1986 PLP 546 (PTD)

3. Shri Chaphekar, learned counsel for they assessee, contended that the assessee having preferred an appeal before the Appellate Assistant Commissioner, the assessment itself became the subject-matter of appeal. It was urged that in view of the scope and nature of the powers conferred on the Appellate Assistant Commissioner by section 251 (1) (a) of the Act, the entire subject-matter of the assessment order was within the jurisdiction of the Appellate Assistant Commissioner, and that being so, the entire assessment order merged in the appellate order irrespective of the points urged by the parties or decided by the appellate authority. It was, therefore, contended that the Commissioner had no jurisdiction under section 263 of the Act to revise the order of assessment passed by the I.-T.O. as that order had merged in the order passed by the appellate authority. Reliance was mainly placed on the decision reported in J.K. Synathetics Ltd. v. Additional Commissioner I.-T (1976) 105 I T R 344 (All.). Learned counsel for the assessee further contended that the Tribunal erred in holding that the matter was concluded by the decisions of this Court in Central Indian Insurance Co. Ltd. v. I.-T.O. (1963) 47 I T R 895): (A I R 1962 Madh. Pra. 336) and Kalooram Tirasilal v. I.-T,O. (1966) 59 I T R 308): (A I R 1965 Madh. Pra. 148):

4. In reply, Shri Bagadia, learned counsel for the Department, submitted that the order of the I.-T.O. relating to allowance of interest was not the subject-matter of appeal before the appellate authority and that part of the order passed by the I.-T.O. was in fact untouched by the appellate authority and hence it did not merge in the order of the Appellate Assistant Commissioner or the Tribunal. Relying upon the decision in Karsandas Bhagwandas Patel v . G . V . Shah I:-T.O. (1975) 98 I T R 255): (1974) Tax L R 574 Guj.). Learned counsel for the Department contended that the Commissioner had jurisdiction under section 263 of the Act to revise that part of the order of assessment which was not the subject-matter of appeal before the Appellate Assistant Commissioner.

5. The real question for consideration in the case is whether the Tribunal was justified in holding that the order passed by the I.-T.O. in respect of allowance of interest did not merge in the order passed by the Appellate Assistant Commissioner. The question framed by the Tribunal does not, in our opinion, bring out the real issue which arose before the Tribunal for consideration and we have, therefore, reframed the question as follows:-- "Whether, on the facts and in the circumstances of the case, the Tribunal was the Tribunal was justified in holding that the order of the I.-T.O. in respect of the allowance of interest to the assessee did not merge in the orders of the Appellate Assistant Commissioner and the Tribunal passed in appeals preferred by the assessee?"

6. Now, it is true that the aforesaid question arising in this case has not been decided by this Court in Central India Insurance Co. Ltd. v. I.-T.O. (1963) 47 ITR 895: (AIR 1962 Madh. Pra. 336) and Kalooram Tirasilal v. I.T.O. (1966) 59 ITR 308: (AIR 1965 Madh. Pra. 148), as observed by the Tribunal. In Central Indian Insurance Co. Ltd. v. I.-T.O. (supra), the question for consideration was whether the Appellate Assistant Commissioner had no power to rectify the order of his predecessor after it had merged in the order passed by the Tribunal in the further appeal preferred by the assessee. Learned counsel for the assessee rightly pointed out that in the case of an appeal before the Tribunal, the powers of the Tribunal were not as wide as that of an Appellate Assistant Commissioner under section 251 (1) (a) of the Act, and in that view of the matter, if the decision of the Appellate Assistant Commissioner on any particular point was not the subject-matter of appeal before the Tribunal and was not actually considered in appeal, the decision of the Appellate Assistant Commissioner on that point could not be held to have merged in the order of the Tribunal. The observation in Kalooram Tirasilal v. I.T.O. (supra) that the question as to whether the Income-tax Officer's jurisdiction to rectify the mistake is taken away when the Appellate Assistant Commissioner has passed an order in an appeal preferred before him by the assessee is concluded by the decision of this Court in Central Indian Insurance Co. Ltd. v. I.-T.O. (1963) 47 ITR 895): (AIR 1962 Madh. Pra.336) is, with respect, slightly inaccurate, The question which arose for consideration in Central Indian Insurance Co. Ltd. v. I.-T.O. (supra) was as already pointed out different. The decision in Central Indian Insurance Co. Ltd. v. I.-T.O. (supra), is, therefore, distinguishable and is not attracted in the instant case. But we had occasion to consider the question arising in this case in Jaora Sugar Mils Ltd. v. Union of India (M.P. 1978,decided on 12th October, 1979). [Reported in (1982) 134 ITR 385 (Madh. Pra.) (1983 Tax. L.R.192 XI)]. The acts of that case were that while framing assessment, the I.-T.O had allowed a rebate of Rs.3,98,

