2003 PLP (Trib (PTD)

".......... . Should you accept the offer kindly intimate to us for our confirmation to these proposal by way of a compromise settlement alongwith penalty under section 111 of the Income Tax Ordinance, 1979."

7. It has been pleaded on behalf of the assessee that the above referred agreement has been extracted from assessee under duress and threats imposition of penalty at the maximum rate of` 250% as provided in the law and if agreed upon penalty would be levied at 100% of the tax evaded. The Assessing Officer has after giving notice under section 116 of Income Tax Ordinance, 1979 imposed the penalty. We find force in. the contention of the learned counsel that the penalty proceedings are criminal in nature and had to be treated as such, as this Tribunal in many cases has held that for the penalty proceedings mandatory requirements of law has to be fulfilled. Reliance may be placed on the case referred by the learned AR reported as 1994 PTD (Trib.) 1266 wherein it has been held that:‑‑‑ "As regards the penalties, the contentions raised by the learned counsel for the appellant bear weight. In the first instance he maintained that the said agreement having remained the sole reason for imposition of penalties, the purpose for which independent proceedings are contemplated was necessarily defeated .... " "After hearing the parties and going through the orders of the authorities below we conclude that the department based the penalty orders solely on the agreement executed between itself and the assessee and that penalty proceedings were conducted in a predetermined manner without a manifest effort to justify the penalties except for the factum of the aforesaid agreement. Therefore, we will accept ail the four appeals and order that the penalties imposed in all the four years under review shall be deleted."

8. In another case where the facts were almost similar as of the present case reported as 1992 PTD (Trib) 155, this Tribunal has held that "even otherwise the penalty proceedings being criminal in nature, the Assessing Officer has to establish independently mens rea or the guilty intention of the assessee. It is not sufficient that the assessee given incorrect particulars of his income and had not disclosed his purchase properly. The department has to prove independently not only that the assessee had concealed the income or had furnished inaccurate particulars of his income but also that he did so deliberately and intentionally. If any other meaning is to be given, section 116 of the Income Tax Ordinance would become redundant because once an Assessing Officer finds in the assessment order that the assessee had suppressed his income then no further enquiry or notice is necessary. The law requires that a notice under section. 116 should be given to provide a reasonable opportunity of being heard to the assessee so that he can defend and explain his case. Such a notice under section 116 is not a mere formality. It is sine qua non before passing an order for imposing the penalty".

9. In a case Muhammad Muslim v. CIT Karachi reported as 1980 PTD 227 a Division Bench of the Hon'ble Sindh High Court dealt with this issue a length. Their Lordships referring to a decision of the Supreme Court of India observed at page 135 of the Order that:‑‑ "The Supreme Court affirmatively held that the burden of proof was on the department who must establish that the receipt of the amount in dispute constituted income of the assessee and in case no evidence was available, except the explanation of the assessee which may be false, it would not follow that receipt constitutes taxable income. In short, the Supreme Court of India took the view that provisions relating to penalty are penal in nature and the burden of proof of evasion of tax is glaringly on the department and not on the assessee. In a subsequent case namely Commissioner of Income v. Koday Eswarsa & Sons (1972) 83 ITR 369 the Supreme Court of India reaffirmed the dictum in the earlier case of Anwar Ali and held that apart from the falsity of the explanation of the assessee, the department must have some cogent material or evidence which should raise an inference that the assessee had consciously concealed the particulars of his income or had furnished inaccurate particulars. Ices reported by the Supreme Court of India that the mere fact of assessee's explanation being rejected and on establishment of a sum of money being in the hands of the assessee, an inference would not be necessarily available that the assessee had, by concealing his income or furnishing of inaccurate particulars incurred a penalty."

10. It has been consistently held by the Superior Courts that concealment has to be proved by the department as a criminal charge and guilt must be brought home by adopting the same standard of proof, as far as may be possible, as is requisite to sustain a conviction in a Criminal Court, as the penalty proceedings are of a quasi judicial character and the Assessing Officer has to play a role of both the Prosecutor and the Judge. This Tribunal in its order reported as 1981 PTD (Trib.) 15, held that:‑‑‑ "The penalty proceedings are criminal in nature and, therefore, the standard of evidence required to be adduced should be the same as in the criminal proceedings. It. therefore, follows that even an agreement of the assessee to be penalized would not be itself sufficient and the department could not absolve of its responsibility to prove the concealment as a fact. As in a criminal case, mere confession cannot be made the basis of a conviction without any corroborating evidence, the same principle will be applicable in case of imposition of penalties. The learned A.R. has placed reliance in the case of Kerala High Court reported as Money & Co. v. Commissioner of Income Tax Kerala (1963) 47 ITR 434..." " . thirdly even if the counsel was authorized even then the department was not absolved of independently proving that the assessee was guilty and suppressed the income consciously and deliberately. Since no material is on record to prove these facts, the penalties impugned are directed to be cancelled."

11. The learned AR of the assessee has also objected to the notice under section 116 served on the assessee which according to him was deficient in the following manner:‑‑‑ (a) Assessment year was not inscribed but figure "19" was stated. (b) Issuance date was not complete. (c) Notice did not contain in clear words the alleged act of concealment, Even the pertinent clause printed on the notice applicable in assessee's case was not marked. Learned counsel for the assessee has contended that the Assessing Officer has not followed the procedure as laid down by this Tribunal as well as by the Superior Courts regarding the penalty proceedings.

12. Keeping all these facts in view and applying principles as laid down by this Tribunal as well as by the Superior Courts referred supra, it emerges that:‑‑‑ (a) The Assessing Officer has not established independently mens rea or the guilty intention of the assessee. The department has to prove that the assessee has concealed the income or had furnished inaccurate particulars regarding the purchase of property but also did so deliberately and intentionally. (b) Notice served under section 116 before imposition of penalty under section 111 was deficient in regards noted herein‑above such notice under section 116 is not a mere formality. It is sine qua non for passing an order of imposition of penalty. (c) Even if the counsel of the assessee was authorized to enter into agreement for the assessee, department was not absolved of independently proving that the assessee was guilty and has suppressed the income deliberately. (d) C.B.R. Circular No.1(1)/DT.14/91, dated 28‑4‑1991 also spells out: "Proceedings under section 111 are of penal nature and the onus of proof that the assessee had concealed his income lies on the department. Thus, the department must be in possession of such evidence as would convince a reasonable minded person that the assessee has concealed his income by consciously misstating the facts. Mere differences of opinion between the ITO and the assessee is not sufficient evidence for levy of penalty."

13. In view of the above case‑laws and other deficiencies pointed out by the assessee, it is clear that for penalties to be legally valid and justified, the mens rea or the guilty intent on the part of the assessee has, to be proved beyond any doubt, the penalty proceedings being criminal in nature requiring evidence or proof that is necessitated in a criminal case. Conscious and deliberate suppression has to be proved by the department through independent evidence which is lacking in this case. It appears that the ACIT based his entire case of penalty proceedings merely on the agreement of the A.R. of the assessee but as this Tribunal has already held in many cases that even if the A.R. of the assessee had agreed to the said penalty it would not absolve the department to prove mens rea and deliberate suppression on the part of the assessee. For all these reasons and on the basis of the above case -law, the learned CIT(A) has rightly held that the impugned penalties cannot be legally sustained and has accordingly cancelled the penalty order.

14. We, therefore, find no warrant for interference in the impugned order of the learned CIT(A) which is upheld and the appeal filed by the Department is dismissed. C.M.A./619/Tax(Trib.) Appeal dismissed.