ORDER: ABRAR HUSSAIN NAQVI, JUDICIAL MEMBER.--1. This is an appeal filed by an individual against the penalty imposed by the ITO u/s 110 of the Income-tax Ordinance and relates to the assessment year 1976-77.
2. The ITO had imposed a penalty of Rs, 2,00,000/- for default of notice for filing the return u/s 65 of the Income-tax Ordinance. The learned CIT(A) has however held that Section 110 of the Ordinance was not applicable and he imposed the penalty u/s 108 at Rs, 10,000/- at the rate of Rs, 100/- per day.
3. Brief facts of the case under which this appeal has arisen are that the assessee's original assessm ent was made by the ITO on 30th June, 1977. Subsequently the case was reopened u/s 65 by issuing notice on 12th June, 1984 served on 17th June, 1984 for 27th June, 1984. The assessee however, did not file any return. Subsequently a notice u/s 61 was issued by the ITO for 22nd July, 1984 on which date the assesse appeared before the ITO. Another notice was also issued for filing the return on 10th September, 1984 and 25th June, 1985. Since, the further opportunity provided by the assessing officer was also not availed by the assessee and no return was filed, the ITO made the assessm ent on 30th June, 1985. The ITO imposed a penalty u/s 110 of the Ordinance for default of Section 65. On appeal, the learned CIT(A) held that for noncompliance of notice u/s 65 a penalty could only be levied u/s 108 and not u/s 110 as wrongly stated by the assessing officer. The learned CIT(A) however observed that quotation of incorrect section of the Ordinance has not caused any prejudice to the assessee. He consequently treated the penalty imposed by the ITO as u/s 108 of the Income-tax Ordinance and it held that since u/s 108 the penalty leviable was at the rate of Rs, 100/- per day for default and since the notice u/s 65 was served on 17th June, 1984, for compliance by 27th June, 1984 the period of default was from 27th June, 1984 to the date of assessm ent namely; 31st July, 1985. He consequently reduced the penalty of Rs, 10,000/-.
4. The learned counsel for the assessee has raised a number of contentions challenging the order of penalty both by the assessing officer as well as by the learned CIT(A). In the first instance the learned counsel for the assessee pointed out the inaccuracy of the date mentioned by the learned CIT(A). He contended that the date of assessment was 30th June, 1985 and not 31st July, 1985 as
[he] has been mentioned by the CIT(A). He further contended that according to the own admission of the assessing officer he had himself provided further opportunities to comply with the notice u/s 65 and the last of which was on 25th June, 1985. Therefore, if at all the default could be that is for the period from 25th June, 1985 to 30th June, 1985 that would make the period of default at 5 days. It was further submitted that since the penalty has been imposed u/s 108 at the rate of Rs, 100/- per day, at best the penalty could be imposed for five days amounting to Rs, 500/-.
Another contention raised by the learned counsel for the assessee was in regard to the jurisdiction of the learned CIT(A) for converting the penalty from Section 110 to Section 108.
5. The learned counsel for the assessee contended that once it was held by the learned CIT(A) that the ITO had wrongly imposed the penalty u/s 110 as no such penalty could be imposeable for default of section 65 of the Ordinance, the learned CIT(A) had no option but to cancel the penalty.
It was submitted that u/s 132 of the Ordinance the learned CIT(A) has only five options when the hearing the appeal against the penalty namely; to confirm the penalty order, to cancel the penalty, to set aside the penalty, enhance or reduce the penalty. Sub-section (1) of Section 132 may here be reproduced before proceedings further: Decision in appeal.--(1) In disposing of an appeal, the Appellate Assistant Commissioner may,--
(a) in the case of an order of assessme nt-- (i)set aside the assessm ent and direct the assessment to be made afresh after making such further inquiry as the Appellate Assistant Commissioner may direct or the Income Tax Officer thinks fit;
(ii) confirm, reduce, enhance or annul the assessment;
(b) in the case of an order imposing a penalty, confirm, set aside or cancel such order or enhance or reduce the penalty; and
(c) in any other case, pass such order as he thinks fit."
