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Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1979-80 - Whether on a point not considered by AAC, ITO's order does not merge with AAC's order and can be revised - Held, yes FACTS For the assessment year 1979-80, in the assessee's assessment a sum in excess of the maximum amount of bonus payable under the Payment of Bonus Act as also a sum as contingent liability for payment of leave with wages were allowed. The Commissioner initiated suo motu revision proceedings under section 263 on 7-1 -1984. The assessee contended that the order of assessment was taken in appeal and the A AC had passed an order dated 13 -12-1983, and so the assessment sought to be revised had merged in the appellate order and was not revisable. The assessee's contention was negatived by the Commissioner. On further appeal, the Tribunal accepted the assessee's plea and held that the order passed by the Commissioner under section 263 was without jurisdiction. On reference: HELD In the instant case, the particular matter which was sought to be taken up in suo motu revision did not form the subject-matter before the AAC. As held by this Court in CIT v. Travancore Tea Estates Co. Ltd. [1988] 172 ITR 733 and later inCIT v. S. Ratnam Pillai [1991] 188 ITR 494 ( Ker.) the principle of merger can have a limited application and can apply only in respect of matters considered and decided by the appellate authority and not matters falling outside its decision. Therefore, the Tribunal was in error in holding that the order passed by the Commissioner under section 263 was improper, illegal or unauthorised. CASES REFERRED TO CIT v. Travancore Tea Estates Co. Ltd. [1988] 172 ITR 733/ 39 Taxman 140 (Ker.) and CIT v. S. Ratnam Pillai [1991] 188 ITR 494/[1990] 53 Taxman 322 (Ker.). P.K.R. Menon and N.R.K. Nair for the Applicant. P. Balachandran for the Respondent. JUDGMENT Paripoornan, J.-At the instance of the revenue, the Tribunal has referred the following question of law for the decision of this Court: "Whether, on the facts and in the circumstances of the case, an order under section 263 could be validly made even though the assessment…

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