TMI Blog1982 (3) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... f this court in CIT v. Narpat Singh Malkhan Singh [1981] 128 ITR 77 (MP) and Alok Paper Industries v. CIT[1983] 139 ITR 1064 (MP) [M.C.C. No. 142 of 1978, decided on 14-1-1981] appear to have taken contrary views on the question for decision in this reference. The material facts are these : I T. A. No. 33 (Jab.)177-78: The assessee, R. S. Banwarilal of Bilaspur, in the status of an HUF, submitted his return for the relevant assessment year 1972-73, declaring an income of Rs. 39,846 from business in bidi leaves and house property. The ITO by order dated March 13, 1975 (annex. A), added Rs. 5,000 in the income from bidi business by raising the rate of gross profit shown by the assessee; some addition to the income from house property was also made, and some deductions claimed by the assessee were disallowed. The total income of the assessee was assessed at Rs. 50,039 under s. 143(3) of the I.T. Act and notice was issued for levying penalty in addition to charging interest. The assessee preferred an appeal to the AAC challenging the additions in the trading account and disallowance of deductions claimed as expenditure. The AAC, by order (annex. B), dated August 13, 1975, upheld th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to law. The assessee preferred an appeal to the Tribunal challenging the jurisdiction of the CIT to invoke the power under s. 263 of the Act on the ground that the assessment order of the ITO had merged in the appellate order made by the AAC in the appeal filed by the assessee. The Tribunal by its order (annex. C-1) dated September 18, 1978, allowed that appeal and held that the Commissioner's order, so far as it related to the computation of the total income, was incompetent and without jurisdiction, as the entire order of the ITO had merged in the appellate order of the AAC dated November 26, 1976, prior to the making of the order under s. 263 by the CIT. The Tribunal followed its view in the earlier case and held that the entire order of the ITO merged in the order of the AAC irrespective of the matters considered and decided by the AAC in appeal. Neither the grounds of appeal nor the order dated November 26, 1976, of the AAC have been annexed to the statement of case which too makes no mention of the matters considered and decided by the AAC. It is, therefore, not known as to what matters were considered and decided by the AAC in appeal. Both the assessees applied to the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellate orders of the AAC and the Tribunal, since that was never the subject-matter Of the appeals before the AAC and the Tribunal. This gave rise to a reference at the instance of the assessee for deciding the question whether on these facts the Tribunal was justified in holding that the order of the ITO in respect of allowance of interest to the assessee did not merge in the orders of the AAC and the Tribunal, passed in appeals preferred by the assessee. The Division Bench answered the question in the affirmative and against the assessee holding that the ITO's assessment order in respect of this item allowing the entire interest claimed by the assessee did not merge in the appellate orders made by the AAC and the Tribunal since that item was not the subject-matter of the appeals before the AAC and the Tribunal, preferred by the assessee. In taking the above view, the Division Bench followed the Supreme Court decision, in State of Madras v. Madurai Mills Co. Ltd., AIR 1967 SC 681 ; [1967] 19 STC 144, and concurred with the view taken by the Gujarat High Court in Karsandas Bhagwandas Patel v. G. V. Shalt, ITO [1975] 98 ITR 255. The Division Bench indicated the test for determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any particular item decided by the. ITO, which was not the subject-matter of appeal before the AAC but only in the omission to charge interest under s. 217(1A) and failure to initiate penalty proceedings under s. 273(c), while making the assessment order under s. 143(3) of the Act. The question, therefore, was whether the Commissioner, exercising the power under s. 263 of the Act, could set aside ITO's assessment order after the appellate order was made by the AAC. The Division Bench took the view that on there facts the Commissioner could not invoke the power under s. 263 of the Act as the ITO's order had merged in the appellate order made by the AAC. One of the reasons given was that the ITO's jurisdiction to impose penalty under s. 273(c) of the Act arises, if he, " in the course of any proceeding in connection with the regular assessment " is satisfied that the assessee has, without reasonable cause, failed to furnish an estimate of the advance tax payable by him and the Supreme Court has laid down that the ITO has no such jurisdiction if he omits to record satisfaction before completing the assessment. In respect of the item of interest under s. 217(l A), it was held that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne, there being no grievance against grant of registration by the ITO. The question arose whether the Commissioner, in exercise of his revisional powers under s. 33B of the Indian I.T. Act, 1922, corresponding to s. 263 of the I.T. Act, 1961, could interfere with the ITO's order granting registration to the firm and direct fresh assessment treating the firm as