1984 (7) TMI 188 - AT - Income Tax

Issues:
1. Revision of assessment order by CIT under section 263 of the IT Act, 1961.
2. Allowance of vacancy allowance and determination of income from two house properties.
3. Payment of remuneration to spouse of the assessee without considering the applicability of section 64(1)(ii) of the Act.
4. Jurisdiction of CIT to revise the order passed by the ITO.
5. Doctrine of merger in relation to appellate orders.
6. Application of section 64(1)(ii) as a subject-matter of appeal before the CIT (A).

Issue 1: Revision of assessment order by CIT under section 263 of the IT Act, 1961
The appeal was directed against the CIT's order of revision under section 263 of the IT Act, 1961, setting aside the assessment made by the ITO for the assessment year 1978-79. The CIT found the ITO's assessment erroneous due to the allowance of vacancy allowance for two house properties and the payment of remuneration to the spouse of the assessee without considering section 64(1)(ii) of the Act. The CIT, after observing principles of natural justice, set aside the ITO's order with directions for a fresh assessment.

Issue 2: Allowance of vacancy allowance and determination of income from two house properties
The CIT re-computed the income from the two house properties, disregarding the vacancy allowance claimed by the assessee. The CIT determined the share of the assessee's income from the properties and found the ITO's annual value assessment to be incorrect and too low. The CIT held that the ITO's failure to determine the sum for which the property was let out was erroneous and prejudicial to the Revenue. The CIT disallowed the vacancy allowance and recalculated the income from the properties.

Issue 3: Payment of remuneration to spouse of the assessee
The ITO allowed a deduction for the salary paid to the spouse of the assessee without considering the applicability of section 64(1)(ii) of the Act. The CIT found this to be erroneous and prejudicial to the interests of the Revenue, leading to the revision of the assessment order.

Issue 4: Jurisdiction of CIT to revise the order passed by the ITO
The assessee argued that the CIT had no jurisdiction to revise the ITO's order as the issue of income from property was already appealed before the CIT (A). The assessee contended that the order of the ITO merged with the CIT (A) order and, therefore, was not open for revision by the CIT under section 263. The Tribunal referred to various decisions to support the position that the CIT lacked jurisdiction to revise the ITO's order.

Issue 5: Doctrine of merger in relation to appellate orders
The Tribunal held that the doctrine of merger applied, and the order of the CIT (A) confirmed the ITO's order on the issue of income from property. The Tribunal emphasized that the entire assessment order merged with the appellate order, prohibiting the CIT from revising it under section 263. Various court decisions were cited to support this position.

Issue 6: Application of section 64(1)(ii) as a subject-matter of appeal before the CIT (A)
The issue of the application of section 64(1)(ii) was also raised before the CIT (A), making it a subject-matter of appeal. The Tribunal, following previous decisions, concluded that the CIT had no jurisdiction to revise the ITO's order concerning this issue. Therefore, the CIT's order was set aside, and the ITO's order was restored.

In conclusion, the Tribunal allowed the appeal, holding that the CIT lacked jurisdiction to revise the ITO's order under section 263 regarding the allowance of vacancy allowance, determination of income from house properties, and the payment of remuneration to the spouse of the assessee. The doctrine of merger in appellate orders was upheld, emphasizing that the CIT could not revise orders that had already been appealed and decided upon by the CIT (A).

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