CHOTANAGPUR BUILDERS v. INCOME TAX OFFICER
[Citation -1984-LL-0505]

Citation 1984-LL-0505
Appellant Name CHOTANAGPUR BUILDERS
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 05/05/1984
Assessment Year 1976-77
Judgment View Judgment
Keyword Tags value of closing stock • doctrine of merger • show-cause notice • revisional order • trading account • opening stock • profit margin
Bot Summary: The assessment having been merged with the Commissioner the Commissioner had no jurisdiction to exercise his powers in terms of Section 263, and that even though, according to the Commissioner, the ITO's order was erroneous, there was nothing to show that the same was prejudicial to the interest of the revenue. The Commissioner, according to the learned counsel, was not at a l l justified in setting aside the entire assessment which resulted in great miscarriage of justice, inasmuch as in the reassessment completed on the basis of the Commissioner's direction the ITO made a thumping Commissioner under section 144 of the Act on a total income of Rs. 3,02,850. The departmental representtive also referred to paragraph 4 of the Commissioner's order, wherein the Commissioner observed that 'as desired by Shri Moitra' the assessment was set aside. In regard to the point raised that in view of the merger of the ITO's order with that of the Commissioner, the Commissioner could not exercise his revisional powers under section 263 , we may point out that the Full Bench Madhya Pradesh High Court decision relied on by the departmental representative R. S. Banwarilal's case is a later decision that the one relied on by the assessee's learned counsel Mandsaur Electric Supply Co. Ltd.,'s case. In regard to the point raised by the Commissioner justifying his action under section 263 , the assessee could not have any grievance for which it could f i l e an appeal before the Commissioner and the doctrine of merger in respect of the mistake pointed out by the Commissioner was not at all applicable in the instant case. The learned counsel's further objection that the Commissioner ought to have enhanced the assessment and could not, in the circumstances, restore the assessment on the ITO's file for making a de novo assessment, in our opinion, is also not tenable as the Commissioner observed in his order that 'as desired by the Shri Moitra' he was setting aside the assessment with a direction to the ITO to reframe the assessment in accordance with law. The issue now raised that the ITO did not carry out the Commissioner's order in reframing the set aside assessment, in our opinion, cannot make the Commissioner's order invalid.


assessee-firm derives income from contract business. In respect of assessment year 1976-77, firm's assessment was completed on total income of Rs. 1,05,310 as against income shown of Rs. 1,02,114. Commissioner on scrutiny of records found that there was discrepancy of Rs. 22,000 in value of closing stock of materials as shown in trading account and balance sheet drawn up for year ending 5-2-1976. He accordingly, initiated proceedings under section 263 of Income-tax Act, 1961 ('the Act'). During course of hearing before Commissioner, assessee's learned counsel, Shri A. K. Moitra, admitted that he was not able to reconcile discrepancy as pointed out in Commissioner's show-cause notice under section 263. Commissioner was, accordingly of opinion that ITO's order of assessment in respect of assessment year 1976-77 was erroneous insofar as it was prejudicial to interests of revenue. Commissioner held in his order under section 263 that 'the assessee has taken credit of Rs. 87,000 on account of opening stock as shown in trading account at Rs. 65,000, therefore, appears to be patently incorrect'. He, accordingly, set aside assessment and directed ITO to reframe same after ascertaining as to 'how did assessee manage to tally balance sheet'. Against said order of Commissioner dated 11-8-1980, assessee has filed present appeal. 2. learned counsel's objection is mainly two-fold, viz., (i) assessment having been merged with Commissioner (Appeals) Commissioner had no jurisdiction to exercise his powers in terms of Section 263, and (ii) that even though, according to Commissioner, ITO's order was erroneous, there was nothing to show that same was prejudicial to interest of revenue. According to learned counsel, assessee being firm of contractors, its income as computed in assessment at Rs. 1,05,089 came to about 9.73 per cent on gross contract receipts of Rs. 10,79,909, which should have been considered by Commissioner as reasonable considering profit margin disclosed by similar other contractors. Another objection raised by learned counsel was that Commissioner had powers under section 263 to enhance assessment and since he was satisfied that there was mistake in accounts furnished by assessee, he could direct ITO to reframe assessment by taking into account mistake as pointed out by Commissioner. Commissioner, according to learned counsel, was not at l l justified in setting aside entire assessment which resulted in great miscarriage of justice, inasmuch as in reassessment completed on basis of Commissioner's direction ITO made thumping Commissioner under section 144 of Act on total income of Rs. 3,02,850. learned counsel, in this connection, filed before us paper book containing 18 pages. He also submitted that on question of merger itself, assessee was entitled to relief claimed in view of Full Bench decision of Madhya Pradesh High Court in case of CIT v. Mandsaur Electric Supply Co. Ltd. [1983] 140 ITR 677. In regard to action of Commissioner in setting aside whole of assessment order, learned counsel relied on Delhi High Court decision in case of Addl. CIT v. J. K. D'Costa [1982] 133 ITR 7. 