TMI Blog1979 (7) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Commissioner and, therefore, arises out of his order. 2.2 Shri Shastri, the senior departmental representative, on the other hand, raised a preliminary objection to the admission of the additional ground. According to him, an additional ground raised long after the time for filing the appeal has expired could be admitted only if the assessee shows that it was prevented by sufficient cause in not taking up the ground originally. Referring then to the assessee's application, Shri Shastri pointed out that the assessee had admitted that the ground was not taken originally by an oversight and sheer inadvertence. Since this, according to Shri Shastri, cannot constitute sufficient cause, it was contended that the additional ground should not be admitted. Our attention for the purpose was invited to rule 11 of the Income-tax Appellate Tribunal Rules, 1963. 2.3 In reply, Shri Harish, the learned counsel for the assessee, submitted that unlike condonation of delay in filing an appeal, for entertainment of an additional ground, the assessee was required only to show that in not taking the ground originally, the assessee had not acted mala fide and that delay in filing the ground o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us. 4. It may not be out of place to mention that the assessee's learned counsel, Shri D.M. Harish, and the senior departmental representative, Shri Shastri, very ably argued the appeal before us and rendered all possible assistance. If we have been able to understand the intricacies of the provisions and of various decisions and have decided the ground correctly, it is mainly, if not wholly, due to the assistance that we receive at the Bar. However, for the sake of brevity, we do not propose to refer to rival contentions in details and propose to discuss it in the course of our judgment. It should not, therefore, be understood that detailed and proper arguments were not advanced by the parties. 5.1 In order to appreciate rival contentions, we would like to state the relevant facts in brief. The assessment was completed under section 143(3) on 30-12-1975 computing the total income at Rs. 1,48,829 as against the declared income of Rs. 1,37,898. Besides objecting to the additions/disallowances made, the assessee objected to its not being treated as a manufacturing/industrial company (liable to a reduced rate of tax). The latter ground was, however, not pressed as it was real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 33B of the Indian Income-tax Act, 1922 (hereinafter referred to as "the 1922 Act"). An identical question, It may be stated, was posed before the Appellate Tribunal long back in 1952 in the case of Tejaji. 6.2 The facts were that the assessee, a HUF, was sole selling agent of dyes and chemicals manufactured by Ciba (India) Ltd. and Imperial Chemical Industries (I) Ltd. The agencies were transferred to Tejaji Farasram Kharawala Ltd. for a consideration of Rs. 50,000. The ITO computed capital gains at Rs. 25,000 on this transaction, against which the assessee went in appeal to the AAC who confirmed the inclusion. Subsequent thereto, the Commissioner acting under section 33B(1) of the 1922 Act held that the capital gains should have been computed at Rs. 10 lakhs. It was, inter alia, held by the Tribunal that the Commissioner had no jurisdiction to revise the order of the ITO under section 33B as the question of computation of capital gains was considered and adjudicated by the AAC. The Tribunal held that where an issue was, as a matter of fact, considered by the AAC, it being immaterial whether the ITO's order thereon was confirmed, modified or set aside, the effective and op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded from making an order under section 33B once an order has been passed by the Appellate Assistant Commissioner even though the Appellate Assistant Commissioner does not deal with the matter with which the Commissioner has dealt. 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 or the Appellate Assistant Commissioner, but once the order is merged, the Commissioner cannot deal with the assessment of the assessee at all. On appeal the power to deal with the assessment is given to the Appellate Assistant Commissioner, and further the power is given to the Appellate Tribunal in appeal from the order of the Appellate Assistant Commissioner. The Commissioner completely goes out of the pictur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT v. Rai Bahadur Hardutroy Motilal Chamaria and the Commissioner's powers to ask the AAC to enhance the assessment where he felt that the order of the ITO was erroneous and prejudicial to the interest of the revenue. 2. The Supreme Court decision in the case of Amritlal Bhogilal as since been explained by the Supreme Court itself in its later decision in the case of Madurai Mills where it observed : "In support of this argument reliance was placed upon the observation of Gajendragadkar, J., as he then was, in CIT v. Amritlal Bhogilal Co. [1958] 34 ITR 130 at p. 136. 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 contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not and, if there is, to what extent, depends upon the subject-matter of the appellate order. The order of assessment made by the Income-tax Officer merges in the order of the Appellate Assistant Commissioner only in so far as it relates to items considered and decided by the Appellate Assistant Commissioner. That part of the order of assessment which relates to items not forming the subject-matter of the appellate order is left untouched and does not merge in the order of the Appellate Assistant Commissioner. Even after an appeal from an order of assessment is decided by the Appellate Assistant Commissioner, a mistake in the part of that order of assessment which was not the subject-matter of review by the Appellate Assistant Commissioner and was left untouched by him can be rectified by the Income-tax Officer under section 35 of the Indian Income-tax Act, 1922, because the mistake would be his own mistake which he can always correct under section 35(1)". 