Mst. RUKHSANA AMJAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2002 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2562 (2002)

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

‑‑‑‑S.65‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 2(3)(i)‑‑‑Additional assessment‑‑ Maladministration‑‑‑Harassment‑‑‑Second show‑cause notice under S.65 of the Income Tax Ordinance, 1979 on the same grounds‑‑ Second round of harassment was said to have started with the initiation of proceedings under S.65 of the Income Tax Ordinance, 1979 through a show‑cause notice which was based on the information received although an earlier show‑cause notice issued for the same reason as now, was abandoned considering the explanation submitted by the complainant as satisfactory‑‑‑No new, or definite information, had fallen into the hands of the Assessing Officer on the basis of which he could justify initiation of proceedings under S.65 of the Income Tax Ordinance, 1979‑‑‑Entire exercise was allegedly based on mala fides which attracted the provisions of S.2(3)(i) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000.

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

‑‑‑‑Ss.59(1) & 62‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Self‑assessment‑‑ When assessment under S.59(1) of the Income Tax Ordinance, 1979 stood finalized, it was beyond controversy that assessment under S.59(1) of the Income Tax Ordinance, 1979 was as good as assessment as the one framed under S.62 of the Income Tax Ordinance, 1979 after due deliberation and examination.

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

‑‑‑‑Ss.2(3)(iv)‑‑‑Maladministration‑‑‑Wilful error, committed in the determination of refund, constituted "maladministration" as envisaged by the provision of S.2(3)(iv) of the Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000).

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

‑‑‑‑Ss.9 & 2(3)(iv)‑‑‑Jurisdiction‑‑‑Maladministration‑‑‑Where allega tions of maladministration had been made, the Federal Tax Ombudsman had the jurisdiction to investigate because the bar in S.9 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 was in respect of "assessment of income or wealth, determina tion of liability of tax or duty, classification or valuation of goods, interpretation of law, rules, regulations relating to such assessment, determination, classification or valuation in respect of which legal remedies were available", but there was no bar against investigation in respect of allegations of "maladministration" which were completely independent of the specified proceedings.

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

‑‑‑‑Ss.65, 59(1) & 103‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 2(3)(i)‑‑‑Additional assessment‑‑‑Definite information‑‑‑Show‑cause notice‑‑‑Refund Issuance of show‑cause under S.65 of the Income Tax Ordinance, 1979 thrice without there being any definite and fresh information just to delay for issuance of rightful claim of refund despite in presence of reliable document on record‑‑‑Federal Tax Ombudsman recommended that Special Officer, concerned be admonished for committing wilful error in the preparation of IT‑30 in an attempt to deny the payment of refund to the Complainant Assessing Officer concerned be warned for causing inordinate delay of more than two years for the payment of refund to the complainant; concerned Assistant Commissioner of Income‑tax be directed to drop the proceedings initiated under S.65 of the Income Tax Ordinance, 1979 and be suitably reprimanded for causing unnecessary harassment to the complainant by issuing notice under S.65 of the Income Tax Ordinance, 1979 in the absence of any fresh and definite information concerned Commissioner of Income and I.A.C. be advised to act as vigilant supervisory officer.

Shahid Abbas for the Complainant. .

Ms. Nabila Iqbal, DCIT alongwith Muhammad Umar Zulfiqar, ACIT for Respondent.

DECISION/FINDINGS

1. During the period relevant to assessment year 1997‑98 Mst. Rukhsana Amjad, sole proprietor of Farhan Footwear, Lahore, supplied "shoe uppers" to Bata Pakistan Limited (hereinafter referred as Bata) under NTN 21‑1‑1219299‑6. Return for this year was filed declaring income at Rs.72,000 which was accepted on 30‑12‑1997 under section 59(1) as per Self‑Assessment Scheme. This return of income was supported by a certificate from Bata indicating that during the said year total supplies amounting to Rs.13,165,700 were made on which, tax aggregating Rs.426,702 was deducted under section 50(4) of the Income Tax Ordinance. On the IT‑30 dated 30‑12‑1997, prepared under section 59(1), credit of Rs.426,702 was not given, instead demand created at Rs.3,500 was squared‑up by giving credit of an exactly equal amount of Rs.3,500 in the column prescribed to show 'payment under section 50 of the Ordinance', thus the end‑result was N. D (= No Demand). If is mystery, as to wherefrom this figure of Rs.3,500 was obtained as it does not appear in any document on record.

