E.C.S. EHSAN, LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2003 P T D 1615
[Federal Tax Ombudsman]
Before Justice (Rend.) Saleem Akhtar, Federal Tax Ombudsman
Messrs E.C.S. EHSAN, LAHORE
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 687-L of 2002,
decided on /01/.
th
December, 2002. (a) Income Tax Ordinance (XXXI of 1979)---
----S. 85---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Payment of tax on demand-- Demand "---Period of payment---Allowing just one week for payment of demand was highly unjustified and arbitrary.
(b) Income Tax Ordinance (XXXI of 1979)-----
----S. 62-Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---C.B.R. Circular No.13-ITP/1951, dated 28-5-1951---Assessment on . production of accounts, evidence, etc.---.Estimation of sales, GP rate and overhead expenses---Wide variation---Wide variation in figures adopted to estimate sales, to apply GP rate and to fix overhead expenses resulting in income at Rs.9.3 (M), then reduced for proposing `agreement' at Rs.3.5 (M), and finally jumped tip to Rs.5.9,(M)---Validity---Glaring deficiencies i.e. whimsical/ arbitrary order, disregard of Central Board of Revenue's instructions and, unnecessary lengthy assessment order exhibiting incompetence fell in the realm of maladministration ---Due to highhandedness, arbitrary conduct, non-adherence to law and rules, maladministration' was established which was cognizable .under Establishment of Office of Federal -Tax Ombudsman Ordinance; 2000 and Federal Tax Ombudsman had jurisdiction in the matter-- Federal Tax. Ombudsman recommended that the Central Board of Revenue in exercise of power under subsection (2) of S.209 of the Income Tax .Ordinance, 2001 confer upon. or assign to any taxation officer of integrity to amend the assessment orders under S. 122 of the Income Tax Ordinance, 2001 to ensure that the complainant is liable for the correct' amount of tax, that Inspecting Additional Commissioner concerned and Assistant Commissioner of Income Tax be transferred from the Zone and disciplinary action against ACTT be initiated under the Efficiency and Discipline Rules, 1973 in which amongst other witnesses one specified witness be also examined.
Haroon Ghazi for the Complainant.
Khawaja Imran Raza, A-CIT for Respondent.
FINDINGS/DECISION
Brief facts of the case are that the Complainant's return for the assessment year 2000-2001, declaring income at
Rs.230,000 was accepted under SAS by completing assessment on 27-3-2001 under section 59(1) of the repealed Ordinance. Subsequently, on 6-6-2001, discovering a discrepancy of Rs.2,332, in the claim for Telephone expenses, the Assessing Officer issued a show-cause notice on 6-6-2001 for initiation of additional assessment proceedings under section 65 of the repealed Ordinance. Not satisfied with the reply, dated 29-12-2001, the Assessing Officer served a statutory notice under section 65 followed by notices under section 62 which were served on 1-1-2002, 4-1-2002 and 16-1-2002. The complainant not only agitated against these but also filed a writ petition in the Lahore High Court, on 21-1-2002. The counsel for the Department sought time from the High Court to seek instructions. In the meantime the Assessing Officer completed the assessment under section 65 on 22-1-2002 determining income at Rs.9,300,000 as against the originally assessed income of Rs.230,300. When the writ came to be heard by the High Court, and the additional assessment was cancelled in the following terms.
"The other plea of the petitioner, however, bears weight that after filing of this petition the Assessing Officer proceeded to frame assessment in an undue haste. Even if the idea was not to frustrate the filing of this petition, still there hardly appears any good reason to frame the assessment during the period the Revenue had sought time to obtain instructions or to evaluate its legal position. Therefore, the assessment framed in the case of the assessee for the year 2000-2001 is set at naught. The Assessing Officer, however, may proceed from the stage of the case as it stood on 15-1-2002 when the Revenue sought time to obtain instructions and to file a reply."
2. After this judgment the complainant's Advocate approached the Assessing Officer to discuss and solve the problem but his attitude was non-cooperative aggressive and exhibited personal grudge against him. It has been alleged that the Assessing Officer used impolite and abusive language against the Advocate. The Assessing Officer issued notice under section 62 cut 3-6-2002 running in 14 pages served on 5-6-2002 requiring to file objections by 7-6-2002 failing which action under section 63 was to be . taken. The adjournment requested for preparing reply was granted for one day. The complainant's Advocate submitted reply on 8-6-2002 in which his closing remarks were that the notice appears to have been issued due to personal grudge. A copy of this reply was endorsed to CIT and IAC. On 8-6-2002 the complainant's Advocate wrote letter to the RCIT and the Commissioner received by them the same day which reads as follows:--
"Respected Sir,
Kindly find enclosed herewith the photocopies of reply notices under section 62 of the Income Tax Ordinance, 1979 issued by the Assessing Officer Circle 5, Zone B, Lahore. Also the copy of notice issued under section 62 of the Income Tax Ordinance, 1979, by the said officer.
