TaxTMI 
TaxTMI 
TaxTMI 
2023 (8) TMI 1249
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....rder of the Ld. CIT(A), to the extent of the issue raised in the proceedings u/s. 154 4. The Ld. CIT(A) misdirected himself in not appreciating that there was no mistake apparent in the original assessment order and hence recourse to the proceedings u/s. 154 was improper, bad and illegal 5. The Ld. CIT(A) erred in ignoring that the very fact that an additional document was required to be taken into consideration & record for the purpose of adjudicating the appeal, itself established that there was no mistake apparent in the original assessment order. 2. Briefly stated, facts of the case are that the assessee filed return of income for the year under consideration declaring total income of Rs. 70,46,488/-. In the return of income, the assessee claimed deduction for remuneration/salary to partners amounting to Rs. 47,71,285/-. The return of income filed by the assessee was selected for scrutiny assessment which was completed on 21.11.2011 determining total income at Rs. 80,01,582/-. The claim of remuneration/salary to partners was not disturbed by the Assessing Officer or to say it was accepted. The assessee contested the assessment order before the Ld. First Appellate Authority....
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....tent of Rs. 1,20,000/- and therefore, the excess remuneration paid was disallowable. According to Assessing Officer, this being a mistake apparent from record, he rectified the claim of the assessee of remuneration to partners vide order u/s 154 of the Act dated 29.06.2017. Before us, the contention of the assessee that the order sought to be rectified u/s 154(7) of the Act is the original assessment order and therefore order dated 29.06.2017 passed by the Ld. Assessing Officer u/s 154 of the Act is barred by the limitation. The Assessing Officer however in the assessment order rejected this objection of the assessee. According to him, the effect of the order of the Ld. First Appellate Authority was given on 02.04.2014 and thus the period of limitation of the four years as contemplated in section 154 of the Act is to be reckoned from the end of the financial year is which to the effect of the Ld. CIT(A) has been given. According to him the assessment order got merged with the order of the Ld. CIT(A) and therefore, the limitation has to be reckoned from the order of the Ld. CIT(A). In support of his finding , he relied on the decision of the Hon'ble Delhi High Court in the case of C....
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....eyond the point of time provided in rule 38 of the Mysore Sales Tax Rules is also without substance. What was sought to be rectified was the assessment order rectified as a consequence of this court's decision in Yaddalam's case (1965) 16 STC 231. After such rectification the original assessment order was no longer in force and that was not the order sought to be rectified. It is admitted that all the rectification orders would be within time calculated from the original rectification order. Rule 38 itself speaks of "any order" and there is no doubt that the rectified order is also "any order" which can be rectified under rule 38." This decision was endorsed in Deputy Commissioner of Commercial Taxes v. H.R. Sri Ramulu, (1977) 39 STC 177 when this court observed there as follows : "The reason for that is that once an assessment is reopened, the initial order for assessment ceases to be operative. The effect of reopening the assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made on reassessment. The initial order for reassessment cannot be said to survive, even partially, although the justification for reassessment ari....
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....he inferior court loses its identity by its merger with the judgment of the superior court." In another case of Commissioner of Income-tax Bombay v. Amritlal Bhogilal & Co. [1958] 34 ITR 130 (SC), the position in regard to the doctrine of merger was stated thus by Gajendragadkar J. who spoke for the Court: "16. There can be no doubt that, if an appeal is provided against an order passed by a tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority modifies or reverses the decision of the tribunal, it is obvious that it is the appellate decision that is effective and can be enforced. In law the position would be just the same even if the appellate decision merely confirms the decision of the tribunal. As a result of the confirmation or affirmance of the decision of the tribunal by the appellate authority the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement." 16. Once we understand the Doctrine of Merger in its true sense, as explained above, and relying upon the interpretation given to the word "any" or "order" given to sub-s....
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....tion can be done up to 31.03.2019. In view of this it would rather be incorrect on the part of the assessee to assert that the action u/s 154 was barred by limitation. Thus I do not find any merit in assessee's this contention. The explanation of the assessee is not tenable. The mistake is being apparent from record is therefore here by rectified. The total income of the assessee is computed as under Total income as per order giving effect to the order of the Hon'ble CIT dated 02.04.2014 Rs. 72,52,468/- Add: payment of remuneration to partner u/s 40(b)(ii) Rs. 46,51,285/- Total income Rs. 1,19,03,753/- Rounded off Rs. 1,19,03,760/- Revised accordingly. Give credit for the taxes paid after due verification. Issued revised demand notice/refund accordingly." 4.1 However, before us, the Ld. Counsel of the assessee has relied on the decision of the Hon'ble Bombay High Court in the case of CIT v. Sakseria Cotton Mills Ltd. 124 ITR 570 (Bom), wherein it is held that if the Ld. First Appellate Authority has not been called upon or has not actually dealt any part of the assessment order made by the Assessing Officer, then there is no question of merging/superseding of tha....
