Sahara India Mutual Benefit Co. Ltd. v. Asstt. Commissioner Of Income Tax

M.

In this appeal by the assessee against the order under section 263 of the Income Tax Act (hereinafter referred to as the Act), passed by the Commissioner, Central Circle, Kanpur on 22-3-1999, the assessee has assailed the Commissioners order by way of as much as 13 grounds extracted as under :

"1. The Commissioner (Central), Kanpur, has erred against law and facts on record in framing the order dated 22-3-1999, under section 263 of the Income Tax Act contrary of law and facts on record.

2. The Commissioner (Central) is in error in passing an order under section 263 with respect to order of assessment dated 27-3-1997, despite the facts that the order of assessment dated 27-3-1997, was neither erroneous nor prejudicial to the interests of the revenue on the facts and circumstances of the case.

3. The Commissioner while framing the order under section 263 had failed to take cognizance of the record available at the time of its examination by the learned Commissioner in accordance with the section 263, Explanation clause (b), of the Income Tax Act, 1961.

4. The order passed under section 263 by the Commissioner, (Central) Kanpur, is without jurisdiction as the Commissioner failed to appreciate that the order of assessment dated 27-3-1997, had merged with the order of the Commissioner (Appeals) for the assessment year 1994-95 and that the order under section 263 passed by the Commissioner was contrary to the provisions of section 263 Explanation clause (c) of the Income Tax Act, 1961, and that the Commissioner (Appeals) in the appellate order for assessment year 1994-95 had considered the matters in respect of which the order under section 263 has been passed, as issue of deposits as well as, interest payable on them was subject-matter of appeal before the Commissioner (Appeals) and consequentially the Commissioner had no jurisdiction under section 263 for revising the assessment order on that issue.

5. The Commissioner ought to have considered while framing the order under section 263 that the assessment had been framed by the assessing officer after making all necessary enquiries and after considering the law applicable in the circumstances of the case and therefore, the order of assessment was not passed in undue haste and without proper enquiry and therefore, such order could not be considered as erroneous within the meaning of section 263 of the Income Tax Act.

6. The Commissioner while framing the order under section 263 has failed to appreciate correctly the facts and circumstances of the case with respect to provisions of interest on deposits has erred against law and facts on record in setting aside the order of assessment made by the assessing officer for the purpose of considering the allowance to disallowance of the interest.

7. The Commissioner has not correctly appreciated and understood the terms and conditions of the various deposits scheme run by the appellant particularly with regard to charge of interest and therefore, the various observations made in the order under section 263 with regard to provisions of interest are not correct/have not been properly understood in the facts and circumstances of the case.

8. That the Commissioner, is not justified in concluding that the liability on account of interest payable on deposits under Golden Growth Fund (hereinafter referred to as the GGF) and Golden Fixed Deposit Account (hereinafter referred to as the GFDA) Schemes was a contingent liability.

9. That the Commissioner erred in law and facts in presuming that the assessing officer did not investigate the issues relating to the correctness of the liability provided on account of interest payable on deposits under GGF and GFDA Schemes and the allowability of such liability on accrual basis.

10. That the Commissioner Central have erred in holding, that the liability on account of interest payable on deposits under GGF and GFDA Schemes could be determinate or ascertainable only if individual accounts of depositors were credited.

11. That the Commissioner Central was not justified in considering the assessment order as erroneous and prejudicial to the interest of revenue without pointing out as to how the action of the assessing officer allowing the liability on account of provision of interest payable on deposits under GGF and GFDA Schemes has rendered the assessment order as erroneous and prejudicial to the interest of revenue.

12. That the order of the Commissioner Central is erroneous and merely a change of opinion inasmuch as the interest provisions made on the deposits under GGF and GFDA Schemes has been accepted by the department in earlier years as well as, in the subsequent year i.e. assessment year 1995-96, there being no change in system thereof during the assessment year 1994-95.

13. The Commissioners order under section 263 of the Income Tax Act does not fulfil the jurisdictional conditions necessary for framing such order."

1.1. Since the arguments advanced by the parties were on the basis of issues and not groundwise we, after hearing the arguments for both the parties, are of the opinion that the issues raised by the appellate can be dealt with and adjudicated upon by way of decisions of following issues formulated by us.

Was the notice under section 263 of the Act dated 22-2-1999, issued without proper examination/consideration/perusal of assessees assessment records by the Commissioner, and therefore, there was no application of mind as well as exercise of quasi-judicial discretion and judgment by the Commissioner and, if that being the case, were the notice under section 263, dated 22-2-1999, and consequently the order under section 263, dated 22-3-1999, bad in law and void ab initio.

Was the assessment order dated 27-3-1997, was neither erroneous nor prejudicial to the interest of the revenue, as claimed by the assessee ?

If the assessment order was erroneous so far as prejudicial to the interest of the revenue, than the Commissioner having not given any reason as to how the action of the assessing officer allowing the liability on account of interest payable on deposits under two schemes, namely, GFDA and GGF has rendered the assessment order erroneous and prejudicial to the interest of revenue, could the order under section 263 of the Act cannot be sustained.

Had the assessment order dated 27-3-1997, on the issue of allowability of deduction of expenditure on account of interest payable on deposits received under the two schemes, merged with the order of Commissioner (Appeals), dated 1-1-1999 ? If it had merged then had the Commissioners jurisdiction to revise the assessment order with respect to the issue of allowability of the interest.

Was the Commissioner not justified to observe that the liability on account of interest payable on the deposits under these two schemes was a contingent liability and that the assessing officer has not investigated the issue, and that liability on account of interest payable could be said to have been ascertained only if individual accounts of the depositors were credited ?

Was the Commissioner justified in concluding that assessing officer has not disallowed the interest payable on lapsed and unclaimed matured accounts, without making any enquiry or pointing out as to which of the specific accounts were "lapsed" or were "unclaimed matured accounts".

Arguing on the first issue, the learned Senior Advocate Mr. Dastur, appearing on behalf of the appellant-assessee, submitted, after drawing our attention to paras 5 and 6 of the order under section 263 of the Act, para 15 of the assessment order and para 98 of the order of the Commissioner (Appeals), that it is an admitted fact that the assessing officer had disallowed an amount of Rs. 5,35,29,140 out of assessees claim of expenditure on account of provision made for interest payable on deposits under the two schemes, namely GFDA and GGF, and the issue of disallowance of any interest out of such expenditure has been set aside by the Commissioner (Appeals) (para 98 of his order dated 1-1-1999), but the Commissioner in para 5 of order under section 263 of the Act on the one hand states that the result of making minimum provision of interest payable at the rate of 12 per cent will result into lower charge in the initial period and higher charge in the later years whereas, in para 6 of his order the Commissioner has observed that the assessing officer did not investigate the issue relating to the allowance of deduction on account of interest payable on these two schemes and has allowed the claim of interest at the rate of 12 per cent per annum without proper enquiry. According to the learned counsel, these conflicting observations of the Commissioner leads to one and only one conclusion that the Commissioner had not applied his mind at all and this could be only because of any of the following situation namely (1) either the As assessment records were not before the Commissioner or (2) if the assessment records were with him, he had not examined the same of his own.

2.1. Another submission in support of claim that Commissioner had not applied his mind or the assessment records were not before him, the learned Senior Advocate submitted that the Commissioner, while issuing notice under section 263 of the Act on 22-2-1999, started with the contention that assessee had claimed interest on the defaulted and lapsed account as well as, on unclaimed matured accounts on which interest was not payable after the date of default/maturity, as the case may be, which is quite wrong on facts because in case of both the deposit schemes, namely, GFDA and GGF, there was no question of any lapsed or unclaimed matured account and in support of this he referred to the terms and conditions of both the schemes (certified copies furnished before the Bench), which are made Annexures A and B to this order.

2.2. Referring to the GFDA Scheme, the counsel, after referring to the terms and conditions of the scheme, submitted that the tenure of the account, which was fixed, was for 12,24,36,48 or 60 months, if an account holder kept his fixed deposit for any period as mentioned in the term No. 2 of the scheme, then the yearly rate of interest payable was 12 per cent, 14 per cent, 14.5 per cent, 15 per cent and 16 per cent for first year, second year, third year, fourth year and fifth year, respectively. But in case an account holder desired to avail the facility of monthly interest, then the rate of interest payable as per term No. 6 was 9.9 per cent per month for one thousand, if the account was held for 12 months, 11.50 per month for every one thousand if the account was held for 24 months, 12 per month for every one thousand if the account was held for 36 months, 12.40 per month for every one thousand if the accounts was held for 48 months and 13.20 per month for every one thousand if the account was held for 60 months. According to the learned counsel, none of the account holders having opted for prematured finalisation of account, the deposits in this scheme were for a fixed period of five years and, therefore, the question of any lapsed account did not arise. Similarly, the first maturity year being 1997, there was no question of any unclaimed matured account also.

2.3. Coming to the second scheme, i.e., GGF, the learned counsel pointed out that it was in the name of a recurring account for 10 years with an option of prematured closing of the account after completion of a period of three years. The scheme having been launched only in January, 1991, there was no question of any prematured settlement of accounts or unclaimed matured account under this scheme also.

2.4. In view of these facts, the assessees counsel submitted that non-consideration of these factual position, i.e., the terms and conditions of these schemes by the Commissioner further strengthens the assessees claim that the assessees assessment records were not examined by the Commissioner if were before him, or the assessment records were, not at all, before him.

2.5. In view of above facts and circumstances, the learned counsel claimed that the notice issued under section 263 of the Act on 22-2-1999, having been issued without examination of assessees assessment records and/or without application of mind by the Commissioner, the same was illegal and bad in law and consequently, the jurisdiction assumed by the Commissioner for passing an order under section 263 was also illegal. According to the learned council the jurisdiction to issue notice under section 263 had been assumed illegally, the order passed under section 263 on 22-3-1999, was bad in law and void ad initio.

3. The learned standing counsel, Shri A.N. Mahajan, on the other hand, disputed the assessees claim that Commissioner had not considered the assessees assessment records or that the same were before the Commissioner and pleaded that notice under section 263 was issued on 22-2-1999, by the Commissioner after due examination of assessees assessment records and, therefore, the assessees claim is unfounded and this was supported by the claim that a proposal from Assistant Commissioner (CCI), Lucknow, was received by Fax on 22-2-1999, and the notice was issued later on the same day. The learned standing counsel alternatively submitted that under the law it is not necessary that the Commissioner should examine the assessees records himself before issuing a notice under section 263, the records can be examined by the subordinate staff also. He, therefore, submitted that the notice under section 263, issued on 22-2-1999, and consequently, the order under section 263 dated 22-3-1999, were valid in all respects.

4. We have considered the rival submissions but before deciding the issue, we would like to mention the facts relating to the various issues raised in this appealas borne out from the records and the orders of the revenue authorities available on records.

4.1. The assessee is a limited company registered under the Companies Act and was carrying on the business of para-banking activities. The assessee-company started two deposit schemes, namely, GFDA Scheme and GGF Scheme on the terms and conditions as are evident from Annexures A and B to this order. The assessee-company had appointed one of its sister concerns, namely M/s Sahara (India) Firm, as its collecting agent. The agent was to collect the amounts under both the schemes and remit the same to the assessee. The terms and conditions for carrying on the agency business by the sister concern were contained in a separate agreement between the two.

4.2. During the previous year relevant to assessment years 1994-95 the total collection made by the assessee under these two schemes was as under :

(i) Under the GFDA Scheme 1,52,93,36,700

(ii) Under the GGF Scheme 67,300 Total 1,52,94,04,000 4.3 The return of income, as per provisions of section 139(1), was due to be furnished by 30-11-1994, but the same furnished on 11-4-1995, in spite of notice under section 142(1)(i) of the Act having been served upon the assessee on 14-12-1994, itself. The assessing officer seems to have directed the assessee, in terms of provisions of section 142(2A) of the Act, to get special audit of its accounts, but the directions seem to have not been complied with by the assessee. The assessing officer considering the assessee as defaulter in complying with the provisions of sections 139(1), 142(1)(i) as well as 142(2A) of the Act proceeded to complete the assessment under section 144 of the Act. The assessees dealings with the RBI and alleged non-compliance of the provisions of sections 139(1), 142(1)(i) and 142(2A) have been discussed by the assessing officer in paras 1.8 to 3.4 of the assessment order. Since M/s Sahara India Firm was assessees collecting agent, the assessing officer had carried on detailed enquiries in the case of M/s Sahara India Firm and investigated the genuineness of deposits collected on behalf of the assessee. As a result of detailed investigation so conducted, the assessing officer had come to the conclusion that 50 per cent of the total deposits collected by the agent, which came to Rs. 74,47,02,000 were not genuine and liable to be added in the hands of assessee-company by virtue of provisions of section 68.

4.3 The return of income, as per provisions of section 139(1), was due to be furnished by 30-11-1994, but the same furnished on 11-4-1995, in spite of notice under section 142(1)(i) of the Act having been served upon the assessee on 14-12-1994, itself. The assessing officer seems to have directed the assessee, in terms of provisions of section 142(2A) of the Act, to get special audit of its accounts, but the directions seem to have not been complied with by the assessee. The assessing officer considering the assessee as defaulter in complying with the provisions of sections 139(1), 142(1)(i) as well as 142(2A) of the Act proceeded to complete the assessment under section 144 of the Act. The assessees dealings with the RBI and alleged non-compliance of the provisions of sections 139(1), 142(1)(i) and 142(2A) have been discussed by the assessing officer in paras 1.8 to 3.4 of the assessment order. Since M/s Sahara India Firm was assessees collecting agent, the assessing officer had carried on detailed enquiries in the case of M/s Sahara India Firm and investigated the genuineness of deposits collected on behalf of the assessee. As a result of detailed investigation so conducted, the assessing officer had come to the conclusion that 50 per cent of the total deposits collected by the agent, which came to Rs. 74,47,02,000 were not genuine and liable to be added in the hands of assessee-company by virtue of provisions of section 68.

4.4. While drafting the assessment order of the present assessee, the assessing officer accepted the details relating to the investigation on this account carried on and being a part of assessment order of M/s Sahara India Firm for assessment year 1994-95 reproduced in paras 3.4 to 3.21 of the assessees assessment order, as investigations with reference to the genuineness of the deposits in assessees hands also.

4.5. As per para 3.20 of the assessment order of M/s Sahara India firm so accepted by the assessing officer and made a part of present assessees assessment order, the issue relating to the genuineness of deposits under the two schemes was concluded as under :

"3.20. Inasmuch as the assessee-company has claimed to collect deposits which are largely not open to verification and there is not enough of evidence to establish genuineness of deposits regarding the source of money, addition of 50 per cent of deposits during the year, which comes to Rs. 74,47,02,000, will be made in the hands of the company under section 68 of the Income Tax Act, 1961, of the unproved deposits received this year and found credited in the books of accounts, for which notice was already given to the assessee on 3-12-1996. The facts were in the knowledge of assessee and were not revealed to Income Tax Department despite several opportunities."

4.6. The assessee, in the profit & loss account for assessment year 1994-95, had claimed a deduction of expenses worth Rs. 16,87,88,857 payable on account of interest liability payable on the total deposits of Rs. 2,27,95,11,883 upto 31-3-1994, and inclusive of deposits of Rs. 1,52,94,04,000 collected during the current year.

4.7. While completing the assessment of the assessee for the assessment year 1994-95, the assessing officer made the following disallowances/additions.

(i) Since the assessing officer had considered the deposits worth Rs. 76,47,02,000 as not genuine (para 3.20 of assessment order), he disallowed the proportionate interest on such alleged ungenuine deposits which came to be at Rs. 5,35,29,140 (para 15 of the assessment order).

