(a) Income Tax Ordinance (XXXI of 1979)--

----Ss. 111 & 62---Agreed assessment---Imposition of penalty under S. 111 of the Ordinance ---Assessee denying to have authorised his counsel to agree for the imposition of penalty and department failed to establish that counsel of assessee had authority to agree with the imposition of penalty---Penalty was ordered to be cancelled by the Tribunal.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 111 & 116---Penalty under S.111---Assessing officer has to establish independently mens res or the guilty intention of assessee and it was not sufficient that the assessee had given incorrect particulars of his income and had not declared his purchases properly---Burden to prove concealment was on the department.

The penalty proceedings being criminal in nature, the assessing officer has to establish independently mens rea or the guilty intention of the assessee. It is not sufficient that the assessee had given incorrect particulars of his income and had not disclosed his purchases properly. The department has to prove independently not only that the assessee had concealed the income or had furnished inaccurate particulars of his income but also that he did so deliberately and intentionally. If any other meaning is to be given, section 116 of the Income Tax Ordinance would become redundant because once an assessing officer found in the assessment order that the assessee has suppressed his income then no further enquiry or notice would be necessary.

Concealment has to be proved by the department as a criminal charge and guilt must be brought home by adopting the same standard of proof, as far as may be possible, as is requisite to sustain a conviction in a criminal Court as the penalty proceedings are of a quasi judicial character and the assessing officer has to play a role of both the prosecutor and the judge.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.111 & 116---Imposition of penalty under S. 111---Notice under S. 116 is a sine qua non for imposing penalty under S. 111---Since no notice under S.116 was served on the assessee before imposition penalty under S.111, the imposition of penalty was illegal and thus was ordered to be cancelled by the Tribunal.

The law requires that a notice under section 116 should be given to provide a reasonable opportunity of being heard to the assessee so that he can defend and explain his case. Such a notice under section 116 is not a mere formality. It is sine quo non for passing an order for imposition of penalty.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss. 111 & 116---Penalty under S. 111---Even if the counsel of the assessee was authorised to enter into agreement for the assessment, Department was not absolved of independently proving that the assessee was guilty and had suppressed the income consciously and deliberately.

Dr. Ilyas Zafar for Appellant.

Amjad Ali Ranjha AC/DR for Respondent.

Date of hearing: 18th March, 1986.

ORDER

ABRAR HUSSAIN NAQVI (JUDICIAL MEMBER): --These are three appeals filed by an assessee against the imposition of penalties under section 111 of the Income Tax Ordinance, 1979.

2. Brief facts of the case are that the assessee is a registered firm, derives income from dealing in oil products as an Authorised Distributor of M/s. Pakistan State Oil Company Ltd. Original assessments of the assessee were finalized under section 59 (1) of the Income Tax Ordinance as under:--

Subsequently, it was discovered that some of the purchases were not disclosed by the assessee. Consequently, the assessee's case was re-opened and re assessments were made on agreed basis as under:--

While making compromise on the agreed assessment, the A.R. of the assessee also agreed for a penalty under section 111 of the Income Tax Ordinance equal to one time of the tax evaded. The agreement was in the following words:--

"Agreed to be assessed at net income for Rs. 128,000 for 1981-82, Rs.136,000 for 1982-83 and at Rs. 110,000 for 1983-84, Also agreed for a penalty under section 111 of the Income Tax Ordinance, 1979 equal to one time of the tax evaded. Difference of income declared and assessed shall be taken for penalty."

The assessing officer after giving a notice under section 116 of the Income Tax Ordinance with the prior approval of the IAC imposed the penalty as agreed by the learned counsel for the assessee.

3. Before the learned AAC it was pleaded that the agreement has been extracted from the assessee under duress and threats of dire consequences. It was pleaded that the threat of imposition of penalty at 100% of the tax evaded was to be imposed. It was also pleaded before the learned AAC that it is the concealment of income which is punishable and not the concealment of the purchases. The learned AAC, however, confirmed the order of the learned ITO and, hence, these appeals.

4. The learned counsel for the assessee, inter alia, contended before us that the learned counsel who made the agreement had no authority to agree for the imposition of penalty. It was further argued that even if the counsel has such an authority even then he could not make a compromise in regard to the imposition of penalty as the penalty proceedings are criminal in nature and had to be treated as such. The burden of proof was on the department to show that the assessee had deliberately concealed the income. It was submitted that the department had not been able to prove that the assessee Was guilty of deliberate concealment of income. The learned counsel for the assessee relied upon the case reported as 1982 PTD (Trib.) 60. In that case the facts were almost similar in which the counsel of the assessee had agreed to be assessed at a certain income. In the absence of any specific power to make a compromise, the Tribunal held that no legal compromise or legal agreement had been entered into nor it could bind the assessee. In arriving at this conclusion, the Tribunal relied upon a number of cases of Indian Superior Courts and also decisions of the Tribunal. It was held by the Income Tax Tribunal in that case as under:--

"In Tax cases an Authorised Representative has to represent the case of the assessee as has been made out by him in his return. If an Authorised Representative makes any statement which is contrary to the case of the assessee he cannot be said to represent the assessee and would travel beyond the power given to him. It may be noted that a Vakalatnama given to a Counsel or an Authorised Representative, is a special power of attorney in nature which empowers him to act within the limited sphere mentioned in the power of attorney. The power to enter an agreement with the assessing officer cannot be implied. Such a power should be specific and categorical. in the absence of such a power, if any Authorised Representative enters into any agreement it would be without lawful authority and, therefore, cannot bind the assessee."

