Income Tax Ordinance (XXXI of 1979)‑‑--

‑‑‑‑S.13(1)(b) & 156‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Addition‑‑‑Application for rectification‑‑‑Inaction of the Department‑‑‑Misrepresentation and withholding of relevant facts by the Department from Appellate Tribunal Bench‑‑‑Effect‑‑‑Complainant/ assessee suffered due to inaction on his application under 5.156. of the Income TAX Ordinance, 1979 arid mal-administration on the part of Assessing Officer who passed an arbitrary order on the issue of addition under S.13(1)(b) of the Income Tax Ordinance, 1979 in total disregard of the fact that an application under S.156 on the issue was pending before the‑Member (Judicial) C.B.R.‑‑‑First Appellate Authority confirmed the addition disregarding the fact that assessee's application under S. 150 was deemed to have been decided in his favour in accordance with the provisions of S.156(3) of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Federal Tax Ombudsman recommended that the complainant/assessee may move a miscellaneous application to Income‑tax Appellate Tribunal under S.156 of the Income Tax Ordinance, 1979 for rectification of errors that have crept into its order due to misrepresentation and withholding of relevant facts from the Bench by the Departmental Representative and that the concerned Regional Commissioner of Income‑tax, should hold an enquiry to find out as to what action was taken by the Commissioner of Income‑tax and the concerned officers under him on his direction, why remand report was `not submitted to the. Income‑tax Appellate Tribunal; to identify the officers responsible for inaction and propose action to be taken against the officers responsible for inaction.

DECISION/FINDINGS

The complainant has alleged arbitrary refusal of the Department to take up the hearing already granted by the Member (Judicial), C.B.R., prior to abolition of the post, on the second application of the complainant, seeking rectification of the Revision Order of Member (Judicial) dated 10‑12‑1998.

2. Brief facts of case as per complaint are that the complainant, an individual engaged in retail trading of carpets, had filed return of income for 1997‑98 declaring total income of Rs. 2,00,000 from property and business. The D.C.I.T. assessed total income at Rs. 3,692,540 by rejecting declared trading version of 15% gross profit on sales of Rs. 3,600,000 and estimating 20% gross profit on estimated sales of Rs. 15,000,000 as well as making various additions under sub -sections (aa) (b) and (e) of section 13 of the Income Tax Ordinance, 1979 on account of business capital and stocks allegedly found to be created and personal expenditure found to be incurred out of unexplained sources as under:

Add rental income

It has been estimated at Rs.171,270 out of which declared rental income of Rs.22,500 has been excluded as it is the part of assessee's declared income.

Rs. 148,740

3. Regarding unexplained investment in stock the D.C.I.T. asked why an amount of Rs.1,800,000 being the difference of estimated stocks and declared capital may not be added in his income under section 13(1)(b) of the Income Tax Ordinance, 1979 being stocks not declared in the statement. Allegedly no satisfactory explanation was offered and it was deemed to be income. However, addition of Rs.1.8 million under this head was set off against addition of Rs.2.46 millions on account of estimates of gross‑profit rate and sales.

4. The Additional Commissioner of Appeals, deciding the appeal against the order supra, confirmed the estimates of gross profit rate and sales, upheld the addition under section 13(1)(b), set aside the order for additions under section 13(1)(aa) and (e) as well as the order on estimate of rental income while disallowance out of salary account was reduced to Rs. 125,000.

5. The complainant moved a revision petition before the Member (Judicial), C.B.R., impugning the order of the A.A.C. (supra). The Member (Judicial) C.B.R. vide her order, dated 10‑12‑1998, inter alia, reduced the estimates of gross profit and sales to 17.5 % and Rs. 7,500,000 respectively and observed regarding addition under section 13(1)(b) of the Ordinance:

`As regards the various additions made under section 13 of the Income Tax Ordinance, the first is under clause (b) of sub section (1). There was a difference in the stock estimated by the Inspector and the capital employee. The D.C.I.T. did not make an addition on this account as trading account additions were being made. The assessee contests this finding itself. The estimate of sales having been reduced, thereby reducing the trading addition, this contention is ignored."

6. The observation of the Member (Judicial), C.B.R. reproduced in foregoing paragraph 5, according to the petitioner was erroneous and an application under section 156 of the Income Tax Ordinance, 1979 was moved to the Member (Judicial) on 16‑12‑1998. It was submitted in the application that the observation of the learned Member (Judicial) that the D.C.I.T. did not make an addition on this account is based on incorrect appreciation of facts apparent from record. It was further submitted that the petitioner had prayed for deletion of the impugned addition. The petitioners vide application under section 156, therefore, asked the Member to rectify the error of omission to adjudicate the issue specifically raised in the revision petition for deletion of the impugned addition. Summary rejection of the first application was conveyed by the Office of the Member (Judicial) C.B.R. vide order, dated 22‑2‑1999 in the following terms:

"I am directed to refer to the subject application dated 16‑12‑1998 on the subject and to state that the decision in the said case dated 10‑12‑1998 is a considered judgment and no rectification is called for. "

7. However, when the petitioner moved another application dated 5‑3‑1999, under section 156 of the income Tax Ordinance, 1979 a date was fixed for hearing on 25‑3‑1999 at Lahore but due to promotion of the then Member (Judicial), C.B.R., neither the hearing was conducted on 25‑3‑1999 nor at any date subsequently. The petitioner suffered a tragedy of errors thereafter.

