2009 P T D (Trib.) 97
[Income-tax Appellate Tribunal Pakistan]
Before Khalid Waheed Ahmad, Chairman and Istataat Ali, Accountant Member
I.T.As. Nos.171/IB of 1998-99, 409/IB, 410/IB, 4053/IB and 4054/IB of 2000-01, M.A. (Ag) No.35/IB of 2008, decided on 27/05/2008.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.62---Assessment on production of accounts, evidence etc.---Rejection of accounts---Textile manufacturing unit---Estimation of sales and application of GP rate---Assessing Officer found some defects in the books of accounts about which the assessee was properly confronted---Production/manufacturing account was neither produced by the assessee nor it was subjected to examination---Count-wise production per pound was neither provided nor probed---Was not verified as to what production results were being given by the other similarly situated and circumstances manufacturing units in respect of same quality of production---Accounting version of the assessee was not free from defects---Complete manufacturing/production account was not submitted from which quantitative/qualitative input and output of materials could be verified---History of estimation was also properly taken into account by the first appellate authority---Every year is a separate unit and has to be assessed accordingly, but at the same time history was the best guide---First Appellate Authority' had realistically analyzed the accounting version vis-a-vis history of the case and directed about sales as well as GP rate on proper lines---Order of First Appellate Authority in respect of sales as well as GP rate being on proper line were confirmed by the Appellate Tribunal.
2002 PTD (Trib.) 794; 1999 PTD (Trib.) 3892; 1994 PTD 123 and 1998 PTD 860 distinguished.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 13(1)(aa) & 144/148---Addition---Deferred liabilities---Addition was cancelled by the First Appellate Authority on the ground that term "liabilities" had not at all been mentioned in S.13(1)(aa) of the Income Tax Ordinance, 1979---Validity---When liabilities were established to be bogus the natural inference would be that the assessee itself was the owner of money---Onus was on the assessee to explain the sources of acquisition of such money and if the sources were not explained properly, the addition could be made under S.13(1)(a) of the Income Tax Ordinance, 1979.
1992 PTD 1587 distinguished.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 144, 148 & 13(1)(aa)---Power to call for information---Addition---Deferred liabilities---Addition without verification through action under Ss. 144/148 of the Income Tax Ordinance, 1979 in spite of request of assessee---Validity---Assessee had provided complete addresses of all the persons/parties out, of which thirty parties/persons confirmed the claim of the assessee---Assessing Officer should have provided another opportunity to the assessee and should have favourably considered the assessee's request for verification of amount through action under Ss. 144/148 of the Income Tax Ordinance, 1979---Assessing Officer showed unnecessary hurry in making the addition, which could not be justified in the circumstances---Addition was not correctly made by the Assessing Officer and its cancellation by the First Appellate Authority was correct---Departmental appeal was not accepted on this point by the Appellate Tribunal.
(d) Income Tax Ordinance (XXXI of 1979)---
---Ss. 13(1)(aa) & 12(18)---Addition---Advances from customers---Additions of actual delivery of transacted goods in the subsequent period---Validity---Although addition could be validly made under S.13(1)(aa) of the Income Tax Ordinance, 1979 instead of S.12(18) of the Income Tax Ordinance, 1979, if the assessee had failed to furnish required evidence to the satisfaction of Assessing Officer about the sources of funds, but legal procedure was not properly followed for making the addition---Verification exercise was not conducted on scientific lines---Actual delivery of transacted goods was made in the subsequent period was also overlooked by the Assessing Officer---Assessing Officer did not bother to verify such fact from account books of the company---First Appellate Authority did not properly and judiciously appreciate the factual position because in the same set of circumstances he had cancelled the addition on account of "deferred liabilities" whereas addition under this head was set aside for reconsideration/re-examination---First Appellate Authority should not have remitted the issue back to Assessing Officer---Appellate Tribunal directed that addition should be deleted in the circumstances.
