The Judgment of the Court was delivered by

Dipak Kumar Sen, J.:— General Beopar Co. (P.) Ltd., the assessee, is a private limited company. Some time in 1968, M/s. Dabri Investment Private Ltd., another private limited company, was amalgamated with the assessee whereupon all assets and liabilities of the latter devolved on the assessee. M/s. Dabri Investment Pvt. Ltd. had prior to its amalgamation taken on lease a property which had been let out under a sublease. Subsequent to the amalgamation, the rent from the sub-lease of the said property came to be assessed in the hands of the assessee.

2. The assessee was assessed to income-tax in the assessment year 1973-74, the accounting year ending on June 30, 1972. In the said year, the total income of the assessee was assessed at Rs. 1,84,399 of which Rs. 50,083 was found to have arisen from the business of the assessee. The rent from the sub-lease of the said property which was accruing in the hands of the assessee was calculated at Rs. 94,808 and income from dividend was calculated to be Rs. 34,508 aggregating to Rs. 1,34,316. Business losses suffered by the assessee in the earlier assessment years 1969-70 and 1970-71 were carried forward to the said assessment year for set off against the total income of the assessee, in the year involved, and the taxable income after such set off was computed as nil. The assessee preferred an appeal against this assessment before the Appellate Assistant Commissioner, It was contended that the Income-tax Officer had disallowed deduction under section 80M of the Income-tax Act, 1961, in respect of the dividend earned by the assessee. The Appellate Assistant Commissioner accepted the contention of the assessee and by his order dated May 26, 1975, directed the Income-tax Officer to allow deduction under section 80M as claimed. It was also pointed out to the Appellate Assistant Commissioner that in computing the income arising from dividend and house rent, the Income-tax Officer had made a typographical mistake and had arrived at a total of Rs. 1,34,316 whereas the correct figure would be Rs. 1,29,316. The Appellate Assistant Commissioner further directed the Income-tax Officer to rectify this typographical mistake in the assessment and give relief to the assessee accordingly.

3. Thereafter, the Income-tax Officer issued a notice to the assessee on September 3, 1975, stating that there had been a mistake in setting off the carried forward business losses against the assessee's income under the head “Other sources” and that it was proposed to set off the carried forward business losses only against the income arising from the business of the assessee.

4. The assessee in the proceedings before the Income-tax Officer appeared and contended that apart from the admitted business income of the assessee, the rent earned by the assessee under the sub-lease should also have been assessed under the head “Business” as such income arose out of the business activities of the assessee and the carried forward business losses should also be set off against the said income. The Income-tax Officer accepted the contentions of the assessee and held that only the income by way of dividend should not be considered to be the assessee's business income and set off the carried forward businsss loss against the business income of the assessee as also the rent realised from the sub-lease. The assessment was corrected accordingly by the order of the Income-tax Officer dated October 1, 1975.

5. Subsequently, by a notice issued under section 148 of the Income-tax Act, 1961, dated November 11, 1976, the assessment for the said assessment year 1973-74 was sought to be reopened.

6. During the pendency of the said proceedings, the Commissioner of Income-tax issued a notice dated December 13, 1976, under section 263 of the Income-tax Act, 1961, stating, inter alia, that the original order of assessment dated February 13, 1975, and the subsequent order passed under section 154 of the Income-tax Act, 1961, dated October 1, 1975, appeared to be erroneous and prejudicial to the interests of the Revenue inasmuch as business losses of earlier years had been set off against income from other sources in the said assessments. The assessee was asked to appear in the proceedings and show cause why an order under section 263 of the Act should not be passed revising the assessment.

7. In response to the said notice, the assessee made two representations in writing to the Commissioner, respectively, dated December 15, 1976, and January 18, 1977. The assessee contended that inasmuch as the assessment in question had been reopened under a notice issued under section 148 of the Act dated November 11, 1976, pursuant whereto the assessee had filed a fresh return of income, there was no order of assessment which could be modified under section 263 of the Act. The assessee contended further that one of the objects for which the assessee had been constituted was to purchase or take on lease land, buildings and other immovable properties and the same were amongst the business activities to be carried on by the assessee.

