SOFIA NAVEED VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2002 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2821 (2002)

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

‑‑‑‑S.59‑‑‑Establishment of Office of, Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9(2)(b)‑‑‑Jurisdiction‑‑‑Self‑Assessment Scheme‑‑ Exclusion of case from, Self‑Assessment Scheme‑‑‑Determination of validity of such exclusion‑‑‑Matter squarely fell within the competence of the Federal Tax Ombudsman to determine whether a case had been rightly excluded from the Self‑Assessment Scheme.

(b) Income‑tax‑‑‑

‑‑‑‑Principle place of business ‑‑‑Assessee cannot have one principal place of business for one type of tax and another principal place for a different tax.

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

‑‑‑‑S.59‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Self assessment ‑‑‑CBR Circular No.21 of 2000, dated 11‑9‑2000, para. 6 (Self‑Assessment Scheme 2000‑2001)‑‑ Balloting of returns qualifying for Self‑Assessment Scheme‑‑‑Returns filed under Self‑Assessment Scheme were to be selected for audit through computer balloting which meant that only those returns were to be included in the computer ballot which qualified under Self‑Assessment Scheme.

(d) Income Tax Ordinance (XXXXI of 1979)‑‑‑

‑‑‑‑S.59‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Self assessment ‑‑‑CBR Circular No.21 of 2000, dated 11‑9‑2000, para. 6 (Self‑Assessment Scheme 2000‑2001‑‑ Acceptance of return under Self‑Assessment‑‑‑Limitation‑‑‑Provision of S.59(4) of the Income Tax Ordinance, 1979 had .though been omitted for the assessment year 2000‑2001 but it would not be reasonable to assume that the question of acceptance of a return under the Self‑Assessment Scheme could be kept open indefinitely particularly when subsection (4) was reinserted through Finance Ordinance, 2001.

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

‑‑‑‑S.50‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Self‑Assessment‑‑‑CBR Circular No.21 of 2000, dated 11‑9‑2000 (Self‑Assessment Scheme 2000‑2001)‑‑‑Prorating of expenses‑‑‑Adjustment of‑‑‑Within the frame work of Self‑Assessment Scheme there was room for making the relevant adjustment on account of prorating of expenses without excluding the return from Self‑Assessment Scheme.

1999 PTD (Trib.) 2884 ref.

(f) Income Tax Ordinance, (XXXI of 1979)‑‑‑

‑‑‑‑Ss.59(1)(3)(4), 11(20(b) & 143‑B‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.19 ‑‑‑ CBR Circular No. 12 of 1991, dated 30‑6‑1991‑‑‑Self‑Assessment‑‑‑CBR Circular No.21 of 2000, dated 11‑9‑2000, para. 4(h), 5(a) & 6 (Self- Assessment Scheme 2000‑2001)‑‑‑ Return was filed under Self Assessment Scheme alongwith statement under S.143B of the Income Tax Ordinance, 1979‑‑‑Initial Security of the return was made and fed the return to computer for balloting which was not selected for total audit‑‑‑Subsequently, a notice was issued for exclusion of the return from Self‑Assessment Scheme on the ground that expenses had not been correctly prorated and had the same been correctly done by the assessee the income would have been increased instead of declared income and provision of para. 4(j) of the Self‑Assessment Scheme relating to concealment of income were attracted‑‑‑Validity‑‑‑In computation chart expenses were duly prorated in respect of commission covered by S.80C of the Income Tax Ordinance, 1979 but no expenses were allocated to supplies which could not be considered as a misrepresentation of facts which could amount to concealment or would disqualify the return from the Self‑Assessment Scheme 2000‑2001 in the light of its para. 4(h) or otherwise as the prorating of expenses was largely a matter of opinion and estimate rather than a matter involving "legally inadmissible deduction" ‑‑‑Claim that at best the Assessing Officer could have made adjustments in the declared income under S.59(3) of the Income Tax Ordinance, 1979 was right‑‑‑Federal Tax Ombudsman recommended that the Assessing Officer to treat the complainant's return for assessment year 2000‑2001 as covered by the Self‑Assessment Scheme but may make necessary adjustment in accordance with S.59(3) of the Income Tax Ordinance, 1979 after considering the complainant's version in this regard.

