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I.T. As. Nos. 250 to 252 (I. B.) of 1985-86, decided on 29th October, 1986.

---Ss. 156, 253 & 59(1)--Expression "mistake": --Connotation--Omission to levy additional tax for default in payment of advance tax, held, was a mistake apparent on the record and could be rectified under S. 156.

Commissioner of Income-tax, Karachi v. Malik Walayat Hussain & Sons, Quetta (1976) 33 Tax 285 33;(1987) 16 I T A T KB 119; Black's Law Dictionary (Fifth Edn.); Kumaran v. First Additional Income-tax Officer 1958 33 I T R 290, Additional Commissioner of Income-tax v. District Co-operative Bank Limited, (1979) 119 I T N 142 and Income-tax Officer v. Ashoka Textile Mills Limited (1961) 3 Tax 303 S C ref.

Expression mistake" is not only confined to an erroneous action, but also includes an omission the term "mistake" has been defined to mean some unintentional act, omission, or error arising from ignorance, surprise, imposition, or misplaced confidence. A mistake is when a person, under some erroneous conviction of law or fact, does, or omits to do, some act which, but for the erroneous conviction, he would not have done or omitted. It may arise either from unconsciousness, ignorance, forget fullness, imposition, or misplaced confidence.

---S. 156--Proceedings under S. 156 initiated after several years but within period of limitation--Such proceedings, held, could not be claimed to be contrary to provisions of law.

---Ss. 104 & 87--Provisions of S. 104 are all embracing--Department is required to set off amount of tax payable by assessee with the amount of refund due from assessee--Where sufficient amount of tax was due to assessee and assessee had not deposited advance tax within specified time, it was, held, not in the interest of justice to levy additional tax, which, in fact, was a penalty for non-payment of advance tax within specified time.

I. T. A. No. 4933(PB)/ 1973-74; 1981 P T D (Trib. ) 181 and I T A No.178(IB) of 983-84 ref.

U.D. Qureshi, I.T.P. for Appellant.

Maqbool Hussain Shah D. R. for Respondent.

Date of hearing: 18th October, 1986.

-These three appeals arise out of the order of the Appellate Assistant Commissioner of Income-tax, Rawalpindi Range, Rawalpindi, dated the 13th November, 1985, by virtue of which ha had upheld the imposition of additional tax for the charge years 1980-81 to 1982-83 for non-payment of advance tax under section 53 of the Income-tax Ordinance, 1979.

2. Briefly, the facts are that the appellant's firm was liable to pay advance tax under the provisions of section 53 of the Income-tax Ordinance, 1979 (hereinafter called the Ordinance), but for the charge years 1980-81 to 1982-83 , it had allegedly omitted to pay the same within the specified period The assessment for these years was completed under the Self-assessment Scheme as envisaged in section 59(1) of the Ordinance. At that time, however, the Income-tax Officer did not detect the default in payment of advance tax and it was only on audit that this default came into the light. Accordingly, necessary proceedings under section 156 of the Ordinance were initiated for rectification of the said mistake. In consequence of these proceedings, the following amounts of additional tax for each year were levied under section 87 of the Ordinance for non-payment of advance tax:-

3. The appellant vehemently opposed the levy of the additional tax, in appeal on various grounds including that the mistake on levy the additional tax could not be rectified under the provision of section 156 of the ordinance. The contentions of the appellant however, did not find favour with the learned Appellate Assistant Commissioner who accordingly confirmed the action of the Assessing officer. The said findings of the learned Appellate Assistant Commissioner are now impugned in these second appeals.

