Vildirect: IncomeTax-caselaws-1979-VIL-08-ITAT-

1979-VIL-08-ITAT-

Equivalent Citation: ITD 001, 303, TTJ 013, 107

Income Tax Appellate Tribunal BOMBAY

Date: 27.07.1979

DWARKADAS & CO. (P.) LTD.

INCOME TAX OFFICER.

BENCH

Member(s) : T. D. SUGLA., A. KRISHNAMURTHY.

JUDGMENT

Per Shri T.D. Sugla, Vice President --- This appeal by the assessee relating to its assessment for the assessment year 1975-76 involves, amongst others, the question of the Commissioner's jurisdiction to revise the order of assessment passed by the ITO which has been the subject-matter of appeal. It is pertinent that, in the appeal memo originally filed on 13-10-1977, the ground questioning the Commissioner's jurisdiction under section 263 was not taken. It was raised as an additional ground only by means of an application filed on 19-2-1979.

2.1 Shri Harish, the learned counsel for the assessee, submitted that the adjudication of the additional ground did not involve investigation of facts and that it was a pure question of law and should, therefore, be admitted in view of the Bombay High Court decision in the case of CIT v. Gilbert Barker Mfg. Co. [1978] 111 ITR 529. In particular, he stated, this ground was raised, considered by the Commissioner and, therefore, arises out of his order.

2.2 Shri Shastri, the senior departmental representative, on the other hand, raised a preliminary objection to the admission of the additional ground. According to him, an additional ground raised long after the time for filing the appeal has expired could be admitted only if the assessee shows that it was prevented by sufficient cause in not taking up the ground originally. Referring then to the assessee's application, Shri Shastri pointed out that the assessee had admitted that the ground was not taken originally by an oversight and sheer inadvertence. Since this, according to Shri Shastri, cannot constitute sufficient cause, it was contended that the additional ground should not be admitted. Our attention for the purpose was invited to rule 11 of the Income-tax Appellate Tribunal Rules, 1963.

2.3 In reply, Shri Harish, the learned counsel for the assessee, submitted that unlike condonation of delay in filing an appeal, for entertainment of an additional ground, the assessee was required only to show that in not taking the ground originally, the assessee had not acted mala fide and that delay in filing the ground originally had not acted to the prejudice of the department. The assessee having challenged the jurisdiction of the Commissioner under section 263 before the Commissioner himself, he contended, it could not even be suggested that the assessee had or could have any motive in not taking up this ground originally and taking it up as late as on 19-2-1979.

2.4 Having heard the parties and after going through the facts on record, we find that the additional ground sought to be raised herein is a legal ground arising out of the order of the Commissioner, adjudication of which does not require investigation of facts. We accept that it was not taken originally in the appeal memo through inadvertence as we find no material to justify attribution of any motive to the assessee for not taking it earlier or originally and no prejudice has been caused to the department on account of the taking of this ground as an additional ground on 19-2-1979. Having regard to our aforesaid findings and keeping in view the ratio of the Bombay High Court decision in Gilbert's case, we admit the additional ground and proceed to dispose it of on merits.

3. Before proceeding to consider rival contentions on merits of the additional ground, it may be observed that apparently the point at issue is covered by the Bombay High Court decision in the case of CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412. However, some of the Benches of the Tribunal were taking the view that the Supreme Court in the case of State of Madras v. Madurai Mills Co. Ltd. AIR 1967 SC 681 and the Gujarat High Court in the case of Karsandas Bhagwandas Patel v. G. V. Shah, ITO [1975] 98 ITR 255, had made contrary observations, as a result of which the Bombay High Court decision in Tejaji's case no longer held the field. Other Benches, on the other hand, were of the view that the Bombay and Gujarat High Courts' decisions in Tejaji's case and Karsandas's case, respectively, were good decisions and had to be followed. There were thus, conflicting decisions by different Benches of the Tribunal. In these circumstances, the matter was referred to the President of the Income-tax Appellate Tribunal by the Bench before which this appeal came up for hearing originally with a request to constitute a Special Bench to hear this appeal. The Special Bench was constituted under section 255(4) and that is how the appeal has come up before us.

4. It may not be out of place to mention that the assessee's learned counsel, Shri D.M. Harish, and the senior departmental representative, Shri Shastri, very ably argued the appeal before us and rendered all possible assistance. If we have been able to understand the intricacies of the provisions and of various decisions and have decided the ground correctly, it is mainly, if not wholly, due to the assistance that we receive at the Bar. However, for the sake of brevity, we do not propose to refer to rival contentions in details and propose to discuss it in the course of our judgment. It should not, therefore, be understood that detailed and proper arguments were not advanced by the parties.

5.1 In order to appreciate rival contentions, we would like to state the relevant facts in brief. The assessment was completed under section 143(3) on 30-12-1975 computing the total income at Rs. 1,48,829 as against the declared income of Rs. 1,37,898. Besides objecting to the additions/disallowances made, the assessee objected to its not being treated as a manufacturing/industrial company (liable to a reduced rate of tax). The latter ground was, however, not pressed as it was realised that though the ITO had not stated anything about it in the assessment order, he had actually charged the assessee at the rate of 55 per cent and not 65 per cent which could happen only if the assessee was treated as a manufacturing/industrial company. The AAC has referred to and dealt with this ground in paragraph 4 of his order. Other additions/disallowances objected to by the assessee have been considered by the AAC in other paragraphs of his order. The concerned order of the AAC is dated 9-9-1976.

