APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,

ISLAMABAD

ITA No.1883/IB/2023
MA(AG) No.171/IB/2023
ITA No.1884/IB/2023
MA(AG) No.172/IB/2023
ITA No.1885/IB/2023
MA(AG) No.173/IB/2023
ITA No.1885-A/IB/2023
MA(AG) No.174/IB/2023
MA(Stay) No.1782/IB/2023
MA(Stay) No.1783/IB/2023
MA(Stay) No.1784/IB/2023
MA(Stay) No.1785/IB/2023
(Tax Years 2015 to 2018)
******
Mr. Anjum Khalid Malik, House
No.02, Street No.16E, Sector C Appellant
Bahria Enclave, Islamabad.
Vs
Commissioner Inland Revenue,
Cant Zone, RTO, Rawalpindi Respondent

Appellant By: Mr. Nazir Abdul Wajid,

Respondent By: Advocate
Ms. Maria Sharif, DR

Date of Hearing: 14.09.2023

Date of Order: 14.09.2023

ORDER

M. M. AKRAM (JUDICIAL MEMBER): The titled appeals as well as MA

(Additional Grounds) along with stay applications have been filed by the

appellant/taxpayer against impugned Appellate Orders all dated 21.09.2021

passed by the learned Commissioner Inland Revenue (Appeals-III), Islamabad for

the tax years 2015 to 2018 on the grounds as set forth in the memo of appeals.

The facts of the case and the issue involved in all these appeals are similar,

therefore, these appeals are being decided through this common order.

2. Brief facts culled out from the record are that the department-initiated

proceedings under section 182(2) of the Income Tax Ordinance, 2001 (“the

Ordinance”) on the ground that the appellant was required to furnish returns of
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income for the tax years 2015 to 2018 which he failed to file by the due date

despite service of notices under section 114(4) of the Ordinance. Show cause

notices under section 182 for the imposition of penalty were issued but the

appellant allegedly failed to respond. The assessing officer, therefore, imposed

penalties at Rs.40,000/- for each tax year.

Being aggrieved taxpayer filed appeals before the CIR (Appeals-III),

Islamabad who vide Appellate Orders dated 21.09.2023 confirmed the orders

passed by the Deputy Commissioner Inland Revenue in a slipshod manner. Felt

aggrieved with these orders, the appellant has preferred appeals before this

forum and assailed the impugned orders on a number of grounds.

3. This case came up for hearing on 14.09.2023. The learned AR for the

appellant at the very outset contended that the impugned orders are void ab-initio

and without jurisdiction on the ground that without first determining the tax

payable under sections 120, 121, 122, or 122D the penalty prescribed at serial No.

1 can not be imposed as the said penalty is depending upon with the tax payable.

He explained that in the instant case, the learned assessing officer has imposed

the penalty before determining the tax payable by the appellant. He, therefore,

pleaded that on the said sole ground the penalty is liable to be deleted. When

confronted with this to the learned DR, she frankly conceded the arguments of the

learned AR.

4. We have heard the arguments and perused the record. Undisputedly, the

appellant filed the returns of income for all the tax years under consideration after

passing the impugned penalty orders. The arguments advanced by the learned AR

for the appellant have substance. The following question emerges for

determination by this tribunal: -

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Whether the penalty prescribed in serial No.1 of Table of

section 182 of the Ordinance could have been imposed before
determining the tax payable by the taxpayer under sections
120, 121, 122, or 122D of the Ordinance?

First, it has to be considered precisely the nature of the penalty proceeding. Is it

possible to say that simply because the word "penalty" is used in a statute, it has

classified that proceeding as a proceeding of a criminal nature? When a statute

provides for the imposition of a penalty, it will have to be found out from the

scheme of the Ordinance and the particular provision under which penalty is

imposable, whether the imposition of penalty is provided as a punishment for an

offence. Simply because something more than the usual payment of tax that is

payable by an individual is imposed on him, could it be said that punishment is

inflicted on him for an offence he has committed? Once again, it will have to be

kept in mind that as human values have been changing and changing at a fast

pace, a spate of social legislation has been taken up by all countries, particularly