From the Reply of this notice your good self can easily judge that the Assessing Officer has a personal grudge against my client and during proceedings he used impolite language with the undersigned. I regret to say that I don't hope for just decision according to law can be made by him in present circumstances."
The Assessing Officer proceeded to complete the assessment on 30-6-2002 determining total income at Rs.5,947,332. In the meanwhile complainant's return for the succeeding year 2001-2002 also was set apart for Total Audit. The complainant then filed the present complaint.
3. The respondent submitted reply inter alia. challenging the jurisdiction. It has been pleaded that the complainant's shop is located in Liberty Market Lahore and has the exclusive reputation of being a very high sale point of ladies shoes in the town. The investment of about 4.859 M is declared by the assessee to be invoked against which -Rs.230,000 declared income does not commensurate with the position of Capital. The reopening of case under section 65, issuance of notice filing of writ petition and reassessment proceedings have not been disputed. It has been pleaded that the notice, dated 30-6-2002 was refused by the assessee which was got served through Circle Inspector on 5-6-2002. The counsel for the complainant appeared before the Assessing Officer when the case was discussed. The Assessing Officer has already been directed to frame assessment by taking in to account all facts and arguments filed by assessee's Advocate. Thus the A.R's apprehension expressed to RCIT and CIT were properly responded. Notice under section 62 was issued three times on 1-1-2002, 4-1-2002 and lastly on 3-6-2002 seeking compliance by 7-6-2002. It is denied that sufficient opportunity was not provided. The complainant's Advocate filed reply on 8-6-2002 and discussed the case with the Assessing Officer. Thereafter he did not feel it necessary for further proceeding and closed the case followed by an assessment order. The complainant did not maintain books of accounts as required by Rules. The Assessing Officer acquired information through local inquiries by Circle Inspector and authenticated by the ACIT under the authority of IAC. The assessee was confronted on the basis of local inquiries. The gross profit margin was worked out after acquiring information from the market Grounds 5, 6 and 9 have been denied. It has been pleaded that the complainant had approached for assessment for years 2000-2001 and 2001-2002 to be finalized at net income of Rs.3,500,000 and 4,000,000 respectively but as he defaulted in payment of due tax by 30-6-2002 the agreed assessment has not been entertained and the assessments are pending for orders.
4. As per record, on 9-7-2002 an affidavit was submitted by the complainant affirming that the complaint was filed "on the basis of misconception",, and praying for its withdrawal "as the situation has cleared up". It further affirmed: we neither have any grudge nor any complaint against any officer of the Income Tax Department". Despite this request for withdrawal, it was thought ,advisable to examine the veracity and correctness of the affidavit because, at times, such affidavits are obtained under pressure by the person complained against., Investigation was, therefore, initiated through issuance of call notice on 19-7-2002 for 8-8-2002. On 19-7-2002 a letter of the Revenue Division, dated 18-7-2002 was received stating that the RCIT has informed that the complaint has been withdrawn. The original letter of RCIT, dated 15-7-2002 and photocopy of complainant's letter, dated 8-7-2002 addressed to DCIT informing him that he has submitted affidavit before the Federal Tax Ombudsman for withdrawal of the complaint alongwith the copy of .affidavit were. enclosed. The question arises why it was necessary for a party who was vigorously challenging the actions of the assessing authorities as illegal, mala fide, and harassing based on presumption on all forums should all of a sudden decide to withdraw the complaint. On close questioning the learned Counsel admitted to having offered to withdraw the complaint under immense pressure and threat from the authorities responsible for framing the assessment who threatened to settle the score some other time. In the circumstances the complainant's request was not accepted and the case was heard on merits.
