THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2 (1), PANAJI vs. M/S V. M. SALGAOCAR & BROTHERS (P) LTD., VASCO

Since facts and substantive issue involved in these three appeals are identical, considering rival parties’ request, these are taken up together for the sake of brevity, for a common & consolidated order. The first appeal is taken as lead case, adjudication laid hereinafter shall resultantly apply mutatis-mutandis to ITA No. 210 & 211/PAN/2019.

Briefly stated facts of the case are that; 3.1 For AY 2005-06 the assessee-company filed its original return of income on 31/10/2005 which was revised on 01/09/2006. The case of the assessee was taken up for scrutiny and the assessment u/s 143(3) of the Act was completed by an order dt. 28/12/2007, wherein three additions/disallowances u/s 37(1) of the Act were made viz; (i) deposits written-off (ii) excessive foreign travel expenses and (iii) compensation for damages to property. The aforestated additions were unsuccessfully contested before first appellate authority. Consequently, when matter travelled to Tribunal on earlier occasion, the Co-ordinate bench vide its order in dt. 08/07/2011 remitted the first issue of disallowance of deposits written-off to the file of Ld. AO for fresh verification and remitted the second issue of disallowance of foreign travel expenses to Ld. CIT(A) for de-nova verification of claim in the light of material placed on records. The consequential order giving effects to above was passed on 28/03/2013 u/s 143(3) r.w.s. 254 of the Act, and same is not the subject matter of appeal before any appellate forum.

At the virtual hearing, the Ld. AR Mr Ketan Ved reiterated appellant’s version of submission as were laid before first appellate authority and submitted that, in the original assessment proceedings for AY 200-06 to 2007-08, the Ld. AO did neither touched the issue of depreciation nor any disallowance for excess depreciation was made, unlike in preceding assessment year 1994-95 to 2004-05. Insofar as AY 2005-06 to 2007-08 are concerned, the issue of excess depreciation since was never a matter of disallowance in original assessment proceedings, therefore the issue remained out of adjudication at both the appellate proceedings. The remand proceedings of this Tribunal directed in dt. 08/07/2011 were not for framing assessment de-nova but qua issues assailed therein. Therefore, the time limit for exercise of rectification jurisdiction was commenced from the end of financial year 2007-08 in which the order of assessment originally passed on 28/12/2007. This being the fact, the rectification order passed after 31/03/2012 is time barred by limitation of four years as prescribed u/s 154(7) of the Act. Per contra Ld. DR N. Shrikanth submitted that, the original assessment was subject matter of appeal which was remanded by the Tribunal, therefore assessment got merged into the consequential order dt. 28/03/2013 passed u/s 143(3) r.w.s. 254 of the Act. Resultantly, the impugned order of rectification passed on 30/06/2014 is well within limitation of four years limitation with reference to consequential order passed on 28/03/2013.

We have heard rival contentions of both the parties; subject to provisions of rule 18 of Income Tax Appellate Rules, 1963 [‘ITAT Rules’ hereafter] perused material placed on records, case laws relied upon by both rival parties and duly considered the facts of the case in light of settled legal position, which are forewarned to the parties present.

We observed that, for AY 1991-92 to 2001-02 the Revenue did not accept the assessee's version of claim for 100% deduction u/s 80HHC of the Act which was computed without reducing eligible depreciation from the business income. As in the view of the Revenue, this would have resulted in reduction of taxable income for future assessment years when assessee becomes liable for normal taxation. This issue finally got settled in favour of the respondent by the order Hon'ble High Court (supra), wherein their Lordships have categorically held that, the depreciation being mandatary allowance/deduction, hence it is to be reduced from business income while working out eligible amount of deductions for 80HHC, irrespective of the fact whether claim for depreciation in its return is made or not. We also observed that, for the assessment years 1997-98 to 2004-05 the Co-ordinate bench respectfully following the decision of Hon’ble Courts had adjudicated the matter in favour of revenue. Thus, this led to a dispute over excess depreciation claimed in AY 2005-06 to 2007-08 and allowed erroneously in the original assessment framed u/s 143(3) of the Act dt. 28/12/2007.

