Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 111‑‑‑Penalty for concealment of income etc:‑‑‑Mens rea‑‑ Maintenance of accounts on mercantile system of accountancy‑‑‑Interest on Government securities‑ ‑‑Declaration of interest on cash basis‑‑ Assessing Officer pointed out that interest on Government securities as declared was less than that as worked back on the basis of claim of tax deduction under S.50(2) of the Income Tax Ordinance, 1979‑‑‑Mistake was rectified and revised return was submitted‑‑‑Punitive proceedings for furnishing; inaccurate particulars of income in original return were initiated and penalty was imposed ‑‑‑Validity‑‑‑ Declaration of income pertaining to interest on Government securities on cash basis had no bearing on final quantum of tax because the Department had all along been taking different modes of calculation of income under the said head i.e. mercantile system of accounting and, therefore there could possibly be no intention of making incorrect declaration of income on cash basis‑ Penalty proceedings being quasi‑criminal in nature, it was sine qua non to establish mens rea for imposing penalty‑ Department having failed to guilty intent on the part of the assessee penal action was not justified in circumstances‑‑‑ ‑Penalty imposed was deleted by the Tribunal.

1994 PTD (Trib.) 688; 2000 PTD 3471; 1986 PTD (Trib.) 446; 1991 PTD (Trib.) 319; 1980 PTD 227 and I.T.As.

Nos.404 to 413 of 1991‑92 ref.

I.T.A. No. 179/HQ of 1988‑89 distinguished.

E.U. Khawaja, C.A. for Appellant Muhammad Umar Farooq, D.R, for Respondent

Date of hearing: 14th November, 2001.

ORDER

MUHAMMAD AKHTAR NAZAR MIAN (ACCOUNTANT MEMBER).‑‑‑The appellant has come up in appeal against the order of the CIT(A) whereunder he confirmed penalty under section 111 of the Income Tax Ordinance, 1979 imposed by the DCIT. Both the learned representatives have been heard and the orders of the authorities below perused.

2. The facts so far as relevant for disposal of this appeal are that the appellant was maintaining accounts on mercantile basis and in accordance with the Prudential Regulations of the State Bank of Pakistan. While filing the return of income, however, interest on Government securities has all along been declared on cash basis.

3. During the assessment proceedings for the year 1998‑99, the Assessing Officer found that the interest on Government securities as declared by the appellant (on cash basis) was less than that as worked back on the basis of claim of tax deduction under section 50(2) of the Income Tax Ordinance, 1979. The Assessing Officer, therefore, issued a notice under section 62 on 30‑5‑1999 asking the appellant to come up with reconciliation. Re‑computation was made by the appellant and the mistake made by it was rectified by submitting revised return on 1‑6‑1999. The Assessing Officer during the assessment proceedings issued notice under section 116 of the Ordinance on 8‑6‑1999 showing his intention to finalize the proceedings for furnishing inaccurate particulars of income in the original return. The assessment proceedings were completed on 25‑9‑1999.

4. Meanwhile jurisdiction was transferred from one office to the other. The successor‑in‑office issued another notice under section 116 on 8‑10‑1999 and passed the penalty order under section 111 on 30‑10‑1999.

5. It is argued by the learned A R. that this was not a case of concealment of income or furnishing of inaccurate particulars thereof but instead there was a bona fide mistake of calculation of income which was rectified by exercising the statutory right available to the assessee under section 57 of the Income Tax Ordinance, 1979. It is asserted that notwithstanding there being a calculation mistake it had no effect on the quantum of tax because the department has all along been rejecting the appellant's declaration of income from interest on Government securities declared on cash basis and charging tax by including in total income the amount of interest on Government security on accrual basis. So, whatever the declaration of income (original mistakenly incorrect or the revised being the correct position) this had no effect on the final outcome of the quantum of tax because the department was to charge tax on the interest which had accrued during the income year.

6. It is, therefore, asserted by the learned A.R. that there could possibly be no intention of furnishing inaccurate particulars of income in the circumstances of the case and mere a bona fide mistake cannot be made a basis for penalizing the assessee. He has emphasized that the assessment proceedings and penal proceedings stand on different footings and where a penalty is to be imposed, the onus is on the department to prove that there was intention of concealment and even mere addition in income cannot be made a basis for penalty. In this connection he has made reference to the following case‑law:‑‑

(1)1994 PTD (Trib.) 688; (2) 2000 PTD 3471; (3) 1986 PTD (Trib.) 446; (4) 1991 PTD (Trib.) 319; (5) 1980 PTD 227 and (6) unreported cases of the Tribunal in I.T.As. Nos. 404 to, 413 of 1991‑92 (Assessment year 1975‑76 to 1984‑85), dated 9‑9‑1992.

7. The D.R. on his turn has stated that in the case of the appellant itself in similar circumstances the penalty imposed under section ill was confirmed by this Tribunal vide I.T.A. No.179/HQ of 1988‑89, dated 19‑9‑1997 and, in this view ‑of the matter this penalty should be confirmed.

8.We have gone through the case‑law cited by both the sides and found that the facts of the appeals before us are materially different from the facts decides in appeal vide I.T.A. No.179/HQ of 1988‑89, dated 19‑11‑1997 referred to by the learned D.R In that appeal the concealment pertained to the excess amount of perquisites chargeable to tax under section 24(i) of the Income Tax Ordinance, 1979 and the amount not offered for tax had not only direct bearing on the quantum of tax ultimately payable by the company, but also that the appellant was sticking to his stand that the excess as offered by it was correct. The return wag revised only when the fast of intentional concealment was, established ray the Assessing Officer As stated earlier in the appeal before us, the declaration of income pertaining to interest on Government securities on cash basis had no bearing on final quantum of tax because the department has all along been taking different mode of calculation of income under this head 'i.e. mercantile system of accounting and therefore, there could possibly be no intention of making incorrect declaration of income on cash basis.

9. Since the penalty proceedings are quasi‑criminal in nature, therefore, for imposing penalty it is sine qua non to establish mens rea. In the circumstances of the case we find that the department has failed to prove independently the guilty intent on the part of the assessee. In this view of the matter we are of the considered opinion that its the circumstances of this case penal action was not justified, and therefore, the penalty imposed as confirmed by the CIT(A) through the order impugned before us is deleted.

10. Consequently the appeal succeeds to the extent and in the manner indicated above.

C.M.A./M.A.K./191/Tax(Trib.)Appeal accepted.