I.T.As. Nos. 407/KB of 2004 and 1727/KB of 2003, decided on 23rd November, 2004. VS I.T.As. Nos. 407/KB of 2004 and 1727/KB of 2003, decided on 23rd November, 2004., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1790 (2004)

(a) Income-tax---

----Gross profit rate---Decrease in gross profit rate---Sale to Government agencies had reduced from 20% to 15.40% contrary to sales to limited company, which had increased from 21% to 28.19% whereas there was little decline wholesale (from 59% to 56.33%) but this may not be taken as a sufficient reason to accept c-)nsiderable decrease in sales and gross loss, instead of gross profit rate---Besides no admissible evidence had been furnished to show increase in the prices of raw material---Record was silent in respect of any evidence showing decline in prices of raw material---Present was a no account case, assessee was duly confronted and accounts were rejected after a detailed reply was taken into consideration by the Assessing Officer---Estimate of sales and application of G.P. rate at 7.5% was as per history of the assessee and thus was not interfered with by the Appellate Tribunal.

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

----S. 12(18)---Income deemed to accrue or arise in Pakistan---Loan iron Director of the company---Details of loan were furnished by the assessee---Assessing Officer observed that loan was obtained on long term without banking channel and the amount had been received in cash---Addition---Validity---Case-law holding that "any amount received through crossed cash or any other banking channel was not liable to tax under S.12(18) of the Income Tax Ordinance, 1979" had not been taken into consideration by the Assessing Officer---Appellate Tribunal directed that issue be concluded afresh by the Assessing Officer after recording complete facts.

2002 PTD 1963 ref.

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

----Third Sched., R.8(5)(a)---Rules for the computation of depreciation allowance---Sales proceeds---First Appellate Authority failed to record his order in respect of addition in scrap sales and in respect of an addition made in respect of profit from sales of assets under R.8(5)(a) of Third Schedule of the Income Tax Ordinance, 1979 and no finding was given o:, additional ground of appeal relating to allowance of depreciation---Case was remanded to First Appellate Authority by the Appellate Tribunal for fresh adjudication on merit.

(d) Income Tax Ordinance (XLIX of 2001)---

----Ss. 182(2)(3), 169, 151 & 153---Penalty for failure to furnish a return or statement---Levy of penalty under S.182(3) of the Income Tax Ordinance, 2001 at the rate of Rs.200 per day for alleged defaults of 58 days in furnishing statements, prescribed under Ss.151 & 153 of the Income Tax Ordinance, 2001 read with 5.169 of the Ordinance along with penalty under S.182(2) of the Income Tax Ordinance, 2001---Validity---Order imposing penalty under S.182(2) of the Income Tax Ordinance, 2001 had been passed after affording opportunity of hearing to assessee, who due to its wilful absence after due service of notice, failed to show a reasonable excuse for not filing required statement within the prescribed period, as such the impugned order was not interfered by the Appellate Tribunal--Appellate Tribunal in respect of additional penalty under S.182(3) of the Income Tax Ordinance, 2001 found that required statements due on 15th October, 2002, were filed on 14-12-2002 (late by 58 days), but before service of show-cause notice, as such there was no default attracting subsection (3) of S.182 of the Income Tax Ordinance, 2001 which provided imposition of additional penalty when a person liable to a penalty under subsection (2) of S.182 of the Income Tax Ordinance, 2001 continued to fail to furnish the statement, besides a separate notice would also be mandatory---Imposing penalty under S.182(3) of the Income Tax Ordinance, 2001 confirmed by the First Appellate Authority was unjustified and was cancelled by the Appellate Tribunal.

(e) Income Tax Ordinance (XLIX of 2001)---

----S. 182(3)---Penalty for failure to furnish a return or statement---Procedure and propositions for levy of penalty.

(f) Income Tax Ordinance (XLIX of 2001)---

----S. 182(2)(3)---Penalty for failure to furnish a return or statement---Notice for imposition of additional penalty---Controversy was whether notice under subsection (2) of S.181 of the Income Tax Ordinance, 2001 would be sufficient for imposing additional penalty provided under subsection (3) of S.182 of the Income Tax Ordinance, 2001 or separate notice was mandatorily required---Validity---Separate provision had been laid down for imposing additional penalty of Rs.200 for each day of default---Additional penalty will be taken as a separate course for which a separate notice would be necessary after action under S.182(2) of the Income Tax Ordinance, 2001 and each day of default shall start after the date of imposition of penalty under S.182(2) of the Income Tax Ordinance, 2001 which meant that for imposing additional penalty it would be necessary to pass an order under S.182(2) of the Income Tax Ordinance, 2001 and thereafter on failure of the assessee to pay penalty of Rs.2000, additional penalty shall be levied at the rate of Rs.200 for each day of default---Both the penalties were independent in nature, based on different actions, having separate starting dates, thus separate notice would be mandatory for each action.

