I.T.As. Nos. 5223/LB to 5225/LB of 2005, decided on 17th February, 2007. VS I.T.As. Nos. 5223/LB to 5225/LB of 2005, decided on 17th February, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1793 (2007)

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

----Ss. 111 & 116---Penalty for concealment of income etc---Levy of penalty without approval of Inspecting Additional Commissioner--Validity---No penalty under Chapter XI, Income Tax Ordinance, 1979 shall be imposed on any person by the Deputy Commissioner except with the prior approval in writing of the Inspecting Additional Commissioner, unless such person had been given reasonable opportunity of being heard---Requirement of prior approval in writing was the mandatory requirement for imposing penalty which had not been fulfilled---First Appellate Authority therefore, had rightly annulled the penalty order.

AIR 1978 SC 1548; 1971 Jab. LJ. 62; AIR 1957 SC 444; PLD 1984 Lah. 332; 2006 PTR 154; (2006) 93 Tax 266; (2007) 95 Tax 41; 2005 PTD 1 and 2007 PTD (Trib.) 139 ref.

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

----Ss. 184, 190, 239(3) and 137(2)---Income Tax Ordinance (XXXI of 1979), Ss.111 & 116---Penalty for concealment of income---Penalty order was annulled by the First Appellate Authority being without prior approval of Inspecting Additional Commissioner---Department contended that penalty had been imposed under the corresponding provision of Income Tax Ordinance, 2001 and no approval of Inspecting Additional Commissioner as required under S.116 of the Income Tax Ordinance, 1979 had been provided, therefore, penalty orders made were justified---Validity---Provision of S.239(1) of the Income Tax Ordinance, 2001, specifically provided that "in making any assessment in respect of any income year ending on or before 30th of June, 2002, the provisions of Income Tax Ordinance, 1979, insofar as these related to computation of total income and tax payable thereon, shall apply as if Income Tax Ordinance, 2001 had not come into force---Section 239(3) further provided that only the procedure for such imposition or charge shall be in accordance with the corresponding provisions of Income Tax Ordinance, 2001 and the procedural section regarding penalty was S.85 of the Income Tax Ordinance, 1979 which was regarding payment of tax on demand or issuance of IT-30 for calculation of penalty along with penalty order and corresponding section in Income Tax Ordinance, 2001 regarding issuance of demand notice along with penalty order was S.137(2) of the Income Tax Ordinance, 2001 and no documents like IT-30 was required, as the penalty under the Income Tax Ordinance, 2001 was calculated through the penalty order---First Appellate Authority had rightly annulled the assessments---Order of First Appellate Authority was upheld by the Appellate Tribunal and appeals filed by the Department were dismissed.

AIR 1978 SC 1548; 1971 Jab. LJ. 62; AIR 1957 SC 444; PLD 1984 Lah. 332; 2006 PTR 154; (2006) 93 Tax 266; (2007) 95 Tax 41; 2005 PTD 1 and 2007 PTD (Trib.) 139 ref.

Mrs. Sabiha Mujahid, D.R. for Appellant.

Nadeem Ahmad, ITP for Respondent.

ORDER

Through these three appeals, the appellant-Department has objected to the consolidated impugned order of the learned CIT(A), dated 13-7-2005 for the assessment year 1994.95 to 1996-97 on the following common grounds:--

(1) CIT(A) is not justified to annul the penalty order under section 111 of the Income Tax Ordinance, 1979.

(2) As per section 239(3) of Income Tax Ordinance, 2001, penalty for any income year ending on or before 30-6-2002 is to be imposed in accordance with the repealed Ordinance but the procedure shall be in accordance with the corresponding provision of this Ordinance.

(3) The procedure for imposition of penalty laid down in Income Tax Ordinance, 2001 does not include approval of the Inspecting Additional Commissioner (IAC).

(4) CIT(A) is not justified to hold that prior approval of IAC is not a procedural matter but a prerequisite for levy of penalty under the repealed Ordinance.

(5) Prior approval of IAC is a prerequisite of procedural nature and is no longer necessary in view of section 239(3) of Income Tax Ordinance, 2001.

We have heard the learned representatives from both the sides and have also perused the consolidated impugned order of the learned CIT(A) and three separate assessment orders passed by the Taxation Officer under section 111 of the repealed Income Tax Ordinance, 1979.

We have found that taxpayer, in this case, is an individual deriving income from house property. Assessments for the years under review were finalized under section 62 of the repealed Ordinance, 1979 on 30-6-2001. Later on, notice under section 116 of the repealed Ordinance, 1979 was issued to the taxpayer for filing of inaccurate particulars/concealment of income along with assessment order. The assessee went in appeal. As a result of appeal effect under sections 62/132 of the repealed Income Tax Ordinance, 1979, net income for the year was computed, creating tax demand. Later on, as the jurisdiction was transferred to Medium Tax Payers Unit, therefore, reminder to the notice under section 116 was issued on 17-6-2004 for compliance on 25-6-2004. Taxpayer filed reply contending therein that;

(i) All the additions made under section 13 were deleted by the learned CIT(A) and notice under section 116 was annulled in the appellate order.