2. The second round of harassment is said to have started with the initiation of proceedings under section 65 through a show‑cause notice dated 27‑9‑2000, which was based on the information supplied by Bata vide letter dated 4‑11‑1998 although an earlier show‑cause notice issued on 6‑7‑2000 for the same reason as now, was abandoned considering the, explanation submitted by the complainant as satisfactory. No new, or definite information, had fallen into the hands of the A‑CIT on the basis of which he could justify initiation of proceedings under section 65. The entire exercise was allegedly based on mala fide which attracts the provisions of section 2(3) (i) of the Establishment of Office of Federal Tax Ombudsman Ordinance.

3. The assessment records presented by the Representatives of the respondent were perused and it was noted that the respondent's report vide No.RCIT/J‑85/FTO/SO‑1/3916 dated 23‑1‑2002 is shockingly misleading and full of distorted facts. The error wilfully committed in the determination of refund is glaring. As mentioned above, the Return of Income was supported with a certificate from Bata which clearly showed that out of disbursement for Supplies at Rs.13,165,700, tax under section 50(4) was deducted at Rs.426,702 still on the IT‑30, credit was given for a purely imaginary amount of Rs.3,500 (just enough to square up the demand of tax). The view that this was a calculated attempt to avoid creation of rightful refund on the IT‑30 gets support from the succeeding event which reveal that after about 5 months of the original assessment under section 59(1), this IT‑30 was revised under section 156 on 24‑4‑1998 to give credit for Rs.426,702 withheld under section 50(4) but issuance of refund was delayed. Perusal of record brings out that instead of disbursing refund due to the complainant, the Assessing Officer Circle‑06, Zone‑C, Lahore addressed Letter No.83/06 dated 27‑10‑1998 to Bata, under section 144(c) of the Ordinance, summoning information about quantum of Supplies for the period 1‑7‑1993 to 30‑6‑1996. Figures of Supplies and the amount withheld therefrom were furnished by Bata vide No.999/Accounts dated 4‑11‑1998 which tallied with the figures already filed by the complainant in a certificate submitted alongwith the Return of Income. This was evidently an attempt to delay the refund already created.

4. Another noteworthy document on record is Letter No. 1476/R‑II dated 29‑6‑2000 addressed by the Range‑II, Zone‑C, Lahore to his CIT the subject whereof is:‑‑

"Grant of administrative approval for issuance of refund of Rs.423,202.‑‑‑Assessment year 1997‑98 ‑‑‑ Messrs Farhan Footwear, Lahore TR No.21‑6‑1120."

The contents of this communication are very much contrary to its subject inasmuch as instead of submitting the Refund Voucher for countersignature, the requested the Commissioner to grant approval for the withholding of refund under section 103 of the Income Tax Ordinance because, according to him, the assessment framed under section 59(1) was not only 'erroneous' but also "prejudicial to the interest of Revenue" warranting action under section 66A of the Ordinance. The record is, however, silent about the reply from the CIT. Abandoning the proposed resort to section 66A and without recording any reason, a show‑cause notice under section 65 was issued by the D‑CIT under his Ref. No. 1121/C‑06 dated 6‑7‑2000 mentioning the same facts and figures as were referred to by the IAC in his section 66A proposal to CIT. In their response dated 15‑7‑2000, the complainant submitted explanation alongwith the statement and details which it can be safely inferred was found satisfactory by the D‑CIT as there followed no correspondence between him and the complainant. It may also be noted that the show‑cause notice was illegal and without jurisdiction.

5. The next relevant document is Letter No. J/590 dated 28‑10‑2000 from CIT to the D‑CIT, in response to complainant's application for refund dated 21‑10‑2000, calling for a 'detailed report' followed by a reminder on 8‑11‑2000 in response to which the Special Officer, Circle‑06 (then incharge of the Circle sent an interim reply No.51/06 dated 15‑11‑2000 after having written to Manager Accounts), Bata on 14‑11‑2000 requiring him to furnish the same' information which had already been twice provided by Bata and was available on record. Bata supplied this information vide No. 999/Accounts dated 21‑11‑2000 after the perusal of which the Special Officer addressed Letter No. 101/01 dated 21‑12‑2000 soliciting administrative approval to issue refund‑at Rs.423,202 which was duly accorded by the CIT 9‑1‑2001 vide Letter No.1002/J. After the receipt of this approval, a refund voucher of Rs.423,202 was prepared and signed by the A‑CIT, and countersigned by the IAC on 25‑1‑2001 and was finally issued on 10‑2‑2001.