5.2 Subsequent thereto, the Commissioner has, on examination of the assessment records, felt that the ITO's order of assessment was erroneous insofar as it was prejudicial to the interests of revenue, as:

(i) the ITO treated the assessee as an "industrial company" and levied the tax at 55 per cent of the total income ;

(ii) he also allowed weighted deduction on an expenditure of Rs. 42,080 which related to entertainment of foreign clients, etc. ; and

(iii) he allowed interest under section 214 even though some of the payments made towards advance tax were not "advance tax".

Besides challenging the jurisdiction under section 263 on the ground that after the order of the AAC, there was no order of assessment by the ITO, as such, the assessee submitted that the order was correct. However, for reasons given in his order, the learned Commissioner has rejected the assessee's contentions and has set aside the assessment order directing the ITO to make fresh assessment in the manner and according to the directions given by him in the impugned order. It is this order of the Commissioner which is challenged before us.

6.1 Section 263(1) which is the subject-matter of controversy before us reads as follows:

"(1) The Commissioner may call for and examine the record of any proceeding under this Act and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment."

It is common ground that the aforesaid provisions are in pari materia with those in section 33B of the Indian Income-tax Act, 1922 (hereinafter referred to as "the 1922 Act"). An identical question, It may be stated, was posed before the Appellate Tribunal long back in 1952 in the case of Tejaji.

6.2 The facts were that the assessee, a HUF, was sole selling agent of dyes and chemicals manufactured by Ciba (India) Ltd. and Imperial Chemical Industries (I) Ltd. The agencies were transferred to Tejaji Farasram Kharawala Ltd. for a consideration of Rs. 50,000. The ITO computed capital gains at Rs. 25,000 on this transaction, against which the assessee went in appeal to the AAC who confirmed the inclusion. Subsequent thereto, the Commissioner acting under section 33B(1) of the 1922 Act held that the capital gains should have been computed at Rs. 10 lakhs. It was, inter alia, held by the Tribunal that the Commissioner had no jurisdiction to revise the order of the ITO under section 33B as the question of computation of capital gains was considered and adjudicated by the AAC. The Tribunal held that where an issue was, as a matter of fact, considered by the AAC, it being immaterial whether the ITO's order thereon was confirmed, modified or set aside, the effective and operative order on the issue thereafter was that of the AAC so much so, the Commissioner could not exercise his powers of revision under section 33B. According to the Commissioner, however, this interpretation of section 33B was wrong. The dispute was taken in reference to the Bombay High Court. The argument advanced was that where the AAC had only confirmed the order of the ITO on an issue, the order of the ITO remained intact and the Commissioner could, therefore, revise the order under section 33B.

6.3 The Bombay High Court held in Tejaji's case that the decision of the Tribunal was correct, though for a different reason. The reason that appealed to the Hon'ble High Court was :

"With regard to that aspect of the matter, the view taken by the Tribunal is that the Commissioner would be precluded from exercising his jurisdiction under section 33B only in those cases where the Appellate Assistant Commissioner has actually dealt with the matter in respect of which the Commissioner passes an order under section 33B and the view taken by the Tribunal in this particular case is that inasmuch as the question of the quantum of the capital gains was before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner applied his mind to the question of the quantum and confirmed the order of the Income-tax Officer it was not open to the Commissioner to deal with the same subject-matter. Now, we find it difficult on principle to distinguish a case where an appeal is heard by the Appellate Assistant Commissioner and the particular matter in respect of which the Commissioner makes an order under section 33B is not dealt with in that appeal by the Appellate Assistant Commissioner and a case where that matter is dealt with by him. The Tribunal seems to have overlooked, with respect, the very wide jurisdiction conferred upon the Appellate Assistant Commissioner to which reference has already been made. It is not disputed by Sir Nusserwanji that once an appeal is preferred by the assessee it is open to the Commissioner to raise before the Appellate Assistant Commissioner any matter dealing with the assessment of the assessee. It is not as if the power of the Appellate Assistant Commissioner is confined to only those questions which have been raised by the assessee. Once this is conceded, it is difficult to understand why the Commissioner would not be precluded from making an order under section 33B once an order has been passed by the Appellate Assistant Commissioner even though the Appellate Assistant Commissioner does not deal with the matter with which the Commissioner has dealt. The principle underlying section 33B is that it is only the order of the Income-tax Officer that can be revised by the Commissioner. Once the assessment is confirmed by the Appellate Assistant Commissioner or any order with regard to the assessment has been made by the Appellate Assistant Commissioner, that becomes a final order of assessment, and the only right that the department has is the right to appeal to the Appellate Tribunal. The right of the Commissioner continues so long as the order of the Income-tax Officer is not merged in the order or the Appellate Assistant Commissioner, but once the order is merged, the Commissioner cannot deal with the assessment of the assessee at all. On appeal the power to deal with the assessment is given to the Appellate Assistant Commissioner, and further the power is given to the Appellate Tribunal in appeal from the order of the Appellate Assistant Commissioner. The Commissioner completely goes out of the picture once the Appellate Assistant Commissioner has passed an order in appeal from the decision of the Income-tax Officer. In our opinion, therefore, though perhaps not for the same reason as stated in the judgment of the Tribunal, the Tribunal was right in the conclusion it came to that the Commissioner was not competent to pass an order under section 33B when an appeal against the order of the Income-tax Officer had been decided by the Appellate Assistant Commissioner."

