F. C. RUSTAGI, J.M.: This is appeal preferred by assessee against order of CIT passed under s. 263 and assessment year involved is 1979-80. All grounds raised by assessee can be bifurcated in three facets as per first of which attempt of ld. counsel for assessee was to get order of CIT under s. 263 annulled on legal ground whereas in facet he has attacked inclusion of Rs. 2,40,000 in hands of assessee on account of payment made by them to some outgoing partners. In order to appreciate dispute, it is incumbent to briefly narrate facts. assessee was partnership firm. assessment year involved is 1979-80 for which relevant previous year ended on 30th Sept., 1978. There were ten partners in said firm namely: Shri Raj Kishan Das (HUF) Shri S. K. Garg (HUF) Shri R. L. Gupta (HUF) Smt. Suman Gupta Shri Beni Parshad Smt. Krishna Bala Smt. Parkash Vati Smt. Anuradha Gupta Smt. Bimla Garg Shri Ashwani Kumar On 1st July, 1970, last four partners i.e. Smt. Parkash Vati, Smt. Anuradha Gupta, Smt. Bimla Garg and Shri Ashwani Kumar, went out of said firm and where paid sum of Rs. 60,000 each i.e. total sum of Rs. 2,40,000 as per terms and conditions of dissolution deed and after firm was dissolved continuing six partners effecting change in their profit sharing ration continued business of said firm after reconstitution. business of firm was those contractors and it was firm which was started only in 1975. Each of four out-going partners were credited with sum of Rs. 60,000 under narration "by goodwill received for leaving partnership of M/s Raj Kishan & Co. In course of assessment proceedings, IAC(Asst.), who framed assessment, disallowed sum of Rs. 2,40,000 which was claimed to be deductible by assessee on strength of Punjab & Haryana High Court decision in case of Kartar Singh Dugal. Since said case was neither reported nor made available to IAC(Asst) by assessee, contention of assessee for deduction of said amount of Rs. 2,40,000 was rejected but subsequently when copy of said decision was obtained by IAC(Asst.), he accepted contention of assessee regarding deduction of Rs. 2,40,000 as per his order passed under s. 154 only little after original assessment was framed. We may here mention that assessment in this case was framed on 29th Oct., 1979 whereas rectificatory order under s. 154 allowing sum of Rs. 2,40,000 was passed on 31st Dec., 1979. There were certain other additions which were disputed by assessee before CIT(A) in assessee s first appeal filed before him. contention of assessee before CIT(A) in course of s. 263 proceedings were that as there is no specific provision in Act regarding powers of CIT(Admn.) reviewing order of assessment and secondly, because there was merger in instant case of order of IAC(Asst.) in that of CIT(A), CIT(Adm.) was not authorised to pass order under s. 263. It was also submitted on merit that since order of IAC(Asst.) passed under s. 154 which was found by CIT erroneous was to be prejudicial to Revenue, said order was since made in light of Punjab & Haryana High Court decision, it could not be interfered with. CIT rejecting all contentions raised by course of his submissions made twice before CIT passed order under s. 263 as per which he felt satisfied for non-allowance of deduction of Rs. 2,40,000 paid to four out-going partners. He even observed that it was not even mistake apparent from record by s. 154 and, therefore, observing that order of IAC(Asst.) passed under s. 154 on 31st Dec., 1979 was erroneous insofar as it was prejudicial to interest of revenue, same as such was cancelled. It is said order of CIT which is under appeal before us. After this appeal was heard number of times and no head or tail regarding issues seemed to come in view of Bench. Shri Aulakh, ld. counsel for assessee, who appeared, was directed by Bench to file written note on 19th June, 1984 covering all points regarding jurisdiction of CIT, doctrine of merger etc. and ld. Departmental Representative was required to file his reply. Subsequently, ld. Departmental Representative filed his reply and again in form of rejoinder, ld. counsel for assessee filed his counter reply and case was finally heard on 23rd July, 1985. As matter of fact, written note was required to be filed before Bench for assistance and simplification of matter but as usual in types of this dispute, ld. counsel for assessee covered 36 foolscap pages in form of its written arguments in response of which ld. Departmental Representative was good enough only to cover six pages in reply to which rejoinder was again presented by ld. counsel for assessee covering five foolscap pages. We could come to conclusion by going through written submissions by both parties made by ld. Departmental Representative once and by ld. counsel for assessee twice but since what came from both sides were not only written notes on issue but from long winding arguments, sometimes t cost even of repetition, both parties were required to address Bench summarising their arguments on strength of written notes placed before us. ld. counsel for assessee at very outset said that in case