1982 (4) TMI 109 - AT - Income Tax

Issues Involved:

1. Jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961.
2. Doctrine of Merger.
3. Validity of the order under Section 132(5) of the Income-tax Act, 1961.
4. Scope of the Appellate Assistant Commissioner's (AAC) powers.
5. Distinction between proceedings under Sections 132 and 143 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961:

The Commissioner issued a notice under Section 263, questioning why the Income-tax Officer (ITO) did not consider the income of Rs. 1,51,250, held as income from undisclosed sources under Section 132(5), in the regular assessment. The Commissioner rejected the assessee's objection regarding jurisdiction, stating that the impugned sum was not before the AAC and thus, the Commissioner was competent to revise the ITO's order concerning this matter. The Commissioner set aside the ITO's assessment order with the limited objective of assessing the income from undisclosed sources detected during the search.

2. Doctrine of Merger:

The assessee contended that the ITO's assessment order had merged with the AAC's order following an appeal, invoking the doctrine of merger as enunciated by the Supreme Court in CIT v. Amritlal Bhogilal & Co. The assessee argued that the AAC's powers were coterminous with those of the ITO, and thus, the entire assessment order, including unchallenged findings, merged with the AAC's order. The Tribunal, however, clarified that the doctrine of merger applies only to issues considered by the ITO and not to those the ITO did not address or apply his mind to.

3. Validity of the order under Section 132(5) of the Income-tax Act, 1961:

The ITO, in the provisional assessment under Section 132(5), treated Rs. 1,51,250 as unexplained income. The assessee appealed against this order, which was pending before the Commissioner. The Tribunal noted that the ITO, during the regular assessment, did not inquire about the jewellery discovered during the search, which was a significant omission. This omission was not addressed by the AAC, and thus, the order under Section 132(5) remained unexamined in the regular assessment.

4. Scope of the Appellate Assistant Commissioner's (AAC) powers:

The Tribunal referred to the Supreme Court's judgment in CIT v. Shapoorji Pallonji Mistry, which held that the AAC could not enhance the assessment by discovering new sources of income not mentioned in the return or considered by the ITO. The Tribunal emphasized that the AAC's powers are limited to issues the ITO considered. Since the ITO did not address the undisclosed income from jewellery in the regular assessment, the AAC could not have enhanced the income on this basis.

5. Distinction between proceedings under Sections 132 and 143 of the Income-tax Act, 1961:

The Tribunal highlighted the distinct and separate nature of proceedings under Sections 132 and 143. The appellate channels for orders under these sections are different, and findings in Section 132(5) proceedings cannot be presumed to be part of the regular assessment under Section 143. The ITO's failure to address the jewellery discovery in the regular assessment was a significant oversight, justifying the Commissioner's intervention under Section 263.

Conclusion:

The Tribunal upheld the Commissioner's order under Section 263, rejecting the assessee's appeal. The ITO's omission to consider the undisclosed income from jewellery in the regular assessment was an error prejudicial to the interests of the revenue, warranting the Commissioner's revision. The doctrine of merger did not apply as the ITO had not considered the issue in the regular assessment, and the AAC could not have enhanced the income based on a new source not addressed by the ITO.

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