The limited issue for our adjudication revolves around application of doctrine of merger. Very precisely, in view of the Ld. AO since the original assessment order passed u/s 143(3) of the Act was travelled in an appeal, the entire order of assessment come up for Tribunal’s consideration which is quite competent to deal with and revise all matters/issues contained therein irrespective of whether or not contested by either party, therefore, the consequential order passed pursuant to the direction of Tribunal has essentially replaced the original assessment order in its entirety. In support of this view, the Ld. DR Mr N. Srikanth pressed into service the decision in Shapoorji Pallonji Mistry v. CIT [1958] 34 ITR 342 (Bom.) which is affirmed in CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 (SC) wherein it is held that, an appellate authority can deal with any matter covered by the order appealed against, irrespective of the fact whether any matter/issue is raised in appeal or not. The decision of Hon’ble Allahabad High Court in ‘J.K. Synthetics Vs Addl. CIT [1976] 105 ITR 344 and ‘Tel Utpadak Kendra Vs Dy. CST [1981] 48 STC 248 was pressed and reiterated that, when an appeal is filed against the order of assessment, the appellate authority is seized of the entire order and not only that part of it which is challenged before it. Therefore, since the original assessment order is replaced by the consequential order passed on 28/03/2013, the period of four years for rectification is to be reckoned with reference to this consequential order.

We also observed that, the Ld. CIT(A) on the other hand noted that, for preceding assessment years 2002-03 to 2004-05, the AO had reduced the claim of excess depreciation, whereas, for AY 2005-06 to 2007-08 the orders were framed without disallowing the excess depreciation claimed by the appellant. And since excess allowance of depreciation was never disputed before appellate forum, therefore doctrine of merger to this issue was inapplicable. For the reason, in the view of Ld. CIT(A), the period of four years within which order could have rectified u/s 154(7) of the Act had commenced from the end of financial year 2007-08 within which the original assessment was framed u/s 143(3) of the Act and ended on 31/03/2012. As a result the order of rectification passed on 30/06/2014 that is after 31/03/2012 is barred by limitation and while holding so the Ld. CIT(A) relied on the decision of Co-ordinate bench rendered in ‘ITO Vs Ms. BFIL Finance Ltd. (2017) which in turned relied the decision of the Hon’ble Bombay High Court in the case of ‘CIT Vs Sakseria Cotton Mills Ltd.,’ reported in (1980) 124 ITR 570.

Prima-facie in order to treat an adjudication of a lower/assessing authority as having been merged in the order of superior appellate authority, it must be established on record that the appellate authority, in the proceeding properly brought before it, had considered the grounds upon which the decision of the lower/assessing authority was based and had either upheld or disapproved it, and in the absence of any such ITAT-Panaji Page 7 of 10

We also our view is fortified in the decision of the Hon’ble Supreme Court’s laid in ‘Kunhayammed Vs State of Kerala’ reported in (2006) 6 SCC 359 and is perhaps the most significant decision in this regard; and it’s apt to quote from para 44 here as; “44. … (i) Where an appeal or revision is provided against an order passed by court, tribunal, or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum mergers in the decision by the superior forum ITAT-Panaji Page 8 of 10

In view of the aforestated discussion and settled legal position, we hold that, when assessee filed an appeal against original assessment order dt. 28/12/2007, the assessee restricted its challenge in appeal to only two issues/matters of the assessment order by which it is aggrieved. Therefore, it is only in respect of those two issues/matters which were subjected to the scrutiny/adjudication by the Tribunal in can be said have merged in the order of the Tribunal and became operative through consequential order passed on 28/03/2013.

In result, all the three appeals of the Revenue are DISMISSED. U/r 34 of ITAT Rules, order pronounced in open court on this Tuesday 03rd day of October, 2023.