written arguments are read through, there would hardly be any need for saying anything orally yet to summarise. He first of all attacked action of CIT on first fact of his contentions raised before CIT and also in course of written arguments before us that CIT has no jurisdiction. He submitted that s. 125(A4) is only enabling provision. He also submitted that s. 263 was not existing as such during relevant assessment year and same as such stands amended w.e.f. 1st Oct., 1984 by insertion of Explanation as per Taxation Laws (Amendment) Act, 1984. He submitted in case Parliament in its wisdom had intention to apply said Explanation with retrospective effect, it its wisdom had intention to apply said Explanation with retrospective effect, it could be so said as in case of ss. 10 and 13A. He submitted that after assessment was framed by IAC(Asst.), assessee had gone in appeal against said assessment order before CIT though issue undisputedly involved in first appeal was not regarding deduction of Rs. 2,40,000 but this could be dispute had it not been rectified under s. 154 proceedings by IAC (Asst.) and, therefore, it was question whether whole order has been merged into order of CIT and as per Special Bench decision of Tribunal, CIT was ousted from resorting to action under s. 263. Coming to merit he submitted that, undoubtedly, as per books, it is mentioned that payment of Rs. 60,000 to each of four out-going partners was or credited in their respective account on account of goodwill but it was in respect of future profits as in case of Kartar Singh Dugal and nomenclature would make no difference. He over and again reiterated on 1st July, 1977 when four partners went out, what they were paid was sums on account of their share which they would have got from firm had they continued. He placed before us copy of Punjab and Haryana High Court decision in case of Kartar Singh Dugal and also relied on yet another Punjab and Haryana High Court decision in case of Sukhbir Parshad vs. CIT (1983) 33 CTR (P&H) 83: (1983) 144 ITR 437 (P&H). ld. Departmental Representative, however, submitted that so far as merger part is concerned, Madhya Pradesh High Court decision in case of CIT vs. Mandsaur Electric Supply & Co. (1982) 29 CTR (MP) 324 (FB): (1983) 140 ITR 677 (MP) (FB) was never noticed by Special Bench and then, according to him, there decision from this Bench in case of Punjab Financial Corporation Ltd. copy of which was placed by him on revenue compilation wherein this Bench adopted doctrine of merger on basis of partial merger, and not full merger. Another decision of Madhya Pradesh High Court was relied upon by ld. Departmental Representative which is also reported as CIT vs. R. S. Banwarilal (1982) 28 CTR (MP) 59 (FB): (1983) 140 ITR 3 (MP) (FB). ld. Departmental Representative regardig that issue that in hight of Punjab and Haryana High Court in case of Kartar Singh Dugal there was mistake rectifiable and placed his reliance on (1984) 154 ITR 583. He also submitted regarding first facet of arguments raised by ld. counsel for assessee distinguishing between position of ITO and IAC (Asst.) that as per s. 125A(4), IAC is ITO so far as assessment is concerned unambiguously. ld. Departmental Representative relied on Supreme Court decision Jogendra nath Naskar vs. CIT (1969) 74 ITR 33 (SC) especially on portion of report available in page 41 that Explanation added to s. 263 is clarificatory. He also placed his reliance on CIT vs. Bijoy Kumar Aimal (1977) 106 ITR 743 (Cal) and Varghese, K. P. vs. ITO (1981) 24 CTR (SC) 358: (1981) 131 ITR 597 (SC). He submitted that it was after Madhya Pradesh High Court in case of CIT vs. Banwarilal, R. S. (1982) 28 CTR (MP) 59 (FB): (1983) 140 ITR 3 (MP) (FB) their Lordships had come to conclusion that there is only partial merger and merger to extent dispute is raised about in appeal. Regarding submissions made by ld. counsel for assessee e r l i e r pertaining to nomenclature of entries, ld. Departmental Representative submitted that it was nothing but conduct of assessee which was more important and amount which was paid on account of goodwill as was specifically written in books, could not be treated as amount in lieu of future profits. ld. counsel for assessee in rejoinder submitted that for amendment of s. 263, it is better if we look into. Taxation Laws (Amendment) Act, 1985 which is available on (1984) 149 ITR (Statutes) 97. After taking into consideration rival submissions, both in written form and submitted orally, we are unable to agree with ld. counsel for assessee in respect of first two facts raised by him in appeal i.e., regarding jurisdiction of CIT and merger doctrine but on merit, however, we are of view that deduction of Rs. 2,40,000 could not be disallowed in s. 293 proceedings by CIT as action of IAC(Asst.) under s. 154 was in conformity with Punjab and Haryana High Court decision. First of all we have to see as to how s. 125A(4) reads and for purposes of ready reference same is extracted and placed below: "Sec. 125A(4) Where order is made under sub-s. (1) and IAC exercises powers or