(g) Income Tax Ordinance (XLIX of 2001)---

---S. 182(2)(3)---Penalty for failure to furnish a return or statement---Action under S. 182(3) of the Income Tax Ordinance, 2001 was not discretionary, as such showing reasonable cause would not be necessary for levy of additional tax.

(h) Income Tax Ordinance (XLIX of 2001)---

---S. 182(2)(3)---Penalty for failure to furnish a return or statement---Separate penalty for each statement---Penalty under Ss. 182(2) and 182(3) of the Income Tax Ordinance, 2001 would be separate for each statement because the words, "failure to furnish the statement" had been used, as such where an assessee failed to furnish more than one statement, separate action would be proposed for each statement under subsections (2) and (3) of S.182 of the Income Tax Ordinance, 2001.

(i) Income Tax Ordinance (XLIX of 2001)---

---S. 182(2)(3)---Penalty for failure to furnish a return or statement---Time for start of default---Default in respect of which penalty had been imposed under S.182(3) of the Income Tax Ordinance, 2001 shall start from the date of penalty imposed under S.182(2) of the Income Tax Ordinance, 2001 as such time already lapsed till passing of an order under S.182(2) of the Income Tax Ordinance, 2001 shall be excluded while imposing penalty under S.182(3) of the Income Tax Ordinance, 2001.

A.H. Fridi, ITP for Appellant.

Ghulam Shabbir Memon, D.R. for Respondent.

ORDER

The assessee being aggrieved and dissatisfied from the order of the learned CIT(A), dated 24-11-2003, has taken objection to the order conforming rejection of account and addition of Rs.1,974,192 under section 12(18) of the Repealed Income Tax Ordinance, 1979. The assessed has also alleged that the learned CIT(A) has not recorded finding on issues (i) in respect of additions at Rs.220,200 in other receipts, (ii) Rs.142,244 scrap sales, and (iii) Rs.275,808 being profit from sales of assets.

2. In the last the assessee has taken further objection to the order refusing to admit additional ground of appeal in respect of incorrect allowance on depreciation on the ground that no affidavit was filed to support additional ground of appeal.

3. The assessee a public limited company engaged in the business of manufacturing and selling of cloth and grain sack Bags, declared net sales at Rs.14,30,83,533 and gross profit (loss at Rs.1,98,67,190). The Assessing Officer comparing declared results pertaining to assessment years 2000-2001 and 2001-2002 observed that sales have decreased considerably, there is gross loss instead of G.P. rate of 1.31% declared last year G.P. rate is showing trend from 7.33% to 1.37%. The assessee when confronted replied that the decline in sales is on account of lack of demand of products, and the production during the year has been made to the tune of Rs.5015 M Ton as against 5449 M Ton produced last year, resulting decrease in sales during the year. The break up of gross sales is reproduced hereunder:--

4. From the above break up, the assessee emphasised that there is considerable decline in gross profit for the reasons that (i) during the year under review the prices of raw jute increased by 3,238,73 PMT as compared to last year, during the year 4,433 MT of raw jute was purchased at an excess cost of Rs.14,357,290, (ii) Jute batching price also increased by Rs.0.8900 per liter which resulted in excess payment of Rs.214,663, (iii) due to increase in cost of raw material, cost of sales also increased by a sum of Rs.1,45,71,953, (iv) the selling price declared by a sum of Rs.2641.17 per Ton showing total decline in selling price at Rs.13,633,720.

