JUDGMENT
K.S. Paripoornan, J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law for the decision of this court :
“Whether, on the facts and in the circumstances of the case, an order under Section 263 could be validly made even though the assessment order had merged with the appellate order ?”
2. The respondent is an assessee to income-tax. We are concerned with the assessment year 1979-80. The Income-tax Officer passed an order of assessment dated January 19, 1982, for the assessment year 1979-80, the accounting period ending by December 31, 1978, Wherein he allowed a sum of Rs. 36,422 in excess of the maximum amount of bonus payable under the Payment of Bonus Act as also a sum of Rs. 8,870 as contingent liability for payment of leave with wages. The Commissioner of Income-tax initiated suo motu revision proceedings under Section 263 of the Income-tax Act on January 7, 1984. The assessee objected to the said proceedings and contended that the order of assessment was taken in appeal and the Appellate Assistant Commissioner has passed an order dated December 13, 1983, and so the assessment order sought to be revised had merged in the appellate order and so was not revisable. This plea was negatived by the Commissioner of Income-tax. But, in appeal, the Appellate Tribunal accepted the said plea and held that the order passed by the Commissioner of Income-tax in suo motu revision under Section 263 of the Act dated January 7, 1984, is without jurisdiction. It is thereafter at the instance of the Revenue that the question of law. formulated hereinabove has been referred for the decision of this Court.
3. We heard counsel. It is agreed that, in the appeals, the particular matter which was sought to be taken up in suo motu revision did not form the subject-matter. The question whether, in a case where the point in issue in suo moto revision was not the subject-matter of appeal before the appellate authority, there could be a merger in the appellate order passed by the appellate authority came up for consideration before a Bench of this court in CIT v. Travancore Tea Estates Co. Ltd. [1988] 172 ITR 733 and later in CIT v. S. Ratnam Pillai [1991] 188 ITR 494 (Ker). It was held, by this court that, in the context of a taxing statute, the principle of merger can have only a limited application and the said principle can apply only in respect of matters considered and decided by the appellate authority and not matters falling outside its decision. It was made clear that the theory of merger was inapplicable in a case where the point in issue in suo motu revision was not the subject-matter of appeal before the appellate authority.
4. In the light of the above Bench decisions of this court, we are of the view that the Appellate Tribunal was in error in holding that the order passed by the Commissioner of Income-tax under Section 263 of the Income-tax Act, dated January 7, 1984, is improper, illegal or unauthorised. We, therefore, answer the question referred to this court in the affirmative, against the assessee and in favour of the Revenue.
5. The reference is answered as above.
6. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.