1. ' This appeal preferred by the taxpayer is directed against the order of learned Commissioner of Inland Revenue (Appeals) Gujranwala recorded on 28-1-2010.
2. ' Facts of the case are that taxpayer, a private limited company deriving income from manufacturing and sale of high speed diesel engines, filed return for the tax year 2005 declaring loss of Rs,1,95,75,835. The return so filed was originally treated to be a deemed order under section 120 of the Income Tax Ordinance, 2001. Subsequently, it was observed that the taxpayer company had availed the benefit of waiver of loan and mark-up and has also claimed loss for the assessm ent year 1997-98 which being for more than 6 years old was inadmissible. The taxpayer was, therefore, served with a show-cause notice and considering the reply furnished by him as unsatisfactory amended order under section 122(5) was passed determining net income at Rs,1,16,42,535. Being dissatisfied with this treatment the taxpayer filed appeal before the CIT(A) and he after considering the arguments annulled the amended order with the following observations:--
(i) Jurisdiction under section 122 of the Income Tax Ordinance, 2001 has been assessed in illegal and arbitrary manner. All along the Taxation Officer failed to specify which clause/sub-clause of the said section 122 is being invoked. Such erratic action has no sanctity in the eyes of law as is evident from the plethora of case law cited by the appellant's AR. Needless to emphasize that superstructure raised on such faulty foundations would tumble to the ground when judged in the context of relevant provisions of law and pronouncements of the Superior judicial fora.
(ii) Similarly while computing actual addition in term of section 34(5) of the Income Tax Ordinance, 2001, the Taxation Officer has discussed facts in a very shaky and unsure manner. He has pointed out that the balance sheet shows year wise balance of mark-up payable. There is no indication from which balance sheet the figures have been gleaned as there is not such computation in the audited accounts for the tax year 2005. Again the order is very confused as to what the balance sheet actually reflects. For instance when the Taxation Officer states that the amount of mark-up payable in year 2004 was Rs,1,70,71,434 it is not spelt out clearly whether it is mark-up for the year or it is cumulative balance for all the preceding years as reflected in the balance sheet. If it is cumulative balance, the addition warranted would be far less than the amount charged as per impugned order. Hence the appellant's assertion that there was no "definite information's" appears to be plausible. The taxation officer had gleaned certain information from records, but he was certainly not definite about the amount liable to charged as income. Unfortunately he did not carry out the spade work required to make the impugned order legally and factual impregnable.
3. ' However, subsequent to the order of CIT(A) dated 28-6-2008 the Additional Commissioner audit again found the deemed order as erroneous and prejudicial to the interest of revenue on the similar grounds i,e, that the taxpayer company availed the benefit of waiver of loan and mark-up.
4. Therefore, after usual proceedings the deemed order was amended under section 122(5A) repeating the same income as determined in the amended order under section 122(5) at Rs,1,16,42,534.
5. ' The taxpayer again challenged this treatment as illegal but this time the CIT(A) maintained the amended order passed under section 122(5A) vide order dated 28-1-2010 which is now being assailed in appeal before the Tribunal.
6. ' The learned AR submitted that the order passed by the Additional Commissioner under section 122(5A) is void ab initio both on legal as well as factual grounds and the CIT(A) was not justified in upholding the same. He argued that once the CIT(A) has annulled the deemed order on legal as well as factual grounds the Additional Commissioner has no jurisdiction to amend the same on similar grounds. According to him, since the CIT(A) by way of his first order dated 28-6-2008 has not only annulled the assessm ent on account of legal flaws but also held the additions as not maintainable, therefore, the only legal course remained with the department was to file an appeal before the Tribunal and since no appeal was filed the appellate order attained finality and action taken by the Taxation Officer under section 122(5A) is illegal, and ab initio void.
7. ' The AR further stated that deemed order has been amended twice once under section 122(5) and secondly under section 122(5A) on similar grounds repeating the same amount of addition. This is a legal preposition that powers under section 122(5A) are revision and cannot be exercised on the same material which has already been on record and considered by the department.
8. ' The AR vehemently pleaded that since the deemed order had once amended under section 122(5) and annulled in first appeal had merged into the first appellate order, therefore, the deemed order is nonexistent and is no-where in the field. Even then, if the department was still of the view that the order is erroneous and prejudicial, it was the appellate order that was erroneous and has to be amended by the higher authority to the CIT(A) and not the Additional Commissioner as done in the present case. It is trite law that proceedings under section 122(5A) are revision in nature and cannot be exercised by a subordinate authority. In the present case the deemed order was merged into the appellate order, therefore, the Additional Commissioner being a subordinate authority has no power to amend the same as held in the judgments reported as 2009 SCMR 1279 = 2009 PTD 1392 and 2001 PTD 1467. The AR also relied upon the case reported as 1999 PTD (Trib.)
9. 401 whereby it was held that revision powers could not be exercised where the original order was subject matter of appeal. It was further held in that case that where appeal was filed against the order of the ITO the original order ceased to exist and stood merged in the appellate order. Since in the present case once the CIT(A) annulled the amended order on appeal, the revision power exercised by the Additional Commissioner could not be held justified.
