JUDGMENT NASIM SIKANDAR, J.-in this further appeal under section 136 of the late Income Tax Ordinance, 1979 following questions of law are stated to have arisen out of the impugned order of the respondent No.1, Income Tax Appellate Tribunal, Lahore Bench dated 13.1.1999.
1. Whether on the facts and in the circumstances of the case the ITAT was legally correct to ignore the facts that the Appellate Company had shown the Profit to the tune of Rs.26,14,25,801/- and nothing was concealed intentionally hence cannot be termed a willful default. ii. Whether on the facts and in the circumstances of the case the ITAT was legally correct to treat the claim of Gratuity expense charged to the Computation Chart of income which has actually been made as a concealed income. iii. Whether on the facts and in the circumstances of the case the ITAT ignored all the material facts and difference between the concealment and inaccurate particulars and imposed the penalty.
Iv. Whether on the facts and in the circumstances of the case the ITAT was legally correct to reduce the penalty to 125% and remanding back the matter to the Assessing Officer for recalculation of the amount of penalty.
2. The assessee is a Public Limited Company and is engaged in production of Cement, For the assessm ent year 1993-94 as against declared Income of Rs.26,14,25,807/- an assessment was framed under section 62 of the late Ordinance on 31.3.1996 at total income of Rs.32,95,91,102/-.
3. After framing of the assessm ent the assessing officer observed that the computation chart filed with the return revealed that gratuity debited to P&L account on " accrual basis amounting to Rs.29,19,572/- was added to the net profit and gratuity paid to the employees amounting to Rs.2,11,68,461/- was deducted from the net profit. That treatment and disclosure in the accounts was taken as concealment and furnishing inaccurate particulars of income in terms of section 111(1) and 111 (2)(b) of the late Ordinance. The reply submitted to the show cause notice was rejected inter alia for the following reasons: "it is factually incorrect that a simple matter of admissibility or non admissibility has been termed as concealment Of income. The facts on the ground are that assessee has claimed an expense of Rs.2,11,68,461/- which includes an amount of Rs. 1,55,57,884/-received by the assessee company from gratuity fund trust for payments and it was paid by the assessee to the employees out of funds transferred from gratuity fund trust which represented accumulated balance of payments made by the assessee to gratuity fund trust from assessment year 1982-83 to 1992- 93 which has already been allowed as expense by the department plus interest earned by the gratuity fund trust on the investment of its funds, it is crystal clear from the above facts that assessee willfully and deliberately claimed the expense of Rs. 1,55,57,884/- in the computation chart to reduce the profit and eventually to reduce the tax liability. As far as the submission of figures by the company itself is concerned it is submitted that the company submitted the said figures on, 19.2.1996 which was after the department had confronted it vide notice u/s 62 bearing No.312 dated 27.1.1996 and No.428 dated 13.2.1996. The above fact proves that department has detected the concealment before submission of the said figures by the assessee."
4. Thereafter the assessing officer proceeded to hold that the assessee had been guilty of deliberate, willful and intentional concealment of income and accordingly imposed a penalty of Rs.
1,63,35,778/-. The Commissioner of Income Tax/ Wealth fax (Appeals) Zone-I, Lahore on 26.3.1998 refused to interfere with the penalty so imposed by the assessing officer.
5. On further appeal learned Tribunal by way of the impugned order maintained the imposition of penalty for the aforesaid reasons which weighed earlier with the assessing officer as well as the first appellate authority through its quantum was reduced to-125% as against the imposed rate 250% of the tax thought to be evaded . The learned members of the Tribunal while addressing to the issue if the assessee had willfully furnished ..Particulars observed that they had already rejected the contention with regard to the claim of the said expense* while having the appeal filed by the assessee against the assessment framed under section 62 of the late Ordinance., it,was further observed that the case of the assessee was that of a claim of expense which had not been^ incurred and that the computation chart attached with the return claiming. The said expense was not supported .By* any-legal or factual, basis. However as noted above the alternate plea of the.
Petitioner for reduction was found tenable and therefore the aforesaid relief was allowed. .
6. heard the learned .Counsel for the parties'. For the appellant it is /near a//a contended that on privatization of the project the assessee continued with the same books of accounts in which the gratuity fund-w&s being charged on accrual basis . Therefore there was no deliberate attempt on the part of the appellant to conceal, income. . That the expenses having clearly been mentioned, in the computation chart there was no mens rea-aS the assessee had followed the pattern of accounts and' procedure adopted by the Company in the previous years,. And that mere. Claiming a wrong expense does not-, amount 'to concealment as envisaged in sub section ( 2- A) of section 111 of the late Income Tax Ordinance 19791 . Learned counsel also contends that the impugned order recorded by an Addl. Commissioner though acting as a Special Officer was illegal in view of the provisions of section 5 (1) ( c) of late Ordinance inasmuch .As he .Was required to obtain permission, to impose- penalty from the concerned Commissioner and not from another-IAC as was done in this case.
7. Learned counsel for the Revenue on the other hand supports the impugned order, it is stated that a Public Limited Company listed bn the stock exchange and having the services of Chartered Accountants cannot be believed to have claimed on expense on account of inadvertence which was clear against the basic principles' of accounting. Also refers to the confirmation of that disallowance by the Tribunal-in case of the assessment framed under section 62 of the Ordinance, in his view. The assessee company took a chance and on being confronted an attempt was made to be persistent in the wrong claim, 'that fact alone, according to him is sufficient to establish mens rea against the petitioner. Lastly, states,that the objection of lack of approval from the Commissioner as against LA 1s not available to the petitioner, at this stage has much as (his issue was neither raised before the Tribunal nor it was ruled upon by them. Therefore, according to him that question cannot be said to have arisen out of the order of the Tribunal.
