MUHAMMAD JAWED ZAKARIA, JUDICIAL MEMBER.----By this order, we intend to dispose of above titled appeals filed against Orders Nos. 1454, 1455, 1456 and 1457 dated 30.3.2017 passed by the learned CIR (Appeals), Hyderabad whereby he confirmed the penalties imposed upon the taxpayer on the grounds as set forth in the Memo. of Appeal.
2. Brief facts of the case as gleaned from the records are that the Taxpayer is an AOP engaged in business of Cars Show Room. The DCIR withholding tax Unit-II, RTO, Hyderabad charged penalty under section 182(2) of the Income Tax Ordinance, 2001 at Rs.100,000/- for the month of November, 2016, Rs.216,0007/= for month of September, 2016, 797,5007/= for the month of January, 2016 and Rs.270,000/= for the month of December, 2015. Being aggrieved and dissatisfied with the orders of the DCIR the taxpayer filed appeals before the learned CIR(A) who vide orders mentioned supra confirmed the imposition of penalties, hence the instant appeal before this Tribunal.
3. The learned counsel for the taxpayer / appellant vehemently contended that the proceedings were initiated with the issue of show-cause notice whereby the Officer intended to impose the penalty at Rs.10,000/= under serial No. (1A) of subsection (1) of section 182 of the Income Tax Ordinance, 2001, but imposed the penalty at the different figures which were not confronted by the officer through show-cause notices. Further, the Officer has not confronted the number of days of default and quantum of penalty imposed for the default of non/late filing of statement under section 165 ibid which is against the principle of natural justice, hence the penalty orders are not sustainable in the eyes of law. He further submitted that the taxpayer had filed voluntarily NIL statements for the above periods and no tax was deductible, therefore, there was no loss of revenue and penalty imposed is just in excess and abuse of powers. He also submitted that the before issuance of show-cause notice the taxpayer had already e-filed withholding statements which fact is apparent from the body of the penalty orders passed by the respective officers. In support of his arguments he placed reliance on the judgment of the Tribunal passed by the Single Bench in ITA No. 659/KB/2014 dated 5.9.2016 in the case of M/s. Zahid Tufail Shaikh wherein the learned Single Judge has observed that: "....Under the facts and circumstances of the case, it is observed that the law ought not to be used to penalize a taxpayer unless it can be shown that the default on the part of the taxpayer had resulted in any loss of revenue. In the present case, no such loss of revenue is evident. Had the intent of statute was to impose the penalty in a situation like instant case, then its linkage with tax payable would not have been expressed."
4. The learned D.R. on the other hand, strongly supported the orders of the officers below. He has contended that the impugned orders were passed by the learned CIR (A) are in accordance with the relevant provisions of section 182(1A) and within the framework of law. Lastly, he argued that the orders passed by the learned CIR(A) may be maintained.
5. We have heard both the learned representatives and perused the records of the case as well as case law cited at bar.
6. From perusal of the record we have found that there is no willful or deliberate default of the appellant. The appellant before initiation of proceedings under section 182(1) had already filed the "NIL" statements. Further, section 182 is not charging section but rather it is penal in nature. The intention of the legislature through vires of section 182 is not to generate revenue. It could not be used as source of resource mobilization or collecting targeted budget under the garb of penal provisions. The law ought not be used to penalize a taxpayer unless it can be shown that the default on the part of the taxpayer had resulted any loss of revenue. The issue of imposition of penalty when no tax is deductible had widely been discussed by us in a number of cases. The issue has vividly and elaborately been discussed by one of the co-author in the judgment in the case reported as 2016 PTD (Trib) 2610 wherein it has been held that: "8. Both the learned representatives appearing at the bar have been heard and carefully examined the available case record. It is observed that the learned CIR(A). has rightly reduced the penalty amount. It is further noted that the CIR was not justified to impose penalty of Rs. 50,000/- under section 182(1)(1A) of the Income Tax Ordinance, 2001 when, in the tax year under appeal, as contended by Mr. Agha Fakir Muhammad, learned Senior Advocate of Supreme Court that the penalty under sub-clause (1A) of Section 182(1) of Income Tax Ordinance, 2001 is imposed where a person fails to furnish a statement as required under section 115, 165 or 165A of the Ordinance, within due date. The learned Deputy Commissioner failed to appreciate that the respondent was not required to file statement under section 165(5) of the Ordinance, 2001 as the appellant is not collecting tax under Division-II of Part-IV of Chapter-XII of the Ordinance, 2001 or deducting tax from a payment under Division under Division-II of Part-V of 2/28/2019 Chapter-XII of the Ordinance, 2001. The learned Deputy Commissioner failed to appreciate that the appellant is not "prescribed person" as defined under section 153(7) of the Ordinance, 2001 and as such is not required to file statement under section 165 of the Ordinance, 2001, furthermore there no revenue loss has occurred to the national exchequer that the penalty is imposed without appreciation of intent to section 182 of the Income Tax Ordinance, 2001 that, impugned order dated 11-11-2013 passed under section 182(1) of the Income Tax Ordinance, 2001 is illegal, unlawful and without jurisdiction and the impugned order is illegal and void as no proper opportunity of being heard was given to the appellant." The learned DR, could not refute or rebut the finding of CIR(A) with concrete evidence. Under the facts and circumstances of the case, it is opined that the law ought not to be used to penalize a taxpayer unless it can be shown that the default on the part of the taxpayer has resulted in any loss of revenue. In the present case, no such loss or revenue is evident "Had the intent of statute was to impose the penalty in a situation like instant case then its linkage with tax payable would not have been expressed, that the department has failed to establish its claim/contention, therefore, the impugned Order passed by the learned CIR(A) is found legal, lawful and in accordance with law, hence no interference is required in it.(Emphasis by us)
In another case law bearing ITA No. 659/KB/2014 dated 5.9.2016 the issue of imposition of penalty when no tax is deductible had widely been discussed by one of the co-author by observing as under: "....Under the facts and circumstances of the case, it is observed that the law ought not to be used to penalize a taxpayer unless it can be shown that the default on the part of the taxpayer had resulted in any loss of revenue. In the present case, no such loss of revenue is evident. Had the intent of statute was to impose the penalty in a situation like instant case, the its linkage with tax payable would not have been expressed."
