ZAHID SIKANDAR, MEMBER.---Through this appeal, the taxpayer inter alia has challenged order dated 02.05.2025 passed by Addl. Commissioner Inland Revenue Range-II, Zone IV, Lahore whereby the taxation officer framed amended assessment order under section 122(5A) in taxpayer's case for tax year 2023.
2.    Brief facts of the case are that the taxpayer, a private limited company, filed group taxation return under section 59AA of Income Tax Ordinance, 2001 as single fiscal unit being holding company of various subsidiary companies declaring income at Rs.722,287,361/- on 15.01.2024 under the name and style Dilsons (Pvt.) Ltd. The return so filed constituted as deemed assessment order under section 120 of the ITO. Upon scrutiny, the said tax return was found erroneous in so far as prejudicial to the interest of revenue hence show-cause notice under section 122(9) read with section 122(5A) dated 20.12.2024 was issued by the OIR to the taxpayer confronting the following deficiencies in the return.
       "1. The examination of online record reveals that you have show income from the following sources during the tax year, 2023 which is reproduced as under:-

2.    APPORTIONMENT OF EXPENSES
       The perusal of return/record reveals that during the year you have made export sales under section 154(1) of the Income Tax Ordinance, 2001 which has been officered for taxation under final regime @ 1% Rs. 2,025,041,762/-which constitutes final recharge of tax liability other than normal sales. Whereas the scrutiny of true shows that you have not appointed the expenses between normal and FTR sales rather you have charged the entire expenses to the normal sales to reduce the quantum of income to avoid proper taxation which is erroneous is so far as pre-judicial to the interest of revenue. The correct computation of income after apportionment or expenses under section 67 of the Income Tax Ordinance, 2001 which reproduced as under:
       APPORTIONMENT FOR TAX YEAR, 2023

       You are requested to explain you position failing which the adverse inference shall be drawn and expenses wrongly charged to the normal income shall be disallowed under section 67 of the Income Tax Ordinance, 2001.
       In view of above, situation, amendment of assessment is necessary under section 122(5A) on the basis of discrepancy observed from your tax return and annexure filed. I therefore, once again require you to produce or cause to be produce at my office, the documentary evidence on which you have filed your return of income, so that correct income may be determined and proper tax imposed. Please also note that in case of failure to produce the documents mentioned above, the amendment under section 122(5A) will be made as proposed above."
3.    Reply was filed by the taxpayer in response to show-cause notice which is reproduced as under:
       "On instruction and on behalf of our above-named client, we acknowledge receipt of your show-cause notice bearing bar code No. 10000022984446 dated 20 December 2024 requiring compliance by 16 January, 2025 after adjournment on the captioned subject.
       Our client, M/s Dilsons (Pvt.) Ltd is the holding company of a registered group with the Securities and Exchange Commission of Pakistan (SECP) and FBR for Group taxation purpose and comprise of following ground entities:
       a) Dilsons (Private) Ltd. the Holding Company,
       b) CCL Holding (Private) Limited,
       c) CCL Pharmaceuticals (Private) Ltd., and
       d) Nexpharm Healthcare (Private) Limited
       e) CCL Consumers Healthcare (Private) Limited
       f) Wholesun (Private) Limited
       It is crucial to note that the taxpayer and its ground companies opted for group taxation starting from the tax year 2023 and onwards. The first consolidated income tax return as a fiscal unit was filed for tax year 2023, based on consolidated financial statements in accordance with section 59AA of the Income Tax Ordinance, 2001 and rule 231D of the Income Tax Rules, 2022 [the Rules].
       This is in reference to the observation regarding the export sales of Rs.2,025,041,762/- under Section 154(1) of the Income Tax Ordinance, 2001, which were offered for final taxation at the prescribed rate of 1%. It has been alleged in notice that expenses were not apportioned between normal and export sales, resulting in the entire expenses being charged to normal sales. This has been interpreted as an attempt to reduce the quantum of income subject to taxation.
       We would like to clarify that the export sales amounting to Rs.2,025,041,762/- were made by CCL Pharmaceuticals (Private) Limited, a subsidiary of Dilsons (Private) Limited. These export sales were separately taxed at the final rate of 1% under Section 154(1) and accordingly declared in the return filed. The income attributed to these exports was calculated as Rs.132,540,569/- after apportionment of expenses of CCL Pharmaceuticals.
       In the consolidated return of Dilsons (Private) Limited, the already apportioned export income of Rs.132,540,569/- for CCL Pharmaceuticals was directly reduced through "Other Admissible Deductions." This resulted into group taxable income of Rs.722,287,363/- (before WWF adjustments).
       The appointment of expenses and taxation of export income can be verified through the group return of Dilsons (Private) Ltd. Please note that return format provided on IRIS doesn't provide specific column for apportionment of expenses therefore "other Admissible Deductions" code 3254 was used in respect of export income after apportionment/ A detailed breakup of other admissible deductions that has been taken in the Income Tax Return, is provided as follow:
       Other Admissible Deductions (Code 3254)

