JUDGMENT Prakash Krishna, J.
1. The Tribunal, Allahabad, on the direction of this Court has referred the following question of law under Section 256(2) of the IT Act, 1961 (hereinafter referred to as 'the Act'), for opinion to this Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the doctrine of merger, applied in the assessee's case when Sub-section (1A) of Section 154 of IT Act specifically provides that the doctrine does not apply in the matter not considered and decided in appeal ?"
2. The dispute relates to the asst. yr. 1978-79. The respondent/assessee deals in Kirana on wholesale basis. The ITO framed the original assessment order on 19th March, 1985 and in the body of the order he observed three additions to the assessee's total income as below :
(i) Investment in the purchases of Zeera as evidenced by seized parcha Nos. 4 and 5 valued at Rs. 17,612.
(ii) Investment in 25 bags of Zeera as evidenced by parcha Nos. 6 and 7 discovered during survey of the assessee's own premises and business premises @ 5 per cent-Rs. 22,499.
(iii) Gross profit on sales outside the books of account of the assessee as evidenced by the investment in Zeera mentioned above estimated by the ITO at Rs. 2 lakhs, Rs. 10,000.
However, while computing the total income of the assessee, the ITO omitted to add Rs. 17,612 specifically directed by him to be added to the assessee's total income vide para 3 of his order.
3. It appears that the Sales-tax Department at the time of survey of the assessee's shop recovered certain loose purchas namely, parcha Nos. 4, 5, 6 and 7. On the basis of these parchas and after giving opportunity of hearing to the assessee, the STO rejected the account books of the assessee and made additions of 16 lakhs in the turnover of the dealer. The said order was confirmed by the Asstt. Commr. (J) in appeal filed by the assessee under the Sales-tax Act. However, in further appeal/revision before the Addl. Judge (Revn.), Sales-tax, it was held by the Addl. Judge (Revn.) that parcha Nos. 4, 5, 6 and 7 which were held by the STO as parchas relating to purchases of Zeera were not conclusively proved to have been purchases of the assessee's firm but nonetheless the Addl. Judge (Revn.) did not accept the account books of the assessee in their totality and maintained the enhancement of the turnover by Rs. one lakh, so far as the Kirana, Masala and dry fruits were concerned, enhancement of Rs. 90,000 in the turnover of oil seeds was separately maintained by him. The order of the Addl. Judge (Revision) in due course of time was confirmed by this Court in a revision filed against the aforesaid order.
4. The ITO made the additions in the disclosed income of the assessee on the basis of the aforesaid parchas and rejected the account books of the assessee. The assessee challenged the assessment order passed by the ITO by filing an appeal before the AAC. The AAC after taking into consideration the judgment of this Court in the case of the assessee with respect to the sales-tax matter held as follows :
"...for all the irregularities as per survey report of the sales-tax Department, the sales-tax authority has enhanced the sales of the appellant by Rs. 1,90,000. The facts of the case clearly go to show that in the case of enquiry by the Department no fact against the assessee was detected or found by the Department. It was simply on the basis of presumptions and suppositions that the Department has charged the assessee for taking false delivery and also doing business out of the books. The affidavits of the persons alleged to have taken delivery and the statements were duly made before the ITO and the partners against whom the alleged charges were made for doing the business out of books were also duly examined by the ITO and no otherwise things were found against the assessee. These allegations were simply made against the assessee. Looking into overall facts and circumstances of the case, I find that the ITO was not justified in making the addition of Rs. 32,499 (Rs. 10,000 on account of unaccounted sales and Rs. 22,499 as unexplained investment). Since the Hon'ble High Court, keeping in view the finding of the sales-tax revisional authority and sales-tax Judge, has accepted the enhancement in turnover by Rs. 1,90,000. Moreover, keeping in view the past history of the appellant's case, the ITO is directed to apply a rate of 3.2 per cent which means an addition of Rs. 6,080. The appellant thus gets a relief of Rs. 26,490."
After passing of the aforesaid order, the ITO initiated proceedings under Section 154 of the Act, giving rise to the present reference, on the basis that the income of the assessee should be increased by Rs. 17,612 vide para 3 of the original assessment order. He was of the view that by mistake while computing the income, this amount was left to be added in the total income of the assessee and being arithmetical mistake, the order was liable to be rectified. He, accordingly, after rejecting the objections of the assessee rectified the order and made addition of Rs. 17,612 in the income as indicated above. This order was sustained by the AAC in appeal. The AAC was of the opinion that the original order dt. 19th March, 1985, suffered a mistake which was apparent from the record and the amount of Rs. 17,612 was clearly mentioned in para 3 of the assessment order and was omitted to be included in the computation due to oversight. He rejected the contention of the assessee that the earlier assessment order stood merged in the order passed by the AAC in appeal. In further appeal, the Tribunal has held that the assessment order of the ITO having been merged in the order of the AAC, the ITO could not have rectified the assessment order. Apart from above, it was also held that no order under Section 154 could have been passed in the present case as two opinions were possible on the aforesaid subject.
5. Heard Sri A.N. Mahajan, learned counsel for the Department. None appeared for the respondent/assessee.
6. Learned counsel invited our attention towards para 3 of the original assessment order and submitted that there was a mistake apparent from the record, inasmuch as in para 3 of the order it is mentioned that on the basis of the entries on parcha Nos. 4 and 5 of the seized documents, relating to transaction of Zeera, the amount of Rs. 17,612 will be added in the income of the firm from the source being investment not recorded under the books of account. However, while computing the total income, the ITO due to slip of pen failed to add the aforesaid amount while computing total income of the assessee. He also invited our attention towards calculation part of the assessment order. Placing strong reliance upon a judgment of Kerala High Court in the case of CIT v. K.P. Sabbarama Sasttigal , it was submitted that on the facts of the present case, the finding of the Tribunal that the assessment order has been merged in the appellate order is legally incorrect. Elaborating the argument, it was submitted that the turnover of Zeera evidencing from parcha Nos. 4 and 5 was not the subject-matter of the appeal and as such in view of Sub-section (1A) of Section 154 of the Act, the doctrine of merger will have no application on this issue. The argument of the learned standing counsel is misconceived and cannot be accepted for the reasons more than one.
