1993 P T D (Trib.) 1212
[Income-tax Appellate Tribunal Pakistan]
Before Syed Kabirul Hasan, Judicial Member
I.T.As. Nos.598/KB and 600/KB of 1991-92, decided on 05/09/1992.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 6---Exercise of jurisdiction by successor of Assessing Officer---A succeeding Income Tax Authority may continue proceedings under the Ordinance from the stage it was left by his predecessor---Assessment order, show-cause notice and penalty order having been passed/issued by different persons was not improper.
Anantha Naganna Chetty v. C.I.T. (1972) 25 Tax 183 (H.C.) distinguished.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 91---Penalty---Penalty can be imposed even if on the date of such order there is no outstanding demand, but in such a case the Assessing Officer has to prove that the assessee had failed to pay such outstanding demand within time specified in the demand notice---[1986 PTD (Trib.) 846 dissented from].
There is no logical reason why a penalty cannot be imposed for a default which was committed earlier and that on the date of imposition of penalty there was no liability outstanding against the assessee, because of the fact that there is no such provision in the Income Tax Ordinance, 1979 which restricts the powers of the Assessing Officer to levy penalty in a case where default has been committed by an assessee and payment of outstanding demand has been made before the issue of notice. Penalty can be imposed even if on the date of such order there is no outstanding demand, but in such a case the Assessing Officer has to prove that the assessee had failed to pay such outstanding demand within time specified in the demand notice.
(c) Income-tax--
----Notice---Natural justice, principles of---If by an express provision the legislature intends to do away with issue of notice then the principles of natural justice would not apply.
PLD1964SC410 fol.
1986 P T D (Trib.) 846 dissented from.
(d) Income Tax Ordinance (XXXI of 1979)---
----Legislature having dispensed with the application of natural justice for issue of notice prior to levy of penalty, it was discretionary with the Assessing Officer to issue notice or not and as such order of penalty could not be questioned if no notice was issued---[1986 PTD (Trib.) 846 dissented from].
P L D 1964 SC 410 fol.
1986 P T D (Trib.) 846 dissented from.
(e) Income Tax Ordinance (XXXI of 1979)---
----S. 91---Imposition of penalty---Limitation---Discretion of Assessing Officer subject to judicial scrutiny by the Appellate Authority.
The order of penalty should be passed within reasonable time yet no hard and fast rule can be laid down and there is no such restriction imposed on the Assessing Officer as regards the time limit in the Income Tax Ordinance.
However, to improve collection of tax it is expedient to impose penalty within a shortest possible time but the same is discretionary with the Assessing Officer. However, this exercise of discretion is subject to judicial scrutiny by Appellate Authorities.
(f) Income-tax---
----Demand notice---Demand notice cannot be served on any other person except the assessee.
1986 P T D (Trib.) 188 ref.
(g) Income Tax Ordinance (XXXI of 1979)---
----Ss. 91 & 155---Demand notice---Unless notice of demand is served on the assessee which is a condition precedent and date of payment is specified on the demand notice, there would be no default and penalty could not be imposed--?Provisions of S.155 of the Ordinance would not be applicable in such a case to cure the irregularity by the Department and benefit of inefficiency by the department would go to the assessee.
1986 P T D (Trib.) 188 ref.
Javed Zakaria, A.R. for Appellants. Muhammad Saeed, D.R. for Respondent.
Dates of hearing: 17th and 22nd August, 1992.
ORDER
By this common order I intend to dispose of these two appeals relating to assessment year 1986-87 wherein an important common issue of levy of penalty under section 91(1) of the Ordinance has been raised.
2. The brief facts are that both the appellants are Directors of a Company, Messrs M .. A .. P .. L .. In case of appellant, Mr. M .. I .. L .. an outstanding demand/amount of Rs.28,525 which was created as a result of assessment under section 62 of the Ordinance for the assessment year 1986-87, was detected and accordingly a show-cause notice was issued on 12-5-1991 and was served on 18-5-1991. According to the version of the I.T.O., this notice was not complied with and hence he imposed penalty under section 91(1) of the Ordinance @ 5% on the outstanding demand under section 9(1) of the Ordinance.
