Messrs MODERN BABY CYCLE STORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2002 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2984 (2002)

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

‑‑‑‑S. 65‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 2(b) & 2(3)‑‑‑Jurisdiction‑‑ Maladministration‑‑‑Complaint against issuance of notice under S. 65 of the Income Tax Ordinance, 1979‑‑‑Department pleaded that legal remedies within the framework of the Income Tax Ordinance, 1979 were available for the complainant to pursue and, therefore, the complainant fell out of the jurisdiction as per provisions of S.9(2)(b), Establishment of Office of Federal Tax Ombudsman Ordinance, 2000‑‑‑Validity‑‑ Where maladministration had been alleged independent of the controversy in the matter, the fact that remedy under the: statute had been provided, will not be a bar to exercise of jurisdiction of the Federal Tax Ombudsman to investigate into the. allegations of maladministration‑‑ Federal Tax Ombudsman could investigate into allegations of maladministration without enquiring into the merits of the case‑‑‑Even in cases which were sub judice, the allegations of maladministration, if independent of the issues raised in the pending case before any authority, the Federal Tax Ombudsman could investigate into allegations of maladministration ‑‑‑Department stated that according to a decision of the President on a representation it had been observed that the jurisdiction of Ombudsman was confined to the cases of maladministration and not to decide appeal on merits‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 no doubt had defined the term "Maladministration" and the jurisdiction of the Federal Tax Ombudsman was to investigate and made recommendation as provided under the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, but where maladministration was alleged and established, the Federal Tax Ombudsman shall be within his jurisdiction to give his recommendation and finding which may even affect the merits of the case and the proceedings will be completely different in nature and could not be treated as appeal‑‑‑Observation on the representation thus did not debar the Federal Tax Ombudsman from looking into the issues of maladministration, which were ingrained and reflected in the proceedings ‑‑‑Maladministration was usually committed in the proceedings and once the same was established, recommendations were made to remove or rectify it without which the proceedings will be incomplete‑‑‑Federal Tax Ombudsman was authorized not only to investigate but to give relief and redress to the taxpayers and rectify an injustice done to a person. through maladministration by functionaries administering tax laws‑‑‑Such recommendations were binding and in terms of S. 12(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 it shall be the duty of the Revenue Division and the Tax Employee to implement the finding mad under Ss.11 & 12 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 and there was no merit in the objection.

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

‑‑‑‑S. 65‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)‑‑‑Additional assessment ‑‑‑Assessee pleaded that notice issued under S.65 of the Income Tax Ordinance, 1979 had not been "ticked" indicating the reasons which had been made the basis for re‑opening of the assessment and consequently the proceedings were void ab initio‑‑‑Validity‑‑‑In the proceedings under S.65 of the Income Tax 'Ordinance, 1979, notice was issued in a prescribed form which contained the reasons for issuing the notice‑‑‑Notice under S.65 could be issued on three grounds, and the purpose of mentioning these grounds was to inform the assessee on which ground the case was to be opened so that he may be in a position to explain and put up a proper defence by issuing a blank notice without indicating the grounds for re-opening the case, no proper defence could be put up‑‑‑All the three conditions are independent from each other and on any one of the grounds notice could be issued‑‑‑If the notice did not indicate an specific reason then it will be difficult for the assessee to meet the case Just and proper procedure would be that while issuing notice it should be indicated on which of the grounds the assessee had to submit his reply‑: If all the three grounds were to be taken up for re‑opening the case the same should also be indicated‑‑‑Practice of issuing blank notice without any specific reasons was unjust and a bad practice leading to injustice and creating confusion which amounts to maladministration ‑‑‑ Failure to mention or indicate the reasons for initiating proceedings under S.65 of the Income Tax Ordinance, 1979 will not vitiate the notice as void ab initio provided all the preconditions for issuing notice have been satisfied‑‑‑Federal Tax Ombudsman recommended that the Central Board of Revenue should issue circular directing all the officers of the Income Tax Department that while issuing notice under S. 65 of the Income Tax Ordinance, 1979 the reasons and the grounds on which it was sought to be issued should be clearly indicated in the prescribed notice form.

Ch. Muhammad Siddiq for the Complainant.

Zain‑ul‑Abideen for Respondent.

DECISION/FINDINGS

The complainant is aggrieved by the proceedings initiated under section 65 of the Income Tax Ordinance, 1979 for the year 1996‑97 and 2000‑2001 and prays that these "may be declared illegal .