       Schedules of apportionment of expenses in respect of CCL Pharmaceuticals is attached for ready reference.
       It is evident from the calculations reproduced above along with the appointment schedule that income related to exports are duly deducted after apportionment of expenses while computing the taxable income of the group."
4.    The OIR rejected the reply alleging that the taxpayer failed to apportion group-wise expenses between income taxable under the Normal Tax Regime (NTR) and income subject to Final Tax Regime (FTR), notably export proceeds taxed at 1% under the FTR instead the taxpayer incorrectly claimed all group wise expenses including administrative and operational costs against the income computed under Normal Tax provisions thereby understating the taxable income attributable to NTR. It was further held that the taxpayer's blanket deduction of Rs.132,540,569/- under the head 'other admissible deductions' (Code 3254) without adequate disclosure, computation or reconciliation contravened the statutory requirements and expenses were required to be allocated fairly, proportionately as per section 67 of ITO as the taxpayer derived income chargeable both under final and normal tax provisions. Eventually, the OIR disallowed inadmissible deductions under section 67 as under:-

5.    Accordingly, income of the taxpayer was computed as under:

6.    Aggrieved by the aforesaid treatment, the taxpayer has filed this first appeal directly before the tribunal under provisions of Tax Laws (Amendment) Act, 2024 on the following grounds:
1.    That the respondent has wrongly passed an order against the law and facts of the case and has raised arbitrarily demand of tax.
2.    That the respondent has wrongly issued a notice under section 122(5A) of the Income Tax Ordinance, 2001 and proceeded with an amended assessment without first establishing the existence of the two mandatory conditions i.e. that the assessment is both erroneous and prejudicial to the interests of the revenue.
3.    That the respondent has failed to pay heed to the written submissions of the taxpayer.
4.    That the respondent has wrongly concluded that all group entitles' expenses are apportionable against the individual FTR income of one of the group entities i.e. CCL Pharmaceuticals (Pvt.) Limited (CCL).
5.    That the respondent has inadvertently misinterpreted the section 67 of the Income Tax Ordinance, 2001 read with Rule 13 of the Income Tax Rules, 2002.
6.    That the respondent has failed to consider that the exports of Rs.2,025,041,762/- only pertains to one entity of the group i.e. CCL Pharmaceuticals (Pvt.) Limited (CCL) and identifiable common/specific expenditures/deductions incurred to derive exports income of CCL have already been apportioned to CCL, keeping in view the section 67 of the Income Tax Ordinance, 2001 read with rule 13 of the Income Tax Rules, 2002, and accordingly the resulting taxable profits of Rs.132,540,569/- pertaining exclusively to these have been deducted in the income tax return of the group to arrive at the normal taxable income of the group.
7.    That the respondent has erred in law by apportioning the expenditures of other entities of the group, each of which is maintaining separate and independent accounting records, and audited financial statements, to exports (FIR income) pertaining exclusively to CCL and thus has wrongly disallowed the group-level expenses of Rs.1,932,349,187/-.
8.    That the respondent has wrongly not deducted the corresponding exports (FIR income) of Rs.2,025,041,762/- to arrive at the amended total income thus subjecting FTR income to duplicate taxation under Normal Tax Regime (NTR) also.
9.    That the respondent has inadvertently not deducted the deductible allowance (WWW) of Rs.19,496,234/- from the total income to arrive at the amended taxable income.
10.  That the respondent has wrongly placed reliance on the judgments and Circulars which are not within the four corners of the case.
11.  That appellant may be allowed to amend, alter or to add any grounds of appeal at the time of hearing of appeal.
12.  That order of the respondent is bad at law for such other reasons as may be adduced at the time of hearing.
13.  It is prayed that the impugned order of the respondent may kindly be quashed and the demand created ordered to be deleted or other suitable relief in the matter may kindly be granted."
7.    Arguments heard, order perused.
8.    It transpires that during the pendency of this appeal the taxpayer also filed rectification application before the taxation officer who vide order dated 21.05.2025 rectified his original order thereby reducing the taxpayer's tax liability from Rs.325,140,463/- to creating refundable income tax at Rs.223,684,883/-. When confronted about the maintainability of this appeal against the original order after rectification, we were taken by surprise by the learned AR that such a huge reduction in tax liability was due to computational error. It is contended that the rectification order has not affected the main appeal decision and the original order to the extent of remaining tax chargeability still holds the field and that is only being pressed before us alongside legal objections in respect of assumption of jurisdiction under section 122(5A). Conversely, the DR objected on the maintainability of this appeal against the original order after passing of rectification order.
