ORDER–In appeal only one out of two issues had been decided as contested
Ratio :
Exercise of power under section 263 by the Commissioner was justified as the relevant issue was not subject-matter of appeal before the Commissioner (Appeals) and therefore same issue had not got merged with order of Commissioner (Appeals)
Held :
The order by which the assessing officer had allowed the assessee’s claim in respect of machine No. (i), i.e. Web Offset machine, was not the subject matter of appeal before Commissioner (Appeals) and therefore, the exercise of power under section 263 by the Commissioner was not excluded. The Parliament has amended section 263 itself with effect from 1-6- 1988 whereby it has been declared that for the purpose of section 263(1) where any order referred to therein and passed by the assessing officer has been the subject matter of any appeal filed on or before or after 1- 6-1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matter as had not been considered and decided in such appeal. The amendment thus clarifies the law and bring the statutory law in conformity with the judicial opinion noticed hereinabove.
Case Law Analysis :
Mirza Muzamdar Hussain v. D. Bhasker Reddy AIR 1988 AP 13; CIT v. Paushak Ltd. (1997) 227 ITR 216 (Guj); CIT v. Eurasia Publishing House 1997 (VI) Ad 1059 (Del)
applied
Application :
Also to current assessment years.
A. Y. :
1975-1976
Income Tax Act 1961 s.263
ORDER
R.C. Lahoti, J.
1. This is a reference under Section 256 of the Incometax Act, 1961 seeking opinion of the High Court on the following question of law arising out of the assessment year 1975-76 :
“Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the ITO’s order merged with the order of the CIT(A) and therefore CIT Delhi-I did not have jurisdiction under S. 263 ?”
2. The assessee is a private limited company carrying on business of supply of imported high speed rotary machine on its own account and as commission agent. In the relevant accounting year the assessee had imported two machines, namely, (i) Web Offset machine imported in June, 1974 for Rs. 5,82,010/- and (ii) Repaid machine imported in April, 1974 from West Germany for Rs. 2,38,972/-. The assessee claimed deduction under Section 35 of the Act. The ITO accepted the claim of the assessee in respect of machine No.(i) on the ground that the same was imported for scientific research but disallowed similar claim in respect of machine No.(ii).
3. To the extent of the claim of the assessee having been disallowed in respect of machine No.(ii) the assessee carried the matter to CIT (Appeals). While the assessee’s appeal was pending before CIT (Appeals), CIT, Delhi-I initiated proceedings under Section 263 of the Incometax Act for withdrawal of deduction under section 35 in respect of machine No.(i). Vide order dated 19.2.1980 CIT (Appeals) allowed the assessee’s claim in respect of machine No.2. On 21.2.1980, CIT, Delhi-I passed an order under Section 263 setting aside the assessment order and directing the ITO to refer the assessee’s claim under Section 35 in respect of both the machines to the prescribed authority under Section 35(3). However, on 22.3.80 CIT, Delhi-I passed another order under Section 154 of the Act limiting his order dated 21.2.1980 to machine No.(i) alone.
4. The assessee preferred an appeal to the Tribunal raising a plea that the order of the ITO having merged in the order of CIT (Appeals), CIT Delhi-I did not have jurisdiction to pass an order under Section 263 in respect of machine No.1. The appeal has been allowed setting aside the order dated 19.2.1980 passed by the CIT Delhi-I.
5. The answer to the question is to be found in the theory of merger. Learned counsel for the department has placed reliance on Mirza Muzamdar Hussain v. D. Bhaskar Reddy, and CIT v. Paushak Ltd 1997 (227) ITR 216. In both the decisions the view taken is that whether there is fusion or merger of the order of the inferior tribunal into the order of the superior tribunal, shall have to be determined by finding out the subject matter of appellate order or revisional order and scope of the appeal or revision contemplated by the particular statute. The view of Andhra Pradesh High Court was followed by a Division Bench of this Court in CIT vs. Eurasia Publishing House, 1997 (VI) AD 1059. In CIT vs. Paushak Ltd (supra) the Gujrat High Court has held that in the appeals which are filed by an assessee against any order that is adverse to him, the assessee would not be challenging any finding regarding deduction or depreciation which might have been in his favour. Therefore, such aspects would not figure in the appellate order. To that extent the order of assessment would not merge in the appellate order and the exercise of power under Section 263 by the Commissioner cannot be doubted.
6. The case at hand, that part of the order by which the ITO had allowed the assessee’s claim in respect of machine No.(i) i.e. Web Offset machine, was not the subject matter of appeal before CIT (Appeals) and therefore the exercise of power under Section 263 by the Commissioner was not excluded. We may mention that the Parliament has amended Section 263 itself w.e.f. 1.6.1988 whereby it has been declared that for the purpose of Section 263(1) where any order referred to therein and passed by the assessing officer has been the subject matter of any appeal filed on or before or after 1.6.88, the powers of the Commissioner under this sub section shall extend and shall be deemed always to have extended to such matter as had not been considered and decided in such appeal. The amendment thus clarifies the law and bring the statutory law in conformity with the judicial opinion noticed hereinabove.
7. For the foregoing reasons, the question is answered in the negative, i.e. in favour of the department and against the assessee.