8. It was contended that the rent received from the sub-lease was in fact profit earned in the business activities of the assessee even if the same was assesed under the head “Other sources” The assessee contended further that similar contentions had been accepted in the assessment of the assessee in an earlier assessment year 1969-70 where expenditure incurred by the assessee in purchasing and selling lands and buildings were allowed as revenue expenditure.

9. The assessee also appeared before the Commissioner and reiterated the submissions.

10. The Commissioner came to the conclusion that there was no finding that the sub-lease of the said property by the assessee constituted a business. He also found that the Income-tax Officer had made no efforts to ascertain the relevant facts in coming to the conclusion that the income arising from such sub-lease was business income. It was also net ascertained whether the previous owner of the sub-lease, namely, M/s. Dabri Investment (P.) Ltd., was also carrying on business in sub-leasing the said property. The Commissioner held that there was no material for the Income-tax Officer to hold that the brought forward losses should be set off against the income arising from the sub-lease and as such the assessment was prejudicial-to the interests of the Revenue. The Commissioner held further that the Income-tax Officer could not rectify the order of assessment on this point inasmuch as further facts had to be found and questions of law had to be gone into. The Commissioner set aside both the original order of assessment dated February 13, 1975, as also the order dated October 1, 1975, passed under section 154 of the Act and directed the Income-tax Officer to enquire into the relevant facts and come to a finding whether the activity of the assessee in sub-letting the said property constituted a business activity and thereafter decide whether the brought forward losses could be set off against such income.

11. Being aggrieved, the assessee preferred an appeal against the order of the Commissioner to the Income-tax Appellate Tribunal. It was contended before the Tribunal on behalf of the assessee that during the pendency of the reassessment proceedings under section 148 of the Act, the Commissioner had no jurisdiction to revise the assessment under section 263. The Tribunal found that the subject-matter of the revision by the Commissioner and the subject-matter of the reassessment were not shown to be the same. It was farther contended on behalf of the assessee that the notice under section 263 of the Act issued to the assessee did not contain the grounds on which the Commissioner finally set aside the orders of assessment and so the assessee had no opportunity to deal with the said grounds. The Tribunal rejected this contention of the assessee also and found that the basis for the proposed revision was sufficiently set out in the said notice and that the final order was passed under section 263 on the same basis. The Tribunal held that it was proper that the Commissioner instead of making enquiries himself in the matter had directed the Income-tax Officer to decide the matter afresh.

12. It was also contended before the Tribunal on behalf of the assessee that as at the date of the order of the Commissioner passed under section 263 of the Income-tax Act, 1961, viz., January 25, 1977, the assessment order of the Income-tax Officer had merged in the order of the Appellate Assistant Commissioner, the only effective order which was in force at the relevant time and the Commissioner had no jurisdiction under section 263 to revise the order of the Appellate Assistant Commissioner and, therefore, the order of the Commissioner passed under section 263 was void and without jurisdiction.

13. It was contended on behalf of the Revenue before the Tribunal that the order of the Income-tax Officer had merged in the order of the Appellate Assistant Commissioner only to the extent of the subject-matter of the appeal. The matter relating to the set off of the business losses of the earlier years against the different items of income of the assessee was neither raised by the assessee in the appeal nor considered by the Appellate’ Assistant Commissioner. On this aspect of the matter, it could not be said that the order of the Income-tax Officer had merged with the order of the Appellate Assistant Commissioner.

14. On the decisions cited in the appeal, the Tribunal found that there was divergence of opinion amongst the High Courts on the point. The Tribunal followed the decision of the Supreme Court in the case of Commissioner Of Income Tax, Bombay v. Amritlal Bhogilal & Co., [1958] 34 ITR 130, the decision of the Gujarat High Court in Karsandas Bhagwandas Patel v. G.V Shah, ITO, [1975] 98 ITR 255, as also the decision of the Madhya Pradesh High Court in Central Indian Insurance Co. Ltd. v. ITO, [1963] 47 ITR 895, and held that merely becase an appeal was filed before the Appellate Assistant Commissioner, it could not be held that a question which was neither raised by the assessee in the appeal nor adjudicated upon by the appellate authority was the subject-matter of the appeal. In the instant case, on the question of set off of the carried forward business losses of earlier years against the different items of income of the assessee, no appeal had been preferred by the assessee nor had the same been considered by the Appellate Assistant Commissioner. Therefore, there could not be any merger of the order of assessment in the order of the Appellate Assistant Commissioner on this question. The Tribunal held that the Commissioner retained his jurisdiction to exercise his powers of revision under section 263 of the Act in respect of the decisions of the Income-tax Officer on the question of set off of carried forward business loss. The contention of the assessee was rejected and the appeal was dismissed.

