for any other reason, it cannot be said that the assessment order has wholly merged in the appellate order irrespective of the subject matter of the appeal or the scope of the appellate order. The same principle has been reiterated by the Gujarat High Court in another case of Poonjabhai Vanmalidas v. WTO [1978] 114 ITR 38. The principles of law enunciated by the Supreme Court in the cases of State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144, Gojer Bros. (P.) Ltd. v. Shri Ratan Lal Singh, AIR 1974 SC 1380 and CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Revenue in this case. Assuming that exchange fluctuation resulted in increase of liability on the capital account and the Income-tax Officer had erred in allowing the liability on the trading account, no prejudice has really been suffered by the Revenue because the increased liability on the capital account will have the result of enhancement of the cost of the capital assets. That means, there will be higher depreciation and in the long run, there was no real loss of revenue. But, in the instant case, the Commissioner of Income-tax is not concerned with the long-term view of the matter. Each assessment year is self-contained unit. If any loss or any depreciation is to be allowed or income is to be assessed in a particular year, it must be done so in that year. Therefore, if any increased liability incurred on the capital account has been allowed to be deducted against business income, then it cannot be said that the Revenue has not been prejudiced by such an order. The case was heard at length on August 25, 1987, September 9, 1987, September 15, 1987, December 11, 1987, and January 15, 1988, and when hearing was completed, the matter was fixed for judgment on January 22, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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