5. The Assessing Officer after examining the explanation observed that the details filed on account of sales are not open to verification for want of complete addresses, such as verification of sales could not be made, sales to local wholesalers has increased as compared to Government departments, whereas decrease in G.P. rate is extra-ordinary. The Assessing Officer for the above reasons and for various other reasons including corresponding fall in the cost of sales, non-production of complete vouchers/evidence, bank statement showing non-available sales receipts, rejected the declared version of the assessee-Company, consequently estimated sales at Rs.167,500,000 and applied G.P. rate of 7.5% keeping in view the preceding assessment year resulting addition at Rs.32,429,690???????? (12,562,500 + 198,67,190 (i.e. gross loss)) on the trading account. The learned CIT(A) maintained the order, whereby confirmed the rejection of trading version, estimate of sales and application of G.P. rate observing 'that assessee has not furnished details of party-wise sales showing complete addresses, manufacturing expenses are also on cash basis and not open to verification, no corroborative evidence has been filed to strengthen the claim regarding increase in purchase prices of raw material.

6.???????? Heard the learned representatives of the two parties and also perused the record. To support his version, the assessee's counsel relied upon the break up of sales reproduced at para. 3 above.

7.???????? No doubt sale to Government Agencies has reduced from 20% to 15.40% contrary to sales to limited company, which has increased from 21% to 28.19% whereas there is little decline in wholesale (from 59% to 56.33%) but this may not be taken as a sufficient reason to accept considerable decrease in sales and gross loss, instead of G.P. rate. Besides no admissible evidence has been furnished to show increase in the prices of raw material, jute batching and other raw material. Record is also silent in respect of any evidence showing decline in prices of raw material. This is a no account case, assessee was duly confronted and thereafter accounts were rejected after a detailed reply was taken into consideration by the Assessing Officer. We, in the circumstances supra, find that estimate of sales and application of G.P. rate at 7.5% is as per history of the assessee, hence does not warrant interference for any reason.

8. The next issue pertains to addition at Rs.19,94,192 under section 12(18) of the Income Tax Ordinance, received from Director Mr. Muhanunad Ashraf Assessee furnished the details of loan, the Assessing Officer after examining the entire facts noted that loan from M. Ashraf amounting to Rs.19,15,792 obtained on long term without banking channel and vide entry, dated 12-12-2001 on Standard Chartered Bank the amount of loan has been received as cash. The record reveals that assessee has not been duly confronted in this context, and the case-law cited as 2002 PTD 1963 holding that "any amount received through crossed cheques, cash or any other banking channel was not liable to tax under S.12(18) of the Income Tax Ordinance, 1979" has not been taken into consideration, hence the issue be concluded afresh by the DCIT after recording complete facts keeping in view the case-law reported above.

9. It is worth-mentioning that the learned CIT(A) has treated the issue regarding declared other income at Rs.2,20,200 as loan while discussing separate issue of addition of Rs.19,74,192 under section?? 12(18)? of the Income Tax Ordinance and since this issue independent in nature, specifically taken vide ground No.9 of the grounds of appeal before the learned CIT(A), hence we find reasons to remand this issue back to the learned CIT(A) for adjudication on merit.

10. Since the learned CIT(A) has also failed to record his order in respect of addition of Rs.142,244 in scrap sales and in respect of an addition at Rs.275,808 made in respect of profit from sales of assets under Rule 85A of Third Schedule of the Repealed Income Tax Ordinance, 1979 and no finding is given on additional ground of appeal related to allowance of depreciation, we therefore, find reasons to remand the case back to the learned CIT(A) for fresh adjudication on merit on this issue also.

Appeal under section 182 of the Income Tax Ordinance

11. The assessee in appeal bearing I.T.A. No.1727/KB of 200? has taken objection to the order, dated 26-8-2003 maintaining the penalty imposed under section 182(2) for default??????????? in furnishing statement, prescribed under sections 151 and 153 of the Income Tax Ordinance readwith section 169 of the Income Tax Ordinance, 2001 within time limit.Further objection is taken to the order maintaining the levy of penaltyunder section 182(3) amounting to Rs.23,200 at the rate of Rs.200 perday for alleged defaults of 58 days levied along with penalty undersection 182(2).

12. Record reveals that vide order under section 182, the learned Assessing Officer imposed penalty of Rs.27,200 for late filing of quarterly statement prescribed under sections 151 and 153 of the Income Tax Ordinance, 2001. According to the learned Assessing Officer, these statements were to be filed on 15-10-2002 but have been filed on 14-12-2002 after a delay of 58 days. The learned CIT(A) vide order, dated 26-8-2003 dismissed the appeal being devoid of any merit.