7. Sub-section (1A) of Section 154 provides that where any matter has been considered and decided in any proceeding by way of appeal or revision relating to the order referred to in Sub-section (1), the authority passing such order may amend the order passed under Sub-section (1) in relation to any matter, other than the matter which has been so considered and decided. Sub-section (1A) was inserted by Act 31 of 1964 w.e.f. 6th Oct., 1964 and it has been held that the said insertion is procedural and clarificatory in nature. It talks about "any matter". "Any matter" in our opinion, means the subject-matter of the appeal. If the point, in issue was directly and substantially in issue before an appellate or revisional authority, or the effective decision of the appeal or revision, as the case may be, the phrase "any matter" will embrace it, and the principle of merger will be attracted.
In the present case, the dispute with regard to the determination of total income of the assessee/respondent with respect to escaped turnover of Zeera as detected by the Sales-tax Department was very much in issue before the ITO as well as before the AAC. The Sales-tax Department treated the concealed purchases on the basis of parcha Nos. 4, 5, 6 and 7 relating to Zeera. The STO was of the view that parcha Nos. 4, 5, 6 and 7 established that the assessee had made purchases from different parties and those purchases have not been disclosed in the account books. These parchas related to concealed or suppressed purchases of Zeera. However, ultimately the Addl. Judge (Revn.) as well as High Court in the sales-tax matter recorded a finding that parcha Nos. 4, 5, 6 and 7 did not conclusively prove to have been purchases of the assessee-firm. The judgment of the High Court was available and was placed before the AAC during the course of hearing of the appeal before him by the assessee. The AAC in the light of the judgment of the High Court and finding of the Addl. Judge (Revn.) recorded in sales-tax proceedings directed the ITO to apply a rate of 3.2 per cent on the enhanced turnover of Rs. 1,90,000. The order of the AAC has been quoted in extenso above. Therefore, the matter of determination of the total income of the assessee on account of parcha Nos. 4, 5, 6 and 7 found in the survey by the sales-tax authorities was very much under consideration of the AAC. Even if while computing the total income, the ITO on account of some omission did not include the income of Zeera amounting to Rs. 17,612 as mentioned in para 3 of the assessment order, the matter with regard to the turnover of Zeera and the income generated from the turnover of Zeera was very much in dispute and was subject-matter of appeal before the AAC. Therefore, the learned standing counsel is not correct in his submission that the undisclosed income of Zeera as deduced by the ITO on the basis of parcha Nos. 4 and 5 was not the matter, which was not considered and decided by the AAC in appeal. The words 'any matter' are of wide amplitude and are co-related with the subject-matter of appeal. It was not disputed and could not possibly be disputed by the Department that the income generated from undisclosed sales of Zeera was not the subject-matter of the appeal.
8. Coming to the judgment of the Kerala High Court given in the case of CTT v. K.P. Subbarama Sastrigal (supra), we find that the Kerala High Court did not agree with the decision of the Allahabad High Court in J.K. Synthetics Ltd. v. Addl. CIT and Anr. . It preferred to follow the judgment of Gujarat High Court, which is slightly different. This Court in the case of J.K. Synthetics Ltd. (supra) has relied upon a judgment of Supreme Court in CIT v. Amrit Lal Bhogi Lal & Co. . The Supreme Court in that case has held that there can be no doubt that if an appeal is provided against an order passed by the 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 in force. 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 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. But if an order is specifically non-appealable it would remain in operation although an appeal in the same proceeding has been taken and decided.
9. It may be noted here that Section 251 of the Act confers the appellate jurisdiction upon the AAC and under Clause (a) of Sub-section (1) of Section 251, it has been provided that in an appeal against an order of assessment, the AAC may enhance the assessment. The appellate powers of the AAC are as wide and as extensive as those of AO, barring that the AAC cannot go outside the record and so he cannot discover new source of income, which are not disclosed either in the return of the assessee or in the assessment order as pointed out by the Supreme Court in CIT v. Shapoorji Pallonji Mistiy .
Thus, it is apparent that the appellate authority can look into and adjudicate upon findings recorded by the ITO not only against the assessee, which may expressly be the subject-matter of the appeal but also those which have gone in favour of the assessee and which may not have been challenged by the assessee. In the present case, the entire assessment order qua the undisclosed turnover of Zeera was the subject-matter of appeal before the AAC and as such the original assessment order stands merged with the order of the AAC and it was not open for the ITO to initiate the proceedings under Section 154 of the Act. The test is whether or not the order of the ITO on a particular point was the subject-matter of appeal before the AAC.
10. The Kerala High Court in the case of K.P. Subbarama Sastngal (supra) on which strong reliance was placed by the learned standing counsel, we find that even in the said ruling it has been mentioned that the order of the assessment made by the ITO merges in the order of AAC only insofar as it relates to the item considered and decided by the AAC. In view of our finding that in the present case, the question of undisclosed purchases of Zeera is concerned, it was considered and decided by the AAC and, therefore, the assessment order made by the ITO merges in the order of the AAC.
11. The upshot of the above discussion is that the Tribunal has rightly held that the original assessment order stood merged in the order passed by the AAC and doctrine of merger is attracted and Sub-section (1A) of Section 154 of the Act does not come in the way. We, therefore, answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. However, there shall be no order as to costs.