This blog is written by Mr. Saif Uddin Khilji, Senior Manager Taxation and Corporate Advisory Services. Please read this intriguing and informative blog and provide your valued comments.
Penalty Proceedings and Burden of Proof
Section 182(1) of the Income Tax Ordinance, 2001 states offences and penalties as “any person who commits any offence specified under section 182(1), in addition to and not in derogation of any punishment to which he may be liable under the Ordinance or any other law, be liable to the penalty mentioned against that offence.
However, it is a well settled principle that unless it is proved that the any act done was either willful or based on mala fide the penalty cannot be imposed. It may be noted here that for levy of penalty there has to be mens rea/malafide intention.
Moreover, it has been decided by the higher appellate authorities that levy of penalty should be refused where offence is of technical or venial in nature.
It is relevant to mention here that revenue appellate authorities have discouraged consideration of penal provisions as a source of revenue generation; reliance is placed on various decisions as decided by the higher appellate authorities. The relevant extracts are hereby reproduced for ease of reference;
- CIR Vs. ABS Enterprises (103 TAX 498)
“Before parting with this judgment, I may observe that it is incorrect impression of revenue department that the penalty has to be universally imposed, without any exception whatsoever, if there is a 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 department. All Officers Inland Revenue are directed to be judicious in imposition of penalty. In penalty proceedings authorities must act fairly and honestly”. Unquote
- G. Khan Cement Company Ltd. and others v. Federation of Pakistan and others (2004 SCMR 456)
“The Hon’ble Supreme Court has already laid down that each and every case has to be decided on its own merits as to whether the evasion or non-payment of tax is willful or mala fide. Where non-payment of the tax within due date is neither willful nor it could be construed to be mala fide, imposition of penalty is not justified in law, therefore, learned Appellate Tribunal has rightly upheld the order of reduction of penalty, which in our opinion, is absolutely in consonance with the intent of law”. Unquote
“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”.
- United Foam Industries (Pvt.) Limited vs. CIR Zone-II, RTO, Lahore
STA No. 63/LB/2013
“It is an established principle that where there is no revenue loss and the allegation is of only regarding procedural lapse which is condonable, the offence in penalty was not culpable”. Unquote
Hence, penalty proceedings shall not be initiated unless willful default is established while burden of proof lies will the department to establish “willful” default.
Saif Uddin Khilji