Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ITO’s order merged with the order of the CIT(A) and, therefore, the CIT, Delhi-I, did not have jurisdiction under s. 263 ?

High Court Of Karnataka

Mysore Sales International Ltd. vs. Member, Central Board Of Direct Taxes & Anr.

Section 263

Asst. Year 1975-76

R.C. Lahoti & Dalveer Bhandari, JJ.

IT Ref. No. 307 of 1982

19th January, 1998

Counsel Appeared

R.D. Jolly & Ms. Prem Lata Bansal, for the Revenue : None, for the Assessee

JUDGMENT

R.C. LAHOTI, J. :

This is a reference under s. 256(1) of the IT Act, 1961, seeking the opinion of the High Court on the following question of law arising out of the asst. yr. 1975-76 :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ITO’s order merged with the order of the CIT(A) and, therefore, the CIT, Delhi-I, did not have jurisdiction under s. 263 ?”

The assessee is a private limited company carrying on business of supply of imported high speed rotary machines on its own account and as commission agent. In the relevant accounting year, the assessee had imported two machines, namely, (i) Web offset machine imported in June, 1974, for Rs. 5,82,010, and (ii) Repida machine imported in April, 1974, from West Germany for Rs. 2,38,972. The assessee claimed deduction under s. 35 of the Act. The ITO accepted the claim of the assessee in respect of machine No. (i) on the ground that the same was imported for scientific research but disallowed similar claim in respect of machine No. (ii). To the extent of the claim of the assessee having been disallowed in respect of machine No. (ii), the assessee carried the matter to the CIT(A). While the assessee’s appeal was pending before the CIT(A), the CIT, Delhi-I, initiated proceedings under s. 263 of the IT Act for withdrawal of deduction under s. 35 in respect of machine No. (i). Vide order dt. 19th Feb., 1980, the CIT(A) allowed the assessee’s claim in respect of machine No. (ii). On 21st Feb., 1980, the CIT, Delhi-I, passed an order under s. 263 setting aside the assessment order and directing the ITO to refer the assessee’s claim under s. 35 in respect of both the machines to the prescribed authority under s. 35(3). However, on 22nd March, 1980, the CIT, Delhi-I, passed another order under s. 154 of the Act limiting his order dt. 21st Feb., 1980, to machine No. (i) alone.

The assessee preferred an appeal to the Tribunal raising a plea that the order of the ITO having merged in the order of the CIT(A), the CIT, Delhi-I, did not have jurisdiction to pass an order under s. 263 in respect of machine No. (i). The appeal has been allowed setting aside the order dt. 21st Feb., 1980, passed by the CIT, Delhi-I.

5. The answer to the question is to be found in the theory of merger. Learned counsel for the Department has placed reliance on Mirza Muzamdar Hussain vs. Dodla Bhaskara Reddy AIR 1988 AP 13, and CIT vs. Paushak Ltd. (1997) 140 CTR (Guj) 241 : (1997) 227 ITR 216 (Guj) : TC 57R.674. In both the decisions the view taken is that whether there is fusion or merger of the order of the inferior Tribunal into the order of the superior Tribunal,shall have to be determined by finding out the subject-matter of the appellate order or revisional order and the scope of the appeal or revision contemplated by the particular statute. The view of the Andhra Pradesh High Court was followed by a Division Bench of this Court in CIT vs. Eurasia Publishing House (P.) Ltd. (1998) 232 ITR 381 (Del). In CIT vs. Paushak Ltd. (supra), the Gujarat High Court has held that in the appeals which are filed by an assessee against any order that is adverse to him, the assessee would not be challenging any finding regarding deduction or depreciation, which might have been in his favour. Therefore, such aspects would not figure in the appellate order. To that extent the order of assessment would not merge in the appellate order and the exercise of power under s. 263 by the CIT cannot be doubted.

6. In the case at hand, that part of the order by which the ITO had allowed the assessee’s claim in respect of machine No. (i), i.e., Web offset machine, was not the subject-matter of appeal before the CIT(A) and, therefore, the exercise of power under s. 263 by the CIT was not excluded. We may mention that Parliament has amended s. 263 itself with effect from 1st June, 1988, whereby it has been declared that for the purpose of s. 263(1) where any order referred to therein and passed by the AO has been the subject-matter of any appeal filed on or before or after 1st June, 1988, the powers of the CIT under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. The amendment thus clarifies the law and brings the statutory law in conformity with the judicial opinion noticed hereinabove.

For the foregoing reasons, the question is answered in the negative, i.e., in favour of the Department and against the assessee.

[Citation : 233 ITR 666]

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