1990 PLP (Trib (PTD)

(iii) That the penalty imposed is excessive and without justification; (iv) That the penalty order is bad in law and contrary to the facts of the case; (v) That all the observations of the ITO/CIT (A) are incorrect; (vi) That the penalty imposed is illegal as addition u/s 13 is not covered by Section 111 of the Income‑tax Ordinance, 1979 for assessment year 1977 78.

2. Briefly recounted the facts leading to the instant appeals are that the assessee, an individual, derives income from smuggling and declared `nil' income for the charge year under reference. It was obligatory for the assessee to file suo motu return for the assessment year 1977‑78 on or before 15‑9‑1977 but the said return was filed on 15‑2‑1981 after a considerable default of 1,248 days and thus also apparently contravened provisions of the Income‑tax law. It was subsequently found that the assessee had certain assets, such as gold bars, ornaments, hard cash, watches, and motor cars etc. The gold, cash and cars were confiscated on the charge of smuggling. The assessee's lawyer made the statement before the Special Judge Customs, referred to in his order dated 7‑2‑1979, that his client was going to make a declaration of assets of an aggregate value of Rs. 1,40,000 under section 3C of the Income‑tax Act 1922 before 31‑8‑1976, but he was precluded from doing so as he was arrested on 29‑8‑1976. The Income‑tax Officer, however, framed assessment on 28‑1‑1982 on an income of Rs. 1,90,35,

570. Not being satisfied with this order the assessee riled an appeal to the Commissioner of Income‑tax (Appeals) who vide his order dated 3‑11 1985, confirmed the Income‑tax Officer's order. Being aggrieved with this order, the asscssee came in appeal before the Income‑tax Appellate Tribunal. The Tribunal vide its order dated 12‑5‑1980 reduced the income for the assessment year 1977‑78 to Rs. 98,54,

105. In compliance of notice a/s 116 the assessee made the following reply;‑‑- "The assessee has not furnished any inaccurate particulars because the assets created during the relevant assessment year were confiscated by the Custom Authorities and the assessee showed `Nil' income." The Income‑tax Officer discarded the reply submitted by the assessee, as according to him the default stood proved, therefore, penalty of Rs. 25,000 and Rs. 500 for default under sections 55 and 56 respectively was levied with prior approval of the authority concerned. Likewise, penalty of Rs. 1,22,93,882 was imposed upon the assessee u/s 111 of the Ordinance.

3. In first regular appeal before the learned Commissioner of Income‑tax (Appeals‑3). Lahore, the appellant/assessee challenged the impugned penalties amounting to Rs. 1,22.93,882 and other two penalties and prayed for their cancellation. The learned Commissioner of Income‑tax (Appeals) heard the learned counsel of the appellant and also examined the record. He observed that the appellant though declared nil income pertaining to the charge year under review but in actual fact he deliberately did not disclose material assets in the wealth statement. The appellant had been given full opportunities of showing cause but no satisfactory reply could be furnished. The appellant had, however, stuck to his plea that all property and assets having been confiscated he could file only `Nil Income' return. The imposition of penalties also could not be substantiated with relevant facts and materials. Regarding delay caused in levy of penalty, it was made clear that the Income‑tax Officer vigilantly waited the decision of the appeal filed by the appellant and only then could impose penalty. The question of quantum of penalty raised before the first Appellate Authority was duly considered and it was observed that the Income‑tax Officer had rightly and diligently applied his mind before deciding this issue. In second appeal against penalty of Rs. 25,000 for default under Section 55 of the Ordinance, it became clear that default in filing relevant return caused 1,248 days, thus the penalty of Rs. 25,000 was imposed upon the appellant after affording him opportunity of showing cause. The learned first Appellate Authority was of the view that since the Tribunal had already determined the income of the as Lessee, hence, the arguments were absurd. The penalty was upheld. Similarly, in the third appeal penalty of Rs. 500 was imposed for a default of 20 days. The appellant's counsel did not make any appreciable struggle to substantiate it, therefore, all the three appeals were accordingly dismissed against whom these further appeals have been preferred.

4. Feeling further aggrieved the appellant/assessee brought these instant appeals on the grounds referred to above in paragraph 1 of this order. Dr. Ilyas Zafar, Advocate appeared on the fixed date of final hearing, i.e., on September 12, 1989 and argued the case of the appellant. At the very outset the learned counsel was required by us to argue the case on maintainability of appeals, as the instant appeals were brought in contravention of the Rule 10 of the Income‑tax Appellate Tribunal Rules of 1981. The learned counsel made certain references from the authorities like (1977) 108 ITR 101 and (1982) 138 ITR 245 and also urged that the Tribunal's power is not confined to the grounds set in Memo. of Appeal under Rule

14. He referred to the case of (1986) 159 ITR 519 on this point. He also urged that the additional legal ground can also be taken even during the course of arguments. Mr. Aftab lqbal Lone, AC/DR represented the case of the Department, critically analysed the conduct of the appellant. He argued that the penalties levied against the appellant were in order and in strict obedience and follow‑up of law enforced for the time being.

