1982 (5) TMI 49 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner under Section 263 of the IT Act, 1961.
2. Doctrine of merger in the context of assessment orders.
3. Scope of the Appellate Assistant Commissioner's (AAC) powers and its impact on the Commissioner's jurisdiction.
4. Application of precedents from Bombay and Gujarat High Courts and the Supreme Court.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 263 of the IT Act, 1961:
The Commissioner (CIT) believed that the Income Tax Officer's (ITO) assessment order was erroneous and prejudicial to the interests of revenue on five issues. The CIT set aside the assessment and directed the ITO to re-do the same as per law. The assessee contended that the CIT had no jurisdiction under Section 263 after the AAC had passed an order on appeal. The Tribunal, referencing the Bombay High Court's decision in CIT vs. Tejaji Farasram Kharawala, held that the CIT had no jurisdiction to revise the assessment order once it had merged with the AAC's order.

2. Doctrine of Merger in the Context of Assessment Orders:
The Tribunal discussed the doctrine of merger, referencing multiple judgments. The doctrine implies that once an appellate authority (AAC) has passed an order, the original order of the ITO merges into the AAC's order. The Tribunal cited the Bombay High Court's decision in Tejaji Farasram Kharawala, which held that the CIT could not revise an order under Section 33B of the old Act (corresponding to Section 263 of the IT Act, 1961) if the AAC had already dealt with the matter. The Tribunal also referenced the Supreme Court's decision in CIT vs. Amritlal Bhogilal & Co., which supported the doctrine of merger.

3. Scope of the Appellate Assistant Commissioner's (AAC) Powers and Its Impact on the Commissioner's Jurisdiction:
The Tribunal noted that the AAC has broad powers to examine and review issues under the law, which excludes the CIT's jurisdiction under Section 263. The AAC's powers are not limited to the issues raised by the assessee but extend to all issues considered by the ITO. The Tribunal referenced the Supreme Court's decision in Rai Bahadur Hardutroy Motilal Chamaria, which clarified the AAC's powers of enhancement. The Tribunal concluded that the CIT could not revise the assessment order under Section 263 once the AAC had passed an order on appeal.

4. Application of Precedents from Bombay and Gujarat High Courts and the Supreme Court:
The Tribunal reconciled the decisions of the Bombay and Gujarat High Courts and the Supreme Court. The Tribunal held that the Bombay High Court's decision in Tejaji Farasram Kharawala was binding on the Gujarat High Court, as it was delivered before the establishment of the Gujarat High Court. The Tribunal also noted that the Gujarat High Court's decisions in Karsondas B. Patel and Poonchabhai Vanmalidas pertained to rectification proceedings, not the CIT's powers under Section 263. The Tribunal concluded that the doctrine of merger applies to the CIT's jurisdiction under Section 263, and the CIT had no jurisdiction to revise the assessment order after the AAC's order.

Conclusion:
The Tribunal allowed the assessee's appeal, vacating the CIT's order regarding the three disputed items. The Tribunal held that the assessment order had merged with the AAC's order, and the CIT had no jurisdiction under Section 263 to revise the assessment. The appeals of the assessee and the Department against the order of the CIT(A) would be disposed of on merits by the Division Bench in the ordinary course. The appeal was allowed.