(a) Income-tax---

----Reference---Revision--Appeal---Merger of order of Assessing Officer in appellate order---No attempt by Revenue to show that entire order of A.O. had not merged in appellate order---Tribunal finding that there had been a total merger and setting aside order of revision---No question of law arose-- Indian Income Tax Act, 1961, Ss.256 & 263.

Under section 256(2) of the Income Tax Act, 1961, the High Court, if not satisfied with the correctness of the decision of the Tribunal, could give a direction to the Tribunal for stating the case and referring the questions of law for the opinion of the High Court. At this stage it is not open to the applicant to raise fresh grounds before the High Court.

Held, dismissing the application to direct reference, that no contention was raised by the Revenue before the Tribunal to the effect that the total order of the Assessing Authority did not fall for consideration before the Commissioner of Income-tax (Appeals). No attempt was made before the, Tribunal on behalf of the Revenue to point out such, of those specific aspects of the Assessing Authority's order, which had not been considered by the Commissioner of Income-tax. (Appeals) so as to justify the order of the Commissioner of Income-tax passed under section 263 of the Act. The Tribunal had categorically found that the entire order of the Assessing Authority had fallen for consideration before the Commissioner of Income-tax (Appeals) and, as such, the entire order of the Assessing Authority, dated September 19, 1989, had merged with the order of the Commissioner of Income-tax (Appeals), dated February 28, 1992. That being the finding of fact, the question whether the Tribunal was justified in setting aside the order of the Commissioner of Income-tax (Appeals) could not be referred.

CIT v. Shri Arbuda Mills Ltd. (1998) 231 ITR 50 (SC) ref.

(b) Income-tax---

----Reference---Application to direct reference---New ground cannot be raised at that stage ---Indian Income Tax Act, 1961, S.256.

J. V. Prasad for Petitioner.

K. K. Viswanathan for Respondent.

JUDGMENT

DR. MOTILAL B. NAIK, J.---This I.T.C. is filed under section 256(2) of the Income Tax Act, 1961, against the decision of the Income-tax Appellate Tribunal, Hyderabad "A" Bench, in R. A. No.526/Hyd. of 1996, dated March 26, 1997, ,by the Commissioner of Income-tax, Vijayawada, seeking a direction from this Court to the Income tax Appellate Tribunal (for short "the Tribunal") to state the case and refer the following questions of law formulated by it for the opinion of this Court viz:

"(1) Whether, on the facts and .in the circumstances of the case, the income-tax Appellate Tribunal is correct 'in law in cancelling the order passed under section 263 of the Income-tax Act on the ground that the order of the Assessing Officer merged in the order of the Commissioner of Income-tax (Appeals)?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in holding that the order of the Assessing Officer merged with the order of the Commissioner of Income-tax (Appeals) in toto when only certain points have been agitated before and decided upon by the Commissioner of Income-tax (Appeals)?

(3) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is not incorrect in law in holding that the order of the Assessing Officer merged in the order of the Commissioner of Income-tax (Appeals) in view of the provisions of clause (c) of the explanation to subsection (1) of section 263 while as per the said provisions, where any order referred to in subsection (1) and passed by the Assessing Officer had been the subject-matter of any appeal, the powers of the Commissioner under subsection (1) of section 263 shall extend and shall be deemed always to have extended to such matters as had not teen considered and decided in such appeal?"

The facts in brief are as under:

For the assessment year 1987-88, the assessee-firm carried on business in contracts for the construction of canals under the Telugu Ganga Project. The firm carried on transport contracts also. During the previous year relevant to the assessment year 1987-88, the assessee-firm received net bills of Rs.1,58,20,592. The assessee was also in receipt of Commission from sub-contract, lease income from lorry and hire charges from compressor. The assessee has filed a return for the assessment year 1987-88 declaring an income of Rs.3, 83, 040. The assessment was completed under section 143(3) of the Income Tax Act, 1961 (for short "the Act"), on a total income of Rs.16, 46, 990 after making certain additions by the assessing authority.

Aggrieved by the order of the assessment made by the assessing authority under section 143(3) of the Act, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) who partly allowed the appeal reducing the income of the assessee to Rs.4, 74, 483 from Rs.16, 46, 990. As against the order of the Commissioner of Income-tax (Appeals), the Revenue carried the matter before the Income-tax Appellate Tribunal, Hyderabad. However, the Tribunal dismissed the appeal filed by the Revenue while confirming the orders passed by the Commissioner of Income-tax (Appeals).

While the appeal was pending before the Tribunal, the Commissioner of Income-tax, Guntur, has initiated revision proceedings under section 263 of the Act on the ground that the Assessing Officer has failed to conduct proper enquiries and set aside the order of the Assessing Officer, dated September 19, 1989.

The assessee being aggrieved by the order of the Commissioner of Income-tax, Guntur, passed under section 263 of the Act, preferred an appeal before the Tribunal: The Tribunal allowed the assessee's appeal holding that the order of the Assessing Officer, dated September 19, 1989, has merged with the order, dated February 28, 1992, passed by the Commissioner of Income-tax (Appeals) and hence the assessment itself was not correct in the eye of law.

Aggrieved by the order of the Tribunal passed in I.T.A. No. 107/Hyd. of 1993, dated May 21, 1996, the Revenue filed R. A., No.526/Fyd' of 1996, before the Tribunal to state the case and refer the questions, of law formulated by it, as indicated above, for the opinion of this Court. However, the Tribunal by its order, dated March 26, .1997, rejected the said R.A., against which the present I.T.C. is filed.

