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

----Ss.108 (b) & 139---Penalty for failure to furnish return of total income and certain statements---Penalty imposed for violation of the provision of 5.139 of the Income Tax Ordinance, 1979 i.e. non-filing of statements in respect of deduction of tax from salaries was deleted by the First Appellate Authority on the ground that jurisdiction in such matters rested with salary circle, where statements were duly filed ---Validity-- Contention that penalty was rightly imposed after providing sufficient opportunity to assessee did not attack the reason given by the First Appellate Authority for deleting the penalty levied for violation of S.139 of the Income Tax Ordinance, 1979---Department had not disputed that such statements had been filed with the salary circle---No interference was made by the Appellate Tribunal.

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

----Ss. 108(b), 50, 52 & 139---Penalty for failure to furnish return of total income and certain statements---Provision in law for penalties can only be meant as deterrent against tax evasion and to enforce compliance and not for Revenue generation---Principles.

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

-- -S. 108(b), 141 & 142---Penalty for failure to furnish. return of total income and certain statements---Penalties were levied by the Assessing Officer by imposing initial penalty of Rs.2,000 in each of the month under S.139 as well as under S.142 of the Income Tax Ordinance, 1979---Validity---Provision for the levy of penalty of "an amount equal to Rs.2,000 and a further sum equal to Rs.200 for every day during which the default continues" required careful examination---Action for levy of initial penalty and further penalties by a single order was not proper---Initial penalty should have been levied after completing the other formalities of law and if assessee still did not file the required statement, then Assessing Officer should have levied the additional penalties per day after providing further opportunity to the assessee-- Initial penalty of Rs.2,000 was fixed for default under Ss.141 & 142 of the Income Tax Ordinance, 1979---Penalties were ordered to be reduced accordingly by the Appellate Tribunal.

Syed Tariq Jamil, FCA for Appellant.

Naushad Ali Khan, DR for Respondent.

Date of hearing: 12th March, 2003.

ORDER

By this consolidated order, we proceed to decide these four cross-appeals arising out of an order, dated 23-7-2001 recorded by the learned CIT(A), Zone-I, Islamabad on the issue of levy of penalties under section 108(b) of the Income Tax Ordinance, 1979 (hereinafter called -the 1979 Ordinance).

2. The relevant facts, in brief, are that the assessee in the present case is a public authority and responsible for deduction of withholding tax from various payments such as salaries and contract payments. Under the law, the assessee is also required to file various statements in respect of these deductions. The Assessing Officer found that the assessee had not filed the annual statements under sections 139 to 142 of the 1979 Ordinance and he confronted the assessee on this issue. After detailed proceedings, the Assessing Officer imposed a penalty of Rs.2000 for initial default under each of the sections 139, 141 and 142. By the same order, the Assessing Officer also imposed penalties at Its.200 per day for continuing defaults of the provisions of sections 139, 141 and 142 of the 1979 Ordinance whereas the proceedings under section 140 of the 1979 Ordinance were filed.

3. The Assessing Officer also noticed that the assessee had failed to file monthly statements under sections 139, 141 and 142 of the 1979 Ordinance for the months of July, 1998 to November, 1998. After conducting proceedings, again penalties were levied by the Assessing Officer by levying initial penalty of Rs.2000 in each of the months of July, August, September, October and November, 1998 under section 139 as well as under section 142 of the 1979 Ordinance. In addition to that, the Assessing Officer also levied penalties for continuing default at Rs.200 per .day in each of these two sections. It appears that no penalties were made for default of section 141 of the 1979 Ordinance.

4. The learned CIT(A) after considering the facts and arguments deleted the penalties levied for default of section 139 of 1979 Ordinance in both the years under consideration whereas penalty levied under section 141 of the 1979 Ordinance was reduced from Rs.180,200 to Rs.75,000 in the assessment year 1998-99. The penalty levied under section 142 of the 1979 Ordinance in the assessment year 1998-99 was reduced. from Rs.24,000 to Rs.10,000. In the assessment year 1999-2000, the penalty imposed under section 142 was reduced from Rs.83,000 to Rs.40,000. Both the parties are aggrieved and hence these further appeals.

