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

----Ss. 65, 62, 116 & 132---Concealing of income---Imposition of penalty-- Appeal---Original assessment was completed under S.59(1) after which the Income Tax Officer received information that the assessee had not declared the amount of dividends received by him---Notice under S.65 was issued and after completing necessary formalities the income was assessed and deemed individual income was included in the total income of the assessee---Assessee had not disputed the quantum of deemed income and factum of fresh assessment made under S.62/65 of the Ordinance---Commissioner of Income Tax/Appellate Assistant Commissioner on appeal was only empowered to set aside the assessment and could also direct the assessment to be made afresh or confirm, reduce, enhance or annul the assessment, any power beyond such powers would be without jurisdiction---Direction contained in the appellate order of the Commissioner whereby the Income Tax Officer had been prevented to take action under S.116 of the Ordinance, was, therefore, without jurisdiction.

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

----Ss. 111 & 12(11)---Concealment of income---Penalty---Dividend income-- Assessee had filed return in response to notice under S.65 of the Income Tax Ordinance, 1979 after the fact of concealment of dividend income was detected by the Assessing Officer---Taxability of dividend income being very specific, any practice contrary to specific provision of law would have no legal sanction and would not ipso facto wash away the liabilities imposable under law-- Incorrect return having been filed deliberately, in defiance of law and assessee having acted in conscious disregard of its statutory obligation and concealment of income having been proved imposition of penalty under S.111 of the Income Tax Ordinance, 1979, was justified in circumstances.

(1967) 65 ITR 280; (1973) 88 ITR 293; (1976) 103 ITR 543; ITA No.1717/KB, disposed of on 16-9-1990 and ITA No. 307/KB of 1988-89, disposed of on 16-6-1990 ref.

Afzal Naubehar Kiyani, D.R. for Appellant.

Salman Pasha for Respondent.

Date of hearing: 18th October 1993.

ORDER

SYED KABIRU. HASSAN (JUDICIAL MEMBER).---By this common order we intend to dispose of these three appeals relating to assessment year 1984-85, out of which one appeal is under section 111 and other two appeals are cross-appeals against the order passed under section 62/65/88 of the Ordinance.

2. Appeals under section 62/65 of the Ordinance

The brief facts necessary for the disposal of these appeals are that in this assessment year the original assessment was completed on 22-12-1984, under section 59(1) of the Ordinance. Later on the ITO received information from Survey and Collection that the assessee had not declared the amount of dividend, which was received from M/s. W.W P L The amount of dividend was Rs.70,560. This fact also came into the knowledge of the Income Tax Officer that the assessee was a Director of M/s. W. W P L .Therefore, a notice under section 65 of the Ordinance was issued and after completing necessary formalities the income was assessed and deemed dividend income amounting to Rs.70,560 was included in his total income. It appears that the assessee has not disputed- the quantum of deemed income and factum of fresh assessment made under section 62/65 of the Ordinance.

In this year the grievance of the department is against the directions contained in the appellate order, whereby the Income Tax Officer has been prevented to take action under section 116 of the Ordinance. The department has also agitated against the deletion of addition made under section 88 of the Ordinance. In this very year the assessee has also agitated the levy of additional tax under section 88 as the finding of the Income Tax Officer was set aside by the learned CIT(A), whereas the contention of the assessee was for the cancellation of additional tax imposed under section 88.

The learned counsel for the assessee has, at the outset, stated that as the penalty order has been passed by the Income Tax Officer, therefore, the appeal of the department on this issue has become infructuous. Secondly, he has also stated that he is not pressing for his appeal for this assessment year under section 88 of the Ordinance, as the issue has already been redecided by the Income Tax Officer. He has further stated that as the finding of levy of additional tax under section 88 was set aside by the learned CIT(A) and since fresh order has been passed by the Income Tax Officer, therefore, the appeal of the department has also become infructuous on this issue.

We have examined the contention of both the Representatives and we agree partly with the submissions of the learned counsel for the assessee and his contention as regards to section 88 is correct.

In this case since the order is set aside passed by the learned CIT(A) has been acted upon, therefore, the appeals of the assessee as well as the department on this issue have become infructuous and are dismissed accordingly.

As regards appeal of department against the observation/direction of the- learned CIT(A) whereby he has stopped the ITO from taking action under section 116, the contention of the learned D.R. is that the learned CIT(A) had no jurisdiction to issue such a direction. This contention of the learned D.R. appears to be correct in view of appeal provisions contained in section 132. Section 132 reads as under:

"132. Decision in anneal.---(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.

(2) The Appellate Assistant Commissioner shall not enhance an assessment o; a penalty or reduce the amount of refund unless the appellant has been given a reasonable opportunity of showing cause against such enhancement or reduction, as the case may be..."

