' TALAAT QAYYUM QURESHI, J.---The petitioner, an assessee filed returns under Self Assessment Scheme disclosing its income for the year 1983-84 at Rs,18,100 and for the year 1984-85 Rs,18,200.
The returns were accepted as filed but later on information was received from Messrs Pfizer Laboratories vide letter No, under section 159 dated 6-2-1985 that assessee had made purchases amounting to Rs,13,69,632 and Rs,7,43,229 from it during the period. The case was, therefore, reopened under section 65 of the Income Tax Ordinance, 1979 (hereinafter called as Ordinance).
The assessee was directed to file revised returns which were accordingly filed in which loss was shown for both the years. The revised returns were not accepted by the Assessing Officer who imposed penalty under section 111 of the Ordinance vide order dated 11-6-1986. Being not satisfied with the said order assessee, the petitioner filed appeals before Appellate Assistant Commissioner (Appeals), Peshawar. The appeals were dismissed vide order dated 16-12-1986. The assessee then filed appeals before the Income Tax Appellate Tribunal. The appeals were partially allowed vide order dated 4-4-1988. Being not contended with the orders of the forums below, the petitioner has filed the Reference in hand to determine whether on the facts and circumstances the Income Tax Appellate Tribunal was unjustified in holding that the assessee's case falls within section 111 of Income Tax Ordinance, 1979 and the penalty was properly imposed.
2. Mr. Abdur Rauf Rohaila, Advocate the learned counsel representing the petitioner argued that the case of the petitioner could not be re-opened under section 65 of the Ordinance as there was no definite information before the Assessing Officer, hence the entire proceedings are illegal.
3. It was also argued that no penalty could be imposed under section 111 of the Ordinance as the petitioner had not concealed its income from the Income Tax authorities. So far as the purchases are concerned, if any purchases made during the said period is not mentioned, the same would not entail penalty. Reference in this regard is placed on (1982)45-Tax 52.
4. On the other hand Mr. Eid Muhammad Khattak, Advocate the learned counsel representing the Department argued that income has been defined in subsection (24) of section 2 of the Ordinance which includes the income which was derived after purchases made by the assessee and if the purchase made during the year were concealed, the assessee would be liable for penalty under section 111 of the Ordinance. The forums below have properly appreciated this aspect of the case whereas the Tribunal failed to appreciate the same properly.
5. We have heard the learned counsel for the parties at length and perused the available record.
6. The question that requires consideration in this case is whether furnishing of inaccurate particulars can be regarded as furnishing of inaccurate particulars of income within the meaning of section 111 of the Income Tax Ordinance, 1979.
7. In order to give answer to this question two provisions of the Ordinance need examination.
Section 111 deals with "Penalty for concession of income, etc". The same is reproduced hereunder for convenience;-- "111. Penalty for concealment of income, etc.-(1)
' Where, in course of any proceedings under this Ordinance, the Deputy Commissioner, the Appellate Additional Commissioner or the Appellate Tribunal is satisfied that any person has, either in the said proceedings or in any earlier proceedings relating to an assessment in respect of the same income year, concealed his income or furnished inaccurate particulars of such income, he or it may impose upon such person a penalty not exceeding two and-a-half times but in no case less than the amount of tax which (the said person sought to evade by concealment of his income or furnishing of inaccurate particulars of such income, as aforesaid.)
(2) For the purposes of subsection(1) and section 119, concealment of income or the furnishing of inaccurate particulars of income shall include.
(a) the suppression of any item or receipt liable to tax in whole or in part;
(b) claiming any deduction for, or showing any expenditure not actually incurred, and
(c) any act referred to in clauses (aa), (b), (c), (d) and (e) of subsection (1) of section 13.
(2-A). Notwithstanding anything contained in subsection (1) or subsection (2), where any item of receipt declared by the assessee is claimed by him as exempt from tax, or where any deduction in respect of any expenditure is claimed by him, mere disallowance of such claim shall not constitute concealment of income or the furnishing of inaccurate particulars of income, unless it is proved that the assessee deliberately claimed exemption from tax in respect of the aforesaid item of receipt or claimed deduction in respect of such expenditure not actually incurred by him.
(3) An Appellate Additional Commissioner or the Appellate Tribunal, on making an order under subsection (1), shall forthwith send a copy thereof to the Deputy Commissioner and thereupon all the provisions of this Ordinance relating to the recovery of penalty shall apply as if such order were made by the Deputy Commissioner."
8. Likewise income has been defined in subsection (24) of section 2 of the Ordinance which is also reproduced hereunder, for further reference;-- "(24) 'Income' includes;
(a) any income, profits or gains, from whatever source derived, chargeable to tax under any provision of this Ordinance under any head specified in section 15.