15. On an application of the assessee under section 256(1) of the Income-tax Act, 1961, the Tribunal referred the following question, stated to be a question of law arising out of its order, for the opinion of this court:

“Whether, on the facts and in the circumstances of the case, the order of the Commissioner under section 263 of the Income-tax Act, 1961, is valid in law?

16. At the hearing, learned advocate for the assessee contended that by reason of the appeal preferred from the original order of assessment and by reason of the order passed by the Appellate Assistant Commissioner in the said appeal, there had been a total merger of the order of the Income-tax Officer with the order of the Appellate Assistant Commissioner and as such the Commissioner had no jurisdiction to revise the order of assessment.

17. Learned advocate submitted further that, in any event, the assessment having been reopened under sections 147 and 148 of the Income-tax Act, 1961, the entire matter was at large, there was no effective order of assessment and the Commissioner had no jurisdiction to revise the assessment orders.

18. Learned advocate also contended, though somewhat faintly, that in the impugned order of the Commissioner passed under section 263 of the Act, there was no definite finding that the order was prejudicial to the interests of the Revenue.

19. In support of his contentions, learned advocate for the assessee cited the following decisions:

(a) CIT v. Tejaji Farasram Kharawala, [1953] 23 ITR 412 (Bom). This decision of a Division Bench of the Bombay High Court was cited for the following observations in the judgment of Chagla C.J (at pages 419 and 420):

“… once an appeal is preferred by the assessee it is open to the Commissioner to raise before the Appellate Assistant Commissioner any matter dealing with the assessment of the assessee. It is not as if the power of the Appellate Assistant Commissioner is confined to only those questions which have been raised by the assessee. Once this is conceded, it is difficult to understand why the Commissioner would not be precluded from making an order under section 33B once an order has been passed by the Appellate Assistant Commissioner even though the Appellate Assistant Commissioner did not deal with the matter with which the Commissioner has dealt. The principle underlying section 33B is that it is only the order of the Income-tax Officer that can be revised by the Commissioner. Once the assessment is confirmed by the Appellate Assistant Commissioner or any order with regard to the assessment has been made by the Appellate Assistant Commissioner, that becomes a final order of assessment, and the only right that the Department has is the right to appeal to the Appellate Tribunal. The right of the Commissioner continues so long as the order of the Income-tax Officer is not merged in the order of the Appellate Assistant Commissioner, but once the order is merged, the Commissioner cannot deal with the assessment of the assessee at all. On appeal, the power to deal with the assessment is given to the Appellate Assistant Commissioner, and further the power is given to the Appellate Tribunal in appeal from the order of the Appellate Assistant Commissioner. The Commissioner completely goes out of the picture once the Appellate Assistant Commissioner has passed an order in appeal from the decision of the Income-tax Officer.”

(b) CIT v. Amritlal Bhogilal and Co., [1958] 34 ITR 130 (SC). This decision of the Supreme Court was cited for the following observation (at page 136):

“There can be no doubt that, if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority modifies or reverses the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced. In law, the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmance of the decision of the Tribunal by the appellate authority, the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement.”

In the facts before the Supreme Court, the Income-tax Officer while making the assessment orders had also granted to the assessee, a firm, a renewal of its registration, under the Indian Income-tax Act, 1922. Appeals were preferred from the assessment orders and pending the appeal, the Commissioner of Income-tax, exercising his revisional powers under section 33B of the Act of 1922, cancelled the registration of the firm and directed the Income-tax Officer to make a fresh assessment of the assessee as an unregistered firm. It was held by the Supreme Court that no appeal lay from an order granting registration to a firm and such orders were outside the jurisdiction of the Appellate Assistant Commissioner. It was held further that when an appeal from an order of assessment was decided by the Appellate Assistant Commissioner, what merged in the appellate order was the order of assessment under appeal and not the order of registration which could not have been the subject-matter of the appeal.