developing countries like India. Taxation statutes have two purposes. They are

intended not only to collect revenues for the State but also for bringing about

social justice and to enable the State to implement social welfare schemes

undertaken by it. Consequently, several taxation statutes, if not all, have taken

great care in making provisions for the collection of taxes imposed, as speedily as

possible. If there is a delay on the part of the taxpayer to pay his taxes, taxation

statutes have provided for not only remedial and coercive proceedings, but also

punishments treating certain tax delinquencies as offences. These several

measures should not be confused with each other. The position has been

explained thus in Corpus Juris Secundum, Volume 85, on page 580: -

"A penalty imposed for a tax delinquency is a civil obligation,

remedial and coercive in its nature, and is far different from
the penalty for a crime or a fine or forfeiture provided as
punishment for the violation of criminal or penal laws."
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On the same page, it proceeds to state: -

"In some jurisdictions, it is held that the penalty becomes, by

operation of the statute imposing it, a part and parcel of the
taxes due, and in other jurisdictions, penalties are a type of
tax. In still other jurisdictions, however, it is held that the
penalty is not a part of the tax, and that will not be regarded
as a legal incident to a tax. It is merely a method of enforcing
payment of the tax."

It was held by the Supreme Court of the United States dealing with the nature of

penalties in Guy T. Helvering v. Charles E. Mitchell (303 US 391): -

"Where the civil procedure is prescribed for the enforcement

of remedial sanction, the accepted rules and constitutional
guarantees governing the trial of criminal prosecutions do
not apply."

Once again, the Supreme Court of the United States, dealing with penalties

imposed for evasion or avoidance of payment of income-tax, observed in

Murray R. Spies v. the United States, (317 US 492 at 495): -

"The penalties imposed by Congress to enforce the tax laws

embrace both civil and criminal sanctions. The former
consists of additions to the tax upon determinations of fact
made by an administrative agency and with no burden on
the Government to prove its case beyond a reasonable
doubt. The latter consists of penal offences enforced by the
criminal process in a familiar manner. Invocation of one does
not exclude resort to the other... The failure in a duty to
make a timely return, unless it is shown that such failure is
due to reasonable cause and not due to willful neglect, is
punishable by an addition to the tax of 5 to 25 percent
thereof depending on the duration of the default... The
offence may be more grievous than a case for a civil penalty.
Hence, the willful failure to make a return, keep records, or
supply information when required, is made a misdemeanor,
with regard to the existence of tax liability."

5. We will now examine how the Income Tax Ordinance, 2001 dealt with the

penalties. Practically all taxing statutes lay down their own procedure and

machinery for enforcing, implementing their provisions. It must be remembered

that all these taxation laws are intended to fetch revenue for the State to enable it

to run its administration and implement welfare programs. There shall be neither

evasion of tax, nor delay in the procedure relating to assessment and collection of

taxes. In order to see that payment of tax is not evaded, and that there is no delay
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in assessment or the collection of the tax imposed, every taxation statute lays

down a clear-cut procedure. While doing so, the statute may treat minor

delinquencies lightly, some other delinquencies which are not simple in nature

slightly harshly, and delinquencies of grave nature very severely. The Income Tax

Ordinance, 2001 adopts the same policy. If the Ordinance is analyzed, it could be

seen that it has dealt with different types of penalties in different ways. Section

182 of the Ordinance deals with "Penalties imposable" separately. The said

Section 182 defines the offences described in column (2) of the Table given in the

section and makes a person liable to the penalty mentioned against that offence in

column (3). Primarily, therefore, the provision is about the imposition of penalties.

However, the nature of section 182 is to describe various offences and penalties

for those offences by taxpayers under various provisions of the Ordinance. Those

sections have been mentioned in column (4) of the Table given in section 182.

That is the entire scheme which permeates section 182.

