Income Tax Appellate Tribunal - Jabalpur
Surender Kumar Madan vs Ito on 7 May, 2003
Equivalent citations: (2004)88TTJ(JAB)918
ORDER
Keshaw Prasad, A.M. All the four appeals have been directed by the assessee against the consolidated order of the Commissioner under section 263 of the Income Tax Act, 1961 dated 3-2-2003, pertaining to assessment years 1994-95 to 1997-98. In all the grounds, the assessee has challenged the assumption of jurisdiction under section 263 of the Act by the Commissioner.
2. Briefly, the facts of the case are that the assessee, an individual, derives income from running a petrol pump in the name of M/s Diamond Service Station at Panna (MP). He is dealer of Hindustan Petrolium Corporation. Though the assessee earned certain incomes from the above activities, due to certain personal problems, he could not furnish his income-tax returns for the assessment years 1994-95 to 1997-98. He, therefore, availed the opportunity to declare the heitherto undisclosed income under VDIS, 1997 on 31-12-1997. It appears that the assessing officer directed his Income-tax Inspector to make enquiries about the income of the assessee. On the basis of Inspector's Report dt. 10-6-1998, the notices under section. 148 of the Act were served on the assessee for all the years on 2-7-1998. The assessee challenged the issue of notice under section 148 on the ground that the income had already been declared under VDIS 1997 and, therefore, the assessing officer has no jurisdiction to issue notice under section 148 of the Act in any of the assessment years. However, the assessing officer did not find any substance in the submissions of the assessee and, therefore, proceeded to make assessment under section 143(3)/147 of the Act.
3. During the course of assessment proceedings, the assessing officer examined various submissions of the assessee. He even called for the information from Hindustan Petrolium. Corporation Ltd. (HPCL) regarding purchase and sales of the assessee with HPCL as well as the commission earned by the assessee from HPCL. After perusing the documents on record as well as the information received from HPCL, the assessing officer vide his order dated 22-2-2001, made certain additions on account of low gross profit, disallowances out of telephone expenses, vehicle expenses and miscellaneous expenses. The assessing officer also made addition on account of low withdrawals for house hold expenses in different years. These additions were challenged before the Commissioner (Appeals). By a consolidated order dated 16-1-2003, the Commissioner (Appeals) adjudicated various grounds of appeal raised by the assessee. In brief, his findings on various issues were as under:
(i) The assessing officer was justified in initiating proceedings under section 147 of the Act.
(ii) In making assessment under section 147 of the Act, the assessing officer has not violated the provisions of rule 68(1) of the VDIS, 1997 as he has tried to tax the balance income only which was not disclosed under VDIS 1997.
(iii) The addition on account of gross profit rate was not justified.
While doing so, the Commissioner (Appeals) has quoted the following observations of the assessing officer mentioned in the assessment order:
"The Hindustan Petrolium Corporation has supplied the details of sales and commission paid to the assessee during the years under consideration which were different from the purchases and commission shown by the assessee. After verification, it has been found that the assessee had correctly disclosed the purchases and commission".
(iv) Disallowances out of telephone expenses and vehicle expenses were justified;
(v) The addition on account of household expenses was not justified.
(vi) The disallowance out of miscellaneous expenses was not justified.
4. During pendency of appeals before the Commissioner (Appeals), the Commissioner had occasion to examine the record of the assessee for till the four assessment years. He noted that in the instant case, the notices under section 148 of the Act were issued to the assessee for all the four years. Still no return of income was filed in response to these notices. While the assessing officer should have made the assessment under section 144 of the Act, he had made the assessment under section 143(3) of the Act. He also noted that on the basis of information received from the HPCL, there was difference in the figures of purchase/sales as declared by the assessee vis-a-vis the information supplied by the HPCL. The differential figures represented unaccounted and undisclosed transaction requiring undisclosed investment and yielding undisclosed profit. He noted that instead of making, addition on these accounts, the assessing officer had only rejected the books of account and merely enhanced the gross profit rate declared by the assessee.
