Messrs SUFI RESTAURANT, MELODY MARKET MAIN CIVICS CENTRE, ISLAMABAD VS SECRETARY, REVENUE DIVISION, CENTRAL BOARD OF REVENUE, ISLAMABAD, 2002 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2904 (2001)

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

‑‑‑‑S.65‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Additional assessment‑‑‑Pre‑show‑cause notice‑‑ Recommendation was made that Central Board of Revenue should initiate proper disciplinary proceedings against the Special Officer for initiating action under S.65 of the Income Tax Ordinance, 1979 without obtaining the previous approval of Inspecting Additional Commissioner‑‑ Assessing Officer explained that the show‑cause notice under S.65 of the Income Tax Ordinance, 1979 was a pre‑show‑cause notice for purpose of ascertaining the facts and to seek clarification after which proper show cause notice as required under S.65 of the Income Tax Ordinance, 1979 would have been served on the assessee and according to the First Appellate Authority such practice was in vogue since long and no‑one had objected to it‑‑‑Validity‑‑‑Section 65 of the Income Tax Ordinance, 1979 provides that no proceedings under the said provision shall be initiated unless "definite information" had come into possession of the Assessing Officer and he had obtained prior approval of the Inspecting Additional Commissioner in writing to do so‑‑‑Mandatory for Assessing Officer to have obtained "definite information", before initiating any proceedings against an assessee and obtain prior approval in writing of the Inspecting Additional Commissioner‑‑‑Without obtaining prior approval, no action under S.65 of the Income Tax Ordinance, 1979 could be taken‑‑‑Show‑cause notice which was stated to be a pre‑show‑cause notice for ascertaining the correctness of information obtained by Assessing Officer was completely illegal and unwarranted‑‑‑Department may call it a pre‑show‑cause notice but, in fact, it amounts to initiation of proceedings under S.65 of the Income Tax Ordinance, 1979‑‑‑Such action was illegal, void and without jurisdiction‑‑‑Without prior approval in writing of the Inspecting Additional ‑Commissioner, in the present case, following the illegal practice, notice was issued to the complainant‑‑‑Commissioner of Income Tax justified the explanation of the Assessing Officer on the basis of such practice‑‑‑Validity‑‑‑Any practice which was contrary to the provision of law could not be accepted nor can such practice validate any illegal act‑‑‑Federal Tax Ombudsman recommended that the Commissioner of Income Tax should issue warning to the Special Officer for issuing notice under S. 65 of the Income Tax Ordinance, 1979 without prior approval of the Inspecting Additional Commissioner in writing and Central Board of Revenue to issue directions to all officers of the Income Tax Department not to adopt the practice of issuing "pre‑show‑cause Notice" under S. 65 of the Income Tax Ordinance, 1979 and all such notices issued be withdrawn and cancelled.

(b) Practice and procedure‑‑‑

‑‑‑‑ Any practice which was contrary to the provision of law could not be accepted nor can such practice validate any illegal act.

DECISION/FINDING

1. The complaint was decided on 18‑7‑2001 in which inter alia recommendation was made that "(i) C.B.R. to initiate proper disciplinary proceeding against the Special Officer for initiating action under section 65 without obtaining the previous approval of the IAC". Compliance report was submitted in which the explanation of Mr. Nasir Maqbool Hashmi, Special Officer was forwarded with favourable recommendation by the CIT and IAC. These explanations were not satisfactory and, therefore, order dated 2‑6‑2001 was passed giving full details and reasons for not accepting the explanations.

2. In response to the notice Mr. Daud appeared and submitted that the show‑cause notice under section 65 was a pre show‑cause notice for purpose of ascertaining the facts and to seek clarification after which proper show‑cause notice as required under section 65 of the Income Tax Ordinance, 1979 would have been served on the assessee. According to the learned CIT, this practice was in vogue since long and no‑one has objected to it.

3. Section 65 provides that no proceedings under this provision shall be initiated unless definite information has come into possession of the DCIT and he has obtained prior approval of the IAC in writing to do so. It is, therefore, mandatory that the DCIT having obtained definite information should before initiating any proceedings against an assessee obtain prior approval in writing of the IAC. Without obtaining prior approval, no action under section 65 can be taken. The show‑cause notice which is alleged to be a pre‑notice for ascertaining the correctness of information obtained by DCIT is completely illegal and unwarranted. The department may call it a pre‑notice but, in fact, it amounts to initiation of proceedings under section 65 of the Ordinance. Such action is illegal void and without any jurisdiction. In the present case without prior approval in writing of the IAC, following the illegal practice, notice was issued to the complainant. The CIT justified the explanation of the Special Officer on the basis of this practice. Any practice which is contrary to the provisions of law cannot be accepted nor can such practice validate any illegal act: The CIT has referred to 2000 PTD 1574 and other judgments in which according to the department reference to such practice was made but it was not rejected or held as illegal. In all these judgments although while stating facts reference was made to such notice issued in view of the practice prevailing in the department the question whether such a notice was valid was not under consideration nor the superior Courts have approved this practice. Judgment of superior Court is binding on point of law which it determines. Since the validity of this practice of pre‑show‑cause notice was never, an issue and no findings have been given the judgment referred to are not applicable to the present case.

4. In these circumstances, it is recommended:‑

(i) The CIT should issue warning to the Special Officer for issuing notice under section 65 of the Income Tax Ordinance without prior approval of the IAC in writing.

(ii) C.B.R. to issue directions to, all officers of the Income Tax Department not to adopt the practice of issuing pre show‑cause notice under section 65 of the Income Tax Ordinance and all such notices issued be withdrawn .and cancelled.

(iii) Compliance be reported within 30 days of the receipt of this order.

C.M.A./M.A.K./410/FTO Order accordingly.