RAO & COMPANY, KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2002 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2143 (2001)

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑Ss.14(8) & 9‑‑‑Complaint to Federal Tax Ombudsman ‑‑‑Review‑‑ Recall of order‑‑ ‑Service of notice after expiry of date of hearing‑‑ Review application was allowed and the order passed in the absence of complainant was recalled on the ground that notice was served much after the expiry of the date of hearing as was evident from the various postal stamps on the envelope.

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

‑‑‑‑Ss. 62, 65 & 13(1)(dd)‑‑‑Income Tax Rules, 1982, R.207‑A‑‑‑C.B. R. Circular No.3 of 1967, dated April, 1967‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 2(3)‑‑ Stamp Act (II of 1899), S.27A‑‑‑Additional‑assessment‑‑‑Definite infor mation ‑‑‑Stamp duty valuation‑‑‑Collector's valuation table‑‑‑Value of property was assessed on which stamp duty was paid and accepted by the Registrar‑‑‑Copies of sale agreement and transfer sales were filed at the time of assessment‑‑‑Proceedings under S.65 of the Income Tax Ordinance were initiated on the ground that the department was in possession of definite information that the value of the plot declared was understated as the minimum value determined under R.207A of Income Tax Rules, 1982 read with S.13(2) & (3) of Income Tax Ordinance, 1979 on the basis of Collector's Rate was higher than the declared value‑‑ Validity‑‑‑At the time of making assessment in the presence of existing Rules it was open for the Assessing Officer to have evaluated the property on the basis of Collector's value instead of stamp duty valuation‑‑‑Assessing Officer had made conscious decision by accepting the stamp duty value‑‑‑Registrar, in case of doubt about the price of property, could make reference to the Collector to determine the value upon which stamp duty was to be paid but he failed to do so‑‑‑Neither any definite information was with the Department nor misdeclaration was noticed and it was merely a change of opinion‑‑‑Assessing Officer in wealth tax assessment had valued at the Collector's valuation much after the assessment had been framed by the Income‑tax Officer‑‑‑Subsequent order by the Wealth Tax. Officer valuing a property at Collectors Valuation rate which though available with the Income‑tax Officer but was not adopted would not tantamount to definite information‑‑‑Action taken by the Department was illegal and not according to law which fell within the category of mal‑administration‑‑‑Federal Tax Ombudsman recommended that notice under S.65 and proceedings in consequence thereof initiated against the complainant were illegal and of no legal effect and the same be closed and cancelled.

Central Insurance Co. and others v. C.B.R. 1993 PTD 766 = 1993 SCMR 1232; Republic Motors Ltd v. Income Tax Officer 1990 PTD 889 and Philips Electrical Company of Pakistan v. Income Tax Officer and another 1990 PTD 389 rel.

Nizamuddin, ITP for the Complainant.

Ahmed Saeed, IAC, Range‑III, Zone C.

Hamid Saeed Khan, Special Officer for the Department.

ORDER

This is a review application filed by the complainant on the ground that they could not appear on the date of hearing fixed on 22‑8‑2001 as the notice was received on 8‑9‑2001. On 15‑10‑2001 when the matter was fixed Mr. Nizamudin, ITP was present but none appeared for the department. Mr. Nizamuddin reiterated the same and produced original envelope bearing stamp of the Post Office from which it is clearly indicated that notice was served on the complainant after the date of hearing. In these circumstances a notice was issued to the department to appear on 19-10-2001 alongwith all the record of the case. I have heard both the parties. It is clearly established that notice was served much after the expiry of the date of hearing. From the various postal stamps on the envelope it is clear that the Post office was at fault. In these circumstances the review application is allowed and the order passed on 22-8-2001 in the absence of the complainant is recalled.

2. I have heard the representative of the parties. The complainant has alleged that he is one of the members of Association of Persons of Messrs Rao Israr & Co., Karachi and derives income from commission as well as from construction and sale of flats/shops. The assessment for the year 1995‑96 was finalised on 12‑12‑1995 under section 62 of the Income Tax Ordinance, 1979 determining income of Rs.52,677 as against returned/declared net loss of Rs.30,980. It has further been alleged that under the head of construction account the value of Plot bearing No. FL‑24, Block‑13, Scheme No. 36, Gulistan‑e‑Jauhar, Karachi was declared at Rs.36,00,000 which was accepted after examination for being more than the stamp duty value. The Assessing Officer issued a letter, dated 9‑6‑2001 alongwith notice under section 65 of the Income Tax Ordinance, 1979 to reopen the case for being under assessed. The complainant replied that the assessment for the year under consideration was finalised under section 62. The notice stated that the office was in possession of definite information that the value declared in respect of plot was understated as the minimum value determined under rule 207A of Income Tax Rules, 1982 read with section 13(2) and (3) of income Tax Ordinance. 1979 on the basis of Collector's Rate comes to Rs.4,206,684. The working was calculated at the rate of 867 per sq, yds. and that it was a clear case of concealment and the balance amount of Rs.606,684has been paid out of undisclosed sources attracting the provisions of section 13(l)(d). It further stated that the case of the complainant has been re‑opened under section 65 of the Income Tax Ordinance after obtaining the statutory approval from the competent Authority and a notice under section 65 was enclosed for compliance on 8‑6‑2001.

