Non-filing of Foreign Income and Assets Statement: SHC rules against issuance of notices under Section 182

KARACHI: The Sindh High Court (SHC) has ruled against the issuance of notices under Section 182 of the Income Tax Ordinance, 2001 to impose penalty for non-filing of Foreign Income and Assets Statement under Section 116-A of the ordinance along with the income tax return. A division bench of the SHC comprising Justice Aqeel Ahmed Abbasi and Justice Rashida Asad gave the verdict in the petitions filed by Aameer Mustaaly Karachiwalla and others versus the deputy commissioner of Inland Revenue and others.

The petitioners challenged the penalty on the grounds that it cannot be levied for non-filing of Foreign Income and Assets Statement when the same have duly been declared at the time of filing of the income tax returns for the tax year 2019 and requested the court to declare the notices illegal and without any legal consequence.

In the detailed judgment of the case released on Friday, the bench observed that in the case of the petitioners, there is no effect either on the income of petitioners, their tax liability or any other financial implications for non-filing of statement under Section 116-A, nor is it a case of concealment of income or non-disclosure of foreign income and assets from all sources by the petitioners.

The court maintained that the cases of petitioners otherwise do not attract any proceedings for making assessment or additional assessment in respect of any escaped income or concealed income, which may result in creating any additional tax liability upon the petitioners.

“If this would have been the case where petitioners would have not disclosed their foreign assets and income in the Wealth Statement filed under Section 116 along with returns of income for the tax year 2019, then the burden would have been upon the petitioners to explain the reason for such non-disclosure, and in case of any dissatisfactory response by the petitioners, proceedings for imposition of penalty under Section 182 of the Income Tax Ordinance, 2001, could have been justified, however, subject to fulfillment of other legal requirements,” the bench observed.

Therefore, the court ruled in such circumstances of the case, mere non-filing of statement under Section 116-A would not attract imposition of penalty under Section 182 of the Income Tax Ordinance, 2001 in an automatic manner, without establishing willful default or mens rea on the part of the petitioners.

The bench observed that it is a settled legal position that unless there is clear intention of the legislature to impose additional liability or burden of tax in the shape of penalty or surcharge in case of any default or non-compliance of legal obligations, the imposition of such penalty should be subject to fulfillment of legal and procedural requirements, whereas, tax authorities have to establish willful default and/or mens rea on the part of the taxpayer before invoking the penal provisions.

The court declared that in the absence of prescribed format notified under Section 116-A of the Income Tax Ordinance 2001, whereas, nothing has been concealed by the petitioners, nor is there any consequence either on income or tax liability of petitioners for non-filing of Foreign Income and Assets Statement along with return of income for tax year 2019, the penal provisions of Section 182 of the Income Tax Ordinance, 2001, could not be invoked, particularly when the respondents have failed to establish willful default or mens rea on part of the petitioners, the bench stated.

The bench ruled that issuance of notices under Section 182(2) cannot be validated, therefore, these notices having no support of lawful authority and declared them as illegal, hence, of no legal consequence.

Copyright Business Recorder, 2021