Andhra HC (Pre-Telangana)
Commissioner Of Income-Tax vs East Coast Marine Products (P.) Ltd. And ... on 1 February, 1989
Equivalent citations: [1990]181ITR314(AP)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
ORDER
--In respect of matters not covered by appeal before Commissioner (A) Held:
The doctrine of merger applies to income tax proceedings but the extent of its applicability depends onthe scope and the subject matter of the appeal and the decision rendered by the appellate authority. Matters whichare not covered by the appellate order are left untouched and to that extent, the ITO's assessment order survives permitting exercise of revisional jurisdiction by the Commissioner under s. 263. -- CIT v. K.L. Rajput (1987) 164 ITR 197 (MP) (FB) concurred with.-- Note : Legislature has since stepped in with a view to remove any controversy. It has introduced cl. (c) in the Explanation to s. 263. This Explanation introduced by the Taxation Laws (Amendment), Act, 1984, and amended by the Direct Tax Laws (Amendment) Act, 1987, though not applicable to the assessmentorder concerned herein, manifests the legislative intent.
Income Tax Act 1961 s.263 JUDGMENT B.P. Jeevan reddy J.
1. Refereed Case No. 165 of 1984 :
The following four questions are referred by the Income-tax Appellate Tribunal, Hyderabad, under section 256(1) of the Income-tax Act, 1961 :
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the order of the Income-tax Officer merged with the order of the Commissioner of Income-tax (Appeals) even in respect of matters not covered by the appeal before the Commissioner of Income-tax (Appeals) and, consequently, the Commissioner of Income-tax has no jurisdiction to invoke the powers under section 263 of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the Commissioner has no jurisdiction under section 263 to review that portion of the Income-tax Officer's order covered by the directions given by the Inspecting Assistant Commissioner under section 144B(4) of the Act ?
(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the order passed by the Income-tax Officer following the directions of the Inspecting Assistant Commissioner under section 144B is not the order of the Income-tax Officer but order of the Inspecting Assistant Commissioner and, consequently, the Commissioner of Income-tax cannot exercise jurisdiction under section 263 of the Act ?
(4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that inasmuch as the Income-tax Officer passed the order following the directions of the Inspecting Assistant Commissioner under section 144B there cannot be any error in the order of the Income-tax Officer and the Commissioner of Income-tax cannot exercise his powers under section 263 of the Act ?"
2. So far as questions Nos. 2, 3 and 4 are concerned, these questions are to be answered in the negative, that is, in favour of the Revenue and against the assessee, following the decision of this court reported in Ram Dass Deoki Nandan v. CIT , where it has been held that where an Income-tax Officer passed an order after receiving directions from the Inspecting Assistant Commissioner under section 144B of the Income-tax Act, it is still an order made by him and that it cannot be characterised as an order made by the Inspecting Assistant Commissioner. Now remains question No. 1. The issue is where an order of assessment is made by the assessing authority and the assessee files an appeal, is the Commissioner precluded from exercising his powers of revision even with respect to the issues which are not the subject-matter of the appeals. section 263(1) of the Income-tax Act, 1961, which is relevant for the purpose, reads as under :
"263.(1) Revision of orders prejudicial to revenue. - The Commissioner may call for and examine the record of any proceedings under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment.
3. Explanation. - For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, an order passed by the Income-tax Officer shall include -
(a) an order of assessment made on the basis of directions issued by the Inspecting Assistant Commissioner under section 144A or section 144B; and
(b) an order made by the Inspecting Assistant Commissioner in exercise of the powers or in performance of the functions of an Income-tax Officer conferred on, or assigned to, him under clause (a) of sub-section (1) section 125 or under sub-section (1) of section 125A."