13. It is arguedby the learned counsel for the assessee that learned CIT(A) has erred in maintaining the penalty imposed .under section 182(2) for default of statement prescribed under sections 151 and 153 ignoring the reasons of nominal delay occurred due to genuine problems. Besides penalty under section 182(3) at the rate of Rs.200 per day for alleged default of 220 days is contrary to law which provides that penalty under section 182(3) would be levied in respect of default after the imposition of penalty under section 182(2). It is added that default in respect of which penalty has been imposed under section 182(3) is in respect of delay caused before levy of penalty under section 182(2), hence order confirming the penalty under section 182(3) is contrary to law.

14. Section 182 of Income Tax Ordinance, 2001 is restricted to penalty for failure to furnish the return of statement under subsection (4) of section 150 within the time allowed under the Ordinance, whereas subsection (2) of section 182 is restricted to statement required under section 165 and penalty provided therein, is only Rs.2000. Subsection (2) further provides a condition precedent that penalty be imposed after an opportunity of hearing has been afforded, and in case there appears no reasonable excuse? Contrary to above, subsection (3) provides that where a person liable to a penalty under subsection (2)?? continues to fail to furnish the statement, an additional penalty for Rs.200 for each day of default, shall be imposed w.e.f. imposition of penalty under subsection (2).

15. The simple reading of above provision refers. to following prepositions:

(i) The amount of penalty for non-submission of statement required under section

165 of the Ordinance, is Rs.2000 only.

(ii) The default should be wilful, if the assessee is not wilful guilty of gross or? wilful neglect, penalty would not be leviable.

(iii) Imposition of penalty is discretionary, and discretion should be exercised only in cases where it is convinced that default is not wilful, as such inadvertent and bona fide mistake or omission need not to be penalized because of presence of pre-condition "reasonable cause".

(iv) In the circumstances onus lies upon the Department to prove wilful default.

(v) In the circumstances, there should be a show-cause notice from the office of the authority competent to impose penalty proceedings so as to provide ample opportunity to the assessee to make out a case of bona fide mistake and reasonable cause.

(vi) The officer imposing penalty is, therefore, required to be judicious in? imposition of penalty and to give due weight to the explanation of default.

16.?????? The next issue related to above controversy, is that notice under section (2) of section 182 would be sufficient for imposing additional penalty provided under subsection (3) or separate notice would be mandatory. We find that separate provision has been laid down for imposing additional penalty of Rs.200 for each day of default, hence additional penalty will be taken as a separate course for which a separate notice would be necessary after action under subsection (2) of section 182 of the Ordinance and each day of default shall start after the date of imposition of penalty under subsection (2) which means that for imposing additional penalty it would be necessary to pass an order under section 182(2) and thereafter on failure of the assessee to pay penalty of Rs.2000, additional penalty shall be levied at the rate of Rs.200 for each day of default. Apparently both the penalties are independent in nature, based on different actions, having separate starting dates, hence separate notice would be mandatory for each action. However, action under subsection (3) is not discretionary, as such showing reasonable cause would not be necessary for the levy of additional tax. We also find that the penalty under section 182(2)???? and (3) would be separate for each statement because the words, "failure to furnish the statement" have been used, as such where an assessee failed to furnish more than one statement, separate action would be proposed for each statement under subsections (2) and (3) of section 182.

17. It is worth-mentioning that default in respect of which penalty has been imposed under section????????? 182(3) shall start from the date of penalty imposed under section 182(2) of the Income Tax Ordinance, 2001, as such time already lapsed till passing of an order under section 182(2) shall be excluded while imposing penalty under section 182(3).

18. In the circumstances supra, we find that order imposing penalty under section182(2) has been passed after affording opportunity of hearing to the assessee, who due to its wilful absence after due service of notice, failed to show a reasonable excuse for filing required statement within the prescribed period, as such order in this context, does not warrant interference.

19. So far as additional penalty under section 182(3) is concerned, we find that required statements due on 15th October, 2002, were filed on 14-12-2002 ((ate by 58 days), but before service of show-cause notice, dated 23-5-2003 showing compliance by 30-5-2003, as such there is no default attracting subsection (3) of section 182 which provides imposition of additional penalty when a person liable to a penalty under subsection (2) section 182 continues to fail to furnish the statement, besides a separate notice would also be mandatory as discussed above. In the circumstances supra, the order imposing penalty under section 182(3) confirmed by the learned CIT(A) is apparently unjustified and liable to be cancelled.

20.?????? Consequently the appeal is partly allowed.

C.M.A./541/Tax (Trib.)??????????????????????????????????????????????????????????? Appeal partly allowed.