1983 PLP (Trib (PTD)

ABRAR HUSSAIN NAQVI (MEMBER).

These are five appeals filed by an individual deriving income from supply of jute mattings to educational institutions and relate to the assessment years 1975‑76 to 1979‑80.

2. The assessee's original assessment was completed for the assessment years 1975‑76 to 1979‑80 on various dates in which the assessee's declared sales through supplies were accepted but G. P. rate was applied at 12 % against lie declared rate of 7 %. However, after the assessments for the assessment years 1975‑76 to 1978‑79 were completed, the assessee filed revised returns voluntarily on 15‑11‑1979 and in his forwarding letter the reason for filing the revised returns were given as follows :‑ "It is respectfully submitted that I am a regular Income‑tax assessee of Circle‑1 S . . . . at G. I. R. No. 1023. My assessments up to 1978‑79 assessment year have already been completed under normal law. In view of the following reasons I want to file revised returns for 1975‑76 to 1978‑79 assessment years voluntarily as a straightforward honest loyal citizen of the Islamic Republic of Pakistan." In these revised returns the assessee showed higher sales made through supplies and G. P. rate was declared at 12.5 % as had been applied by the department in the original assessments. Since there was no provision in law to consider the revised returns after the assessments, the assessing officer Issued notices under Faction 65 of the Income‑tax Ordinance, 1979 before re opening the case of the assessee. In reply to these notices, the assessee request ed that revised returns already filed on 15‑11‑1979 should be considered valid is response to the notice under section

65. Subsequently these returns were again revised on 22‑4‑1980. After hearing the assessee, the assessing officer accepted the revised sale figures but applied G. P. rate of 17.5 % in all the years under consideration. For the Assessment year 1979‑80, the assessee declared supply receipts of Rs. 10,11,391 with G. P. rate of 12.5 % against which the I. T. O. estimated the sale figures at Rs. 10,14,386 and applied G. P. rate of 17.5 %.

3. The main question agitated by the learned A. H. in these cases was as to whether the I. T. O. could legally enhance thee G. P. rate while in the original assessment he had applied G. P. rate of 12.5 %. It is contended by the learned A. R. that no new material had been brought on record which changed the opinion of the assessing officer in applying higher G. P. rate. As a matter of fact, when the notices under section 65 of the Ordinance were issued they were in regard to the under assessed‑income and the column "assessed at too low a rate" had been scored out which meant that on the basis of the revised returns filed by the assessee voluntarily, only the assessee's revised sale figures were to be considered. It was further submitted that the assessee was not given any notice in regard to the application of higher G. P. rate. The learned D. R. on the other hand submitted that once a case was re‑opened it was open for the assessing officer to make a re‑assessment afresh and to apply a reasonable G. P. rate as he felt proper. It was further contended by the learned U. R. that the assessee is a manufacture of jute mattings in which higher G. P. rate is available.