1996 PTD (Trib.) 734 and 1999 PTD Trib.) 2884 ref.

Mian Masood Ishaque, Advocate and Nasir Khurshid, ITP for the Complainant.

Ahsan Raza, ACIT for Respondent.

FINDINGS/DECISION

This is a complaint relating to income tax assessment for the year 2000‑2001 in which the issue of jurisdiction and the exclusion of the complainant's return from the Self‑Assessment Scheme is involved. The main points in the complaint are as follows:

(i) The complainant was an existing income tax-assessee at Karachi where the return for the assessment year 2000‑2001 was filed.

(ii) Vide a letter dated 29‑12‑2001 the complainant was informed of the transfer of the jurisdiction of the case to Circle 42, Faisalabad.

(iii) The complainant's principal place of business is situated at Karachi and an objection was filed against the transfer of jurisdiction but to not avail.

(iv) The complainant had filed the income tax return for the year 2000‑2001 at Karachi declaring income of Rs.621,067 on which tax of Rs.108,094 was paid which was more than 20% of the tax for the assessment year 1999‑2000.

(v) The complainant also filed a statement under section 143B of the Income Tax Ordinance as she had sources of income for which the tax deducted was the final discharge of tax liability.

(vi) A computation of income was furnished along with the tax return in which the complainant prorated profit & loss account expenses and added those expenses to total income, which were proportionately related to the income' covered by the statement under section 143B.

(vii) As per para 5(a) of Self‑Assessment Scheme, 2000‑2001, the Assessing Officer had' to make initial scrutiny of the return to determine its eligibility after which it .was fed into the computer for balloting with other self‑assessment returns.

(viii) The return was not selected for audit either through random ballot or by the RCIT but on 29‑12‑2001 the Assistant Commissioner of Income Tax, Circle 42, Faisalabad issued a notice under section 61 in which certain explanations ‑were called for.

(ix) The complainant tiled an objection to the issuance of the notice but a show‑cause notice dated 4‑4‑2002 was then received regarding the exclusion of the complainant's return from the SAS for the stated reason that the complainant had not correctly prorated the expenses and if this had been correctly done the income would have worked out at Rs.701,731 instead of Rs.621,067 declared. According to the Assessing Officer the provisions of para 4(i) [actually para 4(j) relating to concealment of income were, therefore, attracted.

(x) The exclusion of the return from SAS was illegal and amounted to maladministration for the following reasons:

(a) The return qualified for SAS and the tax due was fully paid.

(b) In accordance with para 5(a) of SAS, the Assessing Officer made the initial scrutiny of the return and having found it eligible for acceptance under SAS included it in the computer' ballot.

(c) Fishing type of inquiries were made after 30‑6‑2001 with the intention to deprive the complainant of the benefit of SAS. Such type of inquiries are not permissible under the law as held by appellate authorities e.g. in the case reported as 1996 PTD (Trib.)734.

(d) Even the working as given by the Assessing Officer is not correct and also for this purpose a gross profit of Rs.99,000 has been estimated on the supplies (covered by section 80C) although no such gross profit had been declared.

(e) The reinsertion of section 59(4) in the Income Tax Ordinance through Finance Ordinance, 2001 had retrospective effect and as the return had not been, excluded from SAS till 30‑6‑2001, the action could not be taken after 30‑6‑2001.