7. It is significant that this decision of the Bombay High Court was referred to with implied approval by the Supreme Court in its decision in the case of CIT v. Amrital Bhogilal & Co. [1958] 34 ITR 130, which is evident from the following observations :

"If an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority modifies or reverses the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced. In law the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmance of the decision of the Tribunal by the appellate authority the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement."

8. In the circumstances, there cannot possibly be any dispute that if what has been held by the Bombay High Court in Tejaji's case holds good, it will have to be held that the Commissioner in the present case had no jurisdiction under section 263 as after the order of the AAC the ITO's order of assessment was destroyed. However, the pertinent question is whether the aforesaid decision of the Bombay High Court is still a good decision. It was ably argued on behalf of the department by Shri Shastri that the decision should be ignored for the following, amongst other reasons :

1. The question before the Hon'ble Bombay High Court in Tejaji's case was a narrow one. The observations relied upon by the assessee's learned counsel are obiter dicta and were given on a concession by Sir Nusserwanji, the learned counsel for the revenue, the propriety of which concession is now open to doubt in view or the limits laid on the AAC's powers of enhancement by the Supreme Court in the case of CIT v. Rai Bahadur Hardutroy Motilal Chamaria and the Commissioner's powers to ask the AAC to enhance the assessment where he felt that the order of the ITO was erroneous and prejudicial to the interest of the revenue.

2. The Supreme Court decision in the case of Amritlal Bhogilal as since been explained by the Supreme Court itself in its later decision in the case of Madurai Mills where it observed :

"In support of this argument reliance was placed upon the observation of Gajendragadkar, J., as he then was, in CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130 at p. 136. 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 is 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 Bhogilal & Co.'s case, it was observed by this Court that the order of registration made by the ITO 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."

Their Lordships held in that case that in spite of the fact that the Deputy Commissioner of Commercial Taxes had considered the assessee's revision petition and passed order under section 12(2), the order of the Commercial Taxes Officer was not non est and since the Board of Revenue was revising that portion of the Commercial Taxes Officer's order which remained unaffected by the order of revision of the Deputy Commissioner the time of limitation ran from the date of the Commercial Taxes Officer's order and not from the order of the Deputy Commissioner. The order of the Board was, thus, held to be time-barred.

3. The Bombay High Court's subsequent decision in the case of Blue Star Engg. Co. (Bom.) (P.) Ltd. v. CIT [1969] 73 ITR 283, where referring to the Supreme Court's aforesaid decision in Madurai Mills case, it was observed :

"As to the merger, the Income-tax Officer's order, which has merged in the order of the Appellate Assistant Commissioner and the Tribunal is only to that extent to which it was taken in appeals before the said authorities. In view of the observations of the Supreme Court in State of Madras v. Madurai Mills Co. Ltd. which are reproduced in the order of the Appellate Tribunal, Mr. Joshi, learned counsel for the revenue, has fairly conceded that he will not be able to rely strongly on the merger argument and has consequently not seriously pressed the said point before us. On the other point, however, he has urged that section 154 having spoken merely of an amendment of the order, the scope of the jurisdiction of the Income-tax Officer under the said section is limited and cannot extend to the cancellation of the whole order."

4. The Gujarat High Court considered the Supreme Court decision in Madurai Mills and other cases on the point at issue and has in the case of Karsandas and Poonjabhai Vanmalidas [1978] 114 ITR 38 (Guj.) made the following observations :

"Whether there is merger of the order of assessment of the Income-tax Officer in the appellate order of the Appellate Assistant Commissioner or not and, if there is, to what extent, depends upon the subject-matter of the appellate order. The order of assessment made by the Income-tax Officer merges in the order of the Appellate Assistant Commissioner only in so far as it relates to items considered and decided by the Appellate Assistant Commissioner. That part of the order of assessment which relates to items not forming the subject-matter of the appellate order is left untouched and does not merge in the order of the Appellate Assistant Commissioner. Even after an appeal from an order of assessment is decided by the Appellate Assistant Commissioner, a mistake in the part of that order of assessment which was not the subject-matter of review by the Appellate Assistant Commissioner and was left untouched by him can be rectified by the Income-tax Officer under section 35 of the Indian Income-tax Act, 1922, because the mistake would be his own mistake which he can always correct under section 35(1)".

5. The Bombay High Court has again in the case of CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570 followed the Gujarat High Court in Karsandas's case and dissented from the Allahabad High Court decision in the case of J.K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344, wherein the same view as was taken by the Bombay High Court in Tejaji's case was taken. It was, however fairly admitted that the earlier decision of the Bombay High Court in Tejaji's case was not noticed in any of the aforesaid six decisions (two Gujarat High Court decisions, one Supreme Court decision and one Allahabad High Court decision and two Bombay High Court decisions).