3. In case of Mr. A .. R .. L .. the facts are more or less similar except outstanding demand was Rs.30,222.
4. In support of above appeals, the learned counsel for the assessee/appellants Mr. Javed Zakaria has urged amongst others, as follows:--
(i)???????? Assessment order, show-cause notice and penalty order has been passed/issued by different persons hence not proper;
(ii)??????? payment has been made after the issue of show-cause notice, therefore, there is no justification to levy penalty;
(iii)?????? penalty is illegal as no demand notice was served on the assessee, even if demand notice was served then there is no specified date of payment in such demand notice, therefore, there is no default and penalty is illegal;
(iv)?????? show-cause notice is necessary in case of levy of penalty under section 91 of the Ordinance in spite of the fact that provisions of subsection (5) of section 91 specifically do not impose such a restriction on the Assessing Officer;
(v)??????? penalty order has been made after inordinate delay and hence barred by limitation; and
(vi)?????? alternatively he argues that first penalty imposed at 5% is excessive and is in violation of C.B.R.'s Standing Instructions.
5.???????? The learned D.R. has contended as follows:--
(1)??????? Demand notice was served on counsel's employees and such penalty is justified; and
(ii)??????? any defect in form of notice is curable under section 155 of the Ordinance.
6. Now reverting back to first submission of the learned counsel for the assessee, it may be observed that it is misconceived and is based on a Indian case-law which is reported as Anantha Naganna Chetty v. C.I.T. (1972) 25 Tax 183 (H.C.). In that case such a situation arose where assessment, notice of penalty and penalty orders were made or issued by different persons and the Court held that fresh notice to the assessee was necessary after the transfer of Assessing officer who issued such notice. But the learned counsel has failed to note that in Indian Income-tax Act, there was section 5(7-C), which required the issue of fresh notice whereas in our Income Tax Ordinance there is no such provision. In order to clarify this point, the relevant sections of Indian Income?tax Act and Pakistan Income-tax Ordinance are reproduced below:--
INDIAN INCOME-TAX ACT;
"Section 5(7-C): --Wherever in respect of any proceeding under this Act an income-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercise jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor: Provided that the assessee concerned may demand that before the proceeding is so continued, the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him he be reheard; provided further that in computing the period of limitation for the purpose of subsection (3) of section 34, the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the preceding proviso shall be excluded."
PAKISTAN INCOME TAX ORDINANCE:
"Section 6. Exercise of jurisdiction by successor.---Whenever, in respect of any proceedings under this Ordinance, an income-tax authority is succeeded by another, the income-tax authority so succeeding may continue any proceeding from the stage at which it was left by his predecessor."
In view of above the first contention of the learned counsel is not tenable. Also there is ruling of this Tribunal reported as 1974 P T D (Trib.) 31 wherein this objection had been considered and repelled.
8. As regards second and fourth submissions of the learned counsel, it is Observed that no doubt outstanding demands were paid in both the cases prior to order of penalty which was passed on 9-6-1991, yet basic facts remained that penalty was imposed for a default already committed by the assessed/appellant. This is an admitted position that in both the cases the outstanding demand was paid on 23rd April, 1991 and notice for levying penalty was issued in both the cases on 12-5-1991. Nonetheless in my opinion there is no logical reason why a penalty cannot be imposed for a default which was committed earlier and that on the date of imposition of penalty there was no liability outstanding against the assessee, because of the fact that there is-no such provision in the Income Tax Ordinance, 1979 which restricts the powers of the Assessing Officer to levy penalty in a case where default has been committed by an assessee and payment of outstanding demand has been made before the issue of notice. In my opinion penalty can be imposed even if on the date of such order there is no outstanding demand, but in such a case the Assessing Officer has to prove that the assessee had failed to pay such outstanding demand within time specified in the demand notice.
9. In order to support his fourth submission the learned counsel for the assessee has relied on a case reported as 1986 P T D (Trib.) 846, wherein on page 847 the Single Bench of this Tribunal has observed as under:--
"That prior notice was must is not being disputed by the department. And correctly so, because the question is now well-settled by pronouncements of the superior Courts made from time to time. Some of the judgments go to the extent of laying that even a built-in provision in any enactment to the contrary can be ignored. Because the underlying principle is that no one should be condemned unheard. This maxim, as held in P L D 1964 SC 410, is not confined to Courts but extends to all proceedings, by whomever held which may affect the person or property or other right of the parties concerned in the dispute and the maxim will apply with no less force to proceedings which affect liability to pay a tax."