4. Mr. U. D. Qureshi, I. T. P. the learned Authorised Representative of the appellant contended that under the provisions of section 156 of the Ordinance, an income-tax officer may amend any of his order 'to rectify any mistake apparent from the record' but in the present case these provisions were not attracted for the simple reason that the Income-tax Officer had neither passed any order in respect of the alleged non-payment of advance tax nor he had made any endorsement to that effect in the I.T 30 Form, The learned Authorised Representative therefore, contended that, since no order was made in that behalf there was no mistake apparent from the record which may require any rectification. In other words, according to the learned Authorised Representative, the provisions of section 156 ibid dealing with the rectification of mistakes could only be invoked if any order may contain any mistaken adjudication, but no amendment could be made therein if the Income-tax Officer or the Appellate Assistant Commissioner or the Appellate Tribunal, as the case may be, omit to record any findings. In this respect the learned Authorised Representative referred to I.T. A. No.364 (IB)1 83-84, relating to the assessment year 1980-81, passed by the Appellate Tribunal on the 22nd January, 1981, inviting our attention to the following observations:-

"Nevertheless it was incumbent upon the Income-tax Officer to specify the amount of penalty not only in Form I.T. 30 but in the assessment order as well. Form-30, which is in the form of notice should follow a finding or determination of a fact. This view finds support from the provisions of section 87 of the Income-tax Ordinance, 1979, which provides that where an assessee who is required to pay tax under section 53, he shall without prejudice to any other liability which he may incur under the Ordinance, be liable to pay additional tax at specified rate on the amount not paid, and such additional tax shall be calculated from the date on which such amount was payable. It is clear from this provision that the Income-tax officer is required to determine the liability and calculate as to what amount shall have to be paid by the assessee for his failure to pay the amount of advance tax. Evidently, the Form I.T. 30 does not clearly make such determination and calculation of the amount of additional tax. This view is further supported by the judicial pronouncement made by the High Court in Commissioner of Income-tax, Karachi v. Malik Walayat Hussain & Sons, Quetta (1376) 33 Tax 285 (Karachi). Similar view was taken by the Income-tax Appellate Tribunal in .I.-T. A. Nos.241 of 1964-65 and 908 and 914 of 1965-66 (VOI-RVI-1967 ITAT KB 119).

5. We, however, do not subscribe to these views of the learned Authorised Representative The reason being that the expression, "mistake" is not only confined to an erroneous action, but also includes an omission in Blacks Law Dictionary (Fifth Edition) the term "mistake" has been defined to mean some unintentional act omission, or error arising from ignorance, surprise or misplaced confidence. A mistake when a person, under some erroneous conviction of law or fact, does or omits to do, some act which, but for the erroneous conviction, he would not have done or omitted. It may arise either from unconsciousness ignorance forgetfulness, imposition, or misplaced confidence'

6. In Kumaran v. First Additional Income-tax Officer (1958) 33 ITR 290, it was held that 'a mistake is an omission made not by design, but by mischance'. Similarly, in Additional Commissioner of Income-tax v. District Co-operative Bank Limited 1979 119 I T R 142, it was laid down that 'overlooking of a mandatory provision which leaves no option or discretion with the taxing authority would amount to commission of the mistake apparent on the face of the record'. Hence, we are of the considered opinion that the omission to levy additional tax for default in payment of advance tax was a mistake apparent on the record and could be rectified under the provisions of section 156 of the Income-tai: Ordinance, 1979. In this respect, we also find support from the Indian Supreme Court, decision in Income-tax Officer v. Ashoka Textile Mills Limited (1961) 3 Tax 303 S C wherein it was held that in case of omission to pass an order under section 18-A of the repealed Income-tax Act, 1922, the Income-tax Officer was empowered to take action under section 35 thereof. "

7. The learned Authorised Representative further contended that the action of the Income-tax Officer was also bad in the eye of law as the proceedings under section 156 ibid were initiated after several years. We agree with the learned Authorised Representative that such related action should be avoided, but obviously, the proceedings under section 156 were initiated within the period of limitation, therefore, the same could not be claimed to be contrary to the provisions of law.

8. The appellant has not contested the quantum of advance tax payable by it under the provisions of section 53 of the Ordinance, but urged that no additional tax for the alleged default was leviable as considerable amount was due to it as refund of the tax paid in excess. It is admitted between the parties that for the assessment year 1980-81, the base year for payment of advance tax was charge year 1978-79, being the latest assessment, when the appellant's income was assessed at Rs.1,08,689 by virtue of the assessment order, dated the 18th March, 1979. Accordingly, the super-tax for that year was determined at Rs.15,792. In consequence thereof, the instalments of Rs.3,948 each were payable on the 15th September, 1979, 15th December, 1979, 15th March, 1980, and 15th June, 1980. The appellant however, instead of paying the advance tax in instalments paid the lump-sum amount of Rs.16,000 on the 11th March, 1980. A sum of Rs.8,575 also became due to the appellant as refund on the 30th April, 1980 as a result of the assessment made for the charge year 1979-80 on the said date, The Income-tax Officer, however, levied additional tax of Rs.459.48 and Rs.220.65 for default in payment of first two instalments payable in September and December, 1979.