9. We have carefully gone through all these and other decisions to which we will be making reference later. The Bombay High Court, as has been pointed out by Shri Harish, the learned Counsel for the assessee, has in Tejaji's case affirmed the Tribunal's decision and in that sense one may be technically justified in saying that the High Court's jurisdiction being advisory, in its decision the Court could and has actually agreed with the Tribunal, so much so, the observations not necessary for the decision constitute obiter dicta. However, in a case where the High Court considers the question in great detail and approves the decision of the Tribunal but in categorical terms observes that the reasoning given by the Tribunal is not wholly correct and gives its own reasoning for the conclusion, we do not think it is open to say that the reasoning given by the High Court constitutes obiter dicta. This is besides our view that even the obiter dicta of the Bombay High Court specially when they are not casual are binding on this Bench of the Tribunal.

10.1 No doubt Sir Nusserwanji had, in that case, i.e., Tejaji's case, made a concession which appears from the following : "..It is not disputed by Sir Nusserwanji that once an appeal is preferred by the assessee, it is open to the Commissioner to raise before the Appellate Assistant Commissioner any matter dealing with the assessment of the assessee" (p. 419), but that also, to our mind, does not make any difference in the situation. In terms of the Supreme Court decision in the case of Motilal Chamaria, the powers of the AAC to enhance might, superficially looked at, appear to have been eroded to some extent. However, basically the power remains the same, namely, once the assessee files an appeal before the AAC, not only the issues raised by the assessee but all other issues considered and decided by the ITO are open and the AAC could and should see that the reassessment is properly made. In this connection, reference may usefully be made to the following observations of the Supreme Court in the case of Motilal Chamaria at page 451 :

"... As we have already stated, it is not open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income-tax Officer with a view to find out new sources of income and the power of enhancement under section 31(3) of the Act is restricted to the sources of income which have been the subject-matter of consideration by the Income-tax Officer from the point of view of taxability. In this context 'consideration' does not mean 'incidental' or 'collateral' examination of any matter by the Income tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection..."

Whether the AAC can or should do it suo motu or whether the Commissioner can ask him to do so is hardly material for the purpose of this appeal so long as the AAC has power to act that the assessee does not escape assessment or is not under assessed on issues considered and decided by the ITO.

10.2 The basis or the Gujarat High Court decision in Karsandas's case can be seen in the following observation:

"... It is true that the Appellate Assistant Commissioner could suo motu revise the decision of the Income-tax Officer in regard to that particular item but so long as he does not do so, the decision of the Income-tax Officer 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 Income-tax Officer 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 Income-tax Officer, 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 Income-tax Officer 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......"

The correctness or aforesaid basis, in view of the following other observations of the Supreme Court, is open to doubt. The Supreme Court quoted with approval, in Motilal Chamaria's case, the following observations of Lord Wright in the case of King v. Income-tax Special Commissioners [1936] 1 KB 487 (CA):

"... in making the assessment and in dealing with the appeals, the Commissioners are exercising statutory authority and a statutory duty which they are bound to carry out. They are not in the position of judges deciding an issue between two particular parties. Their obligation is wider than that. It is to exercise their judgment on such material as comes before them and to obtain any material which they think is necessary and which they ought to have, and on that material to make the assessment or the estimate which the law requires them to make. They are not deciding a case inter-parties; they are assessing or estimating the amount on which, in the interests of the country at large, the taxpayer ought to be taxed."

10.3 We also do not see anything in the later decision of the Supreme Court in Madurai Mills' case which can be said to be contrary or explaining the earlier decision of the Supreme Court in Amritlal Bhogilal's case. In that case, the Supreme Court has, after referring to its following observation in Amritlal Bhogilal's case observed :

"But the doctrine of merger is not a doctrine or 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 is 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."

At first look, it might appear that in its later decision the Supreme Court has diluted its earlier decision. However, on carefully going through the same, it is clear that it is not so. The basis of the Supreme Court's earlier decision was powers of the AAC, once an appeal was filed, which were more or less coterminus with that of the ITO subject to limits in terms of the decision in Motilal Chamaria's case. On the same analogy, the orders of the AAC may not completely merge with the Tribunal's order, as the Tribunal has no such power. In Madurai Mills' case, though the AAC's appeal was provided for, no appeal was filed by the assessee against the order of the Commercial Tax Officer. The assessee only filed a revision petition and it is evident from the provisions of section 12(2) of the Madras Sales Tax Act, under which the petition was disposed of by the Deputy Commissioner, that he could either reject or allow the petition but could not have examined other items not objected to by the assessee in those proceedings. No doubt section 12(2) has another separate and independent limb which empowered the Deputy Commissioner to revise the order of the Commercial Tax Officer suo motu to the prejudice of the assessee but that contemplated a separate proceeding similar to section 264 of the Income-tax Act. In this connection, the following observations of the Madras High Court in that case may usefully be referred to:

"It is necessary to focus attention on the exact terms of section 12 of the Act to ascertain its true purport and scope. Section 12(1) deals with the powers of the Commercial Tax Officer, section 12(2), with the powers of the Deputy Commissioner and section 12(3), with the powers of the Board of Revenue. Each sub-section contains two clauses, the one permitting exercise of power suo motu and the other enabling the exercise of power on application by the assessee... The provisions of the Act, therefore, make a clear demarcation regarding the scope and ambit of the revisional powers exercisable suo motu by the authority and on application by the assessee. The subject-matter of a revision proceeding started suo motu is always the question of enhancement of assessment, while the subject-matter in a revision moved by the assessee is always the question whether he is entitled to any relief by way of reducing the assessment. Even where both sets of revision proceedings are conducted together in a common enquiry or successively, the subject-matter remains quite distinct and separate."