5. He also noted that the assessing officer had neither examined the genuineness of the loans obtained by the assessee nor the issue of deduction on such loans. He also noted that though the assessing officer has made disallowances out of vehicle expenses for non business user, he did not proportionately disallow the depreciation on such vehicle. He, therefore, issued a show cause notice on 9-9- 2002, as to why the assessment order passed by the assessing officer for all the four years may not be set aside under section 263 of the Act. As there was no compliance of the show cause notice nor any written submissions were made, the Commissioner passed order under section 263 of the Act on 3-2-2003 (after the order was passed by the Commissioner (Appeals) setting aside some issues for reconsideration by the assessing officer and directing the addition/disallowances of certain amounts in different years. While doing so, the Commissioner observed that "the assessing officer has not conducted any enquiries which he ought to have conducted as an assessing officer. Non application of mind by the assessing officer is also clear from the facts discussed above. It has been held by the Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT (1975) 99 ITR 375 (Del), that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income Tax Officer should have made further inquiries before accepting the statements made by the assessee in its return. It has been further-held that it is the duty of the Income Tax Officer to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The Hon'ble court has further explained that it is because it is incumbent on the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent and that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. Similarly Hon'ble Madhya Pradesh High Court in the case of CIT v. Kohinoor Tobacco Products (P) Ltd. (1998) 234 ITR 557 (MP) has held that the failure on the part of the assessing officer to make necessary enquiries rendered the assessment erroneous and also prejudicial to the interest of revenue. Even the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) has held that an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. It was further held that an order passed without application of mind will also fall in the same category. Therefore, notice under section 263 has been properly issued in view of the powers vested under section 263 as interpreted by the Hon'ble Courts. Therefore, the assessment orders passed by the assessing officer are erroneous in so far as they are prejudicial to the interest of revenue. Accordingly, section 263 has been rightly invoked."
6. Briefly, the findings/directions of Commissioner under section 263 of the Act were as under
(i) No returns of income were filed by the assessee for any of the years in response to notice under section 148 of the Act. The assessment for all the four years, therefore, should have been completed under section 144 of the Act and not under section 143(3) of the Act. While relyingon the provision of section 292B of the Act, he modified the assessing officer's order to the extent that the orders passed under section 143(3) of the Act should be read as having been passed under section 144 of the Act.
(ii) The assessing officer did not examine the genuineness of the loans and the payment of interest thereon though there were certain fresh credits in the assessment year 1997-98. The Commissioner held that as the assessing officer had not examined I this issue, his order was erroneous in so far as prejudicial to the interest of the revenue. He, therefore, directed the assessing officer to examine this issue afresh.
(iii) In assessment year 1994-95, the assessing officer has disallowed a part of vehicle expenses for non-business use but he did not disallow the depreciation on such vehicle proportionately. The assessing officer's order was, therefore, erroneous in so far as prejudicial to the interest of the revenue. The Commissioner therefore, directed the assessing officer to disallow the depreciation on the vehicle proportionately.
(iv) There is discrepancy in the purchase account from HPCL, inasmuch as, the figure of purchases disclosed by the assessee and the figures supplied by the HPCL are quite different. Even the assessing officer had asked the assessee to reconcile these figures. The assessee failed to offer any explanation for the assessment year 1994-95 though he had filed some explanation for other years. The assessee did not produce any books of account to support the figure claimed by him in the profit and loss account. Under these circumstances, the assessing officer was bound to adopt the figure supplied by HPCL. As the assessing officer has not done so, there has been non-application of mind by the assessing officer on this issue. He should have conducted proper enquiries and taken the issue to a logical conclusion. The order passed by the assessing officer was, therefore, erroneous in so far as prejudicial to the interest of the revenue. He, therefore set aside the order of the assessing officer on this issue and directed him to make addition of the differential amount as income from undisclosed sources in the relevant assessment years. He also directed the assessing officer that since the differential amount of purchases in assessment year 1994-95 was sold during the year itself, the extra profit of Rs. 9,073 on such sales should also be brought to tax.