unregistered. The assessee relied on the doctrine of merger to assail the Commissioner's power to make such an order. The assessee's contention was rejected. It was pointed out that the order granting registration to the assessee-firm is an independent and a separate order and no appeal could be filed by the Department against the order granting registration, even though there is provision for appeal by the assessee against the order refusing to grant registration or cancelling registration. Accordingly it was held that there can be no doubt that the order of the ITO granting registration to the firm could not become the subject-matter of an appeal before the AAC and it made no difference that the order granting registration was made part of the composite order passed by the ITO. This decision of the Supreme Court clearly ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC), it was observed by this court that the order of registration made by the Income-tax Officer did not merge in the appellate order of the Appellate Commissioner, because the order of registration was not the subject-matter of appeal before the appellate authority. It should be noticed that the order of assessment made by the Income-tax Officer in that case was a composite order, viz., an order granting registration to the firm and making an assessment on the basis of the registration. The appeal was taken by the assessee to the Appellate Commissioner against the composite order of the Income-tax Officer. It was held by the High Court that the order of the Income-tax Officer granting registration to the respondent must be deemed to be merged in the appellate order and that the revisional power of the Commissioner of Income-tax cannot, therefore, be exercised in respect of it. The view taken by the High Court was overruled by this court for the reason that the order of the Income-tax Officer granting registration cannot be deemed to have merged in the order of the Appellate Commissioner in an appeal taken against the composite order of assessment."(Emphasis supplied). It will, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essly stated therein by the Bombay High Court that only that part of the order of the ITO merges or stands superseded by the order of the AAC in respect of which the AAC has exercised his appellate jurisdiction; and the remaining part of the order of assessment made by the ITO continues to be unaffected by the decision of the AAC and it continues to have its independent existence, to which the doctrine of merger has no application. Accordingly, the Bombay view on this point is in line with the view taken by this court in Alok Paper Industries [1983] 139 ITR 1064. We shall now refer to some decisions of this court on the point which also take the same view. In Central Indian Insurance Co. Ltd. v. ITO [1963] 47 ITR 895 (MP), it was held that where an appeal was taken to the Appellate Tribunal against an order of the AAC in respect of only some matters decided by the AAC, the jurisdiction of the AAC to rectify an item in his order, which was not the subject-matter of appeal before the Tribunal and, therefore, not considered and decided by the Tribunal, survived as there was no merger of the AAC's order with that of the Tribunal to that extent. This view was taken following the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied is whether the decision of the Income-tax Officer on particular point is the subject-matter of appeal before the Appellate Assistant Commissioner. It may not be the subject-matter of appeal for two reasons, either because the Appellate Assistant Commissioner has no jurisdiction to consider that subject-matter as in the case before the Supreme Court or because the Appellate Assistant Commissioner though having jurisdiction to examine that subject-matter, does not do so. In either case, there being no decision of the Appellate Assistant Commissioner on the point, the decision of the Income-tax Officer remains untouched and it is open to the Commissioner, in exercise of power under section 33B, to revise it, or to the Income-tax Officer, in exercise of power under section 35, sub-section (1), to rectify it, if there is a mistake apparent from the record of the assessment." The above conclusion was reached by the Gujarat High Court placing reliance on the decisions of the Supreme Court in CIT v. Amritlal Bhogilal Co. [1958] 34 ITR 130 (SC) and State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144 (SC); AIR 1967 SC 681. In our opinion, this Gujarat decision points out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that view and the view expressed by another Division Bench in CIT v. Narpat Singh [1981] 128 ITR 77 (MP), the latter case being distinguishable on facts, and there being nothing therein to indicate any conflict in the two decisions. The result, therefore, is that the doctrine of merger applies to income-tax proceedings but the extent of its application depends on the scope and subject-matter of the appeal and the decision rendered by the appellate authority. 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 ITO's order and the remaining items, forming part of the ITO's 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 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, permitting exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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