290. In the appeal preferred by the assessee before the Appellate Assistant commission--, the claim for rebate made by the petitioner and allowed by the I.-T.O. was not the subject-mater of the appeal and hence was not considered by the appellant assistant commissioner. Subsequently, the Commissioner of Income tax in excise of powers under section 263 of the Act, set aside the order of assessment passed by the I.-T.O. with regard to the claim of the assessee for the amount of rebate. The petitioner challenged the order of the Commissioner before this Court contending that the Commissioner had no Jurisdiction to proceed under section 263 of the Act and to revise the order of assessment passed by the I.-T.O because the order of assessment passed by the I.-T.O. had merged in the order passed by the Appellate Assistant Commissioner in the appeal preferred by the assessee. This contention was not upheld by us relying on the following observations of the Supreme Court in State of Madras v. Madurai Mills AIR 1967 SC 681 at p. 684-- "But the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by the inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there a fusion or merger of two orders, irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction. For example in Amritlal Bhogilai and Co's. case, 1958-34 ITR 130: (AIR 1958 SC 868) (supra) it was observed by this Court that the order of registration made by the I.-T.O. did not merge in the appellate order of the Appellate Commissioner, because the order of registration was not the subject-matter of appeal before the appellate authority. It should be noticed that the order of assessment made by the I.-T.O. in that case was a composite order viz., an order granting registration of the firm and making an assessment on the basis of the registration. The appeal was taken by the assessee to the Appellate Commissioner against the composite order of the I.-T.O. It was held by the High Court that the order of the Income tax Officer granting registration to the respondent must be deemed to be merged in the appellate order and that the revisional power of the Commissioner of Income-tax cannot, therefore, be exercised in respect of it The view taker, by Ape High Court was overruled by this Court for the reason that the order of the Income--tax Officer granting registration cannot be, deemed to have merged in the order of the Appellate Commissioner in an appeal against the composite order of assessment. Similarly, in State of Uttar Pradesh v. Muhammad Nooh 1958 SCR 595: (AIR 1958 SC 86) it was held by this Court that the principle of merger cannot apply in the case of an order of dismissal of the public servant which was made by the departmental Tribunal on 20tt April. 1948 sand against which the appeal was dismissed by the Appellate Authority on the 7th May, 1949 and the revisional application was rejected on the 22nd April, 1950. In the circumstances of the present case, it cannot be said that there was a merger of the order of assessment made by the Deputy Commercial Tax Officer, dated the 28th November, 1952 with the order of the Deputy Commissioner of Commercial Taxes, dated the 26th August, 1954 because the question of exemption on the value of yarn purchased from outside the State of Madras was not the subject-matter of the revision before the Deputy Commissioner of Commercial Taxes." Our decision in Jaora Sugar Mills Ltd. v. Union of India M.P. No.55 of 1978 has not been shown to be overruled by the Supreme Court or by a larger Bench of this Court. Learned counsel for the assessee, however, contended that in M.P. No.55 of 1978 it was conceded on behalf of the assessee that the claim for rebate allowed by the Income-tax Officer was not the subject-matter of appeal and it was on that basis that this Court proceeded to consider the question. It was urged that as the decision in M.P. No.55 of 1978 proceeded on a concession made by the assessee in that case, that decision was not attracted in the instant case. Learned counsel for the assessee further urged that the decision in M.P. No.55 of 1978 required reconsideration, because the scope of the provisions of section 251 (1) (a) of the Act was not considered in that decision.