These observations, to our mind, clearly show that though the Deputy Commissioner had and could exercise his powers under the second limb against the assessee, but such an exercise of power would constitute a separate proceeding requiring a separate order, so much so, it could not but be held that in revision proceedings before the Deputy Commissioner under section 12(2), at the instance of the assessee, the Deputy Commissioner's jurisdiction was very much limited and, therefore, the earlier decision of the Supreme Court, which was rendered in the case of an order which was the subject-matter of appeal before the AAC had to be and was rightly distinguished. Read in this context, it is clear that the observations of the Supreme Court in Madurai Mills' case are in no way in conflict with those in Amritlal Bhogilal's case.

10.4 It may be noted that their Lordships have referred to the assessment order in Amritlal Bhogilal's case as a composite order, which in our view, only means a common order passed under sections 23(3) and 26A of the 1922 Act but the two orders were independent orders separately appealable. This is why their Lordships, while deciding the issue in Amritlal Bhogilal's case in favour of the assessee, noted but did not adversely comment on the earlier Bombay High Court decision in Tejaji's case.

10.5 It is also not without significance that the decisions of Tejaji's and Amritlal Bhogilal's cases were given by their Lordships of the Bombay High Court on the same date, i.e., 5-3-1953 and both are reported in the same volume 23 of ITR on pages 412 and 420, respectively. While the department accepted the decision in the case of Tejaji, it went to the Supreme Court in the case of Amritlal Bhogilal only and if the arguments advanced on behalf of the assessee before their Lordships of the Supreme Court are read carefully, it would be abundantly clear that the basis of attack was that registration order constituted a separate and independent order which was separately appealable and in an appeal filed by the assessee against the assessment, it was not open to the AAC to revise the order of the ITO granting registration under section 26A.

11. A direct support for this view is also found in the Supreme Court's decision in the case of ITO v. Seghu Buchiah Setty [1964] 52 ITR 538 where it was held by majority at page 546:

"The order of reduction must, in my opinion, necessarily have the effect of setting aside the original order as a whole. It does not simply strike out a few of the figures appearing in the original order. That would really be a case of rectification for which provision is made in section 35 of the Act. What an appellate order does in a case of reduction is, as in the present case, to go into all the figures and arrive afresh at the assessable income which replaces the amount of the income arrived at by the Income-tax Officer. Therefore, it seems to me that in all cases of an appellate order reducing the assessment the original order goes and if it goes, of course, the notice of demand also falls to the ground and the default based thereupon also ceases to be default any more. Suppose, the appellate order itself stated that a smaller amount of tax was payable after it had reduced the figure of the assessable income at which the Income-tax Officer had arrived. Indeed I cannot imagine how else it can be expressed. After such an order the original order must go for the debt being one the two cannot exist together. If that order goes, all default arising out of it must also go. Therefore, I think that on the Income-tax Officer's order being revised in appeal, the default based on it and all consequential proceedings must be taken to have been superseded and fresh proceedings have to be started to realise the dues as found by the revised order."

The necessity of issue of fresh notice of demand on enhancement or reduction of the amount of tax demanded as a result of subsequent orders in appeal or revision, it may be stated, has been superseded with retrospective effect by the Taxation Laws (Continuation and Validity of Recovery Proceedings) Act, 1964. This, however, does not in any way change the legal position regarding orders by the ITO as laid down hereinabove.

12. Again, the Bombay High Court in the case of Blue Star and the Gujarat High Court in the case of Karsandas, were considering the powers of various authorities for rectifying their orders. Since all these authorities had identical powers, the question had arisen about the extent of power of each authority. This naturally raised the question of limitation inter se. Apart from the fact that the provisions considered in those decisions were of section 35 of the 1922 Act and/or section 154 of the 1961 Act, which, to our mind, are certainly not identical with those of section 33B of the 1922 Act and section 263 of the 1961 Act, it may be noted that even the insertion of sub-section (1A) in section 154 in 1964 which makes the legal position abundantly clear was not brought to the notice of their Lordships in those decisions. Therefore, it is not possible to read something contrary to or explaining the decisions of the Bombay High Court in Tejaji's case and the Supreme Court decision in Amritlal Bhogilal's case in those cases.