(e) Income Tax Ordinance (XXXI of 1979)---
---Ss. 108, 139, 141 & 142---Income Tax Rules, 1982, Rr.53, 61A & 61---Penalty for failure to furnish return of total income and certain statements---Levy of initial penalty as well as for default from due date through single order---Assessee contended that imposition of entire penalty in one go was against the provisions of law because as a first step initial penalty had to be imposed through a written order and then for continuing penalty separate order had to be passed---Validity---Penalty could not be imposed because there was a defect and deficiency in the relevant law/rules and imposition of penalty in the presence of such defects/deficiencies was unlawful---Proper procedure was not followed by the Assessing Officer and he charged the entire amount of penalty through a single consolidated order whereas he was required to pass separate orders for initial penalty and continuing default---In the presence of such legal infirmities, penalty order was not legally maintainable--Penalty orders of both the authorities below were vacated and penalty order was cancelled by the Appellate Tribunal.
1999 PTD 1661 rel.
1998 PTD (Trib.) 3507; 1996 PTD 291; 2007 PTD (Trib.) 2319; 2007 PTD (Trib.) 2601 and 2003 PTD (Trib.) 346 ref.
Ch. Naeem ul Haq, A.R., for Appellant.
Muhammad Iqbal Ch. Vehniwal, L.A./D.R., for Respondent.
ORDER
ISTATAAT ALI (ACCOUNTANT MEMBER)---These cross appeals have been filed by the assessee as well as department against order, dated 14-9-2000 passed by CIT (A-I), Islamabad. The assessee has also filed separate appeals against order, dated 3-2-2008 passed by CIT (A-I), Islamabad in respect of imposition of penalty under section 108.
2. As per facts the assessee a non-listed public limited company deriving income from running a textile mill filed returns declaring loss of Rs.3,31,10,621 and Rs.1,43,67,559 for assessment years 1997-98 and 1998-99 respectively. For the reasons recorded in combined assessment order under section 62 the declared version was rejected and net income was assessed as under:--
| Assessment year 1997-98 | |
| Quantity of yarn estimated at 2500000 pounds. | Rs.2500000 |
| Sale rate per pound | Rs.52 |
| Total sale of yarn | Rs.130,000,000 |
| G.P. rate 12% | Rs.15,600,000 |
Less: P&L expenses.
| 1. Administrative. | Rs.78,508 | |
| 2. Selling. | Rs.162,834 | |
| 3. Financial | Rs.19,132,269 | Rs.20,076,611 |
| | Net loss | (Rs.4,476,611) |
| | | Rs.59,465 |
| Addition out of Administrative expenses. | Net loss | (Rs.4,417,146) |
| Add: other income as declared. | | (Rs.313,262) |
| | Net loss | (Rs.4,103,884) |
Assessment year 1998-99
| Quantity of yarn estimated at 5200000 pounds. | Rs .5200000 |
| Sale rate per pound. | Rs.52 |
| Total sale of yarn. | Rs.270,400,000 |
| G.P. rate. 12% | Rs.32,448,000 |
Less: P & L expenses.
| 1. Administrative. | Rs.1,119,574 | |
| 2. Selling. | Rs.180,834 | |
| 3. Financial | Rs.21,390,66 | Rs.22,690,236 |
| | Net loss | Rs.9,886,659 |
| Add: Addition under section 13(1)(aa) | | Rs.17,090,350 |
| | Total income | Rs.26,977,009 |
| Less: W. W. F. | | Rs.539,540 |
| | Balance income | Rs.26,437,469 |
3. Tax under section 80D was charged by passing a proper order through which tax liability of the assessee was separately worked out. The assessee filed appeals for both the years contesting the enhancement of selling price of yarn., G.P., rate, add backs out of P&L account expenses, addition under section 13(1)(aa), charging of W.W.F. and charging minimum tax under section 80D. Learned CIT(A) vide his impugned order, dated 14-9-2000 reduced the estimate of sales and additions in the P&L account and directed to accept the G.P. rate, addition under section 13(1)(aa) representing liabilities was cancelled whereas addition under section 13(1)(aa) representing "advance from customers" was set aside. The assessment was also set aside on the point of W.W.F. The assessee filed further appeal on the following grounds (reproduced verbatim):--
Assessment year 1997-98:
(ii) that the CIT(A) was not justified in holding the addition in sales to the extent of 10% as no specific defects were pointed out in the books of accounts by Assessing Officer;
(iii) that the CIT(A) was not justified in maintaining the additions out of P&L account under the following heads:--
| (a) Printing and Stationery. | Rs.16,290 |
| (b) Communication. | Rs.1,564 |
| (c) Travelling and conveyance. | Rs.5,985 |
| (d) Advertisement. | Rs.3,150 |
(iv) that the Assessing Officer was not justified in enhancing the sales arbitrarily to 25,00,000 pounds from 21,51,250 and the CIT(A) erred in not dilating upon this ground;
(v)................................