5. We gave patient hearing to both the parties and perused the present available record. We are inclined first to illustrate the circumstances under which penalty can be imposed. Logically, discretion is to be exercised by an authority to satisfy itself whether belated return was furnished `without reasonable cause'. In the absence of reasonable cause or the fact of concealment or furnishing of inaccurate particulars of income under law no other reason need be given for imposing penalty. Similarly, failure to comply with notice to produce books of account, the onus is always on assessee to show reasonable cause for not complying with notice. Revenue Authorities need not establish mens rea or prove deliberate failure to comply with notice. Levy of penalty under Section 108 and III of the Ordinance is mandatory.

6. The learned counsel urged that the penalty was imposed under Section 13, whereas Section 13 was made applicable by Section 111 (2) (c) vide Finance Ordinance, 1984. This amendment was not given retrospective effect, therefore, no penalty could be imposed for assessment year 1977‑

78. He referred various case‑law on this issue including P L D 1970 S.C. 82, 1987 P T D (Trib) 646 and 1988 P T D (Trib)

88. For retrospective operation of statutes he also referred to Aiyar's Judicial Dictionary P.894 and the Interpretation of Statutes by Maxwell, 12th Edition P.

215. He further referred to Board's Circular No. 7 of 1984 of July 24, 1984 and Budget Speech 1984‑85 to show that by addition of new clause (c) in subsection (2) of Section 111, all acts referred to in clause (aa) (b), (c), (d) or (e) of subsection (1) of Section 13 shall now amount to concealment for levy of penalty under Section 111, w.e.f. 1‑7‑1984. On the other hand, he drew our attention to a case decided vide MA. No. 30/LB‑II/1987‑88 dated 8‑10‑1988, wherein the Tribunal has held that the addition could be made by resort to subsections (2A) to (2F) of Section 4 of the Repealed Income‑tax Act, 1922 for assessment year 1977‑78 and not under Section 13 of the Ordinance. In such position even the penalty could not be imposed in accordance with the CBR's instructions contained in Circular No. 9 of 1975 dated July 2, 1975. The learned counsel, Dr. Ilyas Zafar also attacked the penalty on other various grounds. He urged that the assessment was made on 30‑4‑1981 and the penalty was imposed on 28‑1‑1988, therefore, the penalty was imposed after‑ inordinate delay. He referred to various case‑law like 1986 P T D (Trib) 446, (1977) 35 Tax 26 (IIC), (1962) 6 Tax 221 (HC) and ITA No. 771/LB/1986‑87 dated 2‑3‑1988 to show that the penalty imposed after inordinate delay is not maintainable. He also referred to Board's Circular No. 10 of 1977 dated 21‑7 1977 and Circular No. 6(11) IT‑6/75/561 dated 17‑6‑1975 which contained the instructions to the Assessing Officers to impose penalty within reasonable time and within three months of passing the Assessment Orders respectively. He also urged that the instructions and directions contained in the Circular issued by the CBR are binding on the Income‑tax Officers vide Section 8 of the Ordinance and also referred to the citations of (1988) P T D 234, 1988 C L C 377, (1981) 132 ITR 462 and (1982) 137 ITR

369. The A.R. of the assessee also urged that the penalty proceedings are criminal in nature and are independent but the Income‑tax Officer passed penalty order on the basis of Assessment Order. He referred to certain case‑law like (1978) 37 Tax 266 (HC), 1981 P T D (Trib) 15, (1943) 11 ITR 308 and Circular No. 2 of 1959 dated 21‑1‑1959. He further submitted that criminal proceedings are under the law of criminal procedure in a criminal Court and added that cardinal rule of criminal law is that the prosecution has to stand upon its own legs. It cannot take advantage of the weakness of the defence's case at any stage of trial. The conviction cannot be sustained on the basis of conjecture, suspicion, a mere belief about the defendant s guilt or even a strong probability of guilt. The learned counsel also urged that the assessee intended to make declaration under Section 3(c) of the repealed Act which he could not do due to confiscation of goods, therefore, it was not a wilful default on the part of the assessee. He referred to various cases like (1989) P T D 835, 106 ITR 532, 818, 721, (1989) P T D 266 and Circular No. 2 of 1958 dated 11‑3‑1958. He also referred to the case of (1983) P T D 105 wherein it has been decided that the addition in assessment may be justified but cannot be treated, as such, as concealment for the purpose of penalty.

7. As regards the Appellant's plea that he has not concealed any income, or suppressed particulars thereof, it was vehemently argued by the authorised representative Mr. Zafar Hussain, that the assessee had placed all cards on the table and was not guilty of any concealment. 1n fact the Income‑tax Officer has framed assessment entirely on the basis of facts and figures contained in the statement which had been made before the Special Judge Customs and no new fact relating to income had been brought on record by the Income‑tax Officer. It was stressed that penalty proceedings under Section 111 are of incriminating nature different from those of assessment proceedings and unless concealment and fraud is proved, penalty cannot be imposed. Reliance in this connection was placed on the cases reported as (1943) (ITR) 308, (1943) (ITR) 50 besides the case reported as (1982) 135 (ITR)

797. In the last cited case the learned High Court had referred to the observation of the Supreme Court of India in case (1970‑76 (ITR)‑696) "even if it is found that assessee's explanation is false penalty cannot be levied unless concealment is proved."

