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1995 DIGILAW 970 (MP)

Commissioner Of Income-Tax v. Bhimraj Sunderlal

1995-12-14

A.K.MATHUR, S.PANDEY

body1995
ORDER Items not adjudicated upon by the Tribunal. Ratio : Commissioner can invoke jurisdiction under section 263 with regard to items which had not been adjudicated upon by the Tribunal. Held : The doctrine of merger applies to income-tax proceedings but the extent of its application depends on the scope and subject-matter of the appeal and the decision rendered by the appellate authority. Commissioner can invoke the jurisdiction under section 263 with regard to the matter which had not been adjudicated upon by the appellate authority. Therefore, Tribunal was not justified in law in holding that the Commissioner cannot invoke jurisdiction under section 263 even with regard to the items which had not been adjudicated by the Commissioner (Appeals). Case Law Analysis : CIT v. K. L. Rajput (1987) 164 ITR 197 (MP) (FB) followed. Application : Also to current assessment years. Income Tax Act 1961 s.263 JUDGMENT 1. This is a reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as the "I. T. Act"), at the instance of the Revenue and the following question of law has been referred by the Tribunal for answer of this court, which reads as under : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Commissioner cannot invoke jurisdiction under Section 263 even with regard to the items which had not been adjudicated by the Commissioner of Income-tax (Appeals) ?" 2. The brief facts giving rise to this reference are thus : The assessee manufactures bidies and sells the same. There was a search at the business and residential premises of the assessee-firm and its partners on January 23, 1977. The assessment was completed in this case by the Income-tax Officer under Section 143(3) of the Income-tax Act, on March 2, 1981, making certain additions to the income of the assessee. Three specific additions, viz., an addition of Rs. 3,000 out of advertisement and shop expenses, Rs. 1,000 as unexplained excess cash, and Rs. 15,990 towards inadmissible items and inflated expenses and defects, were challenged before the Commissioner of Income-tax (Appeals) by the assessee. Three specific additions, viz., an addition of Rs. 3,000 out of advertisement and shop expenses, Rs. 1,000 as unexplained excess cash, and Rs. 15,990 towards inadmissible items and inflated expenses and defects, were challenged before the Commissioner of Income-tax (Appeals) by the assessee. The first and third additions were adjudicated upon by the Commissioner of Income-tax (Appeals) and the second addition was not adjudicated as counsel for the assessee pleaded before the Commissioner of Income-tax (Appeals) that he had nothing much to say about the disallowance of Rs. 1,010. The order of the Commissioner of Income-tax (Appeals) is on September 24, 1982. Thereafter, the Commissioner while exercising the power under Section 263 of the Income-tax Act, issued a notice regarding the items of additions which were not considered by the Commissioner of Income-tax (Appeals), i.e., addition of Rs. 1,010, and some other items. The reason given by the Commissioner of Income-tax (Appeals) while exercising the power under Section 263 was that there was failure on the part of the Income-tax Officer to investigate into the genuineness of the documents produced before him in the form of cash books particularly when the books of account in the form of cash books seized during the course of search showed that there were no opening or closing cash balances. Then the Commissioner of Income-tax (Appeals) recorded that the order passed by the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. It was observed that part of the order of the Income-tax Officer which has not merged with the order of the Commissioner of Income-tax (Appeals), can be modified accordingly. 3. Aggrieved against the order of the Commissioner of Income-tax (Appeals), the assessee preferred an appeal before the Tribunal and the Tribunal after considering the arguments of both the parties, held that the Commissioner cannot invoke the jurisdiction under Section 263 of the Act even with regard to the items which had not been adjudicated upon by the Commissioner of Income-tax (Appeals) since the order of the Income-tax Officer after appeal ceased to exist. Thereafter, the Revenue filed an application before the Tribunal for making a reference to this court and, accordingly, the aforesaid question of law has been referred by the Tribunal for answer of this court. 4. Thereafter, the Revenue filed an application before the Tribunal for making a reference to this court and, accordingly, the aforesaid question of law has been referred by the Tribunal for answer of this court. 4. Learned counsel for the Revenue has submitted that this question which has been raised by the Tribunal, has been answered by the Special Bench of five honourable judges of this court in the case of CIT v. K.L. Rajput [1987] 164 ITR 197 and their Lordships of this court have taken the view that the doctrine of merger applies to income-tax proceedings but the extent of its application depends on the scope and subject-matter of the appeal and the decision rendered by the appellate authority. Where the area which has not been covered then on that the Commissioner can invoke his power under Section 265 and in that connection, their Lordships have observed (headnote) : "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 an 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 the 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 Commissioner is 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." 5. The Commissioner is 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." 5. In view of the decision of the Special Bench of honourable five judges of this court, the view taken by the Tribunal cannot be held to be a valid view ; therefore, the order of the Tribunal is set aside and the reference is answered in favour of the Revenue and against the assessee.