(Only relevant portion has been reproduced).

From the careful reading of above provision it would appear that in case of appeal against assessment the learned CIT(A)/AAC is empowered to set aside the assessment and can also direct the assessment to be made afresh or confirm, reduce, enhance or annul the assessment. The learned CIT(A)/AAC can exercise only these powers and any power beyond this would be without jurisdiction. Let us now refer to observation of learned CIT(A) which is as under:--

"After scrutiny of the case and taking into consideration the facts as stated by the learned counsel and also the decision of the Hon'ble High Court of Bombay reported as (1967) 65 ITR 2801 find that the ITO was justified in completing the assessment on the basis of the revised return. However, taking into consideration the explanation as offered the ITO was not justified in initiating concealment proceedings according to the provisions of law by issuing a notice under section 116 because as stated above action of the appellant was not deliberate and furthermore the return had already been revised before the assessment was completed. The ITO is therefore, directed not to take any action under section 116..."

From the perusal of above it would appear that the learned CIT(A) has misdirected her by misappreciating the facts that the return was revised before the assessment. In view of this we are of the view that the direction issued by the learned CIT(A) would, not be binding on the Income Tax Officer as it was without jurisdiction in so far as he had no power to issue such direction in appeal against order of assessment, moreso when she has upheld the assessment order passed under section 62/65 of the Income Tax ordinance.

3. Appeal under section 111.

On the basis of facts discussed in re-assessment proceedings for this assessment year, the ITO issued notice under section 116 of the Ordinance and after completing the required formalities imposed penalty equivalent to 100% of tax evaded. The assessee filed an appeal against that order which was allowed by the learned CIT(A) and hence this appeal by the Department.

In support of this appeal the learned D.R. has submitted that the learned CIT(A) has decided this issue on the basis of observation made by her in appellate order passed on 23-7-1986 in appeal preferred under section 62/65 of the Ordinance. According to him the learned CIT(A) had not correctly appreciated the facts and had on the wrong assumption directed the ITO not to take action under section 116 of the Ordinance.

Since we have deliberated at length on this issue in foregoing paras. and have held the action of the learned CIT(A) improper as she had no jurisdiction to issue such a direction under the facts and circumstances of this case, therefore, in view of this, this appeal should have been remanded back to learned CIT(A).but since the appeal could be disposed of on merits on the basis of facts available on record, therefore, this appeal is disposed of on merits by us. .

While elaborating his contention the learned D.R. has submitted that this was not a case of revised return but the return was filed in response to notice issued under section 65, as the assessment for this assessment year was already completed on 22-12-1984 and in view of this the question of filing of revised return did not arise and the finding of the learned CIT(A) is, therefore, erroneous.

In reply the learned counsel for the assessee has stated that firstly in view of clearcut directions of the learned CIT(A) the order passed under section 111 of the Ordinance is illegal and is liable to be vacated. Secondly on merits he has submitted that amount of dividend was omitted due to bona fide mistake and was not intentional or deliberate. He has also stated that since the assessee is maintaining all accounts on receipt or cash basis, therefore, dividend is disclosed in the books of accounts in the year when it is received. In this respect he has relied on:

(1) (1967) 65 ITR 280; (2) (1973) 88 TTR 293; (3) (1976) 103 TTR 543; (4) ITA No. 1717/KB, disposed of on 16-9-1990 and (5) TTA No. 307/KE1 of 1988-89, disposed of on 16-6-1990.

Before we take this issue it would be pertinent to have a look at the necessary provisions relating to concealment. Section 111 reads as under:

"111. Penalty, for concealment of Income etc.---(1) Where, in the course of any proceedings under this Ordinance, the Income Tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal is satisfied that any person has, either in the said proceedings or in any earlier proceedings relating to an assessment in respect of the same income year, concealed his income or furnished inaccurate particulars of such income, he or it may impose upon such person a penalty not exceeding two and a half times but in no case less than the amount of tax which (the said person sought to evade by concealment of his income or furnishing of inaccurate particulars of such income,. as aforesaid).

(2) For the purposes of subsection (1) and section 119, concealment of income or the furnishing of inaccurate particulars of income shall include---

(a) the suppression of any item of receipt liable to tax in whole or in part,

(b) claiming any deduction for, or showing any expenditure not actually incurred (and) .

(c) any act referred to in clauses (aa), (b), (c), (d) and (e) of subsection (1) of section 13.

(Only relevant portion has been reproduced).