4. We have considered the arguments of the parties but we could not reconcile with the orders of the officers below. The assessee does not keep any accounts and in the original returns the assessees had declared his results on estimate basis. The assessing officer while accepting the declared receipts thought that the reasonable profit available to the assessee was at 12.5 %. While the cases of the assessee were re‑opened no fresh material or evidence was available with the assessing officer to warrant change in his opinion in regard to the profit rate. The fact that the assessee was a manu facturer was also in the knowledge of the assessing officer not only in these years but also in the earlier assessment years where lower G. P. rate had been applied. As a matter of facts the assessee's business all along had been the same namely, manufacture and supply of jute matting. Therefore, unless the assessing officer could show that a higher margin of profit was available to the assessee in the years under appeal or the facts on which the assessing officer formed his opinion earlier had changed or new facts were brought to light, he had no jurisdiction to arbitrarily change the gross profit rate which he himself had applied in the original assessment particularly when the assessee was not given due notice for the enhancement of the gross profit rate. The learned A. A. C. has advanced an argument for not accept ing the assessee's contention that the assesse's receipts had been subjected to G. P. rate of 12.5 % in the earlier years. However, this was being applied against the declared G. P. rate of 7 %. Since the assessee in the revised returns has shown higher G. P. rate and thus has discarded his own history him self therefore, he could not feel aggrieved against the I. T. O. in discarding the history. This is really a strange Logic. The application of G. P. rate by an assessing officer is not dependent on the G. P. rate declared by the assessee. Once an assessing officer discards the declared version of the assessee he has to work out the reasonable income which the assessee might have earned in! a particular assessment year. It is in that context that the assessing officer' applies a G. P. rate which he thinks is reasonably available to an assessee. This estimate has no relevancy with the declared rate of profit of an assessee. The assessee had a history of application of G. P. rate of 12.5 %. and in the original assessments as well the, learned I. T. O. considered this profit rate as reasonable without bringing any fresh evidence, he could not charge his opinion arbitrarily and to increase the rate of profit of the assessee. If we keep in mind that the assessee had voluntarily revised his returns without any compulsion and that the assessing officer had re‑opened the cases of the assessee only because there was no provision to consider the revised returns after the completion of the assessment, it is unfair to the assessee that the assessing officer should apply higher G. P. rate without giving any reason for the change of his opinion. We, therefore, hold that toe officers below the committed an error in law in applying higher G. P. rate of 17.5% instead of G. P. rate of 12.5% as applied originally, we reduce the G. P rite to 12.5%.

5. In the assessment year 1979‑80, the G. P. rate of 17.5 % was applied on the basis of re‑assessments for the earlier assessment years. Since we have reduced the G. P. rate in accordance with the history of the case to 12.5 and the basis on which the higher G. P. rate had been applied in the assessment car 1979‑80 had disappeared, we direct that in the assessment year 1979‑80 also the G. P. rate at 12.5 % should be applied.

6. The learned A. R. has taken objection against the observation of the learned A. A. C. that penalty proceedings should be taken against the assessee under sections 111, 116, 118 and 119 because of concealment of income by him view of re‑opening of the cases of the assessee under section 65 for the assessment years 1975‑76 to 1978‑

79. It was contended that the assessee having filed returns voluntarily, it could not be said that he had concealed the income. On perusal of section I. T. O. we find that the penalty proceedings could e initiated in the course of any proceedings where the I. T. O., the A. A. C , the Tribunal is satisfied that any person had, either in these proceedings or n any earlier proceedings relating to an assessment, concealed his income ;r furnished inaccurate particulars of such income. It was contended by the learned A. R. that since the assessee had voluntarily filed his revised returns no penalty proceedings should be initiated against him as it could not be said that he had concealed the income. It was further submitted hat the word 'concealment' in this section would mean deliberate concealment. It was submitted that since the assessee did not maintain any accounts, therefore, in the original returns receipts had been disclosed by the assessee on estimate basis. When the assessee subsequently discovered inaccuracy in lie original returns he voluntarily revised .the returns and submitted the actual receipt and profits earned thereon. We are inclined to agree with the learned A. R. It is true that the words used in section 111 are only "concealed his income furnished inaccurate particulars of such income" but these words had to be considered in the context which would really mean the deliberate action the assessee. This interpretation is supported by subsection (2) of the same section which has used the word suppression of any item of receipt. Subsection (1) while explaining the meaning of concealment and inaccurate particular of income has included the suppression of any item of receipt which is not the case in the present appeal. The word suppression against presupposes deliberate action of the part of the assessee. The assessee while filing the revised re turns in his forwarding letter stated that he had scrutinized his Bank account and wanted to declare his income honestly. He had detected bona fide omissions made is the past. The bona fides of the assessee is also indicated from the fact that when the assessee discovered more facts again revised his returns on 22‑4‑1980 and in his forwarding letter (which has also been quoted by the learned ( I. T. O.) it was stated by the assessee that he had a heart attack a few months back and he was lying on death bed. It was further stated that he had asked his sons to collect an accurate information about the supplies made by him to various department` and the revised returns were being filed on the basis of the information collected by his sons and that the figures now supplied by the assessee were true to the best of his knowledge and belief and were based on sincere honest and true information. In these circumstances it is unfair and unjust to bring the rigours of penalty proceedings against such an assessee who bad voluntarily shown his higher income. It may be noted that the penalty proceedings are criminal in nature and the assessee could also be prosecuted under sections 118 and 119 of the Ordinance as has been mentioned by the learned A. A. C. also. However, for all criminal acts mens rea is necessary and it has to be proved before such penal action could be started.

