ORDER: MR. JUSTICE SYED HAMID ALI SHAH.--(1). The assessee in this case is operating an ice factory and his assessm ent was finalized at the net income of Rs.148,976, applying Gross Profit rate at 50% by the Assessing Officer, against which he filed are appeal before Commissioner of Income Tax (Appeals) and the assessm ent was upheld. Subsequently, Directorate of Inspection and Audit raised objection that the GP rate has not been applied according to law, which led to cancellation of assessm ent under section 66A of the repealed Income Tax Ordinance, 1979 (for short "Repealed Ordinance") by Inspecting Additional Commissioner. The assessee assailed reassessment under sections 62/66A framed on 15-4-1996, in appeal and the CIT(Appeals) vide order, dated 3-6-1996 cancelled the order under section 66-A, holding the same to be illegal. The Department filed second appeal before the Income Tax Appellate Tribunal, which too brought no fruitful results for the Department as it met the fate of dismissal vide order, dated 9-12-2003. Hence this reference raising the following questions of law, arising out of the judgment of the learned Tribunal:--
(i) Whether under the facts and circumstance of the case, the learned Tribunal was justified to hold that action under section 66A cannot be taken even in respect of issues which were not considered by the appellate authorities?
(ii)Whether the learned Tribunal was justified to cancel the order under section 66A after insertion of sub-section (1-A) of section 66A through Finance Ordinance, 1991?
2. Learned counsel for the petitioner has contended that the Assessing Officer while framing original assessm ent has adopted a different formula for calculating the income and did not apply Gross Profit rate on the determined sale and ignored the application of GP rate applied in the parallel cases. He has further submitted that there was no justification for CIT(Appeals) to cancel the assessm ent framed under section 62/66A of the Repealed Ordinance. Learned counsel has referred to sub-section (1A) in the enactment (section 66A), inserted through Finance Act, 1991, whereby the provisions of sub-section (1) of section 66A apply to the matters, which have been decided in appeal or in a reference.
3. Learned counsel for the respondent, on the other hand, has fully supported the impugned judgment of the learned Tribunal and has submitted that by virtue of the order of the CIT(Appeals) there was no room for I.A.C. to re-open a matter, which had attained finality in the eyes of law.
Learned counsel has referred to the case of "Glaxo Laboratories Limited v. Inspecting Assistant Commissioner of Income Tax and other" (1992. PTD 932) to support his contention.
4. Heard learned counsel for the parties and record perused.
5. Adverting to the first question, we find that this question has not been framed correctly as it does not arise from the order of learned Tribunal. Learned Tribunal has noted in the judgment/order that once CIT(Appeals) has confirmed the GP rate applied by the Assessing Officer, there was no justification by the learned I.A.C. to reopen the case. It is evident from the observation of the learned Tribunal that the appellate authority (Commissioner Appeal) had examined the GP rate applied to the case of assessm ent and affirmed it after applying its conscious mind while passing the order, dated 23-10-1994.
6. The provisions of section 66A empower, the Inspecting Additional Commissioner to revise and examine the record. of any proceedings pertaining to the order passed therein, by the Deputy Commissioner. The assessm ent framed by the Assessing Officer (Deputy Commissioner) is challenged in appeal and the appellate authority CIT(Appeals) if confirms, it merges into the appellate order. The apex Court in the case of Glaxo Laboratories Limited (supra) has enunciated that by a merger, original order disappears, absorbs into the appellate order and the order merged ceases to exist and loses its identity or individuality. The Hon'ble Supreme Court examining the applicability of section 66A to the cases where original order of the Deputy Commissioner was affirmed by the Appellate Authority, has held:-- the result is that the order of the income tax officer merged into the order of the Tribunal and, therefore, the IAC did not have the jurisdiction to initiate the action under section 66-A of the Income Tax Ordinance for reopening the matter."
7. Viewing the instant controversy in the light of the ratio of the above referred judgment of the Supreme Court of Pakistan, we have no hesitation to hold that the order of Deputy Commissioner, which merged in the order of the appellate authority, was to open to revision under section 66A by IAC.
8. Reverting to the scope of insertion of provision of (1A) in section 66A of Repealed Ordinance, the provision is reproduced hereunder for ready reference:-- "66A. Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order.--(1)
The Inspecting Additional Commissioner may call for and examine the record of any proceedings under this Ordinance, and if he considers that any order passed therein by the Deputy Commissioner is erroneous insofar as it is prejudicial to the interests of Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made, such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessm ent to be made.
(1-A) The provisions of sub-section (1) shall, in like manner, apply, (a)where an appeal has been filed under sections 129, 134 and 137, or a reference has been made under section 136, against an order passed by the Deputy Commissioner; and (b)where an appeal or reference referred to in clause (a) has been decided, in respect of any point or issue which was not the subject-matter of such appeal or reference.
(2)No order under sub-section (1) shall be made after the expiry of four years from the date of the order sought to be revised."
9. Bare perusal of the enactment reveals that sub-section (1A) of section 66A applies in respect of appeals filed under sections 129, 134 and 137 or a reference made under section 136 and where the appeal or reference has been decided in respect of any point of issue which was not subject matter of appeal or reference. The provision does not need any scholarly interpretation. Provisions of 66A(1A) can be invoked in respect of matters where the issue or a question was not directly involved, in the orders passed in appeals or reference made. In the instant case the applicability of GP rate remained in issue before CIT(Appeals) and thus by virtue of provisions of 66-A(IA)(b), the I.A.C. was not competent to reopen the assessment which had merged into appellate order.
10.For the foregoing, we are not inclined to answer question (i) as the same does not arise from the order of learned Tribunal and our answer to question (ii) is in affirmative. This reference application is therefore rejected.