8. The mistake identified in the un-disposed application under section 156, although, was deemed to have been rectified in applicant's favour by 30‑6‑2000 in accordance with subsection (3) of section 156 of the income Tax Ordinance, 1979, the D.C.I.T. proceeded to give effect 2o the un-rectified order of the Member (Judicial) (supra), vide his order dated 30‑6‑2000, and worked out addition to declared gross profit as under:‑

9. Further, he made another addition of Rs.1,027,500 under section 13(1)(b) with following observations:

"As the sales have been reduced by the Member (Judicial) to Rs.7,500,000 and the trading addition was also reduced accordingly, therefore, an addition to the tune of Rs.1,027,000 under section 13(1)(b) is being made after giving set off against the trading addition. The permission for this addition has been given by the worthy I.A.C., Range‑1, Zone‑B, Lahore vide his office Letter No.2012, dated 30‑6‑2000."

10 The complainant filed an appeal before the A.A.C. against the consequential order (supra) passed by the D.C.I.T. The appeal was dismissed without appreciating the facts correctly. The complainant consequently, filed second appeal before the Tribunal instituted vide I.T.A. No. 1043/LB of 2001.

11. Malik Ghulam Rasool, D.C.I.T. present on the date of hearing on behalf of the R.C.I.T., Central Region, Lahore, has submitted that the complainant meanwhile moved a miscellaneous application before the Tribunal seeking an interim order for stay of proceedings for recovery of impugned tax demand. The Income tax Appellate Tribunal granted stay of recovery for 30 days w.e.f. 24‑3‑2001 and on page 4 of the order, dated 24‑3‑12001 "remanded matter to the R.C.I.T., Eastern Region, Lahore with tile directions that the pending rectification application, if any, be taken up for its proper disposal on priority basis". The assessee/ petitioner moved direct applications to the D.C.I.T. as well as R.C.I.T:, Eastern Region, dated 26th and 21st March, 2001, respectively, for implementation of deemed rectification R.C.I.T. vide his office letter, dated 27th March, 2001 issued directions to the CIT, Zone‑B, Lahore to take necessary action under intimation to his office.

12. While the remand report was still due, the Tribunal took up the hearing of I.T.A. No. 1043/LB of 2001 (supra) on 19‑4‑2001. In their order recorded on 24‑4‑2001, they have observed on the issue (supra):

"In the case of addition under section 13(1)(b), the CIT(A) has interpreted the order of the Member (Judicial) C.B.R. to have set aside addition. The addition under section 13(1)(b) then made in the second round by the Assessing Officer at Rs. 10,27,500 after quantifying the total addition under section 13(i)(b) at Rs.18 lacs (as before) and then setting it off against the trading account Addition of Rs.7,72,500 is assailed as illegal."

13. Regarding the alleged pendency of Application dated 5‑3‑1999 under section 156 (supra), the Tribunal has observed:

"A.R. of appellant had deposed before the Tribunal that the said rectification application could not be disposed off by the Member (Judicial), C.B.R. as before hearing the appellant on the matter the Metpber (Judicial) C.B.R. had been promoted to Grade‑22. However, this contention of the appellant is incorrect as it has subsequently transpired that the Member (Judicial) C.B.R. did actually examine appellant's rectification application on 6‑2‑1999 and "'after examination had made a noting on the order sheet to the effect:‑‑‑

The three issues stated to be `mistakes' have been adequately adjudicated upon a conscious decision. There is no mistake apparent from record....alleged trading addition of Rs.18 lacs adequately discussed in para. 5 of the order. May issue regret stating that there is no mistake in the revision order.

In view of the factual position obtaining, we will ignore the appellant's contention pertaining to revision by the Member (Judicial.), C.B.R."

14. The errors in the finding supra too, are apparent from record as. evident from the findings of acts recorded in the foregoing paragraphs.

15. However, it is contended on behalf of the Revenue Division that the matter has been finally decided by the Income Tax Appellate Tribunal and the complaint is beyond the purview of Ordinance XXXV of 2000.

16. Be that as it may, the allegation of mal-administration on the part of the officers of the Income Tax Department made in the complaint stands proved.

(a)The complainant first suffered due to inaction, on his application dated 5‑3‑1999 under section 156, of the Member (Judicial C. B. R.

(b)Secondly, he suffered mal-administration on the part of the A.C.I.T., Sajjad Ahmad Malik posted in Circle‑29, Zone 'B', Lahore on 20‑6‑2000, who passed an arbitrary order on the issue of addition under section 13(1)(b) endorsed and approved by his I.A.C. in total disregard of the fact that an application under section 156 on the issue was pending before the Member (Judicial) C.B.R. even on 30‑6‑2000.

(c)Thirdly, he suffered mal-administration on the part of the Appellate Additional Commissioner who confirmed the addition of Rs.1,800,000 under section 13(1)(b) disregarding the fact that his (appellant's) application under section 156 was deemed to have been decided in his favour in accordance with the provisions of subsection (3) of section 156 of the Income Tax Ordinance, 1979.

17.It is now recommended;

(a)That the complainant may move a miscellaneous application to Income‑tax Appellate Tribunal under section 156 of the Income Tax Ordinance, 1979 for rectification of errors that have crept into their order due to misrepresentation and withholding of relevant facts from the Bench by the departmental representative.

(b)That the Regional Commissioner of Income Tax, Eastern Zone, Lahore holds an enquiry to find out;

(i)What action was taken by the C.I.T. Zone‑B, Lahore and the concerned officers under him on his direction vide Letter No. RGIT/J‑312/S.O. 1/4478 dated 27‑3‑2001?

(ii)Why remand report was not submitted to the Income Tax Appellate Tribunal?

(iii)Identify the officers responsible for inaction? ,

(iv)Propose action to be taken against the officers responsible for inaction.

18. Compliance report be submitted by November 20, 2001.

C.M.A:/257/FTO

Order accordingly.