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....d with a part of the assessment order, he does not make that part a subject of appeal. It is thus open to the AAC deals with the appeal, it is mainly that part of the order of the ITO which has been challenged by the assessee which is dealt with by the AAC. The exercise of his appellate jurisdiction is normally limited to the grievance made by the assessee unless of course the AAC choose to exercise his power of enhancing the assessment, it the AAC disposes of the appeal and deals with the grievance made by the assessee and confirms the assessment, nothing more is required to be done further by the ITO after the order of the AAC. But if the ACC, while disposing of the appeal, reduces the assessment, then the ITO has to give effect to the directions of the AAC. These directions are restricted to the order made by the AAC because a part of the assessment 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 I....
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....f appeal is likely to become nugatory. It, therefore, clearly appears to us that the provisions of the I.T. Act contemplates that in a case where an assessment is made the subject of an appeal, the assessment orders made by the ITO do not wholly merge with the orders of the appellate authority but that the merger would take place only in respect of that part of the order in respect of which the AAC has exercised his appellate jurisdiction." 4.2 We further find that the Tribunal in the case of DCIT v. Godrej Industries in ITA No. 4339/Mum/2015 following the finding of the Hon'ble Bombay High Court in the case of Sakseria Cotton Mills Ltd. (supra) and also following the decision of the Hon'ble Supreme Court in the case of Alagendran Finance Ltd.(supra) held that issue which has not been decided in reassessment order, the limitation for rectification same will start from the original assessment order passed u/s 143(3) of the Act and not from the date of reassessment order passed u/s 147 of the Act. The relevant finding of the Tribunal(supra) is reproduced as under: "8. After hearing both the sides and going through the facts of the case, we find that the issue raised in the present....
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....s and perused the material before us. We find that, while completing the original assessment, the AO had determined book profit of the assessee at Rs. 40.89 crores, that the assessee had preferred an appeal before the FAA against the order of the AO passed u/s. 143 (3) of the Act, that in the appeal it had not agitated the issue of 115 JB of the Act that it had challenged the additions made by the AO under the normal provisions, that the matter had travelled up to the Tribunal, that neither in the order of the FAA nor in the order of the Tribunal the issue of completion of book profit was deliberated upon. In the circumstances the order passed by the AO on 28/11/2008 could be rectified up to 31/03/2013. The AO had passed the rectification order in the month of January, 2014. Clearly, the order of the AO was barred by limitation. We find that in the case of Tony Electronics Limited (supra), the Hon'ble Delhi High Court decided the issue in favour of the Department considering the peculiar facts of that case. In that case the AO had made certain additions u/s. 143(3) of the Act that were challenged before the FAA. The AO had passed order giving effect to the order of the FAA. Therefo....
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....lso find that this issue of doctrine of merger came for consideration of the Hon'ble Bombay High Court in the case of Seksaria Cotton Mills (Supra). The Hon'ble High Court has on similar facts held by applying the doctrine of merger theory that the limitation will be recognized from date of the original order in respect of points not subjected to appellate jurisdiction. A similar issue arose before the Hon'ble Bombay High Court in the case of Ratilal Bacharilal & Sons 282 ITR 457 (page 32 of case law compilation) wherein after applying the doctrine of merger theory, the Hon'ble High Court held that since the deduction u/s. 35B of Rs. 563,350/- was not the subject matter of appeal, the CIT was justified in exercising jurisdiction u/s 263 of the Act qua Rs. 563,350/- although deduction under 35B on Rs. 327,326/- was in appeal. 12. We have gone through the judgment of Hon'ble Supreme Court in the case of Hind Wire Industries (Supra), wherein the Apex Court was posed with the interpretation of section 154(1)(a) of the Act and not section 154(1A) of the Act with which this appeal is concerned because in Hind Wire Industries the original order was not the subject matter of appe....
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.... are identical to the case of Alagendran Finance Ltd. and therefore the issue is squarely covered against the Revenue and in favor of the assessee. Hence, we confirm the order of CIT(A) and this appeal of Revenue is dismissed." 4.3 We find that in the above decision, the Tribunal has also distinguished decision of the Hind Wire Industries -which has been discussed by the Hon'ble Delhi High Court in the case relied upon the Ld. Assessing Officer. Further, we note that the Tribunal in the case of Jani Properties Pvt. Ltd. in ITA No. 3640/M/2018 for assessment year 2008-09 again held that the time limit for rectification u/s 154 is be considered from the date of the original or in subsequent rectification order only, if the said rectification deals with the order, which is sought to be rectified. The relevant finding of the Tribunal (supra) is reproduced as under: "14. Now adverting to the facts of the present case, the first rectification order was passed by the AO on 13.03.2012 at the instance of assessee. Admittedly no issue of book profit under section 115JB was the subject matter of the rectification order passed on 13.03.2012. The AO issued show cause notice for rectifying th....