6. In the backdrop of the aforesaid analysis, now we turn to the question. It

would be beneficial to first reproduce hereunder the relevant provision of the

Ordinance at the time of passing the penalty order:-

182. Offences and penalties: - (1) Any person who commits any offence
specified in column (2) of the Table below shall, in addition to and not in
derogation of any punishment to which he may be liable under this
Ordinance or any other law, be liable to the penalty mentioned against that
offence in column (3) thereof: -

TABLE

Sr Offences Penalties Section of

No. the Act to
which
offences
have
reference
(1) (2) (3) (4)
1 Where any Such person shall pay a penalty 114 and 118
person fails to equal to 0.1% of the tax
furnish a return of payable in respect of that tax
income as year for each day of default
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required under subject to a maximum penalty of

section 114 within 50% of the tax payable
the due date. provided that if the penalty
worked out as aforesaid is less
than forty thousand rupees or no
tax is payable for that tax year
such person shall pay a penalty of
forty thousand rupees:

Provided that If seventy-five

percent of the income is from
salary and the amount of income
under salary is less than five
million Rupees, the minimum
amount of penalty shall be five
thousand Rupees:

“Provided further that if taxable

income is up to eight hundred
thousand Rupees, the minimum
amount of penalty shall be five
thousand Rupees: Provided also
that the amount of penalty shall
be reduced by 75%, 50% and
25% if the return is filed within
one, two and three months
respectively after the due date or
extended due date of filing of
return as prescribed under the
law. Explanation.— For the
purposes of this entry, it is
declared that the expression “tax
payable” means tax chargeable on
the taxable income on the basis of
assessment made or treated to
have been made under sections
120, 121, 122 or 122C.

It can be seen from the above provision of law that the levy of a penalty is

dependent on the tax payable. Before triggering the above penalty provision, it is

mandatory on the part of the taxpayer to file the return of income in compliance

with section 114 of the Ordinance, and in default thereof, the assessing officer has

to pass the order under section 121 of the Ordinance to determine the tax

payable. According to the above-stated provision, the computation of the penalty

is dependent on the tax payable, therefore, the assessing officer has to first

determine the tax payable and thereafter, he has to decide or reach the

conclusion that the penalty is equal to 0.1% of the tax payable in respect of that

tax year for each day of default subject to a maximum penalty of 50% of the tax
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payable provided that if the penalty worked out as aforesaid is less than forty

thousand rupees or no tax is payable for that tax year such person shall pay a

penalty of forty thousand rupees. Although a penalty proceeding is different from

an assessment proceeding and is not a mere formality. It starts after the

assessment proceedings are over/completed. We are, therefore, of the view that

in the absence of determining the amount of tax payable, no penalty can be

imposed, as the amount of penalty is firstly directly co-related with the amount of

tax payable. Quantum of penalty has a nexus to the amount of tax payable and if

no tax is payable then a minimum penalty can be imposed. We are of the view

that the purpose of the law is to curb and prevent tax evasion as reflected in and

determined by the amount of tax sought to be evaded. It would be useful to refer

to the judgment of the Hon’ble Lahore High Court in the case of Commissioner

of Income Tax/ Wealth Tax, Companies Zone III, Lahore v. Idara-

I-Kissan Lahore, (2006 PTD 2569). In this judgment, the Hon’ble Lahore High

Court has held that it was settled law that if the law prescribes a particular manner

and procedure in which things are required to be done, the same must be done

that way or not at all. Going by this principle, the assessing officer before

imposition of penalty under section 182 of the Ordinance has to first determine

the tax payable under sections 120, 121, 122, or 122D of the Ordinance.

Admittedly, the assessing officer has not adopted the foregoing procedure and

has imposed the penalty before determining the tax payable under section 121 of

the Ordinance, therefore, the imposition of penalty is unsustainable in law. Under

the circumstances, the appeals of the appellant are accepted and the orders

passed by the lower authorities are annulled.

Sd/-
(M. M. AKRAM)
JUDICIAL MEMBER

Sd/-
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(SAJID NAZIR MALIK)

ACCOUNTANT MEMBER
CERTIFICATE U/S 5 OF THE LAW REPORT ACT

This case is fit for reporting as it settles the principles highlighted above.

(M. M. AKRAM)
JUDICIAL MEMBER