1994 PLP (Trib (PTD)

5. The learned counsel for the assessee contended that once it was held by the learned C.I.T.(A) that the I.T.O. had wrongly imposed the penalty under section 110 as no such penalty could be imposeable for default or section 65 of the Ordinance, the learned C.I.T.(A) had no option but to cancel t the penalty. It was submitted that under section -132 of the Ordinance the learned C.I.T.(A) has only five options when hearing the appeal against the penalty namely; to confirm the penalty order, to cancel the penalty, to set aside the penalty, enhance or reduce the penalty. Subsection (1) of section 132 may here be reproduced before proceedings further: "Decision in appeal.

(1) In disposing of an appeal, the Appellate Assistant Commissioner may,

(a) in the case of an order of assessment

(i) set aside the assessment and direct the assessment to be made afresh after making such further inquiry as the Appellate Assistant Commissioner may direct or the Income Tax Officer thinks fit; (ii) confirm, reduce, enhance or annul the assessment; (b) in the case of an order imposing a penalty, confirm, set aside or cancel such order or enhance or reduce the penalty; and (c) in any other case, pass such order as he thinks fit."

6. From the perusal of the above provisions contained in clause (b) above it is evident that while dealing with the appeal against penalty order first Appellate Authority has very limited jurisdiction given by the Statute. He can confirm, set aside, or cancel such an order of penalty or enhance or reduce the penalty. The Assessing Officer has consciously and deliberately stated in his order that the penalty for default of notice under section 65 of the Ordinance was not eligible under section 110 of the Ordinance. It may be stated that from the very beginning of the penalty proceedings started by the Assessing Officer he appears to have the intention to impose a penalty under section 110 of the Ordinance as it is evident from page 2 of the penalty order where the I.T.O. while dealing with the explanation of the assessee against the notice under section 116 of the Ordinance observed as under:

"It was further stated that there are no direction in the assessment order with regard to issuance of notice under section 116 for default of section 110." Then in the concluding part of his penalty order the I.T.O. observed as under:

"Default of Section 65 stands established and penalty under section 110 is eligible in this case. I, therefore, impose a penalty of Rs.2,00,000 under section 110 with the approval of the IA.C. Range-I, Zone-A, Lahore." It is therefore evident that there was no mistake or confusion in the mind of the I.T.O. while imposing penalty under section 110 of the Ordinance. The learned C.I.T.(A) has observed in no uncertain terms that penalty for default of notice under section 65 cannot be imposed under section 110 of the Ordinance. Section 110 of the Ordinance may also here. be reproduced for reference:

"Penalty for non-compliance with notice. etc.

Where any person has, without reasonable cause, failed to comply with any notice issued under section 58 or 61, the Income Tax Officer may impose on him a penalty not exceeding an amount equal to the amount of tax which would have been avoided if the income as returned by such person had been accepted as the correct income." From the reading of Section 110 there can be no doubt whatsoever that penalty under this section could only be imposed for default of section 58 or section 61 of the Ordinance and not for default of notice under section

65. Therefore, the learned C.I.T.(A) is right in holding that this Section 110 was not applicable for imposing the penalty for default of notice under section 65 of the Ordinance. The learned C.I.T.(A) was also right in observing that the penalty for default of notice under section 65 could be imposed only under section 108 which is also reproduced for reference:

"Penalty for failure to furnish return of total income and certain statements.--Where any person has, without reasonable cause, failed to furnish, within the time allowed for the purpose,

(a) any return of total income under section 55 or 56, subsection (1) of section 65, subsection (3) of section 72 or subsection (3) of section 81; or (b) any certificate, statement, accounts or information under section 51, 139, 140, 141, 142, 143(143-A) or 144, The Income Tax Officer may impose upon such person a penalty not exceeding one hundred rupees for everyday during which the default continues."

7. The question arises that once the first Appellate Authority has held that the penalty imposed by the I.T.O. was not imposeable under section 110 of the Ordinance, could the learned C.I.T.(A) convert the penalty from section 110 to section 108 or in other words would it not be a fresh imposition of penalty by the learned C.I.T.(A) himself? Admittedly, the Assessing Officer had not taken -any proceedings under section 108 of the Ordinance. In the notice under section 110 given to the assessee there was no mention of section 108 for imposing the penalty under that section nor did he show his intention to impose the penalty under sections 108 of the Ordinance. The nature and quantum of penalty imposeable under section 108 and 110 is obviously different. Under section 110 a penalty could be imposed not exceeding an amount equal to the amount of tax which would have been avoided if the income as returned by such person has been accepted as the correct income. While under section 108(a) a penalty imposeable for default of notice under section 65 would be not exceeding Rs.100 per day during which the default continues. Therefore, the nature and scope of both the sections are quite different and so is the maximum penalty imposeable under both the sections. A question further arises whether the learned C.I.T.(A) had the jurisdiction to impose penalty under section 108 of the Ordinance. A further question also arises that before the learned C.I.T.(A) the subject-matter of appeal was the penalty imposed under section 110 and not the penalty imposed under section 108 and whether the Statute vested jurisdiction on the learned C.I.T.(A) to impose penalty which was not the subject-matter of appeal. To our mind The conversion made by the learned C.I.T.(A) from section 110 to section 108 is not warranted by law as in fact this is a penalty imposed by the learned C.I.T.(A) himself under section 108 of the Ordinance which was not the subject-matter of the appeal before him. Once the learned C.I.T.(A) has observed that the default of notice under section 65 did not give jurisdiction to the I.T.O. to impose penalty under section 110 of the Ordinance, he could not proceed further because the only consequential order which could possibly be passed under section 132 was to cancel the penalty. As stated above, while disposing of appeal against penalty order the learned C.I.T.(A) had jurisdiction to exercise any of the five options mentioned in clause (b) of section 132(1) meaning thereby that he could confirm, set aside, cancel, enhance or reduce the penalty. Obviously in the present case he could neither confirm nor set aside nor enhance nor reduce the penalty. He could only cancel the penalty once he held that the penalty was wrongly imposed by the I.T.O. under section 110 of the Ordinance for default of notice under section 65 of the Ordinance.

8. For the foregoing reasons, we modify the orders of the officers below and cancel the penalty. The appeal is accepted. M.BA./7/T.T Appeal accepted.