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

----S.132(1)(b)---Appeal---Penalty---While dealing with the appeal against penalty order First Appellate Authority has very limited jurisdiction---First Appellate Authority can confirm, set aside or cancel such an order of penalty or enhance or reduce the same.

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

----Ss.58, 61, 65 & 110---Penalty---Penalty under S.110 could only be imposed for default of S.58 or S.61 and not for default under S.65.

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

----Ss. 65 & 108---Penalty---Default of notice under S.65---Penalty for default of notice under S.65 could be imposed only under 5.108 of the Ordinance.

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

----Ss.132, 110, 108 & 65---Penalty---Appeal---Once the Appellate Authority had found that the default of notice under S.65 did not give jurisdiction to the I.T.O. to impose penalty under S.110 it could not convert the penalty from Ss.110 to 108 as the only option left with the said Authority was to cancel the penalty.

In the present case the Assessing Officer had not taken any proceedings under section 108 of the Ordinance. In the notice under section 110 given to the assessee there was no mention of section 108 for imposing the penalty under that section nor did he show his intention to impose the penalty under section 108 of the Ordinance. The nature and quantum of penalty impose able under sections 108 and 110 is different. Under, section 110 a penalty could be imposed not exceeding an amount equal to the amount of tax which would have been avoided if the income as returned by such person had been accepted as the correct income. While under section 108(a) a penalty imposeable for default of notice under section 65 would be not exceeding Rs.100 per day during which the default continues. Therefore, the nature and scope of both the sections are quite different and so is the maximum penalty imposeable under both the sections.

The conversion made by the Commissioner from section 110 to section 108 was not warranted by law as in fact this was a penalty imposed by the Commissioner himself under section 108 of the Ordinance which was not the subject-matter of the appeal before him. Once the Commissioner had observed that the default of notice under section 65 did not give jurisdiction to the I.T.O. to impose penalty under section 110 of the Ordinance, he could not proceed further because the only consequential order which could possibly be passed under section 132 was to cancel the penalty. While disposing of appeal against penalty order, the Commissioner had jurisdiction to exercise any of the five options mentioned in clause (b) of section 132(1) meaning thereby that he could confirm, set aside, cancel, enhance or reduce the penalty. Obviously in the present case he could neither confirm nor set aside nor enhance nor reduce the penalty. He could only cancel the penalty once he held that the penalty was wrongly imposed by the I.T.O. under section 110 of the Ordinance for default of notice under section 65 of the Ordinance.

Siraj Khalid for Appellant.

Muhammad Ather, D.R. for Respondent.

ORDER

ABRAR HUSSAIN NAQVI (JUDICIAL MEMBER).---This is an appeal filed by an individual against the penalty imposed by the I.T.O. under section 110 of the Income-tax Ordinance and relates to the assessment year 1976-77.

2. The I.T.O. had imposed a penalty of Rs.2,00,000 for default of notice for filing the return under section 65 of the Income Tax Ordinance. The learned C.I.T.(A) has however held that Section 110 of the Ordinance was not applicable and he imposed the penalty under section 108 at Rs.10,000 at the rate of Rs.100 per day.

3. Brief facts of the case under which this appeal has arisen are that the assessee's original assessment- was made by the I.T.O. on 30th June, 1977. Subsequently the case was reopened under section 65 by issuing notice on 12th June, 1984 served on 17th June, 1984 for 27th June, 1984. The assessee however, did not file any return. Subsequently a notice under section 61 was issued by the I.T.O. for 22nd July, 1984 on which date the assessee appeared before the I.T.O. Another notice was also issued for filing the return on 10^th September, 1984 and 25th June, 1985. Since, the further opportunity provided by the Assessing Officer was also not availed by the assessee and no return was filed, the I.T.O. made the assessment on 30th June, 1985. The I.T.O. imposed a penalty under section 110 of the Ordinance for default of Section 65. On appeal, the learned C.I.T.(A) held that for non-compliance of notice under section 65 penalty could only be levied under section 108 and not under section 110 as wrongly stated by the Assessing Officer. The learned C.I.T.(A) however observed that quotation of incorrect section of the Ordinance has not caused any prejudice to the assessee. He consequently treated the penalty imposed by the I.T.O. as under section 108 of the Income Tax Ordinance and it held that since under section 108 the penalty leviable was at the rate of Rs.100 per day for default and since the notice under section 65 was served on 17th June, 1984, for compliance by 27th June, 1984 the period of default was from 27th June, 1984 to the date of assessment namely; 31st July, 1985. He consequently reduced the 'penalty of Rs.10,000.