In this case item of receipt which is dividend is the basis of concealment, therefore, it would be pertinent to refer to the provisions of taxability of dividend, section 12(11) is as under:

"12(11). Any dividend declared or distributed by a company shall be deemed to be the income of the income year in which it is declared ands shall be included in the total income of the assessee of that year:

Provided that, where any dividend is declared within six weeks of the end of the income year, it shall be deemed to be the income of the income year in which it is distributed, and included in the total income of that year:"

From the above it would appear that the clearcut laid down condition as regards to dividend is that the amount of dividend shall be deemed to be the income of the assessee in the year in which it is declared. In this case it has been proved that the dividend was declared in the Annual General Meeting of M/s. W.W .P L ., held on 24th October 1983. It also appears that quantum of dividend was also declared in the said meeting. Since the assessee is a Director of the company who declared dividend, therefore, it is not disputed that it was not in the knowledge of the assessee. The only plea taken by the learned counsel for the assessee is that the assessee in the past had been disclosing dividend as and when it was received, therefore, the omission was unintentional and did not amount to evasion of tax as the dividend amount would have been offered for taxation when it was received. But in our opinion this plea is misconceived in view of clearcut provisions of chargeability contained in section 12(11) of the Ordinance, the amount of dividend for the purpose of tax has to be included in the return for the year in which it was declared, therefore, in our view, the assessee is not entitled to plead ignorance of law on his part.

Now we refer to the cases relied upon by the learned counsel for the assessee. In case (1967) 65 ITR D.M. Dhanukar v. CIT (Bombay) wherein the assessee had not declared the amount of dividend which was declared in the assessment year, but later on the assessee came to know about the taxability of dividend income, therefore, he voluntarily revised his return and since after the assessment there are no provisions for revision of return therefore, the ITO taxed the dividend income by invoking provision of section 34 (now 62). This case is, therefore, not attracted to the facts of this case.

In (1973) 88 ITR 293, in this case the penalty was levied without offering any opportunity to the assessee, therefore, the penalty was held to be improper. This case is also not attracted to the facts of this case.

The citation (1976) 18 ITR 543 seems to be misquoted. ,

In ITA No. 171/KB it was held that when reopening of the case under section 65 was not justified, the penalty under section 111 cannot be imposed. The proposition of this citation is not attracted to the fact of this case.

In ITA No.302/KB of 1988-89 the dividend income was not disclosed by the assessee in the assessment year: but later on the return was revised arid this income was shown. The Division Bench of this Tribunal observed that in case where revised return is filed before the detection of concealment by the ITO, then the omission would not be willful and deliberate. This case is also not attracted to facts of this case.

From the above case law it would appear that if an assessee fails to disclose dividend income in the year in which it was declared, then if the return is revised before the detection of concealment then the assessee may escape the consequences of penalty imposable under section 111. But in this case the facts are different, as the assessee in this case had filed return in response to notice under section 65 after the facts of concealment was detected by the Income Tax Officer. Secondly the provisions of taxability of dividend income are very specific. It would also be pertinent to point out that the provisions of Income Tax Ordinance are - different from the provisions of taxability of dividend contained in the Repealed Act. The cases relied upon by the learned counsel for the assessee are on taxability of dividend under the Repealed Act which are not applicable to the facts of this case.

Accrual of income and receipt of income are two different concepts. Some time it is possible that income accrued is not received during the assessment year. In ordinary circumstances it may be predominant factor that the assessee who had not received any income though accrued may, according to method of accounting accord any treatment, which is not in conflict with specific provisions of Income Tax Ordinance. The explanation of this type-may or may not form concealment in the circumstances where according to method of accounting such type of treatment is permissible under the law. But in cases where law has clearly laid down a clearcut condition about the method of accounting of some receipt then the assessee is required to follow that method and any method of accounting contrary to specific provision of 4aw would subject to penal consequences provided under the law. The concept of real income and fictional income is not attracted in those cases where the provisions of section 12(11) are attracted. In our view any practice contrary to specific provision of law would have no legal sanction and would not ipso facto wash away the liabilities imposable under the law.

The plea of the assessee is that omission of not disclosing dividend income in the year it was declared was not a deliberate act and was also not willful. According to- him the element of fraud and evasion of tax were also missing as the dividend income would have been offered for tax in following years. This plea is not acceptable as in this case incorrect return was filed knowingly that dividend income was not included irrespective of the fact that divided was declared and was in the knowledge of the assessee. The return was also not revised voluntarily before the detection of this fact and before the passing of assessment order. In view of this we are of the view that incorrect return was filed deliberately, in defiance of law and the assessee acted in conscious disregard of its statutory obligation. The facts of concealment are proved under the circumstances, therefore, the order of the learned CIT(A) is vacated and that of the ITO is restored on this point.

In terms of above these appeals are disposed of.

M.BA./39/T.TOrder accordingly,