performs functions of ITO in relation to any area or persons or classes of persons, or income or classes of income, or cases or classes of cases, reference in this Act or in any rule made thereunder to ITO shall be construed as reference to IAC shall not apply." From above inserted section w.e.f. 10th July, 1979, substituted by Finance (No. 2) Act, 1977 w.e.f. 10th July, 1978 to main s. 125A regarding concurrent jurisdiction of IAC and ITO inserted by Taxation Laws (Amendment) Act, 1975 w.e.f. 1st Oct, 1975 it is apparent that ITO and IAC(Asst) have been equated or equalled pertaining to assessment, their rights and obligations are identical, when we go through section carefully, we find following words "reference in this Act or in any rule." This should make clear and unambiguous and any restrictive interpretation as such by learned counsel for assessee shall be out. We are unable to appreciate submission of ld. counsel for assessee that said section has created any absurd or anomalous situation. In this connection, ld. counsel for assessee had relied on well known case of Varghese, K. P. vs. ITO (1981) 24 CTR (SC) 358: (1981) 131 ITR 597 (SC). We are unable to appreciate contention of ld. counsel for assessee that by s. 125A(4) IAC (Asst.) was only given powers to exercise function of ITO and he was out so far as jurisdiction of CIT was concerned. instances given by ld. counsel for assessee for comparison are heterogeneous. According to us, no redundancy can be attributed to legislature once words references in Act or in any rule made thereunder are included in said sub-section. According to us, there is nothing absurd about it. There cannot be anything wrong with officer with dual capacity under Act. What is material and relevant to be seen as to where from does he derive his powers. Once IAC(Asst) is functioning as ITO and under Act, naturally, it cannot be said that he would not be under control of CIT for proceeding under s. 263. Once we look into fact that IAC(Asst) can make assessment in place of ITO, how can IAC(Asst) get away from revisionary powers over his head which are exercisable by CIT. According to us as observed by ld. authorised representative of assessee, interpretation of CIT does not ignore context in which words and expression were used in s. 125A(4). In this connection reliance was also placed by ld counsel for assessee on Supreme Court decision in case of K. P. Varghese (supra) but if support Revenue as also relied upon by Departmental Representative. When we go through said section carefully on one hand and case of K. P. Varghese (supra) on other hand we find it supports contention that of Revenue. This is true that we should not adopt strict legal interpretation and we must construe language of Act in regard to object and purpose which legislature had in view. Number of decisions were cited by ld. counsel for assessee in his written arguments without which we could well do because same are not very relevant to issue. To quote some, we take up Supreme Court decision reported in AIR 1958 SC 341 in case Central India Spinning Weaving Manufacturing Co. From said judgment following extract was placed by ld. counsel for assessee in his written arguments. "It is also recognised principle of construction that general words and phrases, however, wide and comprehensive they may be in their literal sense most usually be considered to be limited to dual act of Act." If we carefully go through above observations, this instead of lending any support to assessee supports contention that of Revenue. There is nothing repugnant according to us in view of CIT who observed that in s. 263 reference to ITO is to be construed as reference to IAC (Asst) once IAC (Asst.) is equated with ITO, he has to be under rights and obligations like ITO under Act. Certain quotations from Maxwell on interpretation of Statutes make submission of ld. counsel for assessee very illuminating but some, according to us, supports contention that of Revenue. One of following quotation was placed by ld. counsel for assessee in his arguments in following words: "The words of statute when there is doubt about their meaning are to be understood to sense in which they best harmonise with subject of enactment. Their meaning is found not so much in strictly grammetical or etymological propriety of language nor even in its popular, as in subject or in occasion of which they are used and object to be attained." If we go through above observations, it supports contention that of Revenue. Actually once IAC(Asst.) is equated to ITO for purposes of assessment it results into doctrine of subrogation. IAC while making assessment steps into shoes of ITO and in this regard reliance of ld. Departmental Representative was rightly placed on Be Be Rubber Estate Ltd. vs. Addl. CIT (1982) 29 CTR (Ker) 132: (1982) 136 ITR 675 (Ker) where their Lordships held that once person is authorised to utilise powers, he steps into his shoes for all practical purposes. Even we have Special Bench decision of this Tribunal in case of East Coast Marine Product (P) Ltd. vs. ITO (1983) 