(ii) Since the agent M/s Sahara India Firm was to remit the collections made on behalf of the assessee, to the assessee within a period of 2 to 2.5 months, a portion of the deposits so collected always remained with the agent and since the assessee was not charging any interest on such amount remaining with the agent, the assessing officer after considering a period of one month as reasonable for remitting the amount by the agent to the assessee, added an amount of Rs. 34,96,173 by calculating interest at the rate of 18 per cent on average balance remaining with the agent at a given point of time computed as per para 7 of the assessment order.

(iii) There was a debit balance, exceeding, six months, of Rs. 1,17,16,752 in the account of another assessees sister concern known as M/s Sisicol. The assessing officer considered that if this amount had been invested property by the assessee for its business, then the assessee should have earned an interest income of Rs. 21,09,011. Consequently, the assessing officer after considering this interest free debit balance, as use of interest-bearing deposits not for the purpose of assessees business, disallowed an expenditure of Rs. 21,09,011 out of interest expenditure of Rs. 16,87,88,857 claimed by the assessee (para 8).

(iv) The assessing officer had further noticed that the assessee had given a working capital of 2.5 crores without any interest to its collecting agent, namely, Sahara India Firm. The assessing officer came to the conclusion that the interest bearing funds had been utilised for non-business purposes and since the assessee has born the burden of interest, the interest bearing deposits to this extent have not been used for assessees business. Consequently, the assessing officer added an amount of Rs. 60 lakhs after calculating the notional interest income at the rate of 24 per cent on interest-free loan of Rs. 2.5 crores (paras 9 and 10 of the assessment order).

4.8. On appeal by the assessee, the Commissioner (Appeals), as per his order dated 1-1-1999, decided the issues relating to the aforesaid four disallowances/additions as under :

(i) The issue relating to disallowance of an expenditure of Rs. 5,35,29,440 out of claim of expenditure on account of interest payable on deposits under the two schemes has been set aside for fresh disposal (para 98 of his order) because the issue relating to genuineness of deposits to the extent of Rs. 74,47,02,000 has been set aside by him (para 43 of his order).

(ii) The disallowance of Rs. 34,96,173, additions of Rs. 21,09,011 and of Rs. 60 lakhs have been deleted as per paras 65 and 76 of his order.

5. Since there was dispute amongst the parties on the point of examination of assessees assessment records by the Commissioner on or before 22-2-1999-the date when the notice under section 263 of the Act was issued, or thereafter but before passing of the order under section 263 of the Act and there being nothing on record in favour of either of the parties and in view of the observation made in first para of notice under section 263 of the Act dated 22-2-1999, which reads as

"It is ascertained that you have provided on historical average basis periodically on the current deposits as well as old balance of deposits without actually crediting the corresponding interest to the individual account of the depositors. You have also claimed interest on the defaulted and lapsed accounts and on the unclaimed matured accounts on which interest is not payable after the date of default/maturity. Thus the liability claimed by you towards interest payable on such deposits was contingent; and-unascertained and, therefore, not allowable under the provisions of Income Tax Act, 1961. The assessment order passed under section 144 for assessment year 1994-95 by the Assistant Commissioner, CC-1, Lucknow, is therefore, erroneous and prejudicial to the interest, of revenue. I, therefore, propose to invoke provisions of section 263 of the Income Tax Act, 1961, and issue suitable directions to the assessing officer to allow only that amount of interest for which the liability is ascertained and determinate instead of the total claim made by you and so allowed"

, and the fact that the revenue has disclosed the fact of issuance of the notice under section 263 on the basis of a proposal received from assessing officer by fax on 22-2-1999, only-the Bench, in the interest of justice, considered it justified first to verify the rival claims and therefore, to verify the factum of availability and examination of assessees assessment records by the Commissioner on or before 22-2-1999, or thereafter but before 22-3-1999, when the order under sectioin 263 of the Act had been passed, the learned Senior Departmental Representative was directed, on 14-9-1999, to produce the material on the basis of which the Commissioner had come to the conclusion stated in the notice or had issued notice under section 263 of the Act and the hearing was fixed on 4-10-1999.

5.1. On 4-10-1999, the learned Senior Departmental Representative furnished a letter No. Nil, dated 1-10-1999, along with the documents listed as per index given below :

Sl. No. Items Page Nos.

1. Forwarding letters of the Deputy Commissioner (Judl.). Kanpur

2. Notice under section 263

3. Fax copy of the proposal under section 263 sent by the assessing officer 3-4

4. Postal copy of the proposal under section 263 5-6

5. Order under section 263 of the Commissioner (Central) 7-8

6. Assessees reply to show-cause notice under section 263 Annexure : 5 9-17 5.2. Letter No. F. No., Deputy Commissioner (J)/Commissioner (C)/Misc./99-2000, dated 23-9-1999, signed for the Commissioner by Deputy Commissioner (Judicial) and enclosed at para 1 of Departmental Representatives aforesaid letter reads as under :

5.2. Letter No. F. No., Deputy Commissioner (J)/Commissioner (C)/Misc./99-2000, dated 23-9-1999, signed for the Commissioner by Deputy Commissioner (Judicial) and enclosed at para 1 of Departmental Representatives aforesaid letter reads as under :

"F. No. D Commissioner (J)/Commissioner (C)/Misc/99-2000/dt. 23-9-1999 By Speed Post To The Senior Authorised Representative, Income Tax Appellate Tribunal, Allahabad.

Sir, Sub : ITA No. 509 in the case of M/s Sahara India Mutual Benefit Co. Ltd. hearing held on 14-9-1999 before the Tribunal A Bench, Allahabad.

Kindly refer to your letter F. No. Senior AR/ITAT/All/99-2000/dt. 14-9-1999, on the subject mentioned above.

In this connection, I am sending herewith certified copy of the notice under section 263 of the Income Tax Act dated, 22-2-1999, a copy of the assessing officers report received through fax on 22-2-1999, recommending action under section 263, written submissions of the assessee and the copy of order under section 263 written submissions of the assessee and the copy of order under section 263 dated 22-3-1999. From the facts of the case, it appears that the notice under section 263 was issued on the basis of report of the assessing officer which was received on 22-2-1999 through fax in which it was clearly stated that the interest claimed by the assessee was not allowable as per the provisions of the Income Tax Act. This opinion was formed on the basis of details furnished by the assessee from time to time and its written submissions during the course of hearing before the assessing officer."

5.3. Since the letter extracted above had clearly specified that the notice under section 263 of the Act was issued on 22-2-1999, on the basis of report of the assessing officer received on 22-2-1999, through fax, it was indicative of the possibility that when the notice under section 263 of the Act was issued by the Commissioner, assessees assessment record was not before him and consequently it could be easily gathered that in such circumstances there was no question of examination of assessees assessment records by the Commissioner but still, in the interest of justice, the Bench allowed the learned Senior Departmental Representative a further opportunity as per order-sheet entry dated 4-10-1999, directing him to furnish necessary documents/evidence in support of the claim that assessing officers proposal was received by the Commissioner before issuing notice under section 263 of the Act and also to furnish the details of record relating to the assessee which was before the Commissioner and was considered/examined by him before issuing the notice under section 263. The order sheet entry reads as under :

"4-10-1999 The Senior Departmental Representative is directed to furnish necessary documents/evidence in support of claim that Assistant Commissioner, Central Cir-I, Lucknows letter No. F. No. Additional Commissioner (C)/LKO/263/SIMBCOL/1998-99/1155 dated 22-2-1999, was received by the Commissioner before issuing notice No. F. No. Tech/3(xxxii)/Commissioner (C)/under 263/1998-99 dated 22-2-1999, under section 263 of Income Tax Act. Also to furnish the details of record relating to the present assessee which was before the Commissioner and was considered by him before issuing the notice under section 263.

The required details should be furnished by 30-10-1999.

Hearing in the case is adjourned to 1-11-1999."

5.4. On 4-11-1999, the hearing was adjourned to 25-11-1999.

On 25-11-1999, the learned Senior Departmental Representative Mr. Dogra, appearing on behalf of the revenue, admitted that (i) proposal for initiating proceedings under section 263 in case of the assessee under reference for assessment year 1994-95 was received by the Commissioner through fax at 3.15 P.M. on 22-2-1999, without any enclosure and notice under section 263 of the Act was issued on the same day, i.e., 22-2-1999, (ii) the assessing officer had not sent either assessment order or assessees assessment record for assessment year 1994-95 to the Commissioner either along with the proposal sent by fax or along with the copy of the proposal sent by post, (iii) there was no record of meeting of Commissioner with assessing officer as well as, of the discussion between them, and (iv) there was no evidence to show that availability of assessee record with Commissioner.

5.5. Since the requisite information/record was not furnished and to avoid retraction on the part of the revenue from the admission made by the learned Senior Departmental Representative, he was again directed to produce the file relating to the proceedings under section 263 in the assessees case, maintained in Commissioners office along with the order sheet and the hearing was adjourned to 30-11-1999. On 30-11-1999, the learned Senior Departmental Representative sought adjournment which was allowed and the case was fixed for 3-12-1999. On 3-12-1999, the learned Senior Departmental Representative furnished a written reply as per his letter No. Nil, dated 2-12-1999, which reads as under :

Letter dated 2-12-1999 "Your honour had desired to persue the original record of the Commissioner pertaining to proceedings under section 263 in the above two cases. I have discussed the issue with the worthy Commissioner (Central), Kanpur, and I have been directed to inform your goodself's that no separate 263 proceedings record is maintained either in the above two cases or any other case and there is only a comprehensive and compact cord of section 263 is maintained in one composite folder of the Commissioner. All the relevant documents pertain to section 263 proceedings in the above two cases have been submitted before your honour in shape of certified photocopies and there is no other documents besides what has already been submitted. I have also been directed by the Commissioner to submit before your honour that a number of ancillary acts like discussing the case with the assessing officer and the concerned Range Additional Commissioner and going through the assessment records are not brought on record in either the order sheet or the order. However, in the notice issued under section 263 assessee has been given opportunity to state his case and submit any relevant documents in the propose.

The final order is passed only after taking into account all the relevant material that is taken/available on record. Perusal of the assessment record and discussion with the assessing officer need not form part of the official documentation of Commissioners satisfaction but are still very much in the knowledge of the Commissioner concerned. I have been directed by the Commissioner (Central) to request your honour to take decision in the case accordingly."

5.6. Since the revenue had not produced the records directed to be produced, the learned senior Departmental Representative was once again asked to produce the requisite records at the time of next hearing and was told that in case he fails to produce the records at the time of next hearing and was told that in case he fails to produce the records as already directed or any evidence with respect to any meeting/discussion between the Commissioner and the assessing officer then it will be taken that the notice under section 263 was issued without examination of assessees assessment records by the Commissioner and that the Commissioner had not examined assessees assessment records even till the passing of the order under section 263.

On this, the learned senior Departmental Representative once again reiterated his admission made on 25-11-1999 (supra).

5.7. After admission by the learned senior Departmental Representative twice first on 4-10-1999, and again on 3-12-1999, that the assessing officer had not sent assessees assessment records or even assessment order for assessment year 1994-95 to the Commissioner and that there was no evidence with respect to either Commissioners meeting/discussion with the assessing officer or availability of assessees assessment records or assessment order before the notice under section 263 was issued or even thereafter till passing of order under section 263, it was quite easy/convenient for the Tribunal to hold that Commissioner had not examined the assessees assessment records at any time of the proceedings till the passing of the order under section 263 of the Act but since the matter was likely to result in serious consequences and also was related to the working in the office of almost seniormost authority of the department, i.e., the Commissioner, and there being no communication from the Commissioner himself and also the fact that the records, as directed by the Tribunal, were not yet produced, the Tribunal, in the interest of justice and fair play and to avoid any uncalled for comments on the working in the office of the Commissioner allowed the learned Departmental Representative yet another opportunity, though final one, to produce the records relating to the proceedings under section 263 in assessees case as maintained by the Commissioner on the next date of hearing which was fixed for 6-12-1999.

5.8. On 16-12-1999, the learned Senior Departmental Representative furnished another written reply under his letter No. Nil dated 15-1-1999, along with the photocopies of two pages claiming the same to be the acknowledgements for having returned the assessment records of the assessee and also of another company, namely, M/s Sahara India Savings and Investment Corpn. Ltd., Lucknow, in one volume each, and for assessment year 1994-95, by the Commissioners office on 17th March, and 23-2-1999, respectively, and also produced the file maintained by the Commissioner, Kanpur, relating to proceedings under section 263 of the Act for assessment year 1994-95 in the case of present appellant, which was containing one order sheet for which there were three entries with respect to the proceedings under section 263 for assessment year 1994-95 in assessees case. The other entries were for assessment year 1995-96. The learned Departmental Representative was directed to file certified copy of para No. 1 of the order sheet available in the file and also the alleged evidence for the receipt of assessment records by the Commissioner and the hearing was adjourned to 11th January, then to 17th January, then to 25th January, and then to 9-2-2000.

5.9. The case could not be heard either on 10th January, or 17th January or 25th January, or on 2-2-2000, because of the absence of the learned AM, who was on leave. On 9-2-2000, the case was finally heard when the learned Departmental Representative furnished the certified photostat copy of page 1 of the order-sheet containing four entries-first three relating to assessment year 1994-95 and 4th one relating to assessment year 1995-96. The three entries relating to assessment year 1994-95 read as under :

26-2-1999 PUC is letter dated Nil from Assistant Commissioner, CCI, Lkn. regarding proposal under section 263 in case of M/s Sahara India Mutual Benefit Co. Ltd. for assessment year 1994-95.

The case has already been fixed for hearing by the learned Commissioner Camp Kanpur For 9-3-1999. The notice of hearing was taken to Lucknow. By the learned Commissioner himself. Hence, if approved, the letters may be kept in file.

Submitted please.

Sd/-ACC(T) Sd/-Income Tax Officer 26-2-1999 15-3-1999 Sri J.J. Mehrotra, authorised representative and Shri R.K. Singh, Controller Finance, attend. Filed written submissions. Discussed.

22-3-1999 Order under section 263 passed.

Sd/-"

6. We have considered the rival submissions, facts and circumstances of the case, documents furnished by the learned Senior Departmental Representative, the contents of letter written by the Deputy Commissioner (Judl) on behalf of the Commissioner, Kanpur, dated 23-9-1999, proposal sent by the assessing officer, provisions of section 263 and also the case laws available on the point of prerequisite condition/requirement of examination of assessees records before issuing a notice under section 263 or passing of the order under section 263 of the Act.

6.1. Considering the totality of the circumstances, so far as, the availability of evidence with the revenue with respect of its claim that the Commissioner had, before issuing notice under section 263 or before passing order under section 263 of the Act, examined the assessees assessment records is concerned, we now proceed to decide the same on the basis of material before us and the legal provisions in this respect.

6.2. Coming to the assessees claim that the Commissioner had not examined the assessees assessment records properly before issuing notice under section of the Act on 22-2-1999, we after considering the facts stated in the Deputy Commissioners (Judl.)s letter written for and on behalf of the Commissioner, bearing No. F. No Commissioner(J)/Commissioner(C)/Misc./1999-2000, dated 23-9-1999, clear admission by the learned Senior Departmental Representative made on 4th Oct., and 3-12-1999, that there was no other evidence with respect to meeting or discussion between the Commissioner and the assessing officer and that there were no other documents/records, including order-sheets, with the Commissioner, so far as, the proceedings under section 263 of the Act for assessment year 1994-95 in the case of present assessee are concerned, (except the documents furnished on 4-10-1999), we are of the opinion that revenues stand till 16-12-1999 was :

(i) That in the case of present assessee the Commissioner, Kanpur, had not maintained any separate records relating to the proceedings under section 263 of the Income Tax Act.

(ii) That all relevant documents pertaining to the proceedings under section 263 in the present case had been furnished before the Tribunal on 4-10-1999, under Senior Departmental Representatives letter dated 1-12-1999 as per letter dated 1-10-1999, copies of six documents, list of which has already been extracted in para 4.10 (supra) were filed.