3. In reply, departmental representative pointed out that assessee disclosed net profit of Rs. 90,419 in its profit and loss account for year ending 5-2-1976. mistake noticed in value of closing stock shown in profit and loss account and balance sheet came to Rs. 22,000. actual profit thus worked out to Rs. 1,12,419 (Rs. 90,419 + Rs. 22,000) which obviously was in excess of income assessed at sum of Rs. 1,05,310. It was thus evident, according to departmental representative, that ITO's order was prejudicial to interests of revenue. It has been stated that since assessee's learned counsel admitted mistake before Commissioner, Commissioner's jurisdiction in terms of section 263 could not be questioned. departmental representtive also referred to paragraph 4 of Commissioner's order, wherein Commissioner observed that 'as desired by Shri Moitra' assessment was set aside. It could not be said, therefore, that assessee was aggrieved by Commissioner's order and, consequently, appeal before Tribunal was incompetent. For this proposition, he relied on two High Courts decision in Ramanlal Kamdar v. CIT [1977] 108 ITR 73 (Mad) and CIT v. Ram Kumar Agarwalla & Bros. [1977] 108 ITR 457 (Cal.) On point of merger, departmental representative referred to Full Bench decision of Madhya Pradesh High Court in CIT v. R. S. Banwarilal [1983] 140 ITR 3 and another Madhya Pradesh High Court decision in Alok Paper Industries v. CIT [1983] 139 ITR 1064. departmental representative also referred to Gujarat High Court decision in Karsandas Bhagwandas Patel v. G. V. Shah, ITO [1975] 98 ITR 255 and to Supreme Court decision in State of Madras v. Madurai Mills Co. Ltd., [1967] 19 STC 144. He particularly drew our attention to their Lordships' observation wherein has been observed as under: "... But doctrine of merger is not doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by inferior Tribunal and other by superior Tribunal, passed in appeal or revision, there is fusion or merger of two orders irrespective of subject- matter of appellate or revisional order and scope of appeal or revision contemplated by particular stature. In our opinion, application of doctrine depends on nature of appellate or revisional order in each case and scope of statutory provisions conferring appellant or revisional jurisdiction..." (p. 149) 4. We have considered submissions of parties concerned. It is not in dispute that mistake cropped up in figures furnished in respect of closing stock of materials in assessee's trading account and in balance sheet for year ending 5-2-1976. According to assessee mistake was not that serious which could justify Commissioner's exercise of powers in terms of section 263. We are, however, not impressed with learned counsel's contention in this regards as, in our opinion, discrepancy pointed out by Commissioner clearly implies that balance sheet drawn up as at end of accounting year relevant for assessment year 1976-77 did not reflect true state of affairs as on 5-2-1976. We are, accordingly, satisfied that Commissioner's exercise of jurisdiction in terms of section 263 was not improper. 5. In regard to point raised that in view of merger of ITO's order with that of Commissioner (Appeals), Commissioner could not exercise his revisional powers under section 263 , we may point out that Full Bench Madhya Pradesh High Court decision relied on by departmental representative R. S. Banwarilal's case (supra) is later decision that one relied on by assessee's learned counsel Mandsaur Electric Supply Co. Ltd.,'s case (supra). High Court in that case held that 'under section 263 of Income-tax Act, 1961, Commissioner has no jurisdiction to set aside on order of assessment passed by ITO when that order is subject-matter in appeal preferred by assessee before AAC' (p. 677). In latter Full Bench decision which has been relied on by departmental representative, their Lordships observed that "where appeal has been preferred by assessee to AAC from order of assessment made by ITO in respect of only some of items covered by ITO's order and remaining items, forming part of ITO's assessment order, were not agitated by either party, though it was open also to revenue to agitate them or AAC to consider them suo motu and no decision of AAC is, therefore, made in respect of remaining items. ITO's order merges with appellate order of AAC only to extent it was considered and decided by AAC but matters which are not covered by appellate order of AAC are left untouched and to that extent ITO's assessment order survives, permitting exercise of revisional jurisdiction by Commissioner under section 263 of Income-tax Act, 1961". (p. 3) In regard to point raised by Commissioner justifying his action under section 263 , assessee could not have any grievance for which it could f i l e appeal before Commissioner (Appeals) and, consequently, doctrine of merger in respect of mistake pointed out by Commissioner was not at all applicable in instant case. learned counsel's further objection that Commissioner ought to have enhanced assessment and could not, in circumstances, restore assessment on ITO's file for making de novo assessment, in our opinion, is also not tenable as Commissioner observed in his order that 'as desired by Shri Moitra' he was setting aside assessment with direction to ITO to reframe assessment in accordance with law. aforesaid direction of Commissioner, in any way, cannot be considered as illegal. issue now raised that ITO did not carry out Commissioner's order in reframing set aside assessment, in our opinion, cannot make Commissioner's order invalid. assessee admittedly can avail of remedial measures as provided under Act in regard to subsequent assessment completed by ITO under section 144. We would, accordingly, uphold Commissioner's order and dismiss appeal of assessee. *** CHOTANAGPUR BUILDERS v. INCOME TAX OFFICER
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