Assessment year 1998-99:
(i)
(ii) that the CIT(A) was not justified in setting aside the addition of Rs.1,58,59,998 under section 13(1)(aa) of the Ordinance, 1979 under the head "deferred liabilities" instead of deleting it as the Assessing Officer committed an incurable error of jurisdiction;
(iii) that the CIT(A) erred in setting aside the addition of Rs.1,230,352 under section 13(1)(aa) of the Ordinance, 1979 under the head "advances from customers" instead of deleting it;
(iv) that the CIT(A) was not justified in maintaining the additions out of P&L account under the following heads:--
| (a) Printing and stationery | Rs.22,045 |
| (b) Communication. | Rs.2,248 |
| (c) Travelling and conveyance | Rs.15:683 |
(v) that CIT(A) was not justified in holding the addition in sales to the extent of 10% as no specific defects were pointed out in the books of accounts by the Assessing Officer.
4. The department has also filed appeals against the same appellate order of CIT(A) on the following grounds:
Assessment years 1997-98 and 1998-99
(i) ..
(ii) that the learned CIT(A) was not justified to direct to accept the declared G.P. rate;
(iii) that the learned CIT(A) was not justified to reduce the estimated sale rate of yarn.
Assessment year 1998-99;
(i) That the learned CIT(A) was not justified to reduce/cancel the addition under section 13(1)(aa) of Income Tax Ordinance, 1979;
(ii) that the learned CIT(A) was not justified to set aside the issue on the chargeability of W.W.F.
5. Rejection of trading results and application of GP rate:---The Assessing Officer observed that both the purchases and sales of the assessee-company were not open to verification. He also rejected the production results and estimated output at 25 lac pounds of yarn for assessment year 1997-98 and 52 lac pounds of yarn for assessment year 1998-99. Sales rate of Rs.52 per pound was applied for both the years and in this way sale of yarn was worked out at Rs.130,000,000 and Rs.270400000 for assessment years 1997-98 and 1998-99 respectively. GP @ 12% was applied in both the assessment years under appeal. The assessee contested this treatment in appeal and learned CIT(A) vide his impugned order, dated 14-9-2000 gave following findings about sales and GP:---
"The AR reiterated the arguments taken in the grounds and contended that the DCIT was not justified in rejecting the trading results and estimating the sales without any cogent reasons. He further contended that DCIT arbitrarily enhanced the selling price to Rs.52 per pound against Rs.46 per pound declared. The AR filed comparison of assessment of sales in respect of previous years from 1992-93 to 1996-97 in which the addition was upto 9.67%. In view of the facts and circumstances as well as history of the case the addition of 32.99% and 22.64% is held to be excessive and against the history of the case. Accordingly the addition is reduced to 10% for both the years under appeal. The next ground is with regard to application of GP rate of 12% for both the years under appeal. The AR contended that the GP rate applied was highly excessive and against the history of the case as the appellant has history of acceptance of declared GP. In view of the facts and circumstances of case the application of GP rate at 12% is held to be unjustified and against the established history of the case. The Assessing Officer is accordingly directed to accept the declared GP."
