JUDGEMENT
T.V. Rajagopala Rao, Judicial Member -
(1.)THIS is an assessee's appeal against 263 Order passed by the Commissioner, AP I dt. 14-3-86. Two points are involved in this appeal. The first is about assumption of jurisdiction by the CIT(A) AP I. The contention of the assessee in this regard is that as against the order of the assessment dt. 23-8-83 passed under Sections 143, 144B, relating to asst. year 80-81, the assessee preferred an appeal before the learned CIT(A) Hyderabad who disposed of the appeal by his orders dt. 28-1-84. Both the department as well as the assessee were aggrieved by that order of the CIT(A) and both of them came up in second appeals before this Tribunal. The Tribunal disposed of both the above appeals by its orders dt. 21 -11 -84 and therefore the order of assessment got merged in the appellate orders of the CIT(A), as well as, the Tribunal, and therefore no order of the Income-tax Officer, as such, was presently existing which could be revised by the Commissioner under Section 263 of the Income-tax Act. The assessee relied upon the Allahabad High Court's decision in J.K. Synthetics Ltd. v. Addl. CIT [1976] 105ITR 344. The learned Commissioner negatived the objection raised for exercise of the jurisdiction vested in him under Section 263 by following the Supreme Court's decision in State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144 where the Hon'ble S.C. held as follows:-
But the doctrine of merger is not a doctrine or rigid and universal application and it cannot be said that wherever there are two orders, one by the inferior Tribunal and the other by a superior Tribunal, passed in appeal or revision, there is a fusion or merger of two orders irrespective of the subject matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction.
The learned CIT(A) also relied upon the Gujarat High Court's decision in Karsandas Bhagwandas Patel v. G.V. Shah, ITO [1975] 98 ITR 255. The Bombay High Court's decision in CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570 and the following Madhya Pradesh High Court decisions:-
1. Jaora Sugar Mills Ltd. v. Union of India [1982] 134 ITR 385.
(2.)Alok Paper Industries v. CIT [1983] 139 ITR 1064.
Cit v. R.S. Rawarilal 143 ITR 3 (FB) (sic) which followed the ratio of the Supreme Court case in Madurai Mills Co. Ltd.' s case (supra) and applied it to the facts of the case before him. The learned Cit held that inasmuch as the question of correctness of allowance of excise duty liability was neither raised before the appellate authorities nor considered by them, in view of the decisions referred to above, he held that he had necessary powers to pass orders under Section 263 on this question. He also held that by virtue of the amendment brought out in Section 263 by Taxation Laws (Amendment) Act, 1984, he had powers to revise the orders of the Income-tax Officer under Section 263 though the assessment was made under Section 143(3) read with Section 144B. He further held that within 2 years from the end of the financial year in which the order sought to be revised was passed, he can revise the assessment orders under Section 143(3) read with Section 144B. In this case, the assessment orders were dt. 23-8-83. Therefore he held that he had time to pass the revisionary orders on or before 31-3-86. He further held that the amendment brought in Section 263 by the Taxation Laws (Amendment) Act, 1984 came into effect from 1-10-84. The powers thereunder can be exercised in respect of orders passed by an I.T.O. under Section 143(3) read with Section 144B even though such assessment was made prior to 1-10-84 in view of the following Supreme Court case-- S.C. Prashar v. Vasantsen Dwarkadas [l963] 49 ITR 1. However, in this second appeal, the assessee sought to attack the jurisdiction of the Commissioner only on the ground that the asst. order was merged with the orders of the appellate authorities viz., Cit(A) as well as the Income-tax Appellate Tribunal.