(b) any loss of such income, profits or gains; and
(c) any sum deemed to be income, or income accruing or arising or received in Pakistan under any provision of this Ordinance, but does not include, in the case of a shareholder of a domestic company, the amount representing the face value of any bonus shares or the amount of any bonus declared, issued or paid by the company to its shareholders with a view of increasing its paid up share capital"
9. Perusal of section 111 of the Ordinance quoted above show that penalty could be imposed under the law for "concealment of income" i,e, if during the course of any proceedings the officials of Income Tax Department mentioned in the above quoted section are satisfied that any person has, either in the said proceedings or in any earlier proceedings regarding an assessment in respect of same year, concealed his income or furnished inaccurate particulars of such income, such officer could impose penalty upon such person not exceeding two and a half times but in no case less than the amount of tax which was attempted to be concealed by furnishing inaccurate particulars of such income. Under this section (S.111) penalty is attracted on concealment of income and not on concealment of purchases. Purchases and income are two different things. No doubt purchases are made during business activities and are essential part of such activities but the question which again needs consideration is as to whether an assessee is liable to give details of all such business activities of the assessm ent year in the return filed by him. Simple answer to this question is in negative. Under the law he is only obliged to furnish the particulars of income earned by him during the assessm ent year at the time of filing the return and if he/it fails to give details of purchase made by him/it but declared accurate income during particular assessment year, he could not be made liable for any penalty. Almost similar question came up for hearing before Sindh High Court, Karachi (1982) 45 Tax-52 in which it was held:- "I do find that the offence under section 51 (2) of Income Tax Act is the concealment of the income and not the concealment of purchase although it could be argued that the purchase could not be made without the pro-portionate income having been earned by the assessee yet an answer, could be that the purchase had been financed by some other source and not through the concealed income. The purchase and income are two different things and it could be possible that a man may not earn an income in spite of the purchases that he had made as he may sell the goods at a loss and thus sustain a loss. Therefore, the net result is that a charge in respect of undisclosed purchases cannot be regarded as a charge in respect of concealed income"
10. In the case in hand the charge against the petitioner is "concealment of purchase" and not "concealment of income". The assessee could be proceeded against for an act of concealment of income alone i,e, when in any assessment year wrong information has been supplied of an item of receipt liable to tax is suppressed or income chargeable to tax is. Not disclosed to the Revenue or illegal deduction is successfully claimed as expenditure incurred. The provisions of section 111 of the Ordinance may be made applicable for attempt to conceal or for completed action for concealment. In such situation, unless Income Tax Authorities absolutely are positive arid can prove on record that actually income was concealed by assessee, then they can proceed. The onus lies on the Department in the penalty proceedings to prove independently the guilty intent by showing deliberate commission or omission on the part of the assessee resulting in concealment of income or furnishing of inaccurate particulars of income which may result in avoiding of tax.
Even in such eventuality the assessee should be given reasonable opportunity of being heard without violating the principles of natural justice because the penalty proceedings are in the nature of quasi criminal proceedings and the standard of proof which is required in a criminal case, should be required here also to sustain an order of imposing penalty. There must be given a specific finding on the point of concealment of income with the mens rea for evading the tax. The fact of concealment should be proved to the hilt in the penalty proceedings independently. The first condition for the imposition of penalty is that the Income Tax Officer, the Appellate Assistant Commissioner or Appellate Tribunal, be satisfied that the proceedings relating to an assessment in respect of the same income year, any person has concealed his income or furnished inaccurate particulars of such income. Thus, the first and foremost condition which is sine qua non for the initiation of penalty proceedings, is that there should be finding to the effect in the assessment or appellate order that an assessee had concealed his income or has furnished inaccurate particulars of such income. If there is no such finding in the assessment order or appellate order, the penalty proceedings under section 111 cannot be initiated. The question as to how concealment of income was to be proved by the Department came up before Income Tax Appellate Tribunal Pakistan and proper guide lines were provided in "1992 PTD (Trib.) 155" in the following words.
"It has been consistently held by the Supreme Court 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".
11. Similarly in "1998 PTD (Trib.) 1103", it was held: "By now it is established proposition of law that no penalty can be levied by the Revenue if there is honest difference of opinion between the assessee and the Revenue and no dishonest intention or motive for evasion of tax is established."
12. The superior Courts have gone even to the extent that if the concealment was deliberate, the authorities though having discretionary powers to impose penalty may not exercise such powers.
In "2005 PTD 1", it was held:-- "In fiscal statutes, 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. In cases, where imposition of penalty is discretionary, the power so vested may not be exercised, unless the defaulter is found contumacious.
Keeping in view the above quoted law and the precedents we are clear in our mind that no penalty could, be imposed in the particulars of purchases made during particular assessment year were not declared by an assessee. An assessee is only liable under the law to declare 'accurate income' and if he deliberately and contumaciously in order to avoid the payment of tax given wrong particulars of income, after proof by the Department that such concealments are deliberate and contumacious can be visited by imposition of penalty.
13. The above-mentioned question is answered in these words. The Registrar of this Court is directed to send certified copy of this judgment under the seal of the Court and under his signature to the Income Tax Appellate Tribunal in terms of section 136(5) of the Ordinance with the direction to do the needful.