Doctrine of merger limits tax recovery under section 226(3), making invalid collections refundable with interest.

An assessment order that has merged in appellate and Tribunal proceedings cannot support further recovery action under section 226(3) once the underlying demand is no longer legally enforceable. On the stated sequence of appeal, ex parte appellate order, and Tribunal remand, the original assessment ceased to have independent existence by operation of the doctrine of merger, so the recovery notice and the resulting collection were invalid. The principle of restitution then required restoration of sums realised under an order that had ceased to operate, with interest.

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Issues: Whether the notice issued under section 226(3) of the Income-tax Act, 1961 and the recovery made pursuant to it were valid after the assessment order had merged in the appellate and Tribunal orders, and whether the amount recovered was liable to be refunded with interest.

Analysis: The assessment order under section 143(3) had been carried in appeal, the Commissioner of Income-tax (Appeals) passed an ex parte order, and the Tribunal thereafter set aside that appellate order and remanded the matter. On that sequence, the assessment order ceased to have independent existence by reason of the doctrine of merger. The notice under section 226(3) could not survive when the demand itself was not legally enforceable on the date of recovery. The Court further applied the principle of restitution, recognising that money realised under an order that had ceased to operate must be restored to the taxpayer.

Conclusion: The notice under section 226(3) and the recovery made under it were illegal, and the amounts realised from the assessee were refundable with interest.

Ratio Decidendi: Once an assessment order merges in the appellate or Tribunal order, recovery proceedings founded solely on the merged order cannot continue, and amounts realised under such invalid recovery are subject to restitution.

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