I.T.A. No. 1330/LB of 1997, decided on 13th September, 2003. VS I.T.A. No. 1330/LB of 1997, decided on 13th September, 2003.
2004 P T D (Trib.) 1225
[Income-tax Appellate Tribunal Pakistan]
Before Rasheed Ahmed Sheikh, Judicial Member and Amjad Ali Ranjha, Accountant Member
I.T.A. No. 1330/LB of 1997, decided on /01/.
th
September, 2003. (a) Income Tax Ordinance (XXXI of 1979)---
----S. 111---Penalty for concealment of income etc.---Specific findings-- Penalty proceedings could not be initiated against the party unless specific findings on the point of concealment of income or furnishing of inaccurate particulars of income with the mens rea for evading the tax were not contained in the assessment order forming basis for initiating penalty proceedings.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 111---Penalty for concealment of income etc.---Burden of proof-- "Assessment proceedings" and "penalty proceedings" ---Distinction-- Assessment proceedings and penalty proceedings stand on two different footings; in former situation onus lies on the assessee's shoulders to prove that income returned by him was his true income while in latter situation burden squarely shifts on the department to establish that the assessee had concealed his income because penalty proceedings are criminal in its nature and the standard of proof which is required in a criminal case is also required to sustain the order imposing penalty.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 111---Penalty for concealment of income etc.---Definite finding-- For initiating penalty a definite finding either by the Assessing Officer, or by the Appellate Authority on the point of concealment of income or furnishing of inaccurate particulars of income is sine qua non-- Whenever penalty proceedings are sought to be initiated by an Assessing Officer, there should be a findings to this effect in the assessment order indicating the intention of initiating penalty proceedings.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 111 & 116---Penalty for concealment of income etc.---Notice issued under S.116 of the Income Tax Ordinance, 1979 should contain the alleged act of concealment of income or furnishing of inaccurate particulars of income in clear and unambiguous terms as well as the necessary particulars indicating the charge to be proved against an assessee.
(e) Income Tax Ordinance (XXXI of 1979)---
----S. 111---Penalty for concealment of income etc.---Where version of taxpayers is not accepted the penalty proceedings shall not be attracted ipso facto although the rejection of taxpayer version may justify the addition to be made in total income and in no way a reasonable difference of opinion on the point of law or principle of accountancy shall attract imposition of penalty.
2003 PTD (Trib.) 1085 rel.
(f) Income Tax Ordinance (XXXI of 1979)----
----Ss. 111 & 13(1)--Penalty for concealment of income etc. ---Imposition of penalty for concealment of income being addition made was confirmed by Appellate Tribunal---Validity---Imposition of penalty on account of addition made under S.13(1)(aa) of the Income Tax Ordinance, 1979 was absolutely unjustified unless guilt was proved against the assessee that he had deliberately and intentionally concealed the income---Assessing Officer had based his entire structure of penalty proceedings merely on the ground that Appellate Tribunal had upheld the addition made under S.13(1)(aa) of the Income Tax Ordinance, 1979 and any documentary evidence submitted explaining sources of investment for the purchase of shop, during the course of penalty proceedings, could not be entertained at appellate stage reason being that evidence was never provided while formulating the original- assessment as well as before the Appellate Authorities---Default of unexplained investment was established consequent upon which penalty was imposed---Such findings had no locus standi in the eye of law while initiating penalty proceedings under S.111 of the Income Tax Ordinance, 1979.
(g) Income Tax Ordinance (XXXI of 1979)---
----S. 111---Penalty for concealment of income etc. ---Initiation of ex parte penalty proceedings for concealment of income being addition made was confirmed by Appellate Tribunal ---Validity---Assessee could not be debarred to substantiate his investment during the course of penalty proceedings as the penalty proceedings were independent Proceedings and Assessing Officer who, while initiating the penalty proceedings had to look into the explanation given by the assessee in order to fasten blame of concealment of income or furnishing of inaccurate particular of income at the assessee's door---Foremost duty of the Assessing Officer was to prove mens rea and deliberate suppression on the part of assessee which was missing in the order passed under S.111 of the Income Tax Ordinance, 1979---Assessee had purchased a shop after obtaining gift from his real sister who was also an existing assessee---By furnishing copy of gift-deed and balance-sheet of assessee's sister, onus had shifted upon the Assessing Officer's shoulders to verify factum of gifted amount from that Circle---No exercise was made by the Assessing Officer to ascertain as to whether the assessee's sister had sufficient funds to gift the said amount to her brother or not---Penalty imposed was not sustainable which was deleted by the Appellate Tribunal.
