Income Tax Ordinance (XXXI of 1979)---

----Ss. 103, 65 & 66-A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Power to withhold refund in certain cases---Additional assessment---Withholding refund on the pretext of initiation of proceedings under S.65 of the Income Tax Ordinance, 1979---Validity---Legislature enacted S.103 of the Income tax Ordinance, 1979 to preclude the loss of Revenue in those cases where it was feared that taxpayer, after obtaining refund, might divest himself of all assets or may disappear thus render recovery impossible-- Fact that despite initiating action under S.66-A of the Income Tax Ordinance, 1979 and, later under S.65 of the Income Tax Ordinance, 1979, no order under S.103 of the Income Tax Ordinance, 1979 was passed was indicative that there was no apprehension about the complainant/assessee disappearing or divesting himself of assets-- Withholding payment of refund, even after verification of challans, showed mala fides falling under the domain of 'maladministration'. as per S.2(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance. 2000---Federal Tax Ombudsman recommended that the refund having accrued from the date of assessment on 23-8-1999 be issued forthwith under S. 170 of the Income Tax Ordinance, 2001 and that additional payment for delayed refund be. worked out under S.171 of the said Ordinance w.e.f. 2-4-2002 when the refund was created through rectification under S.156 of the Income Tax Ordinance, 1979.

In re: Inayat Ullah's case 1989 PTD 876 and 2002 PTD 2734 rel.

Latif Ahmad Qureshi for the Complainant..

Yasir Pirzada, DCIT for Respondent.

DECISION/FINDINGS

This complaint has been filed protesting against non-issuance of refund for the assessment year 1998-99. The Complainant is an `individual' who is a manufacturer and vendor of tin-containers.

2. Facts in brief are, that the complainant y existed at NTN 6-8-468680 since 1993. For the assessment year 1998-99 return, filed declaring Income at Rs.386,353, was processed on 23-8-1999 to determine Total Income at Rs.700,337. However, on the IT-30, credit was given only to the extent of tax due, thus showing the result as ND. Rectification application was then moved on 7-9-1999 requesting full credit for tax paid/withheld.. No reply was given till 19-2-2000 when 'Complainant was served with notice under section 66A of the Income Tax Ordinance, 1979 (hereafter called repealed Ordinance). The order, passed under section 66A, when challenged before the Appellate Tribunal, was vacated vide order, dated 23-12-2000 whereafter fresh application seeking refund was moved on 1-2-2002 with reminder on 18-2-2002 and copy of CIT. The Assessing Officer then called upon the Complainant on 25-2-2002 to produce original challans (in respect of five payments) which were considered not legible. These were duly supplied on 17-2-2002 and order passed under section 156 of the repealed Ordinance on 2-4-2002. Refund was still not issued and Complainant was served with a letter, followed by a show-cause notice. and finally . a statutory notice under section 65 on 26-6-2002 reopening the assessment alleging that a bank account-was not disclosed and that a plot of land as also a house owned by the Complainant, were not declared. Notice under section 61 on 10-7-2002 followed, to which a reply was filed on 17-7-2002. Thereafter, the present complaint was filed.

3. Parawise comments, dated 16-9-2002 forwarded by the respondent vide letter, dated 17-9-2002 deity 'maladministration' and. blame the Complainant for non-submission of proof of deduction. It also conveys that the Wealth Tax demand aggregating Rs.416,029 is outstanding against the Complainant for the years 1996-97 to 2000-2001.

4. The learned counsel for the Complainant submitted that Wealth Tax assessments were initiated alleging ownership of land and the plot/house which were the same as were made a basis for initiation of additional assessment proceedings under section 65 of repealed Ordinance. The Wealth Tax assessments have already been challenged before the Commissioner (Appeals). The A.R. pointed out that there is no order under section 103 to withhold the refund nor under section 104 to adjust the refund which was indicative of the realization by the Department that there was no substance in the Wealth Tax proceedings or in the present additional assessment proceedings for Income Tax According to the learned. counsel, the very fact the verification of only five challans was sought clearly implied that verifiability of others was to the satisfaction of the Department. It was stressed that as per the provisions of section 100 of the repealed Ordinance, refund voucher should accompany the Demand Notice. In this connection reference was made to Circular issued by the RCIT, Lahore on 11-12-1989 vide No.177/PSS advising the officers to avoid coinciding the issue of refund with initiation of proceedings under section 65. Reliance was placed on the decision reported 1989 PTD 876 in re: Inayat Ullah where the learned Judge ruled that refund due should be issued unmindfully of any pending proceedings. 'Reference was made to decision/findings reported as 2002 PTD 2734 in which it was observed that "IACs mostly issue show-cause notices under section 66A alleging erroneousness and prejudice to Revenue, or cause Assessing Officers to initiate proceedings under section 65 for additional assessment; and such like actions are obviously intended to forestall claims of refund". The learned counsel concluded by submitting that mala fide and maladministration' were manifest inasmuch as proceedings under section 66A having been vacated by the Tribunal, refund was now withheld on the pretext of action under section 65.

5. The representative of the Revenue, Mr. Yasir Pirzada admitted that no order under section 103 of the repealed Ordinance was passed to withhold the refund which stand worked out on assessment record. However, he defended the conduct of the Department by adopting the same arguments as, were communicated by the R.-CIT in. para-wise comments.

6. Discussion with the two representatives reveals clear mala fide and 'maladministration' inasmuch as:--

(a)in the first assessment form prepared on 23-8-1999 the demand of Rs.129,800 was squared up by showing an equal amount as `tax paid' unmindfully of the fact that in the return claimed payments were at Rs.887,456;

(b)when pressed for issuance of refund the delay was managed by seeking verification of payments on the pretext that five challans were illegible; and

(c)the additional assessment proceedings under section 65 were initiated when order under section 66A was vacated by the Appellate Tribunal.

It may be worthwhile to recall that the Legislature enacted section 103 to preclude the loss of Revenue in those cases where it ,was feared that taxpayer, after obtaining refund, might divest himself of all assets or may disappear thus render recovery impossible. The fact that despite initiating action under section 66A and, later under section 65, no order under section 103 was passed is indicative that there is no apprehension about the Complainant disappearing or divesting himself of assets. Therefore, withholding payment of refund, even after verification of challans on 27-2-2002, is indicative of mala fide falling under the domain of 'maladministration' as per clause (3) of section 2 of the Establishment of the Office of Federal Tax Ombudsman Ordinance. It is, therefore, Recommended that:--

(1)Refund having accrued from the date of assessment on 23-8-1999 be issued forthwith under section 170 of the Income Tax Ordinance, 2001.

(2)Additional payment for delayed refund be worked out under section 171 w.e.f. 2-4-2002 when the refund was created through rectification under section 156 of the repealed Ordinance.

7. Complaisance be reported within 30 days of the receipt of this order.

C.M.A./685/FTOOrder accordingly.