TMI Blog1975 (6) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred an appeal from the original order of assessment before the Appellate Assistant Commissioner which was disposed of by the latter by his order dated the 12th August, 1968. The assessee preferred an appeal before the Tribunal from the order of the Commissioner. It was contended before the Tribunal that the assessment order dated the 4th March, 1966, had merged with the order of the Appellate Assistant Commissioner in appeal and consequently section 263 of the Income-tax Act, 1961, could not apply. It was also contended that the Income-tax Officer should be deemed to have exercised the discretionary power vested in him under rule 48(1) of the Income-tax Rules, 1922, and to have waived interest under the said section 18A(8). It was further contended that with effect from the 1st April, 1962, the Income-tax 1922 had been repealed the new Act of 1961 and as such section 18A(8) of the earlier Act had ceased to exist from that date and the Commissioner's order directing the levy of interest under that section could not be sustained. The department contended before the Tribunal that the appeal from the assessment was on points entirely unconnected with the question of levy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues which had been adjudicated upon by the Appellate Assistant Commissioner ? (2) Whether, on the facts and circumstances of the case, the assessment order was merged with that of the Appellate Assistant Commissioner and, if so, whether the Commissioner of Income-tax was competent to pass the order under section 263 on 31st October, 1967 ? (3) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the penal interest should be charged under section 217 of the Income-tax Act, 1961, only after considering whether there was a case for a reduction or waiver as provided for in rule 40 of the Income-tax Rules, 1962 ? (4) Whether, on the facts and circumstances of the case, the Income-tax Officer should be deemed to have exercised the discretionary power vested in him under rule 48(1) of the Income-tax Rules, 1922 ?" Mr. S. B. Mukherjee, learned counsel on behalf of the assessee, submitted that section 250(7) of the Income-tax Act, 1961, provided for communication of the order passed in appeal by the Appellate Assistant Commissioner to the assessee and the Commissioner, and hence when the latter exercised his powers of revision he had or would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x ?" The High Court held that in enhancing the computation of goodwill the Commissioner was revising the appellate order. In his judgment, Chagla C.J. observed as follows : "The principle underlying section 33B is that it is only the order of the Income-tax Officer that can be revised by the Commissioner. Once the assessment is confirmed by the Appellate Assistant Commissioner or any order with regard to the assessment has been made by the Appellate Assistant Commissioner, that becomes a final order of assessment, and the only right that the department has is the right to appeal to the Appellate Tribunal. The right of the Commissioner continues so long as the order of the Income-tax Officer is not merged in the order of the Appellate Assistant Commissioner, but once the order is merged, the Commissioner cannot deal with the assessment of the assessee at all." Mr. Mukherjee also cited the case of Shantilal Rawji v. M. C. Nair, IVth Income-tax Officer [1958] 34 ITR 439 (Bom). This case deals with the scope of rectification proceedings by the Income-tax Officer and is not of much assistance on the point in issue here. Mr. Suhas Sen, learned counsel on behalf of the revenue, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, an order of the Income-tax Officer granting registration to a firm could not be the subject-matter of an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner could not cancel an order granting registration and that such an order remained outside the appellate jurisdiction and did not strictly form part of the proceedings before the appellate authority. The order of registration was not and could never become the subject-matter of an appeal before the appellate authority and could not merge in the appellate order. Such an order could be revised by the Commissioner under section 33B whenever he considered that it was erroneously passed. The next decision of the Supreme Court cited by Mr. Sen was in the case of Commissioner of Income-tax v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443. In this case, the Appellate Assistant Commissioner had, in an appeal preferred by the assessee, enhanced the assessment. It was held that the Appellate Assistant Commissioner had no jurisdiction under section 31(3) of the Indian Income-tax Act, 1922, to assess a source of income which was not disclosed either in the returns filed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. The application of the doctrine, according to the Supreme Court, depended on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction. The Supreme Court found that the only point which was urged before the Deputy Commissioner was that a sum collected by way of tax should not be included in the taxable turnover. Before the Board of Revenue the question which arose was whether the Deputy Commercial Tax Officer was right in excluding from the net taxable turnover of the assessee another sum on another transaction. The Supreme Court held that the doctrine of merger could not be invoked in those circumstances. Mr. Sen referred to section 246 of the Income-tax Act, 1961, which specified the orders of an Income-tax Officer which were appealable and from which appeal could be preferred to the Appellate Assistant Commissioner. In this section an order under section 216 of the Act providing for payment of interest in the case of under-estimation of income has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 48(1) of the Income-tax Rules, 1922, and had waived interest in the instant case next falls for consideration. Mr. Mukherjee for the assessee relied on the case of Shantilal Rawji v. M. C. Nair, IVth Income-tax Officer [1958] 34 ITR 439 (Bom), referred to earlier also in support of this contention. In this case, the assessee lead paid advance tax in his own estimate under section. 18A and after the after the order of assessment was passed, the Income-tax Officer discovered that the assessee had not paid the correct amount of advance tax and interest had not been charged under section 18A(6). The Income-tax Officer thereupon issued a notice and passed an order of rectification levying penal interest. It was contended on behalf of the assessee that as the matter had not been dealt with in the assessment order at all there was no case for rectification. The Bombay High Court decided the case on the basis that under the statute it was obligatory upon the Income-tax Officer to levy such penal interest and as he had not done so the mistake or error was apparent on the face of the records. In the meantime the relevant section 18A(6) had been amended with retrospective effect and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se [1958] 34 ITR 439 by the Bombay High Court were in the nature of obiter. The proviso on which the argument was based was found to be not in force at the relevant time. We respectfully agree matter the observations of the Kerala High Court. It appears to us that in the instant case the order is absolutely silent and it is not possible to infer therefrom that the Income-tax Officer had in fact considered the matter at all or had exercised his discretion in any manner. An order under section 217 is not appealable but the same can be revised by the Commissioner either in favour of the revenue under section 263 or in favour of the assessee under section 264. On the preceding reasons we answer the questions as follows : With reference to question No. 1 we hold that onlv the assessment order which was the subject-matter of the appeal merged with the order of the Appellate Assistant Commissioner and there was no merger in respect of levy of penal interest under section 18A(8) and/or section 217 of the two Acts. We answer question No. 1 in the affirmative and in favour of the revenue. Question No. 2 has to be answered with reference to question No. 1 and we answer the same in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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