7. There is another technical defect in the observations of the learned A. A. C. Before the penalty proceedings can be initiated under section 111 of the Ordinance there must be satisfaction of the authority before whom the proceedings are pending and that too should be in the course of the pro ceedings and then that authority alone is empowered to impose a penalty. Under section 116 of the said Ordinance a reasonable opportunity of hearing has to be given to the person against whom the penalty is proposed to be imposed. In the present case, the revised assessment proceedings were pending before the I. T. O. but during the course of those pro ceedings he did not choose to impose the penalty under section

111. The learned A. A. C. of course appeared to be satisfied in the course of the appeal proceedings that the assessee had concealed his income or furnished inaccurate particulars of such income. However, in that case he could himself impose the penalty but could not direct the I. T. O. to initiate the penalty proceedings. The words "he or it may impose upon such person a penalty .." clearly mean that either the I. T. O. could impose a penalty during the course of any proceedings pending before him or the A. A. C. of the Tribunal could do the same in the course of proceedings pending before them. Section 111 nowhere provides that either the A. A. C. or the Tribunal could direct the subordinate authority to initiate the penalty proceedings. Furthermore it does not appear that the I. T. O. bad given a notice to the assessee under section 116 to provide an opportunity of being heard before giving the direction for initiating penalty proceedings against the assessee under sections 111, 118 and 119 of the Ordinance. For the foregoing reasons, we feel that the learned A. A. C. was not legally empowered to give directions to the I. T. O. for initiating penalty proceedings against the assessee.

8. We therefore, vacate the order of the learned A. A. C. and modify the order of the I. .T. O. to the extent that G. P. rate of 12.5 % should be applied in all the years under consideration. The appeals of the assessee, accepted. GHULAM MURTAZA KHAN (MEMBER.)‑I agree with the conclusions reached by my learned brother but have to express the following views in regard to certain observations made by hint in his order ............... In paragraph 6 my learned brother appears to be of the view that the assessee himself made a disclosure of the correct receipts based on sincere, honest and true information and that in the absence of mews real penal pro ceedings could not be initiated against him. One should appreciate the gesture of goodwill and making a clean breast of .he past lapses by submitting revised returns of income showing correct receipts baled on the bank statement but the fact remains that the assessee was not a retail dealer but a supplier of mats to the Government schools and the payments were made through cheques. As is apparent from the assessment order in none of the years such payments were not more than 10 in number so as to be considered as difficult or cumbersome for the assessee to total up the receipts in different years. It was the responsibility of the assessee to exercise extreme care and take pains so as to file correct returns of income even though he did not maintain any accounts. In fact, one is unable to understand as to why i did not occur to the assessee to work out the receipts from the bank state ments while originally filing the returns of income. There is substantial difference in the receipts originally shown and later can revised after the com pletion of assessments. It is rather surprising that in none‑of the years the assessee erred on the high side and this alone shows the mala fides and a deliberate attempt on the part of the assessee to understate the receipts in all the years under consideration. I, however, fully agree with the opinion of my learned brother that the learned A. A. C. fell into an error in giving direction to the Income‑tax Officer to initiate penalty proceedings because he did not disclose his intention to start such proceeding during the course of assessment proceedings. This fact is clearly borne out from the assessment orders. Further, the observation of my learned brother in paragraph 7 that the I. T O. should have given a notice to the assessee under section 116 also does not appear to be necessary because such a contingency could only arise if the I. T. O. had disclosed his intention of starting penal proceedings and there after he could pass valid penalty order after issuing the aforesaid notice. I, however, agree with the conclusion, of my learned brother that only the learned A. A. C. could have initiated the penalty proceedings but he was not legally empowered to give directions to the Income‑tax Officer to initiate each proceedings against the assessee.