1988 PLP (Trib (PTD)

M.T. SIDDIQUI (PRESIDENT).--These three appeals will be disposed of by the same order in view of the identical nature of the facts from which the common objections arise.

2. The appellant deals in woollen and cotton cloth both on whole-sales and retail basis. It disclosed turnovers at Rs.17,45,619, Rs.21,32,184 and Rs.23,04,293 respectively for the three years under appeal while the gross profit rates were shown at 7.5% for the first year and 8.4% each for the subsequent two years. The Income-tax Officer, for admitted defects in the accounts, discarded the book version, estimated the sales at Rs.17,50,000, Rs.21,50,000 and Rs.24,00,000 for the three years under consideration while he applied rates of 8$ for the first year and 8.4% each for the next two years.

3. When the matter went to the learned Appellate Assistant Commissioner he reduced the sales for the third year under appeal to Rs.23,30,00n. The appeals of the appellant on some other issues were also decided by the learned Appellate Assistant Commissioner for the three years under consideration on 7-2-1977. However, the learned Inspecting Assistant Commissioner initiated proceedings under section 34-A of the Income-tax Act on 9-1-1978 for the years 1973-74 to 1976-77, as in his opinion, the Income-tax Officer had wrongly treated the appellant on the basis of its past history as a wholesaler primarily. The learned Inspecting Assistant Commissioner had received information that the appellant was primarily a retailer and not a wholesaler. In his opinion the profits of comparable cases were much higher.

4. The appellant's counsel attempted to distinguish the case relied upon by the learned Appellate Assistant Commissioner when he has given a show-cause notice, but the learned Inspecting Assistant Commissioner did not agree with the contentions of the learned Counsel for the appellant and held that, for all these years the Income-tax Officer's action was erroneous so as to cause prejudice to the interests of the revenue and, therefore, directed that the sales for the three years?? under??? consideration??????????? should? be?? fixed at Rs.17,50,000, Rs.25,20,000 and Rs.24,00,000 respectively, as fixed by the Income-tax officer in the original assessments, but the rates of profit for all these years should be enhanced to 12.5% each. However, for the year 1973-74 he dropped the proceedings as he was told that for that year the Tribunal had already confirmed the Income-tax Officer's order and approved for his working.

5. The appellant is aggrieved against the orders passed under section 34-A of the Income-tax Act. The main contentions were two-fold. The legal objection was that the action taken by the learned Inspecting Assistant Commissioner on 19-4-1978 was clearly not within the four walls of the provisions of section 34-A of the Income Tax Act because by this date, the orders of the Income-tax Officer had already been superceded or had got merged in the orders passed by the learned Appellate Assistant Commissioner on 7-2-1977. Reliance was also sought to be placed on a decision reported as P L D 1976 Lah.

547. After taking us through the provisions of section 34-A the learned Counsel for the appellant contended that it is only the income-tax Officer's order, which is erroneous and which causes prejudice to the interest of the revenue that can form the subject-matter of action under section 34-A, In the present case one of the orders for the year 1973-74 was duly confirmed by the Tribunal and was, therefore, rightly excluded from the purview of his jurisdiction under section 34-A of the Income-tax Act by the learned I. A. C . The learned Counsel laid much stress on the point that he should have taken the same action for the subsequent three assessments which had already become the subject-matter of appeal before the learned Appellate Assistant Commissioner and, as a matter of fact, for the year 1976-77 the turnover fixed by the learned A.A.C. was Rs.23,30,000 as against Rs.24,00,000, fixed by the Income-tax Officer, in the original assessment, and was again maintained by the learned I.A.C. in his order passed under section 34-A of the income-tax Act. It is vehemently contended that the learned I. A. C. was over-stepping his jurisdiction when he was trying to interfere with the orders of the Income-tax Officer that had got merged in the orders passed by the learned Appellate Assistant Commissioner.

6. On the legal objection it is, therefore, plain that the orders of the learned Inspecting Assistant Commissioner for all the three years under appeal are bad in law. On the factual plane it is stated that there was no error in the orders of the Income-tax Officer when he had passed the same. The error envisaged by section S4-A is an error of law. In the present case the accounts were properly rejected and the estimates adopted were also in consonance with the past treatment, which was duly upheld by the Appellate Tribunal. Therefore, neither in law nor on facts the Income Tax Officer had committed any error. In these circumstances even if these orders were to be treated as those of the Income Tax Officer the same were not erroneous and could not be, therefore, become the subject-matter of the supervisory jurisdiction of the learned I.A.C. It is at the same time explained that the appellant is primarily a wholesaler and deals in high quality goods with the result that it has limited customers and the margin of profit is also accordingly restricted. The case relied upon by the learned I.A.C. was duly distinguished as the same was not identical. On the contrary the cases relied upon by the appellant's Counsel disclose much lower rates of profit. Moreover, it is argued that the learned I. A. C. accepted the sales, as adopted by the income-tax Officer, for the first two years and he admittedly cannot go beyond the sales fixed for the third year under appeal, by the learned A.A.C. The rates of profit adopted by him will not remain commensurate in these circumstances with the increase in the turnovers, providing thereby that the action of the learned I. A. C. in enhancing the rates over those fixed by the Income-tax officer is illogical and untenable on the principles of the accountancy as well. Therefore, it was argued, that the orders under section 34-A should be vacated.