6. It emerges that despite presence of reliable document on record; the issuance of a rightful claim of refund was delayed for over three years and, during the intervening period, same information was thrice obtained on the excuse of double check. The matter, it seems, has still not attained finality because now, after about seven and half months after the issuance of refund, the assessment record was transferred on 29‑6‑2001 'to the A‑CIT Circle‑01, Zone‑C, Lahore who once again, by issuing a show‑cause notice for action under section 65 on 27‑9‑2001, has restarted the chain of harassment. Unlike the earlier show‑cause notice of 6‑7‑2000, the notice dated 27‑9‑2001 carries the prior approval accorded by the IAC vide Letter No.246/R‑I dated 26‑9‑2001. The amazing aspect is that no 'fresh' or `definite' information has come into the possession of the A‑CIT subsequent to the first show‑cause notice in response to which the complainant filed explanation, supported with documentary evidence, after which proposed action under section 65 was dropped and, later on, refund also was issued lending support to the presumption that complainant's explanation was considered satisfactory. The similarity. between the first and the second show‑cause notice is that the basis for issuance of these two is the same i.e. information furnished by Bata vide Letter No.999/Accounts dated 4‑1 1‑1998. The point of difference is that explanation is sought in respect of different figures of the so‑called "peak credit". In the first show‑cause notice the query pertained to 'peak credit' at Rs.2,893,240 appearing in .the 47th week of financial year whereas in the second notice explanation is required about "peak credit", of Rs.2,263,712 appearing in the 51st week of the year 1996. It is, at once discriminable that no fresh and definite information has come into Department's hand after 4‑11‑1998 to justify action under section 65. The IAC, it is very much evident, made no serious endeavour to ponder over the facts of the case and routinely accorded permission vide Letter No. 246/R.I dated 26‑9‑2001. However, in compliance to this show‑cause notice of 27‑9‑2001, the complainant's AR appeared on 5‑10‑2001 to request adjournment which was allowed for 15‑10‑2001 as per entries on "Order Sheet dated 15‑10‑2001 which read as under:‑‑

"Present Mr. Shahid Abbas (AR) for the assessee. Mr. Shahid inspected the record and complained that on this issue of peak credit balance of Rs.2,263,712 our reply made be treated the same as submitted vide letter dated 15‑7‑2000 obtaining on the record."

He was further confronted that on 1‑7‑1996, first supply amounting to Rs.246,400 was forwarded to Messrs Bata (Pvt.) Limited and' similarly second supply made on 10‑7‑1996 amounting to Rs.240,00. The first payment was received from Messrs Bata (Pvt.) Limited on 9‑7‑1996 which clearly has no contribution to the said two consignments of supplies. He was confronted on the point of small amount of capital employed in business at Rs.120,000.

Mr. Shahid (AR) replied that the total supplies made were of Rs.470,000, the amount over and above the capital. The capital includes the G.P. Direct Expenses, Labour Expenses and material on credit:

The case discussed in the light of the above".

Feeling dissatisfied with the above recorded explanation, the A-CIT addressed letter No.713/COI dated 21‑11‑2001 to the IAC seeking, statutory approval for formal reopening of assessment for the year 1997-98 by resort to section 65 of the Income Tax Ordinance, which was readily granted on the same date vide his Letter No.495/R‑I, whereafter the proposed statutory notice was issued on 22‑11‑2001. The complainant then approached the CIT Zone‑C, Lahore through applications dated 4‑12‑2001 and 24‑12‑2001 requesting intervention as action under section 65 had been initiated by the A‑CIT without there being any definite and fresh information hence an instance of mere "change of opinion". On both occasions, the CIT rejected the representations, apparently, without consulting the record. The AR of the complainant then requested the A‑CIT on 10‑1‑2002 to "hold the proceedings in abeyance" till the decision on complaint lodged with the Federal Tax Ombudsman on 10/11‑1‑2002.