CIT v. Abdul Jabbar 2001 PTD 1348; (2003) 87 Tax 359 (Trib.); 2003 PTD (Trib.) 1085; (1992) 63 Tax 265 and 1994 PTD (Trib.) 688 rel.
Muhammad Saeed Chaudhry for Appellant.
Nemo for Respondent.
Date of hearing: 13th September, 2003.
ORDER
RASHEED AHMAD SHEIKH (JUDICIAL MEMBER).---This appeal at the instance of the assessee-appellant is directed against the order passed by CIT (A), Zone V, Lahore, dated 21-5-1996 in respect of assessment year 1989-90.
2. What happened in this case was that a penalty amounting to Rs.136,920 was imposed by the Assessing Officer under section 111 of the Income Tax Ordinance, 1979 on the ground that the assessee had failed to explain sources of investment to the extent of Rs.337,500 which was made for the purchase of a property. Resultantly, the addition made under section 13(1)(aa) was upheld by the Tribunal. Thus, default of investment to the tune of Rs.337,500 stood established. Thereafter, the penalty proceedings in this case were originally initiated on account of two additions made under section 13 of the Income Tax Ordinance, 1979 to be the deemed income of the assessee. The one under section 13(1)(d) and the other under section 13(1)(aa). On first appeal the AAC deleted the penalty on account of the addition made under section 13(1)(d) while the penalty imposed under section 13(1)(aa) was set aside for de novo proceedings. On reassessment it was the contention of the assessee that a shop was purchased for Rs. 337,500 and the investment was made out of gift received from his real sister namely, Mst. Nasrin Akhtar who is also an existing assessee at NTN 5-15-1227064 and was in possession of sufficient funds to gift the said amount to the assessee. Copy of balance-sheet was also attached with the gift deed executed at the relevant time. This explanation was not accepted by the Assessing Officer and accordingly penalty amounting to Rs.136,920 under section 111, was imposed by the Assessing Officer. In the second round of litigation the Appeal Commissioner confirmed this treatment on the ground that the addition made under section 13(1)(aa) had stood confirmed by the Tribunal, therefore, the explanation of alleged gift is an afterthought and cannot be entertained. Accordingly the assessee's appeal was dismissed being the penalty levied was fully justified. This treatment has compelled the assessee to come up in appeal before us.
3. Main thrust of the learned counsel for the assessees before us is that since the penalty proceedings are independent and are also criminal in its nature, therefore, the Assessing Officer was duty bound to prove guilty intention of the assessee. 'To support the contention a few case law cited as CIT v. Abdul Jabbar 2001 PTD 1348 (H.C. Lhr), 2003 PTD (Trib.) 1121, 2003 PTD (Trib.) 1085, (1992) 63 Tax 205 (H.C. Lah.) and 1994 PTD (Trib.) 688 have been cited before us. Also added by the learned counsel for the assessee that the learned Appeal Commissioner had fallen in grave error in confirming the order of the Assessing Officer on the ground that explanation with 'regard to sources of investment for purchase of shop was filed after three years. On the contrary the explanation tendered by the assessee was based on solid evidence and this factum could not be dislodged by the department with any plausible reasonings. Further argued that the learned Appeal Commissioner was not justified in upholding imposition of penalty merely that the addition under section 13(1)(aa) stood confirmed by the Tribunal while the penalty proceedings being totally independent have to stand upon its own legs on merits. It is also the contention of the learned counsel for the assessee that the department has failed to bring any material evidence to establish that the appellant had concealed the income or provided inaccurate particulars of income deliberately and intentionally. Thus, the penalty imposed under section 111 merits cancellation thereof, or any other relief may be allowed in view of the facts and circumstances of the case.
4. On the other hand none has prosecuted on behalf of the Revenue on the date fixed for hearing despite proper intimation made at the relevant quarter. It is, therefore, decided to proceed ex parte in absence of the learned DR by resort to rule 20(2) of the Income Tax Appellate Tribunal Rules, 1981.