13. The difficulty, it appears, has arisen as, when the question of jurisdiction of the Commissioner under section 263 came up for consideration before the Allahabad High Court recently in the case of J.K. Synthetics Ltd. v. Addl. CIT it took the same view as was taken by the Bombay High Court in Tejaji's case without, however, referring, far less following it, as such. At the same time, their Lordships expressed that they were dissenting from the view taken by the Gujarat High Court in Karsandas's case in the following words:

"The decision of the Gujarat High Court referred to by the Commissioner holds that for the purposes of determining the applicability and the principle of merger the test is whether the decision of the Income-tax Officer on a particular point is the subject-matter of appeal before the Appellate Assistant Commissioner. It may not be the subject-matter of appeal for two reasons, either because the Appellate Assistant Commissioner has no jurisdiction to consider that subject-matter, or because the Appellate Assistant Commissioner though having jurisdiction to examine the subject-matter does not do so. In either case, there being no decision of the Appellate Assistant Commissioner on the point, the decision of the Income-tax Officer remains untouched and it is open to the Commissioner in exercise of powers under section 33B to revise it or to the Income-tax Officer in exercise of the powers under section 35, sub-section (1), to rectify it if there is a mistake apparent from the record of the assessment. With respect, we are unable to agree with the distinction drawn by the Gujarat High Court or with the view that if the Appellate Assistant Commissioner does not expressly give a finding or decision on a particular point the order of the Income-tax Officer with regard to it does not merge in the appellate order."

It might have been possible for their Lordships to distinguish the Karsandas's case. Again when the question of time limit for rectification under section 154 came up for consideration recently before the Bombay High Court in Sakseria Cotton Mills' case, the facts being identical, their Lordships not only followed Karsandas's case but also observed:

"There is no doubt that a contrary view has been taken by the Allahabad High Court in J.K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344, where a Division Bench of that Court has taken the view, referring to the provisions of section 251 of the IT Act, 1961 that if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law that is effective and can be enforced even if the appellate decision has merely confirmed the decision of the Tribunal. Thus, if there is in law confirmation or affirmation of the decision, it merges in the appellate order. The learned Judges of the Allahabad High Court have dissented from the view taken by the Gujarat High Court in Karsandas Bhagwandas Patel v. G.V. Shah, ITO [1975] 98 ITR 255, and have declined to accept the distinction drawn by the Gujarat High Court between a part of the assessment order which is made the subject of appeal and the other part in respect of which the AAC has not exercised his jurisdiction. We are unable to agree with the view taken by the Allahabad High Court because, as already pointed out earlier, the distinction between a part of the assessment order not subjected to appeal and the part in respect of which the appellate jurisdiction has been exercised is an important distinction having regard to the fact that the ITO is called upon to decide several contentions of the assessee when he goes into the question of determining the taxable income of the assessee."

It is this observation of the Bombay High Court, which was strongly relied upon by the departmental representative for the proposition that the Bombay High Court should be deemed to have overruled its earlier decision in Tejaji's case by implication as though the said decision was not specifically referred to, and dissented from the Allahabad High Court decision in J.K. Synthetics' case laying down the same proposition as in Tejaji 's case was admittedly dissented from.

14. To our mind, this argument of the department is not tenable and requires to be rejected. We have already explained the purport and the scope of the provisions of sections 154 and 263. We have also found that no High Court has yet held that the concept of "any order passed by the ITO under section 263" and the concept of the phraseology used in section 154(1) are the same. The phraseology used in section 154(1) is in the following words :

"(1) With a view to rectifying any mistake apparent from the record---

(a) the Income-tax Officer may amend any order of assessment or of refund or any other order passed by him ;

(b) the Appellate Assistant Commissioner may amend any order passed by him under section 250 or section 271 ;

(bb) the Inspecting Assistant Commissioner may amend any order passed by him in any proceeding under sub-section (2) of section 274 ;

In fact this aspect has been highlighted by the Bombay High Court in the case of Sakseria Cotton Mills' case in the following words :

"It is important to notice another aspect of provisions relating to rectification of mistakes. The provisions of section 35 of the Indian I.T. Act, 1922, and the corresponding provisions of section 154 of the I.T. Act, 1961, give a power of rectification to the Commissioner, the AAC and the ITO only in respect of the orders passed by them. The ITO can exercise his power of rectification in respect of the order made by him. The AAC can exercise the power of rectification only in respect of the orders made by him. When the statute has given powers of rectification to the ITO in respect of his own order, the position is that he is able to rectify his own order within the prescribed period if the whole of the order or a part of the order has not been subjected to appeal. If the theory of merger is accepted as being attracted wholly, the provision relating to rectification of mistake by the ITO in a case where even a part of the assessment order is made the subject of appeal is likely to become nugatory. It, therefore, clearly appears to us that the provisions of the I.T. Act contemplate that in case where an assessment is made subject of an appeal, the assessment orders made by the ITO do not wholly merge with the orders of the appellate authority but that the merger would take place only in respect of that part of the order in respect of which the AAC has exercised his appellate jurisdiction."

15. Moreover, while the Bombay High Court decision in Tejaji's case is on all fours, the other decisions of the Bombay and Gujarat High Courts are distinguishable and are in conflict with it. Further, on carefully going through the observations of the Bombay High Court in Sakseria Cotton Mills' case, it appears to us that their Lordships have followed the Gujarat High Court decision and dissented from the Allahabad High Court decision only to the extent the Allahabad High Court dissented from the Gujarat High Court decision and not their final conclusion as that issue was not for consideration before their Lordships at all. That apart, it is neither safe nor possible to speculate what their Lordships would have done had their attention been invited to their own in earlier decision in Tejaji's case.

