COMMISSIONER OF INCOME -TAX v. K.L. RAJPUT
[Citation -1986-LL-1017-2]

Citation 1986-LL-1017-2
Appellant Name COMMISSIONER OF INCOME -TAX
Respondent Name K.L. RAJPUT
Court ITAT
Relevant Act Income-tax
Date of Order 17/10/1986
Assessment Year 1973-74
Judgment View Judgment
Keyword Tags computation of income • doctrine of merger • fresh assessment • revisional power • net profit rate
Bot Summary: At the time of hearing, learned counsel for the parties conceded that on the question of the applicability of the doctrine of merger to the power of the Commissioner under section 263 of the Act to revise the order of the Income-tax Officer when that order was the subject-matter of an appeal before the Appellate Assistant Commissioner, there was no conflict in the two Full Bench decisions of this court in CIT v. R. S. Banwarilal 1983 140 ITR 3 and CIT v. Mandsaur Electric Supply Co. Ltd. 1983 140 ITR 677. It has further been held in CIT v. Mandsaur Electric Supply Co. Ltd. 1983 143 ITR 677, that when the Commissioner in exercise of revisional powers, sets aside the entire order of assessment which has been the subject-matter of an appeal preferred before the Appellate Assistant Commissioner, the effect of the order of the Commissioner is to set aside the order of the Appellate Assistant Commissioner which the Commissioner has no jurisdiction to do. It necessarily follows that the items considered and decided by the Appellate Assistant Commissioner in his appellate order are beyond the scope of the revisional power of the Commissioner of Income-tax under section 263 inasmuch as the Income-tax Officer's order merges to that extent with that of the Appellate Assistant Commissioner and the Commissioner has no revisional power over the Appellate Assistant Commissioner. In such a case, in our opinion, the Commissioner is not competent to set aside the entire order of assessment, because in doing so, the Commissioner, in effect, disturbs the order of the Appellate Assistant Commissioner which he has no jurisdiction to do. In our opinion whenever a question arises as to whether the Commissioner is or is not competent to revise under section 263 of the Act, the order of assessment framed by the Income-tax Officer which has been the subject-matter of appeal before the Appellate Assistant Commissioner, it has to be ascertained as to whether the Commissioner has set aside the entire order of assessment or only that part of the order of assessment which was not the subject-matter of an appeal either because the Appellate Assistant Commissioner had no jurisdiction to consider that matter or because the Appellate Assistant Commissioner, though having jurisdiction to examine that subject-matter, did not do so. If the Commissioner has set aside the entire order of assessment, then it could not be held that he has exercised power conferred upon him because he has no power under section 263 of the Act to revise the order of the Appellate Assistant Commissioner. The only question which arose before the Tribunal and which arises in this reference is whether, in the circumstances of the case, the Tribunal was right in holding that the Commissioner was not justified in setting aside the entire order of assessment passed by the Income-tax Officer in exercise of his revisional powers under section 263 of the Act when the order of assessment passed by the Income-tax Officer was the subject-matter of an appeal before the Appellate Assistant Commissioner.


JUDGMENT JUDGMENT judgment of court was delivered by G. G. SOHANI, Actg. C. J.-By this reference under section 256(1) of Income-tax Act, 1961 (hereinafter referred to as " Act "), Incometax Appellate Tribunal, Jabalpur Bench, has referred following question of law to this court for its opinion: " Whether, on facts and in circumstances of case, Appellate Tribunal was justified in law in holding that Income-tax Officer's order had merged with order of Appellate Assistant Commissioner and, therefore, Commissioner was not competent to revise order under section 263 of Income-tax Act, 1961? " material facts giving rise to this reference briefly are as follows: assessee, who was assessed in status of individual, carried on business of contractor. assessee also derives income from plying trucks. While framing assessment for assessment year 1973-74, Income-tax Officer estimated income of assessee from P.W.D. contracts by applying net profit rate of 15%. Income-tax Officer also allowed depreciation on cost of truck purchased on hire purchase basis. Aggrieved by order passed by Income-tax Officer, assessee preferred appeal before Appellate Assistant Commissioner. In that appeal, assessee assailed adoption of net profit rate of 15% and computation of income on basis of estimate of receipts. Appellate Assistant Commissioner upheld computation of assessee and held that receipts should not have been estimated when assessee had produced certificates from Government Departments showing receipts. Appellate Assistant Commissioner also held that net profit rate of 12.5% should have been applied by Income-tax Officer. order of assessment was accordingly modified. Thereafter, Commissioner of Income-tax, exercising powers under section 263 of Act, found that assessee was not entitled to depreciation on cost of truck purchased on hire purchase basis. Commissioner of Income-tax, therefore, by order dated March 18, 1978, set aside order of assessment and directed Income-tax Officer to make fresh assessment according to law. Aggrieved by order passed by Commissioner, assessee preferred in appeal before Tribunal. It was urged on behalf of assessee before Tribunal that order of Income- tax Officer had merged with order of Appellate Assistant Commissioner and Commissioner had, therefore, no jurisdiction to revise order of assessment. This contention was upheld by Tribunal. Aggrieved by order passed by Tribunal, Revenue sought reference and it is at instance of Revenue that aforesaid question of law had been referred to this court for its opinion. When this reference came up for hearing before Division Bench of this court on April 7, 1983, it was urged by learned counsel for parties that there was conflict between two Full Bench decisions of this court in CIT v. R. S. Banwarilal [1983] 140 ITR 3 (MP) and CIT v. Mandsaur Electric Supply Co. Ltd. [1983] 140 ITR 677 (MP). It was in these circumstances that larger Bench was constituted for hearing this reference. That is how matter has come up before us for consideration. At time of hearing, learned counsel for parties conceded that on question of applicability of doctrine of merger to power of Commissioner under section 263 of Act to revise order of