5. Then the Income Tax Tribunal quoted a paragraph from judgment of the Privy Council in case reported as 84 IC 721. The Tribunal also relied upon Din Muhammad and another v. Farooq Mirza reported as PLD 1955 Kar. 62 and the Tribunal's decision in (1970) 22-Taxation page 25 besides Rijahram Badaldas and others v. Vithaldas Jethanand and others reported as AIR 1944 Sindh 4. It was further held by the Tribunal in that case referred to above as under:--

"In the Income Tax case when the assessee authorises his representative to plead and act on his behalf it is presumed that the Attorney or the Representative is being required to represent the case of the assessee as made up by him in his return. Therefore, the Attorney or Authorised Representative has authority to do all acts specifically mentioned in the power of attorney and allied and incidental acts, which are in line with the case of the assessee as envisaged in his return. If any other action is to be taken by the Authorised Representative which is 'contrary to what was disclosed in his return, he has to obtain specific authority of the assessee to do so."

In the present case when the assessee denied to have authorised his counsel to agree for the imposition of penalty, the burden shifted on the department to show that the counsel, who has consented to the agreement was duly authorised by the assessee to make such an agreement. Nothing has been shown to establish that the counsel did have any power to make such compromise.

6. Even otherwise the penalty proceedings being criminal in nature, the assessing officer has to establish independently mens rea or the guitty intention of the assessee. It is not sufficient that the assessee had given incorrect particulars of his income and had not disclosed his purchases properly. The department has to prove independently not only that the assessee had concealed the income or had furnished inaccurate particulars of his income but also that he did so deliberately and intentionally. If any other meaning is to be given, section 116 of the Income Tax Ordinance would become redundant because once an assessing officer finds in the assessment order that the assessee had suppressed his income then no further enquiry or notice is necessary. The law requires that a notice under section 116 should be given to provide a reasonable opportunity of being heard to the assessee so that he can defend and explain his case. Such a notice under section 116 is not a mere formality. It is sine qua non before passing an order for imposing the penalty. In Muhammad Muslim v. C.I.T., Karachi reported as 1980 PTD 227 a Division Bench of the Sindh High Court dealt with this issue at length. Their Lordships referring to a decision of the Supreme Court of India observed at page 135 of the report:--

"The Supreme Court affirmatively held that the burden. of proof was on the department who must establish that the receipt of the amount in dispute constituted income of the assessee and in case no evidence was available, except the explanation of the assessee which may be false, it would not follow that receipt constitutes taxable income. In short, the Supreme Court of India took the view that provisions relating to penalty are penal in nature and the burden of proof of evasion of tax is glaringly on the department and not on the assessee. In a subsequent case namely Commissioner of Income Tax v. Khoday Eswarsa & Sons (1972) 83-ITR 369 the Supreme Court of India reaffirmed the dictum in the earlier case of Anwar Ali and held that apart from the falsity of the explanation of the assessee, the department must have some cogent material or evidence which should raise an inference that the assessee had consciously concealed the particulars of his income or had furnished inaccurate particulars. It was reported by the Supreme Court of India that the mere fact of assessee's explanation being rejected and on establishment of a sum of money being in the hands of the assessee, an inference would not be necessarily available that the assessee had, by concealing his income or furnishing of inaccurate particulars, incurred a penalty."

It has been consistently held by the Supreme Court that concealment has to be proved by the department as a criminal charge and guilt must be brought home by adopting the same standard of proof, as far as may be possible, as is requisite to sustain a conviction in a Criminal Court as the penalty proceedings are of -a quasi judicial character and the assessing officer has to play a role of booth the prosecutor and the judge.

7. The learned counsel has also relied upon a decision of the Tribunal reported as 1981 PTD (Trib.) 15. It was held in that case:--

"The penalty proceedings are criminal in nature and, therefore, the standard of evidence required to be adduced should be the same as in the criminal proceedings. It, therefore, follows that even an agreement of the assessee to be penalised would not be itself sufficient and the department could not absolve of its responsibility to prove the concealment as a fact. As in a criminal case, mere confession cannot be made the basis of a conviction without any corroborating evidence, the same principle will be applicable in case of imposition of penalties. The learned A.R. has placed reliance on the case of Kerala High Court reported as Money & Co. v. Commissioner of Income Tax, Kerala (1963) 47-ITR 434."

8. Incidentally, the assessee has completely denied to have received any notice under section 116 though the department asserts that such a notice was issued and served on the assessee. When asked to prove this fact, the learned D.R. submitted that a notice under section 116 of the Ordinance was issued on 20-6-1984 which was available on file and was received by Muhammad Amin partner on 24-7-1984. However, the learned A.R. pointed out that signatures of Muhammad Amin did not tally with his admitted signatures. Another notice was issued by the ITO on 25-8-1984 which was served on one Muhammad Ramzam whose thumb impression was on the notice. However, the assessee completely denied and submitted that Muhammad Ramzan lived in Karachi and it was not the thumb impression of Muhammad Ramzan. We have seen these notices and compared the signatures of Muhammad Amin partner with his admitted signatures. These two signatures do not tally. As such notice under section 116 of the Ordinance cannot be said to have been served on the assessee. Service of notice under section 116, as stated above, is sine qua non for imposition of penalty. Section 116 says that no penalty can be imposed without first issuance of notice under section 116 of the Income Tax Ordinance. In these circumstances, we feel that penalty has to be cancelled on two grounds. Firstly, it has not been established that notice under section 116 was served on the assessee before imposition of penalty. Secondly, the agreement was made by the counsel for the assessee for which he had no such authority to make an agreement on behalf of the assessee. Thirdly, even if the counsel was authorised even then the department was not absolved of independently proving that the assessee was guitly and suppressed the income consciously and deliberately. Since no material is on record to prove these facts, the penalties impugned are directed to be cancelled.

9. All the three appeals are accepted.

M.BA./1214/TAppeals accepted.