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TMI Blog1979 (2) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act, a rebate shall be allowed at the rate of one anna per rupee on the amount of such excess. " In order to qualify for the rebate permitted to be given by the clause reproduced above, one of the conditions which was required to be satisfied by the assessee-company was that no order should have been made under s. 23A of the Indian, I.T. Act, 1922. In the case of the assessee, admittedly, even though the amount of dividends declared by the assessee was only Rs. 2,40,000, on 23rd November, 1956, there was no order made in respect of the assessee-company under s. 23A(1). The assessee having thus qualified for the rebate contemplated by cl. (i) of the proviso to para. 3 of Pt. I of the First Schedule of the Finance Act, 1951, the ITO found that the undistributable surplus after reducing the total income by 7 annas in a rupee and the amount of dividends declared as also the sums spent for charity was Rs. 12,53,405 on which rebate of Rs. 78,337 was given at the rate of one anna in the rupee. The assessee had filed an appeal before the AAC under s. 30 of the Indian I.T. Act, 1922, but the appeal was restricted only to certain matters which related to fine levied on the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax cannot be said to have merged with the order of the AAC. The Tribunal found that the ITO had not made any mistake in computing the tax while giving effect to the reductions ordered by the AAC and if he had made any mistakes, then only he could have rectified the order dated 10th March, 1961. The Tribunal took the view that if at all any mistake was committed when the original order of assessment was passed in 1956 when the ITO gave the rebate under the Finance Act, the right to rectify that mistake had lapsed after four years. In other words, the Tribunal had taken the view that the period of four years had to be computed from 23rd November, 1956, and consequently the rectification order made on 8th March, 1965, was made beyond limitation and was, therefore, not valid. The rectification order was, therefore, cancelled by the Appellate Tribunal. On this order of the Tribunal, the following question has been referred to this court under s. 256(1) of the I.T. Act, 1961, at the instance of the revenue : " Whether, on the facts and in the circumstances of the case, the order under section 154 of the Act passed by the Income-tax Officer on March 8, 1965, was valid ?" Mr. Josh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 8th March, 1965, it is passed within the prescribed period of four years from 10th March, 1961. The argument raised on behalf of the revenue necessitates a consideration of the basic question as to whether the theory of merger which contemplates the merger of an order of a subordinate authority into the order of a higher authority which may be exercising appellate or revisional jurisdiction can be made wholly applicable in the case of orders governed by the provisions of the I.T. Act. If it is possible to hold that the order dated 23rd November, 1956, had merged wholly in the order of the AAC, then obviously the rectification order made on 8th March, 1965, would be within the prescribed period of four years counted from 10th March, 1961 on which day the ITO passed his consequential order giving effect to the directions made by the AAC. But if the theory of merger does not apply fully to orders under the I.T. Act and that part of the order which granted rebate to the assessee continued to be operative independently of the order of the AAC, then it would be difficult to accept the contention of the revenue that what was being rectified was the order dated 10th March, 1961, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Commissioner may, in the case of an order of assessment,- (a) confirm, reduce, enhance or annul the assessment, or (b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further inquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct, and the Income-tax Officer shall thereupon proceed to make such fresh assessment and determine where necessary the amount of tax payable on the basis of such fresh assessment ....... Provided that the Appellate Assistant Commissioner shall not enhance an assessment or a penalty unless the appellant has had a reasonable opportunity of showing cause against such enhancement ........" The powers which the AAC exercises are not merely appellate powers which a normal appellate authority exercises because normally an appellate authority is called upon to deal with the grievance of the appellant which he makes in respect of the order passed by the subordinate authority. In addition to the general powers which an appellate authority possesses, that is, either confirming, modifying or setting aside an order which in the case of an assessment has been describe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been made the subject of appeal by the assessee. In a given case, if the AAC wishes to enhance the assessment, even though the assessee has not made any part of the assessment order the subject of appeal, in view of the special provisions in s. 31(3), it is permissible for him to interfere with that part of the order of the ITO. The scheme of the provisions of s. 31(3) is, however, clear that the assessee is entitled to challenge a part of the assessment order by which he feels aggrieved and where the AAC does not decide to scrutinise the remaining part or any other aspect of the assessment, which has not been made the subject of appeal, the AAC is not called upon to deal with that part of the assessment order. Only that part of the order of the ITO is, therefore, affected by the order of the AAC in respect of which the AAC has exercised his appellate jurisdiction which may consist of confirming, reducing, enhancing or annulling the assessment. If the AAC has not been called upon or has not actually dealt with any part of the assessment order made by the ITO, there is no question of that part of the order merging or being superseded by the order of the AAC. The effect of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent which relates to items not forming the subject-matter of the appellate order is left untouched and does not merge in the order of the AAC. This decision was followed by the same court later in Poonjabhai Vanmalidas v. WTO [1978] 114 ITR 38. That was no doubt a case arising out of an assessment under the W.T. Act. After referring to the provisions of s. 23(5A) of the W.T. Act, 1957, the Division Bench has pointed out that while disposing of the appeal under s. 23(5A) of the W.T. Act, the entire assessment is before the AAC and he has the power, if he chooses, to examine any particular decision of the ITO and to correct it if he finds it wrong, but there is no obligation on him to do so. It was pointed out that it is only that part of the order of assessment which consists of decisions reviewed by the AAC, that is, considered and examined by him irrespective of whether ultimately affirmed, modified or reversed that is superseded by the order of the AAC and it is only in respect of points which were touched by the AAC that it can be said that the that case that in so far as the AAC has not dealt with or touched the points of points which were touched by the AAC that it can be said ..... X X X X Extracts X X X X X X X X Extracts X X X X
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