(v) There is discrepancy in the commission income earned by the assessee. This is evident from the figures of commission as disclosed by the assesses vis-a-vis the figures supplied by the HPCL. The assessing officer has accepted the figure of commission without conducting proper enquiries. He has, therefore, not applied his mind to this issue. Non-application of mind by the assessing officer on this issue renders the assessment order erroneous in so far as prejudicial to the interest of revenue. He, therefore, set aside the assessment order on this issue and directed the assessing officer to make addition on account of undisclosed commission income in the relevant assessment years.
7. While holding so, the Commissioner also directed the assessing officer to issue demand notice and challan, charge interest under sections 234A, 234B and 234C of the Act as well as initiation of penalty proceedings under section 271(1)(c) of the Act.
8. The assessee is before us against the order under section 263 of the Act passed by the Commissioner in all the four years.
9. It is argued by the learned counsel that it was a settled law that Commissioner can assume jurisdiction under section 263 of the Act only if two conditions namely, that the order passed by the assessing officer was erroneous in far as the same was prejudcial to the interest of revenue, are satisfied. If any of these two conditions was not satisfied, the Commissioner cannot assume jurisdiction under section 263 of the Act. The learned counsel also stated that even if the order passed by the assessing officer was erroneous but if the same was not prejudicial to the interest of revenue, the assumption of jurisdiction under section 263 of the Act was illegal. It was in this context that the learned counsel referred to the Commissioner's observations about passing the order under section 143(3) of the Act rather the section 144 of the Act. He stated that even if the Commissioner was correct in observing that the assessment orders should have been passed under section 144 of the Act rather than under section 143(3) of the Act, no prejudice is caused to the revenue. As the findings of the assessing officer were not prejudicial to the interest of the revenue, the assumption of jurisdiction under section 263 of the Act on this issue was illegal. He therefore, argued that modification from order under section 143(3) to section 144 of the Act was, of no effect.
10. Learned counsel further argued that it is settled law that if the order of the assessing officer has been subject-matter of adjudication by the appellate authorities and such authorities have adjudicated a particular issue, the Commissioner has no power to assume jurisdiction under section 263 of the Act on those issues because the order of the assessing officer stands merged into the order of the appellate authority. The reliance was placed on the decision of Hon'ble jurisdictional High Court (Full Bench) in the case of CIT v. K.L. Rajput (1987) 164 ITR 197 (MP)(FB). The Hon'ble court held that the Commissioner was not justified in setting aside the entire order of assessment passed by the assessing officer in exercising of his revisional powers under section 263 of the Act when the order of assessment passed by the assessing officer was the subject-matter of an appeal before the appellate authority. The court further held that the Commissioner could not assume jurisdiction under section 263 of the Act in respect of those issues which were adjudicated by the appellate authority. However, he was free to assume jurisdiction under section 263 of the Act in respect of those issues which were not adjudicated by the appellate authority. The learned counsel also relied on the decisions of Hon'ble Bombay High Court in the case of Remex Construction Remex Electricals v. ITO & Ors. (1987) 166 ITR 18 (Bom). The Hon'ble Court observed that the powers of revision under section 263 of the, Act is restrictive to an order passed by the assessing officer. When the appellate authority passes an order, the order of the assessing officer ceases to exist and merges in the appellate order and although the appellate authority may confirm the order of the trial Court, the order that stands and is operative is not the order of the trial court but the order of the appellate authority. Such an order cannot be revised under section 263 of the Act. The learned counsel further relied on the decision