5. We have deliberated the contentions raised by the learned counsel for the assessee and have also gone through the case-law cited at the bar as well as the material available on record. We feel persuaded to incline with the contention of Mr. Muhammad Saeed Chaudhary Advocate the learned counsel for the assessee's line of arguments. It is established law that the penalty proceedings cannot be initiated against the party unless specific findings on the point of concealment of income or furnishing of inaccurate particulars of income with the mens rea for evading the tax are not contained in the assessment order forming basis for initiating penalty proceedings. In fact the assessment proceedings and penalty proceedings stand on two different footings. In the former situation onus lies on the assessee's shoulders to prove that income returned by him is his true income. While in the latter situation burden squarely shifts on the department to establish that the assessee had concealed his income. It is so because penalty proceedings are criminal in its nature and the standard of proof which is required in a criminal case is also required to sustain the order imposing penalty. Actually tore initiating penalty proceedings a definite finding either by the Assessing Officer or by the Appellate Authority on the point of concealment of income or furnishing of inaccurate particulars of income is sine qua non. It is also settled principle that whenever penalty proceedings are sought to be initiated by an Assessing Officer, there should be a findings to this effect in the assessment order indicating the intention of initiating penalty proceedings. Even the notice to be issued under section 116 should contain the alleged act of concealment of income or furnishing of inaccurate particulars of income in clear and unambiguous, terms as well I as the necessary particulars indicating the charge to be proved against an assessee.
6. It is also imperative to mention here that in all cases where version of taxpayers is not accepted, the penalty proceedings shall not be attracted ipso facto although the rejection of taxpayer version may I justify the addition to be made in total income. In no way a reasonable difference of opinion on the point of law or principle of accountancy shall attract imposition of penalty. Strength in this regard has been sought from a case-law reported as (2003) 87 Tax 426 (Trib.) = 2003 PTD (Trib.) 1085.
7. Reiterating to the facts of the case we are of the considered view that imposition of penalty on account of addition made under section 13(1)(aa) was absolutely unjustified unless guilt is proved against the, assessee that he has deliberately and intentionally concealed the income. It appears that the Assessing Officer has based his entire structure of penalty proceedings merely on the ground that the Tribunal had upheld the addition made under section 13(1)(aa) of the Income Tax Ordinance, 1979 and any documentary evidence submitted explaining sources of investment for the purchase of shop, during the course of penalty proceedings, cannot be entertained at this stage reason being that evidence was never provided while formulating the original assessment as well as before the Appellate Authorities. Thus, default of unexplained investment amounting to Rs.337,500 stood established consequent upon which penalty of Rs.136,920 was imposed. These findings have no locus standi in the eye of law while initiating penalty proceedings under section 111 of the Income Tax Ordinance, 1979. It is so because ex parte proceedings were initiated by the Assessing Officer at the time of framing original assessment order meaning thereby the assessee could not come forward with any explanation at the relevant time. Nevertheless, the assessee is not debarred to substantiate his investment during the course of penalty proceedings initiated against the assessee under section 111 of the Income Tax Ordinance, 1979. For the simple reason that the penalty proceedings are independent proceedings and this is the Assessing Officer who, while initiating the penalty proceedings has to look into the explanation given by the assessee in order to fasten blame of concealment of income or furnishing of inaccurate particulars of income at the assessee's door. It is foremost duty of the Assessing Officer to prove mens rea and deliberate suppression on the part of the assessee which is missing in the order passed under section 111 of the Income Tax Ordinance, 1979 in the present case Facts available on record clearly spells out that the assessee had purchased a shop after obtaining gift of Rs.337,500 from his real sister Mst. Nasreen Akhtar who was also an existing assessee in Circle-15 Zone-A Lahore bearing NTN 1227064. By furnishing copy of the gift-deed, dated 8-5-1989 and balance-sheet of the assessee's sister, onus has been shifted upon the Assessing Officer's shoulders to verify factum of gifted amount from that Circle. Also to ascertain as to whether the assessee's sister had sufficient funds to gift the said amount to her brother or not? This exercise does not seem to have been made by the Assessing Officer.
8. In view of foregoing discussion as well as following the ratio and the principle decidendi in the case-law cited supra and after having gone through the facts of the case in its entirety we have no ambiguity in our mind to hold that the penalty imposed under section 111 of the Income Tax Ordinance, 1979 amounting to Rs.136920 was not legally sustainable which is hereby deleted. The assessee's appeal is accordingly succeeded.
C.M.A./22/Tax (Trib.) Appeal accepted.