4. The learned counsel for the assessee has raised a number of contentions challenging the order of penalty both by the Assessing Officer as well as by the learned C.I.T.(A). In the first instance the learned counsel for the assessee pointed out the inaccuracy of the date mentioned by the learned C.I.T.(A). He contended that the date of assessment was 30th June, 1985 and not 31st July, 1985 as it has been mentioned by the C.I.T.(A). He further contended that according to the own admission of the assessing officer he had himself provided further opportunities to comply with the notice under section 65 and the last of which was on 25th June, 1985. Therefore, if at all the default could be that is for the period from 25th June, 1985 to 30th June, 1985 that would make the period of default at 5 days. It was further submitted that since the penalty has been imposed under section 108 at the rate of Rs.100 per day, at best the penalty could be imposed for five days amounting to Rs.500. Another contention raised by the 'learned counsel for the assessee was in regard to the jurisdiction of the learned C.I.T.(A) for converting the penalty from Section 110 to Section 108.

5. The learned counsel for the assessee contended that once it was held by the learned C.I.T.(A) that the I.T.O. had wrongly imposed the penalty under section 110 as no such penalty could be imposeable for default or section 65 of the Ordinance, the learned C.I.T.(A) had no option but to cancel t the penalty. It was submitted that under section -132 of the Ordinance the learned C.I.T.(A) has only five options when hearing the appeal against the penalty namely; to confirm the penalty order, to cancel the penalty, to set aside the penalty, enhance or reduce the penalty. Subsection (1) of section 132 may here be reproduced before proceedings further:

"Decision in appeal.---(1) In disposing of an appeal, the Appellate Assistant Commissioner may,---

(a) in the case of an order of assessment---

(i) set aside the assessment and direct the assessment to be made afresh after making such further inquiry as the Appellate Assistant Commissioner may direct or the Income Tax Officer thinks fit;

(ii) confirm, reduce, enhance or annul the assessment;

(b) in the case of an order imposing a penalty, confirm, set aside or cancel such order or enhance or reduce the penalty; and

(c) in any other case, pass such order as he thinks fit."

6. From the perusal of the above provisions contained in clause (b) above it is evident that while dealing with the appeal against penalty order first Appellate Authority has very limited jurisdiction given by the Statute. He can confirm, set aside, or cancel such an order of penalty or enhance or reduce the penalty. The Assessing Officer has consciously and deliberately stated in his order that the penalty for default of notice under section 65 of the Ordinance was not eligible under section 110 of the Ordinance. It may be stated that from the very beginning of the penalty proceedings started by the Assessing Officer he appears to have the intention to impose a penalty under section 110 of the Ordinance as it is evident from page 2 of the penalty order where the I.T.O. while dealing with the explanation of the assessee against the notice under section 116 of the Ordinance observed as under:----

"It was further stated that there are no direction in the assessment order with regard to issuance of notice under section 116 for default of section 110."

Then in the concluding part of his penalty order the I.T.O. observed as under:---

"Default of Section 65 stands established and penalty under section 110 is eligible in this case. I, therefore, impose a penalty of Rs.2,00,000 under section 110 with the approval of the IA.C. Range-I, Zone-A, Lahore."