of Hon'ble Bombay High Court (Nagpur Bench) in the case of CIT v. Paul Bros. (1995) 216 ITR 548 (Bom). The Hon'ble court held that when the assessing officer's order merges in that of the appellate authority, the revisional jurisdiction under section 263 of the Act cannot be exercised. In this context, the learned counsel pointed out that the Commissioner has, directed to disallow the proportionate depreciation on jeep for non-business user and also the addition on account of difference in the figure of purchases disclosed by the assessee vis-a-vis the information received from HPCL. It was stated that the assessing officer had disallowed the part of vehicle expenses for non-business user. Such disallowance was the subject-matter of appeal before the Commissioner (Appeals). The Commissioner (Appeals) has upheld the findings of the assessing officer. This clearly indicated two things. Firstly, the assessing officer has applied his mind to this issue and disallowed 20 per cent of the expenses on vehicle including depreciation. Thus, it was not a case of non-application of mind by the assessing officer. Secondly, this issue was also adjudicated by the Commissioner (Appeals) and, therefore, the assessing officer's order has merged into the order of the Commissioner (Appeals). The Commissioner (Appeals) vide para 4 of his order has mentioned that he was sustaining the disallowance of 20 per cent of the total expenditure. He was, therefore, alive to this issue. The Commissioner has, therefore, wrongly assumed jurisdiction under section 263 of the Act on this issue. Similarly when the assessing officer wanted to verify the purchases made by the assessee, he also called information from the HPCL. The information was not submitted by the HPCL. The assessing officer, thereafter issued a letter to the assessee to reconcile the same. Certain reconciliations were furnished by the assessee. The assessing officer was satisfied from such reconciliation and vide page 7 of his order he observed that after verification, it has been found that the assessee has correctly disclosed the purchases and commission. This again indicated two things. Firstly, the assessing officer applied his mind and made proper investigation. He had also considered the information supplied by the HPCL. Secondly, this issue was also adjudicated by the Commissioner (Appeals).
11. As mentioned earlier, after examining the purchases and sales disclosed by the assessee, the assessing officer was of the opinion that there have been certain undervaluation of closing stock. He, therefore, rejected the books of account and applied a particular G.P. rate. Such addition to the trading results was agitated before the Commissioner (Appeals) who has deleted the trading addition. While relying on the decision of the Agra Bench of the Tribunal in the case of Goyal Iron Store Works v. CIT (2002) 120 Taxman 208 (Agra)(Mag), the learned counsel stated that it was not necessary that only the precise issue should have been adjudicated by the Commissioner (Appeals) to debar the Commissioner from assuming jurisdiction under section 263 of the Act. It was enough if the trading addition as a whole was considered by the Commissioner (Appeals). The learned counsel also relied on the decision of Hon'ble Gujarat High Court in CIT v. Arvind Jewellers (2002) 124 Taxman 615 (Guj). He stated that it is not the precise issue but a wider issue and if the same has been adjudicated by the appellate authority, the Commissioner is debarred from assuming jurisdiction under section 263 of the Act. The learned counsel also relied on the decision of Hon'ble Supreme Court in the case of Malabar Industries (supra) for the proposition that if the issue was debatable or there could be two opinions on the issue, the jurisdiction under section 263 of the Act cannot be assumed. The learned counsel also relied on the decision Sahara India Mutual Beneflt Co. Ltd. v. Assistant Commissioner (2002) 74 TTJ (All) 67 and Smt. Sujata Grover v. Dy. CIT (2002) 74 TTJ (Del) 347 at 348 for the proposition that if the appellate authority has adjudicated the connected issue, the CIT could not assume jurisdiction under section 263 of the Act on that issue. The learned counsel, therefore, argued that as the issue of trading addition has been adjudicated by the Commissioner (Appeals), the Commissioner was debarred from assuming jurisdiction under section 263 of the Act on this issue.