(ii) That the cross-appeal filed before ITAT was rejected on account or non-prosecution. Both the Department and the assessee have filed Miscellaneous Applications against the said order and that the issue is still pending.

(iii) That the proceedings under section 116 was closed.

The Taxation Officer, in the assessment orders for all the three years, has levied penalty corresponding to addition made under section 13(1)(a) of the repealed Ordinance, 1979, which according to him has been confirmed on the basis of order passed under sections 62/132 or the repealed Ordinance, 1979 with the following observations:--

(a) That the learned C.I.T.(A) in his order dated 7-2-2002 did not delete all the additions made under section 13 of the repealed Ordinance, 1979.

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(b) That the learned C.I.T.(A) in his order dated 7-2-2002 did not annul notice issued under section 116 of the repealed Ordinance, 1979 as has been claimed by the learned counsel for the assessee.

(c) Pendency of Miscellaneous Applications before this Tribunal, does not make an automatic stay against these proceedings.

Against these findings of the Taxation Officer, taxpayer filed an appeal before learned C.I.T.(A), who has annulled all the three orders with the following observations:---

"It is observed that the Assessing Officer framed the penalty order under section 111 of the Income Tax Ordinance, 1979 (Repealed) keeping in view the saving provisions contained in subsection (3) of section 239 of the Income Tax Ordinance, 2001. Obtaining of prior approval before imposition of penalty is not a procedural matter as contended by the Taxation Officer (Legal), MTU, in the comments on written arguments, whereas it is a prerequisite of levy of penalty under section 111 read with section 116 of the Income Tax Ordinance, 1979. As the legal formalities for obtaining prior approval for imposition or penalty under section 111 of the Income Tax Ordinance, 1979 have not been fulfilled, therefore, penalty imposed for all the years under appeal is not sustainable in the eyes of law. Penalty orders framed for the assessment years 1994-95 to 1996-97 are, therefore, annulled. As the penalty orders have been annulled, therefore, other grounds of appeal need not to be adjudicated".

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The learned D.R. has contended that there was no justification to annul penalty orders passed for the three years under review. It has been contended that subsection (3) or section 239 saves the imposition of penalties relating to income years ending on or before 30-6-2003 and as per that section, penalty is to be imposed in accordance with repealed Ordinance. Only the procedure laid down by the Income Tax Ordinance, 2001 is to be followed. According to her, orders of the Taxation Officer are in accordance with law and there was no. justification for annulment of the orders.

On the other hand, on behalf of the assessee-respondent, it has been contended that penalty under section 111 of the repealed Ordinance, 1979 has been imposed without prior approval of the Additional Commissioner as required under section 116 of the repealed Ordinance, 1979. According to the learned counsel of the taxpayer, penalty order under section 111 of the repealed Ordinance, 1979 has not been passed according to the corresponding provisions of Income Tax Ordinance, 2001, thus it has rightly been quashed. He has contended that as per section 190(1) of the Income Tax Ordinance, 2001, it was required to provide reasonable opportunity of being heard, but no opportunity was provided to the assessee and penalty has been imposed in a mechanical way, which is totally illegal. According to the learned counsel, penalty has been imposed on the edge of its time-barred for two years, 11-months and 25 days of the date of notice under section 116, which is totally illegal act and has rightly been annulled. The learned counsel in this regard has also referred corresponding provisions of repealed Income Tax Ordinance, 1979 and the Income Tax Ordinance, 2001. He has submitted that section 13 of the repealed Ordinance, 1979 is regarding unexplained investment etc., deemed to be income, while the corresponding provision in this regard in Income Tax Ordinance, 2001 is section 111, which is regarding unexplained income or assets. He has submitted that addition in the case of the assessee has been made under section 13(1)(d) of the repealed Ordinance, 1979. Corresponding provision of Income Tax Ordinance, 2001 in this regard is section 111(3), while the penalty for concealment of income is under section 111 of the repealed Ordinance, 1979 which according to the new Income Tax Ordinance, 2001 is section 184, while under section 116 of the repealed Ordinance, 1979, it has been provided that imposition of penalty should be after notice of hearing etc. and the corresponding section in this regard in the Income Tax Ordinance, 2001 is section 190(1). According to the learned counsel, these are the provisions which are subject to provisions contained in section 239(3) of the Income Tax Ordinance, 2001. While procedural section in this regard is section 85 of the repealed Ordinance, 1979 regarding issuance of demand notice along with penalty order which in the new Income Tax Ordinance, 2001 has been mentioned in section 137(2) and the issuance of IT-30 for calculation of penalty along with penalty order has been provided in the repealed Ordinance, 1979 while in the new Ordinance, 2001, no such document is required and penalty is calculated on the penalty order. The learned counsel in this regard has also placed before us the dictionary meanings of the word "provisions", which means:---

(i) A clause in a Statute, contract, or other legal instrument;

(ii) A stipulation made before hand.