9.    At this juncture, first and foremost question to determine by us is the maintainability of this appeal in the presence of subsequent rectification order. Does the original order mergers into the subsequent rectified order or it ceases to exist or still holds the field. From time to time, superior courts have laid down the principles with regards to the doctrine of merger which are summarized as follows:
(a)   Where any order of decree of a Court, authority or Tribunal is subjected to an appeal or revision and the appellate or revisional authority passes an order modifying, reversing or affirming the original order, the original order merges with the order of the superior authority on the principle that there cannot be more than one order operating at the same time.
(b)   If the Appeal or Revision is restricted to a delinkable part or portion of the original order or one of the several matters or issues dealt by the original order, then, only that part of the original order which is the subject-matter of the appeal or revision will merge in the order of the superior authority and the remaining portion of the original order which is not subjected to appeal or revision will remain undisturbed.
(c)   Where the Appellate authority has given plenary jurisdiction over the entire matter dealt with by the original order, irrespective of the fact whether Appeal is filed in regard to the entire matter or part of the matter, the entire original order will merge in the order of the Appellate Authority. However, where such appellate authority entrusted with plenary jurisdiction consciously restricts the scope of scrutiny to only a part of the original order, then, whether only that part of the original order which is subjected to scrutiny and not the entire order will get merged with the order of the appellate authority, is a matter on which there is divergence of views. The view of this Court in such cases has been that the merger will be in respect of the entire order.
(d)   There will be no merger at all where the subsequent order is passed by the same authority, either by way of review or rectification. Where an order is passed on review, the original order gets wiped out as it is set aside by the order granting review and is superseded by the order made on review.
10.  There is thus no 'merger' where an order is passed rectifying any mistake in the original order; there is neither 'merger' nor 'supersession'. The original order gets amended/wiped out by the order of rectification by correcting the error. In the present case, the taxation officer in rectification Order modified its Original Order by allowing huge relief to the Appellant on the grounds claimed by it in its rectification application. Thus, when the Original Order has been modified by the rectification order passed by the OIR, the Original Order stands amended and as such the subsequent rectification order alone would survive for the purpose of filing Appeal. Had the rectification application been dismissed and there been no relief in rectification application no question of appeal against subsequent rectified order would have arisen and the appeal was maintainable against the original order. If the Rectification application is allowed partly through modification, the order becomes a composite order whereby the OIR not only vacates the earlier order but simultaneously pass an order modifying the original order earlier passed. There cannot be two different orders standing against one assessment governing the same subject matter at a given point of time. The subsequent order vacated, reversed or modified is the order that is effective for the purpose of appeal if any maintainable under the law. Therefore, the appealable order in this case would be rectified order.
11.  The learned AR has persisted that the remaining issue before us has not been adjudged by the OIR in rectification application therefore no question of merger arises and the appeal is very much maintainable. We may observe at the cost of repetition that the original order stands amended/modified therefore the subsequent rectified order would survive for the purpose of filing of appeal as the original order no more holds the field. Further, the grounds reproduced above raised in this appeal are in relation to income assessed in the original order and the recovery notice impugned before us is also the outcome of original order therefore bifurcating the income after rectification and deciding the appeal against the new tax liability without any challenge before us is not warranted under the law. Even otherwise, after examination of the rectification order we find that the OIR has allowed adjustability of certain allowances not accounted for earlier which has completely changed the assessed income and chargeability of tax so we are not fortified with the AR's assertions that apportionment of expense being a separate issue is to be dealt with separately.
12.  For the narrated reasons above, we hold that the original order under appeal here ceased to exist after modification in rectification application therefore the instant appeal is no more maintainable before us and is hereby dismissed. The appellant may avail its remedy against the subsequent rectified order if so advised. Before we conclude, it is clarified that this principle shall not apply if rectification is only confined to any clerical error or mistake which does not affect the earlier adjudication on merits.
13.  We order accordingly.
                                                                                               Appeal dismissed.