12. The learned counsel further argued that the Commissioner can assume jurisdiction under section 263 of the Act for limited purposes. He has not been given unchecked powers for assuming such jurisdiction. While relying on the decision of Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom), the learned counsel stated that the Commissioner cannot revise order merely because he disagrees with conclusion arrived at by the assessing officer. The expenditure allowed by the assessing officer as being revenue in nature cannot be directed to be disallowed by the Commissioner under section 263 of the Act. Learned counsel also relied on the decision of Hon'ble Madhya Pradesh High Court in the case of CIT v. Ratlam Coal Ash Co. (1987) 171 ITR 141 (MP) wherein the Hon'ble court has held that where the Income Tax Officer has completed the assessment after considering all the facts, the Commissioner could not assume jurisdiction under section 263 of the Act. Learned counsel also relied on the decision of Tribunal Special Bench in the case of Babu Lal Grandson Family Trust v. Income Tax Officer (1989) 31 ITD 52 (Del)(SB). The Hon'ble Bench has held that even where the assessing officer should have written a more detailed order but for want of it, it would not become erroneous or prejudicial to the interest of the revenue. The Commissioner was not justified in initiating action on the basis of mere guess work possibility or suspicion under section 263 of the Act. While relying on the decision of Hon'ble Mumbai Bench of the Tribunal in the case of Patel Cotton Co. Ltd. v. Assistant Commissioner (1998) 64 ITD 273 (Mumbai), the learned counsel staled that where two views are possible in a case, mere fact that the assessing officer adopted one view would not render his view erroneous though it might be prejudicial to the interest of revenue. He further relied on the decision of Pune Bench of the Tribunal in the case of Fateh Chand Raj Mal Jain v. IAC (1997) 57 TTJ (Pune) 341 : (1997) 60 ITD 47 (Pune). On page 48 of the report, the Tribunal observed that the powers of the Commissioner under section 263 of the Act was in the nature of supervising the jurisdiction and can be exercised when the order to be revised was erroneous and also prejudicial to the interest of revenue. However, it is more or less settled that an order cannot be termed as erroneous unless it is not in accordance with law section 263 of the Act does not empower the Commissioner to substitute his judgment over the decision of assessing officer. The cases where the assessing officer while making an assessment examined the accounts makes inquiries, applies his mind to the facts and circumstances of the case and determines the income, the Commissioner cannot revise such an order only on the ground that the estimate made by the assessing officer was on lower side. The learned counsel also relied on the decision of Delhi Bench of the Tribunal in the case of Supper Cassettes Ind. (P) Ltd. v. CIT (1992) 41 ITD 536 (Del). In the said case, the Hon'ble Bench has held that section 263 of the Act is not intended for change of opinion and cannot be invoked only to take a view different from subordinate officer's view. Keeping reliance on the above decisions the learned counsel stated that the Commissioner has also directed the assessing officer to examine the genuineness of the loan transaction and the interest paid/payable thereon. He stated that this information is available from the balance sheet of the assessee. Such a balance sheet was filed at the time of filing the disclosure under VDIS 1997. It was under these circumstances that the assessing officer did not elaborately examine this issue. But non-mention of the same in the assessment order did not mean that the assessing officer had not applied his mind to this issue. Summing up his arguments, the learned counsel stated that in the instant case, the Commissioner was debarred from assuming jurisdiction under section 263 of the Act on two issues as the same were adjudicated by the Commissioner (Appeals) before the order under section 263 of the Act was placed. Similarly, the assumption of jurisdiction under section 263 on the issue of loan and the interest thereon was also not justified as the assessing officer had in his mind the disclosure made by the assessee under VDIS 1997. The learned counsel, therefore, stated that the order under section 263 of the Act, passed by the assessing officer deserves to be vacated.
13. On the other hand, learned Departmental Representative stated that non-application of mind or non-examination of a particular issue has rendered the assessment order passed by the assessing officer as erroneous and prejudicial to the interest of the revenue. The CIT had, therefore, correctly assumed jurisdiction under section 263 of the Act. He pleaded that the order under section 263 of the Act passed by the Commissioner deserves to be upheld.
14. We have considered the rival submissions. Section 263(1) of the Act, the powers under which have been assumed by the Commissioner reads as under :
"The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the assessing 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 cancelling the assessment and directing a fresh assessment."
