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Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment years 1980-81 to 1982-83 - Whether by virtue of insertion of clause (c) in Explanation to section 263 by Finance Act, 1989 with retrospective effect from 1-6-1988, Commissioner has jurisdiction to take proceeding under section 263 in respect of that part of assessment order which was not subject matter of appeal - Held, yes FACTS The assessee was a registered firm and derived income from carpet business. The ITO allowed the claim of the assessee of certain sum by way of provisions for payment of bonus in respect of weavers who had worked for assessee during the accounting years relevant to the assessment years 1980-81 to 1982-83. Subsequently, the Commissioner issued a notice under section 263 to the assessee proposing to nullify the aforesaid part of the assessment made by the ITO. In said notice, it was stated that the claim of the assessee was not allowable under section 36(1)(ii) or under section 37, so no deduction was admissible. The assessee in his reply stated that the assessee was maintaining regular books of account and in the past the said deductions were allowed by the department. The assessee, in the alternative, contended that the sum in question was entirely business expenditure and, hence, notice issued by the Commissioner was incorrect. The Commissioner, however, passed order under section 263. The Tribunal held that the ITO's orders had merged in the order of the Commissioner (Appeals) and, therefore, the Commissioner had no jurisdiction under section 263 to revise those orders. HELD Section 263 had undergone a sea change in the year 1988. Earlier uncertainty regarding the question as to whether the order of the Assessing Officer had merged in appeal or not even where in respect of the part of the assessment order, which was not the subject-matter of the appeal, had been set at rest by insertion of clause (c) in the Explanation by Finance Act, 1989 with effect from 1-6-1988. This clause came in for consideration before the Apex Court in the case of CIT v. Shri Arbuda Mills Ltd. [1998]231 ITR 50/ 98 Taxman 457 wherein the Apex Court…

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