5. Both the parties have been heard and the relevant orders perused. The learned CIT(A) has deleted the. penalty imposed for violation of the provisions of section 139 of the 1979 Ordinance i.e. non filing of statements in respect of deduction of tax from salaries for the reason that he accepted the argument of the learned AR of the assessee that the jurisdiction in such matter rested with the salary circle. Islamabad where the statements were duly filed. This direction has been challenged by the department on the following common ground in both the years:

"That the learned CIT(A) was not legally justified to delete penalty under section 108(b) for non-filing of annual salary statement tinder section 139, because the penalty was rightly imposed after providing sufficient opportunity to the assessee."

We are afraid that this ground does not attack the reason given by the First Appellate Authority for deleting the penalty levied for violation of section 139 of the 1979 Ordinance. The department has not disputed before us that such statements had been filed with the salary circle, Islamabad. Hence, no interference on this issue is made in both the years.

6. In the assessment year 1998-99, the department has agitated the reduction in the penalty from Rs.180,200 to Rs.75,000 in respect of violation of section 141 of the 1979 Ordinance and we find that the department has taken the same ground in the assessment year 1999-2000 as well where this issue is not involved. This shows the lack of application of mind by the department in filing the appeals. By another ground, the department has agitated the reduction in penalty from Rs.25,000 to Rs.10,000 in the assessment year 1998-99 .and from Rs.83,000 to Rs.40,000 in the assessment year 1999-2000 in respect of violation of section 142 of the 1979 Ordinance. The assessee, on the other hand, has challenged the balance amount of these penalties to be unjustified and excessive.

7. The learned DR has strongly attacked the relief allowed by the learned CIT(A) to be unjustified whereas the assessee maintains that no penalties should have been levied. The provisions of section 108(b) of the 1979 Ordinance have been considered and we find it useful to reproduce the relevant portion of the same as below:--

108 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)...

(b)any certificate, statement accounts or information under sections 51, 139, 140, 141, 142, 143 (143A), (143B) or 144, the Deputy Commissioner shall impose upon such person a penalty

(i) .

(ii) in case of default specified in clause (b), an amount equal to two thousand rupees and a further sum equal to two hundred rupees for every day during which the default continues:

Before discussing this provision of law, we would like to elaborate that the levy and collection of tax on income is essentially the function of the departmental officials. By virtue of section 50 of the 1979 Ordinance most of the assessees have been burdened with the responsibility to deduct tax from payments and deposit the same. By virtue of section 139 etc., the assessee has been burdened, with the responsibility to file statements showing various details of payments. Section 52 entails an action against a person who has failed to deduct tax, or having deducted tax, failed to deposit the same by holding him as an assessee in default and provides for the recovery of tax of another person not so deducted or not so deposited. In addition to this burden, the assessee has been threatened with the levy of additional tax under section 86 of the 1979 Ordinance. On top of this, the assessee is threatened with penalties under section 108 of the 1979 Ordinance. The issue before us presently, is levy of penalties for non-filing of statements or for delay in filing of such statements. Needless to say that the assessee is performing the functions which should normally have been performed by the department. It is collecting the tax for the department and it is also helping the department to plug any evasion of tax. There does not appear to be any compensation or appreciation for such assessee who is a deducting or collecting agent on behalf of the department. To say that this is a thankless job would a gross understatement. It may also be emphasized that provisions in law for penalties can only be meant as deterrent against tax evasion and to enforce compliance and not for Revenue generation. In these circumstances, the department should not take a harsh view of any such lapses which are not deliberate.

8. Now we come to consider the provisions of section 108 as reproduced above. In clause (2) of the section, there is a provision for the levy of penalty of "an amount equal to Rs.2,000 and a further sum equal to Rs.200 for every day during which the default continues." These words of the 1979 Ordinance require careful examination. The Assessing Officer has levied the initial penalty of Rs.2,000 and further penalties at Rs.200 per day for the continuing default by a single order., to our considered view, this action is not proper. We are of the opinion that the Assessing Officer should have levied an initial penalty of Rs.2,000 after completing the other formalities of the law and if the assessee still did not fie the required statements, then he should have levied the additional penalties at Rs.200 per day after providing further opportunity to the assessee.

9. For the reasons stated above, we fix the initial penalty of Rs.2000 for the default of section 141 and section 142 in the assessment year 1998-99 and for the default of section 142 in the assessment year 1999-2000. The penalties shall stand reduced accordingly.

10. As a result of above discussion, the assessee's appeal succeed to the extent indicated above whereas the departmental appeals are dismissed.

C.M.A./696/Tax (Trib.)Order accordingly.