1988 (2) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessment order had merged in the order of the Appellate Assistant Commissioner.
2. Whether the Commissioner of Income-tax could exercise power u/s 263 of the Income-tax Act, 1961, after the appellate order.

Summary:

Issue 1: Merger of Assessment Order
The primary question was whether the assessment order had merged in the order of the Appellate Assistant Commissioner, thereby precluding the Commissioner from exercising power u/s 263. The Tribunal held that the entire order of assessment had merged in the appellate order, thus the Commissioner was not entitled to exercise any power u/s 263 regarding the Income-tax Officer's order.

Issue 2: Commissioner's Power u/s 263
The court examined whether the Commissioner's power u/s 263 could be exercised after the appellate order. The Revenue argued that the doctrine of merger should be understood with reference to the subject-matter of the appellate or revisional order. The court noted that the Commissioner could exercise his power only in relation to the order of the Income-tax Officer and not in respect of matters that had merged in the appellate order.

The court referred to various precedents, including the Supreme Court's decision in State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144, which stated that the doctrine of merger depends on the nature of the appellate or revisional order and the scope of the statutory provisions conferring the appellate or revisional jurisdiction. The court also cited CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130, which clarified that the appellate decision is the operative decision in law, and the original decision merges in the appellate decision.

The court concluded that the power of the Commissioner u/s 263 remains in full force in respect of matters not considered and decided in appeal. The judgment emphasized that a narrow construction of section 263 would undermine the legislative intent to bring to tax income that had escaped assessment.

Conclusion:
The court answered the question in the negative, in favor of the Revenue and against the assessee, stating that the power of the Commissioner u/s 263 remains effective for matters not considered and decided in the appellate order. The parties were directed to bear their respective costs.