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

----Ss. 85, 91 & 156---Income Tax Rules, 1982, I.T. 30---Notice to assessee for "payment of tax ---Default---Pendency of application for rectification of mistake---Imposition of penalty---Validity---Distinction between assessment order and I.T.30---Commissioner of Income Tax (Appeal) deleted the penalties imposed on assessee by the Assessing Officer on the plea that such penalties had been imposed for default in payment of additional tax and thus was wrongly charged and assessee's application for rectification of mistake under S.156 was still pending and no penalties could be imposed before its decision---Department challenging the deletion order in appeal before Tribunal ---Held, there was no order passed by the I.T.O. which could be rectified under S.156 of the Ordinance---Additional tax was calculated in I.T. 30 which would not constitute order requiring rectification under S.156---Since there was no mistake in assessment order or in any other order within meaning of S.156, it had no application and deletion of penalties by Commissioner Appeals on account of pendency of application for rectification was not maintainable.

1982 P T D 394 ref.

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

----Ss. 85 & 91---Demand Notice---Legality---Demand notice could not be legally made if it was not in consequence of an order---Calculation of tax made in I.T.30 was not an order and therefore demand made on basis of I.T30 would not constitute a demand of tax within the meaning of S.85 of the Ordinance---No legal order existed on the basis of which notice of demand could be issued under S.85---To the extent of additional tax levied, no legal liability was created against the assessee and consequently there was no legal default to be visited by penalty.

1987 P T D 249 ref.

F.D. Qaiser, D.R. for Appellant.

Sarfraz Ahmad, F.CA. for Respondent.

Date of hearing: 2nd March, 1992.

ORDER

ABRAR HUSSAIN NAQVI (JUDICIAL MEMBER).--These are three departmental appeals against the deletion of penalties and relate to the assessment years 1985-86 to 1987-88.

2. Brief facts of the case under which these penalties have been imposed were that a notice under section 85 was issued to the assessee for the payment as under: --

1985-86 Rs.1,563.

1986-87 Rs.4,197.

1987-88Rs.18,990.

Since no payment was made and the notice remained uncomplied with the ITO imposed penalties at the rate of 10% of this demand. Consequently the penalties at Rs.156, Rs.419 and Rs.1,899 respectively for the years 1985-86, 1986-87 and 1987-238 were imposed under section 91 of the Income-tax Ordinance. The learned CIT(A) deleted these penalties. Before the learned CIT(A) it was argued that the penalties had been imposed for the default of the payment of additional tax. It was also pleaded before him that the additional tax had wrongly been charged for which an application for rectification under section 156 of the Ordinance had been filed before the ITO which remained undecided and was still pending before him when the penalties had been imposed. The application for rectification was made on 25-9-1989 and subsequently a reminder had also been given to the ITO. The learned CIT(A) accepting this contention held that no penalty was leviable unless the pending application under section 156 was disposed of. Consequently, all the three penalties were deleted by the learned CIT(A). It is this order of the learned CIT(A) which has caused grievance to the department.

3. The learned D.R. contended that admittedly the assessee was in default and therefore, penalties had rightly been imposed by the assessing officer. The learned counsel for the assessee conceded that there was a default. However, he repeated the same arguments as before the learned CIT(A) and contended that additional tax was wrongly calculated by the assessing officer. It was further stated that no calculation of the additional tax had been made in the assessment order and additional tax was only calculated in IT-30 which was contested by the assessee through an application under section 156 of the Ordinance. Since, the assessee's application under section 156 had not been disposed of the ITO was not empowered to impose penalties before deciding the assessee's application under section 156 of the Ordinance. He therefore, supported the order of the learned CIT(A).

4. We have considered the contentions of the rival parties. The scope of section 156 of the Ordinance has to be first examined so as to see as to whether mere pendency of such an application could restrain the assessing officer from imposing the penalty under section 91 of the Ordinance. Section 156 of the Ordinance may here be reproduced-for reference: --

"156. Rectification of mistakes.--(1) Any income-tax authority or the Appellate Tribunal may amend any order passed by it to rectify any mistake apparent from the record on its own motion or on such mistake being brought to its notice by any other income-tax authority, or by the assessee."