6. The assessee filed second appeal contesting the rejection of declared trading results and estimation of sales whereas department has filed second appeals against reduction in sales and acceptance of declared GP rate. It was stated by learned AR that the assessee is maintaining complete audited account books and the Assessing Officer did not properly examine the production account. He stated that the Assessing Officer issued letters to twenty-six parties for verification of sales out of which ten parties responded. Similarly twelve parties confirmed the purchases. Some renowned companies like Rupalis and Dewan Suleman etc. did not respond to the letters of the Assessing Officer. He stated that a request was made for the Assessing Officer to make verification of all the business transactions through action under section 144 but this request was not accepted and declared version of the assessee was hurriedly rejected. He stated that learned CIT(A) also did not properly appreciate that the assessee is maintaining complete record which was also audited 'and Assessing Officer without pointing out any specific defect had rejected the declared version. He stated that in a case reported as 2002 PTD (Trib.) 794 it was held that the declared results should be accepted if the Assessing Officer failed to confront the assessee about defects found by him in the books of accounts which is mandatory provision of law for framing assessment. Learned AR stated that similar principles were laid in cases reported as 1999 PTD (Trib.) 3892. Learned LA/DR on this point stated that the ratio settled in these reported cases is not applicable in assessee's case because the Assessing Officer had properly confront the assessee about defects in the account books and proper opportunity was provided to the assessee to explain its position. Learned AR also stated that in a case reported as 1994 PTD 123 it was held that the declared trading results should not be rejected simply for the reason that full addresses of the persons from whom purchases had been made were not furnished; if no other defects were found in the method of maintenance of accounts or evidence to show that the accounts did not disclose the true income of the assessee. He contended that the assessee had provided complete addresses of all the parties from whom purchases were made and to whom the sales were effected. He stated that most of the parties had verified the transactions in question and it could not be presumed that the transactions were not genuine in respect of those parties who did not reply to the letters of the Assessing Officer. He stated that if the Assessing Officer had taken a little bit of the extra effort to verify the actual position, a complete picture would have crystallized and the declared version would have been accepted. Learned AR further stated that in a case reported as 1998 PTD 860, it was held that when the assessee is maintaining proper account books and no fault could be found with the method of accounting, the application of gross profit and rejection of accounts was not justified. He stated that about the verification of purchases and sales following principles were laid by this Tribunal in this judgment:--
"Ss. 32(3) & 32-A---Rejection of accounts---Purchases had nowhere been attacked by the Assessing Officer---Assessee had not been blamed for inflating cost of sales and trading account was verifiable which was accepted by the department---Sales were admittedly made through commission agencies in whose hands the purchases had been accepted by the Department---No specific. defects had been pointed out in the books of accounts---Notice under section 62 of the Income Tax Ordinance, 1979 had not been issued to the assessee---Chartered accountant had audited and verified the accounts---Held, in circumstances, there was hardly anything left with the department to interfere with the declared result in the light of audited report which was in line with the prescribed procedure---Question of estimate of sales and application of gross profit rate, thus did not arise."
7. Learned AR emphasized that in the light of above-mentioned circumstances of the case the Assessing Officer was not justified to reject the declared, trading results of the assessee-company. He asserted that the assessee is maintaining proper account books, which were audited and learned CIT(A) also did not appreciate this aspect while ordering reduction of sales. Learned DR responded and stated that this case is also distinguishable from assessee's case because defects in account books were duly communicated by DCIT. Both purchases and sales were established to be unverifiable and no sales were made through any agency.
8. Learned DR stated that the Assessing Officer had properly confronted the assessee with the defects in the account books. Both the purchases and sales were subjected to verification through correspondence with the concerned parties and it was established on record that most of the parties did not confirm/verify the purchases/sales. He stated that the ratio settled in judgments of higher forums being relied upon by learned AR is not applicable in this case because the facts of this case are totally different than those cases. He stated that when both purchases and sales were not open to verification, then learned CIT(A) was not justified to direct the acceptance of declared GP rate and reduction allowed by him in sales was also not fair. He contended that this case has its own history of rejection of declared version and estimation of sales.
9. We have examined the relevant record in the light of arguments of both the parties and we are of the opinion that the reported cases being relied upon by learned AR are distinguishable from this case because their facts are different. Moreover different issues are in dispute in this case. The Assessing Officer had found some defects in the books of accounts about which the assessee was properly confronted. The production/manufacturing account was neither produced by the assessee nor it was subjected to examination. Count-wise production per pound was neither provided nor probed. It was not verified as to what production results are being given by other similarly situated and similarly circumstanced manufacturing units in respect of the same quality of production. The accounting version of the assessee-company is not free from defects. Complete manufacturing/production account was not submitted from which quantitative/qualitative input and output of materials could be verified. This case has also its own history of estimation, which was properly taken into account by learned CIT(A). There cannot be any other opinion about principle that every year is a separate unit and has to be assessed accordingly but at the same time we cannot also ignore the principle that history is the best guide. Learned CIT(A) had realistically analyzed the accounting version vis-a-vis history of the case and in our opinion his directions about sales as well as GP rate are on proper lines. We do not find any reason to differ with the findings given by the CIT(A). Therefore, his orders in respect of sales as well as GP rate being on proper line are hereby confirmed and appeal of the assessee as well as department on these issues are not maintained.
