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

----S. 59(1)---C.B.R. Circular No.4 of 2001 dated 18-6-2001---Self Assessment Scheme, Para. 9(a)(ii)---C.B.R. Circular No.1/69/STS/2002, dated 8-12-2000, Para. IX ---C.B.R. Circular C..No.1 (8)STS/2001, dated 8-6-2002---C.B.R. Circular. Letter No.7(7) S. Asstt/2001, dated 26-3-2002---Survey of Documentation of National Economy Ordinance (XV of 2000)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Self-assessment---Setting apart of return---Return was set apart by invoking Para. 9(a)(ii) of Central Board of Revenue's Circular No.4 of 2001, dated 18-6-2001 on the ground that sales declared were not commensurate with the sales agreed/assessed as per profile of Survey for Documentation- of Economy---Assessee contended that Army led Survey Team got the survey form signed under duress on sales which were highly unjustified and unfair---Sales declared were commensurate with the capital---Validity---Reasons confronted with by the Department to believe that complainant/assessee's case had more Revenue potential than already declared in the return of income were not valid---None of the criteria set forth by the Central Board of Revenue in the guidelines issued for selection of cases had been identified to be applicable to the case of complainant/assessee-Selection of return for audit thus was arbitrary and alleged "maladministration" was proved-- Federal Tax Ombudsman recommended that Central Board of Revenue direct exclusion of return from the list of cases selected under Para. 9(a)(ii) for audit and fox its' acceptance under Self-Assessment Scheme.

Siraj-ud-Din Khalid for the Complainant.

Muhammad Asif, ACIT for Respondent.

FINDINGS/DECISOIN

Maladministration is alleged in the instant complaint on the part of the RCIT, Central Region, Multan for arbitrarily setting apart the return filed by the complainant under Self-Assessment Scheme for total audit by invoking Para 9(a)(ii) of C.B.R. Circular No.4 of 2001, dated 18-6-2001. The complainant, an individual is an old assessee, engaged in trading of cloth.

2. The RCIT confronted the complainant, through a notice envisaged under para 9(a)(ii) of C.B.R. Circular No.4 of 2001, dated 18-6-2001, that return of income filed by the complainant declaring total income of Rs.250,000 from business and Rs.1,200,000 from agriculture, for assessment year 2001-2002 warranted audit because sales declared at Rs.7,500,000 are not commensurate with the sale agreed/assessed as per profile of survey for Documentation of Economy.

3. It was submitted before the RCIT on behalf of the complainant that the assessee, a 66 years old person was engaged in the business of cloth on wholesale basis since 1985 of 1986. The assessee submitted that the Army led Survey Team got the survey form signed under duress on sales at Rs.20,000,000 which were highly unjustified and unfair. The assessee has already agitated before the Incharge. Army Inspection Team vide application, dated 17-10-2000 and a copy was endorsed to the learned CIT, Faisalabad Zone wherein sales were challenged to be on higher side. According to C.B.R. Circular No.1/69/STS/2000, dated 8-12-2000 vide Para. No.IX, sales may be taken at six times of the capital/stock in trade in wholesale business. Since the declaration of stock in trade was not obligatory as per survey form, the only parameter was the capital which was disclosed undisputedly at Rs.100,000 (all sorts) which commensurate with declared sales. Hence, drawing of adverse inference from a disputed estimate would be highly unjustified and untenable in law.

4. However, the RCIT, found the foregoing submission irrelevant and his decision was conveyed through letter, dated 7-6-2002 without mentioning any reasons for his dissatisfaction with his explanation. The return of income has been selected. for audit; hence the instance complaint.

5. Responding to notice under, section 10(4) of the Ordinance, No.XXXV of 2000 the RCIT submitted that complainant filed objections on 17-10-2001 whereas his sales were assessed by Survey Team on agreed basis in early 2001. The objection was not filed within reasonable time from the date of estimation of turnover by the Survey Team. As such, the objection filed by the complainant being an after thought it was not entertainable in view of C.B.R.'s Circuar NO.1(8)STS/2001, dated 8-6-2002.

6. It has been submitted on behalf of the complainant that the reasons confronted by the learned RCIT are extraneous to the guidelines for selection of case, issued by the Central Board of Revenue.(C.B.R.) vide Circular Letter 'No.7(7) S. Asstt/2001, dated 26 March, 2002 in pursuance of Para 9(a)(ii) of Circular No.4 of 2001. These guidelines are as under:-- .

(i)Evidence, information or reason to believe that true particulars of income have been suppressed and it is a Revenue potential case.

(ii)Such selection may be based upon factors including:--

(a)Evident decline in income.

(b)Any addition to the assets that is not covered by income declared.

(Tax profiles of Survey and Registration may be consulted to identify such cases).

(c)Disparity in expenses on utilities vis-a-vis income declared.

7. The counsel of the complainant therefore, has argued that the complainant has not received any response to the objection filed in writing to the turnover estimated by the Survey Team so far. It therefore, is premature to be consulted as a point of reference. The Regional Commissioner of Income Tax as such has transgressed the discretion vested in him. There is, therefore, no valid reason with him to believe that it is a Revenue potential case.

8. The submissions made on behalf of the two sides are considered. It is found that the complainant has achieved better turnover, income has increased over the assessed income in preceding year and tax paid is 20% higher over the tax paid last year.

9. It is found that the reasons which the complainant is confronted with by the RCIT to believe that complainant's case has more Revenue potential than already declared in the return of income are not valid: None of the criteria set forth by the Central Board of Revenue in. the guidelines issued vide No.7(7) S. Asstt. 2001, dated 26-3-2002 for selection of case by the Regional Commissioners has been identified to applicable to the case of complainant. Selection of his return for audit, therefore, is arbitrary. The alleged maladministration is proved.

10. It is recommended that:--

(i)The C.B.R. directs exclusion of return from the list of cases selected under Para. 9(a)(ii) for audit and for its acceptance under Self-Assessment Scheme.

(ii)Compliance be reported within thirty days of this order.

C.M.A./674/FTOOrder accordingly.