Sri J. V. Prasad, learned standing counsel for the Revenue, contended that the Commissioner of Income-tax while exercising powers under section 2113 of tire Act is entitled to examine the order of the Sink authority if it is prejudicial to the interest of the Revenue even thou such order of the assessing authority was carried in appeal before the Commissioner of Income-tax (Appeals) and was decided by tire Commissioner of Income-tax (Appeals). Learned standing counsel further contended that such of the facts of the order of the assessing authority which have not fallen for consideration before the Commissioner of Income-tax (Appeals), are open to the Commissioner of Income-tax, for review under section 263 of the Act. It is in this background, learned standing counsel for the Revenue states that the view of the Tribunal in holding that the order passed by the assessing authority has merged with the order passed by the Commissioner of Income-tax (Appeals) in view of the provisions of clause (c) of the Explanation to subsection (1) of section 263 of the Act, is incorrect. Placing strong reliance on a decision of the Supreme Court in CIT v., Shri Arbuda Mills Ltd. (1998) 231 ITR 50, learned standing counsel for the Revenue submitted that the order passed by the assessing authority, dated September 19, 1989, has not merged in toto with the order passed by the Commissioner of Income-tax (Appeals), dated February 28, 1992, and the Commissioner of Income-tax under section 263 of the Act, is entitled to revise such facts of the order of the assessing authority which have not fallen for consideration before the Commissioner of Income-tax (Appeals).

On the contrary, Sri K. K. Viswanathan, learned counsel for the assessee, pleads that it was not the case of the Revenue before the Tribunal that the Commissioner of Income-tax (Appeals) had not examined various aspects of the order passed by the assessing authority. Counsel further stated that the order of the assessing authority, dated September 19, 1989, has totally merged with the order of the Commissioner of Income-tax (Appeals), dated February 28, 1992, and, as such, no facts in the order passed by the assessing authority were left open undecided by the Commissioner of Income-tax (Appeals) and, as such, the Commissioner of Income-tax cannot revise the order of the assessing authority under section 263 of the Act. Counsel further stated that the Revenue had made a solitary submission before the Tribunal that the order passed by the Commissioner of Income-tax (Appeals) was not made available to the Commissioner of Income-tax while passing. an order in exercise of his powers under section 263 of the Act. Counsel contended that it is not open for the Revenue to contend before this Court that certain facts of the order of the assessing authority which are left untouched by the Commissioner of Income-tax (Appeals) are available for the Commissioner of Income-tax to revise under section 263 of the Act, as this Court would be exercising a limited jurisdiction under section 256(2) of the Act and sought rejection of this ITC.

We have heard both learned counsel at length and we have given our anxious consideration to the submissions made before us. The decision in CIT v. Shri Arbuda Mills Ltd. (1998) 231 ITR 50 (SC) cited by the learned standing counsel for the Revenue, no doubt makes it clear that on certain facts which have not fallen for consideration before the Commissioner of Income-tax (Appeals) with regard to the order of the assessing authority, the Commissioner of Income-tax while exercising powers under section 263 of the Act, is entitled to revise the order of the assessing authority. But the moot question is whether the entire order of the assessing authority or only a part thereof has fallen for consideration before the Commissioner of Income -tax. (Appeals)?

On a perusal of the order passed by the Tribunal in I.T.A. No.107/Hyd. of 1993, dated May 21, 1996, what we have noticed is, surprisingly, there was no contention raised by the Revenue before the Tribunal to the effect that the total order of the Assessing Authority did not fall for consideration before the Commissioner of Income-tax (Appeals) and the untouched parts of the assessment order are still open to the Commis sioner of Income-tax to revise under section 263 of the Act. That apart, no attempt was made before the Tribunal on behalf of the Revenue to point out such of those specific aspects of the assessing authority's order which have been considered by the Commissioner of Income-tax (Appeals) so as to justi fy the order of the Commissioner of Income-tax passed under section 263 of the Act. Significantly, the said grounds are now sought to be raised before this Court in this ITC, which is filed under section 256(2) of the Act.

Under section 256(2) of the Income Tax Act, 1961, what is required to be seen by this Court is, if, the decision of the Tribunal is improper, then a direction could be issued to the Tribunal to state the case and refer the questions of law formulated in that regard for the opinion of this Court. In other words, the High Court, if not satisfied with the correctness of the decision of the Tribunal, could give a direction to the Tribunal for stating the case and referring the questions of law for the opinion of this Court.

In this case, the Tribunal, on a consideration of the submissions, has categorically found that the entire order of the assessing authority has fallen for consideration before the Commissioner of Income-tax (Appeals) and, as such, the entire order of the assessing authority, dated September 19, 1989, .has merged with the order of the Commissioner of Income-tax (Appeals), dated February 28, 1992. That being the finding of fact, we are of the view that no referable questions of law are available for the Revenue to seek opinion from this Court. As already discussed, the only ground urged before the Tribunal on behalf of the Revenue is that the order passed by the Commissioner of Income-tax (Appeals), dated February 28, 1992, was not made available before the Commissioner of Income-tax at the time of passing the revised order under section 263 of the Act on March 27, 1992. That being the factual position, it is not open to the Revenue to raise fresh grounds before this Court keeping in view the scope of the petition filed under section 256(2) of the Income-tax Act.

Having regard to the above discussion, we are inclined to hold that there are no merits in this ITC and the-same is accordingly rejected.

M.B.A./4142/FC Application rejected.