NEW SAKHAWAT JEWELLERS VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2002 P T D 2809
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
NEW SAKHAWAT JEWELLERS
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No.233‑L of 2002, decided on /01/.
th
July, 2002. Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.65 & 59(1)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9(2)‑‑‑Additional Assessment‑‑Change of opinion‑‑Jeweller‑ Purchase and sale‑‑‑Labour charges‑‑‑Assessment completed under S.59(1) Income Tax Ordinance, 1979 was reopened on the ground that nature of business shown on the face of the return was `labour charges' but no receipts from such source were declared and the entire declared income was shown to be from `purchase and sale of jewellery‑‑‑Assessee contended that nature of business was inadvertently written as `labour charges'‑‑‑Return was filed declaring income as per computation chart which‑ certainly was examined and seen by the Assessing Officer and this was a mistake or irregularity but could not be said concealment of income in terms of S.65(2) of the Income Tax Ordinance, 1979‑‑‑No, new fact was available on record except the material which already was available before the Assessing Officer and `thus proposed action amounted to change of opinion which was prohibited in law‑‑‑Validity‑‑‑Proceedings under S.65 of the Income Tax Ordinance, 1979 were mala fide because no labour charge's received by the complainant were unearthed by the Assessing Officer on the basis of which it could be said that the complainant had not declared correct income‑‑‑No income had escaped assessment which could be treated as a basis for invoking the provisions of S.65 of the Income Tax Ordinance, 1979‑‑‑Proceedings initiated under section 65 of the Income Tax Ordinance, 1979 were obviously illegal, amounting to "maladministration" thus vesting Federal Tax Ombudsman to investigate the matter‑‑‑Federal Tax Ombudsman recommended that the Commissioner of Income‑tax should cancel the assessment framed under section 63/65 of the Income Tax Ordinance, 1979 by taking suo motu resort to S.138 of the Income Tax Ordinance, 1979 and to restore the order passed under S.59(1) of the Income Tax Ordinance, 1979.
Khawaja Riaz Hussain and Mr. Moeen‑ud‑Din for the Complainant.
Haroon Waqar Malik, A‑CIT for Respondent.
DECISION/FINDINGS
The Complainant is aggrieved by the allegedly illegal reopening of his assessment for the year 1996‑97 by resort to Section 65 of the Income Tax Ordinance.
2. The Complainant's Counsel explained that he runs a jewellery shop and filed return under the Self‑Assessment Scheme declaring Income at Rs.48,100 for the year 1996‑97 which was accepted under Section 59(1) of the Ordinance. Later, the assessment was reopened under section 65 allegedly without statutory approval of the IAC. The show‑cause notice dated 28‑5‑2001 issued by the A‑CIT, Circle‑07, Zone‑A, Lahore mentioned that in the Return of Income for the year 1996‑97 "labour charges were not declared which tantamounts to concealment of a source of income. The Complainant/assessee was confronted with the fact that the nature of business shown on the face of the return was `labour charges' but no receipts from this source were declared and the entire declared income was shown to be from `purchase and sale of jewellery'. The Notice under section 65 issued on 20‑6‑2001 had a `tick mark' on the column pertaining to "escaped assessment".
3. The stand of the respondent vide report bearing No.RCIT/J 85/FTO/A/SO‑I/5053 dated 29‑3‑2002 is that legal remedies were available to the Complainant to challenge the assessment framed under sections 63/65 and, therefore, the case falls out of the jurisdiction of the FTO Secretariat under section 9(2)(b) of the Establishment of the Office of Federal Tax Ombudsman Ordinance. It is contended:‑‑‑
that the action under. section 65 was taken after fulfilling all the legal requirements i.e. obtaining definite information of concealment (source of income in the form of labour receipt which has escaped assessment) and obtaining prior permission from the competent authority vide IAC Range‑IV, Zone‑A, Lahore's Letter No.1267/R‑III dated 20‑6‑2001 ‑and issuing statutory notice under section 65 for the assessment year 1996‑97 on 20‑6‑2001 ensuring proper service on the assessee of the above notice.
4. The discussion with the two representatives and scrutiny of record revealed that statutory permission of the IAC was very much obtained but what calls for determination is whether the A‑CIT had any "definite information" as respects concealment of a source of income and whether there was valid basis on which assessment already made under section 59(1) could be reopened by invoking the provisions of section 65. In reply to show‑cause notice dated 28‑5‑2001 the Complainant submitted a written explanation with regard to `labour charges', which reads as under:‑‑
"That the assessee undisputedly is a jeweller and keeps, on declaring income from sale of jewellery. However, the nature of business was inadvertently written 'as `labour charges'. But at the same time the return was filed declaring income as per computation chart which certainly was examined and seen by the then assessing officer. This is a mistake or irregularity but cannot be said concealment of income in terms of section 65(2) of the Income Tax Ordinance, 1979".
It also was stated in the said reply "that there is no new fact available on record except the material which already was available before the then learned assessing officer" and `thus your proposed action amounts to change of opinion which is prohibited in law as enunciated in countless judgments of Appellate Courts'. It is pertinent that the notice under section 62, issued on 19‑1‑2002 did not specify any material on the basis of which it could be said that the Complainant had earned income from labour charges during the year. The Inspector's report which is reproduced at page 2 of the notice under section 62 is silent about income from labour charges. In his report the inspector mentioned that the Complainant was an individual and derived income from business of gold ornaments but there is not even a passing remark that the Complainant is deriving .income from labour charges also. In the concluding part of his report the Inspector proposed an estimate of Sales but made no proposal for income from Labour charges. Similarly, the notice under section 62, the A‑CIT dad offer a proposal for estimate of jewellery sale and the GP rate to be applied thereon but nowhere did he even obliquely express the intention to assess any income from labour charges. It is, therefore, evident that the very basis on which the edifice of action under section 65 was built was totally missing from the notice under section 62 for the obvious reason that the A‑CIT did not possess, `definite information' about the Complainant's income from labour charges. In despair the Complainant approached the R‑CIT vide his letter dated 28‑1‑2002 requesting directions to the, A‑CIT to drop the illegally initiated proceedings under section 65 but the request remained un-responded and finally order under sections .63/65 was passed by the A‑CIT. The Respondent's Representative repeated the arguments contained in the report dated 29‑3‑2002 but the AR of the Complainant took the firm stand that the proceedings under section 65 were mala fide because no labour charges received by the Complainant were unearthed by the assessing officer, on the basis of which it could be held that the Complainant had not declared correct, income. No income thus escaped assessment which could be treated as a basis for invoking, the provisions of section 65 of the Income Tax Ordinance. The proceedings initiated under section 65 were obviously illegal, amounting to "mal‑administration" thus vesting the FTO to investigate the matter as has already been held in Decision/Finding on Complaint No.1250 of 2001. It is, therefore, Recommended that:‑
The CIT, Zone‑A, Lahore should cancel the assessment framed under section 63/65 by suo motu resort to section 138 of the Income Tax Ordinance and to restore the order passed under section 59(1) of the Ordinance.
5. Compliance report be submitted within 30 days of the receipt of this order.
C.M.A./M.A.K./535/FTO
Order accordingly.