' SYED HAMID ALI SHAH, J.---This is an appeal under section 136(1) of the repealed Income Tax Ordinance, 1979 (hereinafter "the Ordinance") as it stood at the relevant time. Through this appeal the appellant/assessee has sought setting aside of the judgment passed by the Income Tax Appellate Tribunal (ITAT) in I.T.A. No,6453/LB of 1995 dated 15-12-1998 and deletion of the addition made in the income of the appellant of Rs,4,80,000 under section 12(18) of the Ordinance.
2: The appellant, who is director of Messrs Surgeon Surgical (Pvt.) Ltd., filed his Income Tax Return for the assessm ent year 1992-93 declaring income of Rs,51,716 from salary. During the relevant Income Year the appellant had obtained loan from his company through two bearer cheques for Rs,3,00,000 and Rs,1,80,000 dated 18-4-1992 and 28-4-1992 respectively. The Assessing Officer confronted his intention to the appellant to add the amount to his income under section 12(18) as the loan had not been obtained through a crossed cheque. The appellant replied that this subsection could not be invoked in case of genuine loans duly verified by the bank and in support of his contention referred to Circular No,3 of 1992 dated 27th of January, 1992 wherein it had been clarified that this subsection had been added to check fictitious loans and to preclude back-dated introduction of credits in the books of accounts; however, the Assessing Officer did not agree with the contention of the appellant and added the entire amount of Rs,4,80,000 to the income of the appellant under section 12(18) as in his opinion the loan has been received through bearer cheques which was in violation of the said section. The appellant did not succeed before the first appellate authority and consequently filed the second appeal before the ITAT.
3. In view of divergence of views of various Benches of the ITAT on the question to addition under section 12(18) the appeal of the appellant was heard by a Full Bench of the ITAT which considered the issue, as given in para. 1 of the impugned judgment, "First, if a transaction though not done through a crossed cheque but is otherwise through banking channels will still be hit by the mischief of section 12(18) of the Income Tax Ordinance as it existed before substitution by Finance Act, 1998.
Second, whether a purposive approach and interpretation of the provision as suggested by the C.B.R. Through Circular No,3 of 1992 dated January 27, 1992 is legally possible." After considering the rival arguments; and the case-law relied upon, the Full Bench approved the ratio of the judgment of the Division Bench of ITAT at Peshawar reported as (1997 PTO (Trib.) 276) and held that every transaction of claimed loan otherwise than by a crossed cheque drawn on a bank was hit by the mischief of section 12(18) as it existed before its substitution by Finance Act, 1998; and also that the C.B.R's. Circular No,3 of 1992 dated 27-1-1992 and others issued earlier, being against the express provisions of the statute, could not be considered to interpret section 12(18) favourably to taxpayers.
4. The learned counsel for the parties have been heard and the record has been perused.
5. It is an admitted position between the parties that the subject loans were obtained by the appellant from his company through two bearer cheques which were encashed by him; and a certificate to that effect was produced by him from the concerned bank which was also not disputed. The Assessing Officer made the addition on the sole ground that the loan had not been obtained through crossed cheque as required under section 12(18) of the Ordinance. The assessee had contended that as the genuineness of the loan was beyond doubt and that subsection (18) had been introduced with a specific purpose which was to check fictitious loans and discourage the introduction of back-dated cash credits to meet financial liabilities the same could not be invoked in his case; and in support of his contention referred to Circular No, 3 of 1992 dated 27-1- 1992 which is as under:--- "It has been brought to the notice of the Board that genuine loans shown to have been received from identifiable persons through the Banking channels are being deemed to be the income of the assessee under subsection (18) of section 12 of the Income Tax Ordinance, 1979, merely on the ground that the amount of loans has not been received through crossed bank cheques.
(2) The matter has been considered in the Board. Since the basic purpose of the aforesaid provision of law is to check fictitious loans and to preclude back-dated introduction of creditors in the books of accounts, Assessing Officers should not invoke the provisions of section 12(18) in respect of genuine loans received by way of crossed cheques, pay orders, demand drafts or telegraphic transfers etc., through the Banking channels.
(3) In any case, where the nature and source of the amount of money in not satisfactorily explained, addition to the income of the assessee can still be made under section 13, notwithstanding the claim that any loan was received through crossed bank cheque, pay order, demand draft, telegraphic transfer of any other instrument."
6. Subsequently in pursuance of these Circulars Nos. 11 of 1992 dated 4-5-1992, 12 of 1992 dated 19- 5-1992 and 1 of 1993 dated 11-1-1993 were also issued; however, it is important to note that Circular No,3 of 1992 was never revoked. The Assessing Officer and the Commissioner of Income Tax (Appeals) did not accept the contention of the appellant for the only reason that the loan had not been obtained through crossed cheque as was provided in the subsection at the relevant time.
They did not as such consider the contention of the appellant that any goods, not being goods referred to in clause (89), which have been unlawfully removed from a warehouse or which are chargeable with a duty which has not been paid, or with respect to the importation or exportation of which therein a reasonable suspicion that any prohibition or restriction for the time being in force under or by virtue of this Act has been contravened, or if any person is in relation to any such goods, in any way without lawful excuse, the proof of which shall be on such person, concerned in any fraudulent evasion or atfempt at evasion or any duty chargeable thereon, or of any such prohibition or restriction as aforesaid or of any provision of this Act applicable to those goods. {{DATA MISSARRANGE}}
8. In the. Show-cause notice, reproduced above, both the clauses (62) and (90) are mentioned.
Under clause (62), penalty upto 25 thousand can be imposed if a person takes out the goods out of any wharehouse without the payment of taxes/duties. To constitute an offence under clause
(90) of section 156(1) of the Customs Act, the following pre-requisites are to be established.
Firstly, that the accused person intended to defraud the county A of the duty payable on the goods or to evade the prohibition or restriction on the importation thereon for the time being in force.
Secondly, he knew that the goods were chargeable with duty which has not been paid or there was any prohibition or restriction with respect to importation of those goods and thirdly, he was carrying, removing, depositing, harbouring those goods with intent to defraud the Government of any duty or to evade the prohibition and importation which was for the time being in force. The penalty provided therein is the confiscation of the goods and also the accused person liable to penalty not exceeding ten times of the value of the goods. We see force in the argument of the learned counsel for the appellant that there was no such evidence to prove the existence of any of the aforesaid ingredients. The allegation made against the appellants in the show-cause notice was that he had clandestinely removed the goods from the bonded warehouse without payment of the duty. In this background, provisions of clause (62) of section 156 (1) of the Customs Act, 1969 would be attracted which entails penalty upto Rs,25 thousand.
9. In the similar circumstances involving the identical issue, the appellate Tribunal in the case of Messrs Riaz Electric Company (Pvt.) Ltd., Lahore v. Collector of Customs (Appraisement) Lahore (PTCL 1999 CL 746) wherein an amount of Rs,25 lacs was imposed had held that the Collector Customs could not exceed the monetary limit of Rs,1,00,000 (enhanced vide Finance Act, 1999) under Clauses (1), (59), (61) and (62) of section 156(1) of the Customs Act, 1969 while imposing penalty. The learned Tribunal had warned the competent authority to avoid imposition of heavy sums, for, it not only increased undue litigation but even otherwise brought bad name to the Department and the Government.
10. Consequent to above discussion, we hold that the appellant .Was liable to penalty under section 156(1)(62) of the Customs Act, 1969 whereunder maximum penalty upto Rs,25,000 could be imposed. Therefore, we allow this appeal, set aside the impugned order and direct the competent forum (Customs Appellate Tribunal} to decide the appeal of the appellant in terms of the findings of this Court.