2. We have heard both sides on this matter and we are of the opinion that the assessee has no case on this point and in our opinion, the learned Cit had full authority to exercise his powers under Section 263 of the Income-tax Act. Firstly, we hold that the learned Cit sought to revise the order of the Income-tax Officer dt. 23-8-83 allowing deduction of excise duty of Rs. 3,95,064 debited to the profit and loss account of the assessee-company. Out of the said amount allowed as a deduction, the learned Cit was of the opinion that the provision of Rs. 1,59,505 should not have been allowed as a deduction on the ground that there was no demand from the Excise authorities with regard to the said amount allowed as a provision. It is an admitted case, that no part of the deduction of excise duty of Rs. 3,95,064 formed the. subiect matter of appeal either before the Cit(A) or before the Income-tax Appellate Tribunal either at the instance of the assessee or at the instance of the department In those circumstances, we fully agree with the learned Cit when he followed the ratio of the Hon'ble Supreme Court in Madurai Mills Co. Ltd.'s case (supra) already quoted above. In an unreported decision of Andhra Pradesh High Court in Cit v. Vegi VeeriNaidu & Sons [Case Referred No. 2 of 1982] the same question was considered by the A.P. High Court and the A.P. High Court, following the Supreme Court's decision cited supra and the other decisions cited in the preceding paras held as follows:-
A question which has not been considered by the original authority and which did not form the subject matter of the appeal before the appellate authority can never be said to merge in the appellate order, though they may be a partial merger to the extent the question was considered by the Income-tax Officer, and decided by the Appellate Assistant Commissioner. In the facts before the A.P. High Court also, by the time the Cit sought to revise the orders of the Income-tax Officer on 14-2-77, the Income-tax Officer's assessment orders dt. 26-9-75 were merged in the orders of the A. A.C. dt. 9-8-76 and a same argument as advanced in this case viz., that the only effective order that existed was the order of the A.A.C. and as no order of the Income-tax Officer existed after 9-8-76, the date on which the A.A.C. disposed of the appeal, the Commissioner had no jurisdiction to revise the order of the Income-tax Officer under Section 263 of the Income-tax Act was raised. Rejecting this contention, the A.P. High Court held that firstly, the Income-tax Officer never addressed himself to the question whether the two firms were separate and distinct or whether they constitute one and the same firm. The Income-tax Officer made separate assessments on the two firms treating them as different firms. Aggrieved by the quantum the assessee preferred appeal to the A.A.C. under Section 246 of the Income-tax Act. Even in the appeal, the question whether the two firms are different and independent firms or whether they are one and the same did not-crop up nor was considered by the A.A.C. What was debated before the A.A.C. was only the computation of the income. Under these circumstances, the A.P. High Court was of the view that the order of the Income-tax Officer had not merged in the order of the A.A.C.
3. Applying the ratio of the AP. High Court which is binding against us and also applying the Supreme Court's dictum already cited above, we are of the view that the learned Cit has full powers of revision under Section 263 and there was no full merger of the ITO's order with that of the Income-tax Appellate Tribunal. Hence this ground should fail. The next ground is on merits and shortly stated, the assessee contends that this is not a proper case on the facts and circumstances where the Commissioner can exercise his jurisdiction under Section 263. The few facts necessary for disposal of this main issue are as follows:-
The assessee is a private limited company and it manufactures rota metres which is admittedly an excisable commodity, provided certain conditions are fulfilled. A total amount of Rs. 3,95,064 was debited to the profit and loss account of the assessee-company for assessment year 80-81 for which the previous year ended by 30-9-79. Out of the above total debit an amount of Rs. 1,59,505 was the provision made towards Central Excise duty based on 2 show-cause notices issued by the Central Excise authorities - dt. 7-9-79 and 10-8-80. Copy of the first show-cause notice was provided at pages 19 to 26 of the paper compilation filed before us. So also copy of the show-cause notice dt. 10-8-80 was provided at pages 27 & 28 of the paper compilation filed before us. As per the show-cause notice dt. 7-9-79 it was alleged by the department that there was a short payment of excise duty to an extent of Rs. 6,356-45 relating to the period from 18-6-77 to 31-3-78 and also a short payment of excise duty amounting to Rs. 1,49,912.51 for the period relating to 1-4-78 to 29-12-78. Therefore the total amount for which show-cause notice dt. 7-9-79 was given for Rs. 1,56,268.96. Under the show-cause notice dt. 10-8-80, it is the contention of the Excise department that the duty is leviable on the total value of clearance together with discounts which according to them is Rs. 54,96,965.73, on which a total duty of Rs. 5,24,981-30 was payable. Further, it was alleged in the