7. The respondent vehemently contends, that the complainant has not been able to establish maladministration on the part of the respondent as defined in Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

8. The facts narrated above leave no room for doubt that from the very beginning the proceedings had a taint of "maladministration". The Representatives of the respondent could not advance any justification for such deliberate mistakes as giving credit for withholding tax at Rs.3,500 only in the IT‑30 prepared on 30‑12‑1997 under section 59(1) when the record already had a certificate from Bata which left no justification for probing into the Supplies made, and the tax deducted under section 50(4), moreso when assessment under section 59(1) stood finalized. It is beyond controversy that assessment under section 59(1) is as good an assessment as the one framed under section 62 after due deliberation and examination. There is no getting away that this wilful error, committed in the determination of refund, constituted "mal administration" as envisaged by the provisions of section 2(3)(iv) of the Establishment of Federal Tax Ombudsman Ordinance. The IAC also attempted to get the refund withheld under section 103 on extremely flimsy grounds mentioned in his Letter No.1476/R‑II dated 29‑6‑2000 addressed to the CIT, Zone‑C; Lahore in which he expressed the intention to invoke the provisions of section 66A. Only a week thereafter the D‑CIT served a show‑cause notice on 6‑7‑2000 on the complainant, with the approval of IAC, "as to why the assessment should not be reopened under section 65". It is beyond comprehension that for the very same reason the IAC wanted to take action under section 66A whereas the D‑CIT served show‑cause notice for action under section 65. The D‑CIT, however, did not reopen the assessment under section 65 after the receipt of the complainant's explanation dated 15‑7‑2000. Moreover, the supplies made‑and the tax deducted were duly supported by a Certificate from the company which was attached with the return of income and was believed by the Assessing Officer when he framed the assessment under section 59(1). There was no valid ground for demanding fresh proof after completion of assessment under section 59(1) except with the intention to cause harassment to the complainant and block the refund. By commission of this act, which is contrary to law, the provisions of section 2(3)(i) of the Establishment of Federal Tax Ombudsman Ordinance, 2000 are clearly attracted.

9. The respondent has raised objection to the jurisdiction contending that:

"The complaint is against the proceedings which relate to assessment of income and legal remedies of appeal/revision are available under the Ordinance. As such the complaint of the assessee is not entertainable in view of provisions of section 9(2)(b) of the Establishment of Federal Tax Ombudsman Ordinance, 2000. "

It appears appropriate to point out that when "maladministratioin" is alleged, there remains no bar restraining the Federal Tax Ombudsman to investigate into such allegations. It is now well‑settled through an elaborate decision/finding in Complaint No.1250/01 that where allegations of maladministration have been made, the Federal Tax Ombudsman has the jurisdiction to investigate, because the bar in section 9 is in respect of "assessment of income or wealth. determination of liability of tax or duty, classification or valuation or goods, interpretation of law, rules, regulations relating to such assessment, determination, classification or valuation in respect of which legal remedies are available", but there is no bar against investigation in respect of allegations of "maladministration" which are completely independent of the specified proceedings. This objection by the respondent, therefore, has no force. It is, recommended that:‑‑

(i) Mr. Shafiq‑ur‑Rehman Siddiqi, Special Officer, Circle‑06 Zone‑C, Lahore be admonished for committing wilful error in the preparation of IT‑30 on 30‑12‑1997 in an attempt to deny the payment of refund to the complainant.

(ii) Mr. Farzand Ali Qureshi, ITO, Circle‑06 Zone‑C, Lahore F Mr. Qamar Haider, D‑CIT, Circle‑06 Zone‑C, Lahore and Mr. Muhammad Parvez, Special Officer, Circle‑06, Zone‑C, Lahore be warned for causing inordinate delay of more than two years for the payment to refund to the complainant.

(iii) Mr. Muhammad Umar Zulfiqar, A‑CIT, Circle‑01, Zone‑C, Lahore be directed to drop the proceedings initiated under section 65 and be suitably reprimanded for causing unnecessary harassment to the complainant by issuing notice under section 65 in the absence of any fresh and definite information.

(iv) The concerned CIT, Zone‑C, Lahore and‑ Mr. Javed Aziz I.A.C. Range‑I, Zone‑C, Lahore be advised to act as vigilant, Supervisory Officer.

10. Compliance report be submitted within 30 days of the receipt of this order.

C.M.A./M.A.K./371/FTO

Order accordingly.