16. Having regard to the above discussion, we do not find any material to hold that the proposition laid down by the Bombay High Court's decision in Tejaji's case has been overruled directly or by implication by the Bombay High Court in Sakseria's case or by the Supreme Court. The concepts of orders in the two sections materially differ and in our view all the decisions cited before us are reconciliable and correct on their own facts. Accordingly, we further hold that for the purpose of jurisdiction under section 263, the order of the ITO merges in that of the AAC not only to the extent to which the AAC has, as a matter of fact, dealt with but also to the extent to which he had power to took into with a view to enhance within the limits prescribed by the Supreme Court in its decision in the case of Motilal Chamaria's case. In that view of the matter, we have to hold that the Commissioner had no jurisdiction under section 263 to revise the order of assessment, as, after the order of the AAC, the order of assessment had ceased to exist.

17. There is yet another aspect which requires consideration. Assuming the AAC has no obligation to enhance, as has been held by the Gujarat High Court in Karsandas's case it cannot perhaps be disputed particularly in view of Explanation to section 251 that he has a discretion exercise all powers under section 251 including the power of enhancement in appropriate cases. This discretion, as we understand, is a judicial discretion which again the AAC is obliged to exercise in cases where there is a warrant for it. Therefore, even from this point of view, it will not be possible to hold, in view of the Supreme Court's observations in Motilal Chamaria's case, that the AAC has no obligation to exercise those powers. In other words, the AAC has in the circumstances calling for exercise of his power to enhance, an obligation to enhance the assessment, whether or not the particular issue decided in the assessment is subject-matter of appeal.

18. It may not be out of place to observe that it was strongly argued on behalf of the revenue that unless the AAC had, as a matter of fact, exercised his power of enhancement on issues decided by the ITO in the assessee's favour, the orders of the ITO on those issues would stand and, therefore, the Commissioner would have jurisdiction under section 263 to revise that part of the order. It was contended that to have a power to enhance, and the fact that such power has been exercised, are two different concepts which cannot be treated as substitute of each other. To our mind, even this argument is untenable. In this connection, reference may usefully be made to another Supreme Court decision in the case of S.A.L. Narayan Row v. Iswarlal Bhagwandas [1965] 57 ITR 149. The question involved in that case was whether the ITO could charge interest under section 18A(6) of the 1922 Act by invoking the provisions of section 35 of the 1922 Act. For this purpose, it has to be borne in mind that while passing the assessment order originally, the ITO has not charged interest under section 18A(6) although it was apparently chargeable nor had he, as a matter of fact, applied his mind to that aspect and waived charging of interest. In these circumstances, it became necessary to decide whether the ITO had, or could be deemed to have, waived charging of interest under section 18A(6) when he passed the assessment order originally, because it was common ground that if the ITO had, or could be deemed to have, exercised his power of waiver of charging of interest under section 18A(6), interest under that section could not be charged by taking recourse to proceedings under section 35. It was held by the Supreme Court that since the assessee's case fell within the terms of rule 48(1) and the ITO was in law bound to consider whether he was entitled to reduction or waiver of interest under the fifth proviso, he should be deemed to have waived interest chargeable under section 18A(6) and, therefore, the High Court was right in quashing the orders passed by the ITO under section 35 and the orders of the Commissioner passed under section 33A confirming the orders of the ITO. This decision, in our view, is an authority for the proposition that where an authority has power or discretion to do something for which appropriate circumstances exist, whether or not that authority has, as a matter of fact, exercised that power, such an authority should be deemed to have exercised that power. On the basis of this analogy, it can, and should be, held that the issues arising out of the assessment order which were decided by the ITO in favour of the assessee over which the AAC had power to examine and pass appropriate orders, but did not actually do so, the AAC should be deemed to have examined those issues and agreed with the ITO, so much so, even that portion of the assessment order is merged in that of the AAC.

19. Moreover, as distinct from section 263, section 264 authorises the Commissioner to exercise his powers of revision, at the instance of the assessee, the only limit being that in such proceedings, the Commissioner cannot pass an order to the prejudice of the assessee. Again, as distinct from the proceedings under section 263, a revision under section 264 can be made even after the order of the ITO has merged with that of the AAC. However, the power of revision under section 264 cannot be exercised where:

(a) an appeal against the order lies to the AAC or to the Tribunal but has not been made and the time within which such appeal may be made has not expired, or in the case of an appeal to the Tribunal, the assessee has not waived his right of appeal; or

(b) the order is pending on an appeal before the AAC ; or

(e) the order has been made the subject of an appeal to the Tribunal. If the interpretation sought to be placed by the revenue is accepted, it would mean that an assessee can file an appeal to the AAC on some points decided against him by the ITO and can file a revision petition before the Commissioner under section 264 on other points not taken up in appeal before the AAC. Similarly, it would be open to an assessee to file a revision petition against some of the points decided by the AAC against him and also file an appeal to the Tribunal on some other points. This will be an anomalous position and when such a case came up for consideration before the Madras High Court, the argument was not accepted in the case of C. Gnanasundara Nayagar v. CIT [1961] 41 ITR 375.

