Income Tax Ordinance (XXXI of 1979)---

----S.111---Penalty---Concealment of income---Agreed assessment---Assessee purchased properties for total declared value of Rs.12,00,000---Assessing Officer considered the value low and proposed to enhance the value to Rs.24,30,000---Assessee while explaining the source of investment of Rs.12,00,000 furnished fake FEBCs Encashment Certificate of Rs.4,00,000---Agreed assessment was, however, made without any prejudice to the penalty proceedings for concealment of income and furnishing of fake FEBCs Encashment Certificate---Penalty was imposed by the Assessing Officer---Penalty was challenged on the ground that same could not be imposed after agreed assessment---Commissioner of Income Tax (Appeals) rejected contention of assessee---Appellate Tribunal directed Assessing Officer to impose penalty in respect of the concealed income of Rs.4,00,000 only in circumstances.

(1990) 184 ITR 288 distinguished.

1994 PTD (Trib.) 1266 and 1995 PTD (Trib.) 1183 ref.

Syed Ali Imran Rizvi for Appellant.

Mrs. Sabiha Mujahid, D.R. for Respondent.

Date of hearing: 30th January, 1997.

ORDER

INAM ELLAHI SHEIKH (ACCOUNTANT MEMBER).---An individual assessee has filed this further appeal against an order, dated 19-8-1996 recorded by the learned C.I.T. (Appeals), Zone-5, Lahore to agitate the eligibility of the penalty imposed under section 111 of the Income Tax Ordinance (hereinafter called the Ordinance) which had been imposed as a result of agreed assessment.

2. The only plea of the assessee in this case is that no penalty under section 111 of the Ordinance could be imposed for concealment when the assessment had made on agreed basis. The relevant facts in this case are that the assessee had purchased two properties for total declared value of Rs. 12,00,000. This value was considered to be low and it was proposed to enhance the value to Rs.24,30,000 in respect of these two properties. The assessee declared the following source of investment:--

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However, the department discovered that the declaration of FEBC encashment certificates was bogus. Hence the agreed assessment was made in the following manner:---

"During the course of discussion, the assessee offered to be assessed as under:---

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The offer of the assessee being reasonable is accepted with the approval of ICA, Range-III, Zone-A, Lahore and C.I.T., Zone-A, Lahore subject to advance payment of agreed tax liability. This agreement is being made without any prejudice to the penalty proceedings for concealment of income and furnishing of fake FEBCs encashment certificate.

The assessee noted on this agreement as follows:---

"Agreed to be assessed at net income of Rs.642,000 (Assessment Year 1994-95)".

Subsequent to this assessment the assessee was confronted with the proposal to the imposing of penalty under section 111 of the Ordinance. The assessee took the plea that no penalty could be imposed where assessment had been framed on agreed basis. The assessee also took the plea that the valuation of property was a mere change of opinion, which did not warrant the imposing of penalty being in criminal nature. Nevertheless, the assessing officer after rejecting the explanation imposed the penalty at Rs.377,095. The learned C.I.T. (Appeals) rejected the contention of the assessee that a penalty could not be imposed in agreed assessment. However, he directed the assessing officer 'to impose the penalty in respect of the concealed income of Rs.400,000 only.

3. Before us the learned counsel of the assessee has taken the same plea that no penalty could be imposed under section 111 of the Ordinance where the assessment have been made on agreed basis. The learned counsel of the assessee has cited a decision reported as (1990) 184 ITR 288. The learned counsel of the assessee had also filed two decisions of the Tribunal to support his contention.

4. In the case reported as (1990) 184 ITR 288, the Calcutta High Court upheld the cancellation of the penalty imposed in the case of Commissioner of Income Tax v. Moti Lal & Co. in the following circumstances. The assessee in that case had approached the Commissioner of Income Tax to claim exemption from penalty under section 271(4-A) of the Indian Income Tax 1961 disclosing certain concealed income pertaining to the assessment years 1959-60 to 1965-66 for a total amount of Rs.120,000. Before this claim of immunity, the assessee filed a return to disclose the income at Rs.12,096 and before filing of the immunity, the assessing officer took up the assessment for the assessment year 1964-65. It is also stated in the reported case that the Commissioner rejected the petition of the assessee. The assessing officer enquired about four hundi loans aggregating Rs.105,000 and confronted the assessee. The assessee refused to cooperate but surrendered these credits for inclusion in its total income. The assessing officer gave the following observation in the assessment order:" ---

"When asked to explain the nature and source of these credits, the assessee contended that there is no evidence and fact; the assessee offered the sums for taxation as the undisclosed income of the firm".

Thereafter, the assessing officer concluded that the assessee was guilty of concealment and he referred the matter to the Inspecting Assistant Commissioner for imposition of penalty. The IAC held that the assessee had concealed the income of Rs.50,000 only and imposed a penalty. The Indian Tribunal held that the assessing officer noticed certain credits in the books of the account of the assessee which were surrendered for want of evidence or because the assessee was unable to prove them. Thus, it was concluded by the Indian Tribunal that there was no evidence other than the admission of the assessee and that such addition could not be subjected to penalty. This finding of the Tribunal was upheld by the Calcutta High Court.

5. The above case of the Indian Court is clearly distinguishable as the assessee in that

case offered to be taxed on such unexplained credits because he could not produce the evidence. However, in the present case, the assessee did make an explanation which turned out to the false to the extent of encashment of FEB Certificates amounting to Rs.400,000. Hence this decision of the Calcutta High Court does not help the assessee. The assessee has relied on a decision of the Tribunal reported as (1994) PTD (Trib) 1266 to further support his contention. In that case the Tribunal held that the penalty proceedings have been conducted in a pre-determined manner without a manifest effort to justify the penalty except of the fact of agreement. In that case the assessee had shown purchases from Pakistan State Oil Limited which were considerably lower than those reported by the PSO and thus, agreed assessments were made for the four years after which the penalties were levied, at 100% of the tax evaded. Before the Tribunal the learned A.R. of the assessee brought a number of factors, which in the opinion of the members of the Tribunal, merited consideration at the stage of the earlier proceedings. However, in the present case the learned A.R. of the assessee has not brought any such material on record. There is no explanation for the false declaration in encashment of FEBs certificate. No explanation such as alternative source of investment has been given. In another case reported as 1995 PTD (Trib) 1183 a Division Bench of the Tribunal held the cancellation of a penalty as there was no agreement regarding the imposition of such penalty. However, in the present case the departmental officials made it clear in the agreement that such agreement was made without prejudice to the penalty proceeding although the assessee has signed to be agreed to be assessed at net-income only. In fact the learned A.R. of the assessee has made no explanation as to why a false declaration regarding the encashment of FEB certificates was made or as to where from a similar amount had been invested. It is not a question of valuation of property where change of opinion could be involved. However, we are inclined to take a somewhat lenient view and we direct that penalty may be imposed at 100 % of the tax sought to be evaded and to the extent of concealment of Rs.400,000 only as directed by the learned C.I.T. (Appeals). The appeal succeeds to that extent.

C.M.A/565/Trib?????????????????????????????????????????????????????????????????????????????????? Order accordingly.