Reference jurisdiction cannot entertain a new merger plea; section 154 applicability was answered against the assessee.

A merger-based challenge to action under section 154 of the Income-tax Act, 1961 could not be raised for the first time in reference jurisdiction because it had not been urged before the Tribunal and did not arise from the facts found in its order. The reference was confined to whether section 154 applied on the facts recorded, and a new contention outside that scope was not entertainable. The merger plea was rejected, and the referred question was answered in favour of the revenue and against the assessee.

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Issues: Whether the assessee could raise, for the first time before the High Court, a plea based on the doctrine of merger to challenge action under section 154 of the Income-tax Act, 1961, and whether the reference question on the applicability of section 154 had to be answered in the assessee's favour.

Analysis: The reference before the Court was confined to the question whether section 154 of the Income-tax Act, 1961, applied on the facts found by the Tribunal. The plea that the assessment order had merged with an appellate order, and that the assessing authority was therefore incompetent to proceed under section 154, had not been raised before the Tribunal and did not arise from the Tribunal's order or the proved facts recorded by it. A new contention of this nature could not be entertained in reference jurisdiction.

Conclusion: The plea based on merger was rejected, and the referred question was answered in the affirmative and against the assessee.

Ratio Decidendi: A contention not raised before the Tribunal and not arising from the facts found in its order cannot be entertained in a reference under section 256(1) of the Income-tax Act, 1961.

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