From the perusal of the above section it is evident that the power contained in this section is to amend any order passed by it in order to rectify any mistake apparent from the record. The question therefore, arises as to whether there was any order passed by the ITO requiring rectification under section 156 of the Ordinance. This has been conceded by the learned counsel for the assessee that no additional tax had been levied in the assessment order itself. The additional tax was calculated in IT-30. The question which requires consideration is as to whether the IT-30 is an order. The learned counsel for the assessee's contention was that IT-30 is part of the assessment order and therefore any entry made in the IT-30 should be regarded as part and parcel of the assessment order and therefore, where there is any mistake in IT-30 it could be rectified under section 156 of the Ordinance. We are not inclined to agree with the learned counsel for the assessee on this proposition of law. The demand notice is to be prepared in the prescribed form by the assessing officer under section 85 of the Income-tax Ordinance as a consequence of an assessment order or other order under the Ordinance. It is nowhere laid down in any provision of the Ordinance that IT-30 prepared by the assessing officer is part of the assessment order and it is for good reasons. The assessment order contained reasons for arriving at a certain income and IT-30 contained the calculation of tax, additional tax, refunds on the basis of that assessment order. Section 156 of the Ordinance has a limited application inasmuch as the mistakes which can be detected from the record are to be rectified and the amendment is to be made in the order of assessment or any order of refund or other orders passed by him. Unless it could be held that IT-30 was also an order, section 156 of the Ordinance could not be attracted. The IT-30 contained only the calculations of tax and other dues payable by the assessee or the refund due to the assessee. It is certainly not an order within the meaning of section 156 of the Ordinance. In a case Commissioner of Income-tax v. Himalaya Drug Company this question came under consideration of the Allahabad High Court which is reported as 1982 PTD 394. The facts in that case were somewhat similar to the facts in the present case. In that case the ITO made an assessment and while preparing ITNS-150 (which is equivalent to IT-30) a sum of Rs.382 was charged as interest taking the status of the assessee as that of a registered firm. Subsequently, the ITO found that the interest had been wrongly charged as the interest was to be charged treating the assessee as a URF which would work out at Rs.17,708. The ITO considered it as a mistake apparent from the record and therefore a notice under section 1.54 of the Indian Income Tax Act, 1961 (which is similar to that of section 156 of the Income-tax Ordinance, 1979) was issued in order to rectify the mistake and the earlier order was amended. The first Appellate Authority. as well as the Tribunal held that there was no mistake apparent from the record. The Income-tax Appellate Tribunal while considering the tax calculation in ITNS-150 observed as under: --

"In our view this is a tax calculation form meant purely for departmental purposes and hence cannot be equated with an order of the ITO, such as an assessment order or any other order, by which the assessee is made liable to pay a sum by way of interest, penalty or tax".

The question which was referred to the High Court for opinion was as under: --

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in upholding the cancellation of the Income Tax Officer's order under section 154 of the Income Tax Act, 1961, on the ground that there was no prior order passed by the Income-tax Officer for levy of interest under section 139(1)(b)(iii)?"

The High Court confirmed the order of the Tribunal and held as under: --

"Secondly, in the case of an ITO it should be a mistake in an order of assessment or an order of refund or any other order passed by him. As noted above, ITNS-150 is not an order passed by the ITO. It only contains calculation of the tax and other dues payable. The ITO, therefore, was not competent to rectify ITNS-150 by resort to section 154(1)(a)."

5. In the present case as well since there was no mistake in the assessment order or in any other order within the meaning of section 156 of the Ordinance, therefore, there was no scope for application of section 156 of the Income-tax Ordinance. There may be a mistake in the calculation of the additional tax but that could be a mistake in IT-30 and not in the order of an ITO and therefore, could not be rectified under section 156 of the Ordinance. Therefore, mere pendency of an application under section 156 of the Ordinance, which was otherwise incompetent, would not disentitle the assessing officer to impose a penalty for default of payment of tax. Therefore, so far as the reasoning of the learned CIT(A) is concerned for deleting the penalties that is not correct. However, there is another aspect of the case. The demand of tax can be made through a demand notice to be issued under section 85 of the Income-tax Ordinance. This demand cannot be legally made if it is not as a consequence of an order. We have already held that the calculation made in IT-30 is not an order and therefore any demand made on the basis of mere IT-30 would not constitute a demand of tax within the meaning of section 85 of the Income-tax Ordinance. At page 287 of the report the High Court observed as under:--

"Therefore, if there is no order under the Act, no notice can be served of under section 29. In our view in the absence of such an order there is no liability of an assessee to comply with a notice under section 29."

In the present case in the face of the fact that no legal order was passed on the basis of which notice of demand could be issued under section 85 of the Income-tax Ordinance to the extent of additional tax levied, no legal liability was created against the assessee and as a consequence there was no default of tax and therefore no penalty could be imposed. The Karachi High Court in case CIT v. Malik Walayat Hussain & Sons Limited reported as 1987 PTD 249 has also taken somewhat similar view. One of the contentions before the High Court was that IT-30 signed by the assessing officer would be considered as sufficient order in the eye of law which could be made a basis for issuance of notice for payment under section 29 of the repealed Income-tax Act. The High Court repelled this contention and held that Form IT-30 which was prescribed under Rule 20 of the Income-tax Rules could not be a substitute for an order under subsection (8) of section 18-A levying additional tax by way of penalty for non-payment of advance tax under section 18-A of the Income-tax Act.

6. For the foregoing reasons the Departmental Appeals for all the assessment years under consideration are dismissed, though for different reasons.

M.B.A./1746/T Appeals dismissed.