10. ' Even then the departmental was of the view that because of annulment of amended order passed under section 122(5) by the CIT(A) in first round litigation the deemed order was reinstated even then, 'the Additional Commissioner has no jurisdiction to amend the same under section 122(5A) being passed by the Commissioner as held by the Tribunal in I.T.A. No,697/LB/2010 dated 3- 8-2010 and I.T.A. No,370/ LB/2009 dated 6-7-2009. It is stated that law has posed a personal obligation on the Commissioner to amend order under section 122(5A) with his conscious application of the mind and he cannot delegate this power to anybody else. From wordings of section 122(5A) it is evident that only the Commissioner has been vested with the jurisdiction to take action under this section. Since in the appellant's case the Commissioner has not even issued the show-cause notice himself and the revision power have been initiated/exercised by the Additional Commissioner his order under section 122(5A) was not legally maintainable as held in the reported judgment cited as 2007 PTD (Trib.) 1226. The DR, on the other hand, defended the impugned order for the reasons stated therein and prayed for dismissal of appeal.
11. We have heard the parties and also gone through the orders of the authorities below. The first appellate order dated 28-6-2008 whereby the CIT(A) has annulled the amended order as well as the case law relied upon by the AR have also been perused. It has been observed that through his order in first round of litigation the CIT(A) had not only annulled the order on legal grounds but also found the addition as not sustainable on factual aspects. In this regard, the finding recorded by the CIT(A) at page 7 of his order and incorporated above was more relevant. The contentions put-forth by the AR that the original order ceased to exist and stood merged in the appellate order is correct and in the circumstances the legal course for the department was to file an appeal carry weight.
12. Since the first appellate order remained un-challenged it had attained finality and the invocation of provisions of section 122(5A) are not sustainable. In the case reported as 1999 PTD (Trib.) 401 in an identical circumstances the Tribunal held as under:-- "Revisional jurisdiction -doctrine of merger - Appeal filed against order of the Assessing Officer--- provision amended through Finance Act, 1991---Whether original order ceased to exist and stood merged in the appellate order - Held yes-Whether revising authority could invoke the provisions Held no. ' In another case reported as 1988 PTD (Trib.) 775 the Tribunal held as under:-- "Powers of Inspecting Assistant Commissioner Inspecting Assistant Commissioner is empowered to examine the record of any proceedings under the Ordinance and revise any order passed therein by the Income Tax Officer if he considers it erroneous and prejudicial to the interest of Revenue- Words "any proceedings" are to be read in conjunction with the words "Income Tax Officer" - In order to invoke the section, the prerequisite is that the order which is to be revised, must be an order of an Income Tax Officer-Where the original order is modified by the AAC, the original order of the assessm ent stands merged with the appellate order and hence the appellate order holds field and not the original assessm ent order."
13. ' The same issue had also come under dilation of the Hon'ble High Court in a case reported as 1993 PTD 1113 whereby it is held as under:-- "... Income Tax Officer completed the proceedings and assessed the income - Assessee filed appeal before the AAC against the assessment order which was partly accepted and not challenged further and became final - IAC issued notice alleging that the order passed by the Income Tax Officer was erroneous and prejudicial to the interest of public revenue - Original assessm ent order having been appealed against merged into the order of the AAC - Whether notice without jurisdiction - Held yes."
14. ' The Hon'ble Supreme of Pakistan has also held the same view in a case reported as PLD 1992 SC 549 = 1992 PTD 932. In this case it was held as under:-- "Section 66-A - Notice - Powers of IAC - Doctrine of merger - Assessee a non-resident company - Assessm ent for the assessm ent year 1987-88 was completed - Assessee filed appeal before CIT(A) which was partly allowed - Assessee and the department both filed appeals against the order of the CIT(A) - Department withdrew its appeal which was consequently dismissed - After dismissal of appeal department issued notice u/s 65 and framed assessment - Tribunal cancelled the assessm ent and held that proceedings initiated under section 65 were illegal and without jurisdiction - IAC issued notice to revise Income Tax Officer's order - Whether IAC had the jurisdiction or powers to initiate action in respect of the orders passed by the appellate authorities or the Tribunal --Held no --- Whether Income tax Officer's order merged in the order of the Tribunal - Held yes."
15. From all the cases reported above, it is evident that where the appellate authority had given its finding on a particular issue the original ' order is ceased to exist and stood merged into the appellate order. In the instant case the CIT(A) having already considered the issue of waiver of loan and mark-up the deemed order stood merged into the appellate order and the action of the Taxation Officer under section 122(5A) is not sustainable.
16. ' The other contention of the AR that the deemed order having merged into the order of CIT(A) a higher authority to the CIT(A) can take action under section 122(5A) is also correct. It is a trite law that, proceedings under section 122(5A) are revision in nature as held by the Apex Court of the country in a case reported as (2009) 100 Tax 81 (S.C.) and, therefore, cannot be exercised by a subordinate authority.
17. ' For the reasons stated above we are of the considered opinion that the order passed by the Taxation Officer as well as the first appellate authority are not sustainable in the eyes of law.
18. Therefore, both the orders of the authorities below are vacated and the appeal preferred by the taxpayer is accepted.