It is therefore evident that there was no mistake or confusion in the mind of the I.T.O. while imposing penalty under section 110 of the Ordinance. The learned C.I.T.(A) has observed in no uncertain terms that penalty for default of notice under section 65 cannot be imposed under section 110 of the Ordinance. Section 110 of the Ordinance may also here. be reproduced for reference:---

"Penalty for non-compliance with notice. etc.---Where any person has, without reasonable cause, failed to comply with any notice issued under section 58 or 61, the Income Tax Officer may impose on him a penalty not exceeding an amount equal to the amount of tax which would have been avoided if the income as returned by such person had been accepted as the correct income."

From the reading of Section 110 there can be no doubt whatsoever that penalty under this section could only be imposed for default of section 58 or section 61 of the Ordinance and not for default of notice under section 65. Therefore, the learned C.I.T.(A) is right in holding that this Section 110 was not applicable for imposing the penalty for default of notice under section 65 of the Ordinance. The learned C.I.T.(A) was also right in observing that the penalty for default of notice under section 65 could be imposed only under section 108 which is also reproduced for reference:---

"Penalty for failure to furnish return of total income and certain statements.--Where any person has, without reasonable cause, failed to furnish, within the time allowed for the purpose,---

(a) any return of total income under section 55 or 56, subsection (1) of section 65, subsection (3) of section 72 or subsection (3) of section 81; or

(b) any certificate, statement, accounts or information under section 51, 139, 140, 141, 142, 143(143-A) or 144,

The Income Tax Officer may impose upon such person a penalty not exceeding one hundred rupees for everyday during which the default continues."

7. The question arises that once the first Appellate Authority has held that the penalty imposed by the I.T.O. was not imposeable under section 110 of the Ordinance, could the learned C.I.T.(A) convert the penalty from section 110 to section 108 or in other words would it not be a fresh imposition of penalty by the learned C.I.T.(A) himself? Admittedly, the Assessing Officer had not taken -any proceedings under section 108 of the Ordinance. In the notice under section 110 given to the assessee there was no mention of section 108 for imposing the penalty under that section nor did he show his intention to impose the penalty under sections 108 of the Ordinance. The nature and quantum of penalty imposeable under section 108 and 110 is obviously different. Under section 110 a penalty could be imposed not exceeding an amount equal to the amount of tax which would have been avoided if the income as returned by such person has been accepted as the correct income. While under section 108(a) a penalty imposeable for default of notice under section 65 would be not exceeding Rs.100 per day during which the default continues. Therefore, the nature and scope of both the sections are quite different and so is the maximum penalty imposeable under both the sections. A question further arises whether the learned C.I.T.(A) had the jurisdiction to impose penalty under section 108 of the Ordinance. A further question also arises that before the learned C.I.T.(A) the subject-matter of appeal was the penalty imposed under section 110 and not the penalty imposed under section 108 and whether the Statute vested jurisdiction on the learned C.I.T.(A) to impose penalty which was not the subject-matter of appeal. To our mind The conversion made by the learned C.I.T.(A) from section 110 to section 108 is not warranted by law as in fact this is a penalty imposed by the learned C.I.T.(A) himself under section 108 of the Ordinance which was not the subject-matter of the appeal before him. Once the learned C.I.T.(A) has observed that the default of notice under section 65 did not give jurisdiction to the I.T.O. to impose penalty under section 110 of the Ordinance, he could not proceed further because the only consequential order which could possibly be passed under section 132 was to cancel the penalty. As stated above, while disposing of appeal against penalty order the learned C.I.T.(A) had jurisdiction to exercise any of the five options mentioned in clause (b) of section 132(1) meaning thereby that he could confirm, set aside, cancel, enhance or reduce the penalty. Obviously in the present case he could neither confirm nor set aside nor enhance nor reduce the penalty. He could only cancel the penalty once he held that the penalty was wrongly imposed by the I.T.O. under section 110 of the Ordinance for default of notice under section 65 of the Ordinance.

8. For the foregoing reasons, we modify the orders of the officers below and cancel the penalty. The appeal is accepted.

M.BA./7/T.TAppeal accepted.