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Commissioner Of Income-Tax v. Maqbool Alam And Company
Structured Summary of the Court Opinion (A.K. Ganguly, J.)
Factual and Procedural Background
The Revenue referred two questions to this Court concerning the exercise of revisional jurisdiction under section 263 of the Income-tax Act, 1961. The facts as set out in the opinion are:
- For assessment year 1977-78, an assessee-firm was assessed by Sri N.K. Shukla, Income-tax Officer, Ward-B, Muzaffarpur. The firm appealed to the Commissioner of Income-tax (Appeals) raising several points including disallowances relating to packing charges, payments to Jai Chandars, transport charges, depreciation for personal use of a car, and deduction under section 35B (export market development expenses).
- The Commissioner of Income-tax (Appeals) did not decide the section 35B claim on the merits; rather, because the assessing officer's order was silent on that specific claim, the Commissioner of Income-tax (Appeals) remanded that point to the file of the Income-tax Officer for de novo re-examination and directed that the appellant be given an opportunity of being heard.
- Subsequently, a different Income-tax Officer — Sri R.O.P. Sinha, Ward-A, Muzaffarpur — passed a fresh assessment order allowing deduction under section 35B to the extent of Rs. 1,06,914.
- The Commissioner of Income-tax (in exercise of revision under section 263) set aside that fresh order of assessment. The order of the Commissioner is not on the record in the opinion, but the assessee appealed against it to the Income-tax Appellate Tribunal (ITAT).
- The Tribunal held that the order of the Income-tax Officer had merged into the order of the Commissioner of Income-tax (Appeals) and therefore the Commissioner had no jurisdiction to pass orders under section 263 in respect of that assessment order.
- The Revenue challenged that position and referred the two specific questions for the Court's adjudication.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the order passed by the Income-tax Officer merged into the order passed by the Commissioner of Income-tax (Appeals)?
- Whether, on the facts and in the circumstances of the case, the Tribunal was justified in its finding that the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, was without jurisdiction?
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. R.S. Banwarilal, [1983] 140 ITR 3 (Full Bench, Madhya Pradesh) | Establishes that the principle of merger in income-tax matters applies only where a decision reached by an inferior authority has been considered and either reversed, modified or confirmed by the appellate authority. If the appellate authority did not consider and decide the point, the inferior authority's order remains untouched and revisional powers (under what the opinion refers to as section 33B in the cited decision) can be exercised. | The Court relied on this Full Bench decision to support the proposition that when the Commissioner of Income-tax (Appeals) remands an issue for de novo consideration (i.e., does not decide it), a subsequent assessing officer's fresh order does not merge with the appellate order, and the Commissioner may exercise revisional jurisdiction under section 263. |
| J.K. Synthetics Ltd. v. Addl. CIT, [1976] 105 ITR 344 (Allahabad High Court) | An earlier decision applying merger principles differently (as referenced in the opinion). | The Court expressly regarded the J.K. Synthetics decision as wrongly decided and contrary to the Supreme Court authority in CIT v. Amritlal Bhogilal and Co.; the Full Bench in R.S. Banwarilal had also negatived the Allahabad High Court's view. |
| CIT v. Amritlal Bhogilal and Co., [1958] 34 ITR 130 (Supreme Court) | A Supreme Court authority relied upon to support the view that merger should be understood by reference to whether the appellate authority actually considered and decided the point. | The Court cited this Supreme Court decision as authority inconsistent with the J.K. Synthetics decision and supportive of the principle applied in R.S. Banwarilal that non-decision by an appellate authority leaves the assessing officer's order open to revision. |
Court's Reasoning and Analysis
The Court's reasoning proceeds in a sequence tied closely to the facts set out in the record and to statutory and precedential material:
- The Tribunal's conclusion that the assessing officer's order had merged into the order of the Commissioner of Income-tax (Appeals) was incorrect because the appellate authority (the Commissioner of Income-tax (Appeals)) did not decide the substantive question concerning section 35B — instead he remanded the issue for de novo consideration by the assessing officer and directed that the assessee be heard afresh.