(emphasis by us)
From perusal of the above findings of the Tribunal, it is unambiguous that for imposition of penalty under section 182(1) firstly there must be loss of revenue and secondly, there would be tax payable.
In the instant case no tax was required to be deducted/deposited by the taxpayer, hence the imposition of penalty would be fatal to the taxpayer.
7. In arriving at this conclusion we have also searched series of judgment including following reported judgments of the higher appellate fora: 2005 PTD 1 "penalty, imposition of - power to impose penalty, if discretionary, should not be exercised, unless defaulter was found contumacious."
The taxpayer has filed voluntarily NIL Statements and is not a willful/contumacious defaulter, therefore, the above findings of the Hon'ble High Court is at par with the case in hand as the department had failed to establish the existence of mens rea in this case.
1998 PTD (Trib.) 3507 "fine penalty, tax or any other pecuniary liability was to be imposed under a clear and unambiguous law. Doubt was to be resolved in favour assessee who was to be saddled with such liability."
2007 PTD 1810 "...undue harsh penalties bread only defiance of law and have to be eschewed. ..The purpose of penalty should, however, be only to bend and not break the taxpayer. Penalty should not be draconian."
2017 PTD 1579 (LHC)
The Hon'ble Lahore High Court in the case reported as 2017 PTD 1579 (LHC) after analyzing series of judgments reported had discussed the various scenario for imposition of penalty. The relevant extract from the judgment is reproduced hereunder:
10. There is no cavil with the proposition that penalty has to be imposed in compliance with the provisions of law and the quantum must be proportionate to the gravity of default committed by a person. Learned fora below have rightly found that in the given facts and circumstances, levy of extreme amount of penalty was not justified. We find no illegality in the impugned orders.
Even otherwise, in the case of D.G. Khan Cement Company Ltd. Supra, the Hon'ble Supreme Court has already decided the Question of law qua imposition of penalty, which is binding on all subordinate Courts and public as well as statutory functionaries.
11. Penalty could be reduced/remitted/waived by the authority in the exercise of jurisdiction conferred upon it by the statute, keeping in view the peculiar facts and circumstances of the case, for various reasons including that there was no mens rea/mala fide or no loss was caused to the Revenue by a taxpayer. Findings based on material available on record that no loss was caused, are essentially findings of facts. The concurrent findings of facts recorded by learned fora below are based upon proper appreciation of facts and correct application of law. No substantial question of law, requiring opinion or interference by this Court in the exercise of reference jurisdiction, had arisen out of the impugned order. The applicant department failed to point out any perversity or bring any material on record that such decision was based on misreading or non-reading of evidence/material. Reference, in this regard, is made to Century Flour Mills Ltd. v.
Commissioner of Income Tax (2001 PTD 2381), Shiv Narayan Shivhare v. Commissioner of Income Tax (1998 PTD 1668), Commissioner of income Tax v. Muhammad Ali Ghulam Ali (2000 PTD 139), Commissioner of Income Tax v. P. Joseph Swaninathan (2000 PTD 632), Commissioner of Income Tax v. Best Supply Agency (2000 PTD 1741), Commissioner of Income Tax v. Mrs. Kuku Narang Wealth Tax (2001 PTD 1929), Syed Akluar Ahsan through Legal Heir v. Income Tax Officer, Circule OS, Zone-B, Lahore and 4 others (2005 PTD 858), Additional Collector Sales Tax, Collectorate of Sales Tax, Multan v. Nestle Milk Pak Ltd. Kabirwala (2005 PTD 1850), Messrs Gold Trade Impex through partner and another v. Appellate Tribunal of Customs, Excise and Sales Tax through Collector of Customs, and 2 others (2012 PTD 377), Collector, Model Customs Collectorate, Hyderabad v. Messrs Khuda Raheem and others (2012 PTD 428) Commissioner Inland Revenue, Zone-I, RTO, Karachi v. Messrs Allied Rental Modaraba (2014 PTD 593), Commissioner Inland Revenue (Zone-IV) v. Messrs Medicaids Pakistan (Pvt.) Ltd. (2015 PTD 2533) and Commissioner of Income Tax, Legal Division, RTO v. Messrs Matrix Press (Pet.) Ltd. (2016 PTD 97).