5. The Bombay High Court has again in the case of CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570 followed the Gujarat High Court in Karsandas's case and dissented from the Allahabad High Court decision in the case of J.K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this connection, reference may usefully be made to the following observations of the Supreme Court in the case of Motilal Chamaria at page 451 : "... As we have already stated, it is not open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income-tax Officer with a view to find out new sources of income and the power of enhancement under section 31(3) of the Act is restricted to the sources of income which have been the subject-matter of consideration by the Income-tax Officer from the point of view of taxability. In this context 'consideration' does not mean 'incidental' or 'collateral' examination of any matter by the Income tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection..." Whether the AAC can or should do it suo motu or whether the Commissioner can ask him to do so is hardly material for the purpose of this appeal so long as the AAC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... later decision of the Supreme Court in Madurai Mills' case which can be said to be contrary or explaining the earlier decision of the Supreme Court in Amritlal Bhogilal's case. In that case, the Supreme Court has, after referring to its following observation in Amritlal Bhogilal's case observed : "But the doctrine of merger is not a doctrine or 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 contemplated by the particular statute." At first look, it might appear that in its later decision the Supreme Court has diluted its earlier decision. However, on carefully going through the same, it is clear that it is not so. The basis of the Supreme Court's earlier decision was powers of the AAC, once an appeal was filed, which were more or less coterminus with that of the ITO subject to limits in terms of the decision in Motilal Chamaria's case. On the same analogy, the orders of the AAC may not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Deputy Commissioner under section 12(2), at the instance of the assessee, the Deputy Commissioner's jurisdiction was very much limited and, therefore, the earlier decision of the Supreme Court, which was rendered in the case of an order which was the subject-matter of appeal before the AAC had to be and was rightly distinguished. Read in this context, it is clear that the observations of the Supreme Court in Madurai Mills' case are in no way in conflict with those in Amritlal Bhogilal's case. 10.4 It may be noted that their Lordships have referred to the assessment order in Amritlal Bhogilal's case as a composite order, which in our view, only means a common order passed under sections 23(3) and 26A of the 1922 Act but the two orders were independent orders separately appealable. This is why their Lordships, while deciding the issue in Amritlal Bhogilal's case in favour of the assessee, noted but did not adversely comment on the earlier Bombay High Court decision in Tejaji's case. 10.5 It is also not without significance that the decisions of Tejaji's and Amritlal Bhogilal's cases were given by their Lordships of the Bombay High Court on the same date, i.e., 5-3-1953 and bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax demanded as a result of subsequent orders in appeal or revision, it may be stated, has been superseded with retrospective effect by the Taxation Laws (Continuation and Validity of Recovery Proceedings) Act, 1964. This, however, does not in any way change the legal position regarding orders by the ITO as laid down hereinabove. 12. Again, the Bombay High Court in the case of Blue Star and the Gujarat High Court in the case of Karsandas, were considering the powers of various authorities for rectifying their orders. Since all these authorities had identical powers, the question had arisen about the extent of power of each authority. This naturally raised the question of limitation inter se. Apart from the fact that the provisions considered in those decisions were of section 35 of the 1922 Act and/or section 154 of the 1961 Act, which, to our mind, are certainly not identical with those of section 33B of the 1922 Act and section 263 of the 1961 Act, it may be noted that even the insertion of sub-section (1A) in section 154 in 1964 which makes the legal position abundantly clear was not brought to the notice of their Lordships in those decisions. Therefore, it is not possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no doubt that a contrary view has been taken by the Allahabad High Court in J.K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344, where a Division Bench of that Court has taken the view, referring to the provisions of section 251 of the IT Act, 1961 that if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law that is effective and can be enforced even if the appellate decision has merely confirmed the decision of the Tribunal. Thus, if there is in law confirmation or affirmation of the decision, it