I.T.As. Nos.2044/KB and 2045/KB of 19-95-96, decided on 28th August, 2002. VS I.T.As. Nos.2044/KB and 2045/KB of 19-95-96, decided on 28th August, 2002., 2003 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 268 (2002)

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 111‑‑‑Penalty of concealment of income‑‑‑Agreed assessment‑‑ First Appellate Authority confirmed the penalty on the ground that agreement for imposition of penalty was duly signed by the authorized representative of the assessee while the assessee vehemently contended that he had never agreed for imposition of penalty and words of penalty were written by the Assessing Officer behind his back and without his consent‑‑‑Validity‑‑‑No penalty under S.111 of the Income Tax Ordinance, 1979 could be imposed without service of notice under S.116 of the Income Tax Ordinance, 1979 which should clearly mention the charge on which the penalty was proposed to be imposed‑‑‑Was clear from the provision of S.111 of the Income Tax Ordinance, 1979 that the Deputy Commissioner had to be satisfied that in the said proceedings or in earlier proceedings relating to an assessment in respect of the same income year, concealment of income had taken place and such satisfaction about the concealment should clearly ‑be indicated in the assessment proceedings which in effect culminate when assessment order is passed‑‑‑Intention to impose penalty for concealment had to be given in the assessment order itself‑‑‑On examination of the assessment orders passed under S.62 of the Income Tax Ordinance, 1979 it was found that nothing had been said in these orders regarding intention of the Assessing Officer for initiating penalty proceedings under S.116 of the Income Tax Ordinance, 1979‑‑‑Condition precedent for penalty proceedings not been fulfilled penalties imposed were set aside.

1994 PTD (Trib.) 688 rel.

M. Mukhtar for Appellant.

Saheen Aziz Niazi, D.R. for Respondent.

Date of hearing: 28th August, 2002.

ORDER

MUHAMMAD AKHTAR NAZAR MIAN (ACCOUNTANT MEMBER), ‑‑‑These two appeals are filed by the assessee against the order of the learned CIT(A) Zone‑V, Karachi made by him on 20‑1‑1996 and impugned the confirmation of penalties under section 111 of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance). Representatives of both the parties have been heard and the orders of the authorities below perused.

2. The facts so far as relevant for the disposal of these appeals are that assessments for the assessment years 1984‑85 and 1988‑89 are stated to have been made in agreement with the authorised representatives of the appellant, who is said to have agreed on the following points:‑‑

(i) Additions of Rs. 566,625 and Rs.578,498 under sec tion 13(1)(d) of the Ordinance should be made during the assessment years 1984‑85 and 1988‑89 respectively; and

(ii) Penalties under section 111 of the Ordinance should also be imposed at 100 % on the amount of tax sought to be evaded during the years.

3. At the time of hearing before the learned CIT(A) it was vehemently contended by the learned A.R. that the party had never agreed for imposition of penalty and these words were written by the Assessing Officer at his back and without his consent. In support of this contention the learned A.R. had filed two affidavits before the learned CIT(A). On the other hand the learned CIT(A) after examining the relevant order sheet entries, dated 29‑6‑1995 concluded that the agreement for imposition of penalties under section 111 was duly signed by the A.R., the DCTI, IAC and the CIT and therefore, there was no question of making any interpolation. He, therefore, dismissed the appeals and confirmed the penalties imposed.

4. The hearing of these appeals before us has been adjourned to 7‑8‑2002 and 28‑8‑2002 when opportunities were provided to the learned D.R. for submission of the relevant record before the Tribunal. This record has not been produced before us. The production of records, we feel, is not so material for the reasons being given below.

5. No penalty tinder section 111 of the Ordinance can be imposed without service of notice under section 116 which should clearly mention the charge on which the penalty is proposed to be imposed. In order to appreciate the circumstances under which the penalty under section 111 can be imposed, we would refer to subsection (1) of the said section 111 in order to understand as to what are the conditions precedent for imposing penalties under the said section:‑‑‑

"111. Penalty of concealment of income etc. (1) ‑‑‑Where, in the course of any proceedings under this Ordinance, the Deputy Commissioner, the Appellate Additional 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 equal to 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."

6. From the provisions of law as cited above, it is clear that the Deputy Commissioner who has to be satisfied that in the said proceedings or in earlier proceedings relating to an assessment in respect of the same income year, concealment of income had taken place. In simple words this means that the satisfaction about the concealment having taken place should clearly be indicated in the assessment proceedings which in effect culminate when assessment order is passed. In other words the intention to impose penalty for concealment has to be given in the assessment order itself.

7. When the assessment orders passed under section 62 for the assessment years 1984‑85 and 1988‑89 are examined keeping in view the legal position as explained above, we find that nothing has been said in these orders regarding intention of the DCIT for initiating penalty proceedings under section 116 of the Ordinance. This having not been done, we hold that the condition precedent of penalty proceedings has not been fulfilled and therefore, penalties are not sustainable.

8. The view taken up by us as stated above, finds support from a decision of this Tribunal cited as 1994 PTD (Trib.) 688. In this case it has been held after thorough discussion of law that:

(i) A definite finding by the I.T.O., A.A.C, CIT (Appeals) or the Income Tax Appellate Tribunal on the point of concealment of income or furnishing of inaccurate particulars of income is sin qua non for initiating penalty proceedings.

(ii) Whenever penalty proceedings are sought to be initiated by an Assessing Officer, there should be a finding to this effect in the assessment order indicating the intention of initiating penalty proceedings.

9. For the reasons given above, we hold that the penalty imposed by the DCIT is not sustainable in law and consequently the penalty orders are cancelled. The appeals succeed to the extent and in the manner indicated above.

C.M.A./504/Tax(Trib.) Appeals succeeded.