According to the meaning of the word "procedure";

(i) A specific method or course of action;

(ii) Judicial rule or manner for carrying on a sufficient law suit or criminal prosecution.

In this regard, judicial verdicts defining the word "procedure" have also been referred. Supreme Court of India in a case reported as AIR 1978 SC 1548 has defined the term "procedure" as used in Article 21 of the Indian Constitution means, fair, not formal procedure. In another case reported as 1971 Jab. LJ 62, it has been observed that the word "procedure" is comprehensive enough to include the manner of proceedings acting and conduct in relation to the meeting, that is, all which is to be done in relation to such meeting. In 'another decision, the Supreme Court of India in a case reported as AIR 1957 SC 444, which has been followed by the Hon'ble Lahore High Court in a case reported as PLD 1984 SC 332, it has been held that "Procedure denotes the rule that make or guide the cursus curise and regulate the proceedings in a cause within the walls or limits of the Courts itself". The learned counsel in this regard has also placed before us the decisions of Hon'ble Lahore High Court reported as 2006 PTR 154 (H.C. Lah.) and (2006) 93 Tax 266 (H.C. Ind.) regarding levy of penalty wherein, it has been held that "where no evidence has been brought on record to show deliberate omission in furnishing inaccurate particulars of income and even no circumstantial evidence has been found from which it can be gathered that omission was attributed to intention or desire on behalf of assessee to hide or conceal income so as to avoid imposition of tax thereon, no penalty is leviable". In another case referred by the learned counsel for the assessee reported as (2007) 95 Tax 41 (H.C. Kar.) in which, it has been held that "Assessment was to be made in accordance with law in force at beginning of assessment year in respect of income years preceding to said assessment year". Referring the charging section 9 of the repealed Income Tax Ordinance, 1979, it has been observed that the law in vogue in the assessment year will govern the assessment, notwithstanding ending of income year. Income of previous year is assessable in the subsequent assessment year. It is well-settled that the assessment is to be made in accordance with law in force at the beginning of the assessment year in respect of the income years preceding to the said assessment year. In another decision referred by the learned counsel for the assessee reported as 2005 PTD 1, it has been held that imposition of penalty without obtaining permission under section 116(a) of the repealed Ordinance, 1979 being statutory permission to impose penalty was jurisdictional fact, which could be raised at any time and the penalty made without the permission was not justified. It has further been held in this reported decision that required approval under section 116(1) ought to have been obtained from the concerned Commissioner of Income Tax where the IAC as a Special Officer has made the penalty order. The learned counsel in this respect has also referred the decision of this Tribunal reported as 2007 PTD (Trib.) 139 regarding interpretation of the statute.

We have found that in this case the learned C.I.T.(A) has annulled the penalty orders for all the three years under review, as the orders have been passed under section 111 of the repealed Ordinance, 1979 and under section 116 of the repealed Ordinance, 1979, it has been specifically provided that no penalty under Chapter XI (which is regarding penalties), shall be imposed on any person by the Deputy Commissioner except with the prior approval in writing of the Inspecting Additional Commissioner, unless such person has been given reasonable opportunity of being heard. We are of the view that requirement of prior approval in writing is the mandatory requirement for imposing penalty which in this case has not been fulfilled. The contention of the learned representative of the Department that penalty has been imposed under the corresponding provision of the new Income Tax Ordinance, 2001 which is section 184 and in section 190 of the Income Tax Ordinance, 2001 and that no approval of IAC as required under section 116 of the repealed Ordinance, 1979 has been provided, therefore, penalty orders made by the Taxation Officer are unjustified. He has, in this respect, referred subsection (3) of section 139 wherein, it has been provided that provisions of subsections (1) and (2) shall apply in like manner to the imposition or charge of any penalty etc. in accordance with the corresponding provisions of the new Ordinance. We are of the view that in subsection (1) of section 239, it has been specifically provided that "in making any assessment in respect of any income year ending on or before 30th June, 2002, the provisions of the repealed Ordinance, 1979 in so far as these related to computation of total income and tax payable thereon shall apply as if this Ordinance had not come into force". We are, therefore, of the view that in subsection (3), only the procedure for such imposition or charge shall be in accordance with the corresponding provisions of this Ordinance and as has been pointed out by the learned counsel for the assessee, the procedural section regarding penalty is

section 85 of the repealed Ordinance, 1979 which is regarding payment of tax on demand or issuance of 1T-30 for calculation of penalty along with penalty order and corresponding section in the new Ordinance, 2001 regarding issuance of demand notice along with penalty order is section 137(2) and no documents like IT-30 is required, as the penalty under the new Ordinance is calculated through the penalty order.

In view of these legal submissions, we are of the view that the learned C.I.T.(A) has rightly annulled the assessments for all the three years under review. The impugned order of the learned C.I.T.(A) is upheld and all the three appeals filed by the Department are dismissed.

C.M.A./49/Tax(Trib.)?????????????????????????????????????????????????????????????????????????? Appeals dismissed.