2011 PTD 693

ORDER

SYED NADEEM SAQLAIN (JUDICIAL MEMBER).--- The instant two appeals pertaining to the tax year 2007 have been filed by the assessee against the order dated 11-6-2009 passed by the learned CIT (Appeals-II), RTO, Lahore. The confirmation of order passed under section 122(5) has been contested to be unjustified.

2. Facts giving rise to the present appeals are that return for the tax year 2007 was filed declaring NIL income which was taken to be an assessment order under section 120(1) of the Ordinance. Subsequently, an information was received in the financial year 2008 that the appellant had purchased Plot No.137 Sector XX, DHA, Lahore measuring 2 Kanals for a consideration of Rs.8,000,000. The then Taxation Officer issued notice under section 122(9) of the Ordinance dated 10-4-2008 for proposed amendment of the assessment year under section 122(1) read with section 122(5) of the Ordinance at an amount of Rs.8,000,000. The appellant in response provided the wealth statement and affidavit of her husband, who was an existing assessee of the RTO stating that he had sufficient funds to purchase the said plot in the name of his wife. The appellant also provided the evidence of payment to the seller through a pay order dated 5-5-2007 and agreement to sell dated 28-4-2007 stating the facts. After a lapse of almost six and a half months the Taxation Officer issued notice under section 176 of the Ordinance dated 23-11-2008 to the seller for cross verification. The seller through his A.R. stated that the plot was sold for Rs.28,000,000 however, no evidence of the said payment received from the appellant or an agreement between the seller and the appellant was placed on record. No affidavit in support thereof was also filed. The Taxation Officer, however, once again issued notice under section 122(9) of the Ordinance to the appellant on 4-3-2009 with the intention of making the addition of Rs.28,000,000 in the income of the appellant under section 122(1) read with section 122(5) of the Ordinance: The said notice was challenged on legal and factual grounds on 18-3-2009, however, the Taxation Officer rejected the reply and amended the assessment for the tax year 2007 vide order dated 19-3-2009 at an income of Rs.28,000,000 and a tax of Rs.7,000,000.

3. As the Taxation Officer was confident about the investment to be unverifiable, he therefore, issued notice under section 190(1) of the Ordinance dated 10-4-2009 for default of section 184(1) of the Ordinan ce showing his intention to impose a 100% penalty of Rs.7,000,000. According to the Taxation Officer the notice remained uncomplied with, therefore, assuming that the appellant had nothing to say in his defence imposed penalty of Rs.7,000,000 by order dated 21-04-2009.

4. The appellant assailed the said two orders in separate appeals before the learned CIT(A) who after narrating the facts rejected the appeals and upheld the order of the Taxation Officer. As the main appe al was dismissed, therefore, the appeal against the imposition of penalty was also summarily rejected. Hence the instant appeal.

5. Both the parties have been heard and relevant orders perused. It is the contention of the learned A.R. that the alleged information received by the Taxation Officer with regard to the amount paid' for the said plot was discovered and confronted on 4-3-2009 i.e. in the year 2009 therefore, as per section 111(2) of the Ordinance the addition, if any, was to be made in the tax year 2008 being the immediate preceding tax year and not the tax year 2007. In support of his contention reliance was placed on reported judgment cited as 2006 PTD (Trib.) 2662. It was argued by the learned A.R. that the Taxation Officer had no evidence to substantiate or correlate the payments of Rs.20,000,000 over and above Rs.8,000,000 received by the seller of the alleged plot as the same was admittedly received from one Mr. Muhammad Safdar and Mr. Muhammad Khalid who had no relation with the appellant. It was also contended that the Taxation Officer did not even investigate to prove any relation, either personal or business with the said two individuals. Thus, it was illegal and unnecessary to source the said payment to be made by the appellant and that too only on the unverified statement of the A.R. of the seller.

6. It was also contended by the learned A.R. that if at all any addition was to be made, the same should have been in the hands of the husband of the appellant who had claimed the plot in question as his asset purchased in the name of his wife. The said plot was duly declared in his wealth statement and also reconciled.

7. The learned A.R. further argued that the penalty levied under section 184(1) of the Ordinance has been done so in a haste so as to penalize the appellant. The learned A.R. has produced a copy of the letter seeking adjournment of proceedings till the decision of the main appeal, which was filed on 10-4-2009 with the RTO, Lahore. The A.R. further stated that even if the assessing officer was to pass the penalty order it was incumbent upon him to establish mens rea. As the main appeal has not been settled, therefore, the levy of penalty is illegal and uncalled for. Reliance in this regard was placed on case reported as 2005 PTD 1.

8. It was further argued that the learned CIT(A) did not issue any notice for hearing under section 128 of the Ordinance, which was a statutory requirement for disposal of appeal under section 129/184(1) of the Ordinance, hence the order passed is illegal.

9. The learned D.R. on the other hand opposed the arguments advanced by the learned A.R. on the ground that the seller had categorically stated that the amount of Rs.28,000,000 was received from the appellant. The learned D.R. also supported the addition made under section 111 of the Ordinance in the tax year 2007 for the reason that the proceedings were initiated in the year 2008, therefore, no irregularity was committed.

10. On the point of penalty, the learned D.R. was of the view that once it was established that the appellant had concealed the income, therefore, it was necessary for the officer to levy penalty as he is bound to wait for the decision or outcome of main appeal.

11. We have heard the rival arguments extended by the learned representatives and are of the considered view that the date of discovery as envisaged in section 111(2) of the Ordinance clearly means that the date on which it is confronted to the person against whom the said information is going to be used. It is clear in this case that the discovery was made on 4-3-2009 which clearly fell into tax year 2008 and not tax year 2007. We are fortified by the decision of the full bench of this court delivered in I.T.As. Nos.756 and 757/LB/2009 dated 30-4-2010 wherein it has been held:--

Quote ."23. In view of what has been said above, we hold that "Discovery" in the instant case came into existence on 27-9-2008 when the explanation by the taxpayer stood furnished and the taxation officer proceeded to make addition after having come to the conclusion of the issue of unexplained income. It is further held that since discovery was made on 27-9-2008 which falls in the tax year 2009 hence addition, if any, was to be made in the tax year 2008 being immediately the preceding financial year in which it was discovered. Therefore, addition under section 111 of the Ordinance, made in the tax year, 2007 not being the immediately preceding financial year, is not in consonance with law entails, deletion"...Un-quote.

12. Even on merits prima facie there seems to be a strong case of the appellant as no corroborative evidence has been produced to substantiate that the consideration paid by the appellant was Rs.28,000,000 and not Rs.8,000,000 there is no nexus between the statement of the seller and the evidence produced by the appellant before the taxation officer, however, as we have decided the issue on legal plain we need not to discuss the issue any further.

13. Since we have held the addition of Rs.28,000,000 to be illegal and without justification, therefore, it will be in the fitness of things to delete the penalty levied under section 184(1) of the Ordinance which has not only been levied in a haste but also without substantiating mens rea which is an integral ingredient for initiation of penalty proceedings. Hence, ordered to be deleted.

14. As a result the appeals filed by appellant succeed to the extent and in the manner indicated above.

C.M.A./9/Tax(Trib.) Appeals accepted.