10. Addition under section 13(1)(aa) - deferred liabilities-assessment year 1998-99.---The Assessing Officer examined the company's balance sheet and found that deferred liabilities of Rs.25522964 were introduced. In order to confirm the genuineness of these liabilities he issued a specific notice to the company requiring it to file complete details along with addresses of the concerned parties/persons. The assessee accordingly furnished the details along with addresses of the parties with whom correspondence was undertaken by the Assessing Officer for verification of the issue in question. Confirmation was made by thirty parties/persons about liabilities of Rs.96,62,966. The Assessing Officer, therefore, held that remaining liabilities of Rs.1,58,59,998 (Rs.2,55,22,964 minus Rs.96,62,966) were bogus. He confronted the assessee through specific notice communicating his intention for making addition of the aforementioned amount under section 13(1)(aa). The assessee requested the Assessing Officer to call the concerned parties, whose addresses had already been furnished under section 144 for verification of its claim. The Assessing Officer, however, did not opt to undertake this exercise and treated the assessee's explanation unsatis factory and made addition of Rs.1,58,59,998 under section 13(1)(aa). The assessee contested this addition as being illegal and unjustified and learned CIT(A) vide his impugned order, dated 4-9-2000 cancelled the said addition with the following observations:--
"A plain reading of section 13(1)(aa) shows that if any assessee fails to explain the nature and sources of any investment, acquisition of money or valuable article the addition penal be made under this section. As section 13 is a penal section entailing not only penalty but prosecution, concealment of any kind has to be proved beyond any speck of doubt. For assuming jurisdiction of section 13(1)(aa) of the Ordinance, 1979, the assessee, firstly, is found to have made investment or found to be owner of any money or valuable article and secondly, if he fails to explain the nature and source of such assets. It is the trite law of interpretation of statutes that the intention of parliament must be deduced from the language used. (Maxwell on the Interpretation of Statute, Fifth Edition page 28). The term "liabilities" has not at all been mentioned in section 13(1)(aa) of the Ordinance, 1979. The DCIT has made an incurable error of jurisdiction by invoking this section. Therefore, the addition is liable to be cancelled. The reliance was placed on Tribunal order No. 1992 PTD 1587."
11. The department filed second appeal contesting that CIT(A) was not justified to cancel this addition. The assessee also filed second appeal contesting that CIT(A) was not justified in setting aside the addition of Rs.15859998 under section 13(1)(aa) under the head, "deferred liabilities". Attention of learned AR was invited to the fact that the CIT(A) vide his impugned order, dated 4-9-2000 has already cancelled this addition and assessee's appeal on this point is infructuous. On the this pointation learned AR did not press his ground of appeal time he opposed the departmental appeal stating that the CIT(A) has rightly cancelled the addition in question.
12. It was stated by learned AR that the Assessing Officer made direct correspondence with the concerned persons/parties for verification of these liabilities and thirty parties confirmed an amount of Rs.96,62,966. He stated that the Assessing Officer wrongly presumed that remaining liabilities of Rs.1,58,59,998 were not genuine because concerned persons/parties did not respond to the verification letters of the Assessing Officer. He contended that complete addresses of all the parties/persons had been provided to the Assessing Officer and he was requested to take action under sections 144/148 in respect of those parties who did not respond to his verification letters. But the Assessing Officer did not pay any heed to this request and hurriedly made the addition in question. He further asserted that these liabilities were paid which is off in the succeeding count period and this aspect of the matter which is verifiable from account books was absolutely ignored by the Assessing Officer.
13. Learned DR stated that the CIT(A) cancelled the impugned addition on a totally wrong premise. In fact the assessee-company was the owner of money equal to the amount of addition and sources of acquisition of this money were not explained to the satisfaction of the Assessing Officer. In order to cover up the taxation side of the matter, bogus liabilities were introduced by the assessee-company in the account books. He contended that the Assessing Officer undertook correspondence with the concerned parties/persons and small portion of these liabilities was verified by the creditors whereas major portion of the liabilities remained unverified. He contented that in these circumstances the Assessing. Officer was fully justified to hold that these liabilities were bogus and assessee was the actual owner of the money in question. He emphasized that the addition in question was correctly made by the Assessing Officer under section 13(1)(aa) because the liabilities were bogus and the assessee was found to be the owner of money in question and sources of acquisition of this money could not be properly explained; to the satisfaction of the Assessing Officer.