- Because the Commissioner of Income-tax (Appeals) did not either affirm, modify or reverse a prior decision on that point, there was no appellate decision which could give rise to merger. The later order by a different Income-tax Officer (Sri R.O.P. Sinha) was therefore a fresh order.
- A fresh assessing officer's order that decides a matter remitted for de novo consideration does not merge with the remanding appellate order; consequently the Commissioner (revisional authority) retains jurisdiction under section 263 to examine and, if necessary, set aside that fresh order.
- The Court noted that Explanation (c) to sub-section (1) of section 263 (added by the Finance Act, 1989) further clarifies and makes retrospective the position by expressly extending the Commissioner's powers to matters not considered and decided in an appeal. The Court observed the amendment is retrospective and covers appeals filed on or before or after June 1, 1988.
- The Court relied on the Full Bench decision in R.S. Banwarilal (1983) which, after reviewing relevant authorities including Supreme Court decisions, had articulated that the merger principle only applies when the appellate authority has actually considered and decided the point; it does not apply where the appellate authority did not decide the point. The opinion treats that Full Bench decision as correctly stating the law and as controlling the present question.
- The Court rejected the contrary holding in J.K. Synthetics (Allahabad High Court) as wrongly decided and contrary to the Supreme Court's decision in CIT v. Amritlal Bhogilal and Co.
- Applying these principles to the facts, the Court concluded that because the Commissioner of Income-tax (Appeals) remanded rather than decided the section 35B issue, a subsequent fresh decision by another Income-tax Officer did not merge with the appellate order and remained amenable to revision under section 263.
Holding and Implications
Holding: Both referred questions were answered in the negative and in favour of the Revenue. The Tribunal was wrong to hold that the assessing officer's order merged into the remanding order of the Commissioner of Income-tax (Appeals), and the Commissioner had jurisdiction under section 263 to revise the fresh assessing officer's order.
Direct consequences recorded in the opinion:
- Parties were directed to bear their own costs.
- The Court ordered that a copy of the judgment under seal and signature of the Registrar be sent to the Income-tax Appellate Tribunal, Patna Bench, Patna.
Implications beyond the parties: The opinion leans on and affirms the principle in the Full Bench decision of R.S. Banwarilal concerning the limited application of the merger doctrine, and it expressly rejects the contrary view in J.K. Synthetics. The opinion does not purport to create a new precedent beyond applying established authority and the statutory explanation to the present facts.
End of summary.
A.K Ganguly, J.:— At the instance of the Revenue, two questions have been referred to this court for their adjudication. Those questions are set out below:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the order passed by the Income-tax Officer merged into the order passed by the Commissioner of Income-tax (Appeals)?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in its finding that the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, was without jurisdiction?”
2. Against an order of assessment passed by Sri N.K Shukla, Income-tax Officer Ward-B, Muzaffarpur, in respect of the assessee-firm for the assessment year 1977-78, the firm preferred an appeal before the Commissioner of Income-tax (Appeals). In the said appeal various points were taken, namely, disallowance of Rs. 1,000 out of packing charges, disallowance of Rs. 2,143 being the amount paid to Jai Chandars, disallowance of Rs. 1,000 on account of transport charges and disallowance of depreciation to the tune of one-third of the claim for personal use of the car by the partners and also disallowance of deduction under section 35B of the Income-tax Act, 1961 (hereinafter referred to as the “said Act”). On the question of disallowance of deduction under section 35B of the said Act, the Commissioner of Income-tax (Appeals) came to the finding that since the order of the Income-tax Officer on the subject is silent, the matter was remanded to the file of the Income-tax Officer by the Commissioner of Income-tax (Appeals) for re-examination of the claim and for scrutinising the details of export markets development expenses. The following observations have been made in the order of the Commissioner of Income-tax (Appeals):
“However, since the order of the Income-tax Officer on the subject is silent although the appellant made a claim before him, I feel that the matter should be set aside and restored to the file of the Income-tax Officer for re-examination of the claim and for scrutinising the details of export markets development expenses. Accordingly, I set aside this point to him for passing order de novo in the light of my above-mentioned observation and after giving the appellant an opportunity of being heard.”