4 ITD 73 (Hyd) in which it has been held as under: "It may also be worthwhile mentioning that legislature has made it clear as to when orders of IAC in matter of assessment can be treated as orders of assessment passed by ITO if we look to provisions of s. 125 contemplates conferring of powers of ITO on IAC, in such case reference to ITO under Act would mean reference to IAC. In other words, if assessment is made by IAC because of conferring such powers on him under s. 125, reference to ITO under s. 26B would mean reference to IAC and such order of assessment may be subject to revision by CIT. But for specific mention, CIT may not be able to revise. Similarly s. 125 deal with conferring of concurrent jurisdiction of IAC along with ITO. Similar provisions as are made in s. 125 have been made under s. 125A also in view of these provisions contained in s. 125 and s. 125A, sub-s. 7 of s. 144B envisages that section will not apply where IAC exercises powers or performs functions of ITO under s. 125 or 125A. All this would show that wherever order is passed by IAC, it is treated as order of ITO specifically for purpose of Act so that, revisional authority can exercise its powers. But in no other case, it is possible. That means in case where IAC exercises his power in matter of assessment other than those that are converted by provisions of s. 125 or 125A or 144A, order of IAC cannot be subject matter of revision by CIT. Positively directions given under s. 144B which amount to order passed by him cannot be subject matter of revision by CIT Mr. Abrol is right when he pointed out that subject matter of revision by CIT Mr. Abrol is right when he pointed out that word direction is used synonymous with order at different places through word direction is used in s. 144B and they are to be given for guidance of ITO, in context it is used it would amount to order passed by IAC. ITO merely, authenticates that order under his signature." Coming to Explanation added to s. 263 w.e.f. 1st Oct., 1984, after Explanation is inserted by Taxation Laws (Amendment) Act, 1984 it is clear that said Explanation was inserted for removal of doubts. Earlier there could be doubt not by independent persons but by persons who have vested interest and it was in order to get rid of same that said Explanation was added. first fact therefore, pertaining to jurisdiction of CIT is adjudicated against assessee. Coming to merger part, this Bench had occasion to deal with issue in case of Punjab Financial Corporation ITA No. 144/79 dt. 19th Dec., 1980 and after dealing with catena of judgments including Supreme Court decision in case of Amritlal Bhogilal and Madurai Mills with several other judgement had come to conclusion that order of assessment of ITO merged in order o f AAC insofar as it relates to items considered and decided by AAC. However, that part of assessment which relates to items not forming subject matter of appellate order which is left untouched does not merge in order of AAC. On basis of consistency of views of this Bench, we are unable to accept contention of ld. counsel for assessee. contentions of ld. counsel for assessee are very strange in respect of this facet, At one stage, it was submitted before CIT and also reiterated before us that two additions were made by IAC(Asst.) in original assessment proceedings, one regarding disallowance of payments made to outgoing partners and another for some fees etc. Because without any loss of time, assessment order came to be modified under s. 154 there was therefore, no necessity of going into said issue before CIT(A). Had IAC(Asst.) not rectified order under s. 154 in light of Punjab and Haryana High Court decision, even disallowance of deduction on account of payment to partners would have been contested. These are only surmises according to us. What is to be looked into for purposes of merger is whether issue which is touched by CIT under s. 263 has been subject matter of appeal before appellate authority. Apparently, it is not so in instant case. This is true in Full Bench decision of Madhya Pradesh High Court decision in case of R. S. Banwarilal, (supra) where large catena of Supreme Court and High Court decisions were considered including that of Amritlal Bhogilal and Madurai, Mills which were followed, their Lordships had relied on partial merger and not on complete merger. On another Full Bench decision of Madhya Pradesh High Court in case of Mandsaur Electric Supply Co. (supra) on which reliance was placed by ld. counsel for assessee facts were little different and question sought was also different. That cannot come to rescue of assessee especially in light of Punjab and Haryana High Court decision in case of New Dewan Oil Mills which also grants its seal to doctrine of partial merger and not complete merger. In instant case, question of two views would also not come to rescue of assessee because we have decision on issue from our own Bench and also from Punjab and Haryana High Court. Then in Madhya Pradesh High Court decision (1983) 140 ITR 3 (MP) (supra), almost all those decisions relied upon by