1982 (5) TMI 121 - AT - Income Tax

Summary

Issues Involved:
1. Rectification of the original order under section 104 of the Income-tax Act.
2. The doctrine of merger and its applicability.
3. Necessity of prior approval by the Inspecting Assistant Commissioner (IAC) for rectification orders.

Detailed Analysis:

1. Rectification of the Original Order Under Section 104

The Income Tax Officer (ITO) initially issued an order under section 104, which was later found to have a calculation error. The ITO attempted to rectify this mistake under section 154 of the Income-tax Act. The Commissioner confirmed the rectification, stating that section 154(1A) allows rectification of parts of the order not considered in the appeal. The assessee argued that the ITO had no power to rectify the order as it had merged with the Appellate Assistant Commissioner's (AAC) order. The Tribunal found that rectification was not possible for an order under section 104 that had already become the subject of an appeal, thereby canceling the rectification order dated 3-11-1978.

2. Doctrine of Merger and Its Applicability

The assessee argued that the doctrine of merger applied, citing the Kerala High Court's decision in Mather & Co. (P.) Ltd. v. ITO, which held that once an order is appealed, it merges with the appellate order, leaving no room for rectification by the ITO. The Tribunal agreed, noting that section 154(1A) does not counteract the general theory of merger. The Tribunal found that the ITO had no right to rectify matters that had become the subject of an appeal, thereby supporting the assessee's claim.

3. Necessity of Prior Approval by the IAC for Rectification Orders

The assessee contended that any rectification under section 104 required prior approval from the IAC, as section 107 mandates such approval for orders under section 104. The Tribunal examined the legislative history and determined that prior approval was necessary only for the initial proposal to invoke section 104, not for subsequent rectifications. The Tribunal noted that the approval requirement was primarily concerned with the applicability of section 104 and not the tax calculation itself. Consequently, the Tribunal upheld the second order dated 12-3-1979, which did not require fresh IAC approval for rectification under section 155(7).

Conclusion:

- The appeal against the rectification order dated 3-11-1978 was allowed, and the order was canceled based on the doctrine of merger.
- The appeal against the rectification order dated 12-3-1979 was dismissed, and the order was upheld as valid, noting that fresh IAC approval was not necessary for rectifications under section 155(7).