(c) Gopal Chandra Sen v. ITO, [1963] 50 ITR 87 (Cal). In this case, a learned judge of this court, following the decision of the Supreme Court in Amritlal Bhogilal and Co., [1958] 34 ITR 130, held that where an appeal had been preferred from an order of assessment passed by the Income-tax Officer, and thereafter, the Appellate Assistant Commissioner passed an order in appeal, the assessment order merged in the appellate order and the assessment order could not, therefore, be challenged in proceedings under article 226 of the Constitution.

(d) J.K Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344 (All). In this case, the Division Bench of the Allahabad High Court, following the decision of the Supreme Court in Amritlal Bhogilal and Co., [1958] 34 ITR 130, held that where an appeal was provided against an order passed by the Tribunal, the decision of the appellate authority would be an operative decision in law which would be effective and enforceable even if the appellate decision merely affirmed the decision of the Tribunal. In such a case, the order of the Tribunal merged in the appellate order. It was held further that under section 251 of the Income-tax Act, 1961, when an assessment was the subject-matter of an appeal before the Appellate Assistant Commissioner, the appellate authority could look into and adjudicate upon findings recorded by the Income-tax Officer not only against the assessee which might expressly be the subject-matter of the appeal but also those which might have gone in favour of the assessee and had not been challenged by the Revenue. In that view, the entire assessment order would merge in the appellate order irrespective of the points urged by the parties or decided by the appellate authority. After such a merger, the Commissioner would no longer have the jurisdiction under section 263 of the Act-of 1961 to revise the order of assessment.

(e) Jeewanlal (1929) Ltd. v. Addl. CIT, [1977] 108 ITR 407. In this case, a learned judge of this court followed the decision of the Bombay High Court in Tejaji Farasram Kharawala, [1953] 23 ITR 412 and held that the Commissioner of Income-tax had no power to revise any order of the Appellate Assistant Commissioner. It was further held that if an order of the Income-tax Officer was the subject-matter of an appeal before the Appellate Assistant Commissioner and an order was passed by the latter, the subsequent order would be the only effective order and the original order would have merged in the subsequent order.

(f) Premchand Sitanath Roy v. Addl. CIT, [1977] 109 ITR 751 (Cal). In this case, it was held by a learned judge of this court that the application of the doctrine of merger would depend on the nature of the appellate or revisional order in each case and the scope of the statutory provision conferring the appellate or revisional jurisdiction. In a case where interest had been charged under section 139(8) of the Income-tax Act, 1961, no appeal could have been preferred before the Appellate Assistant Commissioner against charging of such interest. Therefore, the question whether the interest which could be charged had beeen properly waived or not was not and could not have been the subject-matter of an appeal before the Appellate Assistant Commissioner and there could be no question of merger of the order of the Income-tax Officer with the order of the Appellate Assistant Commissioner on this aspect of the matter. Therefore, the Commissioner retained his jurisdiction in such a case even where the Appellate Assistant Commissioner had passed an order in appeal in respect of other appealable issues.

(g) Singho Mica Mining Co. Ltd. v. CIT, [1978] 111 ITR 231 (Cal). In this case, it was held by a Division Bench of this court to which I was a party that where there was an appeal from an order of assessment and the question of levy of interest could not have been the subject-matter of the appeal, the order appealed from could not be held to have merged with the order passed in the appeal on the question of levy of interest. Even after the order was passed in appeal, the Commissioner would be competent to revise the assessment on the question of interest.

(h) CIT v. Mandsaur Electric Supply Co. Ltd., [1983] 140 ITR 677 (MP). In this case, a Full Bench of the Madhya Pradesh High Court, following the decision of the Supreme Court in Amritlal Bhogilal & Co. 's case, [1958] 34 ITR 130, held that when an order of assessment was the subject-matter of an appeal preferred by the assessee before the Appellate Assistant Commissioner, the Commissioner had no jurisdiction to set aside such an order of assessment under section 263 of the Income-tax Act, 1961.

