P L D 1977 Lahore 79 (PLP)

GUL MUHAMMAD KHAN, J.‑The Income‑tax Appellate Tribunal, Pakistan,. Lahore, has referred to us, under section 66 (1) of the Income‑tax Act, the following question of law, pertaining to the assessment year 1967‑68, as arising out of its order dated 4th June 1970:‑ "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the charge of penal interest in the absence of any order by the Assessing Officer was legal and operative?"

2. The Income‑tax Officer, vide his order dated 2nd April 1968, while completing the return submitted by the assessee observed as follows:‑ "The assessee‑Company has paid Rs. 25,000 only towards Advance tax. Penalty proceedings are being started in this connection separately. Assessed as per

1. T.

30. Issue demand notice and challan." In

1. T. 30 a sum of Rs. 31,531 was assessed as the penal interest for making default in paying the Advance Tax under section 18‑A (1) of the Income‑tax Act. As the assessee was not satisfied with the penal interest charged by the Income‑tax Officer under section 18‑A (8) of the Income‑tax Act, it went up in appeal. The Appellate Assistant Commissioner without giving any cogent reasons for his order accepted the appeal and cancelled the penal interest. That order attracted an appeal by the Department. It came up before the Income‑tax Appellate Tribunal which accepted the same and set aside the order of the Appellate Assistant Commissioner with the following obser vations :‑ "The Appellate Assistant Commissioner has set aside the case as for the purposes of levying the penal interest in this case for the assessment year 1967‑68 no separate order was passed but was only calculated. as per

1. T.

30. It appears that in view of the Full Bench decision of the Tribunal in I. T. As. Nos. 1190 to 1'.92 of 1965‑66 dated 22‑1‑1970 this appeal must be allowed. In that case the Tribunal following the case reported as (1952) 211 T R 18 held (that the only order which has to be made in a case is the order of regular assessment in respect of a particular year, but so far as the imposition or levy of penal interest is concerned that is a matter of mere calculation and after the amount of interest is so calculated it is only to be added to the tax determined on the basis of the order of assessment.) (2) On the basis of the aforesaid decision this appeal is therefore allowed, the order of the Appellate Assistant Commissioner is set aside and that of the Income‑tax Officer restored."

2. It is contended by the learned counsel that as the Income‑tax Officer in his order did not find any case for the imposition of penal interest and did not pass any specific order thereabout, the imposition of penal interest was unlawful. The learned counsel pressed into service the provisions of section 29 of the Income‑tax Act to plead that an order imposing penalty was necessary to be passed by the Income‑tax Officer before any demand of penal interest could be made. Section 29 reads as follows: "Notice of demand.‑When any tax, penalty or interest is due in conse quence of any order passed under or in pursuance of this Act, the Income‑tax Officer shall serve upon the assessee or other person liable to pay such tax, penalty or interest a notice of demand in the prescri bed form specifying the sum so payable." He also relied on Rules 20 and 32 of the Income‑tax Rules to contend that the form

1. T. 30 is only an Appendix to the notice of demand and, therefore, could in no case be construed to be a part of the order of the Income‑tax Officer. Reference was also made to a case decided by the Tribunal (1967) 16 Taxation 119 and another case of Indian Jurisdiction relied on in the above case (1952) 21 1 T R 18, in support of this proposition. In the first case, the Income‑tax Officer completed the return only without saying anything about interest. The order was followed by a demand notice along with form I. T. 30, in which assessee was required to pay a sum of Rs. 28,801 as penal interest. In the second case, the Income‑tax Officer observed t "Tax not paid. Issue penalty notice." Thus, as in both the cases the income‑tax Officer bad not passed any order about penal interest, the demand in the

1. T. 30 was found to be invalid. Reliance was also placed on a recent judgment of Sind & Baluchistan High Court as reported in Naeem's Journal of Accountancy & Taxation, C.

1. C. T.. Karachi v. Messrs Malik Walayat Hussain & Sons Ltd., Quetta (1976) 1 T

224. The following observations may be reproduced with advantage:‑ "Under the above section a notice of demand can only be served provided tax, penalty or interest is due in consequence of an order passed under the Act. Therefore, the condition precedent to the validity of the notice of demand under section 29 must be an order passed under the Act and the notice is merely consequential upon that order. Therefore, if there is no order under the Act, no notice can be served under section

29. In our view in the absence of such an order there is no liability of an assessee to comply with a notice under section

29. Faced with this situation Mr. Nusrat, the learned counsel for the Depart ment, contended that the order of assessment under subsection (3) of section 29 coupled with the incorporation of penal interest in the assessment form I. T. 30, duly signed by the I. T. O., was a sufficient order in the eye of law which can be made a basis for issuance of & ‑notice of demand against the assessee under section 29 of the Act. The assessment order has been produced and is significantly silent as regards any tax liability of the assessee for his failure to pay advance tax. Significantly. the assessment form

1. T. 30 has not been produced before us. Be that as it may, this Form which is prescribed under rule 2 of the Income‑tax Rules, as is apparent from its plain reading, cannot be a substitute for an order under subsection (8) of section 18‑A, levying additional tax by way of penalty for non‑payment of advance tax under section 18‑A of the Income‑tax Act." it may be noted here that in that case no reference to the I. T. 30 was made in the order and no tax was assessed in the order itself. The learned counsel submitted that the case in hand was not different from the above cases and ‑that the demand of the penal interest in the I. T. 30, being without an order . of the Income‑tax Officer, it was not a valid demand under section 29 of the Income‑tax Act.

3. The learned counsel for the respondent on the other hand submitted that the mention of the penal interest in the form I. T. 30, without any indication of imposing it in the order, is not the same thing as observing "assessed as

1. T. 30". It is admitted that the order imposing penalty needs mention no other reasons if the default Is admitted. The default in the case in hand is not denied. A reference to the order of the Income‑tax Officer, reproduced above, saying "assessed as per I. T. 30", does show that tie instead of giving a specific verdict in the assessment order incorporated therein by reference the contents of the I. T. 30 which were contemporaneously compiled by him. So the requirements of the law laid down by the Supreme Court in. Gouranga Mohan Sikdar v. The Controller of Import & Export and 2 others PLD1970 S C158 are fulfilled and the order of Income‑tax Officer does show his application of mind to the default in payment of Advance Tax, and calculation of the penal interest in the

1. T. 30, instead of in the order itself, by making a specific reference to it. Thus an order imposing penal interest did exist and hence the question is misconceived. In deciding so we are not differing with the views expressed in the above three cases referred to in para. 3 above, which are distinguishable. In those cases the I. T. O. did not consciously apply his mind or showed his intention to impose penal interest, whereas in the case in hand he assessed the penal interest, in the I. T. 30 and said so specifically in his order.

4. We are, therefore, of the view that no detailed order, in this case was required to be passed. It is, however, desirable in the interest of justice and also to be certain that the Income‑tax Officer was conscious of his statutory obligation, that a specific observation about imposition of penal interest b g made in the order itself. The Income‑tax Officer is obliged under the la to apply his own mind to the imposition of penal interest He cannot leave it to his office to do the same. In the instant case if we read the order of the Income‑tax Officer with I. T. 30, in which assessment was made, the order to impose penal interest is clearly available. In the circumstances, we consider that in the facts and circumstances of this case an order about imposition of penal interest was there. The question referred to us is thus based on misreading of the record and it is returned accordingly. S. Q. Reference answered.