15. The reading of the above provisions makes it very clear that for assuming jurisdiction under the said section, the Commissioner has to satisfy himself that the order passed by the assessing officer was erroneous in so far as it was prejudical to the interest of the revenue. Admittedly, the Commissioner has used both these words in his order. But that itself will not clothe the Commissioner with powers of revision, under section 263 of the Act. Hon'ble Bombay High Court in the case of Gabriel (India) Ltd. (supra) had explained the scope of the provisions of section 263 of the Act. The Hon'ble Bombay High court has observed as under :
"Two circumstances must exist to enable the Commissioner to exercise the power of revision under this, sub-section, viz. (i) the order should be erroneous and (ii) by virtue of the order being erroneous prejudice must have been caused to the interest of the revenue. An order cannot be termed as erroneous unless it is not in accordance with law. If an Income Tax Officer acting in accordance with law makes certain assessment, the same cannot be branded us erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income Tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself.
The Commissioner on perusal of the records, may be of the opinion that the estiamatemade by the officer concerned was on the lower side and left to the CIT he would have estimated the income at a higher figure than the one determined by the Income Tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure."
16. Hon'ble Madhya Pradesh High Court in the case of Ratlam Coal Ash Co. (supra) also considered this issue. The Hon'ble court held that as the order was passed by the assessing officer after making inquiries, the assumption of jurisdiction under section 263 was not justified. The Special Bench of the Tribunal in the case of Babu Lal Grandson Family Trust (supra) also considered this issue. While allowing the appeal of the assessee, the Tribunal held as under :
"Many of the points raised by the learned Commissioner in his impugned order are such which really suggest that the learned Commissioner was looking for a lot of inquiry or information on points which were not necessary in a case of the present nature like the nature of accounts maintained by the Trust. Neither the papers on the record nor any other material which was before the Income Tax Officer or the Commissioner suggested such a course of enquiry nor arouse any suspicion. May be that the Income Tax Officer should have written a more detailed order but for want of it, it would not become erroneous or prejudicial to the interests of the revenue. The Commissioner was not justified in imitiating action on the basis of mere guess work, possibilities or suspicion under section 263. "
17. The Bombay Bench of the Tribunal in the case of Patel Cotton Co. Ltd. (supra) also considered the scope of the provisions of section 263 of the Act. Hon'ble Bench observed as under :
"Admittedly, when there are two views possible in a case, then mere fact that the assessing officer has taken one view would not render his order as erroneous though it may be prejudicial to the interests of revenue. For exercising powers under section 263, two conditions must be satisfied. Firstly, the order sought to be revised must be erroneous and secondly by reason of the said order there must be prejudice caused to the revenue. In this case it may be that a prejudice is caused to the revenue by adopting a view favourable to the assessee, yet, the order cannot be said to be erroneous as a possible view in accordance with the decisions of the Tribunal (supra) was adopted by the assessing officer. Considering the facts and circumstances of this case, we are of the view that the action of the Commissioner under section 263 was not warranted as the view taken by the assessing officer cannot be said to be erroneous in view of the decisions of the Tribunal quoted elsewhere in this order. We accordingly cancel the orders of the Commissioner under section 263 and restore the orders of the assessing officer."
18. Similar view was taken by Pune Bench of the Tribunal in the case of Fateh Chand Raj Mal Jain (supra). The Delhi Bench of the Tribunal in the case of Supper Cassettees Ind. Ltd. (supra) after considering the decision of Hon'ble Delhi High Court in the case of Gee Vee Enterprises (supra) has held as under:
"As regards the Commissioner's order under section 263, a reading of the order showed that it was more on the line of approach of appellate authority which was not its role as held by the Madras High Court decision in the case of Venkatakrishna Rice Co. v. CIT (1987) 163 ITR 129 (Mad). It was evident that he was of a different opinion from that of his subordinate officer and since he had only proposed to take a different view from the one taken by the assessing officer and section 263 not being intended for change of opinion, the action of the Commissioner was set aside."