5. Mr. Haroon Ghazi, learned counsel for the complainant attempted to highlight the disparity in the dispensation by pointing out the wide gap between the three assessments made for the year 2000-2001:
| Description | Under Section 59(1) | Under Section 65/62 on 22-1-2002 | Under section 65 on 30-6-2002 |
| Sales Estimated | | Rs.40,000,000 | Rs.34,000;000 |
| GP rate applied | | 35% | 20%. |
| Overhead expenses allowed | | 4,700,000 | 852,668 |
| Total Income | Rs.230,000 | Rs. 9,300,000 | Rs.5,947,332 |
According to the learned counsel, even a cursory glance on the above figures was, enough to convince that additional assessments on both the occasions were framed on the basis of non-existing material, on pure surmises arid imaginary hypothesis or else there could not be such flagrant variations in the estimates of Sales, in the application of G.P., rate, and in the final determination of Income. Tracing out history of assessments, it was submitted that the declared/accepted income stood at Rs.230,000 against which income in the first `round" was fixed at Rs 9.3(M) and in the second at Rs.5.9 (M). Attention was drawn by the learned counsel to explanations submitted on 1-1-2002, 21-1-2002, 8-6-2002 and
10-6-2002. in, which all aspects such as system of securing Stocks, the storing capacity of shop, the .investment in the acquisition of the business , premises; the daily sales and annual turnover as also `the profit rate obtaining in the Complainant's line of business, were explained. All these were ignored and imaginary figures of number of shoes displayed on the shelves and the cost of shoes were. worked out having no relation with the realities on- the ground and the facts obtaining on Department's record of past years. Above all, it was vociferously pleaded that pressure was continuously exercised, at times entailing open threats, which all fell under the definition of 'maladministration" as per subsection (3) of section 2 of the FTO Ordinance.
6. The representative of the Revenue, Khawaja Imran Raza (A-CIT) who happened to be the Assessing Officer, also, explained that Additional Assessment. under section 65/62, framed on 26-1-2002, was quashed by the Lahore High Court vide Order 26-2-2002 on Writ Petition No.636 of 2000. The learned Judge did not dilate on merits as effective alternate .remedies are provided under law but on account of "undue haste" in the finalization of assessment it was set at naught and it was ordered as follows:--
`The Assessing Officer however may, proceed from the stage of the case, as it stood on 15-1-2002 when the Revenue sought time to obtain instructions and to file a reply".
According to the A CIT, fresh notice under section 62 was consequently issued and assessment. finalized on 30-6-2002 by estimating Sales at Rs.34,000,000 applying GP at 20% which after allowing expenses came to a Total Income of. Rs.5,947,332 against the declared Rs.230,000. since this assessment was based on (a) consideration of replies submitted to notices under. section 62,' (b) evaluation of facts in, the light of (i) on the spot enquiries, (ii) examination of record, and. (iii) appraisal of explanation etc., the taxpayer. felt satisfied and withdrew the complaint. The A-CIT was visibly full of pride for having passed a very detailed order each time and boastfully mentioned about his CIT 'having categorized the assessment as the "best order of the month" which are forwarded to higher authorities for reward of efficiency.
7. Investigation, examination of official records and the arguments by both the sides reveal as follows:--
(a)The Order sheet entry, dated 26-6-2002 indicates that the A-CIT recorded an agreement with the complainant and his AR, that the assessments for the two years 2000-2001 and 2001-2002 would be made at income of Rs.3,500,000 and Rs.4,000,000 respectively provided tax amount of Rs.2,526,848 becoming payable on these, is deposited on (or before) 30-6-2002. This alleged. "agreement", as noted on the Order Sheet, was purportedly made by the A-CIT with Mr. Imran Siddique, partner of the URF and. Mr. Haroon Ghazi, the AR in the presence of JAC, Range-111, Zone-B, Lahore which stipulated `subject to further clearance from the CIT, Zone-B, Lahore". The Order Sheet entry bears the signatures of the A-CIT only. The signatures of Mr. Imran Siddiqitei, Mr. Haroon Ghazi and the JAC are nowhere on the Order Sheet. This shows that in this exercise A-CIT, JAC and CIT were all involved.
(b)On 30-6-2002 an application was submitted, by Mr. Salman Siddiqui, another partner of. the URF, stating that the agreed amount of tax of Rs.2,526,848 could not be arranged and only Rs.200,000 were being deposited for the assessment year 2000-2001. It was requested that the assessment proceedings for the year 2001-2002 be adjourned for one month and the assessment for the year 2000-2001 be framed "on merits of the case keeping in view the reply of the AR vide letters, dated 8-6-2002 and 10-6-2002.