In view of these facts, the revenues stand was that the Commissioner had no other document of any nature relating to the proceeding under section 263 in the case of the assessee before us.

(iii) That the details of ancillary acts like discussing the case with the assessing officer and Range Additional Commissioner and going through the assessment records are never brought on record either in the order-sheet or otherwise.

(iv) That perusal/examination of assessment records of the assessee and discussion with the assessing officer need not from part of the official documentation for the Commissioners satisfaction but still very must in the knowledge of the Commissioner.

(v) That by the time the notice under section 263 of the Act was issued, i.e., 22-1-1999, the assessing officer had not sent either assessees assessment records or assessment order for assessment year 1994-95.

(vi) That there was no evidence with respect to the meeting/discussion of the Commissioner with the assessing officer.

(vii) That the learned Senior Departmental Representative was not aware of the evidence for receipt of assessees assessment record or assessment order for assessment year 1994-95 by the Commissioner because he has not been supplied with any evidence in this respect.

6.3. If the revenues stand till 16-12-1999, on the one hand and the stand taken as per letter dated 15-12-1999, furnished on 16-12-1999, and the photocopy of a loose sheet claiming the same to be an acknowledgement for return of assessees assessment records for assessment year 1994-95 by the Commissioner on 17-3-1999, on the other hand, is considered, then every prudent man will come to one and the only conclusion that there was something wrong in the stand taken by the revenue i.e., either the stand taken prior to 16-12-1999, was correct or the stand taken thereafter was correct and to decide the issue, we have once again to consider the nature of the proceedings and the documents maintained for such proceedings.

6.4. It is well known and settled principle of law that the proceedings under section 263 of the Act before the Commissioner are quasi-judicial and as per the law every authority, while conducting quasi-judicial proceeding, has to maintain a proper and complete record of the proceedings. If such record is not maintained, then it smacks of something wrong with the working of such an authority. The proceedings relating to the quasi-judicial functions are not ones private affairssuch as going to the market and not keeping the record of enquiries or bargains carried out with the shopkeepers. Non-keeping of such records clearly leads to presume that the authority concerned has either not carried on such functions or has proceeded without having met with the mandatory prerequisite conditions.

Further, when the revenue had time and again been claiming that there were no other documents except furnished on 4-10-1999, then the authenticity of the so-called acknowledgement receipt for showing to have returned the assessees assessment records by the Commissioner on 17-3-1999, cannot be taken as an evidence for Commissioner having examined the As records before issue of a notice under section 263 on 22-2-1999, specially when no evidence for the receipt of assessment records by the Commissioner has been brought to our notice by the revenue.

6.5. What amounts to a record is another aspect to be considered in the present case and for that the definition of record given as per Explanation (b) to section 263 (already reproduced in the foregoing para) is to be considered.

6.6. The definition starting with the word records shall include and shall be deemed always to have included all records at the time of examination by the Commissioner.

6.7. The definition being unambiguous and clear, one can easily understand that the records, as contemplated under section 263, means records relating to any proceedings under the Act available before the assessing officer which resulted in passing of the order to be revised and also the records available before the Commissioner at that time in addition to record available till the stage of passing of the order, the records available at the time of examination of the records by the Commissioner.

6.8. The expression record, as used in section 263(1), is comprehensive enough to include the whole record of evidence on which the order to be revised was based.

All proceedings, which constitute evidence and on which the order is based, must normally be recorded as part of the record. We have come to this conclusion after considering the decision of Honble Supreme Court of India in case of Maharana Mills (P) Ltd. v. ITO (1959) 36 ITR 350 (SC). In this case, the Honble Apex Court was to consider the meaning of the word record appearing in the provisions of section 35 of the 1921 Act (corresponding to section 154 of the Income Tax Act, 1961), under which rectification of mistakes apparent from the records was permitted. The Honble Apex Court, while considering the meaning of the term record contemplated by section 35 (a term similar to that used in provision of section 154 as well as, section 263 of the Income Tax Act, 1961) held that the record contemplated by section 35 does not mean only the order of assessment but it comprises ot proceedings on which the assessment order is based.

6.9. In view of above discussion and the decision of the Honble Supreme Court, we are of the opinion that the records, as contemplated under section 263, do not mean only an assessment order but it comprises of proceedings on which the assessment order is based.

6.10. In view of above facts and circumstances, we are of the opinion that the revenue has failed to establish the availability as well as examination of assessees assessment recordseven assessment order, by the Commissioner before issuing a notice under section 263 of 22-2-1999. The availability thereafter and before passing of the order under section 263 of the Act on 22-3-1999, even if assumed, cannot be of any help to the revenue.

7. Having come to the conclusion as above, the next issue for our consideration arises as to the consequences of issuing a notice under section 263 of the Act without examining the assessment records of the assessee by the Commissioner and to decide this issue, we consider it necessary to consider the requirements for exercise of a lawful jurisdiction for invoking the quasi judical powers vested in the Commissioner by virtue of provisions of section 263 of the Act and for that purpose it is desirable first to go through the provisions of section 263, which are in the following terms.

"263(1). The Commissioner may call for and examine the record of any proceedings under this Act, and if he considers that any order passed therein by the assessing officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

Explanation. For the removal of doubts, it is hereby declared that, for the purposes of this sub-section."

(a) an order passed on or before or after the 1-6-1988, by the assessing officer shall include.

(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income Tax Officer on the basis of the direction/issued by the Joint Commissioner under section 144A;

(ii) an order made by the A. Commissioner in exercise of the powers or in the performance of the functions of an assessing officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120;

"(b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner :

(c) where any order referred to in this sub-section and passed by the assessing officer had been the subject-matter of any appeal filed on or before or after the 1-6-1988, the powers of the Commissioner 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.

(2) .................... (not relevant) (3) .................... (not relevant) 7.1. From the analytical examination of the provisions of section 263, it is gathered that features of the power of revision granted by section 263 are :

7.1. From the analytical examination of the provisions of section 263, it is gathered that features of the power of revision granted by section 263 are :

(i) The Commissioner may call for and examine the records of any proceedings under the Act. The stage upto the calling of the records is an administrative act but examining of the same by the Commissioner is a quasi-judicial function.

(ii) On examination of such records, the Commissioner may consider any order passed by the assessing officer as erroneous insofar as, prejudicial to the interest of the revenue and such a consideration is only after having come to be satisfied on this account and the stage of coming to the satisfaction is also a quasi-judicial stage.

(iii) After complying with the aforesaid two stages, the third stage, which is again quasi-judicial in nature in view of the principles of natural justice, is to give an opportunity of hearing to the assessee and also to make enquiries, if need be; and

(iv) it is only after going through the aforesaid three stages of various nature that the power to reduce or enhance or modify or cancel any order passed by the assessing officer and give directions for passing a fresh order can be exercised.

Our analysis finds support from the decision of the Hon'ble High Court in the case of CIT v. Panna Devi Saraogi (Cal) (170) 78 ITR 728 (Cal) and of Gujarat High Court in the case of Addl. CIT v. Mukur Corporation (1978) 111 ITR 312 (Guj).

7.2. The first feature includes the placing of records before the Commissioner by his subordinates as well, i.e., if the records are placed before the Commissioner by any of his subordinates and he points out errors and prejudice suo motu, the Commissioner is not debarred from proceeding with the exercise as envisaged in the provisions of section 263 Smt. Sumitra Devi Khirwal v. CIT (1972) 84 ITR 26 (Cal), but it does not mean that the Commissioner can exercise his powers under section 263, under such eventuality, without examining the records of his own and thereupon applying his mind to the records so that the correctness of the error/prejudice can be verified.

Similarly, it is not only the records which can be placed before the Commissioner by any of his subordinates but even a proposal for revision on being pointed out errors/deficiencies in the order of the assessing officer can be placed before the Commissioner by any of the subordinates. But in that eventuality also, the Commissioner cannot proceed with the proceedings under section 263 unless and until he has examined the assessment record/records which had culminated in the passing of the order placed before him for revision and coming to his own satisfaction, after applying his mind to the facts and circumstances available in such records, with regard to the erroneousness available in such records, with regard to the erroneousness and prejudicial to the interest of the revenue aspects of the order.

7.3. This is so, because, most important feature for the Commissioner to exercise powers under section 263 is that the Commissioner must examine the records and apply his mind before assuming a lawful jurisdiction for proceeding with the proceedings under section 263. If the records are not placed before the Commissioner and only a proposal is placed by the subordinate or if records as well as, the proposal is placed before the Commissioner by any of the subordinates pointing out errors or prejudice and the Commissioner acts upon such a proposal without examination of the records in first case without calling and examining the records and in second case without examining the records and arriving at the satisfaction, as envisaged in the provisions of section 263, then there is no question of application of mind by the Commissioner. In earlier case, i.e., in the absence of records nothing can be said to have been examined, whereas, in latters case it may be examination of records by the subordinate but the Commissioner cannot be said to have examined the records if he simply proceeds with the proposal.

7.4. From the above discussion, we are of the opinion that what follows from the legal provisions is that the Commissioner, before assuming lawful jurisdiction to proceed with the proceedings under section 263 of the Act, must comply with the following :

(i) Assessees records, which have culminated into passing of the order to be revised must have been before the Commissioner.

(ii) It is the Commissioner and Commissioner alone himself who must examine such records, and

(iii) After such examination, must have applied his mind before coming to the satisfaction for lawful exercise of quasi-judicial functions.

7.5. Since the lawful assumption of jurisdiction is the stage before issuing a notice under section 263, so the aforesaid three conditions, which, in our opinion are mandatory prerequisite conditions, must be complied with even before issuing a notice under section 263. In other words, if in a given case it is found as a fact that the records itself were not before the Commissioner or, if the records were before him but had not been examined the same before proceedings with the proceedings under section 263, i.e., the Commissioner assumes jurisdiction to carry on the functions of a quasi-judicial authority, the action to proceed with or assumption of jurisdiction cannot be said to be in accordance with law, rather is to be termed as bad in law and void ab initio for want of compliance to the mandatory prerequisite conditions.

8. So far as, the present case is concerned, the admitted facts are that by the time the notice under section 263 was issued i.e., 22-2-1999, the assessment record of assessee for assessment year 1994-95 were not before/with Commissioner (Central, Kanpur). The Commissioner was seized of only a letter from the assessing officer, Lucknow, purported to be a proposal for initiating proceeding under section 263 of the Act in assessees case. Further, as confirmed by the Commissioner, Kanpur, in letter dated 23-9-1999 (supra) and also admitted by the learned Senior Departmental Representative during the course of hearing of the appeal, that the proposal from the assessing officer, Lucknow, was received by the Commissioner, Kanpur, by fax at 1.35 PM on 22-2-1999, and the notice under section 263 of the Act was issued on the same date. The copy of proposal by post was received on 26-2-1999, but assessment records were not received.

9. From the above discussion and the facts and circumstances, it is quite evident that by the time the Commissioner, Kanpur, invoked his quasi-judicial power in view of third and fourth feature of section 263 (discussed supra), i.e., issued a notice under section 263 of the Act providing the assessee an opportunity of hearing, he had no occasion to examine or apply his mind to the assessees assessment records because the same were not before him and the conclusion that the assessees records were not before the Commissioner by the time notice under section 263 of the Act was issued is arrived at on the basis of the following facts :

(i) that the Commissioner had received only a letter proporting to be the proposal from the assessing officer and that too through fax, on the basis of which the notice under section 263 of the Act was issued. No enclosure was received.

(ii) the learned Senior Departmental Representative admitted this fact during the course of hearing, and

(iii) the revenue has not furnished any evidence for receipt of assessees assessment records by the Commissioner and that being the case, the question of satisfaction of the Commissioner with regard to the erroneousness or prejudicial nature of the assessment order do not arise at all and even if it is assumed to be, then the same cannot be said to be in accordance with the provisions of law, which otherwise means that the assumption of jurisdiction by the Commissioner, Kanpur, for proceeding with the proceedings under section 263 which were quasi-judicial in nature, was not in accordance with law and the same is the fate of subsequent proceedings, i.e., passing of order under section 263.

10. Further the revenue has taken the stand that records of ancillary actions such as discussions with the assessing officer etc. had not been maintained. This plea is not ascertainable because the process of carrying on for the quasi-judicial proceedings is not ones private affairs. The proceeding under section 263 of the Act being of quasi-judicial nature, the authority is duty-bound to maintain the complete record of each and every proceeding. Non-keeping of such records cannot be taken as carrying on of the proceedings; rather it leads to presume that no such proceedings were ever carried on. It is mandatory in government offices to maintain the records of every outside office visit of the authority and purpose thereof because the authority claim T.A., etc. For the sake of arguments if the revenues plea is admitted, then the discussion must have been either at Kanpur or at Lucknow or at the most by telephone and for that there should have been some evidence in the form of T.A. bills of either of the authority or of the telephone bill, but no such evidence has been furnished by the revenue. Even otherwise, such a discussion cannot amount to examination of records by the Commissioner.

11. The revenue has further made efforts to establish the availability of assessees records before the Commissioner by producing photostat copy of a loose paper claiming the same to be acknowledgement for having returned the assessees assessment records on 17-3-1999, though has not specifically claimed so.

12. After careful consideration of the statement made by the Deputy Commissioner (Judl). Kanpur, on behalf of the Commissioner in his letter dated 23-9-1999, stating that-(i) "from the facts of the case, it appears that the notice under section 263 was issued on the basis of report of the assessing officer which was received on 22-2-1999, through fax in which it was clearly stated that the interest claimed by the assessee was not allowable as per the provisions of the Income Tax Act. (ii) This opinion was formed on the basis of details furnished by the assessee from time to time and its written submissions during the course of hearing before the assessing officer", the admission of the learned Senior Departmental Representative, and statement made by the learned Senior Departmental Representative in his letter dated 2-12-1999, in which he stated that (i) "I have also been directed by the Commissioner to submit before your honour that a number of ancillary acts like discussing the case with the assessing officer and the concerned range Additional Commissioner and going through the assessment records are not brought on record in either the order sheet or the order, (ii) that in the notice issued under section 263 assessee has been given opportunity to state his case and submit any relevant documents in the purpose, (iii) that the final order is passed only after taking into account all the relevant material that is taken/available on record. (iv) that perusal of the assessment record and discussion with the assessing officer need not form part of the official documentation of Commissioners satisfaction but are still very much in the knowledge of the Commissioner concerned, and letter of the learned Senior Departmental Representative dated 15-12-1999, which reads as :

"The learned Commissioner has also desired that I may make a brief submission before your honours regarding the records being submitted.

2. All the cases of M/s Sahara Group are perused by the Commissioner (Appeals) with due attention and concern and most of the deficiencies of the assessments come to light during scrutiny of the appeals and above during inspection and once drawbacks of the case are noticed, a report is either suo motto sent by the assessing officer or the Additional Commissioner/Jt. Commissioner and in some cases even by the Commissioner. Only later on, action according to the Income Tax Act is initiated.

3. So far as, above two cases are concerned, the deficiencies regarding assessment were seen during judicial and administrative review and later on reports were received on which immediate action had to be taken since they were getting time barred. This would be seen from the note sheets also.

4. In conclusion, I may also point out that all the records available in the Commissioners office are by themselves part of the proceedings and any action taken is supposed to be on the basis of records/evidence available".

as well as, the so-called photostat copies of two loose papers, we, except to observe that the same are contradictory to each other, do not consider it advisable to make any further comment."

13. The revenues latest stand is that the deficiency in the present case were seen during judicial and administrative review and later on reports were received on which immediate action had been taken.

