VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1662 (2008)

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

----Ss. 184 & 122---C.B.R. Circular No.2 of 1959, dated 21-9-1959---C.B.R. Circular No.6(II) IT-6/7/561, dated 17-6-1975---Penalty for concealment of income---Limitation---Assessment was amended by making certain additions on account of difference in purchases as per sales tax return provided by the assessee and accounts annexed with the return---Such addition was upheld by the First Appellate Authority on account of furnishing of inaccurate particulars of income/purchases---Penalty was imposed equal to 100% of the tax sought to be evaded---Such penalty was deleted by the First Appellate Authority with the observations that imposition of penalty after lapse of 11 months was not legally sustainable having been imposed after inordinate delay which was invalid and not sustainable in the eye of law---Department contended that deletion of penalty on the ground of late imposition was unjustified and unlawful as the statute did not draw any boundary of time limit to invoke S.184 of the Income Tax Ordinance, 2001 and that period of 11 months could not be termed as inordinate delay---Validity---Assessing Officer had imposed penalty only on the basis of assessment, which had rightly been deleted by the First Appellate Authority---Instructions. had been issued by the Central Board of Revenue to complete penalty proceedings within three months after the assessment, but penalty proceedings had been initiated after about a year, which was invalid---Departmental appeal was dismissed by the Appellate Tribunal in the circumstances.

ITA No. 5796/LB of 2005 (Assessment year 2002-2003); 1994 PTD 688 (Trib.); 1994 PTD 675 & 688; 1995 PTD 359; 2007 PTD (Trib.) 932; 1993 PTD 245 (Trib.); (1972) ITR 368 (S.C. of India) and 2007 PTD (Trib.) 932 rel.

(b) Income-tax---

----Penalty---Taxation Officer should not impose the penalty solely on the ground that the addition made by the Taxation Officer had been upheld by the Appellate Authority.

1993 PTD 245 (Trib.) rel.

(c) Income-tax---

----Penalty---Limitation---Penalty imposed after inordinate delay of about one year was not justified.

2007 PTD (Trib.) 932 rel.

(d) Income-tax---

----Assessment proceedings and penalty proceedings are on two different footings.

1994 PTD 688 rel.

(e) Income-tax---

----Assessment proceedings---Penalty proceedings---Burden of proof---Onus is on the assessee to prove his case, whereas in the proceedings for imposition of penalty, the onus in this regard is on the Department to establish that the assessee had concealed its income.

(f) Income-tax---

----Penalty proceedings---Nature of---Benefit of doubt---Penalty proceedings are criminal in nature and the standard of proof which is required in a criminal case is also required to sustain the order imposing the penalty---Even otherwise, benefit of doubt should be given to the assessee---Bona fide belief on the part of assessee on the point of fact or law shall entitle him for extending benefit of doubt---Even if, the assessee's explanation in regard to allegation was not accepted and amount was assessed at the hand of the assessee, it did not, by itself, justified the Revenue to impose a penalty.

(1972) ITR 368 (S.C. of India) rel.

(g) Income-tax---

----Penalty, levy of---Principles---Taxation Officer should take into consideration the explanation of the assessee and the facts of the case, unless it is discovered that assessee has concealed his income deliberately, or has furnished inaccurate particulars of his income consciously only then, a penalty should be imposed.

(h) Income-tax---

----Penalty---Deliberate concealment---Fraud could not be presumed and it must be proved---Penalty proceedings should be started only, when the Assessing Officer had fairly strong reasons to believe that there was a wilful default or deliberate concealment on the part of assessee.

Sabiha Mujahid, D.R. for Appellant.

Nemo for Respondent.

ORDER

JAWAID MASOOD TAHIR BHATTI, (JUDICIAL MEMBER).---Through this appeal, the appellant Department has objected the impugned order of the learned CIT(A), dated 7-5-2007 for the tax year, 2003 deleting the penalty.

The assessee, in this case, is a Private Limited Company deriving income from manufacturing and sale of Chip Board. Return for the year under review was filed by the assessee-Company under Universal Self-Assessment Scheme declaring loss, which was accepted under section 120 of the Income Tax Ordinance, 2001. Later on, assessment was amended under section 122(1) of the Income Tax Ordinance, 2001 by making certain additions on account of difference in purchases as per sales tax return provided by the taxpayer and accounts annexed with the return. Against that, the assessee filed appeal, but addition was upheld by the learned CIT(A), on account of furnishing of inaccurate particulars of income/purchases, the Taxation Officer imposed penalty under section 184(1) of the Income Tax Ordinance, 2001 equal to 100% of the tax sought to be evaded for the tax year under consideration. Being aggrieved with the treatment, the taxpayer filed appeal before the learned CIT(A), who has deleted the penalty with the following observations:--

"After examination of assessment record and having considered, the contention of both the parties it has been observed that the impugned penalty has been imposed after a lapse of almost one year from the date of completion of assessment. The AR of the appellant has vehemently contested the legality of imposition of penalty under section 184(1) of the Income Tax Ordinance, 2001. Reliance in this regard has been placed on reported judgment of learned ITAT vide ITA No.5796/LB of 2005 (Assessment year 2002-2003) decided on 2-1-2007, wherein it has been held that:--

"Thus, the Income Tax Ordinance has its own built-in-mechanism to cope with the defaulters and violators through the provisions under which additional tax can be imposed and penalties can be levied. The imposition of penalty is not a matter of guesswork. Fraud cannot be presumed. It must be proved. Sometimes the penalties are imposed after inordinate delay, and if there is no limitation fixed in the taxing statute there are instructions contained in Circular No.6 (II) IT-6/75/561, dated 17-6-1975 to complete the penalty proceedings within 3 months after the assessment. However, penalty imposed after inordinate delay is invalid".