3. Thereafter, another Income-tax Officer, Sri R.O.P Sinha, Ward-A, Muzaffarpur, passed a fresh order allowing deduction under section 35B of the said Act to the extent of Rs. 1,06,914. The Commissioner of Income-tax in exercise of his power of revision under section 263 of the said Act, set aside the said order of assessment. That order of the Commissioner is, however, not on record. Admittedly, the assessee filed an appeal before the Appellate Tribunal against the said order of the Commissioner and the Tribunal held that the order of the Income-tax Officer merged with the order of the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax had no jurisdiction to pass orders under section 263 of the said Act in respect of the assessment order.
4. This court finds that the Tribunal is obviously wrong. The Commissioner of Income-tax (Appeals) did not decide the controversy itself but sent it on remand to the Income-tax Officer for a de novo hearing and passing of a fresh order. Then a different Income-tax Officer passed a fresh order. Therefore, exercise of revisional jurisdiction by the Commissioner against that fresh order under section 263 of the said Act is certainly not beyond the jurisdiction of the Commissioner of Income-tax.
5. Apart from that, this court finds that to section 263 of the Act Explanation (c) has been added in order to put the matter beyond controversy. Explanation (c) which has been added in sub-section (i) of section 263 of the said Act is in the following terms;
“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 June 1, 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.”
6. It is obviously true that such Explanation has been added by the amendment made by the Finance Act, 1989, but the amendment is retrospective in nature as is clear from the reading of the said Explanation. It also includes an appeal filed on or before or after June 1, 1988, as is clear from the aforesaid Explanation.
7. Even Without the aforesaid amendment the law on this point has correctly been laid down in the Full Bench decision of the Madhya Pradesh High Court in the case of CIT v. R.S Banwarilal, [1983] 140 ITR 3. Speaking for the Full Bench, J.S Verma J. (as his Lordship then was), discussing various decisions on this question, has held that the principle of merger does undoubtedly apply to income-tax cases, but the same will apply Only where a decision reached by an inferior authority has been reversed, modified or even confirmed by the appellate authority. But the said principle will not apply where a decision of an inferior authority does not come in for consideration by the appellate authority and there is no decision of the appellate authority either by way of affirmance or by way of reversal or modification on the point decided by the inferior authority. It has been further elucidated by saying that the real test is whether any such point was actually considered and decided by the authority and not that the same could have been agitated before the authority and decided by him. It has been said that when there is no decision by the appellate authority, the order of the Income-tax Officer remains untouched and it is open to the Commissioner, in exercise of power under section 33B, to revise it. (See the observation at page 13 in R.S Banwarilal's case, [1983] 140 ITR 3 (MP)). The said Full Bench decision in R.S Banwarilal's case, [1983] 140 ITR 3 (MP) is based on various decisions of the Supreme Court and an elaborate consideration of all the relevant cases on this point. The said decision also expressly negatives the judgment of the Allahabad High Court in the case of J.K Synthetics Ltd. v. Addl. CIT, [1976] 105 ITR 344. This court is also of the view that the decision of the Allahabad High Court in J.K Synthetics case, [1976] 105 ITR 344 has been wrongly decided and is contrary to the decision of the Supreme Court in CIT v. Amritlal Bhogilal and Co., [1958] 34 ITR 130.
8. In this case, as pointed out before, the Commissioner of Income-tax (Appeals) has not decided the question whether the assessee is entitled to the deduction under section 35B of the said Act, but remanded the said question before the Income-tax Officer for a decision. Therefore, the decision on the said question by another Income-tax Officer is a fresh decision and the same cannot be said to have merged with the order of the Commissioner of Income-tax (Appeals). Against such fresh decision of the Income-tax Officer, the Commissioner can exercise its jurisdiction under section 263 of the said Act for the purpose of revising the order.
9. Therefore, for the reasons stated above, both the questions are answered in the negative and in favour of the Revenue. Parties to bear their own costs. Let a copy of this judgment under the seal of the court and under the signature of the Registrar be sent to the Income-tax Appellate Tribunal, Patna Bench, Patna.
N. Pandey, J.:— I agree.
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