8. As regards the declaration of nil income it was argued that since the entire assets of the assessee had been confiscated, he had to declare nil income. If a property is confiscated by any legal authority the assessee ceases to be its `owner'. In this connection attention was drawn to the meaning of the term "confiscation", in the Black's Law Dictionary, Law Lexicon and Terms and Phrases edited by Sardar Mohammad Moakal according to which "confiscated property is that which the Courts can dispose of and "handing over of assets to the Revenue authorities so as to deprive the `owner' of the property in them". In support of this contention reliance was placed on cases reported as 1971 (82) ITR 570) and (1984 (146) ITR 36). In view of the arguments advanced before us, we are of the view that the penalty imposed under Section 111 of the Ordinance is without any basis and, therefore, cannot be upheld.

9. In regard to the penalty of Rs. 25,000 imposed for delay in filing the return, it was stated that the return had been called for by a notice under Section 65 within 7 days. The departmental contention was that the Income‑tax Officer is fully competent to impose penalty for default in payment of tax. In instant appeals, statutory notice under section 65 of the Ordinance was served upon the appellant with clear directions to submit return within seven days of the receipt of notice. The appellant/assessee deliberately opted to file return after lapsing 26 days without any cogent reason. The Income‑tax Officer, under the circumstances had no option but to work out income of the assessee according to his best judgment. The appellant however, contended that time was curtailed without the approval of the IAC. The CBR's instructions in Circular No. 10 of 1975 dated 14‑7‑1975 have apparently not been borne in mind. It was further argued that the penalty of Rs. 500 for not filing the return suo motu, was not justified as all the assets of the assessee's had been confiscated at the relevant time of filing the return and he had nil income to declare.

10. We would, however, like to make clear that imposition of penalty is an action which should be according to the quantum and the income declared as envisaged by the Income‑tax Ordinance of 1979 itself. Two things are crystal clear that the Income‑tax Officer worked out net income of the assessee at Rs.1,99,35,570 against which it was reduced to Rs. 9,854,105 entirely an addition made under section 13 of the Ordinance. What is still more lamenting is that the income of the assessee was finally determined at R.s.9,854,105 against nil income. It would, however, be completely stunning for the assessee to face the unwarranted and uncalled for punishment. In levying penalties rational. Wisdom sand mind was not applied by both the authorities below. In fact by charging a person under section 13 without any fault and against law seems unjustified punishment. 1n addition any penalty levied shall be an outrageous cruelty with the assessee besides defeating the ends of justice.

11. Considering the main argument regarding the insertion of section 111 (2) (c) in the Income‑tax Ordinance, 1979 vide Finance Ordinance, 1984, which covers addition to income under Section 13 for purposes of penalty under Section 111 with effect from 1‑7‑1984, we have no doubt that penalty under Section 111 could not be imposed in this case under any circumstances. On this ground alone, the order cannot be sustained although other grounds also carry weight. In respect of penalties under Section 108 (a) of Rs. 25,000 and Rs. 500 we are of the view that these are justified and are upheld. As a result of the above discussion all the three appeals are disposed of as above. A.A. ZUBERI (ACCOUNTANT MEMBER).‑‑I agree with the reasoning (and conclusions) of my learned brother, the Judicial Member to the effect that the penalty imposed under Section 111 of the Ordinance WAS NOT WARRANTED on the facts and in the circumstances of the case. I further agree with the pronouncement proposed by my learned brother as respects two penalties imposed under Section 108 (a) of the Ordinance. However, I do not subscribe to my learned brother's views about the retrospective applicability of the provisions of clause `c' of subsection (2) of Section 111 of the Income‑tax Ordinance. For my view I draw support from the observation by the learned Judges of the Karachi High Court in re: OLYMPIA 1987 P T D 739. which is reproduced below: " The retrospective effect of the amending law would, therefore, apply only to these cases where assessments had not been made by the assessing officer or where an appeal was pending before the Tribunal or a reference was subjudice before the High Court, at the time the amending law was enacted. The cases which had finally been determined or had attained finality i.e. which were past and closed transactions, cannot be re‑opened under the amending legislation as there arc no express words to that effect employed in the amending law." In the instant case penal proceedings were initiated after insertion of clause `c' of subsection (2) of Section 111 hence the penalties etc. were also imposed subsequently. Therefore, these would be hit by the mischief of the amendment in Section 111 (2) which, undoubtedly, would cover the pending cases, as the present one. My observation about the retrospectivity of clause `c' of Sections 108 (a) and 111(2) of the Ordinance would not change the fate of the appeals inasmuch as penalty has already been held as not exigible unless concealment is proved by independent evidence. M.BA./693/T Order accordingly.