2. The respondent has reported vide No. RCIT/J/85/FTO/SO-I.4733, dated 8‑3‑2002 that no act of "maladministration" has been, committed and the proceedings initiated under section 65 are bona fide. It also has been contended that legal remedies within the framework of the Income Tax Ordinance are available for the complainant to pursue and, therefore, the complaint falls out of the jurisdiction as per provisions of section 9(2)(b) Establishment of Office of Federal Tax Ombudsman Ordinance, 2000.

3. The scrutiny of record and the rival arguments of the contending parties bring out that the Investigation and Audit Wing of the Income Tax Department reported certain discrepancies from the statement of accounts attached with the `return of income' which was accepted under section 59(1) of the Ordinance as per Scheme of Self Assessment. These discrepancies pertained to (a) inflation of some expenses, and (b) deflation of others, as debited in the P & L Account. This, according to the respondent, amounted to submission of 'incorrect particulars of income'. Initially explanation was sought and subsequently notice was served under section 65 with a view to frame Additional Assessment. In response, discrepancies were attributed to "recoveries for private calls" in respect of Telephone and "cost of bulbs" which was included in the electricity expenses.

4. The learned counsel for the complainant pleaded that the notice under section 65 had not been "ticked" indicating the reasons which had been made the basis for re-opening of the assessment and consequently the proceedings were void ab initio. This argument was countered by the respondent's representative, who submitted that all that is necessary under section 65 is to draw the attention of an assessee to the case which he has to meet and this had been done through the show‑cause notice (issued prior, to FTO's decision on Complaint No.711 of December, 2001) and, therefore, the tick‑mark on the notice was of little consequence.

5. In its reply Department has raised usual objection to the jurisdiction. It has time and again been ruled and explained ‑that in cases where maladministration has been alleged independent of the controversy in the matter, the fact that remedy under the statute has been provided will not be a bar to jurisdiction of the Federal Tax Ombudsman to investigate into the allegations of maladministration. The Federal Tax Ombudsman can investigate into allegations of maladministration without enquiring into the merits of the case. Even in cases which are sub judice the allegations of maladministration if independent of the issues raised in the pending case before any authority the Federal Tax Ombudsman can investigate into allegations of maladministration which are not sub judice. It has been stated by the Department that according to a decision of the President in a representation it has been observed that the jurisdiction of Ombudsman is confined to the cases of maladministration and not to provide appeal on merits. It is true that the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 has defined the term maladministration and the jurisdiction of the Federal Tax Ombudsman is to investigate and make recommendation as provided under the Ordinance. Therefore, where maladministration is' alleged and established the Federal Tax Ombudsman shall be within his jurisdiction to give his recommendation and finding which may even affect the merits of the case. These proceedings will be completely different in nature and cannot be treated as appeal. The observation referred does not debar the Federal Tax Ombudsman from looking into the issues of maladministration, which are ingrained and reflected in the proceedings. A maladministration is usually committed in the proceedings and .once it is established recommendations are made to remove or rectify it without which the proceedings will be incomplete. The Federal Tax Ombudsman is authorized not only to investigate but to give relief and redress to the taxpayers and rectify any injustice done to a person through maladministration by functionaries administering tax laws. Such recommendations are binding and in terms of subsection (2) of section 12 of the Ordinance it shall be the duty of the Revenue Division and the Tax Employee to implement the finding made under sections 11 and 12 of the Ordinance. There is no merit in the objection.

6. In the proceedings under section 65 notice is issued in a prescribed form which contains the reasons for issuing the notice. There are three grounds on which notice under section 65 can be issued and the purpose of mentioning these three grounds is to inform the assessee on which ground the case is to be opened so that he may be in a position to explain and put up a proper defence. By issuing a blank notice without indicating the grounds for re‑opening the case no proper defence can be put up. All the three conditions are independent from each other and on anyone of the grounds notice can be issued. However, if the notice does not indicate any specific reason then it will be difficult for the assessee to meet the case. It is, therefore, just and proper that while issuing notice it should be indicated on which of the grounds the assessee has to submit his reply. If all the three grounds are to be taken up for re‑opening the case the same should also be indicated. The practice of issuing blank notice without any specific reasons is unjust and a bad practice leading to injustice and creating confusion which amounts to maladministration. In the facts and circumstances of the present case the failure to mention or indicate the reasons for initiating proceedings under section 65 of the Income Tax Ordinance will not vitiate the notice as void ab initio provided all the preconditions for issuing notice have been satisfied.

7. It is, therefore, recommended that:

(i) The C.B.R. should issue circular directing all the officers of the Income Tax Department that while issuing notice under section 65, the reasons and the grounds on which it is sought to be issued should be clearly indicated in the prescribed notice form.

(ii) Compliance be reported within 30 days.

C.M.A./M.A.K./441/FTO Order accordingly.