TMI Blog1981 (1) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. Certain other deductions claimed by the assessee were, however, not allowed by the ITO, and, hence, an appeal was preferred by the assessee before the AAC, which was partly allowed. A further appeal preferred by the assessee was partly allowed by the Tribunal. On scrutiny of the assessment record of the assessee for the assessment year 1974-75, the Commissioner noticed that during the accounting year, relevant to the assessment year 1974-75, one of the partners of the assessee-firm had overdrawn sums from out of the borrowed funds on which interest had been paid and that a part of the borrowed fund had thus been utilised for purposes other than that of business. The Commissioner was, therefore, of the opinion that in allowing deduction of the entire amount of Rs. 1,24,217 claimed to have been paid by the assessee by way of interest, the assessment order passed by the ITO appeared to be erroneous in so far as it was prejudicial to the interest of the Revenue. A notice under s. 263 of the Act was, accordingly, issued to the assessee to show cause. The assessee pointed out to the Commissioner that the order of the ITO was the subject-matter of appeals before the AAC and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Department, submitted that the order of the ITO relating to allowance of interest was not the subject-matter of appeal before the appellate authority and that part of the order passed by the ITO was in fact left untouched by the appellate authority and, hence, it did not merge in the order of the AAC or the Tribunal. Relying upon the decision in Karsandas Bhagwandas Patel v. G. V. Shah, ITO [1975] 98 ITR 255 (Guj), learned counsel for the Department contended that the Commissioner had jurisdiction under s. 263 of the Act to revise that part of the order of assessment which was not the subject matter of appeal before the AAC. The real question for consideration in the case is whether the Tribunal was justified in holding that the order passed by the ITO in respect of the allowance of interest did not merge in the order passed by the AAC. The question framed by the Tribunal does not, in our opinion, bring out the real issue which arose before the Tribunal for consideration and we have therefore, reframed the question as follows: " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the order of the Income-tax Officer in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, set aside the order of assessment passed by the ITO with regard to the claim of the assessee for the amount of rebate. The petitioner challenged the order of the Commissioner before this court contending that the Commissioner had no jurisdiction to proceed under s. 263 of the Act and to revise the order of assessment passed by the ITO, because the order of assessment passed by the ITO had merged in the order passed by the AAC in the appeal preferred by the assessee. This contention was not upheld by us relying on the following observations of the Supreme Court in State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144; AIR 1967 SC 681, 683 : " 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 as contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. Learned counsel for the assessee, however, contended that in M. P. No. 55 of 1978, it was conceded on behalf of the assessee that the claim for rebate allowed by the ITO was not the subject-matter of appeal and it was on that basis that this court proceeded to consider the question. It was urged that as the decision in M.P. No. 55 of 1978, proceeded on a concession made by the assessee in that case, that decision was not attracted in the instant case. Learned counsel for the assessee further urged that the decision in M.P. No.55 of 1978, required reconsideration, because the scope of the provisions of s.251(1)(a) of the Act was not considered in that decision. We may, in this connection, usefully refer to the decision of the Gujarat High Court in Karsandas Bhagwandas Patel v. G. V. Shah, ITO [1975] 98 ITR 255. In that case, the order of assessment was rectified by the ITO and the order of rectification was assailed on the ground that the order of assessment passed by the ITO had merged in the order of the AAC in appeal and, hence, the ITO had no jurisdiction to rectify the order of assessment. The contention advanced on behalf of the assessee was that when an appeal was pref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer suo motu, there is no obligation on him to do so and in the absence of such obligation, there can be no scope for the application of the doctrine of implied decision." On behalf of the assessee, it was contended that the view of the Gujarat High Court, that there was no obligation on the AAC to examine the correctness of every decision recorded by the ITO in the process of assessment, was not well founded. It has, however, to be borne in mind that, as observed in Karsandas Bhagwandas Patel v. G. V. Shah, ITO [1975] 98 ITR 255 (Guj) for the purpose of determining the applicability of the principle of merger, the test which has to be applied is whether the decision of the ITO on a particular point was the subject-matter of appeal before the AAC. It might not have been the subject-matter of appeal either because the AAC had no jurisdiction to consider that matter or because the AAC though having jurisdiction to examine that subject-matter did not do so, but in either case there being no decision of the AAC on the point, the decision of the ITO remains untouched. This question was also considered from slightly different angle in Karsandas Bhagwandas Patel v. G. V. Shah, ITO [1975 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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