7. In order to appreciate the import in the legal objection we shall first reproduce the provisions of section 34-A of the Income-tax Act as below:-- "34-A.--(1) The Inspecting Assistant Commissioner ma ~'2call for and examine the record of any proceeding under this Act and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making, or causing to be made, such inquiry 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 assessment to be made. ?????????????? '' (2)??????? ............................................................. A plain reading of these provisions would clearly show that the very head-note to this section indicates that the powers were given to -the learned Inspecting Assistant Commissioner to revise only the Income-tax Officer's order. In a case reported as (1969) 20 Taxation 51 (Trib.) the Tribunal has ruled while interpreting these provisions, that the same confer jurisdiction on an I.A.C. only on the fulfilment of two co-existing conditions, namely, (i) that there should be an erroneous i.e. bad in law order of the I.T.O. and (ii) that the error should be prejudicial to the interests of the revenue. It is only on the fulfilment of these two primary conditions that these provisions are attracted and can be pressed into service by the I. A. C. We have, therefore, to examine whether the orders under dispute could be termed as the orders passed by the I.T.O. Admittedly the original orders passed by the I.-T.O. underwent a scrutiny by the learned A.A.C. who decided the various issues on 7-2-1977. On the crucial date i.e. 9-1-1978 when action under section 34-A of the Income-tax Act was initiated by the learned I.A.C. the orders that he was examining were not the orders passed by the I.T.O. but the orders of the learned A.A.C. which were holding the field,' Any interference with these orders would, therefore, amount to revising the orders of an appellate authority which action these provisions clearly do not permit. It was for this obvious reason that the proceedings under section 34-A were dropped by the: learned Inspecting Assistant Commissioner for the year, 1973-74 for which year the order of the Tribunal was available. By a parity of reasoning the same principle would apply to the orders passed by the learned Appellate? Assistant Commissioner for these three years. If the learned Inspecting Assistant Commissioner would not interface within the orders of the Tribunal he could not interfere, for identical reasons, with the orders passed by the learned Appellate Assistant Commissioner. From the scheme of the Act also this position seems to be correct as even the Commissioner of Income-tax, under the provisions of section 33-A of the Income Tax Act, cannot interfere with any order that has been passed by an authority subordinate to him if the matter is within the scope of appellate authorities. If the Commissioner of Income-tax is prohibited from interfering with such orders, the Inspecting Assistant Commissioner, who is a subordinate officer to the Commissioner of Income-tax, cannot be vested within the higher powers so as to assume jurisdiction to revise orders passed by the Appellate Assistant Commissioner or the Tribunal.

8. It may be worthwhile to trace the history of these provisions at this stage. Section 34-A was enacted by the Finance Ordinance, 1959 and became-effective from 1st April, 1959. The main purpose of its insertion appears to be that the Department had no right of appeal against any orders passed by an Income-tax Officer. Similarly the Commissioner of Income-tax, under section 34-A of the Income-tax Act, could not pass any order prejudicial to the tax-payer. The Inspecting Assistant Commissioner, was, therefore, vested with a power of revising any order which he thought erroneous and prejudicial to the interests of the revenue. We do not know if we can do better justice in analysing the objects behind this enactment than by stating the instructions of the C.B.R. itself reproduced in their Circular No. 48(5)-I.T.P. dated the 15th April, 1959 wherein it has been clearly stated that the new provisions of law empowered the Inspecting Assistant Commissioner to review the order of the Income-tax Officer. The powers are admittedly very vide and in a way it may be said to vest in the I . A . C . even the appellate powers of the A . A . C . But at this stage, the Board has clearly cautioned the officers concerned i that these powers are different from those of the A.A.C. who can reduce or enhance the assessment or penalty only when an appeal is preferred before him while an I.A.C. can pass an order under these provisions at his own sweet-will. The caution clearly points out that, while exercising these wide powers the I . A . C ., should exercise great care and caution and should always remain conscious of the fact that there should be no conflict of opinion between the A . A . C . and the I.A.C. It is unequivocally stated through these administrative instructions that the I.A.C. would not take up any case for enhancement of the income where an appeal is pending before the A.A. C. or the Tribunal. The proper course in such cases, is suggested to be that the material for enhancement of income may be brought to the notice of the A. A. C. or the Appellate Tribunal, through the I . -T .0. who may be directed to move these authorities to exercise their powers to enhance the assessment, if necessary. The circular concludes on the note that only in cases where no appeal proceedings are pending the I. A. C. should take action under section 34-A. On the basis of these instructions we have, therefore, to judge whether 'the present orders could come within the jurisdiction of the I . A . C .