13.1. After careful consideration of the totality of the facts and circumstances of the case, we are of the opinion that so far as, the coming of the deficiencies into the knowledge is concerned, there is no denying the fact that one can come to know of such deficiencies during the course of any of the proceedings such as internal audit, special audit, so called judicial review or inspection, scrutiny of appellate order or during any other proceedings under the Act but the dispute before us is not as to whether the deficiencies were in the knowledge of the Commissioner as a result of examination of records or otherwise, i.e., the dispute is as to how the Commissioner came to know of the deficiencies. Before deciding this issue, we would like to observe that there is no dispute on the point that subordinate authority can also bring the deficiency in knowledge of the Commissioner. In our opinion, the Commissioner could come to know of the deficiency by any of the following modes :

(i) After examination of the assessees records of his own, i.e., himself during any proceedings, or

(ii) as a result of examination of assessees records by any of the subordinates, including officials in the office of the Commissioner or assessing officer or himself, or

(iii) as a result of examination of assessees records by any other authority, such as, Additional Commissioner or Commissioner (Appeals), etc., or

(iv) as a result of internal or special audit by audit parties.

13.2. So far as, the prerequisite mandatory condition relating to examination of assessment records under section 263 is concerned it is settled law and we have also concurred with the same, that it is the Commissioner-personally, who must examine the assessment records before coming to the satisfaction for issuing notice under section 263. Even if the deficiency is brought to the notice of the Commissioner by any other mode, (including the mode at Serial Nos. (ii), (iii) and (iv) (supra), it is mandatory and incumbent upon the Commissioner to call for assessment records and examine the same vis-a-vis the veracity and correctness of the deficiency brought to his knowledge or of the proposal and get himself satisfied with regard to the erroneous and prejudicial nature of the order likely to be revised if the Commissioner does not comply with this mandatory requirement and proceeds blindly, i.e., simply on the basis of such reports/proposal having been received and fails to call for and carry on the examination of records before acting on such report/proposal, the assumption of jurisdiction to issue notice under section 263 cannot be said to be lawful and consequently the notice under section 263 so issued cannot be sustained-more so, because of the non-compliance of prerequisite mandatory requirement of examination of records by himself, absence of application of mind and exercise of quasi-judicial discretion, including satisfaction. The quasi-judicial powers of an authority cannot be controlled by any other authority. The proposition of ours is not only clear from the unambiguous provisions of section 263(1) but is supported by the decision of the Honble Supreme Court in the case of Sirpur Paper Mills Ltd. v. CIT (1970) 77 ITR 6 (SC) and Calcutta High Court in case of Jiven Lal (1929) Ltd. v. Addl. CIT (1977) 108 ITR 407 (Cal).

13.3. In the case of Sirpur Paper Mills Ltd. (supra), the assessee had moved a revision petition under section 25 of the Wealth Tax Act (corresponding to section 264 of the Income Tax Act). The Commissioner, from the inception of the proceedings, put himself in communication with the Central Board and sought satisfaction from the Board as to how the revision application filed before him should be decided. The Commissioner did not exercise his independent judgment in passing the order thereupon. On these facts and the fact that the matter before the Honble Supreme Court was by way of appeal under Article 136 of the Constitution, the Honble Apex Court, after holding as under, set aside the order of the Commissioner and directed him to hear and decide the assessees petition in accordance with law and uninfluenced by any direction of the Central Board. The Honble Apex Court, at pp. 7 and 8, held as under :

"We do not encourage an aggrieved party to appeal directly to this court against the order of a Tribunal exercising judicial functions under a taxing statute, and thereby to bypass the normal procedure of appeal and reference to the High Court, but in the present case, it appears to us that a question of principle of great importance arises. We have entertained these appeals because in our judgment the CWT has surrendered his authority and judgment to the Board of revenue in deciding the questions, which were sought to be raised by the company in its revision applications."

"The power conferred by section 25 is not administrative, it is quasi-judicial. The expression "may make such inquiry and pass such order thereon" does not confer any obsolute discretion on the Commissioner. In exercise of the power the Commissioner must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice, he cannot permit his judgment to be influenced, by matters not disclosed to the assessee, nor by dictation of another authority. Section 13 of the Wealth Tax Act provides that all officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and. directions of the Board. These instructions may control the exercise of the power of the officers of the department in matters administrative but not quasi-judicial. The proviso to section 13 is somewhat obscure in its import. It enacts that no orders, instructions or directions shall be given by the Board so as to interfere with the discretion of the Appellate Assistant Commissioner of Wealth Tax in the exercise of his appellate functions. It does not, however, imply that the Board may given any directions or instructions to the Wealth Tax Officer or to the CWT in exercise of his quasi-judicial function. Such an interpretation would be plainly contrary to the scheme of the Act and the nature of the power conferred upon the authorities invested with quasi-judicial power."

13.4. The jurisdiction of the Commissioner for the purpose of section 263 or section 264 being as quasi-judicial as it is for the purpose of section 25 of the Wealth Tax Act and the prerequisite condition relating to examination of the records being the same, we are of the opinion that the Commissioner, while exercising his quasi-judicial discretion under section 263 should not put himself in the control of any other authority be it a superior or subordinate one.

13.5. Hence a question may arise that since in the case of Sirpur Paper Mill Ltd. (supra), the Apex Court had set aside the order of the Commissioner and had directed him to decide the assessees petition in accordance with law, the order of the Commissioner in the present case may also be set aside with similar directions but we are unable to accept this proposition because in the case before the Honble court the matter was relating to the assessees petition and the court was right in directing the Commissioner to decide the same in accordance with law. Had the court not given such directions and stopped at the point of set aside, the assessees purpose of going before the Honble Supreme Court itself would have stood defeated. In view of this distinguishable fact and the order of the Hon'ble High Court of Calcutta discussed hereinafter, we are of the opinion that the ratio of the decision of the Apex Court (supra) is that the Commissioners action for issuing notice under section 263 simply on the advice/report of other authorities cannot be sustained, i.e., such a notice has to be cancelled and no further opportunity to the Commissioner is permissible.

13.6. Not only this, the order, if passed as a result of such a notice, also has to be quashed, because, it is now well settled law that any order passed by a quasi-judicial authority, by exercising the jurisdiction assumed unlawfully, cannot be said to be in accordance with law and consequently has to be quashed. This view, as we have already stated, is fortified by the decision of the Honble Calcutta High Court in the case of Jeevan Lal (1929) Ltd. v. Addl. CIT (supra).

13.7. The facts of the case before the Honble High Court, as revealed from the headnotes, were that :

"In making the assessment on the assessee-company for the assessment year 1965-66, the Income Tax Officer held that the company was one in which the public were not substantially interested and applied the rate of tax applicable to such a company. The company applied to the Income Tax Officer to rectify the order under section 154 of the Income Tax Act, 1961 (the Act), by recomputing the tax on the basis that the company was one in which the public were substantially interested. The company also preferred an appeal to the Appellate Assistant Commissioner contending, inter alia in ground No. 10 that the company, being one in which the public were substantially interested, the Income Tax Officer wrongly treated the company as one in which the public were not substantially interest. The Income Tax Officer rectified the assessment order as prayed for. Therefore, when the appeal before the Appellate Assistant Commissioner was heard the assessee did not press ground No. 10, and the Appellate Assistant Commissioner did not deal with that contention in his appellate order. Later, the Additional Commissioner issued a notice under section 263 of the Act to show cause why the order passed by the Income Tax Officer under section 154 should not be rectified as being prejudicial to the revenue. The company filed a writ petition challenging the said notice."

On above facts, The Honble court held that :

"(i) the power that the Commissioner exercises under section 263 is a power in respect of the order of the Income Tax Officer. The Commissioner has no power to revise the order passed by the Appellate Assistant Commissioner.

When the assessment order of the Income Tax Officer was rectified by him under section 154 of the Act, the order in existence was the order as rectified.

Vedentam Raghaviah v. ITO (1963) 49 ITR 314 (Mad) and S. Authanari v. ITO (1972) 83 ITR 828 (Mad) relied on.

The application of the doctrine of merger depends on the nature of the appellate or revisional order in each case. If the original order of the Income Tax Officer as rectified was the effective and operative order, the same was the subject-matter of appeal before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner having passed the order thereafter, that was the only effective order and the original order had merged in that order. Therefore, the Commissioner had no jurisdiction to rectify the order (CIT v. Teja Ji Farasram Kharawala (1953) 23 ITR 412 (Bom) relied on).

(ii) it was clear from the affidavit-in-opposition filed in this case that the Additional Commissioner issued the notice under section 263 at the instance of the audit department without exercising his own discretion and judgment. The notice could not, therefore, be sustained."

13.8. It was also found by the Honble court from para 4(d) of the affidavit-in-opposition, filed by the respondent that the Commissioner had exercised the powers of issuing notice under section 263 at the suggestion of the audit department.

13.9. On these facts, the Honble High Court, not only set aside the notice under section 263 so issued, but also held that in case any order has been passed by the Commissioner, the same is also set aside and quashed by observing at page No. 412 as under :

"The second ground of attack was, as I mentioned before, that this order was passed at the suggestion of the audit department of the revenue and not by the Additional Commissioner in exercise of his quasi-judicial discretion. I have noticed the terms of section 263 of the Act, which empowers the Commissioner to call for examination of the record and thereafter to make an order. In this case the Commissioner purported to exercise the power at the suggestion of the audit department. This position would be clear if one refers to the averment made in para 4(d) of the affidavit-in-opposition, by one Madan Mohan Lal, filed on behalf of the respondents. From the forms it is apparent that the Additional Commissioner did not exercise his discretion and judgment. In the aforesaid view of the matter, on the basis of the principles enunciated by the Supreme Court in the case of Sirpur Paper Mills Ltd. v. CWT (1970) 77 ITR 6 (SC), this notice cannot also be sustained. The notice, therefore, issued on the 24-3-1972, is hereby quashed and set aside. The respondent Commissioner is restrained from giving effect to the same. If any order has been passed by the Commissioner, the same is also set aside and quashed. The rule is made absolute to the extent indicated above. There will be no order as to costs."

14. Coming to the facts of the present case, since the revenue has not furnished any evidence with regard to the factum of compliance to the mandatory prerequisite requirement of examination of assessees records by the Commissioner, Kanpur, either before receipt of the proposal from assessing officer by fax on 22-2-1999, or thereafter and before passing, the order under section 263 on 22-3-1999, we have no option but to hold that the notice under section 263 issued on 22-2-1999, was issued by the Commissioner, Kanpur, without exanimation of assessees records and application of his mind as well as, consequential satisfaction, which cannot be sustained. We, therefore, relying on the aforesaid decisions and in the facts and circumstances of the case, quash and set aside the notice under section 263 dated 22-2-1999, and since the Commissioner has passed an order in consequence upon issue of such notice, we set aside and quash the order under section 263 dated 22-3-1999, as well.

14.1. Before parting with the matter, we would like to deal with the Revenues plea raised by way of furnishing a photocopy of two loose papers claiming. the same to be acknowledgement for, having returned the assessment records of the assessee and of another company by the Commissioner, Kanpur, on 23-2-1999, and 17-3-1999, respectively. By filing these documents, the revenue has tried, though of course, has not claimed specifically, to establish the availability of assessees records with the Commissioner, Kanpur, on and before 17-3-1999. The authenticity/correctness of this evidence being in doubt cannot be accepted because of the following reasons (observations).

First of all, the revenue till 16-12-1999, had been admitting that there was no other record or document with the Commissioner except the documents furnished before the Tribunal on 4-10-1999, and, secondly, the learned Senior Departmental Representative himself had admitted that there was no evidence for establishing the existence of assessees assessment records with the Commissioner, Kanpur.

Even otherwise, it is a well known and established fact that in the office of every Income Tax Authority, be it Income Tax Officer or the Commissioner or Chief Commissioner every letter or record or parcels, etc. are passed on to the concerned official for dealing with the matter only after recording the receipt of such letter/record/parcel in mandatory maintained receipt register and outgoing are sent after routing/recording through to the despatch register. This system is not only mandatory but is compulsory and forms a part of official record to decide the dispute regarding receipt or despatch of a document. This system has to be followed and is being followed even if the letters/records/parcels are brought or sent by special messenger and in that case signatures of the messenger, in case of despatch, are secured on the despatch register itself or at the most on the covering letter and not on any loose paper.

14.2. So far as, the piece of paper placed before us is concerned, on one page there are several entries relating to Kanpur and one entry relating to Lucknow and the dates mentioned therein are 1-2-1999, 15-2-1999 and 22-2-1999, which go to show that between 2nd February to 14th February and between 16th February to 21st February, there were no despatches for the Commissioners office at all an unbelievable fact. Similarly, on the second page, there are entires relating to Allahabad and Lucknow and the dates mentioned are 11th March and 16-3-1999, which again go to show that there were no despatch between 12th and 15th March, which is again an unbelievable. Further, on one page there are three entries relating to Lucknow with respect to records of Shri Krishan Bidi Co. (in two volumes), records of M/s Sri Krishan Bidi Co. in one volume and records of M/s Sahara India Mutual Benefits Co. Ltd. (in one volume) and the person receiving these records had put his signatures against first two cases without mentioning the number of volumes whereas, against entry of assessee concerned before us the words "received recordsone volume" are mentioned. Similarly, on other page there is no mention of number of volumes so far as entries for Kanpur are concerned but against entries of M/s Sahara India Savings and Investment Corporation Ltd., the words "received in one volume" are appearing.

14.3. For all the aforesaid abnormalities and absence of evidence for receipt of the assessees records were received by the Commissioner, Kanpur, and, therefore, this piece of evidence is rejected being unreliable.

15. With regard to the issue that assessment order passed by the assessing officer on 27-3-1997, was neither erroneous nor prejudicial to the revenue the learned Senior Advocate Mr. Dastur, appearing on behalf of the assessee, submitted that an order passed by the assessing officer can be said to be erroneous if it has been passed in disregard to the legal provisions or in haste without making proper enquiries and will be prejudicial to the interest of the revenue if it is found that as a result of violation of any legal provision or failure of making proper enquiries the lawful tax due to the state has not been charged or has escaped or cannot be recovered. According to him, it is also not necessary that an order, which is erroneous, will also be prejudicial to the interest of the revenue and that being the case, it is incumbent upon the Commissioner to establish, before invoking the jurisdiction under section 263, that the order, which he is going to revise, is not only erroneous but is prejudicial to the interest of the revenue also. It was further submitted that these two factors depend upon the facts and circumstances of the individual case and, therefore, every order has to be considered in the light of facts and circumstances of that case alone.

15.1. Coming to the facts of the present case, the learned counsel submitted that so far as, the allowance of assessees claim of deduction of expenditure on account of interest on deposits under the two schemes, namely, GFDA and GGF (supra) is concerned, the assessee has claimed the total deduction on this account at Rs. 16,87,88,857 on total deposits upto 31-3-1994, amounting to Rs. 2,27,95,11,883 out of whichduring the period relevant for assessment year 1994-95, i.e., current year, was Rs. 1,52,94,04,000. In the light of these facts, the learned counsel vehemently submitted that the assessing officer had not only made detailed investigation with respect to the allowability of the deduction of expenditure on account of interest but had also considered the genuineness of the deposits under these two schemes and this was the reason that he considered the deposits worth Rs. 74,47,02,000 out of current deposits of Rs. 1,52,94,04,000 as ungenuine (para 3.20 of the assessment order), added the sum by invoking the provisions of section 68 and dealt on to disallow the proportionate claim of deduction on account of expenditure for interest payable on the deposits-disallowed an amount of Rs. 5,35,29,140 out of total claim of deduction on account of interest payable of Rs. 16,87,88,856 (para 15 of the assessment order).

