I.T.A. No. 3713/LB of 2003, decided on 10th March, 2006. VS I.T.A. No. 3713/LB of 2003, decided on 10th March, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2106 (2006)

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

----Ss. 111 & 13(1)(d)---Penalty for concealment of income---Deletion of addition penalty---Validity---No justification was for the penalty order, which had been made by the Taxation Officer much after the deduction of additions.

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

----Ss.111 & 116--Penalty for concealment of income---Imposition of penalty after four years from the date of issuance of notice under 5.116 of the Income Tax Ordinance, 1979---Validity---No order of penalty shall be passed after the expiration of two years from the end of financial year in which such notice was served---Admittedly, notice under S.116 of the Income Tax Ordinance, 1979 had been sent by the Taxation Officer as on 30-6-1998 but the penalty order under S.111 of the Income Tax Ordinance, 1979 had been passed on 29-6-2002 after obtaining approval of the Inspecting Additional Commissioner which was exactly four years after the issuance of notice---Taxation Officer was duty bound to pass the order before the expiration of two years from the end of the financial year in which such notice was served and after the expiry of two years, he had no jurisdiction to pass order in this regard--Order passed under S.111 of the Income Tax Ordinance, 1979 was cancelled by the Appellate Tribunal.

Sabiha Mujahid, D.R. for Appellant.

Imran Rasool and Naeem Munawar for Respondents.

ORDER

Through this appeal, the Department has objected to the impugned order of the learned C.I.T (A) dated 3-5-2003 deleting the penalty imposed under section 111 of the repealed Income Tax Ordinance, 1979.

It has been contended on behalf of the Department that the assessee is an individual deriving income from running a flour mills. Assessment for the year under review i.e. 1991-02 was completed under section 59 (1). Subsequently, the case was reopened and in the course of normal assessment, addition was made under sections 13(1)(d)/13(2) of the repealed Income Tax Ordinance, 1979 on account of building owned by the assessee value of which was understated. She has contended that the penalty proceedings were initiated by issuing notice under section 116 on 30-6-1998 as mentioned in the order of the Taxation Officer made under section 111 of the late Ordinance, 1979, which has been deleted by the learned C.I.T. (A) without any justification.

On the other hand, on behalf of the assessee, the impugned order of the learned C.I.T (A) has been supported. It has been contended that in response to the notice sent by the Taxation Officer under section 116, on behalf of the assessee, it was explained that addition made under sections 13(1)(d)/13(2) has already been deleted by the learned C.I.T. (A) and no penalty order can be passed, as the original addition being already deleted, there is no order regarding addition in this respect in the field and the notice sent by the Taxation Officer is without any basis. He has contended that despite the above explanation, the Taxation Officer has made the addition without having any jurisdiction in this regard, as the basis on which the notices for penalty under section 116 have been issued has already been deleted by the learned C.I.T. (A). He has, therefore, supported the impugned order deleting the penalty. The learned counsel has also drawn my attention to section 116 of the late Ordinance, 1979 wherein it has been specifically provided that no penalty under this section shall be imposed except with prior approval of the Inspecting Additional Commissioner and unless such person has been given a reasonable opportunity of being heard and the imposition of such penalty shall be with, prejudice to any other liability incurred by such person under this Ordinance, the repealed act or any other law for the time being enforced. He has contended that proviso to section 116 has restricted the right of the Taxation Officer in this respect by providing that where a notice for hearing is given on or after the first day of July, 1990, no order of penalty shall be passed after the expiration of two years from the end of the financial year in which such notice was served. According to the learned counsel admittedly, in the present case, the notice under section 116 has been issued on 30-6-1998, but the order of penalty has been passed on 29-6-2002 and therefore, the order. has been passed without any jurisdiction, as the order in this regard cannot be passed after the two years from the end of the financial year in which such notice was served. He has contended that as it is a legal issue and can be raised at any stage of the proceedings, even if not taken in the grounds of appeal, or in the .course of assessment stage, or before first appellate authority.

I have heard the learned representatives from both the sides and have also perused the impugned order of the learned C.I.T.(A), the order passed under section 111 of the repealed Income Tax Ordinance, 1979 by the Taxation Officer, the provisions of law referred by the learned counsel for the assessee and other relevant record of the case.

While perusal of the assessment order, I have found that in response to notices dated 30-8-1998 and reminder dated 18-6-2002 under section 116 of the late Ordinance, 1979, the assessee has replied as has been reproduced in the assessment order as follows:-

"I am instructed to inform your good-self that the above penalty is related to under section 11(2)(c) of the income tax ordinance which notice under section 116 had been delivered for us but C.I.T. Appeal-II, decided this issue at the date of hearing 17-1-2002 which order also received us, in which he deleted the additions under section 13(1)(d) and held that they are without any basis so in these conditions your basis of section 111(2)(c) are removed, hence the penalty under section 116 not applicable for us, so it is requested to proceeding file this penalty."