(f) Even otherwise 'section 59(3) of the Income Tax Ordinance empowers the Assessing Officer to make necessary adjustment while assessing the total income and determining the tax payable under subsection (1). Thus if the Assessing Officer was of the view that certain inadmissible expenses had been charged against income he could have made the necessary adjustment under SAS. Thus if there is a difference of opinion in the matter the complainant can be confronted with the proposed adjustment and further action can be taken according to facts.

It has thus been prayed that the action of the Assessing Officer in excluding the complainant's return for the assessment year 2000‑2001 from SAS may be declared as illegal and without jurisdiction and. recommendation be made for acceptance of the return under SAS.

2. The respondent's reply has been received and the representatives of the complainant and the respondent have attended and have been heard. In the respondent's reply it is stated that the complainant's principal place of business is at Faisalabad where the deductions under different heads of section 50 are made. Seven telephones are also statedly installed at the business premises there which also shows that the main business is at Faisalabad. It is also stated that in the sales tax returns the complainant has herself shown the principal place of business at Faisalabad. With regard to the exclusion of the complainant's return from SAS the respondent's reply contains the following main points:

(i) The return did not qualify for SAS since no expenses had been allocated to supplies made by the complainant as was required by CBR Circular No. 12 of 1991.

(ii) Unless an assessment order was communicated the complainant's claim that the return qualified under SAS was premature.

(iii) Feeding of return for computer ballot does not amount to acceptance of the return for purpose of SAS.

(iv) No prior scrutiny was made in terms of para 5(a) of SAS and the complainant's claim in this regard is incorrect.

(v) The complainant had not allocated any expenses to the business of supplies for which the receipts were shown at Rs.990,000 and on which the tax deducted constituted final discharge of liability. In the light of the CBR Circular No. 12 of 1991 the complainant was required to pro‑rate expenses to this business of supplies also which was not done. According to section 111(2)(b) of the Income Tax Ordinance, claiming any deduction for, or showing, any expenditure not actually incurred amounted to concealment of income. The complainant's case was thus rightly ‑ excluded from SAS in the light of its para. 4(h).

(vi) The Self‑Assessment Scheme 2000‑2001 does not provide that initial scrutiny of return would be made first and then the return would, be fed for computer ballot. In fact, all returns filed under SAS are fed into computer for random balloting. If; however, later, on scrutiny of the return it is found not to‑qualify for SAS, it is processed under normal law:

(vii) Examination of a return for purpose of adjudging its fitness for acceptance under SAS does not constitute fishing enquiries. The complainant's contention that the Assessing Officer has not correctly worked out the proration of expenses is also incorrect. The complainant had failed to declare the gross profit on supplies of Rs.990,000 and therefore gross profit, was taken at 10% for purpose of prorating the expenses.

(viii) Section 59(4) was deleted through Finance Act, 2000 and was re‑inserted through Finance Ordinance, 2001. These provisions were thus inoperative for the assessment year 2000-2001.

(ix) According to par a 4(h) of SAS, cases where income had been declared without adding back inadmissible expenses did not qualify under the scheme. The complainant's return did not, therefore, qualify for acceptance under SAS.

(x) In the light of the above no maladministration is involved in the case.

3. At the tune of hearing, additional contentions were also filed on behalf of the respondent that since the matter related to assessment it fall within the ambit of section 9(2)(b) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

4. The contentions of the two sides have been considered and as regard the respondent's preliminary objection in the context of para. 9(2)(b) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 is concerned it has no merit since it is perfectly within the competence of the Federal Tax Ombudsman to determine whether a case has been rightly excluded from the SAS. As far as question of jurisdiction of Assessing Officer at Faisalabad is concerned the respondent's contention appears to be valid. There seems to be adequate evidence that the complainant's principal place of business is at Faisalabad particularly when it has been thus stated in her sales tax returns. Obviously an assessee can not have one principal place of business for one type of tax and another principal place for a different tax. In fact the question of jurisdiction in the complainant's case arose as a result of enquiries .initiated by the Assessing Officer at Karachi and it seems to have been mutually agreed that the proper jurisdiction was at Faisalabad.