ld. counsel for assessee stand discussed. On second facet i.e. pertaining to doctrine of merger, again, since issue on which CIT resorted to 208 proceedings was not in appeal before CIT(A) or anyone else, question of merger not arise. Coming to merit part of it on which ld. counsel for assessee succeeds there is no dispute about fact that assessee-firm is those of contractors and started its business only year or two before. Undoubtedly, in narrations in capital accounts of outgoing partners, it is mentioned that payments are made on account of goodwill but it is undoubtedly payment to outgoing partners. Then firm was also started only year or two before and in case of contractors firm, payment was made because of certain pending words which were taken by old firm which were now to be completed by continuing partners. It was on basis on these facts that outgoing partners made payments. There is no distinction according to us in assessee s own case and case of Kartar Singh Dugol which is placed on assessee s compilation on pages 19 t0 30 in IT Ref. No. 14 of 1968 dt. 4th Nov., 1970. Almost on all fours said case is applicable and IAC(Asst.) was 1970. Almost on all fours said case is applicable and IAC(Asst.) was justified in rectifying matter under s. 154. Here we get support from another Punjab and Haryana High Court decision in case of CIT vs. Mohan Lal Kansal (1978) 114 ITR 583, (P&H) which was also case of contractors and it was held by their Lordships as under: "Held, that IT authorities situated within jurisdiction of particular High Court are bound by its decision. Therefore, in present case, it could not be said that mistake was not apparent on record or that it required long drawn process of reasoning to discover same. So long as decision in brij Bushan Lal s case (1971) 81 ITR 497 (Punj) stood, IT authorities were bound to follow rule laid down therein. Tribunal was not justified in refusing to refer question. question whether order of Tribunal was right in law arose out of his order and had to be referred." Then we have also got very illuminating judgment of Punjab and Haryana High Court in case of Sukhbir Parshad vs. CIT (1983) 33 CTR (P&H) 83: (1983) 144 ITR 437 (P&H). In that case, Rs. 10 lakhs were paid to retiring partners for acquiring their share in any capital assets of firm and whether same was revenue or capital expenditure, their Lordship held as under: "Held (1) that no part of amount of Rs. 10 lakhs was paid to retiring partners for acquiring their share in any capital asset of firm and had instead been paid for purposes of business on account of estimated profits on raw material already in stock but transferred on its book value or to be acquired against quota rights and import licence of firm which continued to exist though with different constitution. amount paid was, therefore, revenue expenditure." There cannot be any dispute about fact that merely mention of few words in document cannot be deciding factor about nature of payment once we look to fact that it was firm of contractors, it was started only year or two back, said firm head binding contracts for which it was started in its hands, even though amount was mentioned to have been paid for goodwill, it was actually on account of payments. surrounding circumstances cannot be ignored to decide true nature of transaction. case under consideration is almost identical to that of Sukhbir Parshand (supra), from which we have extracted finding of their Lordships of Punjab and Haryana High Court and placed above. case of Kartar Singh Dugal is almost identical with only difference that here six remaining partners continued business whereas in that case only on continuing partner continued business as sole proprietor. There is no controversy about fact that part of contracts were executed in year ending 30th June, 1977 by firm of ten partners and it was remaining part of contract which was to be executed which was actually executed by continuing six partners. From perusal of partnership deed comprising of ten partners and second one comprising of six partners and looking to contract works which were in hands of both firm started by former and completed by second one. It is apparent that outgoing partners were paid sum of Rs. 66,000 each which was on account of future profits. Since issue is covered by Punjab and Haryana High Court decision as narrated above in case of Kartar Singh Dugal, IAC(Asst.) was justified in granting relief to assessee in 154 proceedings and CIT was not justified in resorting to s. 263 proceedings because once there is Punjab and Haryana High Court decision that is binding as per Mr. Kansal s case narrated above on authorities, and theory of two opinions on issue would not make it debatable because of judgment of High Court of State in which assessee is based. In result, dismissing two facets pertaining to legal issues in appeal of assessee pertaining to jurisdiction and merger, we accept contention of assessee on merit and, therefore, appeal is partly allowed. *** RAJ KISHAN & CO. v. INSPECTING ASSISTANT COMMISSIONER OF INCOME TAX