In view of the judgment of the learned ITAT quoted supra, the imposition of penalty under section 184(1) of the Income Tax Ordinance, 2001 after lapse of 11 months is not legally sustainable having been imposed after inordinate delay. The penalty so imposed is invalid and not sustainable in the eye of law. The same is therefore accordingly deleted.

Mrs. Sabiha Mujahid representing the appellant-Department has contended that deletion of penalty on the ground of late imposition is unjustified and unlawful. She is of the, view that statute does not draw any boundary of time limit to invoke section 184 of the Income Tax Ordinance, 2001. She has contended that the period of 11-months cannot be termed as inordinate delay. She has contended that as the order passed by the Taxation Officer under section 122(1), dated 31-3-2006 has already been upheld by the learned CIT(A), there was no justification for deleting the penalty and it is the established fact that taxpayer has furnished inaccurate particulars of income, therefore, default on the part of the taxpayer has been proved, without any doubt and according to the learned DR, penalty equal to 100% of the tax sought to be evaded for default of furnishing of inaccurate particulars of income, has rightly been imposed for tax year under review, but the learned CIT(A) has deleted the penalty without any justification.

I have heard the learned DR and have also perused the impugned order of the learned CIT(A) and the assessment order.

While perusal of the order passed by the Taxation Officer under section 184(1) of the. Ordinance, 2001, I have found that Taxation Officer has passed the order, without establishing guilty intent of the assessee and as the Taxation Officer has failed to prove the guilty intent, therefore, I find no justification for the penalty as has already been held by this Tribunal in a case reported as 1994 PTD 688 (Trib.). I have further noted that the Taxation Officer has failed to prove wilful fraud or gross wilful neglect committed by the assessee, which is "sine qua non" of the proceeding of imposing the penalty. In this regard, reference can be placed on the decisions of this Tribunal reported as 1994 PTD 675 & 688, 1995 PTD 359 and 2007 PTD (Trib.) 932. I have further noted that the Taxation Officer has completely ignored the guidelines of the C.B.R. made through Circular No.2 of 1959, dated 21-1-1959 and has ignored the explanations of the assessee company, without playing a judicious role as required by the law, as has been elaborated through 1997 PTD Note 128 at page 212. I am of the view that the Taxation Officer should not impose the penalty solely on the ground that the addition as made by the Taxation Officer has been upheld by the appellate authority. In this regard, I draw strength from the decision of this Tribunal reported as 1993, PTD 245 (Trib.). I have further noted that penalty has been imposed after inordinate delay of about one year, which cannot be Justified, as has already been held by this Tribunal in a case reported as 2007 PTD (Trib.) 932. I am of the view that assessment proceedings and penalty proceedings are on two different footings, as has already been held by this Tribunal in a decision reported as 1994 PTD 688. In proceedings relating to assessment, the onus is on the assessee to prove his case, whereas in the proceedings for imposition of penalty, the onus in this regard is on the Department to establish that the assessee has concealed its income. In the instant case, as has been explained by the assessee, the Accountant of the assessee-Company has inadvertently committed a typing mistake regarding consumption of electricity in the sales tax return for the month of August, 2002, which shows that there was no bad intention of the Accountant and it was just a typing error while preparing sales tax return. In the explanation of the assessee, which has been mentioned in the impugned order of the learned CIT(A), there is a mistake having nil effect in the books of accounts, which has never been seen or examined by the Department to conduct a judicious mind application while imposing the penalty. The onus to prove the guilt was on the Department, but the Taxation Officer has shifted that onus to the assessee and on the basis of conjectures and whims, has imposed the penalty, I am of the view that as has been consistently held by this Tribunal as well as by the Higher Courts that penalty proceedings are criminal in nature and the standard of proof which is required in a criminal case is also required to sustain the order imposing the penalty. Even otherwise, benefit of doubt should be given to the assessee. A bona fide belief on the part of assessee on the point of fact or law shall entitled him for extending benefit of doubt. Even if, the assessee's explanation in regard to allegation was not accepted and amount was assessed at hands of the assessee, it does not by itself justifies the Revenue to impose a penalty, as has been held in a decision of the Indian Supreme Court reported as (1972) ITR 368 (S.C. of India). In such cases, the Taxation Officer should take into consideration the explanation of the assessee and the facts of the case, unless it is discovered that assessee has concealed his income deliberately, or has furnished inaccurate particulars of his income consciously only then, a penalty should be imposed. In this regard, C.B.R.'s Circular No.2 of 1959, dated 21-9-1959 may be referred, wherein it has been observed that "In proceedings for imposition of penalty for concealment of income, the onus is on the revenue to establish that the assessee has concealed his income". I am of the view that fraud cannot be presumed and it must be proved. Penalty proceedings should be started only, when the Assessing Officer has fairly strong reasons to believe that there was a wilful default or deliberate concealment. In the present cases, the Assessing Officer has imposed penalty only on the basis of assessment, which has rightly been deleted by the learned CIT(A). In this regard, the learned CIT(A) has referred C.B.R's. Circular No.6 (II) IT-6/75/561, dated 17-6-1975, wherein instructions have been made to complete penalty proceedings within three months after the assessment. But in the present case, penalty proceedings have been initiated after about a year, which is invalid, as has already been held by this Tribunal in a case reported as 2007 PTD (Trib.) 932.

The appeal filed by the Department having no merits is, therefore, dismissed.

C. M.A./62/Tax (Trib.)Appeal dismissed.