4. The contention urged on behalf of the assessee before the Tribunal was that once an appeal is filed, even though against a portion of the order of assessment, the entire order of assessment merges with the appellate order and that, thereafter, it is the appellate order alone that is relevant and available. It is on this reasoning, it is argued, the Commissioner is precluded from exercising his powers under section 263(1) of the Act because that power is available only against the orders of the Income-tax Officer/Assessing Officer. We are not prepared to agree. In State of U. P. v. Mohammad Nooh, AIR 1958 SC 86, it was held by the Supreme Court that an order passed by a Tribunal or an appellate/revisional order passed by another Tribunal cannot be equated with the orders or appellate/revisional orders of civil courts. It was observed that even in the case of civil courts, mere filing of an appeal does not interfere with the finality of the original order. The following observations may usefully be extracted (at p.95) :
"While it is true that a decree of a court of first instance may be said to argue in the decree passed on appear therefrom or even in the order passed in revision, it does so only for certain purposes, namely, for the purposes of computing the period of limitation for execution of the decree as in Batuk Nath v. Munni Dei [1914] 41 IA 104; AIR 1914 PC 65, or for computing the period of limitation for an application for final decree in a mortgage suit, as in Jowad Hussain v. Gendan Singh [1926] 53 IA 197; AIR 1926 PC 93. But as pointed out by Sir Lawrence Jenkins in delivering the judgment of the Privy Council in Juscurn Boid v. Pirthichand Lal [1919] 46 IA 52; [1919] ILR 46 Cal 670 at pp. 678 and 679; AIR 1918 PC 151 at pp. 152 - 153, whatever be the theory under other systems of law, under the Indian law and procedure an original decree is not suspended by the presentation of an appeal nor is its operations interrupted where the decree on appeal is merely one of dismissal. There is nothing in the Indian law to warrant the suggestions that the decree or order of the court or Tribunal of the first instances becomes final only on the termination of all proceedings by way of appeal or revision. The filing of the appeal or revision may put the decree or order in jeopardy but until it is reversed or modified, it remains effective..."
5. Furthermore, even if we apply the theory of merger, it would be evident that where an appeal is filed only against a portion of the order of assessment, the merger is only to that extent. The remaining portion of the assessment order remains intact. The part which is not carried in appeal is still the orders of the assessing authority and the power of the Commissioner under section 263 in unquestionably available in that behalf. This is the view taken by a Full Bench of the Madhya Pradesh High Court in a case reported in CIT v. K. L. Rajput . It was held therein that the doctrine of merger applies to income-tax proceedings but the extent of its application depends on the scope and the subject-matter of the appeal and the decision rendered by the appellate authority. It was held that where an appeal is preferred by the assessee to the Appellate Assistant Commissioner from an order of assessment made by the Income-tax Officer in respect of only some of the items covered by the Income-tax Officer's order and the remaining items, forming part of the Income-tax Officer's assessment order, were not agitated or the Appellate Assistant Commissioner did not consider them suo motu and no decision of the Appellate Assistant Commissioner is, therefore, made in respect of the remaining items, the Income-tax Officer's order merges with the appellate order of the Appellate Assistant Commissioner only to the extent it was considered and decided by the Appellate Assistant Commissioner. Matters which are not covered by the appellate order are left untouched and to that extent, the Income-tax Officer's assessment order survives permitting exercise of revisional jurisdiction by the Commissioner under section 263 of the Income-tax Act, 1961, it was held.
6. We respectfully agree with the said decision. It is brought to our notice that certain High Courts have taken a contrary view but we are unable to see any principle in the contrary view. Moreover, such a view tends to help the evades to employ the right of appeal as a device to ward off proceedings under section 263. It is not brought to our notice that this court has taken a view contrary to the proposition affirmed by us.
7. We may also mention that the Legislature has since stepped in with a view to remove any controversy. It has introduced clause (c) in the Explanation to section 263 of the Income-tax Act. This Explanation introduced by the Taxation Laws (Amendment) Act, 1984, and amended by the Direct tax Laws (Amendment) Act, 1987 (Finance Act, 1988 (?)), in so far as it relevant, reads as follows :
"For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, an order passed by the Income-tax Officer shall include -
(c) Where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal, the powers of the Commissioner under this sub-section shall extend to such matters as had not been considered and decided in such appeal."
8. This amendment, though not applicable to the assessment order concerned herein, manifests the legislative intent. It is really clarificatory in nature. We have, of course, held that even without such an explanatory clause, the position is the same. For the above reasons, question No. 1 is answered in the negative, that is, in favour of the Revenue and against the assessee. No costs.
9. Refereed Case No. 177 of 1985 :
10. In this case, the question referred to has to be answered in the negative, that is, in favour of the Revenue and against the assessee following the decision in Torson Products Ltd. v. CIT . The reference is answered accordingly. No costs.