9. It is now settled law that once an appeal is preferred against an order of the I.-T.O., the order of the assessing officer ceases to exist and merges into the appellate order which then alone subsists and remains in the field. In the present case, as we have already stated, the appeals were not only pending before the learned A.A.C. but were actually decided by him and, therefore, the orders of the I. T. O. no more existed. Therefore, the I.A.C. could not start any proceedings even if he had come to the conclusion that the final orders of the learned A.A.C. were erroneous and prejudicial to the interests of the revenue because in doing so the I.A.C. would be doing violence to the express and unambiguous language of these provisions by reading into them something which is not there. We cannot, therefore, accept the position that even these orders of the I.T.O., which stand modified by the appellate order and thus get merged in them, can remain open to there view by the I. A. C. The view is in consonance with the rules for interpreting the Taxing Statute. The Supreme Court of Pakistan has clearly laid down that the courts must look to the word of a statute and interpret it in the light o what is clearly expressed. Nothing can be implied if it is not expressed. If, therefore, under the provisions of section 34-A for the words "order of the I.T.O." we start reading as "order of the I.T.O. as modified by the A. A. C. or the Tribunal" the purpose of the enactment would be totally lost. No second interpretation, in our view, of these provisions, is possible because the words used are so clear that they admit of only one and one interpretation. It is, therefore, apparent that the intention of the legislature in enacting this section was not to invest the I.A.C. with the power to reopen cases where the orders of the I.T.O. had merged with the orders of the higher appellate authorities. The reason for such a reading is also obvious, as we have stated earlier, that where on appeal any error therein can be rectified by the appellate authorities themselves which have been given wide powers of enhancement of the assessments made by the I.T.O. Where, however, no appeal is preferred against the order of the I.-T.O. and the same becomes final the I.A.C. has been vested with the powers to correct it even if it becomes final provided the order is erroneous so as to be prejudicial to the interests of revenue. This being the precise remedial object in enacting the provisions of section 34-A, we must hold that the learned I. A. C. had no jurisdiction to re-open the proceedings in the years under consideration.

9. Reference in this connection may also be invited to the Tribunal's own decision reported as 1971 P T D (Trib.) 53 which clearly lay down that once an appeal I preferred against an order of the I.T.O., the order of the I.-T.O. ceases to exist and merges into the appellate order which alone then subsists and is the operative order whereas a plain reading of section 34-A clearly indicates that it is only the order of the I.-T.O. which if found to be erroneous and prejudicial to the interests of the revenue gives authority to the I.A.C. to start proceedings under section 34-A. There are copious authorities for the proposition that even where an appellate Court confirms the decision of the Court of original jurisdiction that decision merges into the appellate decision and it is then the appellate decision and the appellate decision alone that subsists and is operative; the earlier order is no more capable of enforcement and no foundation of any jurisdiction can be laid on its base (1953) 23 I T R 412, (1952) 44 I T R 578 and (1963) 50 I T R 87 support this proposition. In the present case the conflict is evident from the fact that while the learned A. A. C. had allowed a reduction in the sales fixed by the I.T.O. for one of the years, the order of the learned I.A.C. again pitches up the sales to the same level as that of the I.T.O. If the learned I. A. C. had taken care to look into both the orders of the I.T.O. and the A.A.C, the above conflict would never have arisen. We are, therefore, clearly of the opinion that both in terms of its spirit and in terms of its clear language, the provisions of section 34-A could not be attracted to the facts of the present case. Since these orders had no more remained the orders of the I.T.O., the jurisdiction, which the learned I.A.C. wanted to exercise, was not available to him. For all these reasons the orders of the learned Inspecting Assistant Commissioner must be vacated and the assessment will be cancelled accordingly.

10. All the three appeals are accepted as indicated above. M.B.A./432/T????????????????????????????????????????????????????????????????????????????????????? Appeal allowed.