3. The complainant replied that during assessment after proper examination of documents of plot its declared value was accepted as Rs.36,00,000 Reference was also made to agreement dated 16‑11‑1994 for Rs.30,00,000 and payment of transfer fee of Rs.4,30,000 to KDA. It was further stated that copy of sale agreement and copy of transfer sales were filed. The purchase price being reasonable the stamp duty price was accepted. It was objected that notice has beenissued after expiry of five years from the end of assessment year, which was finalised on 12‑12‑1995, and the period of five years expired on 12‑12‑2000. It was specifically stated that this is not a case of definite information and reference ways made to Circular No.3, Income Tax, 1967, dated April, 1967. All the information was already on record and there is nothing new nor any additional information was available for purposes of reopening the case under section 65. The notice is mala fide and amounts to change of opinion.

4. Notice was issued to the department which pleaded that although the declared value of the plot was accepted it was observed that the same was understated when compared to the value determined on the basis of category of Collector's value, table accordingly assessment was reopened. The value declared was understated as the value for residential Category‑II determined under rule 207A of Income Tax Rules, 1982 read with section 13(2) and (3) of the Income Tax Ordinance, 1979 on the basis of Collector's Rate comes to Rs.4,206,684. This is a clear case of concealment, and therefore, the inference drawn for attracting sections 65/13(1)(d) was justified. It was further pleaded that the said plot for the assessment 1997‑98 to 1999‑2000 has been assessed to wealth tax at value determined for Category‑II on the basis of Collector's Rate.

5. I have heard both the parties. So far the question of limitation is concerned the same does not hold any ground. After hearing the arguments of the representative of the Department, the complainant's representative did not press this objection as notice under section 65 is within time.

6. The second and main question is whether on the basis of Collector's Rate the assessment can be reopened and the declaration made by the complainant can be treated as a misdeclaration. The issue involved attracts section 65 of Income Tax Ordinance, which provides that no proceeding for re‑opening the case under subsection (1) shall be initiated unless definite information has come into the possession of the Deputy Commissioner. The term `definite information' has been subject -matter of judicial pronouncement by the superior Courts. It is now well settled that if an assessee has declared the value without any concealment and the assessment has been conclusively completed by the Income‑tax Officer in the absence of the discovery of any new facts which can be treated as definite information there is no scope of reopening under section 65 on the ground referred in section 65(1)(a) and (b). It was further held that any change of opinion on the same material by the Income‑tax Officer will not warrant pressing into service, section 65(1) (Central Insurance Co. and others v. C.B.R. 1993 PTD 766 = 1993 SCMR 1232). It was further held that the term `definite information will include factual information as well as information about existence of a binding judgment of a competent Court of‑law/forum for purposes of section 65 of the Ordinance. In this judgment the observation made in Republic Motors Ltd. v. Income‑tax Officer 1990 PTD 889 and Philips Electrical Company of Pakistan v. Income‑tax Officer and another, 1990 PTD 389 were quoted with approval.

7. Having determined the scope of the term `definite information' as interpreted by the Supreme Court it is to be examined whether information on the basis of which the Income‑tax Officer decided to re open the case was as required by section 65. The complainant had filed sale agreement and all the necessary documents to show that he had spent Rs.36,00,000, which according to him was the price, accepted by the Registrar at the time of registration and stamp duty was duly paid on it. The stand of the department is that the calculation ought to have been made on the basis of Category‑II of Collector's Value Table notified by notification dated 12‑4‑1999 and the minimum value for residential Category‑II must be determined under rule 207A of Income Tax Rules, 1982. Therefore, at the time of assessment the rule existed and the Income‑tax Officer had the option to determine the value on the basis of stamp duty value or Collectors value. The Assessing Officer accepted the declaration and the documents filed by the complainant and did not value it on the basis of the circular referred by the respondent. In the assessment order the following observation was made:‑‑‑

"During the year the assessee has purchased a plot measuring 4852 sq. yds. bearing No.FL‑24, Block‑13, Scheme No‑.36, Gulistan‑e‑Jauhar, Karachi for a total consideration of Rs.30,00,000 vide agreement, dated 16‑11‑1994 and Rs.4,30,000 paid to K.D.A. for transfer fee. In this regard the assessee has filed the copy of sale agreement and copy of transfer orders. The assessee started a project comprising of 166 flats under the project name Rad Zebaish. The value declared by the assessee is more than the stamp duties value. The purchase price being reasonable and more than stamp duty value, is therefore, accepted. The investment in the plot is also verified as discussed in the preceding paragraph."

8. At the time of making assessment in the presence of existing rule it was open for the Assessing Officer to have evaluated on the basis of Collector's value instead of stamp duty valuation. The Assessing Officer thus made a conscious decision by accepting the stamp duty value, although in the assessment order reference has not been made to the Collector's valuation but it makes no difference as he is expected to know the relevant law and rules. It may be noted that at the time of presentation of documents before the Registrar, in case of doubt about the price of the property he could make reference to the Collector to determine the value upon which stamp duty is to be paid. This did not present case. From the factual position it is clear that there was any definite information nor misdeclaration by the complainant. It, is merely a change of opinion. In the Wealth Tax assessments the Assessing Officer had valued at the Collector's valuation on 22‑9‑2000 much after the assessment had been framed by the Income tax Officer. A subsequent order by the Wealth Tax Officer, valuing a property at Collectors Valuation rate which though available to the not adopted cannot be termed a definite information. In these circumstances the action taken by the department is illegal and not according to law. This falls within the category of maladministration.

9. It is recommended that:

(i) The notice under section 65 and proceedings in consequence thereof initiated against the complainant are illegal and of no legal and the same be closed and cancelled.

(ii) Compliance to be reported within 30 days.

C.M.A./M.A.K./282/FTO Order accordingly.