HIGH COURT OF DELHI Date from which limitation period provided u/s 154(7) of IT Act, 1961 is to be reckoned

Date from which limitation period provided u/s 154(7) of IT Act, 1961 is to be reckoned

Once an appeal against the order passed by an authority is preferred and is decided by the appellate authority, the order of the said authority merges into the order of the appellate authority; with this merger, order of the original authority ceases to exist and the order of the appellate authority prevails; the limitation for the purpose of section 154(7) is to be counted from the date of this order of CIT (A) and not the date of original order of assessment.



HIGH COURT OF DELHI

CIT

v.

Tony Electronics Ltd.

ITA No. 196 of 2009

October 9, 2009

RELEVANT EXTRACTS:

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13. We find substance in the submissions of learned counsel for the Revenue. In fact, answer to the issue at hand is provided by the judgment of the Supreme Court in Hind Wire Industries (supra). Dealing with the same provision, namely, sub-section (7) of Section 154 of the Act, the Court was of the view that the answer rested on the word Order used in the expression. “From the date of the order sought to be amended” occurring in sub-section (7) of Section 154 of the Act. The Court categorically opined that the word Order had not been qualified in any way and it does not necessarily mean the original order. It can be any order, including the amended or rectified order. The Court was further of the view that once a reassessment order or rectification order was passed giving effect to the order of the appellate forum, the original order ceases to operate. Following discussion on this aspect is relevant for our purpose :-

“A similar expression in rule 38 of the Mysore sales Tax Rules fell for consideration in International Cotton Corporation (P) Ltd. v. Commercial Tax Officer, (1975) 35 STC 1; (1975) 2 SCR 345. Dealing with the point raised, this court held as under : “The other attack that the rectification order is beyond the point of time provided in rule 38 of the Mysore Sales Tax Rules is also without substance. What was sought to be rectified was the assessment order rectified as a consequence of this court .s decision in Yaddalam .s case (1965) 16 STC 231. After such rectification the original assessment order was no longer in force and that was not the order sought to be rectified. It is admitted that all the rectification orders would be within time calculated from the original rectification order. Rule 38 itself speaks of „any order .and there is no doubt that the rectified order is also “any order .which can be rectified under rule 38.” This decision was endorsed in Deputy Commissioner of Commercial Taxes v. H.R. Sri Ramulu, (1977) 39 STC 177 when this court observed there as follows :

“The reason for that is that once an assessment is reopened, the initial order for assessment ceases to be operative. The effect of reopening the assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made on reassessment. The initial order for reassessment cannot be said to survive, even partially, although the justification for reassessment arises because of turnover escaping assessment in a limited field or only with respect to a part of the matter covered by the initial assessment order. The result of reopening the assessment is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping assessment. As it is, we find that in the present case, the assessment orders made under section 12A were comprehensive orders and were not confined merely to matters which had escaped assessment earlier. In the circumstances, the only orders which could be the subject matter of revision by the appellant were the orders made under section 12A of the Act and not the initial assessment orders.

(Emphasis supplied)”

14. What follows from the aforesaid is that after the rectification order, initial order of assessment ceases to operate. It is no more in existence and is substituted by the fresh assessment order passed. The Court, thus, categorically held that the word „any .in the expression “order sought to be amended ” would mean even the rectified order.

15. Legal position with which there cannot be any quarrel is that once an appeal against the order passed by an authority is preferred and is decided by the appellate authority, the order of the said authority merges into the order of the appellate authority. With this merger, order of the original authority ceases to exist and the order of the appellate authority prevails, in which the order of the original authority is merged. For all intent and purposes, it is the order of the appellate authority that would be seen. Doctrine of Merger has been explained by the courts in number of judgments. Our purpose will suffice by referring to one judgment where this doctrine is explained along with the rationale behind it. It is in the case of Gojer Bros. (Pvt.) Ltd. Vs. Shri Ratan Lal Singh (1974)2SCC453, which reads as under:



“11. The juristic justification of the doctrine of merger may be sought in the principle that there cannot be, at one and the same time, more than one operative order governing the same subject-matter. Therefore the judgment of an inferior court, if subjected to an examination by the superior court, ceases to have existence in the eye of law and is treated as being superseded by the judgment of the superior court. In other words, the judgment of the inferior court loses its identity by its merger with the judgment of the superior court.”

In another case of Commissioner of Income-tax Bombay v. Amritlal Bhogilal & Co. [1958] 34 ITR 130(SC), the position in regard to the doctrine of merger was stated thus by Gajendragadkar J. who spoke for the Court:

“16.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.”



16. Once we understand the Doctrine of Merger in its true sense, as explained above, and relying upon the interpretation given to the word „any .or „order . given to sub-section (7) of Section 154 of the Act by the Apex Court in Hind Ware Industries (supra), the inescapable conclusion would be that the original order of assessment had ceased to operate on the decision given by the CIT(A) and had merged with the orders of the appellate authority. The final orders passed by the appellate authority were dated 28.6.2004 and acting thereupon the AO passed assessment order, giving appeal effect thereto, on 23.7.2004. Thus, it is the order of 28.6.2004 passed by the CIT(A) which remains on record for all intent and purposes as the original order of assessment has been merged. Once the matter is viewed from this angle, it is no explanation that the error which is sought to be rectified occurred in the original assessment order and was not subject matter of appeal. Obviously, it was a calculation error which could not have been the subject matter of appeal.



17. There appears to be some substance in the submission of learned counsel for the Revenue that such error could be corrected by the AO exercising the inherent power as, otherwise, the assessee is let off by getting double depreciation, which is not permissible under the Act. In any case, once we opine that the assessment order had merged with the order of CIT(A) passed on 28.6.2004, the limitation for the purpose of sub-section (7) of Section 154 is to be counted from this date. Interestingly, even the learned counsel for the assessee agreed to the extent that when the order is passed during the re-assessment of proceedings, initial order of proceedings does not survive in any manner or to any extent. This principle would be applicable also when the assessment order is challenged in the appeal and appellate authority passes order at variance with the orders passed by the AO, on the basis of which fresh order under Section 143(3) read with Section 250 of the Act is required to be passed by the AO giving effect to the order of the appellate authority.


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