merges in the appellate order. The learned Judges of the Allahabad High Court have dissented from the view taken by the Gujarat High Court in Karsandas Bhagwandas Patel v. G.V. Shah, ITO [1975] 98 ITR 255, and have declined to accept the distinction drawn by the Gujarat High Court between a part of the assessment order which is made the subject of appeal and the other part in respect of which the AAC has not exercised his jurisdiction. We are unable to agree with the view taken by the Allahabad High Court because, as already pointed out earlier, the distinction between a part of the assessment order no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the orders made by him. When the statute has given powers of rectification to the ITO in respect of his own order, the position is that he is able to rectify his own order within the prescribed period if the whole of the order or a part of the order has not been subjected to appeal. If the theory of merger is accepted as being attracted wholly, the provision relating to rectification of mistake by the ITO in a case where even a part of the assessment order is made the subject of appeal is likely to become nugatory. It, therefore, clearly appears to us that the provisions of the I.T. Act contemplate that in case where an assessment is made subject of an appeal, the assessment orders made by the ITO do not wholly merge with the orders of the appellate authority but that the merger would take place only in respect of that part of the order in respect of which the AAC has exercised his appellate jurisdiction." 15. Moreover, while the Bombay High Court decision in Tejaji's case is on all fours, the other decisions of the Bombay and Gujarat High Courts are distinguishable and are in conflict with it. Further, on carefully going through the observations of the Bombay High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enhance, an obligation to enhance the assessment, whether or not the particular issue decided in the assessment is subject-matter of appeal. 18. It may not be out of place to observe that it was strongly argued on behalf of the revenue that unless the AAC had, as a matter of fact, exercised his power of enhancement on issues decided by the ITO in the assessee's favour, the orders of the ITO on those issues would stand and, therefore, the Commissioner would have jurisdiction under section 263 to revise that part of the order. It was contended that to have a power to enhance, and the fact that such power has been exercised, are two different concepts which cannot be treated as substitute of each other. To our mind, even this argument is untenable. In this connection, reference may usefully be made to another Supreme Court decision in the case of S.A.L. Narayan Row v. Iswarlal Bhagwandas [1965] 57 ITR 149. The question involved in that case was whether the ITO could charge interest under section 18A(6) of the 1922 Act by invoking the provisions of section 35 of the 1922 Act. For this purpose, it has to be borne in mind that while passing the assessment order originally, the ITO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the order lies to the AAC or to the Tribunal but has not been made and the time within which such appeal may be made has not expired, or in the case of an appeal to the Tribunal, the assessee has not waived his right of appeal; or (b) the order is pending on an appeal before the AAC ; or (e) the order has been made the subject of an appeal to the Tribunal. If the interpretation sought to be placed by the revenue is accepted, it would mean that an assessee can file an appeal to the AAC on some points decided against him by the ITO and can file a revision petition before the Commissioner under section 264 on other points not taken up in appeal before the AAC. Similarly, it would be open to an assessee to file a revision petition against some of the points decided by the AAC against him and also file an appeal to the Tribunal on some other points. This will be an anomalous position and when such a case came up for consideration before the Madras High Court, the argument was not accepted in the case of C. Gnanasundara Nayagar v. CIT [1961] 41 ITR 375. 20. Our attention was also invited by the departmental representative to the gross injustice which he thought will cause t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITO in which different issues are determined. The provisions of section 143 clearly contemplate that the ITO shall, after hearing the evidence of the assessee and other evidence required by him on specific points and taking the relevant materials into account, by an order in writing, make an assessment of total income or loss of the assessee and determine the sum payable by him or refundable to him. The provisions of section 246(c), providing for an appeal, contemplate that the right of the assessee to prefer an appeal would arise by his being aggrieved by any order of assessment under section 143(3) and such right is against such order, that is to say, order of assessment. The provisions of section 251 enumerating the powers of the AAC in disposing an appeal mentions that in an appeal against the order of assessment he may confirm, reduce, enhance or annul the assessment. Section 250(6) states that the order of the AAC disposing of the appeal shall state the points for determination, his decisions thereon and the reasons for the decisions. In other words, as we understand it, the AAC does not pass separate orders on each point, dealt in by the ITO or disputed by the appellant b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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