COMMISSIONER OF INCOME TAX Vs. JODHPUR DIESELS

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Jaipur, has made the instant reference under Section 256(2) of the Income-tax Act, 1961, for the opinion of this court on the following question :

(2.) THE necessary facts are that the respondent-assessee is the sole distributor of MICO products for Jodhpur Division. THE Income-tax Officer, C-Ward, Jodhpur, made an ex parte assessment under Section 144 on March 27, 1985. It was reopened under Section 146 by order dated March 30, 1985. THE assessee filed the returns of income for the periods April 1, 1980, to December 10, 1980, and from December 11, 1980, to March 31, 1981. THE assessing authority by order dated March 27, 1985, computed the total income of the assessee. THE assessee preferred an appeal to the Commissioner of Income-tax (Appeals), which was decided by order dated August 8, 1985. THE Commissioner of Income-tax (Appeals) discussed the disallowance on seven different heads. Subsequent thereto, the Commissioner of Income-tax, Jodhpur, on scrutiny of the records found the order of the Income-tax Officer erroneous and prejudicial to the interests of the Revenue inasmuch as he has failed to add the bonus, incentive and interest to partners which is a disallowable amount, allowed depreciation on generator at 30 per cent. and further allowed Rs. 7,554 as incentive allowance to the firm, which did not fulfil the conditions laid down in Section 32A. Accordingly, a show cause notice was issued to the assessee. In response to the show cause notice, the assessee put in appearance and raised the objection, inter alia, on the ground that there has already been an order of the Commissioner of Income-tax (Appeals) against the assessment order in question having the effect of full merger of the order of the Income-tax Officer in the appellate order of the Commissioner of Income-tax (Appeals). Thus, it was contended that the Commissioner of Income-tax had no jurisdiction to revise the order of the Income-tax Officer. THE contention did not find favour with the Commissioner of Income-tax. He finally set aside the order of the Income-tax Officer with the direction that the Income-tax Officer should add the claim of the assessee regarding claim of bonus, incentive and interest to the partners and further he calculated the depreciation at 10 per cent. instead of 30 per cent on generator. THE assessee preferred an appeal before the Income-tax Appellate Tribunal. THE Tribunal was of the opinion that as there was divergence in judicial pronouncement by the different High Courts, a view favouring the assessee is required to be taken. Accordingly, the Tribunal cancelled the order of assessment made by the Income-tax Officer in pursuance of the order of the Commissioner of Income-tax by order dated November 4, 1988. However, the Tribunal on the application filed by the Revenue expressed that as there was no decision of the jurisdictional court, it was a fit case to make a reference for the opinion on the question formulated, which has been referred to above.

(3.) THUS, it is evident that the principle of merger applies to the income-tax cases where a decision reached by an inferior authority has been reversed, modified or confirmed by the appellate authority. But, the same principle will not be applied where a decision of an inferior authority does not come in for consideration of 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.