19. Keeping the above legal provisions in view, we find that in respect of purchases and commission from HPCL, the assessing officer had directly collected information from the HPCL. The assessing officer confronted the assessee with such information. The assessee also furnished a detailed reply in this regard. After considering the submissions of the assessee, the assessing officer in para 7 of his order accepted the claim of the assessee by specifically mentioning the name. Thus, it cannot be a case of non-application of mind by the assessing officer or non-examination of the facts of the case. While setting aside the order on this issue, the Commissioner (Appeals) has observed that he was setting aside the order of the assessing officer on this issue ordering enhancement because the assessing officer has not applied his mind to this issue. In the given facts, such observations of the Commissioner does not appear to be correct and, therefore, assumption of jurisdiction under section 263 of the Act on this ground cannot be justified. Similarly, the issue of cash credits/interest thereon had already been disclosed by the, assessee in the balance sheet filed at the time of disclosure of income under VDIS 1997. The entire documents in this regard including the certificate issued by the Commissioner was on the record of the assessing officer. Under these circumstances, there was no need of making further investigation on this issue. The assessing officer has accepted the genuineness of the loans and interest thereon on the basis of records and, therefore, it cannot be said to be a case of non-application of mind. On this ground itself, the assumption of jurisdiction under section 263 cannot be justified.
20. It is also settled law that the powers of the Commissioner under section 263 will not extend to the issues adjudicated by the Commissioner (Appeals) in his orders. In the instant case, the order of the Commissioner (Appeals) had been passed earlier than the order of the Commissioner. Hon'ble jurisdictional High Court in the case of K.L. Rajput (supra.) has considered this issue. While adjudicating this issue, the Hon'ble court held as under :
"The doctrine of merger applies to income-tax proceedings but the extent of its application depends on the scope and subject-matter of the appeal and the decision rendered by the appellate authority. Where an appeal has been 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, but the matters which are not covered by the appellate order of the Appellate Assistant Commissioner 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 Act, 196 1. "
21. Hon'ble Supreme Court in the case of East India Commercial Co. Ltd. & Ors. AIR 1963 SC 1124 (SC) had considered similar issue. The Hon'ble Supreme Court held as under :
"The principle viz. that the appellate order is operative order after the appeal is disposed of, is the basis of the rule that the decree of the lower court merges in the decree of the appellate Court. On the same principle, it would not be incorrect to say that the order of the original authority is merged in the order of the appellate authority whatsoever its decision whether of reversal or modification or mere confirmation."
22. Hon'ble Bombay High Court in the case of Remex Constructionsl Remex Elecuicals (supra) also considered this issue and held as under :
"The power of revision under section 263 of the Income Tax Act, 1961 is restricted to an order passed by the Income Tax Officer. When the appellate authority passes an order, the order of the Income Tax Officer ceases to exist and merges in the appellate order and although the appellate authority may confirm the order of the trial Court, the order that stands and is operative is not the order of the trial court but the order of the appellate authority. Such an order cannot be revised."
23. In another decision in the case of Paul Bros. (supra), Hon'ble Bombay High Court further laid down the same view :
"Thus, it is settled law that if any issue had been adjudicated by the Commissioner (Appeals) before the order is passed under section 263, the Commissioner cannot take those issues in his revisional order under section 263 of the Act."
24. We have, therefore, applied the ratios laid down by the Hon'ble court in the facts of the assessee. Admittedly, the issue relating to the trading addition which, inter alia, had considered the purchases and commission received from HPCL were raised before the Commissioner (Appeals) as well as the disallowance out of vehicle expenses were agitated before the Commissioner (Appeals). A question may arise as to whether the precise issue should have been adjudicated by the appellate authority. Admittedly, the issue of trading addition was before the Commissioner (Appeals). Such trading addition was made by the assessing officer by rejecting the books of account and applying the proviso to section 145 of the Act. The purchases also form part of the trading account. Thus, the Commissioner (Appeals) while disposing of the appeal has adjudicated this issue and, therefore, in view of the legal position mentioned earlier, the Commissioner cannot assume jurisdiction under section 263 on this issue, Actually, the scope of the word "issue" which the subject-matter of appeal before the appellate authority had been considered by various Benches of the Tribunal. The Allahabad Bench of the Tribunal in the case of Sahara India Mutual Benefit Co. Ltd. v. Assistant Commissioner (2002) 74 TTJ (All) 67 at 72 has held as under :
"So far as the doctrine of merger even after the amendment of the provisions of section 263 is concerned, once any of the aspects of an issue is the subject-matter of appeal before the Commissioner (Appeals), then it is the 'issue' as a whole which is said to be the subject-matter of appeal and not only 'aspect' only."