6. From the perusal of the above provisions contained in clause (b) above it is evident that while dealing with the appeal against penalty order first Appellate Authority has very limited jurisdiction given by the Statute. He can confirm, set aside, or cancel such an order of penalty or enhance or reduce the penalty. The assessing officer has consciously and deliberately stated in his order that the penalty for default of notice u/s .65 of the Ordinance was not exigible u/s 110 of the Ordinance. It may be stated that from the very beginning of the penalty proceedings started by the assessing officer he appears to have the intention to impose a penalty u/s 110 of the Ordinance as it is evident from page 2 of the penalty order where he ITO while dealing with the explanation of the assessee against the notice u/s 116 of the Ordinance observed as under:- "It was further stated that there are no direction in the assessment order with regard to issuance of notice u/s 116 for default of section 110"
Then in the concluding part of his penalty order the ITO observed as under:- "Default of Section 65 stands established and penalty u/s 110 is exigible in this case. I, therefore, impose a penalty of Rs, 2,00,000/u/s 110 with the approval of the I.A.C. Range-I, Zone-A, Lahore".
It is therefore evident that there was no mistake or confusion in the mind of the ITO while imposing penalty u/s 110 of the Ordinance. The learned CIT(A) has observed in no uncertain terms that penalty for default of notice u/s 65 cannot be imposed u/s 110 of the Ordinance. Section 110 of the Ordinance may also here be reproduced for reference:-1 "Penalty for non-compliance with notice, etc.--Where any person has, without reasonable cause, failed to comply with any notice issued under section 58 or 61, the Income Tax Officer may impose on him a penalty not exceeding an amount equal to the amount of tax which would have been avoided if the income as returned by such person had been accepted as the correct income".
From the reading of Section 110 there can be no doubt whatsoever that penalty under this Section could only be imposed for default of Section 58 or Section 61 of the Ordinance and not for default of notice u/s 65. Therefore, the learned CIT(A) is right in holding that this Section 110 was not applicable for imposing the penalty for default of notice u/s 65 of the Ordinance. The learned CIT(A) was also right in observing that the penalty for default of notice u/s 65 could be imposed only u/s 108 which is also reproduced for reference:- "Penalty for failure to furnish return of total income and certain statements. Where any person has, without reasonable cause, failed to furnish , within the time allowed for the purpose,--
(a) any return of total income under section 55 or 56, Sub- section (1) of Section 65, sub-section
(3) of Section 72 or sub-section (3) of Section 81; or
(b) any certificate, statement, accounts or information under section 51, 139, 140, 141, 142, 143(143A) or 144, The Income Tax Officer may impose upon such person a penalty not exceeding one hundred rupees for every day during which the default continues".
7. The question arises that once the first Appellate Authority has held that the penalty imposed by the ITO was not imposeable u/s 110 of the Ordinance, could the learned CIT(A) convert the penalty from Section 110 to Section 108 or in other words would it not be a fresh imposition of penalty by the learned CIT(A) himself? Admittedly, the assessing officer had not taken any proceedings u/s 108 of the Ordinance. In the notice u/s 116 given to the assessee there was no mention of Section 108 for imposing the penalty under that section nor did he showed his intention to impose the penalty u/s 108 of the Ordinance. The nature and quantum of penalty imposeable u/s 108 and 110 is obviously different. Under Section 110 a penalty could be imposed not exceeding an amount equal to the amount of tax which would have been avoided if the income as returned by such person has been accepted as the correct income. While under Section 108(a) a penalty imposeable for default of notice u/s 65 would be not exceeding Rs, 100/- per day during which the default continues.
Therefore, the nature and scope of both the sections are quite different and so is the maximum penalty imposeable under both the Sections. A question further arises whether the learned CIT(A) had the jurisdiction to impose penalty u/s 108 of the Ordinance. A further question also arises that before the learned CIT(A) the subject matter of appeal was the penalty imposed u/s 110 and not the penalty imposed u/s 108 and whether the Statute vested jurisdiction on the learned CIT(A) to impose penalty which was not the subject matter of appeal. To our mind the conversion made by the learned CIT(A) from Section 110 to Section 108 is not warranted by law as in fact this is a penalty imposed by the learned CIT(A) himself u/s 108 of the Ordinance which was not the subject matter of appeal before him. Once the learned CIT(A) has observed that the default of notice u/s 65 did not give jurisdiction to the ITO to impose, penalty u/s 110 of the Ordinance, he could not proceed further because the only consequential order which could possibly be assessed u/s 132 was to cancel the penalty. As stated above, while disposing of appeal against penalty order the learned CIT(A) had jurisdiction to exercise any of the five options mentioned in cause (b) of Section 132(1) meaning thereby that he could confirm, set aside, cancel, enhance or reduce the penalty.
Obviously in the present case he could neither confirm nor set aside nor enhance nor reduce the penalty. He could only cancel the penalty once he held that the penalty was wrongly imposed by the ITO under section 110 of the Ordinance for default of notice under section 65 of the Ordinance.
8. For the foregoing reasons, we modify the orders of the officers below and cancel the penalty. The appeal is accepted.