15.2. Referring to paras 7 to 10 of the assessment order, the learned counsel submitted that the assessing officer had not stopped at the stage of disallowing an expenditure on this account to the extent of Rs. 5,35,29,140 but went further to disallow, indirectly or directly, another amount of Rs. 34,96,173 (para 7), Rs. 21,09,001 (para 8) and Rs. 60,00,000 (paras 9 & 10) by disallowing or making additions which relates to the assessees claim of deduction on account of expenditure incurred towards interest payable on deposits. These disallowances/additions have been made by the assessing officer by holding that the interest-free advances/loans/deposits were out of interest-bearing, deposits under the two schemes on which assessee had claimed the expenditure on account of interest.

15.3. On the aforesaid facts, the learned counsel submitted that so far, as the issue relating to the allowability of expenditure on account of interest payable deposits under the two schemes was concerned, the total disallowance of interest expenditure was more than Rs. 6.51 crores (the total of above disallowances/additions) and, therefore, the action of the assessing officer could not be said to be erroneous only if it was found after making enquiries as suggested by the Commissioner, later on, that the disallowance would have been more. The learned counsel, referring to his submissions made while arguing first issue, reiterated his stand that out of total collection in the current year of Rs. 1,52,94,04,000, the collection to the extent of Rs. 1,52,93,36,700 was under the fixed scheme, i.e., GFDA and there was no question of any lapsed or unclaimed matured accounts. The collection under the second scheme was only to the extent of Rs. 67,300 and the fact that pre-matured claim was permitted and the prematured period was (sic) there was no question of lapsed or unclaimed matured account under that scheme also.

15.4. Referring to the terms and conditions of the two schemes, the learned counsel further submitted that so far as, the question of time of accrual of liability, i.e., ascertainment of the liability was concerned, first of all it was an admitted fact that the assessee, who was carrying on the business of para banking nature, was following the mercantile system of accounting and was carrying on a business into the banking companies with the difference that it was not a banking company. According to the counsel, the scheme GFDA was just at par with the banks scheme of procuring term or fixed deposits and scheme GGF was just at par with the banks scheme of recurring deposits and since, admittedly the banks have been providing interest on accrual basis, the assessee was bound to provide for the payment of interest as per terms and conditions of the scheme-being contractual obligation i.e., on accrual basis.

15.5. Explaining further, the learned counsel submitted that under GFDA scheme, the fixed period was for 12, 24, 36, 48 or 60 months and as per condition No. 5, interest was payable on quarterly compounding basis as per the chart mentioned in the scheme (supra). As per condition No. 6, the account-holder had an option to withdraw the amount of interest monthly as per chart in the scheme itself (supra).

15.6. In view of these terms and conditions of the scheme and assessee having followed mercantile system of accounting, the assessee was under obligation to make provisions for payment of interest on accrual basison monthly/quarterly/half-yearly or yearly basis, and since the rate of interest varied from 12 per cent in the first year to 16 per cent in the last year, the provision at the rate of 12 per cent in no case could be said to be excessive or unreasonable so as to render the assessment order erroneous and prejudicial to the interest of the revenue.

15.7. Coming to the second scheme, i.e., GGF, the counsel, after referring to the chart for computation of interest, submitted that the interest at the rate of 15 per cent on half-yearly rest basis only has been provided and, therefore, there is no question of paying of interest on lapsed or unclaimed matured accounts.

15.8. The counsel further submitted that even if for the sake of arguments it is assumed that there were some lapsed or unclaimed matured accounts, then it was for the Commissioner first to make necessary enquiries/verification as to which of the accounts were of that nature, before making such general observations. According to the counsel, it was incumbent upon the Commissioner first to establish as to how the order was erroneous and then to establish by specific reasons/instances that such order was prejudicial to the case of the revenue. According to the counsel, the revision of an order with the purpose of making of specific enquiry only is permissible only if the impugned order is found to have been made without making proper enquiries or in haste, otherwise not. Coming to the assessees case, the counsel submitted that it is now established fact that the order of the assessing officer was passed neither in haste nor without detailed enquiries and, therefore, revision of such an order only for the purpose of making general enquiries cannot be sustained.

15.9. Adverting to the matter regarding the prejudicial nature of the assessment order, the learned counsel submitted that even if it is assumed for the sake of arguments that the assessing officer had failed to make enquiries with respect to the disllowability/allowability of the interest, then such a failure may render an order erroneous but that by itself, in the absence of any other material cannot be sufficient material to hold the order as prejudicial to the interest of revenue, and therefore, it was obligatory for the Commissioner to show as to how the order was prejudicial to the interest of revenue. In the present case, the Commissioner, except making a bald observation, has not brought any other material on record and, therefore, his conclusion that the order was prejudicial to the interest of the revenue also cannot be upheld. In support of this submissions, the learned counsel relied on the Tribunals decision in the case of J.P. Sethi v. ITO (1989) 33 TTJ (Pune) 576-para 12.

15.10. The learned counsel further submitted that the assessing officer had disallowed the assessees claim on account of interest payable on deposits under these two schemes to the extent of more than Rs. 6,500 crores (supra). But the Commissioner has not quantified as to what amount of interest on so-called lapsed or unclaimed matured accounts was likely to be disallowed when, according to him, such a disallowance was Nil. He, therefore, submitted that disallowance of an expenditure of more than Rs. 6,500 crores against Nil cannot be said to be prejudicial to the interest of the revenue. In support of above submissions, the counsel relied on the decisions in the following cases :

(1) CIT v. Goyal Private Family Specific Trust (1988) 171 ITR 698, 701, 702 (All);

(2) CIT v. Kashi Nath & Co. (1988) 170 ITR 28 (All);

(3) CIT v. Trustees Anupam Charitable Trust (1987) 167 ITR 129 (Raj);

(4) CIT v. R.K. Metal Works (1978) 112 ITR 445 (P&H), and (5) CIT v. Late Sunder Lal (1974) 96 ITR 310 (All).

15.11. Coming to the next requirement that the Commissioner should have, before. passing an order under section 263, given reasons or explanation as to the manner (state the manner) the order of the assessing officer was considered to be erroneous and prejudicial to the interest of the revenue and what is the basis of material was for such conclusion. The learned counsel submitted that simply saying, without pointing out as to which were the lapsed or unclaimed matured accounts and as to how the liability had not matured or was not ascertainablewhen as per the terms and conditions of both the schemes, the interest was payable on half yearly or yearly basis and since the assessee was maintaining the account on mercantile system, it was obligatory to make provision on the basis of terms and conditions of the scheme, is nothing but a bald and vague statement on the part of the Commissioner and the order passed under section 263 based on such vague statement cannot be sustained.

15.12. According to the counsel, the Commissioner failed to ascribe the reasons for his conclusion and, therefore, the order under section 263 cannot be sustained as valid and for this purpose relied on the decision in the following cases.

(1) CIT v. R.K Metal Works (supra), and (2) CIT v. Late Sunder Lal (supra).

16. The learned Departmental Representative, on the other hand, submitted that the assessment order being silent on the point of allowability of the interest on lapsed and unclaimed matured accountsa fact to be found only after necessary enquiries, the assessment order was not only erroneous but was prejudicial to the interest of the revenue and the Commissioner was justified in revising the same and directing the assessing officer to do the needful.

17. We have considered the rival submissions, facts and circumstances of the case, the terms and conditions of the two schemes (supra), the assessees system of accounting and method for making provision for payment of interest, order under section 263 as well as, the decisions in cases relied on by the parties and after careful consideration are of the opinion that from the provisions of section 263 as well as the settled principles of law in this respect, it is clear that Commissioner can exercise his powers of revision under section 263 only if the following factors co-exist :

(i) There should have been proceedings under the Act.

(ii) In such proceedings, the assessing officer must have passed an order.

(iii) On the examination of assessees assessment records relevant for the assessment year for which order has been passed, the Commissioner should consider that the said order is erroneous and prejudicial to the interest of revenue, and

(iv) The Commissioner for considering the order as such should spell out specific reasons.

17.1. Consequently, the Commissioner can revise the order passed by the assessing officer only if :

(i) it is found to be erroneous, and

(ii) it is found to be prejudicial to the interest of the revenue as well, and therefore, the first question for our decision is as to which of the order of the assessing officer or under which circumstances an order of the assessing officer can be said to be erroneous so far as prejudicial to the interest of the revenue.

18. In our opinion, an order passed by the assessing officer can be said to be erroneous if it has been passed in disregard to the legal provisions or as a result of "failure to make enquiries" and that is the reason that the various Hon'ble High Courts have held that "it is not each and every order passed by the assessing officer which could be said to be erroneous so far as, prejudicial to the interest of revenue and, therefore, can be revised under section 263 of the Act."

18.1. It is also an established law that mere failure to comply with certain provisions of law may render an order erroneous but the failure envisaged in section 263 of the Act is not one which depends on possibility of guessworkit should be actually an error either of fact or of law. This proposition is fortified by the decision of Honble High Court of Rajasthan in the case of CIT v. Trustees of Anupam Charitable Trust (supra).

Here the Honble High Court held that finding of the Tribunal to the effect that

"the error envisaged by section 263 was not one which depended on possibility of guess work but it should be actually an error either of fact or of law"

, in the light of facts and circumstances of that case, to be the findings of fact based on material on record and rejected the revenues petition for reference.

18.2. At the same time, it is also the settled proposition that the order passed by the assessing officer may be brief and cryptic but that by itself is not sufficient reason to hold the order as erroneous and prejudicial to the interest of revenue and that is so because writing an order in detail may be a legal requirement but cannot render the order erroneous and prejudicial to the interest of the revenue. This view is fortified by the decision of Honble Allahabad High Court in the case of CIT v. Goyal Private Family Specific Trust (supra).

(a) In this case, the assessee-trust, which was found under a trust deed by way of Smt. Sudha Agrawal with corpus of Rs. 500 for the benefits of the beneficiaries, mentioned therein, filed the returns of income for assessment years 1979-80 and 1980-81 for the first time on 20-2-1982, in the status of private trust. The Income Tax Officer completed both the assessments in the same status. The assessment order for the assessment year 1979-80 was in the following terms :

"Return filed declaring an income of Rs. 39,540. In response to a notice under section 143(2), Shri D.K. Agrawal, CA, attended. Case discussed. This is a case of Goyal Private Family Specific Trust (supra), in which shares of beneficiaries are specified. Therefore, income in the hands of the trust is exempt and taxable in the hands of beneficiaries. The trust has been created, vide trust deed dated 24-1-1973, a copy of which has been filed and placed on record, for the benefit of beneficiaries, Km. Mira Agarwal. Km. Usha Agarwal, Km. Rekha Agarwal and Master Kapil Agarwal. After discussion and scrutiny, income to Rs. 9,890. Assessed. Issue N.D."

Thereafter, the Commissioner, after allowing the assessee an opportunity of hearing by way of notice under section 263, set aside the assessment order for both the years for making de novo assessments by holding that the orders were erroneous and prejudicial to the interest of the revenue inasmuch as, they were passed in haste/hurry without proper and adequate enquiry.

(b) The Tribunal, on appeal by the assessee, set aside the order of the Commissioner after observing that

"assessee had filed trading and profit & loss account balance sheet, copies of account of the beneficiaries and, therefore, there was no reason to doubt the assessees contention of having produced the books of account."

(c) The Honble High Court, for the reasons stated in the 5th paragraph at page No. 701 and second paragraph at page No. 702, as reproduced hereinafter, rejected the revenues application under section 256(1) of the Income Tax Act and refused to direct the Tribunal to refer the question proposed by the revenue.

5th para-page No. 701 :

19. There is no finding by the Commissioner that the Income Tax Officer reached an erroneous conclusion and that, on the facts and circumstances of the case, the conclusion would have been different. The orders of the Income Tax Officer may be brief and cryptic, but that by itself is not sufficient reason to brand the assessment orders as erroneous and prejudicial to the interest of the revenue. Writing an order in detail may be a legal requirement, but the order not fulfilling this requirement, cannot be said to be erroneous and prejudicial to the interest of the revenue. It was for the Commissioner to point out as to what error was committed by the Income Tax Officer in having reached the conclusion that the income of the trust was exempt in its hands and was assessable only in the hands of the beneficiaries. The Commissioner having failed to point out any error, no error can be inferred from the orders of the Income Tax Officer for the simple reason that they are benefit of details. It the order is not erroneous, then it cannot be prejudicial to the interest of the revenue. There is nothing to show in the order of the Commissioner that the Income Tax Officer would have reached a different conclusion had he passed a detailed order. So, the conclusion of the Commissioner that the orders of the Income Tax Officer are erroneous and prejudicial to the interest of the revenue are based merely on suspicion and surmises in the absence of any enquiry having been made by him.

"In the income-tax assessments, all questions boil down to this, whether income has been properly determined and whether the correct rate of tax has been applied. The Commissioner does not say that the income was higher or that it was assessed on a wrong entity or at a low rate of that any exemption was wrongly allowed. In the absence of such a finding, the assessment orders cannot be said to be erroneous and prejudicial to the interest of the revenue.

19.1. The next requirement, before the Commissioner can assume the jurisdiction under section 263, is that such erroneous order should be prejudicial to the interest of revenue and, therefore, coming to the prejudicial to the interest of revenue aspect of the order of the assessing officer, we are of the opinion that since the words prejudicial to the interest of revenue have not been defined in the Act, one has to go by the meaning understood in the common parlance which, according to us, is that an erroneous order can be said to be prejudicial to the interest of the revenue if the order is found to be not in accordance with law, in consequence whereof the lawful revenue due to the state has escaped or has not been realised or cannot be realised.

19.2. As to what is the meaning of the expression prejudicial to the interest of the revenue, the Honble High Court of Calcutta has in case of Dawjee Dadabhai & Co. v. S.P. Jain (1957) 31 ITR 872 (Cal), has held as under :

"The words, prejudicial to the interest of revenue, have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law in consequence whereof the lawful revenue due to the state has not been realised or cannot be realised. It can mean nothing else."

19.3 The meaning ascribed to the term prejudicial to the interest of the revenue by the Honble Calcutta has been accepted by the Honble High Court of Gujarat in case of Addl. CIT v. Mukur Corporation (1978) 111 ITR 312 (Guj) also.

20. Respectfully following the meaning of the terms prejudicial to the interest of revenue, ascribed by the Honble High Courts of Calcutta and Gujarat (supra), we hold that an order passed by the assessing officer shall be prejudicial to the interest of the revenue if it is found to be in violation of provisions of law as a result whereof the due tax to the state has escaped.

21.1. After considering the aforesaid requirements for assumption of a lawful jurisdictional power for proceedings under section 263 of the Act, another question, which arises for our consideration, is the validity of the order of the Commissioner passed under section 263 in spite of assuming a lawful jurisdiction. In our opinion, it is not each and every order under section 263 which in spite of the fact that the order of the assessing officer is erroneous and prejudicial to the interest of the revenue, can be held to be valid. For an order under section 263 to be valid, there are, in addition to earlier discussed prerequisite conditions, some other requirements such as compliance to the principle of natural justice, satisfaction of the Commissioner and specification of the reasons for which the order of the assessing officer is considered erroneous and prejudicial to the interest of the revenue. The power conferred under section 263 undoubtedly being of quasi judicial nature, it is imperative on the Commissioner to explain as to the manner (state in what manner) the order of the assessing officer was considered as erroneous and prejudicial to the interest of revenue and what is the basis or material for such a conclusion. Though, section 263(1) vests power in the Commissioner in the substantive term, but even when a statute (and enactment) vests discretion in any authority saying "if it appears", "if he is satisfied", "if he considers necessary", then also the authority has to judge the circumstances in an objective manner also, because use of the terms (supra) for vesting the power does not mean that it is a matter only of subjective satisfaction CIT v. Shanti Lal Agarwalla (1983) 142 ITR 778, 783 (Pat).