9. It was contended on behalf of the appellant that, although the payment of first two instalments of advance tax for the charge year 1980-81 were not made, but, since a refund of Rs.8,575 had already become due to the appellant before the date of payment of last instalment and an other amount of Rs.16,000 was paid in lump-sum even before the last date of payment of the third instalment, the appellant could not be made liable for additional tax. In this respect, it was pointed out that by virtue of the assessment order, dated the 5th March, 1981, the assessment for the charge year 1980-81 was finalised at Rs.94,000 creating a tax liability of Rs:9,376. In consequence of this assessment, another refund of Rs.6,664 became due to the appellant bringing the total amount of refund to Rs.15,239.

10. Similarly, it was claimed that no advance tax for the charge year 1981-82 was paid on the ground that sufficient funds belonging to appellant were already lying with Department. The assessment for the charge year 1981-82 was completed on the 24th March, 1982, at the total income of Rs. 42, 000 thereby creating tax liability of Rs. 2,145 against the refund of Rs.15,239 due to the appellant. Hence, it was claimed that even for that year no additional tax could be levied. In this respect reliance has been placed upon the decision of the Appellate Tribunal given in I.T. A. No. 4933(PB)/1973-74, dated the 31st October, 1976, and a case reported at 1981 P T D (Trib.) 181. In the first case it was held that penalty under section 28(1)(1-B) of the repealed Income-tax Act, 1922, is imposed for failure to discharge the tax liability and not for violating the mode. So that when at the end of the year, there is no default, the assessee cannot be punished for non-payment of any instalment. For facility of reference, the relevant extract of the said order is reproduced below:--

"After hearing both the parties and going through the law I am not convinced with the arguments of the learned Department '' Representative as the default did not remain a default at the tune the penalties were imposed. The position was that no tax was payable under section 18-A for the year 1973-74 after 8-1-1973 as the income assessed for the latest previous year was below Rs.25,000. Again section 28(B) does not impose penalty for default of 'any of the provisions' of section 18-A. It is, therefore, pointedly different and distinct from section 18-A(7) under which penal interest is charged for the period during which the payment is found deficient on the difference between the amount paid for each such instalment and the amount which should have been paid. Section 28(IB) speaks of the provisions of section 18A(1), To my mind the only course left open to the department was to enforce payment of the first instalment and the second instalment by imposing penalties under section 16 or by having recourse to the other provisions of law at the relevant point of time but had no right to impose penalty when the default was obliterated by the assessment for the year 1972-73 which was completed on an income below Rs.25,000. It was both interesting and pertinent to note that the department had no right even to realise interest on the unpaid instalment. Section 28(IB) begins with the words 'if the Income-tax Officer' in the course of any proceedings in connection with an assessment under section 23 is satisfied'. The words quoted above show that only when an assessment is being completed the default must be found to exist and in the instant case without a shadow of doubt there was no default when the assessment was completed under section 23(3) for the year 1973-74. The framers of law could have very easily legislated in a manner that the department could impose penalty even for default of one instalment of tax due under section 18-A(i) but they have taken a broad view of the matter by allowing the department to, extend its arms for punishing on assessee only after the year was out. Be that as it may at the time when the year was out there was no delinquency and the defaults had vanished. In fact the default disappeared on 8-1-1973 when the assessment for year 1972-73 was completed on an income below Rs.25,000. The instalments only determined the mode of payment and not the liability of tax and penalty under section 28(I)(B) can be imposed for failure to discharge the liability and not for violating the mode.

