TaxTMI 
TaxTMI 
1988 (3) TMI 135
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....82. On examination, the ITO 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 ITO was erroneous in so far as it was prejudicial to the interests of revenue, issued notice under s. 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 been 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 ITO 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 dt. 23rd Dec., 1985 the assessee contested the matter. The ground inter alia taken before the Commissioner are these : Firstly all the relevant ....
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....., 1984 addressed to the ITO, the orders of the Court staying 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 dt. 30th Sept., 1983 rendered by the ITO was erroneous in so far as it was prejudicial to the interests of the Revenue and exercising powers granted to him by s. 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 ITO to modify the assessment accordingly and issue demand notice etc. 7. 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 s. 263 shall be the one which was statutorily prescribed before the same was amended by Taxation Laws (Amendment) Act, 1984, we find that this issue does not call for any debate as it is concluded by a Full Bench decision r....
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....sion 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 ITO and the first appellate authority. Same is the position of the second appeal/proceedings. That being so, in our opinion, the appellate orders cannot snatch the jurisdiction vested in the Commissioner by s. 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 ITO which has been the subject-matter of consideration by the AAC as it shall have the effect of merger/fusion leaving behind the remaining parts open to the scrutiny of the CIT in his revisional jurisdiction, though circumscribed by the limitations imposed by s. 263 of the Act itself, We are fortified in this view by a very recent decision of the High Court of Madhya Pradesh in Kanhiram Ramgopal vs. CIT (1987) 66 CTR (MP) 207 : (1988) 170 ITR 41 (MP). In this case the assessee who carried on the business of rice and dal mill, wanted to expand its business by starting a factor....
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.... (Cal) 291 : (1987) 167 ITR 86 (Cal) a Division Bench of the Calcutta High Court has taken the same view and so also the Bombay High Court in CIT vs. P. Muncherji and Co. (1987) 63 CTR (Bom) 338 : (1987) 167 ITR 671 (Bom). 12. After having considered the issue very carefully, we will take guidance from a decision of the Supreme Court in State of Madras vs. Madurai Mills Co. Ltd. (1967) 19 STC 144 (SC) where their Lordships of the apex Court having considered the doctrine of merger observed as under: "But the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that whenever there are two orders, one by the inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there is a fusion or merger of two orders irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction." 13. This view was also approved by th....
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....o revise and order passed by the ITO will survive. 16. 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 ITO shall not merge with the appellate order. In fact this issue could not have been gone into by him as it never formed the subject-matter of the appeal either directly or indirectly, as is also evident from para 11 of the impugned order. This is also in addition to an admitted circumstance by the assessee that even the ITO had not been supplied the details as to the dates of the payment before the completion of assessment proceedings. Not that we are not conscious of the fact that the assessee in reply to a query by the ITO did state that these payments were spread over the years 1973 to 1979 but it will be difficult to equate this situation with the one in which the ITO had been notified by the assessee of the full details, i.e. payments made year-wise which would have disclosed the true state of affairs, namely, as to what was the payment made in the year in question and what amounts had gone to the arbitrat....