1979 (7) TMI 117 - AT - Income Tax

Assessee's Appeal Allowed; Commissioner's Jurisdiction Limited; Interest Issue Upheld

Dwarkadas & Co. (P.) Ltd. Versus Income Tax Officer.

The Tribunal allowed the assessee's appeal, determining that the Commissioner lacked jurisdiction under section 263 to revise the ITO's order on matters ... Revision, Orders Prejudicial To Revenue Issues Involved:1. Commissioner's jurisdiction to revise the order of assessment under section 263.2. Admissibility of additional grounds raised by the assessee.3. Merger of the Income Tax Officer's (ITO) order with the Appellate Assistant Commissioner's (AAC) order.4. Treatment of the assessee as an industrial company.5. Allowance of weighted deduction on expenditure.6. Granting of interest under section 214.Issue-wise Analysis:1. Commissioner's Jurisdiction to Revise the Order of Assessment Under Section 263:The central issue revolves around whether the Commissioner had the jurisdiction to revise the order of assessment under section 263 after the AAC had passed an order on the appeal. The Tribunal referred to the Bombay High Court decision in Tejaji Farasram Kharawala, which held that once the AAC has passed an order, the Commissioner's jurisdiction to revise the ITO's order ceases. The Tribunal found that the AAC's order is the operative decision, and the ITO's order merges into it. Therefore, the Commissioner loses the power to revise the ITO's order under section 263 once the AAC has adjudicated the matter.2. Admissibility of Additional Grounds Raised by the Assessee:The assessee raised an additional ground challenging the Commissioner's jurisdiction under section 263, which was not included in the original appeal memo. The Tribunal admitted this additional ground, noting that it was a legal question arising from the Commissioner's order and did not require further investigation of facts. The Tribunal referenced the Bombay High Court decision in CIT v. Gilbert Barker Mfg. Co., which supports the admission of purely legal grounds even if raised late.3. Merger of the ITO's Order with the AAC's Order:The Tribunal discussed the doctrine of merger, which implies that once the AAC passes an order, the ITO's order merges into the AAC's order. This doctrine was supported by the Supreme Court in CIT v. Amritlal Bhogilal & Co., which stated that the appellate decision becomes the effective and enforceable decision. The Tribunal found that the AAC's order, whether it confirms, modifies, or annuls the ITO's order, supersedes the ITO's order, thus precluding the Commissioner from revising it under section 263.4. Treatment of the Assessee as an Industrial Company:The Tribunal observed that the issue of whether the assessee was an industrial company was raised before the AAC but was not pressed later. The AAC's order mentioned that the ground was not pressed by the assessee. The Tribunal concluded that since the issue was before the AAC, it merged into the AAC's order, thereby ousting the Commissioner's jurisdiction under section 263 to revise this part of the ITO's order.5. Allowance of Weighted Deduction on Expenditure:The Commissioner had revised the ITO's order, which allowed a weighted deduction on certain expenditures. However, since this issue was part of the AAC's order, it was held that the Commissioner had no jurisdiction to revise it under section 263. The Tribunal reiterated that any part of the ITO's order that the AAC could have examined merges into the AAC's order, thus precluding the Commissioner from revising it.6. Granting of Interest Under Section 214:The Tribunal noted that the issue of granting interest under section 214 was not appealable and, therefore, did not merge into the AAC's order. Thus, the Commissioner retained jurisdiction under section 263 to revise this part of the ITO's order. However, on merits, the Tribunal found that the ITO's decision to grant interest was supported by several Tribunal decisions and held that the Commissioner was not justified in revising this part of the order.Conclusion:The Tribunal allowed the assessee's appeal, holding that the Commissioner had no jurisdiction under section 263 to revise the ITO's order on issues that had merged into the AAC's order. The only exception was the issue of interest under section 214, where the Tribunal found the ITO's order to be just and proper on merits.