(i) Commissioner Of Income-Tax v. Hindustan Aeronautics Ltd.*, [1986] 157 ITR 315 (Kar) [FB]. In this case, a Full Bench of the Karnataka High Court held that in an appeal, the Appellate Assistant Commissioner could look into and adjudicate upon the findings recorded by the Income-tax Officer not only against the assessee which may be expressly the subject-matter of the appeal but also upon matters which had not been considered and determined by the Income-tax Officer in the course of assessment. The entire subject-matter of assessment would be within the jurisdiction of the Appellate Assistant Commissioner. The same view was expressed by a Division Bench of the Karnataka High Court in Addl. CIT v. Vijayalaxmi Lorry Service, [1986] 157 ITR 327.

20. On the question of the effect of initiation of reassessment proceedings on the original assessment, learned advocate for the assessee cited the following decisions:

(a) V. Jaganmohan Rao v. CIT & EPT, [1970] 75 ITR 373 (SC). This decision of the Supreme Court was cited for the following observations (at page 380):

“…once proceedings under section 34 are taken to be validly initiated with regard to two-thirds share of the income, the jurisdiction of the Income-tax Officer cannot be confined only to that portion of the income. Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment, he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22, the previous underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b), the Income-tax Officer has not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year.”

(b) Sun Engineering Works (P.) Ltd. v. CIT, [1978] 111 ITR 166 (Cal). In this case, a Division Bench of this court, to which I was a party, following the decision of the Supreme Court in V. Jaganmohan Rao's case, [1970] 75 ITR 373, held that on reopening of an assessment, the previous underassessment stood set aside and the whole assessment proceedings started afresh and in the reassessment, the question of loss suffered could not be left undetermined and had to be recomputed even if only to determine to what extent income had escaped taxation.

(c) CIT v. Assam Oil Co. Ltd., [1982] 133 ITR 204 (Cal). In this case, another Division Bench of this court, followed the decision of the Supreme Court in V. Jaganmohan Rao's case, [1970] 75 ITR 373, and also the earlier decisions of this court and held that in view of the scheme of the Income-tax Act, once a reopening was made, the entire assessment stood set aside and the income which had escaped assessment had to be examined and if the assessee was entitled to any deduction which was not granted in the original asseesment, it should be so granted.

(d) CIT v. Standard Motor Products of India Ltd., [1983] 142 ITR 877 (Mad). In this case, a Division Bench of the Madras High Court, followed the decision of the Supreme Court in V. faganmohan Rao's case, [1970] 75 ITR 373, and considering a number of decisions of other High Courts held and observed that the effect of reopening of the assessment would be that the original assessment would stand automatically set aside and the Income-tax Officer would be entitled to start assessment proceedings afresh.

(e) Saran Engineering Co. Ltd. v. Commissioner Of Income-Tax, Kanpur., [1983] 143 ITR 765 (AH). In this case, a Division Bench of the Allahabad High Court, following the Supreme Court in V. Jaganmohan Rao's case, [1970] 75 ITR 373, observed that once reassessment proceedings were started, the earlier order of assessment ceased to exist and the Income-tax Officer started the assessment proceedings afresh.

(f) CIT v. Rangnalh Bangur, [1984] 149 ITR 487 (Raj). In this case, a Division Bench of the Rajasthan High Court following the Supreme Court in V. Jaganmohan Rao's case, [1970] 75 ITR 373 and other decisions referred to earlier held and observed that by virtue of reassessment proceedings, the entire proceedings of assessment held previously were set at large and stood reopened. The earlier order of assessment was set aside or wiped out and substituted by the order passed on reassessment.

21. Learned advocate for the assessee also cited a decision of this court in Jeewanlal (1929) Ltd. 's case, [1977] 108 ITR 407, for the proposition that when an assessment order was rectified by the Income-tax Officer under section 154 of the Income-tax Act, 1961, the order which remained in existence was the order as rectified.

22. Learned advocate for the Revenue contended, on the other hand, that in the instant case, the order which had been revised by the Commissioner was the order which had been rectified by the Income-tax Officer under section 154 of the Act on October 1, 1975. The assessee had not preferred any appeal against the said order and, therefore, the said order dated October 1, 1975, was the effective order passed by the Income-tax Officer and the Commissioner had ample power to revise such order.