21.2. If the Commissioner fails to give a finding as to (in what) manner the order of the assessing officer was erroneous and as to how it was prejudicial to the interest of the revenue, his order is liable to be quashed. This proposition is fortified by the decisions of the Honble High Court of Allahabad in the case of CIT v. Kashi Nath & Co. (supra) and CIT v. Late Sunder Lal (supra).

(i) In the case of Kashi Nath & Co. (supra) the assessment of the assessee, who was carrying on the Sarrafa and pawning business, for assessment year 1975-76, was completed by the Income Tax Officer at Rs. 77,599. The Commissioner in exercise of his powers under section 263, set aside the assessment order and directed the Income Tax Officer to redo the assessment as it was prejudicial to the interests of the revenue on the grounds that the Income Tax Officer while completing the assessment did not make detailed enquiries in respect of various cash credits appearing in the name of different ladies and also did not obtain necessary details about the interest income from pawning. The Tribunal allowed the appeal of the assessee on the ground that the Commissioner had not given reasons for his conclusion that the assessment order was prejudicial to the interests of the revenue. On a reference, the Honble High Court at page No. 30 held as under :

(Emphasis, here italicised in print, supplied) "It will be seen from the above order that the Commissioner did not examine the various cash credits said to be appearing in the names of different ladies which were said to have escaped the attention of the Income Tax Officer. He only complained of the order of the Income Tax Officer for not examining the details of the credits appearing in various names. What those details required to be examined were have not been set out. There is thus absolutely no reason in support of the conclusion of the Commissioner that the assessment order was erroneous and prejudicial to the interest of the revenue.

The power of the Commissioner under section 263 is quasi-judicial in character. He must give reasons in support of his conclusion that the assessment order is erroneous in so far as, it is prejudicial to the interest of the revenue. If he does not give reasons, the order would be vitiated. This was the view taken by this court in the case of J.P. Srivastava & Sons Ltd. v. CIT (1978) 111 ITR 326 (All) and CIT v. Sunder Lal (supra).

In the instant case, since the Commissioner has not applied is mind to the relevant material on record and has not given reasons for his conclusions that the assessment order was prejudicial to the interest of the revenue, the Tribunal was justified in reversing that order.

In the result, we answer the question in the affirmative and against the revenue, in the circumstances, we make no order as to costs."

(ii)(a) In the case of CIT v. Late Sunder Lal (supra) the facts were that the assessee, Sunder Lal, had filed a return for the assessment year 1959-60 on 5-9-1959, in response to a notice under section 22(2) dated 2-5-1959. In the return, he showed a net loss of Rs. 4,229. In section D of the return, the assessee claimed that a sum of Rs. 1,02,500 received by him on retirement from the firm styled M/s Ram Kishore Sunder Lal & Co. (sic) and was, therefore, not includible in his income. The assessee died on 11-2-1961, but the Income Tax Officer completed the assessment on 6-2-1964. The Income Tax Officer did not include the amount of Rs. 1,02,500 in the income of that year on the ground that it was received in April, 1959, and as such, was to be considered in the assessment year 1960-61 only.

The Income Tax Officer, thereafter, assessed this amount as capital gain in the assessment year 1960-61. An appeal was filed by the assessee against the aforesaid inclusion and the Appellate Assistant Commissioner deleted the addition on the ground that the amount was assessable as capital gain in the assessment year 1959-60 and not in the assessment year 1960-61. The Commissioner being of the view that the order of the Income Tax Officer for the year 1959-60 was prejudicial to the interest of the revenue, issued a notice under section 33B of the 1922 Income Tax Act to Bankey Behari Lal, the legal heir of the deceased assessee, to show-cause why action under section 33B of the Act should not be taken. In the meantime, it appears that the department had field an appeal before the Tribunal for the assessment year 1960-61. The Commissioner, however, passed the following order :

"The counsel only wanted that action under section 33B be deferred till the disposal of the appeal for the assessment year 1960-61 by the Tribunal. I do not find any force in this argument and his request cannot, therefore, be adhered to. For the reasons in para 2 above (wherein the order of the Appellate Assistant Commissioner for the assessment year 1960-61 has been discussed), the Income Tax Officers order under section 23(3) of the Indian Income Tax Act, 1922, dated 6-2-1964, is erroneous, the assessment is, therefore, set aside and the Income Tax Officer is directed to make a fresh assessment in accordance with law."

(b) On appeal by the assessee, the Honble High Court held as under :

"The revisional power conferred on the Commissioner is undoubtedly a quasi-judicial power (see Dwarka Nath v. ITO (1965) 57 ITR 349 (SC)). Although the case deals with the nature of the powers conferred on the Commissioner under section 33A(2) of the Act, we see no difference in that power and the one exercised under section 33B of the Act. This being so, he must give his own reasons for being satisfied that the order passed by the Income Tax Officer is prejudicial to the interest of the revenue. This conclusion is further strengthened by the use of the words if he considers used in the sub-section which postulates a scrutiny by the Commissioner of all the relevant facts for holding that the order is prejudicial to the interest of the revenue. A perusal of the order of the Commissioner shows that after referring to the fact that the Appellate Assistant Commissioner had held that the amount in question was taxable in the assessment year 1959-60 and not in the assessment year 1960-61, and stating the reasons which led the Appellate Assistant Commissioner to come to this conclusion, the Commissioner held as under :

"The Income Tax Officer had failed to assess the said capital gains in his order for the assessment year 1959-60. The Income Tax Officers order under section 23(3) of the Income Tax Act; 1922, dated 6-2-1964, was, therefore, erroneous insofar as, it is prejudicial to the interest of the revenue .........."

(Emphasis, here italicised in print, supplied)

"It will be seen that no reasons at all have been given by the Commissioner for coming to the conclusion that the order in question was prejudicial to the interest of the revenue. It is also not possible to accept the argument on behalf of the revenue that the Commissioner must be deemed to have adopted the reasoning of the Appellate Assistant Commissioner, in as much as, he had authorised the Income Tax Officer to file an appeal to the Tribunal against the order of the Appellate Assistant Commissioner. It is settled law that an order passed by a quasi judicial authority without giving any reasons for its conclusion is vitiated in law (See Bhagat Raja v. Union of India AIR 1967 (SC) 1606), The order passed by the Commissioner clearly suffers from this infirmity."

(iii) The case of CIT v. Goyal Private Family Specific Trust (supra) have already been discussed. As well as, the case reported in 167 ITR 129 (Raj), in para No. 17.2 and 17.1 (supra).

(iv) In the case of CIT v. R.K. Metal Works (supra), an order of revision was passed by the Commissioner on the ground that the capital borrowed by the assessee firm was not used entirely for purposes of the assessees business. There was no indication in the order as to the basis on which the Commissioner came to the prima facie conclusion that the capital borrowed by the firm was utilised for purposes other than that of the firms business. The Commissioners order was set aside by the Tribunal. On a reference to the High Court, it was held that the Tribunal was right in law in setting aside the order passed by the Commissioner under section 263.

22. In the light of above facts and circumstances, the decisions and by considering the terms and conditions of both the schemes extracted supra, we, now proceed to verify/consider the rival claims as under :

22.1. After giving our thoughtful consideration to the terms and conditions of the two schemes, we are of the opinion that there was no question of any account having become lapsed or any matured account being unclaimed on maturity so far as the scheme GFDA is concurred. So far as the scheme GGF is concerned, the maturity period being the year 2001 and there being provision for premature claim and guaranteed repurchase before maturity, there was no possibility of any account having become lapsed or as unclaimed. Even if, there was such an account, it was for the Commissioner first to find out the same after making proper enquiries and then only should have exercised his powers under section 263. Even otherwise, if the receipts under these two schemes were considered as capital receipts than also the so-called lapsed or unclaimed matured accounts along with interest provided on them, if any, being taxable in the year the assessee closes the account, there was no likelihood of any loss to the revenue, because if the deduction for interest was allowed in this year the same was likely to be taxed in the year of close of the account. At the same time, the issue relating to the allowability of the deduction on account of interest having been dealt with by the assessing officer in accordance with law, the terms and conditions of the schemes and the contractual obligation of the assessees, the assessment order could not be said to be erroneous and there being no violation of any of the provision of law it cannot be said that the due states tax has not been charged and consequently, the order cannot be said to be prejudicial to the interest of the revenue.

22.2. So far as the question as to whether the liability was contingent and unascertained, as observed by the Commissioner, or was determinate or ascertained (as claimed by the assessee), we, after going through the terms and conditions of the two schemes (supra) are of the opinion that the liability to pay interest was;

(i) firstly, of contractual nature; and

(ii) secondly, was well ascertained or determinate, and

(iii) thirdly, since the assessee was following mercantile system of accounting and was under obligation to pay for the payment of accrual basis as per the terms and conditions of the two schemes relating to time and the rates, the assessment order dealing with the issue of allowability of assessees claim of deduction on account of interest payable on deposits under these two schemes cannot be considered to be erroneous and prejudicial to the interest of the revenue.

23.1. Coming to the next issue that the Commissioner having not specified any reason as to how and in what manner and to what extent the assessment was erroneous and prejudicial to the interest of the revenue, we, in view of the decision of various High Courts, including the decisions of the jurisdictional High Court in case of Late Sunder Lal (supra), are of the opinion that the order of revision made by simply making bald statement is not sustainable in law. The assessment order, so far as the issue relating to allowance of interest is concerned, has been passed after making proper and detailed enquiries and consequently it cannot be said to have been passed in haste also.

23.2. In view of the aforesaid facts and circumstances, we are of the opinion that the assessment order dated 22-3-1999, so far as the issues raised by the Commissioner are concerned, cannot be said to be erroneous insofar as prejudicial to the interest of the revenue and, therefore, the Commissioner was not justified in revising the same. Further, the Commissioner having not specified the reasons for his conclusion, we, following the decision of the Honble Allahabad High Court, are of the opinion that even if the assessment order is held to be erroneous and prejudicial to the interest of the revenue, then also it cannot be sustained a valid order. In the result, the order under section 263 dated 22-3-1999, is quashed and set aside.

Relating to the doctrine of merger :

24. In relation to the doctrine of merger of the order of the assessing officer with that of the Commissioner (Appeals), that to Senior Advocate, appearing on behalf of the assessee, submitted that once a particular issue is the subject-matter of appeal before the Commissioner (Appeals), the Commissioners jurisdiction under section 263 is ousted. According to him, the Commissioner is debarred from revising the assessment order with respect to that issue/item/subject-matter even on the ground other than the ground on which the matter has been before the Commissioner (Appeals) or the ground on which it has been dealt with by the Commissioner (Appeals).

Elaborating his concept relating to the doctrine of merger, the learned Senior Advocate submitted that once any of the aspects of an issue is subject-matter of appeal, matter even on the ground other than the ground on which the matter has been before the Commissioner (Appeals) or the ground on which it has been dealt with by the Commissioner (Appeals).

Elaborating his concept relating to the doctrine of merger, the learned Senior Advocate submitted that once any of the aspects of an issue is subject-matter of appeal, then it is the issue and not the aspect of the issue, which shall be deemed to have been the subject-matter of appeal. Yet, explaining further, the learned counsel submitted that if an issue involves various aspects and the appeal is with respect to one or more aspects alone, then it is the issue which shall be said to be the subject-matter of appeal. In support of this interpretation of his with respect to the doctrine of merger, the learned Senior Advocate relied on the decision in the following cases :

(1) Oil India Ltd. v. CIT (1962) 138 ITR 836 (Cal);

(2) Remex Constructions/Remex Electricals v. ITO & Ors. (1987) 116 ITR 18 (Bom);

(3) CIT v. Goodricke Group Ltd. (1993) 116 CTR 625 (Cal);

(4) (1989) 33 TTJ 576 (supra);

(5) Progressive Services Ltd. v. ITO (1991) 40 TTJ (Cal) 595;

(6) Decision of Tribunal, Bombay, in the case of M/s Hill Properties Ltd. (Assessment years 1985-86, 1986-87 and 1987-88) dated 23-11-1993 (copy filed) : and (7) Tribunal Bombay decision in the case of M/s Seamens Ltd. for the assessment year 1987-88, dated 21-7-1999 (copy filed).

24.1. Explaining the facts and circumstances of the aforesaid cases with respect to the issues and the aspects, which were the subject-matter of appeals, the learned counsel derived the ratio of all these decisions with respect to the doctrine of merger. The ratio, as derived, according to the learned counsel, was that even if the appeal before the Commissioner (Appeals) is only with respect to one or more aspects of the issue, it is the issue as a whole which will be said to be the subject-matter of appeal and not the aspects alone.

24.2. In view of the aforesaid submissions and ratio of the various decisions derived by him, the learned counsel submitted that so far as the case before the Tribunal is concerned, the issue before the assessing officer was the

"allowability of deduction of expenditure on account of interest payable on deposits received by the assessee under the two schemes (supra),"

which could be dealt with by the learned assessing officer from various angles, i.e., could be dealt with respect to various aspects of this issue. According to the counsel, the various aspects to be decided for adjudicating the issue as a whole were :

(i) allowability of the expenditure on account of interest payable on the basis of genuineness of the deposits, i.e., if the deposits as a whole or part thereof itself were not found to be genuine, then there was no question of allowability of deduction on this account to that extent,

(ii) the allowability on the basis of accrual theory explaining this aspect, the learned counsel submitted that the assessing officer, before allowing the assessees claim on this account, was first to satisfy himself with respect to the accrual of the liability and it was only after such satisfaction that the assessees claim could be allowed, otherwise not,

(iii) the third aspect of the issue, according to the learned counsel, was the allowability of assessees claim on the basis of the quantum of deposits. According to the learned counsel, it was incumbent upon the assessing officer to allow the assessees claim after satisfying himself with respect to the quantum of deposits meaning thereby that if assessees claim was found to be on the basis of the amount more than the deposits entitled for such interest, the assessing officer could disallow the assessees claim to that extent. According to him, the assessing officer was supposed to have looked into all these aspects before deciding the issue relating to the assessees claim of deduction for expenditure on account of interest payable on deposits under the two schemes (supra). It was further submitted that if an authority prefers to consider the assessees claim in view of one or more aspects but not all of them, then (i) it cannot be said that other aspects have not been considered by the authority and (ii) it cannot be said that the issue as a whole itself has not been dealt with. In the light of this proposition, it was submitted that if the assessing officer has decided the issue only with regard to one or more but not all the aspects of the issue and the subject-matter of appeal are the aspects dealt with by the assessing officer, then it is not that/those aspects alone which will be said to be the subject-matter of appeal but it is the issue as a whole itself which will be said to be the subject-matter of appeal.

24.3. Coming to the. assessees case, the learned counsel submitted that though the assessing officer seems to have dealt with the issue in this case only by way of dealing with only a few aspects and the assessee had gone in appeal before the Commissioner (Appeals) with respect to those aspects, which is not so because while considering the allowability of assessees claim the assessing officer had duly considered the genuineness of the deposits received during the years, quantum of the deduction claimed by the assessee and disallowable portion of assessees claim and, therefore, it was the issue as a whole which in this case was the assessees claim of deduction of expenditure on account of interest payable on deposits under these two schemes, which was the subject-matter of appeal before the Commissioner (Appeals). Similarly, the allowance of assessees claim of deduction on this account by the assessing officer clearly confirms that assessees claim was allowed after considering the aspects relating to the allowability on accrual basis. Had it not been the case, then the assessing officer would not have allowed the claim rather would have disallowed the whole claim. In view of these facts, the assessment order with respect to this issue had merged with the order of the Commissioner (Appeals) (on 1-1-1999, i.e., the date of the order of the Commissioner (Appeals)). That being the case, the Commissioner, on 22-2-1999, had no jurisdiction to exercise his powers of revision vested by virtue or provisions of section 263 of the Act for the revision of the assessment order on the issue in this case (supra).

