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TMI Blog1988 (3) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer added back certain expenses claimed by the assessee and disallowance made by him and arrived at a figure of Rs. 1,06,410 being the total income of the company eligible to tax. Being aggrieved, the assessee took up the matter in first appeal. 4. In the meantime, the Commissioner taking view that the order passed by the Income-tax Officer was erroneous in so far as it was prejudicial to the interests of revenue, issued notice under section 263 of the Act on the premises that the assessing officer had allowed a claim for payment of a sum of Rs. 40,500, being payments made by it to one Shri K. P. S. Nair towards arbitration fee, which arbitration had begun as early as in the year 1973. Out of this amount only a sum of Rs. 10,000 was paid during the relevant financial year, the remaining sum of Rs. 30,500 paid in the earlier previous years. In the view of the Commissioner, therefore, the Income-tax Officer should not have allowed the assessee's claim for deduction of this sum, namely, Rs. 30,500. When called upon by the Commissioner vide communication dated 23-12-1985 the assessee contested the matter. The grounds, inter alia, taken before the Commissioner are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year of account before him entitling the assessee to claim this payment during the year 1981-82 since according to the assessee's letter dated 28th October, 1984 addressed to the Income-tax Officer, the orders of the Court saying the relevant arbitration proceedings were passed some two years earlier to the accounting year relevant to the assessment year in question. There was, therefore, no justification for the claim of this amount in the year in question, following any system of accounting, the Commissioner concluded. He, therefore, held that the assessment order dated 30th September, 1983 rendered by the Income-tax Officer was erroneous insofar as it was prejudicial to the interests of the revenue and exercising powers granted to him by section 263(1) of the Act enhanced the assessment by adding Rs. 30,500 in the total income of the assessee with consequential directions to the Income-tax Officer to modify the assessment accordingly and issue demand notice, etc. 8. We shall take up the jurisdictional point first. Although it was forcefully argued before us by Shri M. J. Swamy, Advocate, that the period of limitation in passing an order by the Commissioner under section 263 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arefully go through the impugned order not an iota of reference appears therein driving us to record a finding that this issue in dispute figured if not directly, at least indirectly before the Commissioner. In our considered opinion, such issue did not come up for any discussion or debate even remotely. Placed in such a situation, we regret, we cannot concur with the view canvassed before us that the issue in question was considered both by the Income-tax Officer and the first appellate authority. Same is the position of the second appeal proceedings. That being so, in our opinion, the appellate authorities have already heard an disposed of the appeal. It cannot be gainsaid that the Commissioner's jurisdiction shall be ousted only in respect of that part of the order of the Income-tax in his revisional jurisdiction vested in the commissioner by section 263 merely because the first and second appellate authorities have already heard and disposed of the appeal. It cannot be gainsaid that the commissioner's jurisdiction shall be ousted only in respect of that part of the order of the Income-tax Officer which has been the subject-matter of consideration by the Appellate Asstt. Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellate Asstt. Commissioner, the appellate authority can look into and adjudicate upon findings recorded by the Income-tax Officer not only against the assessee which may expressly be the subject-matter of the appeal but also those which may have gone in favour of the assessee and which have not been challenged by the revenue. On these premises it was held that in view of the scope and nature of the appellate power, the entire subject-matter of the assessment order was within the jurisdiction of the Appellate Asstt. Commissioner and that being so, the entire assessment order merged in the appellate order resulting in the taking away of the revisional jurisdiction of the Commissioner under section 263. In General Beopar Co. (P.) Ltd. v. CIT [1987] 167 ITR 86, a Division Bench of the Calcutta High Court has taken the same view and so also the Bombay High Court in CIT v. P. Muncherji Co. [1987] 167 ITR 671. 13. After having considered the issue very carefully, we will take guidance from a decision of the Supreme Court in Madurai Mills Co. Ltd.'s case where their Lordships of the apex Court having considered the doctrine of merger observed as under : "But the doctrine of merg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt that a passage from Madurai Mills Co. Ltd. 'case was quoted by their Lordship to support the theory of partial merger as enunciated by the Hon'ble Supreme Court. 16. Thus duty bound as we are and as mandated by Art. 141 of the Constitution of India, following the ratio of the Madurai Mills Co. Ltd.' case and taking into account the view taken by the High Court of Andhra Pradesh in Vegi Veerinaidu's case as also the recent decision of the M. P. High Court the position which emerges out is that the Commissioner shall be shut of his powers under section 263 of the Act only and only when the relevant issue has been considered and decided by the Income-tax Officer and the first appellate authority. In the absence of this, the Commissioner's jurisdiction to revise an order passed by the Income-tax Officer will survive. 17. Since in the case in hand, the first appellate authority did not consider the question of allowability of the sum of Rs. 40,500 paid by the appellant-company to their Architect, to this extent the order passed by the Income-tax Officer shall not merge with the appellate order. In fact this issue could not have been gone into by him as it never formed the subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,500 being payments made by it in cash in some earlier years to Shri K. P. S. Nair. While there can be no quarrelled that am assessee can have a consistent method of accounting, in the present case payments totalling to Rs. 30,500 were made by the assessee in some years earlier to the accounting year relevant to the assessment year 1981-82. On cash basis of accounting these payments totalling to Rs. 30,500 should not have been claimed by it in the assessment year 1981-82. Nothing had happened in the year of account for the assessment year 1981-82 to make the assessee to claim this amount of Rs. 30,500 in the assessment year 1981-82. The orders of the Court staying the arbitration proceedings were passed, according to the assessee's letter dated 28-10-1985 to the ITO, some two years earlier to the accounting year for the assessment year 1981-82. There is no justification whatever for the assessee to claim that the payments of Rs. 30,500 made by it to Shri K. P. S. Nair in some earlier years should be deducted in computing its income for the assessment year 1981-82." The aforesaid details, in our opinion, go a long way to conclude that there was no legal justification based on s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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