(c)The A-CIT finalized the assessment for the year 2000-2001 on 30-6-2002 at income at Rs.5,947,325 raising a demand of Rs.2,114,072 by estimating the turnover at Rs.34,000,000 and applying GP rate of 20% whereas in the "first round" additional assessment, dated 22-1-2002 had worked out income at Rs.9,300,000 estimating the turnover at Rs.40,000,000 and applying GP at 35 % . The wide variation in the estimates of Sales, GP rate and the final income betrays the inconsistent mind of the A-CIT. It looks ridiculous first to accept the declared income then, for minor lapse of few thousands, to estimate income at more than 40 times at Rs.9,300,000, to finally assess it at Rs.5,947,325 when the material on which these figures were arrived at remained the same. The entire proceedings for assessment seemed to be motivated to harass the assessees. If for argument sake it may be accepted that proceedings were neither motivated nor mala fide even then it cannot be concluded that it has not caused undue harassment to the assessee or in any manner it could be termed as competent efficient and honest handling of the case.
No long drawn argument is needed to discern that even the functionaries involved in the framing of the assessment were themselves not convinced about the soundness of the material which is said to have been collected by the enquiry on which the assessments are claimed to have been based. This inference is logical because how else could there be such wide variation in the figures adopted to estimate Sales, to apply GP rate and, to fix Overhead expenses resulting in Income at Rs.9-.3 (M), then reduced for proposing `agreement' at Rs.3.5 (M), and finally jumped up to Rs.5.9 (M).
8. To sum up, the glaring deficiencies falling in the realm of "maladministration" are:
(i)Whimsical/Arbitrary Order:--The estimates of Sales and the Income determined in highly fallacious and unrealistic because it includes the value of the shop. No logical reason can be attributed as to why the A-CIT added the value of the Shop (Rs.3,824,700) to the Capital employed in business (Rs.10,70,000) for working out turnover at Rs.34,000,000 on its 6.9.5 times rotation.
(ii)Disregard of C.B.R. Instructions:---Demand Notice, dated 22-1-2002 was served on the Complainant on 29-1-2002 requiring payment on (or before) 6-2-2002, thus allowing barely one week to make payment of a huge demand of over Rs.3.4(M). The second Demand Notice was similarly served on 20-7-2002 demanding payment by 15-7-2002. This was in clear violating C.B.R. Circular No.13-ITP/1951, dated 28-5-1951 the relevant portion at, under:--
"assessees are alleged to have been asked for making payment of tax within such short period as 7 days of the date of assessment Normally 30 days be allowed for payment of tax. That time may, however, be curtailed in cases of assessments made in the closing months of the year, particularly where the delay in assessment is due to late submission of Return and Account. The mere fact that assessment has been made near the end of the financial year does not justify the Income Tax Officer in substantially cutting down the period within which payment should be made and it should not be curtailed by more than 15 days except in special circumstances".
When the first Additional Assessment under section 62/65 was framed on 22-1-2002, the financial year was not running out, hence allowing just one week for payment of demand was highly A unjustified and arbitrary. In the second round, Additional Assessment was finalized on 30-6-2002, and the financial year had already ended. In all fairness normal 30 days should have been allowed but the Complainant was required to make the payment within five days even before the service of the Demand Notice.
(ii)Unnecessarily lengthy assessment order exhibiting incompetence. ---The first assessment under section 65/62 date 22-1-2002 consisted of 21 pages. In both the assessment orders the Assessing Officer reproduced, the full contents of notice under section 62, which covered 8 full scape pages though a simple reference to its date would have served the purpose.
The facts discussed above lead to a strong presumption that all the higher authorities were acting in cooperation actively or tacitly by maintaining silence.
9.The conclusion is irresistible that due to highhandedness, arbitrary, conduct, non-adherence to law and rules "maladministration" is established which is cognizable under the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 and the Federal Tax Ombudsman has jurisdiction. to the matter.
It is, therefore, Recommended that:---
(i)The Central Board of Revenue in exercise of power under subsection (2) of section 209 of the Income Tax Ordinance, 2001 confer upon or assign to any Taxation Officer of integrity to amend the assessment orders under section 122 of the Ordinance to ensure that the Complainant is liable for the correct amount of B tax.
(ii)Mr. Mohammad Ikram Tahir IAC Range-III, Zone-B be transferred from Zone-B Lahore.
(iii)Mr. Khawaja Imran Raza A-CIT be transferred from Zone-B Lahore.
(iv)Disciplinary action against Mr. Khawaja Imran Raza A-CIT be initiated under the Efficiency and Discipline Rules, 1973 in which amongst other witnesses Mr. Haroon Ghazi be also examined.
(v)Compliance regarding recommendations (i), (ii), (iii) be reported within 30 days and recommendation (iv) within 60 days.
C.M.A./687/FTOOrder accordingly.