Income-tax Officer when that order was subject-matter of appeal before Appellate Assistant Commissioner, there was no conflict in two Full Bench decisions of this court in CIT v. R. S. Banwarilal [1983] 140 ITR 3 (MP) and CIT v. Mandsaur Electric Supply Co. Ltd. [1983] 140 ITR 677 (MP). Both these decisions lay down correctly, if we may say so with respect, that Commissioner has jurisdiction under section 263 of Act to revise that part of order of assessment which was not subjectmatter of appeal before Appellate Assistant Commissioner and was not touched by him in appeal. It has further been held in CIT v. Mandsaur Electric Supply Co. Ltd. [1983] 143 ITR 677 (MP), that when Commissioner in exercise of revisional powers, sets aside entire order of assessment which has been subject-matter of appeal preferred before Appellate Assistant Commissioner, effect of order of Commissioner is to set aside order of Appellate Assistant Commissioner which Commissioner has no jurisdiction to do. We are in full agreement with this view. In CIT v. R. S. Banwarilal [1983] 140 ITR 3 (MP), Full Bench correctly enunciated following principle as regards applicability of doctrine of merger to power of Commissioner under section 263 of Act (at p. 15): " result, therefore, is that doctrine of merger applies to income-tax proceedings but extent of its application depends on scope and subject- matter of appeal and decision rendered by appellate authority. Where appeal has been preferred by assessee to Appellate Assistant Commissioner from order of assessment made by Income-tax Officer in respect of only some of items covered by Income-tax Officer's order and remaining items, forming part of Income-tax Officer's assessment order, were not agitated by either party, though it was open also to Revenue to agitate them or Appellate Assistant Commissioner to consider them suo motu and no decision of Appellate Assistant Commissioner is, therefore, made in respect of remaining items, Income-tax Officer's order merges with appellate order of Appellate Assistant Commissioner only to extent it was considered and decided by Appellate Assistant Commissioner but matters which are not covered by appellate order of Appellate Assistant Commissioner are left untouched and to that extent, Incometax Officer's assessment order survives, permitting exercise of revisional jurisdiction by Commissioner tinder section 263 of Income-tax Act, 1961. It necessarily follows that items considered and decided by Appellate Assistant Commissioner in his appellate order are beyond scope of revisional power of Commissioner of Income-tax under section 263 inasmuch as Income-tax Officer's order merges to that extent with that of Appellate Assistant Commissioner and Commissioner has no revisional power over Appellate Assistant Commissioner. question whether Income-tax Officer's order has Officer's order has merged with that of Appellate Assistant Commissioner has to be answered on this basis. " It seems that after correctly enunciating aforesaid principle, Full Bench, with respect, failed to notice that, in that case, Commissioner had set aside entire order of assessment part of which had been modified by Appellate Assistant Commissioner on appeal. In such case, in our opinion, Commissioner is not competent to set aside entire order of assessment, because in doing so, Commissioner, in effect, disturbs order of Appellate Assistant Commissioner which he has no jurisdiction to do. In our opinion, therefore, whenever question arises as to whether Commissioner is or is not competent to revise under section 263 of Act, order of assessment framed by Income-tax Officer which has been subject-matter of appeal before Appellate Assistant Commissioner, it has to be ascertained as to whether Commissioner has set aside entire order of assessment or only that part of order of assessment which was not subject-matter of appeal either because Appellate Assistant Commissioner had no jurisdiction to consider that matter or because Appellate Assistant Commissioner, though having jurisdiction to examine that subject-matter, did not do so. If Commissioner has set aside entire order of assessment, then it could not be held that he has exercised power conferred upon him because he has no power under section 263 of Act to revise order of Appellate Assistant Commissioner. In this view of matter, decision in CIT v. R. S. Banwarilal [1983] 140 ITR 3 (MP) does not lay down correct law in so far as it impliedly holds that Commissioner could, in exercise of revisional power, set aside entire order of assessment passed by Income-tax Officer though it had been subject-matter of appeal before Appellate Assistant Commissioner. In instant case, question framed by Tribunal is too wide and it does not bring out real issue which arose before Tribunal for consideration. We, therefore, reframe that question as follows: "Whether, on facts and in circumstances of case, Tribunal was justified in holding that Commissioner was not competent under section 263 of Act to set aside entire order of assessment passed by Income- tax Officer when that order was subject-matter of appeal preferred by assessee before Appellate Assistant Commissioner? " Learned counsel for Revenue contended that Tribunal had jurisdiction to modify order passed by Commissioner so that only that part of order of assessment passed by Income-tax Officer which was not touched by Appellate Assistant Commissioner, would be set aside. This aspect of matter, however, as to whether, in circumstances of case, Tribunal could or could not modify order passed by Commissioner does not arise out of order passed by Tribunal and question in that behalf has not been referred to us. We, therefore, refrain from expressing any opinion in that behalf. only question which arose before Tribunal and which arises in this reference is whether, in circumstances of case, Tribunal was right in holding that Commissioner was not justified in setting aside entire order of assessment passed by Income-tax Officer in exercise of his revisional powers under section 263 of Act when order of assessment passed by Income-tax Officer was subject-matter of appeal before Appellate Assistant Commissioner. In our opinion, on facts and in circumstances of this case, Tribunal was justified in holding that Commissioner was not competent to set aside entire order of assessment passed by Income-tax Officer. For aforesaid reasons, our answer to question framed by us is in affirmative and in favour of assessee. In circumstances of case, parties shall bear their own costs of reference. *** COMMISSIONER OF INCOME -TAX v. K.L. RAJPUT
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