24.4. The learned Departmental Representative, on the other hand, pleaded that so-called aspects detailed by the assessees counsel could not be said to be part and parcel of a single issue; rather were different and independent issues in themselves and since the issue relating to the allowability of interest on lapsed and unclaimed matured accounts and accrual of the liability were not discussed either by the assessing officer or by the Commissioner (Appeals), it cannot be said that the order of the assessing officer had merged with the order of the Commissioner (Appeals) on this issue and consequently, the Commissioner was well within his powers to revise the assessment order on this issue.

25. We have considered the rival submissions, facts and circumstances of the case and the various decisions relied upon by the learned Senior Advocate.

25.1. The facts, as revealed from the records before us, so far as the issue relating to assessees claim of deduction for expenditure on account of interest payable on deposits under two schemes (supra) is concerned, are that the assessee, who is a residency non-banking financial institution, had started two deposit schemes, namely, GFDA and GGF, on the terms and conditions stipulated in the relevant schemesthe details of which have been extracted in the earlier part of this order. Since the deposits invited under these schemes were interest bearing, the deduction of allowability on account of interest payable on the deposits under these two schemes was being claimed on accrual basis since inception of these appeals and the liability was computed by adopting a rate of 12 per cent for GFDA and 15 per cent for GGF. So far as the liability of GFDA is concerned, the same was computed on the basis of net deposits at the end of the financial year. The liability on deposits under GGF scheme was computed on six monthly basis after excluding the accounts, which were to mature during that period of six months. This system of providing liability had been accepted in the past years as well in subsequent assessment year 1995-96.

25.2. During the course of assessment proceedings for assessment year 1994-95, the assessing officer considered the assessees claim of deduction on account of liability provided for interest payable on deposits under these two schemeswhich was provided on the basis adopted in previous year, did not deposit the admissibility of the deduction on accrual basis. The assessing officer, however, disallowed part of assessees claim on the basis of other aspects as detailed below :

(i) An expenditure of Rs. 5,35,29,140 being the proportionate liability on account of interest payable on deposits worth Rs. 74,47,200 out of total deposits of Rs. 1,52,94,04,000 received during the current year because the deposits to that extent were considered as ungenuine and had been added but assessees income by invoking, the provisions of section 68 of the Act (para 15 and 3.2 of the assessment order respectively).

(ii) The assessing officer disallowed an interest amounting to Rs. 34,96,173 out of assessees total claim of interest on this account by holding that an amount equal to the average balance of Rs. 23,30,78,196 has always remained with the assessees collecting agent M/s Sahara India Firm, of which no interest was being charged by the assessee, meaning thereby that the expenditure to this extent was disallowed because, according to the assessing officer, the interest bearing deposits to the extent of average balance remaining with the collecting agent were without interest, i.e., were not used for assessees business (para 7 of the assessment order)

(iii) The assessing officer, further added a notional income of Rs. 21,09,011 on the same reasoning as given against disallowance listed at Serial No. 2 above (para 8 of the assessment order). This addition is nothing but disallowance of assessees claim of interest-though indirectly.

25.3 On appeal by the assessee, the Commissioner (Appeals) set aside the issue relating to addition made under section 68 and a disallowance of interest amounting to Rs. 5,35,29,140 but disallowed the other three additions/disallowances.

26. So far as, the present case is concerned, the question before us, in the light of the above facts and circumstances, is whether it was the "issue relating to the allowability of assessees claim of deduction on account of liability for interest payable on two schemes (supra) as a whole, i.e., inclusive of all aspects/grounds on which the claim could be denied; was the subject-matter of appeal, as claimed by the assessee, or it were only the aspects of the issue which was the subject-matter of appeal, as claimed by the revenue. In other words, can, on the facts and circumstances of the case, it be said that the issues relating to the accruality of liability and allowability of deduction on lapsed and unclaimed matured accounts were not the subject-matter of appeal before the Commissioner and to decide this question, let us first consider the various case laws relied upon by the assessee, because it is the ratio of these decisions which is quite relevant and will throw light on the outcome of the issue under our consideration.

26.1. Oil India Ltd. v. CIT (supra) 26.1. Oil India Ltd. v. CIT (supra)

(i) The facts of the case, as are borne out from the decision, were that for assessment year 1970-71, the Income Tax Officer had allowed the assessees claim of depreciation on vehicles at the rate of 2.5 per cent as against 5 per cent claimed by the assessee and in this way the amount inadmissible under section 40(a)(v) was calculated at Rs. 3,15,343 calculating on the basis of depreciation allowed at 5 per cent.

Before the Appellate Assistant Commissioner the assessee had contended that the allowance of depreciation on bungalow at the rate of 2.5 per cent as against 5 per cent claimed by the assessee was proper. It was also contended that the Income Tax Officer had not given the correct details of the written down value and it was not known how the disallowance of Rs. 3,15,343 had been arrived at by the Income Tax Officer. Under these circumstances, it was pleaded that the Income Tax Officer should be directed to work out the correct WDV of the building in the light of the previous appellate orderthe Appellate Assistant Commissioner in assessees appeal for the assessment year 1964-65 had held that the building in question was of second class and depreciation was allowable at 5 per cent, and allowed depreciation at the rate of 5 per cent of such WDV.

(ii) Dealing with these contentions, the Appellate Assistant Commissioner inter alia observed as under :

"7. The next contention relates to an alternative ground, ground No. 6, where the rate of depreciation is disputed. Here it is contended that the Income Tax Officer was not justified in disallowing Rs. 9,74,788 by taking the allowance of the depreciation at 5 per cent as claimed by the appellant. It is contended that the Income Tax Officer has allowed depreciation at the rate of 2.5 per cent only and the same rates should be taken for disallowance under section 40(a)(v) taking the depreciation in that manner,"

(iii) After this appeal to the Appellate Assistant Commissioner, which was disposed of on 3-4-1974, the Commissioner issued a notice dated 5-3-1975, under section 263 except to this very assessment year, i.e., assessment year 1970-71 and in paras 3 and 4 of the notice stated as under :

"In the said notice, in paras 3 and 4, it was further stated :

"3. In view of what has been stated in the preceding paragraph the order of Income Tax Officer under section 143(3), dated 24-3-1973, appears to be erroneous insofar as it is prejudicial to the interest of revenue.

(iii) I, therefore, propose to pass an order setting aside the Income Tax Officers order dated 24-3-1973, insofar as it relates to the aforesaid sum of Rs. 1,44,540 and directing him to make a fresh assessment according to law."

(iv) Before the Commissioner the assessee contended that the allowance and disallowance of depreciation as well as the quantum thereof were the subject-matter of appeal before the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner, however, this aspect was not pressed either by the assessee or the revenue nor did the Appellate Assistant Commissioner give any direction in respect of this aspect. But this order of the Income Tax Officer having merged in the order of the Appellate Assistant Commissioner on the question of allowability of depreciation, the Commissioner had no jurisdiction to pass any order of revision under section 263 of the Act (the other contentions are not relevant for our purpose). The Commissioner rejected the assessees contention.

(v) On appeal by the assessee, the Tribunal was of the view that this aspect, viz., whether 11 months depreciation or 12 months depreciation should be allowed or not because of the fact that the employee was in occupation for one month, was not the aspect of the appeal before the Appellate Assistant Commissioner. Therefore, according to the Tribunal, the Commissioner had properly exercised his jurisdiction, i.e., the Commissioner had jurisdiction to go into this aspect.

(vi) The Honble High Court, in the facts and circumstances of the case, held at pp 840 and 841 as under :

"Upon this the three questions as mentioned here before have been referred to this court. The first question is directed to the aspect whether after the appellate order was passed by the Appellate Assistant Commissioner or an appeal had been preferred, the Commissioner had jurisdiction in the facts and circumstances of this case under section 263 of the Act. Now, it is well settled that before an appeal was before the Appellate Assistant Commissioner certain orders are appealable. It is also well settled that in an appeal preferred before the Appellate Assistant Commissioner the sole assessment is open for review by the Appellate Assistant Commissioner. He is both the appellate as well as the adjudicating authority. But his jurisdiction is limited to the appeal preferred before him. There were certain orders which are not appealable for the Appellate Assistant Commissioner but certain types of allegations can be taken up in an appeal by separate appeals. Apart from those two cases if an assessment is the subject-matter of appeal then any ground which was held in favour of the assessee can also be held against him though the appeal was preferred by the assessee. This jurisdiction of the Appellate Assistant Commissioner is indisputable. In this case the question is whether the quantum of allowance or disallowance or depreciation was the subject-matter of appeal or not. It is true that whether depreciation should be calculated on the basis of 12 months or it should be calculated on the basis of 11 months was not a specific aspect which was agitated before the Appellate Assistant Commissioner nor did he give any direction on this aspect of the matter but he had this aspect kept open for adjudication by him even though not taken by the assessee. Then, on that, he could have allowed 5 per cent or 2.5 per cent depreciation and should have directed the Income Tax Officer to compute the same on such basis as he considered fit and proper, namely, 11 months or 12 months on the view that the employee of the assessee was on leave for one month and as such could not be said to be entitled to this accommodation. If that is the position, then, in our opinion, once the appeal has been preferred before the Appellate Assistant Commissioner on any aspect of the quantum of depreciation, the Commissioner cannot assume jurisdiction, otherwise an anomalous position would arise. The Income Tax Officer has been directed by the Appellate Assistant Commissioner to fix depreciation at a certain percentage, indicated by the Appellate Assistant Commissioner, without any further direction that it should be confined to 11 months or 12 months. But, now, if further consideration is superimposed by the Commissioner by rectification made by the Income Tax Officer as a result of the order passed by the Commissioner under section 263 then that would be in conflict with the direction given by the Appellate Assistant Commissioner in his appellate order. Therefore, where an appeal is preferred and the subject-matter of appeal, particularly raised, is the subject-matter before the Appellate Assistant Commissioner, then that order, in our opinion, cannot be the subject-matter of an order of revision by the Commissioner. This principle, however, comes where the appeal does not lie from the order of the Income Tax Officer and before the Appellate Assistant Commissioner where different kinds of appeal are provided for in the scheme of the Income Tax Act. This principle was enumerated by the Supreme Court in the case of CIT v. Amrit Lal Bhogi Lal & Co. (1958) 34 ITR 130 (SC). This was also reiterated in the decision in the case of Jeevan Lal (1929) Ltd. v. Addl. CIT (1977) 108 ITR 407 (Cal) and the decision in the case of Premchand Sitanath Roy v. Addl. CIT (1977) 109 ITR 751 (Cal). The Allahabad High Court reiterated the same principle in the case of J.K. Synthetics Ltd. v. Addl. CIT (1976) 105 ITR 345 (ALL). Therefore, it appears to us that as the quantum of depreciation was the subject-matter of appeal and the Commissioner had no jurisdiction, in the facts and circumstances of this case, to issue the notice under section 263 and to pass any order on this aspect of the matter. Question No. 1, therefore, in our opinion, must be answered in the negative and in favour of the assessee."

26.2. Remex Construction/Remex Electricals v. ITO (supra) 26.2. Remex Construction/Remex Electricals v. ITO (supra)

(i) The fact of the case were that the petitioner was a registered firm carrying on business of construction of factory sheds in the name of M/s Remex Constructions and of Electrical installations in the name of M/s Remex Electricals. The petitioner firm was assessed for the purpose of income-tax filed returns for the assessment years 1972-73, 1973-74 and 1974-75 along with copies of the profit & loss accounts and balance sheets. The 1st Income Tax Officer (respondent No. 1 herein), on perusal of the returns and while passing the assessment orders, took the view that the petitioner did not maintain a day-to-day Stock Book in respect of materials consumed in both the business and that in the absence of the same, it was not possible to verify the book results and that it was necessary to ascertain the book results on the basis of estimates. The gross profit shown by the petitioner in respect of construction business was 13.77 per cent, 14.63 per cent and 16.35 per cent for the three years, respectively, while the Income Tax Officer estimated it at the flat rate of 17.5 per cent for all the years. The gross profits shown by the petitioner in respect of electrical business was 11.64 per cent, 11.82 per cent and 22.87 per cent, respectively, for the relevant assessment years and that was estimated by the Income Tax Officer at 12.5 per cent for the first two assessment years, while retaining the gross profit shown by the petitioner for the last assessment year.

(ii) The petitioner carried three appeals against the orders of assessment passed in respect of the three assessment years before the Appellate Assistant Commissioner of Income Tax. The Appellate Assistant Commissioner by order dated 10-2-1977, deleted the addition of Rs. 8,486 and Rs. 16,558 for the assessment year 1972-73 in respect of electrical and construction business. For the assessment year 1973-74, relief of Rs. 9,463 in respect of electrical business and Rs. 56,323 in respect of construction business was granted. For the assessment year 1974-75 relief of Rs. 6,000 for electrical business and of Rs. 14,450 for construction business was granted.

(iii) Thereupon, the Commissioner, by exercising his powers under section 263 set aside all the assessment orders with the observation that payments to M/s Architect Combined and P.L. Company being for the purpose of supervision work relating to trading account could not have been debited to the profit & loss account. He, therefore, directed the Income Tax Officer to pass fresh assessment orders.

(iv) The assessees appeal before the Tribunal was dismissed on the ground that the appeals were barred by time and assessee has not filed any application for condonation.

(v) On petition under Article 226 of the Constitution of India made before the Honble High Court of Bombay-in all the six appeals, the Honble High Court, on the facts and circumstances of the case, held at pp 21 and 22, as under :

"A plain reading of section 263(1) of the Act, establishes that the Commissioner could exercise revisional power only in cases where any order passed by the Income Tax Officer is found to be erroneous and prejudicial to the interests of the revenue. Shri Pandit is right in his submission that the order of the Income Tax Officer in respect of the three assessment years was carried in appeal before the Appellate Assistant Commissioner and the appellate authority granted relief to the petitioner by modifying the orders passed by the Income Tax Officer. Shri Pandit did not dispute that revisional powers could be exercised by the Commissioner cases where the order of an Income Tax Officer is not carried in appeal or where the appeal is restricted only to a part of the order. The order of the Income Tax Officer would merge in the appellate order provided the entire order of the Income Tax Officer is challenged and considered by the appellate authority and if any part of the order of the Income Tax Officer is not challenged, then that part of the order is open for revision by the Commissioner. Shri Jetly, learned counsel appearing on behalf of the department, submitted that the Commissioner exercised the power to ascertain whether the expenses claimed by the petitioner are of trading nature and that was not an aspect which was considered by the Appellate Assistant Commissioner. The submission is not correct. The order under section 263 of the Act clearly sets out that the point for consideration was that the payments made to Kampani and M/s Architect Combine were expenses of trading nature and, therefore, deemed to have been covered by the estimate of gross profits. The petitioner had filed the appeals before the Appellate Assistant Commissioner because of the decision of the Income Tax Officer that the gross profits disclosed by the assessee could not be accepted in the absence of day-to-day Stock Book, and, therefore, gross profit has to be ascertained by estimate. It is, therefore, obvious that on this aspect of the matter, the Commissioner should not have exercised revisional powers."

26.3. CIT v. Goodricke Group Ltd. (supra).

(i) Shortly stated, the facts are that the Commissioner exercised his jurisdiction under section 263 of the Income Tax Act, 1961, in respect of the assessment year 1977-78 as, according to him, the order passed by the Income Tax Officer was erroneous, inasmuch as, the Income Tax Officer came to the conclusion that only 7/12th of the head office expenses should be taken into account for disallowing the expenses as provided under section 44C. He also observed that the Income Tax Officer, erred in calculating the correct amount of disallowance. According to the Commissioner the order of the Income Tax Officer was erroneous and prejudicial to the interest of the revenue. He initiated proceedings under section 263. The assessee protested against the proceedings initiated by the Commissioner. Amongst other things a point was raised that the Commissioner (Appeals) heard the appeal filed by the assessee which was disposed of and, therefore, the Commissioner cannot exercise his jurisdiction under section 263 in respect of the order of the Income Tax Officer which was the subject-matter of appeal before the Commissioner (Appeals).