12. It is now well-settled that High Court has to decide reference application on facts and circumstances founded by Appellate Tribunal, in the exercise of advisory jurisdiction, which is the last fact finding forum. High Court cannot change findings of facts arrived at by the Appellate Tribunal unless the same are shown to be perverse and contrary to record. Reference can be made, to Messrs F.M.Y. Industries Ltd. v. Deputy Commissioner Income Tax (2014 SCM R 907)
Commissioner Inland Revenue, Zone-I Regional Tax Officer-II v. Messrs Sony Trader Wine Shop (2015 PTD 2287), Messrs Pak Suzuki Motor Company Limited, Karachi v. Collector of Customs, Appraisement Collectorate, Custom House, Karachi (2015 PTD 2600) and Commissioner of Income Tax, Legal Division, RTO v. Messrs Matrix Press (Pet.) Ltd. (2016 PTD 97).
13. Since the decision by learned Appellate Tribunal is based on findings of facts, therefore, we decline to exercise advisory jurisdiction."
8. The gist of the above judgments of the superior courts are that while invoking provision of section 182(1) there should be linkage with ' the tax payable. Admittedly the Taxpayer had filed "NIL" statement and the department had failed to establish that there was tax payable by the taxpayer, hence the orders passed by imposition of penalties are not maintainable, hence vacated.
9. On merit of the case from perusal of the orders of the officers below we have also found that the DCIR was not certain about the quantum of penalty and alleged days of default was also not confronted to the taxpayer and violation of well established principle of law Audi Alteram Partem.
Section 182 unambiguously provides that the penalty is with reference to tax payable. Fulfillment of basic ingredient of tax payable is a condition precedent for levying the penalty. There cannot be two opinions that tax statutes are to be interpreted strictly and are to be followed as per its language without stretching the meaning of the same. Had the intent of statute was to impose the penalty in a situation like instant case then its linkage with tax payable would not have been expressed. Such interpretation is further strengthened from the provisions of section 182(1) ibid where for imposition of penalty, linkage has been expressed with the tax payable.
10. We may further observe that it is cardinal principle of interpretation that in the matter of taxation, literal approach has to be followed provided it does not lead to manifest absurdity and futility. The penalty provisions of section 182(1) are manifestly establishing the imposition of penalty with reference to tax payable, then it has to be followed. The absence of tax payable is fatal for it.
So keeping in view the provisions of section 182(1) we are of the considered opinion that penalty for late filing of Nil statement under section 165 ibid does not entail any penalty as it would be leviable when there is a tax payable. As no tax was deductible or deducted by the taxpayer and Nil return was filed therefore, imposition of penalty by the DCIR and its confirmation by the learned CIR (A) is unjustified. Hence the orders of the officers below are not maintainable hence vacated.
11. Lastly, we also rely upon the judgment of this Tribunal bearing ITA No. 742/KB/2014 dated 28.7.2016 authored by one of the author of his judgment in the case of Messrs Techno Consultants wherein it has been observed as under: "Before parting with this judgment, I may observe that it is incorrect impression of revenue that the penalty has to be universally imposed, without any exception whatever, even if there is no default.
This is not correct interpretation. The major prerequisite for imposition of penalty has always been a default committed commits any offence the onus to prove lies on the revenue department. All Officer Inland Revenue are directed to be judicious and cautious while initiating penalty proceedings. In penalty proceedings authorities must act fairly and honesty without bias. Section 182 of Ordinance, 2001 by no means is charging provisions and legislature intention was not to generate tax or revenue income and the purpose and intention of the penal provisos is not the source of resources mobilization or collecting targeted even budget under the garb of penalty provisions. It was only mode of ensuring collection of taxes and compliance thereof. The revenue department cannot be allowed to abusedly use provision to section 182 ruthlessly as substitute of normal assessm ent substantive charging or new source of revenue/tax originating provisions."
12. Suffice to say that penalty imposed in the instant case when no tax is payable is not maintainable. For imposition of penalty tax payable is link which is evident from the bare reading of section 182(1A), therefore we have no alternate out to delete the penalty imposed by the DCIR.
13. Consequently, the taxpayer's appeals are hereby allowed.