In the second case, the Appellate Tribunal toad held that by virtue of section 49-E of the aforesaid repealed Act, where a refund is due to the assessee, the Income-tax Officer is required to adjust against tax payable by the assessee instead of adverting to impose penalty. It will be pertinent to reproduce below the relevant extract of the said decision:--

"This section (section 49-E of the repealed Act) is an empowering section and where certain refunds are due to an assessee under the various enactments mentioned in that section it could be adjusted against tax remaining payable by an assessee. However, the word 'may' is to be read as 'shall' where the assessee wants his refund to be adjusted against the tax due. The provisions of this section are not merely for the benefit of the department but for the convenience of both the department as well as the tax payers. Thus, it will be the duty of the I.T.O. to allow set off under this action if the assessee could prove that he is entitled to a refund. This view is supported by the case reported as Dawarkadas v. I.T.O. (1956) 29 I.T.O. 60 and Mukarjee & Co. v. Union of Indian reported as (1958) I.-T.R.500 (S C).

11. In the present case there is no dispute that for the charge years 1980-81 and 1981-82, refund was due to the appellant. Further, in the first year, the appellant had, prior to the date of the payment of third instalment, paid a sum of Rs.16,000 which was admittedly in excess of the tax demand for that year. Similarly, for the charge year 1981-82, Rs.15,239 were outstanding as refund against the tax demand of Rs.2,145 created as a result of final assessment. Therefore, under section 104 of the Income-tax Ordinance, 1979, whereby the provisions of section 49-E have been simplified, the appellant was entitled to adjustment against the tax payable by it as an advance of the assessment. For facility of reference, the said section 104 is reproduced as under:--

"

--Where, under the provisions of this Ordinance, the repealed Act, the Sales-Tax Act, 1951 (III of 1951), the Gift-tax Act, 1963 (XIV of 1963), any refund is due to any person, the amount to be refunded or any part thereof, may be set off against the tax payable by the person under this Ordinance, or the repealed Act.",

12. The aforesaid provisions are self-embracing. Theses provisions also require the Department to set off the amount of tax payable by the assessee with the amount of refund due from assessee. Since sufficient amount of tax was due to the appellant, it was not in the interest of justice to level- additional tax which, in fact, was a penalty for non-payment of advance tax within the specified time. We have repeatedly pointed out that the penalty provisions should not be invoked as a source of revenue or simply on the basis of technical defaults. In this respect, we do not find any force in the contentions of the learned Departmental Representative that payment of refund and liability to pay advance tax were two different actions as the assessee could claim refund separately. The reason being that when the statute provides certain benefits and concessions, the same could not be taken away, because of any administrative inconveniences. Therefore, when law entitles an assessee the adjustment of refund due to him against the liability of the 'tax' payable by him, he cannot be penalised without providing him the benefit of such adjustment. In this connection, we also draw support from the decisions of the Appellate Tribunal in I.-T. A. No. 178(IB)/83-84, dated the 7th May, 1985, already referred to in the preceding paragraphs, wherein it was laid down that notwithstanding the omission i f the assessee to inform the Income-tax Officer 'for adjustment of the amount of refund against the amount of advance tax payable by the appellant, a duty is also cast upon the Income-tax officer, Appellate Assistant Commissioner and Commissioner of Income-tax under section 49-E of the repealed Act, to set off the amount of refund or any part thereof against the tax payable by the person to whom the refund is due'. In view of the matter, we are of the considered opinion that no additional tax under section 87 of the Ordinance was leviable for the charge years 1980-81 and 1981-82.

13 As regards the charge year 1982-83, the appellant had admittedly not paid any advance tax and the amount of refund due to it had also been got refunded by it on the 24th April, 1982, i.e. prior to the t making of assessment on the 30th December, 1982. In the circumstances, the appellant was evidently not entitled to the concession available under the provisions of section 104 ibid. The learned Authorised Representative has, therefore, conceding the default of the appellant in payment of advance tax sought permission for withdrawal of the appeal relating to that year. The learned Departmental Representative had no objection in according such permission, which was accordingly granted.

14. In the result, the appeals relating to the charge years 1980-81 and 1981-82 are accepted holding the demand of additional tax to be contrary to law, while the appeal against levy of additional tax for the assessment year 1982-83 is dismissed as having been withdrawn.

M. B. A./352/ T Appeals partly accepted.

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