25. The Delhi Bench of the Tribunal in the case of Smt. Sujata Grover (supra) considered this issue and held as under :
"When a particular matter is disputed by the assessee before the first appellate authority and he gives his findings on some aspects of the matter, it is implied that he has examined all aspects of that matter before adjudicating upon the matter and is satisfied as regards the correctness of the findings of the assessing officer on all other aspects of that matter".
26. Similar is the case in respect of disallowances out of car depreciation. Admittedly, the assessing officer has disallowed a part of depreciation for non-business purposes. He has not disallowed any amount from car depreciation. The issue was taken up in appeal and the Commissioner (Appeals) has upheld the addition. The powers of the Commissioner (Appeals) are co-terminus with that of assessing officer. In case the Commissioner (Appeals) felt that the assessing officer should have disallowed proportionate depreciation on car, he could have done so directly as he has got the powers of enhancement. But by not doing so, the Commissioner felt that the disallowances made by the assessing officer was reasonable and no further disallowance under that head was called for. Thus, this issue has also been adjudicated by the Commissioner (Appeals) and, therefore, the Commissioner has no power to assume jurisdiction under section 263 of the Act on that issue. Regarding loans/interest, the facts have been mentioned earlier. As these documents were already on record of the department and the assessing officer had in his possession the certificate issued by the Commissioner under VDIS, 1997, there was no reason to examine the issue again. Thus, the assumption of jurisdiction on this issue was also against the provisions of law.
27. We may also mention that by assuming jurisdiction under section 263 of the Act, the Commissioner (Appeals) has modified the assessment order to the extent that the order passed by the assessing officer under section 143(3) of the Act should be read as having been passed under section 144 of the Act. The Hon'ble High Court in the case of Venkatkrishna Rice Co. v. CIT (1987) 163 ITR 129 (Mad) has elaborated the principle in this regard. The Hon'ble court held as under :
"In the context of the above provisions, the power of the Commissioner under section 263 has to be judged on the words employed in section 263 is to the effect that the Commissioner may interfere in revision if he considers that the order passed by the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue. It is quite clear from the above phrasing that two things must co-exist in order to give jurisdiction, to the Commissioner to interfere in revision. The order of the Income Tax Officer in question must not only be erroneous but also the error in the Income Tax Officer's order must be of such a kind that it can be said of it that it is prejudicial to the interest of the revenue. In other words, merely because the officer's order is erroneous, the Commissioner cannot interfere. Again, merely because the order of the officer is prejudicial to the interests of the revenue, then again, that is not enough to confer jurisdiction on the Commissioner to interfere in revision. These two elements must co-exist,"
28. From the ratios laid down by the Hon'ble Court, it is very clear that the Commissioner would assume jurisdiction under section 263 of the Act only when both the conditions, namely, the order passed by the assessing officer was erroneous and the same was prejudicial to the interest of the revenue were fulfilled. In the case before us, even if the order passed by the assessing officer was erroneous, the same could not be said to be prejudicial to the interest of the revenue as no prejudice is caused to the revenue. Thus, one condition not being satisfied in the instant case, the assumption of jurisdiction for modification of the order passed by the assessing officer is also not justified.
29. Considering the facts as a whole, we hold that the Commissioner has wrongly assumed jurisdiction under section 263 of the Income Tax Act. The order under section 263 for all the four years are, therefore, quashed.
30. In the result, all the four appeals filed by the assessee are allowed.