14. We have considered arguments of both the parties and we are in agreement with arguments of learned DR that learned CIT(A) has cancelled this addition on a wrong premises. When the liabilities are established to be bogus the natural inference would be that the assessee itself is the owner of money. Onus is on the assessee to explain the sources of acquisition of such money and if the sources are not explained properly, the addition can be made under section 13(1)(a). But at the same time we also agree with learned AR that the Assessing Officer hurriedly made the addition in question. The assessee-company had, provided complete addresses of all the persons/parties out of which thirty parties/persons confirmed the claim of the assessee-company. In these circumstances the Assessing Officer should have provided another opportunity to the assessee and he should have also favorably considered the company's request for verification of amount through action under sections 144/148. The Assessing Officer showed unnecessary hurry in making the addition, which could not be justified, in the given circumstances. In the light of these facts, we hold that the impugned addition was not correctly made by the Assessing Officer, hence its cancellation by learned CIT(A) was correct. The departmental appeal on this point is not accepted.
15. Addition under section 13(1)(aa) Advances from customers - assessment year 1998-99.---The Assessing Officer found that the assessee had shown bogus liabilities of Rs.1230352 in the shape of "advance from customers". In order to verify the genuineness of these liabilities he made direct correspondence with the concern parties/persons but verification was not made by some of them. He, therefore, made addition of the amount in question under section 13(1)(aa). The assessee contested this addition in appeal and learned CIT(A) vide his impugned order, dated 4-9-2000 set aside the assessment on this point in the following manner: --
"The AR further contended that the DCIT was not justified in also making addition under section 13(1)(aa) of the Ordinance, 1979 under the head "advances from customers". In addition to the aforesaid it was pointed out that section 12(18) of the Ordinance, 1979 clearly covers the "advances". He further stated that statute has provided different charging sections for different situations and this was not a case of assuming the wrong jurisdiction but error of jurisdiction.
In view of the facts and circumstances of the case it would be appropriate to remit the issue back to the Assessing Officer with the directions that contention of the appellant be given due consideration and action taken accordingly."
16. The assessee filed second appeal contesting that the CIT(A) instead of deleting the addition unjustifiably remitted it back to the Assessing Officer. The department has also filed second appeal contesting that instead of confirming this addition the learned CIT(A) wrongly remitted it back to the Assessing Officer.
17. Learned AR stated that advances from customers were received against booking of sales and due to non-delivery of such sold items, the amount in question was shown as "advances from customers". He stated that after the close of accounting period under consideration, the transacted goods were actually delivered to the customers and this fact is verifiable from account books. He contended that in these circumstances the addition in question was absolutely unjustified and learned CIT(A) has also erred in setting it aside instead of directing its straight deletion.
18. Learned 'LA/DR stated that the assessee was in fact owner of money which was introduced in the books of accounts and for this purpose bogus liabilities were shown in the shape of "advances from customers". He stated that the assessee did not have valid evidence to explain sources of money in question, hence as a cover-up story these liabilities were introduced in the account books in the shape of "advances from customers". He emphasized that the Assessing Officer rightly made the addition in question and CIT(A) instead of conforming it has wrongly remitted it back to the Assessing Officer.
19. We have considered arguments of both the parries in the light of relevant record and we are of the opinion that the Assessing Officer showed un-necessary hurry in making this addition. He did not make exercise of verification on scientifically correct lines. Although addition could be validly made under section 13(1)(aa) instead of section 12(18), if the assessee had failed to furnish required evidence to the satisfaction of the Assessing Officer about the sources of these funds, but legal procedure was not properly followed for making the impugned addition. The verification exercise was not conducted on scientific lines. Moreover, the fact that actual delivery of transacted goods was made in the subsequent period was also over-looked by the Assessing Officer. He did not bother to verify this fact from account books of the company. Learned CIT(A) also did not properly and judiciously appreciate the factual position because in .the same set of circumstances he had cancelled the addition on account of "deferred liabilities" whereas addition under this head was set aside for reconsideration/re examination. Learned CIT(A) should not have remitted this issue back to the Assessing Officer. Keeping in view all the facts and circumstances as emerging from the aforesaid discussion we hereby direct that this addition should be deleted.