7. We may, in this connection, usefully refer to the decision of the Gujrat High Court in Karsandas Bhagwandas Patel v. G. V. Shah. I. T. O. (1975) 98 ITR 255: (1974 Tax LR 574). In that case, the order of assessment was rectified by the I.-T.O. and the order of rectification was assailed on the ground that the order of assessment passed by the I.-T.O. had merged in the order of the Appellate Assistant Commissioner in appeal and hence the I.-T.O. had no jurisdiction to rectify the order of assessment. The contention advanced on behalf of the assessee was that when an appeal was preferred against an order of assessment passed by the I.-T.O. and the appeal was disposed of by the Appellate Assistant Commissioner, the order of assessment made by the Income-tax Officer merged in the order of the Appellate Assistant Commissioner not only in respect of items considered and decided by the Appellate Assistant Commissioner but in respect of. all items arising out of the order of assessment. Dealing with this contention, it was observed as follows. "The Appellate Assistant Commissioner may, therefore, examine the correctness of the decision of the I.-T.O. in regard to a particular item even if it does not form the subject-matter of the appeal preferred by the assessee. Now, obviously, if the Appellate Assistant Commissioner does so, his decision in regard to that particular item would supersede or replace that of the I.-T.O. irrespective of whether it be a decision of affirmance or variation or reversal. But the question is what would be the position if no grievance is made by an assessee in respect of a particular item, whether originally in the memorandum of appeal or with leave granted under section 35, subsection (2-A), and the Appellate Assistant Commissioner also does not choose to consider that particular item suo motu. There would not in such a case be any decision of the Appellate Assistant Commissioner in regard to that particular item. Then how can it be said that the decision of the I.-T.O. is superseded or replaced by the decision of the Appellate Assistant Commissioner so far as that particular item is concerned. It is true that the Appellate Assistant Commissioner could suo motu revise the decision of the I.-T.O. in regard to that particular item but so long as he does not do so, the decision of the I.-T.O. stands and there is no merger or fusion of it with the decision of the superior authority. If the Appellate Assistant Commissioner were under an obligation to examine the correctness of every decision recorded by the I.-T.O. in the process of assessment, it might be possible to contend that when the Appellate Assistant Commissioner does not say anything about a particular decision recorded by the I.-T.O., he may be presumed to have assented to it and an inference of implied affirmance may be raised but it cannot be disputed that though the Appellate Assistant Commissioner has undoubted power to revise any decision of the I.-T.O. suo motu, there is no obligation on him to do so and in the absence of such obligation, there can be no scope for the application of the doctrine of implied decision." On behalf of the assessee, it was contended that the view of the Gujrat High Court that there was no obligation of the Appellate Assistant Commissioner to examine the correctness of every decision recorded by the I.-T.O. in the process of assessment, was not well-founded. It has, however, to be borne in mind that, as observed in Karsandas Bhagwandas Patel v. G.V. Shah I.-T.O. (1975) 98 ITR 255: (1974 Tax LR 574, for the purpose of determining the applicability of the principle of merger, the test which has to be applied is whether the decision of the I.-T.O. on a particular point was the subject-matter of appeal before the Appellate Assistant Commissioner. It might not have been the subject-matter of appeal either because the Appellate Assistant Commissioner had no jurisdiction to consider that matter or because the Appellate Assistant Commissioner though having jurisdiction to examine that subject-matter did not do so, but in either case there being no decision of the Appellate Assistant Commissioner on the point the decision of the I.-T.O. remains untouched. This question was also considered from a slightly different angle in Karsandas Bhagwandas Patel v. G. V. Shah, I.-T.O. (supra), where it was observed as follows:- "We may also consider the question from a slightly different stand point. If the order of assessment made by the I.-T.O. merges wholly in the order of the Appellate Assistant Commissioner whenever there is an appeal, irrespective of what matters are considered and decided by the Appellate Assistant Commissioner, the order of the Appellate Assistant Commissioner would not only comprise decisions reached by the Appellate "Assistant Commissioner on matters raised in appeal by the assessee or considered suo motu by the Appellate Assistant Commissioner but would also incorporate by necessary implication the decisions recorded by the I.-T.O in respect of other matters not considered and decide, by the Appellate Assistant Commissioner. Every decision recorded by the Income-tax Officer in making assessment, though not forming the subject-matter of consideration and decision by the Appellate Assistant Commissioner would, by reason of merger, be deemed to become a part of the order of the Appellate Assistant Commissioner and if the assessee is unhappy about it, he would be entitled to object to it by preferring an appeal to the Tribunal, even though he has not challenged it in appeal to the appellate Assistant Commissioner. The revenue also would be entitled to object to such decision by preferring an appeal to the Tribunal even though it has not invited to Appellate Assistant Commissioner to revise it suo motu in to appeal preferred by the assessee. That would be contrary to the basic scheme of the Income-tax Act " We respectfully agree with the aforesaid observations.

8. The decision of the Allahabad High Court in J.K. Synthetics Ltd. v. Additional Commissioner I.-T. (1976) 105 I T R 344), on which reliance was placed by learned counsel for the assessee, no doubt lays down that once an appeal is taken and decided, the original order merges in the appellate order which is operative and enforceable. That decision, with respect, does not take into account the fact that if the Appellate Assistant Commissioner had no occasion at all to consider a particular point as it was not raised before him, the Appellate Assistant Commissioner could not be held to have decided that point either expressly or impliedly and no question of merger would arise in such a case Having given our anxious consideration to the matter, we see no reason to take a view different from that taken by us in M. P. No. 55 of 1978.

9. For all these reasons, the answer to the question framed by us is in the affirmative and against the assessee. In the circumstances of the case, parties shall bear their own costs of this reference. M.B.A. Question answered in affirmative.