COMMISSIONER OF INCOME TAX vs MAQBOOL ALAM and CO.

Ashok Kumar Ganguly, J.

At the instance of revenue two questions have been referred to this court for their adjudication. Those questions are set out below :

"1. Whether, on the facts and in the circumstances of the case. the Tribunal was justified in holding that the order passed by the Income Tax Act Officer merged into the order passed by the Commissioner of Income Tax (Appeals)?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in its finding that the order passed by the Commissioner of Income Tax u/s 263 was without jurisdiction?"

Against an order of assessment passed by Shri N.K. Shukla, the Income Tax Officer Ward-B, Muzaffarpur, in respect of the assessee-firm for the assessment year 1977-78, the firm preferred an appeal before the Commissioner (Appeals). In the said appeal various points were taken, namely disallowance of Rs. 1,000 out of packing charges, disallowance of Rs. 2,143 being the amount paid to Jai Chandars, disallowance of Rs. 1,000 on account of transport charges and disallowance of depreciation to the tune of one third of the claim for personal use of the car by the partner and also disallowance of deduction u/s 35B of the Income Tax Act, 1961 (hereinafter referred to asthe Act).

On the question of disallowance of deduction u/s 35B, the Commissioner (Appeals) came to the finding that since the order of the Income Tax Officer on the subject is silent, the mater was remanded to the file of the Income Tax Officer by the Commissioner (Appeals) for re-examination of the claim and for scrutinizing the details of export markets development expenses. The following observations have been made in the order of the Commissioner (Appeals) :

"However, since the order of the Income Tax Officer on the subject is silent although the appellant made a claim before him, I feel that the matter should be set aside and restored to the file of the Income Tax Officer for re-examination of the claim and for scrutinizing the details of export markets development expenses. Accordingly, I set aside this point to him for passing order de novo in the light of my above mentioned observation and after giving the appellant an opportunity of being heard".

Therefore, another Income Tax Officer Shri R.O.P. Sinha, Ward-A, Mazaffarpur, passed a fresh order allowing deduction u/s 35B to the extent of Rs. 1,06,914. The Commissioner in exercise of his power of revision u/s 263 of the Act set aside the said order of assessment. That the order of the Commissioner is, however, not on record, Admittedly, the assessee filed an appeal before the Tribunal against the said order of the Commissioner and the Tribunal held that the order of the Income Tax Officer merged with the order of the Commissioner (Appeals) and the Commissioner had no jurisdiction to pass orders u/s 263 of the Act in respect of the assessment order.

This court finds that the Tribunal is obviously wrong. The Commissioner (Appeals) did not decide the controversy himself but sent it on remand to the Income Tax Officer for a de novo hearing and passing of a fresh order. Then a different Income Tax Officer passed a fresh order. Therefore, exercise of revisional jurisdiction by the Commissioner against that fresh order u/s 263 is certainly not beyond the jurisdiction of the Commissioner.

Apart from that, this court finds that to section 263 Explanation (c) has been added in order to put the matter beyond controversy. Explanation (c) which has been added in sub-section (1) of section 263 is in the following terms :

"(c) Where any order referred to in this sub-section and passed by the assessing officer had been the subject-matter of any appeal, filed on or before or after the 1-6-1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal".

It is obviously true that such Explanation has been added by the amendment made by the Finance Act, 1989 but the amendment is retrospective in nature as is clear from the reading of the said Explanation. It also includes an appeal filed on or before or after 1-6- 1988 as is clear from the aforesaid Explanation.

Even without the aforesaid amendment the law on this point has correctly been laid down in the Full Bench decision of Madhya Pradesh High Court in the case of CIT v. R.S. Banwarilal (1982) 140 ITR 3. Speaking for the Full Bench, J.S. Verma, J. (as his Lordship then was), discussing various decisions on this question, has held that the principle of merger does undoubtedly apply to income- tax cases, but the same will apply only where a decision reached by an inferior authority has been reversed, modified or even confirmed by the appellate authority. But the said principle will not apply where a decision of an inferior authority does not come in for consideration by the appellate authority and there is no decision of the appellate authority either by way of affirmance or by way of reversal or modification on the point decided by the inferior authority. It has been further elucidated by saying that the real test is whether any such point was actually considered and decided by the authority and not that the same could have been agitated before the authority and decided by him. It has been said that when there is no decision by the appellate authority, the order of the Income Tax Officer remains untouched and it is open to the Commissioner, in exercise of power u/s 33B of the Act, to revise it (see the observation at page 13 in R.S. Banwarilals case (supra). The said Full Bench decision in R.S. Banwarilals case (supra) is based on various decisions of the Supreme Court and on elaboratge consideration of all the relevant cases on this point. The said decision also expressly negatives the judgment of the Allahabad High Court in the case of J.K. Synthetics Ltd. Vs. Additional Commissioner of Income Tax and Another, . This court is also of the view that the decision of the Allahabad High Court in J.K. Synthetics Ltd. (supra) has been wrongly decided and is contrary to the decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. Amritlal Bhogilal and Co., .

In this case, as pointed out before, the Commissioner (Appeals) has not decided the question whether the assessee is entitled to the deduction u/s 35B, but remanded the said question to the Income Tax Officer for a decision. Therefore, the decision on the said question by another Income Tax Officer is a fresh decision and the same cannot be said to have been merged with the order of the Commissioner (Appeals). Against such fresh decision of the Income Tax Officer, the Commissioner can exercise his jurisdiction u/s 263 for the purpose of revising the order.

Therefore, for the reasons stated above, both the questions are answered in the negative and in favour of the revenue. Parties to bear their own cost.

N. Pandey, J.I agree.