23. Learned advocate further contended that the appeal of the assessee against the original order of assessment was confined to the assessee's claim under section SOM’ of the Income-tax Act, 1961. There was no appeal of the assessee and there could not have been one on the question of set off of the carried forward business loss. The Appellate Assistant Commissioner had no occasion to deal with the said question. Therefore, there was no question of merger of the original order of assessment with the appellate order so far as the setoff of carried forward business loss was concerned and the Commissioner was not precluded from exercising revisional jurisdiction under section 263 of the Act.

24. In support of his defence, learned advocate for the Revenue cited the following decisions:

(a) CIT v. Amritlal Bhogilal & Co., [1958] 34 ITR 130 (SC).

This decision has been considered earlier.

(b) Central Indian Insurance Co. Ltd. v. ITO, [1963] 47 ITR 895 (MP). In this case, the Division Bench of the Madhya Pradesh High Court held that where there was an appeal to the Tribunal and it was not the subject-matter of the appeal whether the loss in the earlier years should be allowed to be carried forward and set off against the income of the assessment year in question, the Appellate Assistant Commissioner would retain his jurisdiction to rectify his decision on the point as the same had not been considered or adjudicated upon by the Tribunal. It was held that adjudication by the Tribunal could not be implied and there could not be merger of the order of the Appellate Assistant Commissioner with the order of the Tribunal passed in the appeal on this aspect.

(c) Karsandas Bhagwandas Patel v. G.V Shah, ITO, [1975] 98 ITR 255 (Guj). In this case, the Division Bench of the Gujarat High Court held that order of assessment made by the Income-tax Officer would merge with the order of the Appellate Assistant Commissioner only in respect of the items considered and decided by the Appellate Assistant Commissioner in the appeal before him. That part of the order of assessment which related to other items not being the subject-matter of appeal would be left untouched and would not merge in the appellate order. Even after an appeal from an order of assessment was decided by the Appellate Assistant Commissioner, a mistake in the assessment not being the subject-matter of review in appeal and left undecided-could be rectified by the Income-tax Officer under section 35 of the Indian Income-tax Act, 1922.

(d) Commissioner Of Income Tax, M.P-Ii, Bhopal v. R.R Banwarilal, [1983] 140 ITR 3 (MP) [FB], In this case, a Full Bench of the Madhya Pradesh High Court followed the decision of the Gujarat High Court in Karsandas Bhagwandas Patel's case [1975] 98 ITR 255 and held that the doctrine of merger properly applicable to income-tax proceedings would be to the extent of the scope and subject-matter of the appeal and the decision of the appellate authority. Where an appeal from an assessment was on limited items and the remaining items were not agitated in the appeal, the order of assessment could merge with the order passed in appeal only to the extent it was considered and decided by the appellate authority. The matters which were not covered by the appellate order were left untouched and to that extent the original assessment survived permitting exercise of revisional jurisdiction by the Commissioner under section 263 of the Income-tax Act, 1961.

(e) Sharda Trading Company v. Commissioner Of Income-Tax., [1984] 149 ITR 19 (Delhi). In this case, a Division Bench of the Delhi High Court held that the mere issue of a notice of reassessment by the Income-tax Officer under sections 147 and 148 of the Income-tax Act, 1961, did not have the effect of cancelling or rendering non est the earlier order of assessment. Pending the notice and so long as an order of reassessment had not been made, the Commissioner had jurisdiction under section 263 of the Act to revise the earlier order of assessment, cancel it and direct the Income-tax Officer to make a fresh assessment in accordance with law. Once the Commissioner revised the order of assessment, the reassessment proceedings initiated by the Income-tax Officer would come to an end.

It was, however, held that if an order of reassessment was passed before the Commissioner passed any order in revision, then on reassessment, the entire original assessment would stand set aside and ceased to exist and, therefore, the original order which the Commissioner intended to revise would become non est.

