The Commissioner of Income Tax Delhi-I vs The Printers House, New Delhi

R.C. Lahoti, J.—This is a reference u/s 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 ?"

The assessed 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 assessed 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 assessed claimed deduction u/s 35 of the Act. The ITO accepted the claim of the assessed 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).

To the extent of the claim of the assessed having been disallowed in respect of machine No.(ii) the assessed carried the matter to CIT (Appeals). While the assessor�s appeal was pending before CIT (Appeals), CIT, Delhi-I initiated proceedings u/s 263 of the Incometax Act for withdrawal of deduction u/s 35 in respect of machine No.(i). Vide order dated 19.2.1980 CIT (Appeals) allowed the assessor�s claim in respect of machine No.2. On 21.2.1980, CIT, Delhi-I passed an order u/s 263 setting aside the assessment order and directing the ITO to refer the assessor�s claim u/s 35 in respect of both the machines to the prescribed authority u/s 35(3). However, on 22.3.80 CIT, Delhi-I passed another order u/s 154 of the Act limiting his order dated 21.2.1980 to machine No.(i) alone.

The assessed 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 u/s 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.

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 Vs. Dodla Bhaskara Reddy and Others, and Commissioner of Income Tax Vs. Paushak Limited, . 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 (6) AD 1059. In CIT vs. Paushak Ltd (supra) the Gujrat High Court has held that in the appeals which are filed by an assessed against any order that is adverse to him, the assessed 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 u/s 263 by the Commissioner cannot be doubted.

The case at hand, that part of the order by which the ITO had allowed the assessor�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 u/s 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.

For the foregoing reasons, the question is answered in the negative, i.e. in favor of the department and against the assessee.