(ii) The Commissioner in his order under section 263 noted that the Commissioner (Appeals) upheld the order of the Income Tax Officer. The point regarding the applicability of section 44C was the only point agitated by the assessee in the aforesaid appeal. The point whether the head office expenses for the entire year had been taken into account was not agitated by the assessee. Accordingly, he was of the view that the contention of the assessee that action under section 263 was bad cannot be upheld. The Commissioner further noted that as the Income Tax Officer erred in applying a pro rata basis for head office expenses and as there were mistakes in the computation, the Commissioner set aside the assessment order and directed the Income Tax Officer to redo the assessment after hearing the assessee.

On appeal, the learned High Court, at para 628, held as under :

(iii)

"From the narration of facts it would appear that the question regarding the application of 44C was directly in issue before the Income Tax Officer. The matter also went to the Commissioner (Appeals). Thereafter it was taken up before the Tribunal. The Tribunal directed the Commissioner (Appeals) to reconsider the matter on the basis of the directions given in the Appellate order of the Tribunal. In such a case, it cannot be said that the issue was not considered by the Income Tax Officer, This is a case where the order of the Income Tax Officer merged with that of the Commissioner (Appeals) as appeal was preferred and decided on the identical issue."

26.4. Hill Properties Ltd., v. Asstt. CIT. (before the ITAT B Bench, for assessment years 1985-86, 1986-87 and 1987-88, dated 23-11-1993).

(i) The facts of the case were that the annual letting value of certain properties owned by the assessee was determined by the assessing officer on the basis of their municipal valuation.

The property in question was a group of large number of flats all of which stand in the name of the various shareholders of the assessee-company.

While the annual letting value of the property on the basis of its municipal valuation was determined by the assessing officer at Rs. 3,57,257 for all the 3 years, the assessee received from its members the following amounts as their contribution :

1985-86 9,70,642 1986-87 7,96,023 1987-88 3,85,573 The learned Commissioner on scrutiny of records took the view that the assessments in question were erroneous and prejudicial to the interest of the revenue.

(ii) In response to section 263 notice the assessee raised several objections before the Commissioner. Inter alia, they are that the assessment had already merged with orders passed by the learned Commissioner (Appeals); that the assessment orders were not prejudicial to the interest of the revenue and that the amount received by the assessee from its shareholders did not partake the character of rent as it was only a reimbursement of expenses made by them to the assessee-company and finally that in law it were the shareholders occupying the flats who were real owners thereof and as such there was no question of the liability of the payment of any income from house property by the assessee-company.

(iii) The learned Commissioner disagreed with the assessee on all counts. To be stated succinctly, despite the first appeals, in the view of the Commissioner, the issues before him were different than the subject-matter of the appeals before the Commissioner (Appeals).

(iv) On the aforesaid facts, the Honble Bench, after giving the details regarding the dates of various orders and considering the provisions of section 23 of the Act, held as under :

"As per the learned Commissioner the issue in the appeals before the learned Commissioner (Appeals) related to the deduction of municipal and various other taxes while, the issue before him was the adoption of annual value. And as such the assessments survived qua the 263 action to be decided on merits. As against this the learned counsel for the assessee submitted that the issue before the learned Commissioner (Appeals) and the Commissioner (Admn.) was the same inasmuch as the assessee was forced to file appeals against the assessment orders as the assessing officer although took the annual letting value on the basis of municipal valuation, he did not allow municipal taxes to be deducted therefor. Similarly, in the submission of the counsel the Commissioner was also considering the fixation of the annual letting value in which he disagreed with the assessing officer.

8. It was urged on behalf of the assessee that the deduction of the taxes levied by any local authorities was an integral part and parcel of the exercise of the determination of the annual letting value and it was this aspect of the matter that the assessee had challenged before the Commissioner (Appeals) assailing the refusal of the deduction of the taxes from the municipal valuation. The same issue, namely, the correct determination of the annual value, it was submitted, was the subject-matter of 263 proceedings by the Commissioner and that being so, it cannot be said that there were two different aspects before the two authorities. In support of this contention reliance has been placed by the assessees counsel on two decisions.

We are therefore, of the considered opinion that insofar as the deduction of municipal taxes is concerned, it is not one of the deductions provided for by the Act separately. In fact it is a part of the process of the determination of the annual value which aspect is dealt with by section 23 under the captain "annual value how determined.

10. If that be so, with the denial of the deduction of the municipal taxes to the assessee by the assessing officer the challenge made by them before the Commissioner (Appeals) could be only to the determination of annual value. Similarly, what was sought to be reopened by the Commissioner under section 263 concern/the determination of the annual value inasmuch as he wanted to take into consideration the compensation received by the assessee-company from its shareholders, which was in excess than the annual value determined by the assessing officer on the basis of municipal taxes. In deciding this aspect of the matter, we are unable to concern ourselves as to whether the procedure adopted by the assessing officer accorded with law or not. The scope for our consideration is rather limited, namely, as to whether the issue raised by the assessee in the three appeals before the Commissioner (Appeals) and the one stated to be opened by the Administrative Commr. on the scrutiny of the assessment records were similar or dissimilar. Surely at both the ends the subject-matter was the correct determination of the annual value of the property in question.

11. Once this appeal was examined by the Commissioner (Appeals) the assessment order rendered by the assessing officer ceased to exist and got merged in the appellate order which cannot be subjected to any revisional jurisdiction, In saying so get support from various authorities, to mention the one on which reliance has been placed by the assessee that is the Remex Constructions case referred to supra.

12. (In this para the Honble Tribunal has discussed the decision in the case of Indian Oil Ltd.-reproduction not necessary)

13. Applying the aforesaid law, the contrary of which has not been brought to our notice at all, the issue before the Commissioner (Appeals) broadly speaking was only the determination of the annual value of the property inasmuch as despite the claim of the assessee, the assessing officer did not allow the municipal taxes to the assessee. The Commissioner tried to invoke jurisdiction under section 263 saying that the annual letting value should not be determined on the basis of the municipal valuation but be based on the receipt by the assessee from its various shareholders, who were holding different flats in the property. As to whether clause (a) or clause (b) of sub-section (1) of section 23 was applicable is not the precise question. The controversy raked up by the assessee before the Commissioner (Appeals) was the correct determination of annual value alone which alone was intended to be upset by the Commissioner under section 263. The one aspect of the matter namely, as to whether the annual value should be guided by the municipal valuation or by the particular receipt of the assessee which incidentally has seen a step fall and stood during the assessment year 1987-88 only nearly as high as the annual value determined on municipal valuation, the two figures respectively being Rs. 3,85,573, Rs. 3,27,257 could have no bearing or relevance for arriving at as to what was the subject-matter of the appeals before the Commissioner. Our categorical answer is that the scope and the amplitude of both the proceedings were only the correct determination of annual value of the property.

14. That being so all the three assessment orders stood merged in the orders rendered by the learned Commissioner (Appeals) in the first appeal on 17-12-1988, and 26-7-1989, making the assessments non-existent and becoming a part of the appellate order rendered by the Commissioner (Appeals), thereby leaving nothing to be revised under section 263.

The assesses have to succeed on this count alone. Ordered accordingly,"

26.5. M/s Seamans Ltd. Formerly Seamens India Ltd. v. Deputy CIT. The Tribunal, Bombay Bench A-For the assessment year 1987-88, dated 21-6-1999 :

(i) The facts of this case were that the assessing officer, while computing the deduction admissible under section 80HHC of the Act, did not include the amount of sales-tax and excise-duty-amounting to Rs. 15,82,21,950 in the total turnover meant for the purpose of computation of deduction under section 80HHC. The assessing officer had also excluded from the total turnover so taken an amount of Rs. 22,66,000 being the value of goods purchased by the assessee from a place outside India and exported directly from that place to some other place outside India.

(ii) On appeal by the assessee, the Commissioner (Appeals), as per his order dated 30-11-1999, allowed the assessees claim relating to the consideration of the export amounting to Rs. 22,66,000 as part of export turnover as envisaged in section 80HHC.

(iii) After the order of the Commissioner (Appeals) dated 30-11-1990, the Commissioner, as per his order dated 26-3-1992, revised the assessment order and directed the assessing officer to recompute the deduction allowable under section 80HHC after including the amounts of sales-tax and excise duty collected amounting to Rs. 15,82,21,950 in the total turnover because, according to the Commissioner, the failure on the part of the assessing officer to include this amount in the total turnover had resulted, while calculating the export provided in terms of section 80HHC, in an order which was erroneous insofar as prejudicial to the interest of the revenue.

(iv) Before the Tribunal, the assessees stand was that the deduction under section 80HHC had been the subject-matter of appeal before the Commissioner (Appeals), the assessment order cannot be revised by the Commissioner from including the amount of sales-tax in the gross turnover in exercise of powers under section 263 because of the application of doctrine of merger and for this purpose had relied on the decisions in the case of Oil India Ltd. and Remex Construction (supra). The revenues stand, however, was that what is not considered by the assessing officer cannot be considered by the Commissioner (Appeals) and as the question whether the sales-tax and excise duty should be included in the total turnover for working out the export profit in terms of section 80HHC(3) had not been considered by the assessing officer which could not be the subject-matter of appeal before the Commissioner (Appeals) and, as such, the Commissioner had rightly assumed the jurisdiction to revise the assessment order on that point. In support of this, the revenue had placed reliance on seven decisions listed in para 4 of the Tribunals order.

(v) The Tribunal, after considering the rival submissions and distinguishing the decision relied on by the learned Departmental Representative as listed in para 4 of the order, negatived the revenues stand and upheld the contention of the assessee after following the decisions (supra) held in para 6 of its order as under :

"6 Having regard to the rival submissions we are of the view that the assessee deserves to succeed. Firstly, the deduction under section 80HHC was the subject-matter of appeal before the Commissioner (Appeals), as is evident from the relevant portions of his order, which we extracted hereinbefore. The subject-matter of the appeal before him is the deduction under section 80HHC and not any other element which goes into the computation of the deduction under section 80HHC like export turnover or total turnover. We find that the decision of the Honble Calcutta High Court in the case of Oil India Ltd., cited supra, clearly covers this issue and it is in favour of the assessee."

The headnote of this decision reads as follows :

"Where an appeal is preferred before the Appellate Assistant Commissioner and a subject is particularly raised, the Commissioner cannot revise such an order taking into account an aspect not dealt with by the Appellate Assistant Commissioner.

Where the appeal before the Appellate Assistant Commissioner related to the rate of depreciation of a building to be taken into account for purposes of disallowance under section 40(a)(v) and the question whether depreciation should be calculated on the basis of user of the building for 12 months or of 11 months was not a specific aspect which was agitated before the Appellate Assistant Commissioner nor was it one on which he gave any direction :

Held, that as the quantum of depreciation was the subject-matter of appeal, the Commissioner had no jurisdiction under section 263 to revise the order with reference to this aspect."

We find that the decision of the jurisdictional High Court in the case of Remex Constructions relied upon by the learned counsel, cited supra, is also in favour of the assessee. In this case, the assessing officer estimated the gross profit and it was the subject-matter of appeal before the Commissioner (Appeals). Accordingly, it was held that the Commissioner did not have jurisdiction to revise the assessment under section 263 on the ground that certain expenses were disallowable. In the light of these two decisions and also the decisions of the Tribunal cited by the learned counsel for the assessee, which we have referred to hereinbefore, we have to hold that the assessment order had merged with the order of the Commissioner (Appeals) on the question of the deduction under section 80HHC and accordingly, the Commissioner did not have jurisdiction to the assessment order under the provisions of section 263 as admittedly, it is only the assessment order and not the appellate order which could be revised under section 263."

27. After giving our thoughtful consideration to the rival submissions, facts and circumstances of the case and the ratio of the decisions (supra), we are of the opinion that so far as the doctrine of merger, even after the amendment of the provisions of section 263 is concerned, once any of the aspects of an issue is the subject-matter of appeal before the Commissioner (Appeals), then; it is the issue as a whole which is said to be the subject-matter of appeal and not only the aspect alone. Coming to the assessees case before us, the issue before the assessing officer was the allowability of the liability on account of interest payable on the deposits under the two schemes discussed hereinbefore and the allowability issue had more than one aspect such as :

(i) liability on account of interest payable could be allowed only if the deposits were found or considered to be as of capital nature and genuine because if the deposits were not found to be of capital nature, i.e., were found or considered as of revenue nature, then there was no question of allowance of deduction on this account. Similarly, if any of the deposits was found to be ungenuine in terms of provisions of section 68, then there was no question of allowance of liability on account of interest on such deposits.

(ii) The liability on account of interest payable could be allowed on accrual basis only if it was found that the liability to pay interest had accrued or had materialised or was ascertained one and for that purpose the terms and conditions of the schemes, i.e., assessees obligation under the scheme, and the system of accounting followed by the assessee were to be investigated.

(iii) It was also necessary to verify the quantum of deposit which, inter alia, included verification of lapsed or unclaimed matured account.

28. While considering an issue which is comprised of various aspects, the assessing officer is supposed to consider the issue from all angles, i.e., to consider all the aspects and if the issue relates to allowability of a deduction, then the assessing officer is supposed to have considered the allowability from all angles/aspects involved for allowability of the deduction under that issue. If the officer allows the whole of the claim or disallows the claim as a whole or any part by considering one or more or all aspects involved in that issue, it cannot be said that assessing officer had not considered the issue or has considered only a few aspects. That being the case, if such an action of the assessing officer is brought before Commissioner (Appeals) by way of appeal-even with respect to those very few aspects which have been considered by the assessing officer, it cannot be said that the subject-matter of appeal were only those issues. On the contrary, it is the issue as a whole which will be said to be the subject-matter of appeal and consequently by virtue of application of the doctrine of merger, the order of the assessing officer with respect to that issue as a whole win be said to have merged with the order of the Commissioner (Appeals). This is the ratio of decisions. discussed supra.

29. So far as, the assessees case is concerned, as we have already said that the issue before the assessing officer was the allowability of assessees claim of deduction on account of liability for interest payable on deposits under the two schemes, the facts that assessing officer had dealt only with one or few aspects of the issue and the fact that those aspects were only in appeal before the Commissioner (Appeals) will not be hindrance for the applicability of doctrine of merger because in view of the ratio of various decisions supra it is the issue as a whole which has to be said to be subject-matter of appeal before the Commissioner (Appeals) and not the aspects alone.

30. In view of above discussions, we are of the opinion that so far as the assessees claim of deduction of liability on account of interest payable on deposits under the two schemes was concerned, it was, as a whole-including all aspects, such as accrual of the liability, quantum of claim, etc., subject-matter of appeal before the Commissioner (Appeals) and since the Commissioner (Appeals) also has dealt with those aspects, the assessment order, so far as this issue is concerned, had merged in the order of the Commissioner (Appeals) passed on 1-1-1999. That being the position, the Commissioner, Kanpur, on 22-2-1999, had no jurisdiction to revise the impugned assessment order by exercising the powers available under the provisions of section 263 of the Act and consequently, the order under 263 of the Act passed on 22-3-1999, was bad in law and void ab initio for want of lawful jurisdiction.

31. The other issue, such as the issue relating to ascertainability of the liability only if individual accounts of the depositors were credited or the liability was contingent one, we are of the opinion that these issues stand covered by our decision against the other issue supra and consequently, no separate comments are required.

32. In the result, the Commissioners order under section 263, passed on 22-3-1999, revising the assessment order for assessment year 1994-95, on the point/issue of allowability of liabilities on account of interest payable on deposits under the aforesaid two schemes is declared bad in law and void ab initio and consequently, quashed and set aside. The assessees appeal is allowed.