20. Our attention was also invited by the departmental representative to the gross injustice which he thought will cause to the revenue if the proposition as urged by the assessee's counsel was accepted. It was stated that the department had, admittedly, no right of appeal against the order of the ITO and ordinarily in an appeal filed by the assessee, the assessee would take up only such grounds regarding which he was aggrieved by the order of the ITO and the AAC would also confine to those grounds only. In the premises, even where a small item of addition is objected to in an appeal before the AAC and the AAC has decided that ground, the whole order of assessment wherein so many issues were decided in favour of the assessee, the Commissioner will have no power to revise the order. In other words, the contention was that the department will be remedyless and the prejudice to the revenue will perpetuate. No doubt this argument appears convincing on the face of it. However, when examined carefully, it becomes clear that it is fallacious and untenable. Reference for this purpose may be made to the scheme of the Income-tax Act. The ITO passes an order against which the department has, admittedly, no right of appeal. If the assessee does not file an appeal against the order of assessment, the Commissioner has, admittedly, jurisdiction under section 263 to revise the order if he finds that the order passed by the ITO is erroneous and prejudicial to the interests of the revenue. On the other hand, if the assessee chooses to file an appeal, the AAC has power not only to examine the issues raised by the assessee but also all issues arising out of the assessment order. Assuming the AAC does not exercise his aforesaid power, the department is not remedyless. It has power under sections 147(a) and 147(b) and also under section 154, depending upon the circumstances of each case, to reconsider these issues. No doubt in the case of an order against which appeal has been filed by the assessee and the AAC has passed some order, the Commissioner's jurisdiction will be ousted.

21. Even if we approach the question without reference to any authorities on the point, it appears to us that under the provisions of the Income-tax Act an order of assessment is one, single and indivisible composite order of the ITO which involves determination of the various issues or points that arise in the course of assessment for the determination of the income or tax and is not an amalgam of a number of orders of the ITO in which different issues are determined. The provisions of section 143 clearly contemplate that the ITO shall, after hearing the evidence of the assessee and other evidence required by him on specific points and taking the relevant materials into account, by an order in writing, make an assessment of total income or loss of the assessee and determine the sum payable by him or refundable to him. The provisions of section 246(c), providing for an appeal, contemplate that the right of the assessee to prefer an appeal would arise by his being aggrieved by any order of assessment under section 143(3) and such right is against such order, that is to say, order of assessment. The provisions of section 251 enumerating the powers of the AAC in disposing an appeal mentions that in an appeal against the order of assessment he may confirm, reduce, enhance or annul the assessment. Section 250(6) states that the order of the AAC disposing of the appeal shall state the points for determination, his decisions thereon and the reasons for the decisions. In other words, as we understand it, the AAC does not pass separate orders on each point, dealt in by the ITO or disputed by the appellant but decides or determines the points that arise before him in the appeal by a single order. On this disposal of the appeal, the AAC is required to communicate the order passed by him to the parties.

22. That the view we are taking is correct is also clear when we examine the question of exercise of the AAC's power to enhance from a different angle. This power can be exercised only after allowing an opportunity of showing cause contemplated in sub-section (2) of section 251. However, when income computed regarding some items is enhanced and regarding other items is reduced and the net result is not enhancement, opportunity under section 251(2) need not be given. The reason is that income-tax is only one tax and the "enhancement of assessment" means enhancement of total income and not necessarily enhancement of income under a particular item---Gowri Tile Works v. CIT [1957] 31 ITR 250. The whole scheme under the Act envisages one order, that is, the order of assessment under section 143(3).

23. Moreover, as regards the first question whether the assessee was or was not an industrial company is concerned, the decision has got to be in favour of the assessee even on merits without going through the catena of case laws relied upon before us by the parties. The issue as to whether the assessee was a "priority industry" or not was, as a matter of fact, raised before the AAC originally, though it was not pressed subsequently. The AAC's observation in paragraph 4 of his order, reading as : "The last ground of appeal that the ITO may be directed to treat the appellant-company as a manufacturing company and to charge tax accordingly is not pressed by a letter in writing to me dated 1-9-1976. This ground of appeal is, therefore, treated as reject" makes it abundantly clear. The issue was, thus, specifically before the AAC and it would be difficult to accept that in spite of it this part of the order of the ITO did not merge into that of the AAC to oust the Commissioner's jurisdiction under section 263.

24. This will, however, not apply to the question of interest under section 214 as granting or non-granting of interest under that section is not appealable and, therefore, that part of the order cannot be said to have merged in the order of the AAC, as has been specifically held by the Calcutta High Court in the cases of Premchand Sitanath Roy, v. Addl. CIT [1977] 109 ITR 751 and Singho Mica Mining Co. Ltd. v. CIT [1978] 111 ITR 231.

25. We have, thus, to hold that the Commissioner has jurisdiction under section 263 to revise the order of the ITO pertaining to interest refundable under section 214. However, on merits, we find that the order passed by the ITO in this behalf is supported by a number of the Tribunal's orders referred to by the Commissioner himself in paragraph 8 of his order. No doubt the Commissioner has not followed those decisions perhaps because the department has not accepted them. Be that as it may, we are in agreement with the decisions of the Tribunal relied upon by the assessee's counsel before the Commissioner and hold that on merits the order of the ITO was just and proper and the Commissioner was, therefore, not justified in holding that the assessee is not eligible to interest under section 214.

26. In the result, the assessee's appeal is allowed.

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