' Application under section 136(1) of the Income Tax Ordinance, 1979, filed by the Department in respect of assessm ent year 1982-83 of the respondent/assessee having been dismissed by the learned Income Tax Appellate Tribunal the Department has filed this application under section 136(2) of the Ordinance seeking answer to the following question: "Whether in the facts and circumstances of the case, the learned ' Tribunal was justified in cancelling the penalty of Rs,21,326 and Rs,32,700 imposed under section 91 of the Income Tax Ordinance, 1979, although the original demand was only partially modified in appeal?"
2. We have heard learned counsel for the Department as well as the respondent/assessee. In this case, the Income Tax Officer while levying tax upon the respondent-assessee after finalizing the assessm ent for the assessm ent year 1982-83 also imposed penalty on the assessee under section 91 of the Income Tax Ordinance. The assessee filed appeals against the original assessment as well as against the penalty. In appeals, partial relief was granted to the assessee against the original assessm ent by the Income Tax Officer and as a consequence the original demand of tax created by the Income Tax Officer stood modified. Appeal of the assessee against penalty imposed under section 91 of the Income Tax Ordinance, 1979, was partly allowed but in second appeal to the Income Tax Appellate Tribunal, the entire penalty was set aside. In these circumstances, the above question has been referred to us for opinion under section 136(2) of the Ordinance by the Department, their application under section 136(1) having been dismissed by the Tribunal.
3. The law on the point is now well settled. Once the demand based on the original assessment order stands modified in appeal, the basis for imposing penalty on such original demand disappears and no penalty can be sustained on the basis of the original demand. Without issuance of a fresh demand on the basis of the modified assessment of tax due, the assessee cannot be held to be an assessee in default of payment and, therefore, liable for penalty.
' Reference can be made to the following reported decisions enunciating the above principle:---
(i) Commissioner of Income Tax v. Begum Mumtaz Jamal PLD 1976 Lah. 761; (ii) Commissioner of Income Tax v. Azam Industries Limited 1980 PTD 26; (iii) Commissioner of Income Tax v. Fateh Textile. Mills Ltd. PLD 1982 Kar.
679.
4. The law being well settled by the High Courts of Sindh and Lahore, the Tribunal was right in dismissing the application under section 136(1) of the Ordinance. We find no merit in this application under section 136(2) of the Ordinance which is dismissed but with no order as to costs.