TMI Blog1992 (9) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,13,248 relating to the claim under section 80HHC and also a sum of Rs. 23,00,552 relating to investment allowance out of which the investment allowance relating to the air-conditioner and moulds installed in the Loni Factory amounted to Rs. 11,90,941. 3. The assessee filed an appeal to the CIT (Appeals) against the disallowance under section 80HHC and section 32A of the Act. The CIT (Appeals) passed his order on the appeal on 31-3-1987. As far as the claim of Rs. 1,13,248 under section 80HHC is concerned, the CIT (Appeals) held that the claim related to that portion of the export turnover which consisted of duty drawback and cash subsidy and was rightly disallowed by the ITO. He upheld the disallowance. As far as the assessee's claim for investment allowance in an amount of Rs. 23,00,552 was concerned, he found that except for an amount of Rs. 10,716 which related to the canteen equipments, the balance of the claim was allowable though they related to the air-conditioners used in the factory, moulds, patterns and dyes and general tools which according to him were very much part of the plant and machinery. 4. On 17-3-1988, the CIT, West Bengal-I, issued a notice under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision was without jurisdiction. The assessee also made submissions on the merits of the claim both under section 80HHC and section 32A of the Act. It was further pointed out that the contribution to the staff savings scheme was actually disallowed in the assessment and, therefore, there could be no revision on this aspect. 6. These objections were considered by the CIT while passing the order under section 263 on 24-3-1988. He, however, took the view that the doctrine of merger was not applicable since the issues proposed for revision were not considered by the CIT (Appeals) or adjudicated upon by him. He did not advert to the assessee's contention that the provocation for the action under section 263 was an audit objection. As far as the merits of the claim was concerned, he stuck to his original proposal to disallow the claim under section 80HHC, insofar as it related to the value of the export of marine products during the year. As far as the investment allowance is concerned, he noticed that tape recorders were no longer a prohibited item mentioned in the Eleventh Schedule to the Act having been removed by Finance Act, 1981 with effect from 1-4-1982. He, however, felt that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a decision of the Bombay High Court in the case of CIT v. P. Muncherji Co. [1987] 167 ITR 671, wherein the doctrine of merger was held to be applicable. The learned counsel for the assessee was at pains to point out that the order under section 263 in the present case having been passed on 24-3-1988 the Explanation (c) to section 263 inserted by the Finance Act, 1988 with effect from 1-6-1988 and expanded by the Finance Act, 1989 with retrospective effect from 1-6-1988 cannot be pressed into service to uphold the order of the Commissioner. 8. Mr. Biswas, the learned departmental representative, countering the arguments of the learned counsel for the assessee, pointed out that the object of section 263 itself is to set right the errors and wrongs committed in the assessment and a narrow interpretation of the powers of the Commissioner under section 263 would defeat the very purpose of the said provision. He submitted that there was nothing in the order of the CIT to show that there was an audit objection which was the provocation for the revision. He pointed out that the decision of the Calcutta High Court in Jeewanlal (1929) Ltd.'s case is not applicable inasmuch as in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the action under section 263 having been based on an audit objection, the order should be struck down as unsustainable. However, the assessee was unable to produce any audit opinion or report given in the assessee's case which had allegedly formed the basis of the CITs action under section 263. In the absence of any such evidence or material, we cannot imagine that the CIT had initiated action under section 263 on the prompting of the audit party. The mere non-advertence in the order of the CIT to the assessee's objection is not conclusive of the matter. In the decision of the Calcutta High Court cited by the learned counsel for the assessee in support of the contention that the CITs action, if based on the opinion of the audit party, would be bad in law, the High Court found that from the affidavit filed on behalf of the department it was clear that the action under section 263 in that case had been initiated at the instance of the audit. The High Court, therefore, found that the order under section 263 cannot be upheld. No such material is available in the present case to enable us to come to the conclusion that the action under section 263 has been initiated only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us assessment order, he will not prefer an appeal to the Appellate Assistant Commissioner. The Department has got no right to prefer an appeal against the order of the Income-tax Officer. The only way in which an erroneous order insofar as it is prejudicial to the interests of the Revenue as made by the Income-tax Officer either in not interest or by not including some income, which ought to have been included or by allowing deductions or reliefs which ought not to have been allowed can be set right by the Commissioner of Income-tax by resorting to his revisional