But the Taxation Officer has made the penalty order dated 29-6-2002 with the following observations:---

"The reply of the assessee has been duly considered and found unsatisfactory. The default on the part of the assessee stand established".

The learned C.I.T. (A) has deleted the penalty after discussing all the facts of the case in the following manner:-

"Brief facts leading to this appeal are that originally assessment for the charge year 1991-92 was completed under section 59(1) at an income of Rs.38,099. It was noticed by the I.A.C. that as on 30-6-1991 the assessee had become the proprietor of the said mill, which along with its assets was acquired by the assessee at book value, whereas, its market value was manifold than by price for which the mill, was acquired. Assessment was, therefore, completed on 30-6-1998 under sections 62/66A of the Income Tax Ordinance, 1979 as under:---

1. 20% share from A.O.P:??????????????????????????????????????????????????????????????????? Rs. 38,099

2. Addition under sections 13(1)(d)/13(2)

on account of building?????????????????????????????????????????????????????????????? Rs.3,35,675

3. Addition under section 13(1)(d)

on account of machinery?????????????????????????????????????????????????????????????????????? Rs. 1,01,076

Total Income??????????????????????????????????????????????????????????????????????????????????????? Rs. 4,74,850

Notice under section 116 was issued which remained un?complied with. However, in response to reminder notice, the assessee requested vide his reply to file the proceedings because additions made by the Assessing Officer were deleted in appeal, being unjustified. This explanation of the assessee was considered to be unsatisfactory, hence, a penalty of Rs.1,81,110 was imposed with the prior approval of the I.A.C. through order under section 111 dated 29-6-2002.

In response to call notice, the appellant's A.R. attended and he was heard. It was argued that the assessing officer passed illegal order, which has no basis as additional already stands deleted. He also referred to case reported as 1994 PTD (Trib.) 688, 1993 PTD 730 and 1993 PTD 1393 in support. The appeal is decided hereunder:-

Facts of the case and submissions of the learned counsel have been considered. Since the additions made under section 13(1)(d) on account of building and machinery amounting to Rs.3,35,675 and Rs.1,01,076 respectively were deleted by the C.I.T. (Appeals-I), Faisalabad vide A.O. No.7025/27 dated 17-1-2002, hence, the impugned penalty under section 111 of Income Tax Ordinance, 1979 is also deleted as legally it is not tenable."

After considering the above findings of the learned C.I.T.(A), I am of the view that the learned C.I.T. (A) has rightly deleted the impugned order, as after the deletion of additions made under section 13 vide order dated 17-1-2002, there was no justification for the penalty order, which has been made by the Taxation Officer on 30-6-2002 much after the deletion of additions made under section 13. Even otherwise, while perusal of the relevant provisions of the repealed Income Tax Ordinance, 1979, I have found that Chapter XI deals with penalties regarding failure to furnish return of total income under section 108, for failure to maintain prescribed accounts under section 109, for non- compliance with notice under section 110, for enhancement of income etc. under section 111, for failure to give notice of discontinuance of business or profession under section 112, in the case of registered firms under section 113, for failure to give notice by liquidation under section 114 and penalty for obstruction by any person in discharging of functions by Income tax Authority under section 115. I have found that for all penalties imposed under above referred Chapter XI, the mandatory requirement is notice of hearing under section 116 of the late Ordinance, 1979, which reads as follows:

"116. Imposition of penalty after notice of hearing, etc.---No. Penalty under this Chapter shall be imposed on any person--

(a) by a Deputy Commissioner except with the prior approval in writing of the Inspecting Additional Commissioner; and

(b) unless such person has been given a reasonable opportunity of being heard, and the imposition of such penalty shall be without prejudice to any other liability incurred by such person under this Ordinance, the repealed Act or any other law for the time being in force:

Provided that where a notice for hearing is given on or after the first day of July, 1990, no order of penalty shall be passed after the expiration of two years from the end of the financial year in which such notice was served.

It is evident from the above referred section that as mentioned in the proviso, no order of penalty shall be passed after the expiration of two years from the end of the financial in which such notice was served. In the present case admittedly, the notice under section 116 has been sent by the Taxation Officer as mentioned in the assessment order on 30-6-1998, but the penalty order under section 111 has been passed by the Taxation Officer on 29-6-2002 after obtaining approval of the Inspecting Additional Commissioner vide letter No.1134 dated 27-6-2002, which is exactly four years after the issuance of notice. The Taxation Officer, in this case, under the law was duty bound to pass the order before the expiration of two years from the end of the financial year in which such notice was served, which was on 30-6-1998 and after the expiry of two years, he has no jurisdiction to pass order in this regard. The impugned order passed under section 111 is, therefore, cancelled on this score also.

The appeal filed by the Department is dismissed.

C.M.A./84/Tax(Trib.)?????????????????????????????????????????????????????????????????????????? Order accordingly.