20. Additions in P&L account.--The assessee filed appeals contesting that additions made at the assessment stage were quite excessive and harsh and relief allowed by CIT(A) was not adequate. However, at the time of hearing of these appeals learned AR did not press his ground of appeal relating to these additions. Therefore, P&L additions as detailed in the grounds of appeals for both the years under appeal are hereby confirmed for having not been pressed.
21. Workers Welfare Fund.---It was stated by learned DR that the CIT(A) was not justified to set aside the assessment for assessment year 1998-99 on this point because the assessee is an industrial undertaking whose income for the year under consideration was assessed at Rs.2,69,77,009. Learned AR emphasized that WWF is chargeable on income for the year and learned CIT(A) instead of confirming this treatment unjustifiably set aside the assessment on this point. Learned AR stated that this issue has to be decided according to law and directions of learned CIT(A) on this point are quite logical and fair.
22. We have examined arguments of both the parties. We are of the considered opinion that this issue has rightly been remanded back to the Assessing Officer for reconsideration according to law. We do not find any warrant to interfere with the orders of CIT(A), which are hereby confirmed, and departmental appeal on this point does not succeed.
23. Penalty under section 108.--Assessing Officer observed that the assessee did not file monthly statements required under sections 139, 141 and 142 as prescribed by Rules 53, 61A and 61 of the Income Tax Rules, 1982. As show-cause notice was issued to the assessee to explain its position. It was stated by the assessee that the mill remained closed for a long time and it was re-started after a gap of two years. It was promised that the required statements would be filed at the earliest. The Assessing Officer did not accept this explanation and held that the default in question was accepted. Therefore, vide his order under section 108 he imposed penalty of Rs.102600 as per following details:--
| Calculation of Penalty | Default of Sections |
| | 139 | 141 | 142 |
| (i) Initial fixed penalty. | Rs.2000 | Rs.2000 | Rs.2000 |
| (ii) Period of default from due date i.e. 15-8-1996 to 23-1-1997 (total days 161). | | | |
| (iii) Penalty @ Rs.200 per day | Rs.32200 | Rs.32200 | Rs.32200 |
| Total | Rs.34200 | Rs.34200 | Rs.34200 |
24. The assessee filed appeal against this penalty order which was rejected by CIT(A) vide his order, dated 3-2-1998. The assessee has now filed second appeal against the confirmation of penalty order on the following grounds (reproduced verbatim):--
(i) ----------------------------
(ii) that the tax recovery officer has passed the penalty order under section 108 of the Income Tax Ordinance without any jurisdiction;
(iii) that the penalty order passed under section 108 is illegal and baseless;
(iv) that no penalty is provided for default or delay in submission of monthly statements under rules 53, 61 and 61A of Income Tax Rules, 1982 and the penalty order passed under section 108 warrants to be quashed, as penalty can be levied for default of annual statements only;
(v) ---------------------------
25. The assessee also filed miscellaneous application with regard to the penalty order on the following grounds:--
(i) that the Assessing Officer has not mentioned any sub-clause of section 108 of Income Tax Ordinance, 1979 so the order is illegal and void ab initio;
(ii) that the Taxation Officer was not justified to impose initial penalty of Rs.2000 and further penalty @ Rs.200 per day in same order.
26. It was stated by learned AR that certain statements were required to be filed under sections 139 to 144 and rules 53, 61 and 61A specified format of these statements. He stated that no time limit was prescribed under sections 139 to 144 for filing of these statements, hence penalty could not be imposed for violation of any of the provisions relating to filing of these statements. He stated that in a judgment reported as (1999) 79 Tax 219 (Trib.) = 1999 PTD (Trib.) 1661, the imposition of penalty for non-submission of these statements was held to be unjustified and illegal with the following findings: --
"The imposition of penalty has also been assailed on the ground that the statements prescribed under rules 53, 61 and 61A have not been prescribed under sections 139, 141 and 142. The argument advanced by Habib Fakhr-ud-Din the learned AR is that there is no mention of the sections in the aforesaid rules. The relevant statements are the one prescribed under rules 197, 200 and 201.
