JUDGEMENT SALEEM AKHTAR, J.-1. The Department has filed this application under section 66(1) of the Income Tax Aet raising the following question:- "Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in cancelling the penalty of Rs. 1,788.00, imposed by the Income Tax Officer under Section 46(1) of the Income Tax Act"?
2. For the assessm ent year 1958-59 demand of Rs. 11,928.00 was created against the respondent. As payment was not made a reminder was issued to clear the demand by 29.9.1969. The respondent failed to pay the amount within the time specified, and, therefore, the Income Tax Officer imposed penalty of 15% on the outstanding demand by order dated 16.2.1961. The respondent filed an appeal before the Income Tax Appellate Tribunal inter alia alleging that he had filed an application before the Commissioner on 8.2.1962 for grant of instalment for payment of the amount and the order imposing penalty was passed without taking these facts into consideration and without waiting for direction of the Commissioner. It was further stated that the Commissioner by order dated 9.3.1961, allowed payment of instalments, and, therefore, he could not be treated in default on 16.2.1961.
3. At the outset Mr. I. N. Pasha, has referred to Bawani Textile Mill's case [1967 PTD 622 = (1967) 15 Taxation 191 and Azam Industries Ltd's case [1980 PTD 126 = (1980) 41 Taxation 154]. The view that has consistently been prevailing and has been followed is that after the Appellate Court has passed an order, the order of the original court is merged into it. Further in matters where the Commissioner has passed an order granting instalment, the time schedule fixed by the Income Tax Officer is completely changed, and therefore, the assessee cannot be treated as a defaulter and no penalty can be imposed. In view of the aforestated authorities, the learned counsel Mr. Sheikh Haider has not disputed the legal position. He has, however, frankly pointed out that the imposition of penalty at Rs. 15% by the Income Tax Officer was not proper as at the first instance it should have been 5%. In view of these facts and circumstances of the case, our answer to the reference is in the affirmative.