8. Having heard |he learned counsel for the parties' as far the objection against lack of approval is concerned. We will readily-agree that the required approval under section 1T6 (a) ought to have been obtained from the concerned Commissioner of Income Tax as the IAC as special offer made the penalty order. The provisions of section 5(3) (c) are very clear in that regard. The reliance of the learned counsel for the petitioner on a judgment of this Court in re. Sandal Engineering (Pvt) Ltd. s/s. I.A.C. Of Income Wealth Tax (2001) 83 Tax 551) is therefore, pertinent and relevant. Since the statutory permission to impose is a jurisdictional fact it can very well be raised at any time, it is correct that in a number of decisions we have held that the appellate jurisdiction of this Court under section 136 of the late Income Tax Ordinance was equivalent to the one of referable jurisdiction under the repealed section 136. Yet the fact remains that on appeal whole of the matter is thrown open and the objections with regard to the limitation and jurisdiction can always be taken before the next forum.
9. A concealment is an active act which operates both in mind as well as in action, it implies pre- existence of an ability and opportunity to judge and decide. Besides other things it is of paramount importance to note that the act employed to deceive is either half open or is totally concealed. A fraud cannot be presumed, it must be proved as a positive act. Generally speaking, in Income Tax proceedings an act of concealment is perfected and completed when in any assessment year on the basis of a wrong information supplied or an item of receipt liable to tax is successfully suppressed or income chargeable to tax is not disclosed to the Revenue or an illegal deduction is successfully claimed as expenditure incurred. As a rule, a deception which does not deceive is not fraud, it is only an attempt. The provisions of section 111 of the late Income Tax Ordinance were unique in the sense that these treated attempt and completed action of concealment alike.
Therefore, both attempt as well as active act of concealment were punishable alike, in such situation, when an attempt and completed act of concealment are punishable alike a penalty may not finally be imposed unless the Revenue is absolutely positive and can prove on record that an attempt was actually made to conceal income.
10. An act of concealment is matured in the formed of framing of an assessment which is traced out in any subsequent year, it is liable to punishment as a completed action of concealment in as much as the assessee succeeded in reaping the fruits of the fraud by reducing or diminishing his liability towards revenue, in case of current assessments, however any act of the kind as we have before us in this case, can at best be an attempt. Although, as noted earlier, both attempt as well as the complete act are punished alike, a bona fide claim made may loosely be dinance Act, 1 attempt to soften the rigours of the provisions of (1) of that section. The newly inserted provision distinguish between an honest claim and an defraud. However, it only ended up with prove exception that "unless it is proved that the deliberately claimed exemption from tax in re aforesaid item of receipt or claimed deduction such expenditure not actually incurred by provisions, without any doubt were already an im the provisions of sub-section (1). The inserted however apparently did not succeed in maki distinction between an honest claimant, a mere an actual act of concealment because the the lines between them were so thin and mostly re personal intention of a person or the condition of real picture does not emerge till the act crosses attempt and matures into an active fraud. under) strong suspicion on the part of the assessed to Revenue invariably exists in the mind of every in our system. At times he conceives those kind and deceptions which may never has even imagination of the assessee.
11. As far the merits of-the case are concerned, again we will hold that imposition of penalty and its maintenance by CIT (Appeals) as well as the Tribunal was unjustified for the following reasons:- Firstly , the Revenue never succeeded in establishing the existence of mens rea in this case, Admittedly the impugned expense was claimed in bold words and the assessee attempted to support the same from the books of accounts which were being maintained during the period the project was with the Federal Government. The basis on which the assessing officer rejected the explanation in response to the show cause notice, as reproduced above are not open to exception as far the principles of accounting are concerned. However the fact remains that before imposition of penalty, the assessing officer must have brought home that the claim of expense was a deliberate and willful attempt on the part of the assessee to conceal the income. That having not been done the imposition was unjustified: Secondly, It is by now well settled that in fiscal matters a penalty should not be imposed only for the reason that it is legal to do so. Particularly where the statute vests a discretion in the Revenue authority; Thirdly, It is also established, that in cases where imposition of penalty is discretionary, the power so vested may not be exercised unless the defaulter is found contumacious.
In the case in hand in our opinion though the claimed expense was unjustified in view of the basic principles of accounting, yet mere claim of an expense did not make the assessee contumacious unless it was born out from the record that the assessee had persistently been cheating the Revenue in the previous years and was also-bent upon to go away with it in the year under review.
12. The aforesaid principles with regard to the imposition of penalty were recently considered and discussed by this Court in a judgment re: Commissioner of Income Tax vs. Miss. Aasia, Film Artist, Lahore. (2001) 83 Tax 61). While doing so we had benefited from the opinion expressed by their Lordships of the Andhra Pradesh High Court in re. Additional Commissioner of Income Tax vs. Narayvandas Ramkishan. (1976) 34 Tax 189).
13. in view of what has been stated above, our answer to to question is in the positive while questions No.1,2 & 4 do not need to be answered in the given facts. As a result of our answer to question No.3 the penalty in the given facts of the case is disappear
14. Imposition of aboved. Accordingly.