' MAHBOOB AHMAD, J.--By this order we propose to dispose of P.T.Rs, Nos. 65/88, 63/88 and 64/88 as the three have arisen out of the same order dated 24-4-1988 of the Income Tax Appellate Tribunal, Lahore Bench, Lahore.
2. The aforementioned three applications under section 136 (2) of the Income Tax Ordinance, 1979 pray--for framing of the question shown against each and answering the same.
' PTR. No,65/88: "Whether on the facts and in the circumstances of the case, the Tribunal was justified to hold that the assessee was absolved to produce documentary evidence in support of his contention that he has been carrying out re-rolling on behalf of others."
' PTR.No,63/88: "Whether on the facts and in the circumstances of the case, the Tribunal was justified to cancel the penalty of Rs,1,39,323 imposed under section 111 of the Income Tax Ordinance, 1979 for the 2nd period of the assessment year 1979-80."
' PTR. No,64/88: "Whether on the facts and in the circumstances of the case, the Tribunal was justified to cancel the penalty of Rs,26,850 imposed under section 111 of the Income Tax Ordinance, 1979 for the Ist period of the assessm ent year 1979-80."
3. The facts for the purpose of this order may be briefly stated as under: ' The assessee is a registered partnership firm running a re-rolling mill. The said assessee filed income-tax return for the assessm ent year 1979-80. It was divided into two periods. The 1st commencing 1-4-1978 and ending 23-5-1978 (hereinafter called the Ist period) and the 2nd commencing 24-5-1978 and ending 31-3-1979 (hereinafter called the 2nd period). The assessee submitted the return for the said periods as under: S1. Nos. Period Sales declared Sales declared Total Sales on own account on re-rolling on other allowed. {{TABLE}} Ist Rs,1,07,256 Rs,28,847 Rs,1.36,103j 2nd Rs,8,23,349 Rs,1,66,555 Rs,9,89,904 {{TABLE}} ' The Income-tax Officer by his order dated 8-4-1981 rejected the version of the assessee that it was carrying on the re-rolling on own account as well as on account of others and held that re-rolling was done by the assessee on own account only. He also did not accept the declared sales and assessed the same as under: Ist Period Rs,7,35,000 2nd Period Rs,31,15,000
4. The appeal taken by the assessee to the Commissioner of Income-Tax (Appeals) Zone-2 Lahore also failed and was dismissed by order of the learned Commissioner dated 16-5-1982.
5. The assessee thereupon preferred appeals before the Income Tax Appellate Tribunal. The appeals of the assessee, three in number, were accepted by order dated 1-6-1986 in the manner following:
(a) As regards the assessm ent of sales it was reduced for the Ist Period from Rs,7,35,000 to Rs,4,62,500 and from Rs,31,15,0Q0 Rs,23,85,000 for the 2nd Period. The Tribunal also held that the order of the Incom-tax Officer, as affirmed by the Commissioner Income-tax, holding that the assessee was carrying on the business on own account only is not correct and keeping in view the past history of 5 years and other attending circumstances, it was held that the assessee was carrying on the business of re-rolling on own accounts as well as on accoun of others. Again keeping the history in view it was directed that the assessee's production on the basis of the Excise record should be bifurcated as 15% from others and 85% on own account.
(b) In 'appeals against penalties imposed it was held by the learned Income Tax Appellate Tribunal that since the Department has not been able to prove as a fact that the assessee had in fact concealed his income and has given inaccurate particulars of his income and the only basis for imposition of penalties was that the assessee was not able to establish that he had been re-rolling on other accounts which finding has not been sustained by the Tribunal and it has held that the assessee did derive income by re-rolling for others as well, there is no justification to uphold the penalties which were accordingly cancelled.
6. The Commissioner of Income-tax feeling dissatisfied with the aforementioned order of the Appellate Tribunal dated 1-6-1986 made applications to the Tribunal under section 136 (1) of the Income Tax Ordinance, 1979 with a prayer to formulate the three questions aforementioned and refer them to the High Court for answering the same.
7. The learned Income Tax Tribunal by its order dated 24-4-1988 rejected the applications of the Commissioner Income-tax holding that the questions as framed by the Department in the three Reference Applications do not arise out of the order of the Income Tax Appellate Tribunal as questions of law.