(f) Orient Trading Company v. CIT, [1985] 152 ITR 26 (Guj). In’ this case, a Division Bench of the Gujarat High Court, partly following the decision of the Delhi High Court in Sharda Trading Co., [1984] 149 ITR 19, held that under section 147 of the Income-tax Act, 1961, the Income-tax Officer derived the power only to assess or reassess an income chargeable to tax which has escaped assessment. The proceedings under the said section did not empower the Income-tax Officer to reopen the entire assessment already made. It was held further that the notice under section 148 was deemed to be a notice under section 139(2) only for the limited purpose of taking the aid of the relevant provisions of the Act for making an assessment.

25. It was held further that an assessment made under section 143 did not depend upon the proceedings under section 147. An original assessment under section 143 would stand on its own and, even if proceedings under section 147 were validly initiated, the original assessment would not get obliterated or wiped off. An order under section 143 of the Act and a reassessment order under section 147 were distinct and independent and have been so treated in the provisions relating to appeals from-such orders. It was held that mere initiation of proceedings under sections 147 and 148 would not take away the jurisdiction of the Commissioner to revise the assessment order.

26. On consideration of the facts on record, the respective submissions of the parties and the decisions cited, it appears to us that in the instant case, the Commissioner of Income-tax has sought to revise not only the subsequent order of the Income-tax Officer passed under section 154 of the Income-tax Act, 1961, dated October 1, 1975, but also the original assessment order dated February 13, 1975. The original assessment order was taken on appeal before the Appellate Assistant Commissioner though the question involved in the revision by the Commissioner was not agitated in the appeal.

27. It is also on record that the Commissioner has exercised his revisional powers under section 263 at a stage when reassessment proceedings were pending. As a result of the order of the Commissioner, the contemplated reassessment proceedings obviously cannot be proceeded with and must be held to have come to an end.

28. This court, following the decision of the Supreme Court in Amritlal Bhogilal & Co., [1958] 34 ITR 130, had taken a consistent view that when an order of assessment was appealed against and an order was passed by the appellate authority, there was merger of the assessment order with the appellate order in all respects, including matters which were merely affirmed by the appellate authority. The law is also settled that in an appeal preferred from an order of assessment, the entire assessment is at large before the Appellate Assistant Commissioner who has jurisdiction and power also to go into the questions which are not the subject-matter of appeal. The exceptions which have been considered by this court are cases where the question involved cannot be the subject-matter of appeal before the appellate authority.

29. From the facts in the instant case, the question of setting off of carried forward business losses of earlier years was considered in the assessment and, therefore, was a matter which was within the purview of the, appellate authority when an appeal was preferred from the assessment order. To that extent, it appears on the view which has been taken and followed by this court that there has been merger in the instant case of the order of assessment with the order of the Appellate Assistant Commissioner. That being so, the Commissioner could have no further jurisdiction to revise the assessment under section 263.

30. We also note that the Commissioner sought to exercise his power of revision in the instant case at a point of time when the order of assessment was being sought to be reassessed. A notice under section 147 of the Income-tax Act, 1961, had been issued to the assessee. As a result of the order of the Commissioner as noted earlier, the contemplated reassessment proceedings have come to an end.

31. In view of the observations of the Supreme Court on the effect of initiation of reassessment proceedings, we are unable to agree with the view taken by the Delhi and Gujarat High Courts that during the pendency of reassessment proceedings, it would be open to the Commissioner to exercise his revisional jurisdiction. We do not know on what grounds the assessment was sought to be reopened in the instant case, but there may be cases where, by the exercise of his revisional jurisdiction by the Commissioner under section 263 of the Act, only a part of the assessment order may be modified or revised without setting aside the entire assessment order but the same may also have the effect of nullifying the pending reassessment proceedings which might have been initiated on entirely different grounds. It remained open to the Commissioner to revise the order passed in reassessment but by revising the order of assessment itself, the proceeding for reassessment may be made abortive.

32. Keeping the object of the proceedings of reassessment in view and the implications thereof, we prefer to take the view that once proceedings of reassessment are initiated, the original order of assessment loses its finality and at this stage it is no longer open for revision by the Commissioner. For the above reasons, we answer the questions referred in the negative and in favour of the assessee.

33. There will be no order as to costs.

Monjula Bose, J.:— I agree.