10. The abovementioned view held by my learned brother Member, could not persuade me and I am constrained to differ because of the fact that if by an express provision the legislature intends to do away with issue of notice then in my opinion the principle of natural justice would not apply. This is the position which is apparent from the case-law relied upon by my learned brother and reported as P L D 1964 SC 410 it is observed as under:--
"??.? We do not think the mere absence of provision as to notice can override the principle of natural justice that an order affecting the rights of a party cannot be passed without an opportunity of hearing to that party. A reference to provisions in other statutes will show that the existence of a provision of notice as to one proceeding has not been accepted as an argument against the need of notice in the case of a proceeding with respect to which there is no express provision of notice. Under the Criminal Procedure Code there is a distinct pro-.vision in the case of an appeal for notice of hearing to the appellant, but there is no such provision in the case of a revision petition in the High Court. It cannot be urged, however, that the right of hearing in a revision petition has thereby been excluded. In the Civil Procedure Code similarly there is a provision in Order XLI, rule 22 directing notice of the hearing of appeal to be given to the appellant and there is no such provision with respect to a proceeding under section 115, C.P.C., yet it cannot be said that it is not necessary to hear the parties affected in a proceeding under section 115, C.P.C. The fact that the proceedings are judicial or quasi judicial in nature is sufficient to entitle a party to a hearing in the absence of a specific provision to the contrary."
11. In the light of above observations, if I look at section 91(5) of they Ordinance then it is abundantly clear that by an express provision the legislature has dispensed with the application of rule of natural justice for issue of notice prior to levy of penalty. It is now discretionary with the assessing officer to issue notice or not and such order cannot be questioned if no notice is issued. Section 91(5) reads as under:--
"(5) Notwithstanding anything contained in any law for the time being in force, no order of penalty made under subsection (1) shall be called in question in any Court or Tribunal or before any authority on the ground that--
(a)??????? no show-cause notice was issued before the said order was made; or
(b)??????? an application for stay of recovery of tax or the payment of tax in instalments had been pending before any Court or Tribunal or any other authority."
12. In view of express provision contained in section 91(5), 1 am inclined to hold that in case where penalty is imposed under section 91 without issue of notice then that section would be valid. To support this view reliance can be placed on a case-law reported as PLD 1964 SC 461, wherein it is observed:--
"Principle of audi alteram partem presumed to be embodied in every statute in absence of any provision to contrary."
13. Highlighting his fifth submission, the learned counsel for the appellants has contended that penalty has been imposed four years after the assessment was made or tax demand was not paid, therefore, such an action of the Assessing Officer is time-barred. He has failed to point out any provision of law, which bars such an action by an Assessing Officer. I have considered this point and I agree with this proposition that the order of penalty should be passed within reasonable time yet no hard and fast rule can be laid down and there is no such restriction imposed on the Assessing Officer as regards the time limit in the Income Tax Ordinance. However, to improve collection of tax it is expedient to impose penalty within a shortest possible time but the same is discretionary with the Assessing Officer. However, this exercise of discretion is subject to judicial scrutiny by Appellate Authorities. In this case I think there is no inordinate delay which would justify the interference.
14. As regards the third submission of the learned counsel for the appellants/assessees,? it is observed that notice of demand was not served on the appellants but on his counsel. It has also been established that such notice was not received by the counsel himself but one of his employees. Secondly it is observed that no date of payment is specified on the said notice of demand and in view of this the objection of the learned counsel that technically no demand was outstanding has some force. This has become an established law that demand notice cannot be served on any other person except the assessee and there are plethora of case-laws on this point. The learned counsel has also relied on a case-law reported as 1986 P T D (Trib.) 188 which is in line with the other decisions of this Tribunal.
15. The contention of the learned D.R. that any defect in form of notice is curable under section 155 of the Ordinance would not apply in this case because of the fact that unless notice of demand is served on the appellant which is a condition precedent and date of payment is specified on the demand notice there would be no default and penalty could not be imposed. I have also taken into consideration the instructions issued by the C.B.R. and contained in Circular No.13-ITP/1951, dated 28-5-1951, as regards to date of payment on demand notice and which is 30 days. In urgent cases the Assessing Authority is empowered to curtail that period to 5 days, but in any case demand notice must specify the date of payment and if such date is not mentioned then technically speaking, it would be presumed that there is no outstanding demand "because benefit of inefficiency" in such a situation would be given to the assessee.
16. In support of his 6th submission the learned A.R. has relied on C.B.R. Circular to the effect that in case of first default penalty should not be more than 2-1/2%. This contention does not require consideration as I have given a finding which is favourable to assessee on different reasons.
17. In view of above, I am of the view that no notice of demand was properly served and also that no date of payment was mentioned on the demand notice, therefore, the appellants/assessees cannot be held as defaulter under the Ordinance and cannot be allowed to suffer because of inefficiency of the Assessing Officer. The maxim "the benefit of doubt to be given to the accused" in modified form that "benefit of inefficiency should be given to the assessee" would apply in this case.
18. In terms of foregoing the orders imposing penalty under section 91 cannot be sustained and are hereby cancelled in both the appeals.
M.B.A./2415/T??????????????????????????????????????????????????????????????????????? Order accordingly.