8. The Department still feeling dissatisfied has come up to this Court in the Reference Applications under adjudication.
9. The learned counsel for the petitioner raised the following contentions in support of Department's Petition No,65/88: ' Firstly, that since the learned Income Tax Appellate Tribunal had not accepted the version of the assessee regarding the declared sales and had itself made assessment in that respect by making the order of Income-tax Officer as the basis therefor, the Tribunal was not justified in holding that income of the assessee was also on account of re-rolling on other accounts; and ' Secondly, that in view of the finding of the Income-tax Officer as affirmed by the Commissioner that the re-rolling asserted on others' account was totally unverifiable, the Income Tax Appellate Tribunal erred in law in still holding that the assessee carried on the business of re-rolling on others' accounts and thus absolving the assessee from producing documentary evidence in support of his contention.
10. The contentions raised on behalf of the Department do not appear to hold much water. The Tribunal as a matter of fact based its findings on the past history of the assessee and came to the conclusion that the assessee was carrying on business and deriving income not only by sales of material re-rolled on own account but also by deriving income by re-rolling for others. In para. 4 of the Tribunal's order dated 1-6-1986 there is a detailed discussion for reaching, the conclusion that the' assessee was carrying on business on both the accounts. In view of the above discussion the Tribunal by inference appears to have controverted the assertion in the order of the Income-tax Officer that the re-rolling on others' accounts was totally unverifiable. Tracing the history of the assessee's case the Tribunal had held that in 1977-78 the receipts on others' accounts were accepted at 14%, in the year 1978-79 at 17% and in the year 198081 at 21% of the total estimated sales and, therefore, on the above basis the Tribunal had directed that the sales of the year under consideration be bifurcated as 15% from others' account and 85% on own account.
11. Apart altogether from the position that the aforementioned finding is patently a finding on a question of fact we also are of the view that the the finding of the Income-tax Officer that the total others' account re-rolling is unverifiable by making a sweeping one sentence observation in his order without in any manner indicating the efforts made for verification of even the main parties admittedly named by the assessee on whose account the re-rolling was done by him, the finding can only be termed as conjectural. The Income-tax Officer since he was deviating from the past history of the assessee was under an obligation to have given details of the efforts made for the purpose of verification of each declared party and then shown his conclusions. Nothing of this sort is available in the order of the Income-tax Officer nor in the order of the Commissioner Income Tax.
The Income Tax Appellate Tribunal's finding in such a situation on such a question of fact is wholly unexceptionable and thus there was no occasion for stating a question of law as proposed in the 1st Reference Application. In fact what is intended to be done by getting formulation of the question as proposed is to shift the responsibility of the Department on the shoulders of the assessee who by giving names and particulars of parties on whose account he had re-rolled had prima facie discharged his. Obligation.
12. In view of the foregoing discussion we are of the view that no question of law as proposed in the first Reference Application arises out of the orders of the Income Tax Appellate Tribunal and therefore the Reference Application is liable to be dismissed. Order accordingly.
13. The learned counsel for the petitioner in support of the questions proposed in the other two Reference Applications only submitted that concealment is established even according to the Tribunal's order and, therefore, penalty was justified and the Income Tax Appellate Tribunal was not right in cancelling the same. He in the above context contended that these two questions do arise as questions of law out of the Tribunal's order and may be framed and answered.
14. We have given anxious consideration to this contention of the learned counsel as well. We, however, feel that this contention also does not have force. The Income-tax Appellate Tribunal in para. 7 of the orders passed in appeals has held that penalty proceedings are criminal in nature and, therefore, have to be established independently on the basis of cogent evidence as is required in a criminal proceeding. The above finding was given by the Tribunal on the basis of decisions of Superior Courts in this regard in which it had also been held that for the imposition of penalty it is not sufficient that the assessee's explanation was not satisfactory or even false and that an evidence independent of assessee's explanation should be on record before penalty could be imposed. The Tribunal, as a matter of fact came to conclusion that imposition of penalties in question was based only on the assessee's alleged failure to establish that he had been re-rolling for others. That finding having itself been reversed the imposition of penalty obviously has to give way as the basis therefor had been knocked out. There is sufficient force in the aforementioned findings of the Tribunal and we have not been persuaded by the arguments of the learned counsel for the petitioner to disagree with the said findings of the Tribunal. As has been indicated in the discussion on the First of the Reference Applications under adjudication the Income-tax Officer had not brought on record nor indicated anything in his order about the basis of his findings as to the alleged false declaration of income derived by re-rolling on account of others and if we may say so not even the name of any party has been given in the order about whom the alleged verification was made. The standard of evidence required for taking criminal proceedings and imposing penalties had obviously not been fulfilled.
' Resultantly the questions of law proposed for the two periods in the remaining two applications (PTR Nos. 63 and 64 of 1988) also do not arise as questions of law arising out of the under consideration orders of the Tribunal and therefore, we dismiss these two Reference Applications as well.