In this connection, reliance has been placed on a reported case of this Tribunal cited as (1998) 78 Tax 15 (Trib.), = 1998 PTD (Trib.) 3507, wherein it has been held that the statement required under Rule 53 is not the requirement of any section enumerated in section 108(b). Similar is the position in respect of Rules 61 and 61-A. Although in Rule 61, there is mention of section 142 in the heading, still the statement under the said rule cannot be said to have been prescribed under section 142, because it is established principle of the interpretation of statutes that the heading or marginal notes do not form part of the statute. If any authority is needed, one may refer to 1996 PTD 291. Therefore, we have no hesitation in holding that the statements under Rules 53, 61 and 61A have not been prescribed under sections 139, 141 and 142. Consequently, the penalty under section 108(b) was not justified."
27. Learned AR further stated that in a case reported as 1998 PTD (Trib.) 3507 similar viewpoint was held and imposition of penalties were held to be unlawful. Learned AR contended that the relevant provisions under which penalty were intended to be imposed were not ticked in the notices of penalty issued by the Assessing Officer. He stated that the assessee was not clearly confronted with the issue under consideration and he was not intimated as under what specific provisions of law proceedings were being taken against him. he stated that, in these circumstances the imposition of penalty was unlawful in the light of a judgment reported as 2007 PTD (Trib.) 2319, wherein these principles were explained in the following manner:--
" At the same time we are of the opinion that it is legal right of a taxpayer to know as under what law he is being proceeded against. It is legal obligation of the assessing authorities to communicate to the taxpayer as under what clause of subsection (1) of section 111, he is being required to furnish his explanation. The higher appellate forums have conclusively held that where an assessee is deprived of his right to know about the law being applied to him, the proceedings taken against him will be of no legal consequence."
28. Learned AR emphasised that non-mentioning of relevant subsection or clause of any section in a notice being issued to the assessee is a mandatory requirement and non-fulfilment of this requirement renders all the proceedings as illegal. He stated that in a judgment reported as 2007 PTD (Trib.) 2601 it was held that the Assessing Officers have to be very clear in mind that on what basis the action is being taken against a taxpayer and they have to communicate the exact provision of law to the taxpayer under which action is being taken. Learned AR stated that in this case the assessee was not clearly informed as what specific clause or subsection of section 108 was being applied. In these circumstances in the light of ratio settled in the aforesaid judgments of higher forums the impugned penalty was legally incorrect. Learned AR further stated that imposition of entire penalty in one go is against the provisions of law because as a first step initial penalty has to be imposed through a written order and then for continuing penalty separate order has to be passed. He stated that in this case the entire penalty was imposed in one go, which is not correct in the light of ratio settled in a case reported as PTD 2003 (Trib.) 346, wherein the procedure for imposition of penalty was explained in the following manner: --
"Appellate Tribunal did not find any justification for the Assessing Officer to levy the initial penalty as well as the penalty for continuing default in one go without providing the assessee a further opportunity to correct the situation---Revenue Authorities could not proceed to levy initial penalty as well as the continuing penalty in the same order and they must provide opportunity to the assessee before the levy of penalty for the continuing default--Same also appears to be the intention of the law as laid down in S.182 of the new Income Tax Ordinance, 2001."
29. Learned DR stated that the assessee had admitted before the Assessing Officer as well as CIT(A) that the prescribed monthly statements were not filed. He contended that the penalty of non-filing of statements was established without a speck of doubt, therefore, the penalty was rightly imposed by the Assessing Officer and correctly confirmed by the CIT(A).
30. We have considered arguments of both the sides and we are of the opinion that in the light of judgments of higher forums as relied upon by learned AR the penalty cannot be imposed because there was a defect and deficiency in the relevant law/rules and imposition of penalty in the presence of these defects/deficiencies was unlawful. The principles settled in the judgment reported as 1999 PTD (Trib.) 1661 (as reproduced supra) are squarely applicable in this case. Moreover, proper procedure was not followed by the Assessing Officer and he charged the entire amount of penalty through a single consolidated order whereas he was required to pass separate orders for initial penalty and continuing default. In the presence of these legal infirmities in the impugned orders we feel no hesitation to hold that the impugned penalty order is not legally maintainable. In view of these facts and circumstances emerging from records the impugned penalty order of both the authorities below are hereby vacated and the impugned penalty order is hereby cancelled.
31. All the appeals filed by the assessee as well as department are disposed of in the manner and to the extent as indicated above.
C.M.A./96/Tax (Trib.)Order accordingly.