power. The power of rectification under section 154 or reopening of the assessment under section 147 has to be exercised by the Income-tax Officer. It is not open to the Commissioner of Income-tax to direct the Income- tax Officer either to rectify the assessment or reopen the assessment. In such a case, in our view. when the order of assessment passed by the Income-tax Officer is made the subject-matter of an appeal before the first appellate authority and an order is passed by the appellate authority, the Commissioner of Income-tax is not competent to set aside the entire assessment order in exercise of his revisional ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as really not necessary for the Court to examine the scope of the doctrine of merger in the context of the observations made in that decision. It was further pointed out that the attention of the High Court was not drawn to the judgment of the Supreme Court in the case of State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144. It was held in the judgment of the Supreme Court referred to above that what merges in the order of the appellate 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 appellate authority. 12. In view of the above two judgments of the Calcutta High Court rendered subsequent to the decision of the Calcutta High Court in General Beopar Co. (P.) Ltd.'s case it is not possible for us to accept the contention that there is a total merger of the assessment order with the appellate order. We cannot understand the decision of the Calcutta High Court in the above cited case as authority for the proposition that whenever an assessment order is carried in appeal by the assessee and an order is passed on appeal by the appellate authority, all points, whether d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Special Bench decision of the Income-tax Appellate Tribunal in Duwarkadas Co. (P.) Ltd.'s case After a review of the entire case law on the subject the Kerala High Court preferred to follow the view taken by the Gujarat High Court in Karsandas Bhagwandas Patel v. G.V. Shah [1975] 98 ITR 255. 15. The learned counsel for the assessee had referred to the decision of the Bombay High Court in P. Muncherji Co.'s case. That decision supports his stand. However, in view of the decisions of the Hon'ble Calcutta High Court referred to above, we are unable to follow the judgment of the Bombay High Court. The judgments of the Hon'ble Calcutta High Court are binding on us. Respectfully following these judgments we reject the assessee's contention that there is a complete merger of the assessment order with the appellate order in the present case. 16. The learned Counsel for the assessee submitted that the amendment made to section 263 of the Act by inserting a new Explanation with effect from 1-6-1988 by the Finance Act, 1988 and the further amendment made by the Finance Act, 1989 extending the scope of the Explanation with retrospective effect from 1-6-1988 applied only in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taken up in appeal by the assessee. 17. In the present case, as narrated earlier, what was taken in appeal by the assessee and decided by the CIT (Appeals) on 31-3-1987 was the deduction of Rs. 1,13,248 under section 80HHC of the Act and the claim for investment allowance under section 32A in respect of the air-conditioners and moulds installed in the Loni Factory of the assessee. In respect of the deduction under section 80HHC on the value of marine products which was included as part of the export turnover, there was no appeal taken by the assessee. Similarly, in respect of the claim of investment allowance of the balance of the amount the ITR had accepted the assessee's claim and there was no appeal to the CIT (Appeals). Therefore, the CIT was free to initiate action under section 263 in respect of these two matters. Where the assessee is not aggrieved by a part of the order of the Assessing Officer, that part of the assessment order would naturally not be the subject-matter of any appeal, As held by the Hon'ble Calcutta High Court in Hamilton Co. (P.) Ltd.'s case, in such a case if it is to be held that the Commissioner loses his jurisdiction to revise the assessment si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cash Subsidies which, according to the assessee, should be included as part of the export turnover for the purposes of calculating the deduction. The appeal under section 32A to the CIT (Appeals) was in respect of disallowance of the claim relating to the air-conditioners and moulds installed in the Loni Factory of the assessee. The issue whether the assessee was entitled to any deduction under section 80HHC in respect of the value of the marine products included in the export turnover was a separate issue. That issue was not taken up in appeal since it could not have been as the assessee had been given the relief by the Assessing Officer. Likewise, the question whether the assessee was entitled to investment allowance in respect of the plant and machinery installed in the Loni Factory in view of the relevant entries in the Eleventh Schedule to the Act was also a separate issue. On that issue also there was no appeal since the allowance had been granted to the assessee. Therefore, it cannot be said that it is only an aspect of the deductions under section 80HHC and section 32A that was sought to be interfered with by the CIT by resorting to the provisions of section 263. The princi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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