5. Regarding the question of exclusion from SAS it was seen that the return for the assessment year 2000‑2001 was filed at Karachi under SAS where it was included in computer balloting but was not selected for audit. It was only after the file had been transferred to Faisalabad did the Assessing Officer at Faisalabad intimate vide letter dated 4‑4‑2002 that the case was being excluded from the SAS. There thus appears to be considerable merit in the complainant's contention that her return was considered by the Assessing Officer to qualify for SAS and that was why it was included in the computer ballot. The respondent seems to quite wrong in asserting that all returns, whether qualifying under SAS or not, are fed into the computer for random balloting. This statement is contrary to the practice as well as to the provisions of the Self Assessment Scheme.

6. It is evident from the SAS 2000‑2001 that its para 4 gave the types of returns which were not eligible for the scheme and the succeeding paras 5 & 6 of the scheme were as under:

"5. Processing of returns filed under the Scheme:

(a) The Assessing Officers will make initial scrutiny with respect to provisions of the Scheme to determine the acceptability of the return under the Scheme;

(b) In case of non filing or short filing of required documents the Assessing Officer will serve a notice on the assessee indicating the deficiency to be made up within 15 days of the receipt of such notice;

(c) In case of non‑compliance to above notice, the return will fall out of purview of the scheme and same will be processed under the normal law;

6.Selection of cases for Audit:

From amongst the returns filed under the Self Assessment Scheme, returns may be selected for audit in the manners given as under:

(a) Ten per cent (20% )* through computer random ballot; and

(b) Cases selected by Commissioners of Income Tax with the approval of Regional Commissioners of Income Tax concerned." *(substituted for 10% by CBR Circular No.26/2000 dated 14‑10‑2000).

It is evident from the‑ above that acceptance of the returns under the scheme is to be ascertained first and cases in which deficiencies are not made up despite a notice are 'to be excluded from the purview of the scheme. According to para 6, from amongst the returns filed under SAS 20% of the returns may be selected for audit through computer balloting. This obviously means that only those returns are to be included in computer ballot which qualify under the SAS. Secondly although it is true that subsection (4) of section 59 hail been omitted for the assessment year 2000‑2001, it would not be reasonable to assume that the question, of acceptance of a. return under the SAS could be kept open indefinitely particularly, when the subsection was reinserted through Finance complainant also seems to be right in saying that, within the framework of SAS there was room for making the relevant .adjustment on account of prorating of expenses without excluding the return from SAS. In this context two decisions of the Income Tax Appellate Tribunal were cited and another decision reported as 1999 PTD (Trib.) 2884 was referred to, in which it was held that no action could be taken under section 66A on the basis of CBR Circular No. 12 relating prorating of expenses.

7. In the complainant's case it was seen that gross profit from own business was declared at Rs.22,305,986 while commission earned (covered by section 80C) was declared at Rs.229,770. In the computation chart expenses were duly prorated in respect of commission covered by 80C but no expenses were allocated to supplies in which according to the Assessing Officer's own estimate, the G.P. was only 99,000 This cannot be considered as a misrepresentation of facts which would amount to concealment or would disqualify the complainant's return from the SAS 2000‑2001 in the light of its para 4(h) or otherwise as the prorating of expenses is largely a matter opinion and estimate rather than a matter involving "legally inadmissible deductions". It has thus been rightly I claimed by the complainant that at best the Assessing Officer could have made adjustments in the declared income under section 59(3) of the Income Tax Ordinance.

8. In the light of the above, it is recommended that:

(i) The Assessing Officer to treat the complainant's return for assessment year 2000‑2001 as covered by the SAS but may make necessary adjustment in accordance with section 59(3) of

the Income Tax Ordinance after considering the complainant's' version in this regard.

(ii) Compliance be reported within 30 days.

C.M.A./M.A.K./432/FTOOrder accordingly.