show-cause notice that the assessee-company paid only Rs. 4,19,482.75 and there was a short levy of Rs. 1,05,414.23. Thus, the differential amount of duty even according to the Excise department was levied during the period from 30-12-78 to 18-5-80 and the difference represents the duty leviable on the sales effected to M/s. Blue Star Ltd., on the ground that the difference represents discounts allowed to M/s. Blue Star Ltd. It is explained to us that M/s. Blue Star Ltd., is the distributor for the assessee-company and one of the conditions for accepting distributorship was that M/s Blue Star Ltd. is entitled to 15 per cent commission on the sale price of the goods. It is also explained to us that the assessee had taken the licence (in form No. 4) to manufacture rota metres for home consumption i.e. within India, on 28-12-78. It is the contention of the assessee that the previous year relevant to assessment year 80-81 ended with 30-9-79 and as the show-cause notice dt. 7-9-79 was issued within the said assessment year, though it related to the period from 18-6-77 to 29-12-78 it is entitled to claim the deduction and it was rightly allowed by the I.T.O. With regard to the show-cause notice issued on 17-8-80, it is the contention of the assessee that though it falls outside the accounting year relevant for assessment year 80-81, as the relevant transactions took place in the accounting year, relevant for assessment year 80-81, the said amount was rightly allowed by the Income-tax Officer. We have already mentioned that in the notice dt. 17-8-80, it was stated clearly that the short levy pertained to the period from 30-12-78 to 18-5-80. As the period up to 30-9-79, which comprises of most of the above stated period fell within the assessment year 80-81, the assessee claimed the provision for excise duty and it was allowed rightly by the Income-tax Officer, contends the assessee. As regards the first show-cause notice dt. 7-9-79 the dispute relates only to difference in rates of duty. The assessee-company claimed that it is obliged to pay the duty at 2 per cent, whereas the department claimed it as 5 per cent. On the basis of the first show-cause notice dt. 7-9-79 an assessment order dt. 9-12-81 was passed by the Assistant Collector, Central Excise I Division, Hyderabad whereby he had determined that the assessee had to pay a further excise duty amounting to Rs. 2,50,030.34. The said order was confirmed by the Appellate Controller of Central Excise, Madras in Appeal No. 117/82(H) dt. 24-4-82. As against the said order W.P. 3757/82 was filed in the High Court of Andhra Pradesh. Copy of the judgment rendered in the W.P. was furnished at pages 21 to 28 of the 2nd paper book filed before us. By virtue of their judgment the AP High Court set aside the orders of the Asst. Collector and Appellate Collector and directed them to make a fresh assessment order, determining the excise duty payable after taking into account, the deductions that are permissible under the judgment of the Supreme Court in Union of India v Bombay Tyre International Ltd. 1983 E.L.T. 1896. One of the directions in the judgment delivered in the W.P. was that the assessing authority will give reasons for disallowing any one or more of the items of the deductions or claims made by the assessee. The further direction in the judgment of the W.P. was to determine the excisable value in the light of the above Supreme Court decision.
(3.)THE learned CIT stated in his impugned orders that these notices viz., dt. 7-9-79 and 17-8-80 merely proposed to levy excise duty pointing out the reasons for such proposal and calling upon the assessee to furnish his objections supported by evidence against the proposed levy. He found that after considering the objections as are likely to be raised by the assessee, an order would have to be passed by the concerned excise authorities. He also took note of the fact that the assessee did not prove for the amounts of excise duty shown as payable in the show-cause notices. As against Rs. 1,05,414 shown in the show-cause notices dt. 17-8-80 only Rs. 97,553.28 was provide. So also as against Rs. 1,56,268 mentioned in the show-cause notice dt. 7-9-79 only Rs. 61,951.97 was provided. THE two provisions made by the assessee thus aggregated to Rs. 1,59,505. THE learned Commissioner found that the conduct of the assessee reveals that the assessee did not consider the show-cause notices, as creating liability or else, the assessee-company should have provided for the entire amount indicated in the show-cause notices in the accounts of the relevant accounting periods. THE learned Commissioner held that most of the excise duty demand did not relate to the accounting period relevant to asst. year 79-80. THE show-cause notices by themselves do not create liability, for the excise duty, unless and until appropriate orders are passed by the concerned authorities. THE excise duty liability would be taken as relevant to that period in which relevant sales took place. THE assessee is not in a position to point out to what extent the liability shown in the show-cause notices actually related to the accounting period relevant to asst. year 80-81. He therefore held that Rs. 1,59,505 was not an ascertained liability for each asst. year under consideration. He therefore considered the ITO's order as erroneous and prejudicial to the interest of revenue.